CL Group (Holdings) Limited

THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Web Proof Information Pack must be read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack.

WARNING

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the contents of this Web Proof Information Pack, 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 Web Proof Information Pack.

Web Proof Information Pack of

CL GROUP (HOLDINGS) LIMITED 昌利（控股）有限公司

(Incorporated in the Cayman Islands with limited liability)

WARNING

This Web Proof Information Pack is being published as required by The Stock Exchange of Hong Kong Limited (“HKEx”) and the Securities and Futures Commission solely for the purpose of providing information to the public in Hong Kong.

This Web Proof Information Pack is in draft form. The information contained in it is incomplete and is subject to change which could potentially be material. By viewing this Web Proof Information Pack, you acknowledge, accept and agree with CL Group (Holdings) Limited (the “Company”), any of its affiliates, sponsor, advisers and/or members of the underwriting syndicates that:

(a) this Web Proof Information Pack is only for the purpose of facilitating equal dissemination of information to investors in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this Web Proof Information Pack;
(b) the posting of the Web Proof Information Pack or any supplemental, revised or replacement pages thereof on the website of HKEx does not give rise to any obligation of the Company, any of its affiliates, sponsor, advisers and/or members of the underwriting syndicates to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with an offering of shares;
(c) the contents of the Web Proof Information Pack or any supplemental, revised or replacement pages thereof may or may not be replicated in full or in part in the actual prospectus;
(d) this Web Proof Information Pack may be updated or revised by the Company from time to time but neither the Company nor any of its affiliates, sponsor, advisors or members of the underwriting syndicates is under any obligation, legal or otherwise, to update any information contained in this Web Proof Information Pack;
(e) this Web Proof Information Pack does not constitute a prospectus, notice, circular, brochure or advertisement or document offering to sell any securities to the public in any jurisdiction, nor is it an invitation or solicitation to the public to make offers to acquire, subscribe for or purchase any securities, nor is it calculated to invite or solicit offers by the public to acquire, subscribe for or purchase any securities;
(f) this Web Proof Information Pack must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended;
(g) neither the Company nor any of its affiliates, sponsor, advisers and/or members of the underwriting syndicates is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this Web Proof Information Pack;
(h) neither this Web Proof Information Pack nor anything contained herein shall form the basis of or be relied on in connection with any contract or commitment whatsoever;
(i) neither the Company nor any of its affiliates, sponsor, advisers and/or members of the underwriting syndicates makes any express or implied representation or warranty as to the accuracy or completeness of the information contained in this Web Proof Information Pack;
(j) each of the Company and its affiliates, sponsor, advisers and/or members of the underwriting syndicates expressly disclaims any and all liabilities on the basis of any information contained in or omitted from, or any inaccuracies or errors in, this Web Proof Information Pack;
(k) securities may not be offered or sold in the United States absent registration under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws of the United States, or another exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act or any state securities laws of the United States. The securities referred to in this Web Proof Information Pack have not been registered under the U.S. Securities Act or any state securities laws of the United States. The Company does not intend to register the securities referred to in this Web Proof Information Pack under the U.S. Securities Act or any state securities laws of the United States or conduct a public offering in the United States. This Web Proof Information Pack is not an offer of securities for sale in the United States. You confirm that you are accessing this Web Proof Information Pack from outside of the United States; and
(l) as there may be legal restrictions on the distribution of this Web Proof Information Pack or dissemination of any information contained in this Web Proof Information Pack, you agree to inform yourself about and observe any such restrictions applicable to you.

THIS WEB PROOF INFORMATION PACK IS NOT FOR PUBLICATION OR DISTRIBUTION TO PERSONS IN THE UNITED STATES. ANY SECURITIES REFERRED TO HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT, AND MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION THEREUNDER OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM. NEITHER THIS WEB PROOF INFORMATION PACK NOR THE INFORMATION CONTAINED HEREIN CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN THE UNITED STATES. THIS WEB PROOF INFORMATION PACK IS NOT BEING MADE AND MAY NOT BE DISTRIBUTED OR SENT INTO THE PEOPLE’S REPUBLIC OF CHINA (WHICH FOR SUCH PURPOSE DOES NOT INCLUDE HONG KONG OR MACAU SPECIAL ADMINISTRATIVE REGIONS OR TAIWAN), THE UNITED KINGDOM, CANADA OR JAPAN.

Any offer or invitation to make an offer for any securities will only be made to the public in Hong Kong after the Company has registered its prospectus with the Registrar of Companies in Hong Kong in accordance with the Companies Ordinance (Chapter 32 of the Laws of Hong Kong). If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on a prospectus of the Company duly registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period.

This Web Proof Information Pack contains the following information relating to the Company extracted from the draft document:

CONTENTS

SUMMARY

DEFINITIONS GLOSSARY OF TECHNICAL TERMS RISK FACTORS DIRECTORS

CORPORATE INFORMATION

INDUSTRY OVERVIEW

REGULATORY AND LICENSING REQUIREMENTS

HISTORY AND DEVELOPMENT

BUSINESS CONNECTED TRANSACTIONS

FUTURE PLANS AND PROSPECTS

DIRECTORS, SENIOR MANAGEMENT AND STAFF

CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS

SHARE CAPITAL

FINANCIAL INFORMATION

Appendix I – Accountants’ report Appendix III – Property valuation report Appendix IV – Summary of the constitution of the Company and Cayman company law Appendix V – Statutory and general information

YOU SHOULD READ THE SECTION HEADED “WARNING” ON THE COVER OF THIS WEB PROOF INFORMATION PACK.

SUMMARY

BUSINESSES

The Group carries out its business through the Company’s wholly-owned subsidiary, Cheong Lee, which is a corporation licensed under the SFO to conduct Types 1 (dealing in securities), 2 (dealing in futures contracts), 4 (advising on securities) and 5 (advising on futures contracts) regulated activities. It is principally engaged in the provision of (i) securities , futures and options broking and trading ; and (ii) placing and underwriting services. The Group also provides ancillary services including application for new issues and nominee services such as collection of cash and scrip dividends . The Group’s income mainly comprises : (i) commission income arising from the broking business of securities and futures dealing, which is recognised on a trade-date basis; (ii) underwriting commission income, sub-underwriting commission income, placing commission and related handling fee, which are recognised when the relevant services are rendered; (iii) interest income from IPO financing to its clients; and (iv) handling service fees and dividend collection fees which are recognised when the relevant services have been provided. The Group currently operates one office.

Licence/certificate/participantship

Date of issue/admission/ re-issue/renewal

Licence under SFO to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities

24 November 2005

Licence under SFO to carry on Type 2 (dealing in futures contracts) and Type 5 (advising on futures contracts) regulated activities

27 August 2009

Stock Exchange Trading Right Certificate

11 February 2008 11 February 2008 24 November 2005

Stock Exchange Participant Certificate

HKSCC Direct Clearing Participantship 24 November 2005 Futures Exchange Trading Right Certificate 12 October 2009 Futures Exchange Participant Certificate 12 October 2009 HKCC Participant Certificate 12 October 2009

– 1 –

SUMMARY

The Directors confirmed, and the legal advisers of the Company as to Hong Kong law advised, that the Group obtained all the necessary licences and participantships which are required to carry on the Group’s activities as set out in this document as at the Latest Practicable Date. Since its establishment and as confirmed by the Directors, Cheong Lee has been able to obtain its relevant licences and participantships ; and has not been failed/received any objection from the SFC or other relevant competent authority during renewal of licenses and participantships . All staffs currently performing regulated activities are properly registered under the SFO as either Licensed Representatives or Responsible Officers.

Securities brokerage business

The Group provides brokerage services to clients for trading in securities listed on the Stock Exchange. According to the information from HKEx, Cheong Lee was classified as a Constituency B Exchange Participant in the years 2008 and 2009 and in the six-month period ended 30 June 2010; and transaction fee and levy collected by Cheong Lee represented approximately 0.963% of the total of the industry as at 30 June 2010. For the two years ended 31 March 2010 and the five months ended 31 August 2010, the total value of transactions in relation to dealing in securities, other than placing and underwriting, by Cheong Lee represented approximately 1.53%, 2.41% and 1.91% of the total trading value of securities on the Stock Exchange, respectively.

Clients may place orders to the Group for securities trading through telephone calls or the Group’s Internet platform or on-site at its office premises through the BSS. As at the Latest Practicable Date, the Group charged its clients a fee at a range of between of 0.01 % and 0.25 % of transaction value (subject to a minimum charge) for securities trading orders , which is determined based on the client’s transaction value and regardless of whether orders are placed by means of telephone, the Group’s Internet trading platform or on-site at its office premises. For individual clients with high trading volume who trade on-site and/or through telephone, a commission scheme whereby the client will be charged either by fixed commission or by 0.01%-0.02% of the transaction value plus HK$1,000, whichever is the lower .

For the five months ended 31 August 2010, the average utilisation rate of securities trading capacity of the Group in terms of throttle usage was approximately 1. 2 % calculated based on 382,752 orders placed in total divided by the Group’s trading capacity of approximately 31,88 1,600 orders (which is product of 12 transaction orders per second and 2,656,800 trading seconds given its 12 throttle rates subscribed from the Stock Exchange and on the assumptions of 4.5 trading hours each day and 164 trade days).

For each of the two years ended 31 March 2010 and the five months ended 31 August 2010, commission and brokerage derived from securities trading accounted for approximately 73.3 %, 40.8 % and 45.6 % of the Group’s total turnover respectively.

– 2 –

SUMMARY

Amount and percentage of the Group’s total value of transactions and commission income attributable to securities dealing transactions of (i) Ms. Au, the Controlling Shareholder, and her associates; (ii) the Directors; (iii) in-house employees; and (iv) account executives for themselves for the two years ended 31 March 2010 and the five months ended 31 August 2010 are set out as below:

	Year ended 31 March	Year ended 31 March	Five months ended
	2009	2010	31 August 2010
Ms. Au and her associates
Value of transactions ( million)	HK$ 205,162.6	HK$ 229,368.8	HK$ 28,772.3
Commission income ( million)	HK$ 12.4	HK$ 8.9	HK$ 1.6
Approximate percentage to the Group’s
total value of transactions	93.1 %	57.0 %	24.6 %
Approximate percentage to the Group’s
total commission income from
securities dealings	80.2 %	29.8 %	15.8 %
Directors
Value of transactions	–	HK$ 40,680	–
Commission income	–	HK$ 150	–
Approximate percentage to the Group’s
total value of transactions	N/A	0.00001%	N/A
Approximate percentage to the Group’s
total commission income from
securities dealings	N/A	0.0005%	N/A
In-house employees
Value of transactions (million)	HK$ 6.8	HK$ 16.8	HK$ 2.6
Commission income	HK$ 8,588	HK$ 20,823	HK$ 3,818
Approximate percentage to the Group’s
total value of transactions	0.003 %	0.004 %	0.002 %
Approximate percentage to the Group’s
total commission income from
securities dealings	0.056 %	0.070 %	0.038 %
Account executives
Value of transactions (million)	HK$ 41.6	HK$ 47.4	HK$ 32.5
Commission income	HK$ 42,490	HK$ 76,636	HK$ 46,224
Approximate percentage to the Group’s
total value of transactions	0.019 %	0.012 %	0.028 %
Approximate percentage to the Group’s
total commission income from
securities dealings	0.27 6 %	0.25 9 %	0.456 %

Futures brokerage business

The Group also provides brokerage services to clients for trading in futures and options, such as HSI futures and options and mini-HSI futures and options, on the Futures Exchanges since January 2010.

– 3 –

SUMMARY

Clients may place orders to the Group for futures trades through telephone calls or the Group’s Internet platform or on-site at its office premises through the OAPI. During the Track Record Period, the Group charged its clients at fixed amount in the range from HK$8 to HK$100 per contract for trading of futures or options regardless of the method of placing orders, which is determined based on the nature of futures or options and/or whether it is a day trade or overnight trade. As confirmed by the Directors, the fee range has been adjusted to HK$ 3 to HK$ 100 per contract since October 2010.

For each of the two years ended 31 March 2010 and the five months ended 31 August 2010, commission and brokerage fees from dealing in futures and options contracts accounted for nil, approximately 1.8 % and 3.0 % of the Group’s total turnover respectively.

Placing and underwriting services

The Group acts as an underwriter or a sub-underwriter or a placing agent or a sub-placing agent in IPOs and placing of existing and/or new shares and/or convertible bonds of companies listed on the Stock Exchange or other stock exchange and of shareholder of companies listed on the Stock Exchange. The placing or underwriting commission charged by the Group is subject to negotiation with the company concerned and is generally in line with market practice.

For the two years ended 31 March 2010 and the five months ended 31 August 2010, the Group generated commission income of approximately HK$ 0.3 million, HK$ 32.3 million and HK$ 8.2 million , representing approximately 1.2 %, 44.0 % and 36.7 % of the Group’s total turnover, from 2 , 32 and 12 fund raising activities involving placing and/or underwriting amount of approximately HK$ 35.8 million, HK$ 1,231.6 million and HK$ 388.5 million respectively . Revenue generated from the fund raising activities participated by the Group on underwritten basis accounted for 100%, approximately 2.4% and nil of the total placing and underwriting commission income of the Group respectively. Revenue generated from the fund raising activities participated by the Group on best effort basis accounted for nil, approximately 97.6% and 100.0% of the total placing and underwriting commission income of the Group respectively.

Financing

The Group provides financing for applications of shares in connection with IPOs and derives interest income from its clients as a result. During the Track Record Period, the Group entered into framework agreements with several banks in Hong Kong to facilitate financing for applications of shares made by itself or its clients in connection with IPOs.

Formal agreements will be entered into with the bank(s) each time when a loan is advanced and the Group will normally be required to pledge a deposit with the bank and subject to an interest rate for drawing down of loans. In turn, clients will repay the principal amount and higher interests to the Group for its arrangement of funding. As at the Latest Practicable Date, the Group had no outstanding amount of such bank loans.

For each of the two years ended 31 March 2010 and the five months ended 31 August 2010, interest income derived from the Group’s IPO financing business accounted for nil, approximately 0.41 % and 0.01 % of the Group’s total turnover. The Group has not made any provision for bad debts in relation to IPO financing during the Track Record Period.

– 4 –

SUMMARY

The Group also plans to develop margin financing activities to allow flexibility to clients by providing funds directly to them for purchasing securities on a margin basis. It intends to enter into the margin financing business in Hong Kong in March 2011 after Cheong Lee notified the SFC in writing of its engagement in the margin financing business and provided the SFC with certain related documents for reference. Details of the business strategies of the Group to enter into the new margin financing business are set out in the paragraphs headed “Business strategies” and “Implementation plans” under the section headed “Future plans and prospects” in this document.

Commission and fee

Charging basis (subject to adjustments after arm’s length negotiation with clients) of major services provided by the Group for the two years ended 31 March 2010 and the five months ended 31 August 2010 are set out as below:

	Year ended 31 March			Five months ended
	2009	2010		31 August 2010
Securities brokerage commission	(i) 0.01% to 0.25% of	(i)	0.01% to 0.25% of	(i) 0.01% to 0.25% of
	transaction value (subject		transaction value (subject	transaction value (subject
	to a minimum charge) or		to a minimum charge) or	to a minimum charge) or
	(ii) 0.02% of transaction		(ii) 0.02% of transaction	(ii) 0.02% of transaction
	value plus HK$1,000 or		value plus HK$1,000 or	value plus HK$1,000 or
	a fixed charge per month		a fixed charge per month	a fixed charge per month
	whichever is the lower		whichever is the lower	whichever is the lower
Futures brokerage commission	Day trade HK$8 – HK$60	Day trade HK$8 – HK$60		Day trade HK$8 – HK$60
	Overnight trade	Overnight trade		Overnight trade
	HK$12 – HK$100		HK$12 – HK$100	HK$12 – HK$100
Underwriting commission	0.25% – 4%	1% – 4%		n/a (Note 1)
Sub – underwriting commission	1% – 4%	n/a	(Note 2)	n/a (Note 1)
Placing commission and related	1% – 4%	1% – 4%		1% – 4%
handling service fees
IPO financing interest	1% – 3%	n/a	(Note 3)	1% – 3%
Handling services fees (including	Fixed charge on one time	Fixed charge on one time		Fixed charge on one time
services fees for handling	basis or on monthly basis		basis or on monthly basis	basis or on monthly basis
IPO applications, transmission	depending on nature of		depending on nature of	depending on nature of
and chats of funds, reprinting	handling services		handling services	handling services
invoices, refund cheques,
stamp duty for brought and
sold notes and real time quotations)
Dividend collection fees	0.3% of the dividend amount	0.3% of the dividend amount		0.3% of the dividend amount
	subject to a minimum		subject to a minimum	subject to a minimum charge
	charge		charge

Notes: 1. There were only placing activities conducted on best effort basis by the Group for the five months ended 31 August 2010 .
2 No sub-underwriting activities participated by the Group during the year ended 31 March 2010.
No IPO financing conducted by the Group during the year ended 31 March 2010.

– 5 –

SUMMARY

CLIENT MIX

Clients of the Group’s brokerage business comprises corporate clients and retail clients from Hong Kong and the PRC . Clients of the Group’s underwriting and placing business are companies listed on the Main Board or GEM or other stock exchange.

With its competitive brokerage commission rates and efficient services, the Group’s client base has experienced a significant growth since 2008. 18 , 24 and 28 new brokerage clients were originated by the account executives; and 55 , 155 and 57 new brokerage clients were either originated by the in-house employees or walk in clients or clients referred by existing clients respectively for the two years ended 31 March 2010 and the five months ended 31 August 2010. A client that is originated by an account executive or in-house employee will be managed and served by the respective account executive or in-house employee. For walk-in clients and clients referred by the existing clients, such accounts will be managed and served by in-house employees. All new clients of the placing and underwriting business during the Track Record Period were originated by in-house employees. Movements of the Group’s retail and corporate clients including number of new trading accounts opened and trading accounts closed during the Track Record Period are shown as below:

Securities trading – at the beginning of the financial year/period – new accounts opened – accounts closed – at the end of the financial year/period Futures trading – at the beginning of the financial year/period – new accounts opened – accounts closed – at the end of the financial year/period Placing and underwriting – at the end of the financial year/period	20 Number of retail clients 81 64 – 145 – – – – –	Year ended 09 Number of corporate clients 21 9 – 30 – – – – 2	31 March 20 Number of retail clients 145 135 (4) 276 – 10 – 10 –	10 Number of corporate clients 30 26 – 56 – 8 – 8 18	Five months ended 31 August 2010 Number of retail clients Number of corporate clients 276 56 50 10 (2) (2) 324 64 10 8 25 – – – 35 8 – 9	From 1 September 2010 to the Latest Practicable Date Number of retail clients Number of corporate clients 324 64 136 25 (13) (2) 447 87 35 8 8 2 – – 43 10 – 11

– 6 –

SUMMARY

Notes:

If a client has both a securities trading account and a futures trading account with the Group, this client will be reflected as two clients in the table above and in the other relevant part(s) of this document. For the two years ended 31 March 2010 and the five months ended 31 August 2010, there were 0, 18 and 43 clients having both securities trading account and futures trading account with Cheong Lee.
Number of clients for placing and writing shown in the above table represents the number of clients for which the Group had provided placing and underwriting services during the relevant financial years.

Breakdown on the Group’s clients including both retail and corporate clients of brokerage business segments by transaction frequency, transaction volume and commission income during the Track Record Period are shown as below:

Number of clients by transaction frequency

No purchase and/or sale of securities/futures transaction At least 1 purchase and/or sale of securities/futures transaction (i.e. at least 1 transaction per annum on average) At least 2 purchases and/or sales of securities/futures transactions (i.e. at least 1 transaction per half year on average) At least 4 purchases and/or sales of securities/futures transactions (i.e. at least 1 transaction per quarter on average) At least 12 purchases and/or sales of securities/futures transactions (i.e. at least 1 transaction per month on average)	Year ended 31 March 2009 2010 80 145 No purchase and/or sale of securities/futures transaction 8 7 At least 1 purchase and/or sale of securities/futures transaction 14 23 28 56 45 119 At least 5 purchases and/or sales of securities/futures transactions (i.e. at least 1 transaction per month on average during the period) 175 350	Five months ended 31 August 2010 268 35 – – 128
		431

– 7 –

SUMMARY

Number of clients by transaction volume

Less than or equal to HK$100,000 HK$100,001 to HK$500,000 HK$500,001 to HK$1,000,000 HK$1,000,001 to HK$5,000,000 HK$5,000,001 to HK$10,000,000 Over HK$10,000,000	Year ended 31 March 2009 2010 120 219 13 19 5 12 11 25 4 21 22 54 175 350	Five months ended 31 August 2010 325 26 11 24 8 37
		431

Number of clients by commission income

Less than or equal to HK$10,000 HK$10,001 to HK$50,000 HK$50,001 to HK$100,000 HK$100,001 to HK$500,000 Over HK$500,000	Year ended 31 March 2009 2010 149 275 11 39 5 7 6 20 4 9 175 350	Five months ended 31 August 2010 382 30 4 10 5
		431

– 8 –

SUMMARY

FINANCIAL INFORMATION

The following table sets out the summary combined statements of comprehensive income of the Group during the Track Record Period:

Total value of transactions Turnover Net other (loss) income Administrative expenses Finance costs Profit before taxation Income tax expenses Profit for the year/period attributable to the owners of the Company Other comprehensive income Net change in fair value on available-for-sale financial assets Total comprehensive income for the year/period attributable to the owners of the Company Dividends (Note)	Year ended 31 March 2009 2010 HK$ HK$ (Audited) (Audited) 220,489,741,628 402,321,072,198 21,069,422 73,320,765 (1,783,823) 1,855,694 (15,171,732) (28,724,167) (60) (184,536) 4,113,807 46,267,756 (674,832) (7,609,382) 3,438,975 38,658,374 – 1,970,116 3,438,975 40,628,490 852,000 15,008,000	Five months ended 31 August 2009 2010 HK$ HK$ (Unaudited) (Audited) 191,666,695,425 116,875,744,173 30,656,084 22,230,602 432,211 (180,285) (9,658,604) (11,249,514) (27,945) – 21,40 1,746 10,800,803 (3,521,898) (1,878,173) 17,879,848 8,922,630 – (55,580) 17,879,848 8,867,050 5,000,000 –	Five months ended 31 August 2009 2010 HK$ HK$ (Unaudited) (Audited) 191,666,695,425 116,875,744,173 30,656,084 22,230,602 432,211 (180,285) (9,658,604) (11,249,514) (27,945) – 21,40 1,746 10,800,803 (3,521,898) (1,878,173) 17,879,848 8,922,630 – (55,580) 17,879,848 8,867,050 5,000,000 –
			22,230,602 (180,285) (11,249,514) –
			10,800,803 (1,878,173)
			8,922,630

			(55,580)
			8,867,050

			–

Note: Pursuant to the resolutions passed at the respective board meetings of Cheong Lee on 18 September 2008, 9 July 2009 , 4 January 2010 and 6 October 2010, the directors of Cheong Lee declared and paid an interim dividend of HK$5.68 per Share amounting to HK$852,000 for the year ended 31 March 2009, quarterly and final dividends in the aggregate amount of HK$15,008,000 for the year ended 31 March 2010 and an interim dividend of HK$90 per Share amounting to HK$36,000,000 as at 6 October 2010.

– 9 –

SUMMARY

The Group’s audited combined financial information is included in the Accountants’ Report as set out in Appendix I to this document.

A breakdown on turnover by major services provided by the Group for each of the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010 is set out as below:

		For the year	ended 31 March			For the five months	ended 31 August
	2009		2010		2009		2010
	Turnover		Turnover		Turnover		Turnover
	(in HK$)	%	(in HK$)	%	(in HK$)	%	(in HK$)	%
					(unaudited)
Commission and brokerage from
securities dealing	15,442,656	73.3	29,941,974	40.8	13,567,071	44.3	10,127,250	45.6
Commission and brokerage fees
on dealing in futures contracts	–	N/A	1,317,406	1.8	–	N/A	668,040	3.0
Placing and underwriting
commission	262,781	1.2	32,288,270	44.0	12,701,250	41.4	8,157,040	36.7
Clearing and settlement fee	4,479,671	21.3	8,219,488	11.2	3,906,995	12.7	2,405,122	10.8
Handling service and dividend
collection fee	375,288	1.8	457,195	0.6	209,363	0.7	173,560	0.8
Interest income from
authorised financial
institutions/clients/others	509,026	2.4	1,096,432	1.5	271,405	0.9	699,590	3.1

Commission and brokerage from securities dealings generated by the Group increased by approximately 93.9% from approximately HK$15.4 million to HK$29.9 million for the year ended 31 March 2010 along with the gradual recovery of the global economy from financial tsunami. Commissions and brokerage generated from this sector as well as placing and underwriting commission for the five months ended 31 August 2010 both reduced, by approximately 25.4% and 35.8% to approximately HK$10.1 million and HK$8.2 million respectively due to less active securities market as compared to the corresponding period in 2009 . Whilst commission and brokerage from securities dealings remains to be a stable source of income to the Group given its solid securities clientele developed over the years, the Group strives to expand its placing and underwriting business and as a result, placing and underwriting commission increased largely during the Track Record Period without sacrificing the securities brokerage business.

During the Track Record Period, turnover of the Group generated from transactions with Ms. Au and her associates accounted for approximately 58.8%, 12.1% and 7.2% of the total turnover for the two years ended 31 March 2010 and the five months ended 31 August 2010 respectively. The Group’s reliance on the business from Ms. Au and her associates has been decreasing.

– 10 –

SUMMARY

Financial performance for the nine months ended 31 December 2010 and the possible impact of certain non-recurring expenses to financial performance

Financial results for the nine months ended 31 December 2010

According to the unaudited management accounts of the Group for the nine months ended 31 December 2010, the Group’s unaudited turnover and profit before taxation were both higher than the corresponding period of last year.

The increase in unaudited turnover of the Group for the nine months ended 31 December 2010 was mainly attributable to the increase in unaudited placing and underwriting commission for the nine months ended 31 December 2010. The unaudited total value of transactions carried out by the Group for the nine months ended 31 December 2010 decreased as compared with the same for corresponding period in 2009. Despite there was decrease in unaudited total value of transactions, as a result of the increase in fixed commission charged to certain clients with high trading volume, the Group’s unaudited commission and brokerage from securities dealing for the nine months ended 31 December 2010 maintained at similar level as compared with the same for the corresponding period in 2009. Since the Group only commenced the future brokerage business in January 2010, no commission and brokerage from future dealing was recognized by the Group for the nine months ended 31 December 2009. In addition, since the Group had participated in more fund raising activities with a higher aggregate fund raising amount for the nine months ended 31 December 2010, the unaudited placing and underwriting commission recognized by the Group is higher than the same for the corresponding period in 2009. As a result of the decrease in unaudited total value of transactions carried out for the nine months ended 31 December 2010, the corresponding unaudited clearing and settlement fee received by the Group also decreased as compared with the same for the corresponding period in 2009.

Based on the unaudited management accounts of the Group for the nine months ended 31 December 2010, there was increase in the unaudited administrative expenses of the Group as compared with the same for the corresponding period in 2009 which was mainly attributable to increases in the unaudited staff costs and commission paid. Since the Group had not obtained IPO loans from banks for the nine months ended 31 December 2010, no finance cost was recognized by the Group. As a result of the above, the unaudited net profits before taxation of the Group for the nine months ended 31 December 2010 was higher than the same for the corresponding period in 2009.

– 11 –

SUMMARY

Financial position as at 31 December 2010

According to the unaudited management accounts of the Group for the nine months ended 31 December 2010, the Group’s non-current assets as at 31 December 2010 maintained at similar level as that of 31 August 2010. The only item in non-current liabilities as at 31 December 2010 was deferred tax liabilities and the amount was similar to that on 31 August 2010.

The Group’s net current assets as at 31 December 2010 decreased as compared to that of 31 August 2010. However, if excluding amount due to the shareholder of approximately HK$20 million, being the only new component to current liabilities of the Group, there would be an increase in net current assets. As confirmed by the Company, full amount of amount due to the shareholder will be settled in February 2011.

The current assets as at 31 December 2010 were made up by the same components as on 31 August 2010, being trade receivables, other receivables, deposits and prepayments, financial assets at fair value through profit or loss and bank balances and cash. Trade receivables represented oneday position of transaction value of customers’ orders for securities/futures dealing, and the amount as at 31 December 2010 was increased as compared to that of 31 August 2010. Other receivables, deposits and prepayments as at 31 December 2010 increased mainly due to increase in progress payment for [•] expenses; and bank balance and cash increased as a result of the increase of clients’ monies in trust accounts and the Group’s cash in general account.

The current liabilities as at 31 December 2010 were made up by the same components as those on 31 August 2010, being trade payables, other payables and accruals and tax payables, except that the amount due to the shareholder of approximately HK$20 million mentioned above. If excluding clients’ monies in trust accounts, the Group’s trade payables would only comprise the one-day position of transaction value of customers’ orders which increased as at 31 December 2010 as compared to that of 31 August 2010 and was in line with the increase in trade receivables. Other payables and accruals as at 31 December 2010 increased as a result of deposits from customers for subscription of a convertible bond issued in January 2010 where Cheong Lee was acting as a placing agent.

– 12 –

SUMMARY

Possible impact of certain non-recurring expenses to financial performance

Notwithstanding the financial performance of the Group for the nine months ended 31 December 2010 mentioned above, the Group’s financial results would be affected by certain nonrecurring expenses .

Accordingly, the Board wishes to inform the Shareholders and potential [•] that the Group’s financial results for the year ending 31 March 2011 would be affected by the estimated expenses .

It should be noted that the growth of turnover and profit before taxation mentioned above are based unaudited figures for the nine months ended 31 December 2010 which may not be indicative of the full year results for the year ending 31 March 2011. As set out in the section headed “Risk Factors” in this document, the Group’s business and financial performance may be affected by a number of factors, including amongst all, the risk factors under the paragraphs headed “Risks associated with new margin financing business”, “Volatility of the securities and futures markets”, “Risk associated with underwriting and placing business”, and “Fluctuations of net profit margin and change in major revenue drivers” in the section headed “Risk factors” in this document.

As disclosed in the paragraph headed “Client Mix” under the “Business” section of this document, number of securities retail clients and trade corporate clients of the Group had been increased from 324 and 64 respectively as at 31 August 2010 to 447 and 87 respectively as at the Latest Practicable Date. Save as disclosed in the sections headed “Risk Factors” and “Financial information” in this document, there are no other trade factors or risks which the Group anticipates could materially affect its profits.

No material adverse change

Save as disclosed in the paragraph headed “ Financial performance for the nine months ended 31 December 2010 and the possible impact of certain non-recurring expenses to financial performance” of this section, the Directors have confirmed that, during the period from 1 September 2010 to the Latest Practicable Date (both dates inclusive), there had been no material adverse change in the financial or trading position or prospects of the Group and no event had occurred that would materially affect the information shown in the Accountants’ Report set out in Appendix I to this document.

– 13 –

SUMMARY

HISTORY AND DEVELOPMENT

The following summarises the Company’s (and/or its predecessor’s) development since incorporat ion and its respective achievements:

Date	Major development and achievements
November 2004	Cheong Lee was incorporated under the former name
	“Cheong Lee Securities Company Limited”
November 2005	Cheong Lee was registered with the SFC as a licensed
	corporation to carry on Type 1 (dealing in securities) and
	Type 4 (advising on securities) regulated activities under
	the SFO
June 2007	Ms. Au acquired 90% of the issued share capital of Cheong
	Lee from the original shareholder, being an Independent
	Third Party
September 2007	Cheong Lee tapped into the underwriting and placing
	business
December 2007	Ms. Au acquired the remaining issued share capital of
	Cheong Lee
January 2008	Name changed to “Cheong Lee Securities Limited”
February 2008	Cheong Lee obtained the re-issued Exchange Participant
	certificate and Exchange trading right from the Stock
	Exchange after the charge of name

April – May 2008 Cheong Lee increased its throttle rate from 3 to 5 April 2009 Cheong Lee established the equity capital market department

August 2009 Cheong Lee was registered with the SFC as a licensed corporation to carry on Type 2 (dealing in futures contracts) and Type 5 (advising on futures contracts) regulated activities under the SFO October 2009 Cheong Lee was granted with the Futures Exchange Participant certificate and the Futures Exchange trading right from the Futures Exchange and the HKCC Participant certificate from HKCC

February – October 2009

Cheong Lee increased its throttle rate from 5 to 12

November 2009 A futures contract dealing system was installed to provide a platform for clients to conduct trades through the OAPI located at Cheong Lee’s premises

September 2010

Cheong Lee increased its throttle rate further from 12 to 14

– 14 –

SUMMARY

COMPETITIVE STRENGTHS

The Directors are of the view that the Group generally has the following competitive advantages:

Management experience and expertise

The Group is managed by a team of experienced professionals who formulate corporate strategies, monitor compliance and day-to-day operations, and implement plans for business development. The management team comprises mainly Responsible Officers and persons with over five years of experience in the securities dealing and financial services industry. With the extensive experience and knowledge of the management team, the Group is able to react promptly to the changes of market conditions and implement suitable measures in accordance with changing credit risks. Please refer to the section headed “Directors, senior management and staff” of this document for further details on the experience of the Directors and senior management.

Well-established relationship with clients and expanding customer base

The Group recognises that market reputation and clients’ confidence in its services are keys to success, which will enable the Group to attract new clients from the market and solicit client referrals from its existing clients. In this regard, the Group places great emphasis on winning customer loyalty by providing them with tailor made services, for instance, modifying computer screen interface for retrieving securities market information in accordance with clients’ requirements, and keeping clients abreast of market development by giving them access to real-time market information and price quotations from external securities market information service providers. With its continuous effort, the Group has successfully retained existing clients and attracted new clients and gradually developed a more diversified client base over the years.

Solid platform for placing and underwriting business

The Group’s placing and underwriting business leverages on its extensive securities client network which comprises institutional investors and retail clients. It also maintains good relationships with other brokerage firms which may provide opportunities to the Group to act as sub-placing agents for various new issues and fund raising exercises in the market. The Group has also successfully retained several companies listed on the Main Board or GEM in its client base, such that they or their shareholders may consider appointing the Group as the placing agent, underwriter and/or sub-underwriter when they have funding requirements.

– 15 –

SUMMARY

Advanced computer system and technology

The Group invests in the upgrading of its computer system to enhance the technological infrastructure to meet clients’ increasing needs and in an attempt to stay ahead when technological upgrades for securities trading are introduced to the market. The Group has established stable and efficient online trading platform for its clients to access the securities market . Both its BSS and OAPI trading systems are equipped with powerful and advanced IT infrastructures, servers and terminals as well as tailor-made computer screen interfaces for retrieving securities market information to suit clients’ different requirements.

Capable professional

As at the Latest Practicable Date, the Group has 5 account executives serving 66 trading accounts and 7 in-house employees serving 521 trading accounts. The account executives carry out securities sales on behalf of Cheong Lee and serve clients of his/her own portfolio . Most of the Group’s account executives are degree holders with over 1 to 6 years experience in the securities industry and have been with the Group for more than one year . The Group has regularly provided professional training to its account executives. The Directors believe that the solid client base is built up by the Group’s account executives over the years. Movements of account executives of the Group during the Track Record Period are set out as below:

				From
				1 September
			Five months	2010 to
			ended	the Latest
	Year ended 31 March		31 August	Practicable
	2009	2010	2010	Date
Number of account
executives brought
forward	1	9	10	9
New appointment	8	1	2	1
Leave	0	0	(3)	(5)
Number of account
executives	9	10	9	5

Note: One account executive during the five months ended 31 August 2010 and one account executive during the period from 1 September 2010 to the Latest Practicable Date became an in-house employee of Cheong Lee.

– 16 –

SUMMARY

BUSINESS STRATEGIES

The Directors have developed the following business strategies:

1. Entering into the new margin financing business

The Group plans to develop margin financing activities to allow flexibility to clients by providing funds directly to the m for purchasing securities on a margin basis. Under the SFO, if a company is licensed for Type 1 (dealing in securities) regulated activity, it needs not separately be licensed for Type 8 (securities margin financing) regulated activity to carry out securities margin financing for its clients. However, according to the current rules and regulations for margin financing activities, it would need to have a minimum paid-up share capital of HK$10 million and a minimum liquid capital of HK$3 million . Cheong Lee currently has a paid-up capital of HK$40 million . The Group’s liquid capital amounted to approximately HK$18.5 million, HK$53.3 million and HK$59.8 million respectively as at 31 March 2009, 31 March 2010 and 31 August 2010. Accordingly, the Group is permitted to engage in the margin financing business. Margin loans to clients of the Group will be secured by pledged securities listed on the Stock Exchange and/or cash deposits. The Group will regularly review the securities pledged by clients, update their respective margin ratio and communicate to clients. The margin ratio for each of the acceptable securities will generally be determined by the credit committee with reference to the margin ratio set by other financial institutions. The Group will also review the margin ratios when qualities of particular securities deteriorate rapidly.

2. Maintaining and enhancing efficiency of trading platform

The Group aims to provide customers with more efficient and feature-enhanced trading facilities, equipment, IT related/software solutions in a reliable, secured, convenient and cost effective manner. The Group will continue improving and upgrading its trading facilities in order to cope with changes in trading technolog ies and to cater for the increasing use of the Group’s platform for securities and futures trading.

3. Expanding client network

The Group intends to further enlarge its client base, explore more opportunities for placing and underwriting business and expand its sales and marketing team. To cope with such expansion, it will recruit professional sales personnel in particular, the equity capital market professional personnel from the market as well as provide professional training to fresh graduates who are ambitious in pursuing their career in the financial market. In addition, the Group will recruit quality staff for establishing a new branch office .

– 17 –

SUMMARY

DILUTION EFFECT ON SHAREHOLDING

The Company has conditionally adopted the Share Option Schemes. As at the Latest Practicable Date, options to subscribe for 6,300,000 Shares have been granted under the Pre-[•] Share Option Scheme and no options have been granted under the Share Option Scheme. Following the granting of any options under the Share Option Schemes in the future and the issue of new Shares upon exercise of the options granted or may be granted under the Share Option Schemes, there will be an increase in the number of issued Shares. As such there may be a dilution or reduction of shareholding of the Shareholders which may also result in a dilution or reduction of the earnings per Share or net asset value per Share. Assuming that all options granted under the Pre-[•] Share Option Scheme are exercised at the same time, 6,300,000 new shares will be issued resulting a dilution effect of approximately 0.626% on the shareholdings of the Shareholders; and if the profit of the Group remains the same immediately before and after such issue, earnings per Share would be diluted by 0.63% .

RISK FACTORS

[•] in the Shares are subject to a number of risk factors which can be categorised into: (i) risks relating to the Group; (ii) risks relating to the industry; ( iii) risks relating to conducting business in Hong Kong . A summary of these risks are set out below. A detailed discussion of these risk factors is set out in the section headed “Risk factors” in this document.

Risks relating to the Group

Risks associated with new margin financing business
Volatility of the securities and futures markets
Risk associated with underwriting and placing business
Fluctuations of net profit margin and change in major revenue drivers
Reliance on Controlling Shareholder
Risks associated with error trading
Credit and settlement risks
Risks associated with IPO financing business
Reliance on key personnel

– 18 –

SUMMARY

Risks associated with the internal control system
High level of liquidity required
Reliance on computer network infrastructure
Dividend policy
No assurance that future business plans will materialise

Risks relating to the industry

Competition
Regulations

Risks relating to conducting business in Hong Kong

Macroeconomic considerations
Political and economic risks associated with conducting business in Hong Kong

– 19 –

DEFINITIONS

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

“Articles”

the articles of association of the Company adopted on [•] and as amended, supplemented or otherwise modified from time to time

“associate(s)”

has the same meaning ascribed to it in the relevant rules

“Audit Committee”

the audit committee of the Board

“Board”

the board of Directors

“Business Day”
a day (other than a Saturday or Sunday) on which licensed banks in Hong Kong are generally open for normal banking business
“ BVI ”

the British Virgin Islands

“BVI Holding Company”
Zillion Profit Limited, a company incorporated in BVI on 22 April 2010 with limited liability and is wholly owned by Ms. Au
“CCASS” the Central Clearing and Settlement System established and operated by HKSCC
“Cheong Lee”

Cheong Lee Securities Limited（昌利證券有限公司） (formerly known as Cheong Lee Securities Company Limited（昌利證券有限公司）), a company incorporated in Hong Kong with limited liability on 10 November 2004 , a corporation licensed under the SFO to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 5 (advising on futures contracts) regulated activities

– 20 –

DEFINITIONS

“Cheong Lee BVI”

CL Group (BVI) Limited, a company incorporated in the BVI with limited liability on 15 September 2010 and a directly wholly-owned subsidiary of the Company

“Code of Conduct”

Code of Conduct for Persons Licensed by or Registered with the SFC（證券及期貨事務監察委員會持牌人或註冊人操守準則）issued by the SFC in May 2006

“Companies Law” or “Cayman Companies Law”
the Companies Law , Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands （開曼群島法例第22章《公司法》[*] ）
“Companies Ordinance” the Companies Ordinance（公司條例）(Chapter 32 of the Laws of Hong Kong（香港法例）) as amended, supplemented or otherwise modified from time to time
“Company”

CL Group (Holdings) Limited （昌利（控股）有限公司）, a company incorporated in the Cayman Islands on 27 August 2010 as an exempted company with limited liability

“connected person(s)”

has the same meaning ascribed to it in the relevant rules

“connected transactions”

the transactions stipulated and specified in the relevant rules

“Controlling Shareholders”
has the meaning ascribed to it under the relevant rules and in the context of our Company, means BVI Holding Company and Ms. Au
“DCASS”
the Derivatives Clearing and Settlement System, the clearing and settlement system for derivative products of the Stock Exchange
“Director(s)” the director(s) of the Company
“Exchange Participant(s)”

a person who, in accordance with the rules of HKEx, or whose name is entered in a register kept by HKEx as a person who, may trade through HKEx or the Stock Exchange or Futures Exchange

For identification purpose only

– 21 –

DEFINITIONS

“Futures Exchange” Hong Kong Futures Exchange Limited （香港期貨交易所有限公司）
“Futures Exchange a licensed corporation to carry on Type 2 (dealing in futures Participant(s)” contracts) regulated activity under the SFO who, in accordance with the rules of the Futures Exchange, may trade on or through the Futures Exchange and whose name is entered in a list, register or roll kept by the Futures Exchange as a person who may trade on or through the Futures Exchange
“GEM” the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules” The Rules Governing the Listing of Securities on GEM（香港聯合交易所有限公司創業板證券上市規則）(as amended, supplemented or otherwise modified from time to time)
“Group” the Company together with its subsidiaries and, in respect of the period before the Company became the holding company of its present subsidiaries, the companies that are the present subsidiaries of the Company
“HK$” and “cent(s)” Hong Kong dollar(s) and cent(s) respectively, the lawful currency of Hong Kong
“HKCC” HKFE Clearing Corporation Limited（香港期貨結算有限公司）
“HKEx” Hong Kong Exchanges and Clearing Limited（香港交易及結算所有限公司）
“HKICPA” Hong Kong Institute of Certified Public Accountants (formerly known as the Hong Kong Society of Accountants)（香港會計師公會）
“HKMA” Hong Kong Monetary Authority（香港金融管理局）
“HKSCC” Hong Kong Securities Clearing Company Limited（香港中央結算有限公司）
“HIBOR”
“Hong Kong”

Hong Kong Interbank Offering Rate the Hong Kong Special Administrative Region of the PRC

– 22 –

DEFINITIONS

“Independent Third party(ies) which is (are) independent of and not connected Party(ies)” with any of the directors, chief executive, or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates
“Latest Practicable Date” 21 February 2011 , being the latest practicable date for ascertaining certain information prior to the printing of this document
“ licensed person” a licensed person (which has the meaning ascribed to it in the SFO)
“Licensed Representative” a licensed representative (which has the meaning as ascribed to it in the SFO)
“Listing Rules” The Rules Governing the Listing of Securities on the Stock Exchange（香港聯合交易所有限公司證券上市規則）(as amended, supplemented or otherwise modified) from time to time)
“Macau”

the Macau Special Administrative Region of the PRC

“Main Board”
the stock market operated by the Stock Exchange prior to the establishment of GEM (excluding the options market) and which continues to be operated by the Stock Exchange in parallel with GEM and which, for the avoidance of doubt, excludes GEM
“Memorandum” or “Memorandum of Association”
“Ms. Au” “Ms. Yu” “Nomination Committee”
the memorandum of association of the Company adopted on [•] and as amended from time to time
Ms. Au Suet Ming Clarea（歐雪明）, a Hong Kong resident and the controlling shareholder of the Company
Ms. Linda Yu（余蓮達）, an executive Director

the nomination committee of the Board

– 23 –

DEFINITIONS

“Non-trading has the meaning ascribed thereto in the fact books published by Participant (s)” the Stock Exchange “PRC” or ”China” the People’s Republic of China which shall, for the purpose of this document, exclude Hong Kong, Macau and Taiwan

“ Pre-[•] Share the Pre-[•] share option scheme conditionally approved and Option Scheme” adopted by the Company on [•], the principal terms of which are summarised in the section headed “ Pre-[•] Share Option Scheme” in Appendix V to this document “Remuneration the remuneration committee of the Board Committee” “Reorganisation” the corporate reorganisation arrangements undergone by the Group , details of which are set out in Appendix V to this document “Responsible Officer” a responsible officer (which has the meaning ascribed to it in the SFO) “SEHOC” the SEHK Option Clearing House Limited（聯交所期權結算所有限公司） “SFC” the Securities and Futures Commission of Hong Kong（證券及期貨事務監察委員會）

“SFO” the Securities and Futures Ordinance（證券及期貨條例） (Chapter 571 of the Laws of Hong Kong（香港法例）) “Share(s)” ordinary share(s) of HK$ 0.01 each in the share capital of the Company “Shareholder(s)” holder(s) of the Share(s) “Share Option Scheme” the share option scheme conditionally approved and adopted by the Company on [•], the principal terms of which are summarised in the section headed “Share Option Scheme” in Appendix V to this document

“SFO” “Share(s)”

– 24 –

DEFINITIONS

“Share Option Schemes”	the Pre-[•] Share Option Scheme and the Share Option Scheme
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“substantial	has the meaning ascribed to it in the relevant rules
shareholder(s)”
“Takeovers Code”	the Code on Takeovers and Mergers（公司收購及合併守則）
	(as amended, supplemented or otherwise modified) from time to
	time
“Track Record Period”	the two years ended 31 March 2010 and the five months ended
	31 August 2010
“Trading Participant (s)”	has the meaning ascribed thereto in the fact books published by
	the Stock Exchange
“U.S.”	the United States of America
“US$” or “U.S. dollars”	U.S. dollars, the lawful currency of U.S.
“%”	per cent.

Unless otherwise specified, for the purpose of this document, amounts denominated in US$ are translated into HK$ at the rate of HK$[•] = US$1.00 . Such conversion is for the purposes of indication and reference only and should not be construed as any representation that any amount in U.S.$ could have been or could be converted at the above rate.

– 25 –

GLOSSARY OF TECHNICAL TERMS

This glossary contains explanations of certain terms used in this document in connection with the Company and its business. The terms and their meanings may not correspond to standard industry meaning or usage of these terms.

“AMS” Automatic Order Matching and Execution System, the first generation of electronic stock trading system implemented by the Stock Exchange in 1993

“AMS/3” the third generation of electronic stock trading system implemented by HKEx in October 2000

“BSS” the Broker Supplied System, being a front office solution either developed in-house by the Exchange Participant or a third-party software package acquired from commercial vendors, enabling the Exchange Participant to connect its trading facilities to the Open Gateway to conduct trading

“FRR” Securities and Futures (Financial Resources) Rules（證券及期貨（財政資源）規則）(Chapter 571N of the Laws of Hong Kong（香港法例）)

“HKATS” “HSI”

Hong Kong Automatic Trading System, an electronic trading system of the Futures Exchange

Hang Seng Index

“ IPO(s)” “IT”

initial public offering(s) and listing(s) of shares on the Stock Exchange information technology

“OAPI”

the Omnet Application Programming Interface connectivity provided by DCASS that allows participants to connect their own back office applications and third party back office applications on a host-to-host basis

“OG” or “Open Gateway”

a Windows-based device provided by HKEx and installed at the Exchange Participants’ office to facilitate electronic interface of the AMS/3 with front office systems operated by the Exchange Participant

“T + 1”

one trading day from the transaction day

“T + 2”

two trading days from the transaction day

“throttle” or “throttle rate”

the throughput rate of an order into the trading system at one order per second. Exchange Participants with Open Gateway may apply for additional throttle rates in integral multiples of one order per second

– 26 –

RISK FACTORS

Potential [•] of the [•] should carefully consider all of the information set out in this document and, in particular, the following risks and special considerations associated with an [•] in the Company before making any [•] decision in relation to the Company. If any of the possible events as described below, or any other risk factors or uncertainties that the Company is unaware of, materialises, the Group’s business, financial position and prospects could be materially and adversely affected and the [•] of the [•] could fall significantly.

This document contains certain forward-looking statements relating to the Group’s plans, objectives, expectations and intentions which involve risks and uncertainties. The Group’s actual results may differ materially from those as discussed in this document. Factors that could contribute to such differences are set out below as well as in other parts in this document.

RISKS RELATING TO THE GROUP

Risks associated with new margin financing business

The Group intends to enter into the margin financing business in Hong Kong in March 2011 after Cheong Lee notified the SFC in writing of its engagement in the margin financing business and provided the SFC with certain related documents for reference. The Group will obtain securities listed on the Stock Exchange and/or cash deposits as collateral for providing margin financing to its clients.

Margin loan provided to a client is required to be maintained within the margin value of his pledged securities, which means the aggregate market value of his pledged securities after discounts. Once the margin value falls below the outstanding amount of the loan as a result of market downturn or adverse movement in the prices of the pledged securities, the Group will make a margin call requesting the client to deposit additional funds, sell securities or pledge additional securities to top up their margin value. Margin financing is vulnerable to stock price volatility and the liquidity of the relevant securities that are pledged in securities for loans. It is the intention of Cheong Lee that the maximum tolerance level would be up to 70% of the market value of clients’ portfolio. The Responsible Officer will continue to closely monitor the account until the margin position has been ratified. In the event that a client is unable to meet a margin call, the Group may dispose of the pledged securities and use the sale proceeds thereof towards repayment of the loan. However, there is a risk that the amount recovered from the disposal of the pledged securities may fall short of the outstanding amount of the loan. The Group would suffer a loss if it fails to recover the shortfall from its clients.

Volatility of the securities and futures markets

The Group generates income from the provision of brokerage services for securities , futures and options trading and the placing and underwriting services, which are highly dependent on the performance of the financial market in Hong Kong. The financial market in Hong Kong could be directly affected by the global and local economic and socio-political conditions and the investment sentiment. Any sudden downturn in global or local economic environment, severe fluctuations in global or local markets or economic sentiment may adversely affect the performance of Hong Kong’s financial market as a whole, by a decrease in securities and futures trading and capital raising activities, which may adversely affect the Group’s business and financial performance.

– 27 –

RISK FACTORS

The global financial market has been volatile since the outbreak of the financial tsunami in September 2008. Sustainability of economic recovery if any, is uncertain. As the Group’s revenue is highly dependent on the general economic sentiment and the health of the financial market, if the economic sentiment shifts or if there is another downturn in global economy, demand for the Group’s services may decrease, and there is no assurance that income derived from the Group’s principal businesses can be sustained.

Risk associated with underwriting and placing business

Underwriting (including sub-underwriting) and placing commission accounted for approximately 1.2 %, 44.0 % and 36.7% of the Group’s total turnover for each of the two years ended 31 March 2010 and the five months ended 31 August 2010 respectively.

During the Track Record Period, the Group’s fund-raising businesses for clients are mainly conducted on a best effort basis, but the Group may also be required to conduct such businesses on an underwritten basis in accordance with clients’ requirements. The Group’s participations in IPOs as underwriter or sub-underwriter are mainly on fully underwritten basis, whereby the Group will be obliged to take up any of the unsubscribed portion of its underwriting commitment, whereas for other fund raising activities such as acting as placing agent for placing of existing and/ or net shares and/or convertible bonds of companies listed on the Stock Exchange are primarily on best effort basis, whereby securities will be placed by the Group to interested parties and the Group will not be obliged to take up any of the unsubscribed securities. Revenue generated from the fund raising activities participated by the Group on underwritten basis accounted for 100%, approximately 2.4% and nil of the underwriting and/or placing income of the Group respectively. Revenue generated from the fund raising activities participated by the Group on best effort basis accounted for nil, approximately 97.6% and 100.0% of the total underwriting and/or placing income of the Group respectively. The Directors confirmed that commissions for fund raising activities engaged by the Group on fully underwritten basis and best effort basis are both determined based on arm’s length negotiation with reference to the then prevailing market condition. Commissions are deducted and retained by the Group before remitting the proceeds to the relevant clients. The Directors consider that securities underwritten by the Group could be undersubscribed as a result of volatile or unfavourable market conditions , in which case the Group, as the underwriter/subunderwriter/placing agent, may be required to take up the unsubscribed securities , and its financial position could be adversely affected if the underwritten securities so taken up by the Group become illiquid and/or their market values drop. In the case of fund-raising for clients on a best effort basis, if the securities are under subscribed or if market conditions become volatile, the entire fund-raising exercise may be called off and the Group may not be able to generate commission income from such fund-raising exercise.

The Directors confirmed that during the Track Record Period, there was no call off or undersubscription of fund-raising exercise participated by the Group which result in any loss or claim to the Group.

– 28 –

RISK FACTORS

Fluctuations of net profit margin and change in major revenue drivers

During the Track Record Period, the Group’s net profit margin fluctuated and recorded at approximately 16.3%, 52.7% and 40.1% respectively. Fluctuation of the Group’s net profit margin may be a result of the change in mix of its major revenue drivers. The Group’s turnover relating to placing and underwriting commission accounted for approximately 1.2%, 44.0% and 36.7% respectively; whereas its turnover relating to securities brokerage commission accounted for approximately 73.3%, 40.8% and 45.6% respectively for the two years ended 31 March 2010 and the five months ended 31 August 2010. In general, commission rate charged by the Group for its placing and underwriting business ranged from 1% to 4% which is higher than the commission rate charged for its securities brokerage business of approximately 0.01% to 0.25% of transaction value (subject to a minimum charge) or either a fixed commission or 0.01%-0.02% of transaction value plus HK$1,000 whichever is the lower.

Percentage of placing and underwriting commission generated by the Group to its total turnover is highly dependent on number of placing and underwriting exercises it participated and/or size of fund it raised . The Directors confirmed that this relies more or less on external factors which are beyond the Group’s control, such as the number and the size of IPOs launched/to be launched in the market; and whether the secondary market for fund raising exercises is active under the prevailing atmosphere in financial market. In light of the reliance on these external factors and the potential non-recurring nature of the placing and underwriting commission generated by the Group, there is no assurance that performance of the Group’s placing and underwriting business will not be affected by such external factors, and its net profit margin will not fluctuate as a result.

Reliance on Controlling Shareholder

During the Track Record Period, turnover of the Group generated from transactions with Ms. Au, the Controlling Shareholder, and her associates accounted for approximately 58.8%, 15.2% and 11.8% of the total turnover for the two years ended 31 March 2010 and the five months ended 31 August 2010 respectively. Investor should be aware that the Group’s financial performance and profitability may be affected if Ms. Au, the Controlling Shareholder, and her associate do not continue to use, of if any of them significantly reduces his/her use of the financial services provided by the Group.

Securities brokerage commission income contributed by clients introduced by Ms. Au, the controlling shareholder of the Group, (other than Ms. Au and her associates) during the Track Record Period accounted for approximately 6.5 %, 26.5 % and 38.8 % of the total securities brokerage commission income of the Group respectively. Futures brokerage commission income contributed by clients introduced by Ms. Au, the controlling shareholder of the Group, (other than Ms. Au and her associates) during the Track Record Period accounted for approximately nil, 0.5 % and nil of the total securities brokerage commission income of the Group respectively. Placing and underwriting commission contributed by clients introduced by Ms. Au, the controlling shareholder of the Group, (other than Ms. Au and her associates) during the Track Record Period accounted for approximately 1.9 %, 62.9 % and 30.4 % of the total placing and underwriting commission income of the Group respectively. There is no assurance that Ms. Au will continue to introduce securities/ futures brokerage business and placing and underwriting business to the Group. In the event she failed to do so, the Group’s financial performance and profitability may be adversely affected.

– 29 –

RISK FACTORS

Risks associated with error trading

The Group could bear losses from error trades arising from system error or human error in data inputting or recording clients’ instructions. Upon discovery of any error trade, the Group has to take immediate action to close out error trade positions and bear losses from such error trades. Number of error trade occurred was 0, 3 and 1 respectively during the Track Record Period. The Directors confirmed that all of the error trade during the Track Record Period were due to human error and has been resolved by buying relevant number of Shares in market to ratify the error position which had not resulted in any profit/loss to the Group for the year ended 31 March 2009; but resulted in loss to the Group of approximately HK$ 1,430 for the year ended 31 March 2010, representing approximately 0.00 5 % of the commission and brokerage from securities dealing of the Group ; and profit of approximately HK$ 159 for the five months ended 31 August 2010 , representing approximately 0.002 % of the commission and brokerage from securities dealing of the Group. For the period from 1 September 2010 up to the Latest Practicable Date, losses from error trades amounted to approximately HK$ 10,483 . During the Track Record Period and up to the Latest Practicable Date, the Group was not subject to any regulatory fines or penalties as a result of error trades.

[•] should be aware that the Group’s profitability may be adversely affected by error trades, if error trades cannot be effectively prevented or controlled by the Group.

Credit and settlement risks

Securities brokerage clients of the Group are required to settle their securities transactions within T+2. If a client fails to do so, the Group will be required to settle the same on behalf of its client with HKSCC with its own funds, which could have an impact on the cash flow position of the Group . Clients’ failure to settle the securities transactions within T+2 amounted to approximately HK$683,511, HK$48,075 and HK$5,016,581 as at 31 March 2009, 31 March 2010 and 31 August 2010 respectively. Of the aforesaid three amounts, approximately HK$ 4,681 , HK$ 8,421 and HK$ 9,476 remained unsettled as at the Latest Practicable Date. The Group will review the unsettled amounts at year end to consider if any provision or write-off is necessary.

Clients of futures transactions are required to maintain the minimum margin deposit with the Group from time to time as determined by the Futures Exchange. The Group may impose additional margin requirement on its futures clients in a volatile market ; and in the event that a client fails to meet a margin call, the Group is entitled to close out the futures or options contract. If the customer’s margin deposit with the Group is insufficient to cover the loss position arising from closing out of the futures or options contract, the Group would be exposed to the risk of being unable to recover such shortfall from the client, particularly in times of a volatile market. During the Track Record Period, no bad debt provision for amounts due from clients in relation to futures or options contracts was made by the Group . The Directors confirmed that during the Track Record Period, the Group had not encountered any insufficiency of clients’ margin deposit for covering loss positions.

– 30 –

RISK FACTORS

Risks associated with IPO financing business

The Group entered into framework agreements with several banks in Hong Kong to facilitate financing for applications of shares made by itself or its clients in connection with IPOs. Loans advanced by the Group for its own or on behalf of its clients together with interests incurred are payable by the Group. The Group normally obtains liquid assets and/or cash deposits as collateral for providing IPO financing to its clients. However, if relevant clients fail to settle the outstanding loan amount with the Group, the Group will be required to repay the loans with its own funds, and if the Group is unable to settle the loan amount with the banks on time, it will be exposed to the risk of bearing default interests and loss of charged deposits when the banks demand for repayment. During the Track Record Period, no bad debt provision for amounts due from cash clients in relation to IPO financing was made by the Group. The Directors confirmed that during the Track Record Period, there was no clients’ failure in settling the outstanding loan due to the Group.

Reliance on key personnel

Each of the four regulated activities of the Group requires a minimum of two Responsible Officers approved by the SFC. For each regulated activity, the Group is required to have at least one Responsible Officer available at all times to supervise the business. The same individual may be appointed to be a Responsible Officer for more than one regulated activity provided that he/ she is fit and proper to be so appointed and there is no conflict in the roles assumed. As at the Latest Practicable Date, for each of Types 1 (dealing in securities), 2 (dealing in futures contracts), 4 (advising on securities) and 5 (advising on futures contracts) regulated activities, Cheong Lee had three , two , three and two Responsible Officers respectively. The following table sets out the identities of the Responsible Officers for each of the Group’s regulated businesses during the Track Record Period:

				From 1 September
	Year ended	31 March	Five months ended	2010 to the Latest
	2009	2010	31 August 2010	Practicable Date
Type 1 (dealing in securities)	Chow Ka Man	Man Kam Cheuk (since	Man Kam Cheuk	–
regulated activity	(resigned on	28 October 2009)	(resigned on
	7 April 2008)		30 June 2010)
	Lam Wing Hi	Lam Wing Hi	Lam Wing Hi	–
	(since 29 May 2008)		(resigned on
			9 July 2010)
	Linda Yu	Linda Yu	Linda Yu	Linda Yu
	(since 13 May 2008)
	Chau Yueh Jen	Chau Yueh Jen	Kwok Kin Chung	Kwok Kin Chung
		(resigned on	(since 30 June 2010)
		16 January 2010)
	Lau Ka Lung Ali	Lau Ka Lung Ali	Lau Ka Lung Ali	Lau Ka Lung Ali

– 31 –

RISK FACTORS

					From 1 September
	Year ended	31	March	Five months ended	2010 to the Latest
	2009	2010		31 August 2010	Practicable Date
Type 4 (advising on securities)	Chow Ka Man	Linda Yu (since		Linda Yu	Linda Yu
regulated activity	(resigned on		8 July 2009)
	7 April 2008)
	Lam Wing Hi (since	Lam Wing Hi		Lam Wing Hi	–
	23 September 2008)			(resigned on
				9 July 2010)
	Chau Yueh Jen	Chau Yueh Jen		Kwok Kin Chung (since	Kwok Kin Chung
			(resigned on	14 September 2010)
			16 January 2010)
	Fung Man Chun	Fung Man Chun		Fung Man Chun	Fung Man Chun
					(resigned on 1
					December 2010)
	Lau Ka Lung Ali	Lau Ka Lung Ali		Lau Ka Lung Ali	Lau Ka Lung Ali
Type 2 (dealing in futures		Lau Ka Lung Ali (since		Lau Ka Lung Ali	Lau Ka Lung Ali
contracts) regulated activity			27 August 2009)
		Man Kam Cheuk (since		Man Kam Cheuk	–
			28 October 2009)	(resigned on
				30 June 2010)
		–		Lam Wing Hi	–
				(from 23 June 2010
				to 9 July 2010)
		–		Kwok Kin Chung (since	Kwok Kin Chung
				30 June 2010)
Type 5 (advising on futures		Lau Ka Lung Ali (since		Lau Ka Lung Ali	Lau Ka Lung Ali
contracts) regulated activity			27 August 2009)
				Kwok Kin Chung (since	Kwok Kin Chung
				14 September 2010)

In the event that Cheong Lee fails to meet the Responsible Officers requirement under the SFO due to resignation of some or all of these Responsible Officers at the same time without immediate and adequate replacement, its licensed corporation status could be adversely affected, thus jeopardizing the Group’s business operation .

– 32 –

RISK FACTORS

Risk associated with the internal control system

There are areas within the Group’s risk management and internal control systems that may require constant monitoring and further improvement . The Group’s businesses and prospects may be materially and adversely affected if its efforts to maintain these systems prove to be ineffective or inadequate.

Any deficiencies in the Group’s risk management and internal control systems and practices could adversely affect its ability to timely and accurately record, process, summarise and report financial and other data, as well as adversely affect its efficiency, undermine the effectiveness of its risk management process and increase the potential likelihood for financial reporting errors and non-compliance with rules and regulations. The Group has adopted initiatives, policies and procedures to improve its risk management and internal control systems and address any possible deficiencies, as detailed in the paragraph headed “ Internal control ” in the “Business” section in this document. Nevertheless, there is no assurance that the risk management and internal control systems of the Group are adequate or effective notwithstanding the efforts of the Group, and any failure to address any internal control matters and other deficiencies could result in losses to the Group. Furthermore, if the Group’s compliance function is inadequate or ineffective in managing the risks related to its existing and/or expanding products and services, the Group’s financial condition and results of operations could be materially and adversely affected.

Businesses operated by the Group are regulated by the SFC and its is expected that its employees shall comply with the relevant rules under the SFO. However, owing to the nature of the Group’s business, the Group cannot rule out the possibility that its employees may in the performance of their duties fail to remain licensed or fail to comply with the applicable laws, rules and regulations or commit offences under the SFO which may include but not limited to market manipulation, false trading and price rigging. Such activities or any allegation of such activities could have an adverse effect on the Group’s reputation .

High level of liquidity required

A licensed corporation shall at all times maintain paid-up share capital and liquid capital not less than the specified amounts according to the FRR. For Cheong Lee, the required paidup share capital is HK$ 5 million for its existing business activities (and HK$10 million if it were to undertake margin financing activities), and the required liquid capital is the higher of HK$ 3 million or 5% of the aggregate of (a) its adjusted liabilities; (b) the aggregate of the initial margin requirements in respect of outstanding futures contracts and outstanding options contracts held by it on behalf of its clients; and (c) the aggregate of the amounts of margin required to be deposited in respect of outstanding futures contracts and outstanding options contracts held by it on behalf of its clients, to the extent that such contracts are not subject to payment of initial margin requirements. In order to comply with the FRR, the Group must maintain a relevant level of liquidity at all times. Failing to meet the capital requirements may cause the SFC to take disciplinary actions against the Group, which may adversely affect the Group’s operations and performance. As at the Latest Practicable Date, Cheong Lee maintained paid-up share capital of HK$ 40 million and a level of liquid capital above the minimum requirement under the FRR. The Group’s liquid capital amounted to approximately HK$18.5 million, HK$53.3 million and HK$59.8 million respectively as at 31 March 2009, 31 March 2010 and 31 August 2010.

– 33 –

RISK FACTORS

During the Track Record Period, Cheong Lee has not failed in maintaining the required paid-up share capital and liquid capital. The executive Directors confirmed that the liquid capital position of Cheong Lee was calculated and monitored by the Responsible Officers of Cheong Lee on a daily basis, and Cheong Lee was able to comply with the FRR requirements at all times, in particular, on a post-underwritten or sub-underwritten or placing deal basis during the Track Record Period.

Reliance on computer network infrastructure

The success of the Group depends, in part, upon its ability to develop, upgrade and maintain a reliable and effective computer system and network infrastructure. In the event that the Group fails to expand or adapt its network infrastructure to meet additional demands or its customers’ changing requirements on a timely basis, at commercially reasonable costs, or at all, its business, financial condition and results of operations may be adversely affected.

Demand for the Group’s Internet based services has been increasing. Failure to maintain sufficient bandwidth capacity in its network connections to meet the growing demand will in general cause slow down of services offered by the Group and will have a negative impact on the market reputation of the Group, which may result in loss of existing and potential customers to its competitors.

In addition, the network infrastructure used by the Group for its business may be vulnerable to computer viruses, hackers, power outage or other disruptive actions which may cause data corruption and interruptions, delay or cessation in the services provided through the Group’s securities trading facilities and thus, could have an adverse effect on the Group’s business. Inappropriate use of the Internet by third parties may also jeopardise the security of confidential information (such as client data or trading records) stored in the computer system of the Group. In the event that clients’ confidential information is stolen or misused, the Group may be exposed to the risks of litigation and possible liability.

During the Track Record Period, the Wanchai area, where the Group’s office is located, had experienced one incident of power outage lasting for five minutes which caused interruption to the Group’s computerised trading system. It did not cause any significant impact on the Group’s business operations or incurred financial losses for the Group. However, there is no assurance that any future power outage, even of very limited duration, will not cause an adverse impact on the Group’s business operations. Currently, the Group relies on two IT vendors to support the operation and maintenance of its trading platform. If the trading platform of the Group collapsed or if one or both of the IT vendors is/are unable to deliver relevant services to the Group for whatever reasons, it will take the Group certain time to find the replacement(s) and may incur additional cost to the Group for setting up server(s) that can facilitate the operation of the trading platform provided by the new IT vendor(s).

– 34 –

RISK FACTORS

Dividend policy

Pursuant to the resolutions passed at the respective board meetings of Cheong Lee on 18 September 2008, 9 July 2009 , 4 January 2010 and 6 October 2010, the directors of Cheong Lee declared and paid an interim dividend of HK$5.68 per Share amounting to HK$852,000 for the year ended 31 March 2009, quarterly and final dividends in the aggregate amount of HK$15,008,000 for the year ended 31 March 2010 and an interim dividend of HK$90 per Share amounting to HK$36,000,000 as at 6 October 2010. The Company may distribute dividends by way of cash or by other means that the Directors consider appropriate and which are allowable under the applicable rules and regulations. The declaration, payment and the amount of dividends will be subject to the discretion of the Directors, and will depend on, among other things, the Group’s operations, earnings, capital requirements and surplus, general financial conditions, contractual restrictions and such other factors as the Directors may deem relevant. Hence the dividends declared and paid by the Company in the past, in particular during the Track Record Period, should not be regarded as indicative of the Company’s future dividends.

No assurance that future business plans will materialise

The future business plans of the Group are based on current intentions of the Group and some of them are at conceptual or preliminary stages and no detailed feasibility studies have been conducted. These business plans and intentions are based on assumptions as to the occurrence of certain future events, which may or may not materialise, and the real situation might differ materially.

RISKS RELATING TO THE INDUSTRY

Competition

The financial services industry in Hong Kong is characterised by a large number of market participants. As at 31 January 2011, there were a total of 540 and 220 Exchange Participants on the Stock Exchange and the Futures Exchange respectively. As at 31 December 2010, there were total of 836 , 246 , 838 and 132 licensed corporations engaging in Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 5 (advising on futures contracts) regulated activities respectively. New participants may enter into the industry provided that they satisfy the FRR, possess relevant professionals with the appropriate skills and have obtained the requisite licences and permits.

Apart from securities brokerage firms with similar target clients and similar range of services, the Group also faces competition from local banks and multinational financial institutions including banks and investment banks with global network and a local presence in Hong Kong which have greater financial and other resources.

– 35 –

RISK FACTORS

Online securities and futures trading and financial information portals have become more common, thus intensifying the competition for online based customers while competition in the market of the traditional brokerage business remains fierce. The Group launched its Internet platform for securities trading in June 2008 . It competes with both the existing market players and new market entrants, who injected or will inject large amount of resources on improving their Internet trading technologies to sustain market positions. In the event the Group’s online trading technology lags behind other competitors or it is not able to compete effectively in the field, its business, financial position, results of operations and prospects could be adversely affected.

Regulations

The Group’s operations are highly regulated and its businesses, financial condition, results of operations and prospects may be materially and adversely affected by any regulatory changes.

The Hong Kong regulatory regime for the financial services industry has from time to time implemented changes in the rules and regulations that may be applicable to the Group (including the SFO which includes the FRR), the Listing Rules, the GEM Listing Rules, the Takeovers Code and the Code of Share Repurchases（股份購回守則） . Some of these changes may result in additional restrictions on the Group’s activities. In addition, failure to comply with applicable rules and regulations may result in fines, or restrictions on the Group’s activities or, in serious cases, suspension or revocation of some or all of the Group’s businesses licences or criminal liability. In the event that any of the above occurs, the Group’s businesses and financial performance would be materially and adversely affected. The Directors confirmed that during the Track Record Period and up to the Latest Practicable Date, Cheong Lee has not been subject to any review by the SFC or other regulatory authorities. Apart from Mr. Lau Ka Lung Ali, an executive Director, who was reprimanded and fined by the SFC and details of which are mentioned in “Directors, senior management and staff” of this document, the Directors confirm that there has been no public disciplinary action or reprimand by any regulatory authority against Cheong Lee, its directors or any of its staff during the Track Record Period and up to the Latest Practicable Date .

Furthermore, Cheong Lee is required to remain licensed with the relevant regulatory authorities including, without limitation, as a licensed corporation under the SFO with the SFC in Hong Kong. In this respect, Cheong Lee has to ensure continuous compliance with all applicable laws, regulations and codes, and to satisfy the SFC, the Stock Exchange and/or other regulatory authorities that it remains fit and proper to be licensed. If there is any change to or tightening of the relevant laws, rules and regulations, it may adversely affect the Group’s operations and business. Any misconduct, omissions, failures or breaches of any of the officers or employees may also create negative publicity on the Group and will adversely affect its business and performance.

– 36 –

RISK FACTORS

RISKS RELATING TO CONDUCTING BUSINESS IN HONG KONG

Macroeconomic considerations

Since all of the Group’s revenue is derived from Hong Kong, its business and results of operations are related directly to the overall performance of Hong Kong economy which is influenced by factors including, inter alia, local and international economic and political conditions, general market sentiment, changes in the regulatory environment and fluctuations in the interest rates.

Financial difficulties and economic conditions in the U.S., Europe and other regions since September 2008 have caused significant economic down turn. The economy of Hong Kong was also affected as a result. Sustainability of economic recovery if any, is uncertain. Moreover, the future prospects of Hong Kong are linked to the economic, social and political development of the PRC and any unfavorable disruption to such development could have a corresponding effect on the Hong Kong’s economy.

Political and economic risks associated with conducting business in Hong Kong

Hong Kong is a special administrative region of the PRC and the Basic Law（基本法）, Hong Kong’s constitutional document, reflects the basic policies of the PRC regarding Hong Kong which provides Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems”. However, the economic, political and legal environment in Hong Kong could change and the Group’s business and operations may be affected should there be any material adverse change in the stability and development of the economy, and political and legal environment of Hong Kong.

– 37 –

	DIRECTORS
DIRECTORS
Name	Address	Nationality
Executive Directors
LAU Ka Lung Ali（劉嘉隆）	Flat C, 34th Floor, Block 2	Chinese
	2 King San Path
	Kingston Terrace
	Tuen Mun
	New Territories
	Hong Kong
KWOK Kin Chung（郭建聰）	2nd Floor	Chinese
	37 Tin Liu New Village
	Pak Lam Road
	Ma Wan
	New Territories
	Hong Kong
LAU Kin Hon（劉建漢）	Flat A, 3rd Floor, Block 3	Chinese
	Braemar Hill Mansions
	19 Braemar Hill Road
	North Point
	Hong Kong
Linda YU（余蓮達）	Flat C, 18th Floor	Chinese
	Cathay Lodge
	125 Wanchai Road
	Hong Kong

– 38 –

DIRECTORS

Independent non-executive Directors A U-Y EUNG Tai Hong Rorce Flat B, 3rd Floor, Block 5 Chinese （歐陽泰康） Cavendish Height Jardine’s Lookout Hong Kong C HEE Kwok Wing Waymond 12A Grand Garden British （池國榮） 8 Sai Wan Ho Street Sai Wan Ho Hong Kong C HOY Wing Man（蔡詠雯） Flat D, 18/F Chinese Lechler Court 97 High Street Sai Ying Pun Hong Kong

– 39 –

CORPORATE INFORMATION

Registered office

Registered office Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands Headquarters, head office and principal Room 1106, 11th Floor place of business in Hong Kong Mass Mutual Tower 38 Gloucester Road Wanchai Hong Kong Company secretary CHAN Kam Wah（陳錦華） FCCA, CPA Audit Committee CHOY Wing Man（蔡詠雯）(Chairman) AU-YEUNG Tai Hong Rorce（歐陽泰康） CHEE Kwok Wing Waymond（池國榮） Remuneration Committee AU-YEUNG Tai Hong Rorce（歐陽泰康） (Chairman) CHOY Wing Man（蔡詠雯） LAU Kin Hon（劉建漢） Nomination Committee CHEE Kwok Wing Waymond（池國榮） (Chairman) CHOY Wing Man（蔡詠雯） LAU Ka Lung Ali（劉嘉隆） Principal share registrar and transfer office Codan Trust Company (Cayman) Limited Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands Hong Kong branch share registrar and Tricor Investor Services Limited transfer office 26th Floor, Tesbury Centre 28 Queen’s Road East Hong Kong

– 40 –

CORPORATE INFORMATION

Principal bankers

Website of the Company

Bank of China 33rd Floor Bank of China Tower 1 Garden Road Hong Kong

Bank of Communications Commercial Banking Centre (Island East) 1st Floor 67-71 King’s Road North Point Hong Kong Dah Sing Bank Limited 34th Floor Dah Sing Financial Centre 108 Gloucester Road Hong Kong Hang Seng Bank 11th Floor 83 Des Voeux Road Central Hong Kong HSBC Level 9 HSBC Main Building 1 Queen’s Road Central Hong Kong Standard Chartered Bank 12th Floor Standard Chartered Tower 388 Kwun Tong Road Kwun Tong Kowloon Hong Kong www.cheongleesec.com.hk (None of this website nor information contained in this website forms part of this document)

– 41 –

INDUSTRY OVERVIEW

This overview contains information derived from publicly available government or official sources referred to in this document. The Company believes that the sources of such information are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information . The Company has no reason to believe that such information is false or misleading. Such information has not been independently verified by the Company , and no representation is given as to its accuracy . You should note that such information may not be consistent with information from other sources and should not be unduly replied upon.

THE STOCK MARKET IN HONG KONG

History of the Stock Exchange

The Association of Stockbrokers in Hong Kong was established in 1891 as the first stock exchange in Hong Kong. It was renamed as the Hong Kong Stock Exchange in 1914. In 1921, the second stock exchange in Hong Kong, the Hong Kong Stockbrokers’ Association was established. The two exchanges then merged and were together named as the Hong Kong Stock Exchange after the end of the Second World War.

During the late 1960s and early 1970s, the rapid growth of economy in Hong Kong has led to the establishment of three other exchanges in 1969, 1971 and 1972 respectively, namely the Far East Exchange, the Kam Ngan Stock Exchange and the Kowloon Stock Exchange. In 1980, the Stock Exchange was incorporated for the purpose of unification and merger of the four exchanges. The Stock Exchange commenced its business in April 1986.

In 1999, the Stock Exchange launched GEM to provide fund-raising opportunities for growth companies of all sizes from all industries, and to promote the development of technology industries in the region. The first company became listed on GEM in November 1999. In the same year, the Stock Exchange, the Futures Exchange and their respective clearing houses merged under a single holding company, HKEx.

In March 2000, the Stock Exchange, the Future Exchanges and HKSCC were demutualised and became the wholly-owned subsidiaries of HKEx. On 27 June 2000, HKEx was listed on the Main Board by way of introduction and became one of the stock exchanges in the world having its shares publicly listed.

– 42 –

INDUSTRY OVERVIEW

Highlights of the Hong Kong stock market

Figure 1: Number of listed companies in Hong Kong ( 2000-2010)

==> picture [368 x 181] intentionally omitted <==

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

1400
1200
1000
800 Main Board
GEM
600
400
200
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
As at 31 December
----- End of picture text -----

Source: the SFC

For the ten -year period from 2000 to 2010, the number of listed companies on the Main Board and GEM increased from 736 to 1,244 and from 54 to 169 respectively.

Figure 2: Market capitalisation of companies listed in Hong Kong ( 2000-2010)

==> picture [394 x 181] intentionally omitted <==

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

25000
20,536.5 20,942.3
20000 17,769.3
13,248.8
15000
Main Board
10,253.6
8113.3
10000 6,692.2
5,477.7
4,795.2
3,885.3 3,559.1
5000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
As at 31 December
HK$ billion
----- End of picture text -----

Source: the SFC

– 43 –

INDUSTRY OVERVIEW

==> picture [394 x 181] intentionally omitted <==

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

200
161.1
160 134.7
120 105.0
88.9 GEM
80 67.3 70.2 66.7 66.6
52.2
45.2
61.0
40
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
As at 31 December
HK$ billion
----- End of picture text -----

Source: the SFC

For the ten-year period from 2000 to 2010, the total market capitalisation of companies listed on the Main Board and GEM of the Stock Exchange increased by approximately 333.5%, from approximately HK$ 4,862.5 billion to approximately HK$ 21,077.0 billion. According to information from the SFC, as at 31 December 2010 , the total market capitalisation of companies listed in Hong Kong amounted to approximately US$ 2,711 billion ranking the Stock Exchange the third and the seventh among the stock exchanges of Asian countries and of the world respectively.

Fund raising activities in Hong Kong

Figure 3: Equity fund raised on the Stock Exchange ( 2000-2010)

==> picture [364 x 162] intentionally omitted <==

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

450
400
350
300
250 Initial public offers
200 Secondary market
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
As at 31 December
(HK$ billion)
----- End of picture text -----

Source: the SFC

– 44 –

INDUSTRY OVERVIEW

For the ten-year period from 2000 to 2010, total equity fund raised on the Stock Exchange increased substantially by approximately 81.9% from approximately HK$ 467.3 billion to approximately HK$ 850.1 billion. During this period, fund raised from initial public offers increased by approximately 3.4 times from approximately HK$ 132.1 billion to approximately HK$ 445.0 billion. Fund raised from the secondary market increased from approximately HK$ 335.2 billion to approximately HK$ 405.1 billion.

Securities market in Hong Kong

Securities transactions

Figure 4: Transaction value traded on the Stock Exchange ( 2000-2010)

==> picture [325 x 185] intentionally omitted <==

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

50000 43,333
45000
40000 35,306 34,420
31,031
35000
30000
25000
16,751
20000
15000 9,038
7,948
10000 6,272 3,989 3,294 5,175
5000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
As at 31 December
(HK$ billion)
Value of transaction
----- End of picture text -----

Source: the SFC

For the period from 2000 to 2010, the number of transactions traded on the Stock Exchange increased from approximately HK$ 73.74 million to approximately HK$ 387.88 million, representing a substantial growth of about 426.0 %. Total value of transactions increased by approximately 448.8 % from approximately HK$ 6,272 billion to approximately HK$ 34,420 billion.

Exchange Participants

A person who wishes to trade listed securities on or through the facilities of the Stock Exchange must be an Exchange Participant holding a Stock Exchange trading right.

– 45 –

INDUSTRY OVERVIEW

To become an Exchange Participant, the person must be an individual ordinarily resident in Hong Kong or a limited company incorporated in Hong Kong which is registered with the SFC as a licensed corporation to carry out Type 1 (dealing in securities) regulated activity under the SFO. An Exchange Participant is required to maintain good financial standing and meet the FRR and the rules of the Stock Exchange.

Exchange Participants are classified into three groups:

Group A – the 14 largest firms by market turnover;
Group B – the 15th to 65th largest firms by market turnover; and
Group C – other stockbrokers in the market.

Group A firms are engaged mainly in institutional trading, predominantly serving large overseas institutional clients. Group B firms are engaged in a mixture of overseas and local institutional trading and retail trading. Group C firms have historically captured a majority of the retail trading in Hong Kong, but are gradually being squeezed out of the market by large institutions from Group A, as well as Group B firms which have sufficient economies of scale to offer comprehensive and sophisticated service platforms than the traditional brokers.

Futures market in Hong Kong

Hong Kong Commodity Exchange was established in 1976 for trading products futures, principally cotton futures, sugar futures, soybean futures and gold futures. It was renamed as the Futures Exchange in 1985 and introduced the first financial futures product, HSI futures, in the subsequent year. On 6 March 2000, the Stock Exchange and the Futures Exchange demutualised and together with HKSCC, merged under a single holding company, HKEx.

Today, derivatives products offered by the Futures Exchange include four main types, namely, (a) equity index products such as HSI futures and options, H-shares index futures and options, mini HSI index futures and options and mini H-shares index futures; (b) equity products such as stock futures and stock options; (c) interest rate and fixed income products such as HIBOR futures and three-year exchange fund note futures; and (d) gold futures. Among these, HSI futures are the most popular derivatives at the Futures Exchange. According to the website of the SFC, approximately 48.90 % of the futures contracts traded in 2010 on the Futures Exchange were HSI futures (not including mini HSI futures).

– 46 –

INDUSTRY OVERVIEW

Figure 5: Futures and options contracts traded in the Futures Exchange ( 2000-2010)

==> picture [325 x 191] intentionally omitted <==

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

116,054
120000 105,007
98,538
100000 87,985
80000
60000
42,906
40000 25,523
19,630
14,546
20000 9 ,261 10,550 11,029
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
As at 31 December
(in ’000)
No. of contracts traded
----- End of picture text -----

Source: the SFC

For the period from 2000 to 2010, the number of futures and options contracts traded in the Futures Exchange increased from approximately 9.3 million to 116.1 million, representing a growth of approximately 1,148.39 %.

Futures Exchange Participants

A person who wishes to trade on or through the facilities of the Futures Exchange must be a Futures Exchange Participant holding a Futures Exchange Trading Right.

To become a Futures Exchange Participant, the person must be a company registered with the SFC as a licensed corporation to carry out Type 2 (dealing in futures contracts) regulated activity under the SFO. A Futures Exchange Participant is also required to meet the FRR and the rules of the Futures Exchange and such other financial resources requirements as may be prescribed by the Futures Exchange.

– 47 –

INDUSTRY OVERVIEW

Competition of brokerage industry in Hong Kong

The main entry barrier in Hong Kong’s brokerage business comes from the paid-up share capital, liquid capital and licensing requirements of the SFC. Securities dealing and futures dealing are the regulated activities under the SFO and are governed by the relevant rules and regulations. New entrant who wishes to carry on such regulated activities must be licensed by the SFC to become a licensed corporation. Each licensed corporation must have not less than two responsible officers to directly supervise the conduct of each regulated activity. Depending on the type(s) of regulated activity/activities, licensed corporations have to maintain at all times paid-up share capital and liquid capital of not less than the specified amounts according to the FRR. Please also refer to “Regulatory and licensing requirements” of this document for details.

The rapid increase in the transaction size and the transaction value of the stock market in Hong Kong has created a growing attraction and strong demand to the local brokerage industry and these have led to fierce competition in the local brokerage industry during these years. Local banks and multinational financial institutions including banks and investment banks with global network and a local presence in Hong Kong compete for both traditional telephone and online based clients within Hong Kong. As at 31 January 2011, there were 487 Stock Exchange trading participants, 31 Stock Exchange non-trading participants and 178 Futures Exchange trading participants. Exchange Participants are classified into three groups according to their shares of market turnover. Please refer to “Exchange Participants” above for details. Below is the distribution of market participants’ market shares from 2005 to 2009:

	Category A	Category B	Category C
Year	(Position 1 to 14)	(Position 15 to 65)	(Position > 65)
2005	53.08%	33.15%	13.77%
2006	52.04%	35.61%	12.35%
2007	50.37%	37.75%	11.85%
2008	53.02%	36.30%	10.68%
2009	52.02%	35.34%	12.64%

Source: HKEx fact book 2009

Note: The table includes all Exchange Participant firms that had paid transaction levy, investor compensation levy (if applicable) and trading fee to the Stock Exchange.

– 48 –

INDUSTRY OVERVIEW

As illustrated above, the brokerage business in Hong Kong is dominated by certain large firms, in particular those in Category A, the top 14 firms accounted for more than 50% of the market turnover in the past few years. Competition for firms in Category C is extremely intensive .

Both local and international licensed corporations compete for fees and commissions. Since 1 April 2003, minimum brokerage commission rates in respect of securities and commodities trading in Hong Kong have been deregulated, and therefore brokerage commissions are subject to market forces and negotiations with clients and may become susceptible to downward pressure from time to time. Markets players have to adapt to this more competitive commission regime. Apart from pricing, the Group also competes on client relationship, brand recognition, resources and technical competence. Please refer to the section “ Competitive strength” under “Business” of this document for details.

Cheong Lee is a Group B Exchange Participant and competes mainly with local small and medium sized brokerage firms of Category B in Hong Kong. In 2009, according to information provided to the Company by the Stock Exchange, its position amongst the Exchange Participants was 22 out of 454 and its market share was approximately 1.25% based on trading fee, transaction levy and investor compensation levy (if applicable). Its major competitors are licensed corporations participating in regulated activities providing similar services as the Group, such as the provision of securities, futures and option broking and trading, placing and underwriting services and other ancillary services. As at the Latest Practicable Date, Cheong Lee’s paid-up share capital which amounts to HK$40 million has exceeded the minimum requirement of HK$5 million for its existing business activities and even exceeded the minimum requirement of HK$10 million for the margin finance business which has yet to be developed.

TRADING INFRASTRUCTURE

(i) AMS/3

All securities listed on the Stock Exchange are traded through AMS. AMS was first introduced in 1993 to accommodate the increasing volume of business as well as to cope with the rapid technological advances and growing demand for more efficient trading environment. Prior to the launch of AMS, trading on the Stock Exchange was conducted manually, either through its internal telephone system or the “open outcry” system where Exchange Participants negotiated face-to-face on the trading floor.

– 49 –

INDUSTRY OVERVIEW

The Stock Exchange currently adopted AMS/3 for its electronic trading platform. AMS/3 is the third generation of AMS which was launched in 2000 to replace AMS/2. AMS/3 has extensive capabilities in various areas, including market model, trading methods, market access and trading facilities and investor access channels. It uses auto-matching as core mode for trading. In addition, AMS/3 also features new methods such as single price auction and quote-based market-making. Other new order types, such as enhanced limit order and special limit order have been introduced to support different investors’ needs.

Under AMS/3, there are two approaches to trading – Terminal Approach and Gateway Approach:

Terminal Approach – trading is conducted through AMS/3 trading terminals, which allow for securities trading in Hong Kong only and is similar to the on-floor and offfloor AMS/2 terminals in terms of operation and functionality. This means trading can be conducted through input terminals located on the Stock Exchange’s trading floor, or through off-floor terminals installed at the Exchange Participants’ offices with a maximum of two off-floor terminals per Stock Exchange seat held.
Gateway Approach – brokers can obtain market accessibility using an Open Gateway . To perform trading functions, brokers need to connect their trading facility to the OG device. Brokers can connect OG through (i) Broker Supplied System , which is an inhouse developed system or third-party software package developed by commercial vendors; and (ii) Multi-workstation System which is a Windows-based trading facility offered and supported by HKEx.

Finally, AMS/3 provides investors with channels including the Internet and mobile phones for submitting their trade orders. An order routing system developed by the Stock Exchange links AMS/3 access channels to brokers’ OG. The connection enables two-way electronic data transfer and allows brokers to offer new types of services to their clients.

The trading capacity of an Exchange Participant is called the throttle rate, which had been restricted by the number of Exchange Trading Rights held by the Exchange Participant. Throttle rate determines the rate at which orders can be sent through an OG to the AMS/3 by the Exchange Participant. The standard throttle rate is one order per second. Exchange Participants may increase their throttle rates in integral multiples of one order per second by paying additional fees to HKEx .

– 50 –

INDUSTRY OVERVIEW

(ii) HKATS

Automatic Trading System , an electronic trading system of the Futures Exchange was introduced in 1995. It was subsequently upgraded and renamed as the Hong Kong Automatic Trading System in 1999. In 2000, HKATS became the trading platform for all products traded on the Futures Exchange when the trading in HSI futures contracts and option contracts migrated from an open outcry system to electronic trading system. Trading can be made through HKATS Click workstations or independently supplied workstations connected through OAPI located at the premises of the Futures Exchange Participants. With HKATS, users can view real-time price information on a computer screen, click on a bid or ask price and execute an order.

SETTLEMENT

(i) CCASS

CCASS, a computerised book-entry clearing and settlement system for transactions executed on the Stock Exchange, was introduced in 1992. It accepts share certificates from its participants and holds them in the CCASS depository, and posts electronic share credits to the stock accounts of the depositing participants. Settlement of transactions is recorded electronically by HKSCC as net increases or decreases in participants’ stock account balances, without any physical transfer of share certificates. HKSCC also facilitates payments through the use of electronic money transfers between the participants’ designated banks. Exchange Participants are required to settle all their trades in eligible securities through CCASS. Operation of investor accounts in CCASS was launched in May 1998. HKEx currently has six categories of CCASS participants, namely, investors, brokers, clearing agencies, custodians, stock lenders and stock pledgees.

Trades executed on AMS/3 are automatically transferred to CCASS for clearing for settlement among the Exchange Participants on T+2.

(ii) DCASS

The derivatives products being traded through HKEx are settled through DCASS which is owned and operated by HKFE Clearing Corporation Limited (“ HKCC ”) and the SEHK Options Clearing House Limited (“ SEHOC ”). DCASS was first launched in April 2004. It is a fully electronic and automated clearing and settlement system capable of supporting various types of derivatives products.

– 51 –

INDUSTRY OVERVIEW

Futures Exchange Participants can access DCASS through a terminal or through an Application Programme Interface (API), based on the HKATS Open API. Through the DCASS terminal, Exchange Participants can (i) access information on specific accounts, including propagation and position details; (ii) perform on-line trade and position management functions; (iii) submit on-line exercise instructions; and (iv) estimate margin requirements based on their actual or hypothetical positions, they can also access margining parameters and data for margining.

THE ONLINE BROKERAGE INDUSTRY IN HONG KONG

Figure 6: Proportion of stock/derivatives traders as online traders (1999-2009)

==> picture [299 x 204] intentionally omitted <==

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

80%
69.1%
70%
58.8%
60% 66.9%
50%
38.5%
35.8% 49.2%
40% 30.1%
30% 37.5%
29.3%
20% 26.1%
10%
0
Dec 2003 Oct 2004 Dec 2005 Dec 2007 Dec 2009
Online stock traders as percentage of all stock traders
Online derivatives traders as percentage of all derivatives traders
----- End of picture text -----

Source: HKEx fact book 2009

According to available statistics from the Stock Exchange, online stock traders and online derivatives traders as a percentage of the total number of stock and derivative traders increased from about 30.1% as at 31 December 2003 to about 69.1% as at 31 December 2009, and from about 26.1% as at 31 December 2003 to about 66.9% as at 31 December 2009 respectively. Online stock traders tended to trade stocks more frequently than non-online stock traders – they had a median of 12 stock transactions in the 12-month period versus 10 stock transactions for non-online stock traders. In comparison, online derivatives traders had a median of eight derivative transactions in the 12-month period, less than the 10 derivative transactions for non-online derivative traders.

– 52 –

INDUSTRY OVERVIEW

Figure 7: Statistics on retail online trading in cash market

	2005/06	2006/07	2007/08	2008/09	2009/10
Responded Sample Size
(Note)	351	380	404	410	409
Online brokers
Number of online brokers	105	126	155	173	185
As % of all responding
Stock Exchange
Participants	29.91%	33.16%	38.37%	42.20%	45.23%
Online trading
Online trading value
(HK$ million)	268,566	845,014	1,156,321	921,416	1,095,691
As % of the total market
turnover	3.94%	5.26%	5.06%	6.34%	6.94%

Source: Cash market transaction survey 2009/10 of Stock Exchange, which covered Stock Exchange Participants for the 12-month period from October 2009 to September 2010

Note: Total number of Exchange Participants was 468, 469, 478, 487 and 495 respectively in 2005, 2006, 2007, 2008 and 2009 according to HKEx Fact Book 2009.

On a sample basis, which covers a majority of Stock Exchange Participants, total number of online brokers from 2005/06 to 2009/10 increased from 105 to 185 representing an increase from approximately 29.9% to 45.2% of all responding Stock Exchange Participants. Online trading value as a percentage to the total market turnover increased from approximately 3.94% in 2005/06 to 6.94% in 2009/10.

As indicated in the “Guidance Note on Internet Regulation” released by the SFC in March 1999, in general, the SFC will not seek to regulate securities dealing conducted over the Internet that originate outside Hong Kong, provided that such activities are not detrimental to the interests of the investing public in Hong Kong. As at the Latest Practicable Date, there were no additional registration and licensing requirements in Hong Kong for a company to conduct securities and commodities dealing through the Internet. The SFC would expect registered persons to put in place additional operational measures if they intend to conduct securities dealing, commodity and futures trading and leveraged foreign exchange trading activities over the Internet. These measures address suitability and general conduct, order handling and execution, system integrity, responsible personnel, written procedures, client agreements, record keeping and reporting.

– 53 –

INDUSTRY OVERVIEW

IPO FINANCING AND SHARE MARGIN FINANCING

As demonstrated under the section “Securities market in Hong Kong” above, Hong Kong has seen a significant growth in its stock market activities in recent years. This provided the authorised institutions (“AI”, as defined by HKMA) with more opportunities to participate in IPOs, whether as a lending AI to finance the subscription for new shares or as a receiving bank. Lending AI means an AI which extends credit facilities to its clients for the purpose of: (i) facilitating their subscription for new shares in an IPO; (ii) financing their acquisition or holding of shares in listed stocks (in the case of lending to investors); or (iii) financing their business operations (in the case of lending to stockbrokers).

According to the latest version of Supervisory Policy Manual published by HKMA in 2007, lending AIs should apply a reasonable margin requirement on their lending to individual clients; generally speaking, the market norm is a 10% margin on such lending. This requirement may be satisfied by the deposit of collateral (in the form of cash or securities) with the lending AIs or by setting an appropriate loan-to-value ratio. Lending AIs should exercise prudence in setting the ratios and having regard to the underlying financial strength, liquidity and price volatility of individual stocks. As a reference, the current market norms are: (i) around 50-60% for blue chips (with higher ratios of 70% adopted by lending AIs which specialise in share margin financing and have the expertise and sophisticated risk management systems to control the risks involved); and (ii) around 30-40% or below for selected second and third liners. Such market norms may change from time to time according to market situations.

The following data from the “Market data” section of annual report 2009-10 of the SFC were extracted from the monthly financial returns submitted in accordance with the FRR by licensed corporations licensed for dealing in securities or securities margin financing:

		As at 31 December
	2007	2008	2009
Number of active margin clients	110,043	113,823	138,772
Amounts of receivables from	HK$41,765	HK$17,271	HK$40,160
margin clients	million	million	million
Average collateral coverage
(Note)		4.4	5.2

Source: SFC annual report 2009

Note: the number of times the aggregate market value of securities collateral deposited by clients covers the amounts receivable from margin clients on a given date on an industry-wide basis

– 54 –

REGULATORY AND LICENSING REQUIREMENTS

Regulations of securities and futures market

The securities and futures markets in Hong Kong are regulated by the SFC. The SFC is an independent non-governmental statutory body outside the civil service system. It was established in 1989 following the enactment of the SFO. Its regulatory functions and powers were expanded in 2003 when the SFO was implemented. The SFC also regulates other financial intermediaries and the representatives from these financial intermediaries, namely, licensed corporations in Hong Kong who are not necessarily members of the Stock Exchange and the Futures Exchange.

The SFO is administered by the SFC and it provides for the fundamental frameworks within which dealings in securities are conducted and regulated. Under the SFO, the SFC has six statutory regulatory objectives:

to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry;
to promote understanding by the public of the operation and functioning of the securities and futures industry;
to provide protection for members of the public investing in or holding financial products;
to minimise crime and misconduct in the securities and futures industry;
to reduce systemic risks in the securities and futures industry; and
to assist the Financial Secretary of Hong Kong in maintaining the financial stability of Hong Kong by taking appropriate steps in relation to the securities and futures industry.

In order to achieve the above objectives, SFC, among other functions, supervises three main groups of participants in the securities and futures market in Hong Kong:

Intermediaries – brokers, investment advisers, asset managers and investment bankers who are engaged in regulated activities;
Issuers of securities – listed companies and investment funds through an authorisation process to ensure that adequate and unbiased information is available to permit informed investment decisions; and

– 55 –

REGULATORY AND LICENSING REQUIREMENTS

Market operators – providers of trading platforms of securities, for example, HKEx, which is the holding company of the Stock Exchange, the Futures Exchange and HKSCC.

The SFO stipulates nine types of regulated activities that can be carried on by intermediaries:

Type 1 – dealing in securities;

Type 2 – dealing in futures contracts;

Type 3 – leveraged foreign exchange trading;

Type 4 – advising on securities;

Type 5 – advising on futures contracts;

Type 6 – advising on corporate finance;

Type 7 – providing automated trading services;

Type 8 – securities margin financing; and

Type 9 – asset management.

Licensing requirements under the SFO

Under the SFO, a corporation which is not an authorised financial institution and is:

(a) carrying on a business in a regulated activity or hold out as carrying on a business in a regulated activity; or
(b) actively marketing, whether in Hong Kong or from a place outside Hong Kong, to the public any services that it provides, which would constitute a regulated activity if provided in Hong Kong,

must be licensed by the SFC to carry out regulated activities, unless one of the exemptions under the SFO applies. An individual is required to be a Licensed Representative if he is performing a regulated function for his principal which is a licensed corporation in relation to a regulated activity carried on as a business or he holds out as performing such function.

– 56 –

REGULATORY AND LICENSING REQUIREMENTS

Responsible officers

Each licensed corporation must have not less than two responsible officers to directly supervise the conduct of each regulated activity. For each regulated activity, it must have at least one responsible officer available at all times to supervise the business. The same individual may be appointed to be a responsible officer for more than one regulated activity provided that he is fit and proper to be so appointed and there is no conflict in the roles assumed. At least one of the responsible officers must be an executive director as defined under the SFO. All executive directors must seek the SFC’s approval as responsible officers accredited to the licensed corporation.

Qualification and experience required for being a responsible officer

A person who intends to apply to be a responsible officer should meet the below criteria in order to take up the relevant responsibility:–

Sufficient authority

A responsible officer should have sufficient authority to supervise the business of regulated activity within the licensed corporation that a responsible officer will be accredited to.
A responsible officer may or may not be a director of the licensed corporation. However if a person is a director of the corporation and actively participates or directly supervises the business of regulated activity, he/she must apply to become a responsible officer of that corporation in respect of the regulated activity concerned under the SFO.

Competence

A responsible officer should possess appropriate ability, skills, knowledge and experience to properly manage and supervise the corporation’s business of regulated activities. Basically, he/she has to fulfill the four elements mentioned in the table below to be approved as a responsible officer.

– 57 –

REGULATORY AND LICENSING REQUIREMENTS

	Basic elements	Basic elements		Can be compensated by
(1)	Academic/industry	Passed one of the	•	Degree in Accounting, Business
	qualification	recognised industry		Administration, Economics, Finance
		qualifications		or Law, or other degree (with passes
				in at least two courses in the above
				disciplines); or
			•	Internationally recognised
				professional qualifications in Law,
				Accounting or Finance; or
			•	Passes in English or Chinese;
				and Mathematics in Hong
				Kong Certificate of Education
				Examination (“HKCEE”) or
				equivalent plus an additional
				two years of relevant industry
				experience; or
			•	An additional five years of relevant
				industry experience.
(2)	Industry	Possesses three years	Not applicable
	experience	of relevant industry
		experience over the six
		years immediately prior
		to the date of application
(3)	Management	Has a minimum	Not applicable
	experience	of 2 years’ proven
		management skill and
		experience
(4)	Regulatory	Passed one of the	Applicant may apply for exemption from
	knowledge	recognised local	taking the recognised local regulatory
		regulatory framework	framework paper if he/she satisfies the
		papers	exemption criteria as set out in Appendix E of
			the Guidelines on Competence under section
			399 of the SFO

If a responsible officer intends to conduct regulated activities in relation to matters falling within the ambit of a particular code issued by the SFC, e.g. the Takeovers Code, the Code on Share Repurchases（股份回購守則）or the Code on Real Estate Investment Trusts（房地產投資信託基金守則）, additional competence requirements specific to that field would apply.

– 58 –

REGULATORY AND LICENSING REQUIREMENTS

Qualification and experience required for being a Licensed Representative

A person who intends to apply to be a Licensed Representative has to establish that he/ she has the requisite basic understanding of the market in which he/she has to work as well as the laws and regulatory requirements applicable to the industry. In assessing his/her competence to be licensed as a representative, the SFC will have regard to three basic elements in the below table:–

Basic elements

Can be compensated by

(1) Academic/ Passe s in English • Degree in Accounting, Business industry or Chinese, and Administration, Economics, qualification Mathematics Finance or Law, or other degree in HKCEE or (with passes in at least two equivalent courses in the above disciplines); or
(2) Industry Passed one of the qualification recognised industry qualifications
Internationally recognised professional qualifications in Law, Accounting or Finance; or
An additional two years of relevant industry experience for lacking either (1) or (2); or
An additional five years of relevant industry experience for lacking both (1) and (2).
(3) Regulatory Passed one of Applicant may apply for exemption knowledge the recognised from taking the recognised local local regulatory regulatory framework paper if he framework papers satisfies the exemption criteria as set out in Appendix E of the Guidelines on Competence under section 399 of the SFO .

Note: A representative licensed for Type 3 regulated activity (leverage foreign exchange trading) who handles discretionary account activities has to obtain an additional three years of direct foreign exchange trading experience in the inter-bank foreign exchange market or currency futures market, or its equivalent over the past six years.

– 59 –

REGULATORY AND LICENSING REQUIREMENTS

Fit and proper

The SFC is obliged to refuse to grant a licence or registration if the applicant fails to satisfy the SFC that he is fit and proper. Pursuant to Section 129 of the SFO, in considering whether a person is fit and proper for the purposes of licensing or registration, the SFC shall, in addition to any other matter that the SFC may consider relevant, have regard to the following:–

financial status or solvency;
educational or other qualifications or experience having regard to the nature of the functions to be performed;
ability to carry on the regulated activity concerned competently , honestly and fairly; and
reputation, character, reliability and financial integrity of the applicant and other relevant persons as appropriate.

The SFC published The Fit and Proper Guidelines （適當人選的指引）under Section 399 of the SFO which sets out a number of matters that the SFC will normally consider in determining whether a person is fit and proper:

(a) decisions made by such relevant authorities as stated in Section 129(2)(a) of the SFO or any other authority or regulatory organisation, whether in Hong Kong or elsewhere, in respect of that person;

– 60 –

REGULATORY AND LICENSING REQUIREMENTS

(b) in the case of a corporation, any information relating to:
(i) any other corporation within the group of companies; or
(ii) any substantial shareholder or officer of the corporation or of any of its group companies;
(c) in the case of a corporation licensed under Section 116 or Section 117 of the SFO or registered under Section 119 of the SFO or an application for such licence or registration:
(i) any information relating to any other person who will be acting for or on its behalf in relation to the regulated activity; and
(ii) whether the person has established effective internal control procedures and risk management systems to ensure its compliance with all applicable regulatory requirements under any of the relevant provisions;
(d) in the case of a corporation licensed under Section 116 or Section 117 of the SFO or an application for the licence, any information relating to any person who is or to be employed by, or associated with, the person for the purposes of the regulated activity; and
(e) the state of affairs of any other business which the person carries on or proposes to carry on.

The Fit and Proper Guidelines（適當人選的指引）apply to a number of persons including the following:

(a) an individual who applies for a licence or is licensed under Part V of the SFO;
(b) a Licensed Representative who applies for approval or is approved as a Responsible Officer under Part V of the SFO;
(c) a corporation which applies for a licence or is licensed under Part V of the SFO;
(d) an authorised financial institution which applies for registration or is registered under Part V of the SFO;
(e) an individual whose name is to be or is entered in the register maintained by the HKMA under Section 20 of the Banking Ordinance（銀行業條例）(Chapter 155 of the Laws of Hong Kong（香港法例）); and

– 61 –

REGULATORY AND LICENSING REQUIREMENTS

(f) an individual who applies to be or has been given consent to act as an executive officer of a registered institution under Section 71C of the Banking Ordinance（銀行業條例） (Chapter 155 of the Laws of Hong Kong（香港法例）).

Persons applying for licences and registrations under the SFO must satisfy and continue to satisfy, after the grant of such licences and registrations, the SFC that they are fit and proper persons to be so licensed or registered.

The SFC is obliged to refuse an application to be licensed if the applicant fails to satisfy the SFC that he is a fit and proper person to be licensed. The onus is on the applicant to make out a case that he is fit and proper to be licensed for the regulated activity. In relation to an application to be registered under Section 119 of the SFO by an authorised financial institution, the SFC is obliged to have regard to the advice given to it by the Hong Kong Monetary Authority as to whether it has been satisfied that the applicant is a fit and proper person and the SFC may rely on such advice wholly or partly.

Financial resources

Depending on the type(s) of regulated activity/activities, licensed corporations have to maintain at all times paid-up share capital and liquid capital not less than the specified amounts according to the FRR. The FRR sets out the computation of a number of variables in respect of all the liquid assets and ranking liabilities of a licensed corporation and its liquid assets must exceed its ranking liabilities. If a licensed corporation conducts more than one type of regulated activity, the minimum paid-up share capital and liquid capital that it must maintain shall be the higher or the highest amount required amongst those regulated activities.

The following table summarises the minimum paid-up capital and liquid capital that a licensed corporation is required to maintain for Types 1 (dealing in securities), 2 (dealing in futures contracts), 4 (advising on securities) and 5 (advising on futures contracts) regulated activities:

		Minimum paid	Minimum
Regulated activity		up share capital	liquid capital
Type	1
(a)	in the case where the corporation is an	Not applicable	HK$500,000
	approved introducing agent or trader
(b)	in the case where the corporation	HK$10,000,000	HK$3,000,000
	provides securities margin financing
(c)	in any other case	HK$5,000,000	HK$3,000,000

– 62 –

REGULATORY AND LICENSING REQUIREMENTS

		Minimum paid	Minimum
Regulated activity		up share capital	liquid capital
Type	2
(a)	in the case where the corporation is an	Not applicable	HK$500,000
	approved introducing agent, a trader
	or a futures non-clearing dealer
(b)	in any other case	HK$5,000,000	HK$3,000,000
Type	4
(a)	in the case where in relation to Type	Not applicable	HK$100,000
	4 regulated activity, the corporation
	is subject to the licensing condition
	that it shall not hold client assets
(b)	in any other case	HK$5,000,000	HK$3,000,000
Type	5
(a)	in the case where in relation to Type	Not applicable	HK$100,000
	5 regulated activity, the corporation
	is subject to the licensing condition
	that it shall not hold client assets
(b)	in any other case	HK$5,000,000	HK$3,000,000

Pursuant to the FRR, a licensed corporation shall maintain the higher of the minimum liquid capital or 5% of the aggregate of (a) its adjusted liabilities; (b) the aggregate of the initial margin requirements in respect of outstanding futures contracts and outstanding options contracts held by it on behalf of its clients; and (c) the aggregate of the amounts of margin required to be deposited in respect of outstanding futures contracts and outstanding options contracts held by it on behalf of its clients, to the extent that such contracts are not subject to payment of initial margin requirements. Adjusted liabilities means the licensed corporation’s on-balance sheet liabilities including provisions made for liabilities already incurred or for contingent liabilities but excluding amounts stipulated in the definition of “adjusted liabilities” under the FRR.

– 63 –

REGULATORY AND LICENSING REQUIREMENTS

Continuing compliance obligations

Remaining fit and proper

Licensed corporations, Licensed Representatives and registered institutions must remain fit and proper at all times and comply with all applicable provisions of the SFO and its subsidiary legislations as well as the codes and guidelines issued by the SFC.

Submission of audited accounts

Licensed corporations and associated entities of intermediaries (except for those which are authorised financial institutions) are required to submit their audited accounts and other required documents within four months after the end of each financial year as required under Section 156(1) of the SFO.

Submission of financial resources returns

Licensed corporations are required to submit monthly financial resources returns to the SFC except for those licensed corporations for only Types 4 (advising on securities), 5 (advising on futures contracts), 6 (advising on corporate finance) and/or 9 (asset management) regulated activities and their licenses are subject to the condition that they shall not hold client assets. In such latter case, the licensed corporations concerned shall submit semi-annual financial resources returns to the SFC as required under Section 56 of the FRR.

Payment of annual fees

Licensed corporations, Licensed Rersons and registered institutions should pay annual fees within one month after each anniversary date of the licenses or registrations under Section 138(2) of the SFO, details of the annual fees applicable to the four types of the regulated activities that the Group is engaged in are as follows:

Type of intermediary

Annual fees for Types 1, 2, 4 and 5 regulated activities

Licensed corporation

HK$4,740 per regulated activity

Licensed Representative (not approved as Responsible Officer)

HK$1,790 per regulated activity

Licensed Representative (approved as Responsible Officer)

HK$4,740 per regulated activity

Registered institution

HK$35,000 per regulated activity

– 64 –

REGULATORY AND LICENSING REQUIREMENTS

Continuous professional training

According to the Guidelines on Continuous Professional Training（持續培訓的指引） published by the SFC pursuant to Section 399 of the SFO, a licensed corporation is held primarily responsible for designing and implementing a continuous education system best suited to the training needs of the individuals they engage which will enhance their industry knowledge, skills and professionalism. A licensed corporation should at least annually evaluate the training needs of the individuals they engage. Licensed individuals must undertake a minimum of five continuous professionalism training hours per calendar year for each regulated activity he engages in.

Obligation for substantial shareholder

As required under Section 132 of the SFO, a person (including a corporation) has to apply for SFC’s approval prior to becoming or continue to be a substantial shareholder of a licensed corporation. A person, being aware that he becomes a substantial shareholder of a licensed corporation without SFC’s prior approval should, as soon as reasonably practicable and in any event within three business days after he becomes so aware, apply to the SFC for approval to continue to be a substantial shareholder of the licensed corporation.

Prior approval would also need to be obtained from the SFC in cases such as addition or reduction of regulated activity, modification or waiver of licensing condition, change of financial year end.

In relation to the aforesaid compliance obligations, the Company has adopted various measures as set out in its operation manual which covers, among others, keeping records of staff members registered with the SFC and proper notification to the SFC for any changes in particulars or employment status, obtaining approval from the Board for appointment of Responsible Officers and conducting background checks on new staff, providing a copy of Code of Conduct and other regulatory updates issued by the SFC to staff, proper filing of financial return to the SFC based on financial statements with supporting schedules for each FRR item and the breakdown showing adjustment as required under FRR.

– 65 –

REGULATORY AND LICENSING REQUIREMENTS

Employee dealings

As mentioned in the “Code of Conduct for Persons Registered with the SFC”, a registered person should have a policy which has been communicated to employees (including directors other than non-executive directors) in writing on whether employees are permitted to deal for their own accounts in securities or futures contracts. In the event that employees of a registered person are permitted to deal for their own accounts in securities or futures contracts:

(i) the written policy should specify the conditions on which employees may deal for their own accounts;
(ii) employees should be required to identify all related accounts (including accounts of their minor children and accounts in which the employees hold beneficial interests) and report them to senior management.
(iii) employees should generally be required to deal through the registered person or its affiliates;
(iv) if the registered person provides services in securities or futures contracts listed or traded on one of the Hong Kong exchanges or in derivatives, including over-the counter derivatives written over such securities or futures contracts, and its employees are permitted to deal through another dealer, in those securities or futures contracts, the registered person and employee should arrange for duplicate trade confirmations and statements of account to be provided to senior management of the registered person;
(v) any transactions for employees’ accounts and related accounts should be separately recorded and clearly identified in the records of the registered person; and
(vi) transactions of employees’ accounts and related accounts should be reported to and actively monitored by senior management of the registered person who should not have any beneficial or other interest in the transactions and who should maintain procedures to detect irregularities and ensure that the handling by the registered person of these transactions or orders is not prejudicial to the interests of the registered person’s other clients.

A registered person should not knowingly deal in securities or futures contracts for another registered person’s employee unless it has received written consent from that registered person.

– 66 –

REGULATORY AND LICENSING REQUIREMENTS

Anti-money laundering and terrorist financing

Money laundering covers a wide range of activities and processes intended to alter the identity of the source of illegally obtained money in a manner which creates the appearance that it has originated from a legitimate source. Terrorist financing is a term used to refer to financial transactions involving assets owned or controlled by terrorists and transactions linked to terrorist activities.

Licensed corporations registered under the SFO are required to comply with the Hong Kong laws and the SFC Guidance Notes on Prevention of Money Laundering and Terrorist Financing Guidance Note（防止洗黑錢及恐怖分子籌資活動的指引）which require licensed corporations, amongst other things, to adopt and enforce “know your clients” policies and procedures. Staff of licensed corporations who knows, suspects or has reasonable grounds to believe that a client might have engaged in money laundering activities must immediately report to the compliance division/ senior management of its organisation which, in turn, will be reported to the Joint Financial Intelligence Unit（聯合財富情報組）.

The Group has adopted policies and procedures in its operation manual to identify and detect money laundering activities, which include the following:–

(i) Customer due diligence – Staff is required to
(a) identify the customer, i.e. know who the individual or legal entity is;
(b) verify the customer’s identity using reliable source documents, data or information;
(c) identify and verify beneficial ownership and control and/or the person on whose behalf a transaction is being conducted; and
(d) conduct ongoing due diligence and scrutiny, i.e. perform ongoing scrutiny of the transactions and account throughout the course of the business relationship to ensure that the transactions being conducted are consistent with their knowledge of the customer, its business and risk profile, taking into account, where necessary, the customer’s source of funds;
(ii) Retention of Records – Staff is required to
(a) maintain all necessary records on transactions, both domestic and international, for at least seven years.
(b) keep records on customer identification, account files and business correspondence for at least five years after the account is closed.

– 67 –

REGULATORY AND LICENSING REQUIREMENTS

(iii) The Company provides anti-money laundering and anti-terrorist financing training to staff at regular intervals; and
(iv) Staff are required to report any suspicious transactions directly to the Compliance Officer or a Responsible Officer for further action.

The Company’s compliance department will continue to monitor its internal controls measures and periodically review its procedures and update the operation manual for improvement of operational policies and procedures; and for any change in business operation or the SFC and other regulatory requirements. The Directors believe that the Company will be able to ensure ongoing compliance with the relevant regulatory requirements with the adoption of measures in its operation manual and the continuous efforts of its compliance department on reviewing and updating the operation manual to cope with further development of the Group.

– 68 –

HISTORY AND DEVELOPMENT

Cheong Lee was founded by an Independent Third Party (the “founder”) under the former name “Cheong Lee Securities Company Limited ”. It was incorporated on 10 November 2004 with limited liability in Hong Kong with an authorised share capital of HK$ 5,000,000 divided into 50,000 shares of HK$100 each. Cheong Lee was registered with the SFC as a licensed corporation to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities effective from 24 November 2005.

On 2 May 2007, the SFC approved the application of Ms. Au to become a substantial shareholder of Cheong Lee pursuant to the SFO. As agreed pursuant to a memorandum of agreement dated 14 June 2007 , the founder disposed of her entire interest in Cheong Lee by transferring 90% and 10% of the issued share capital to Ms. Au and an Independent Third Party respectively for an aggregate consideration of HK$5,722,465.73, which is determined based on the net asset value of Cheong Lee as at the completion of the disposal with a premium of HK$420,000 determined on arm’s length basis as confirmed by Ms. Au. The consideration was settled in cash. Although before the share transfer, Cheong Lee has obtained the Exchange Participant certificate and the Exchange trading right from the Stock Exchange. Cheong Lee did not conduct any business since the date of incorporation until it started the securities brokerage business in September 2007 after the share transfer . In September 2007 , Cheong Lee also tapped into the underwriting and placing business. The authorised and paid up share capital was increased by four times to HK$15 million as at 30 November 2007 with contribution of funds from Ms. Au. As a result, Ms. Au and the other shareholder held approximately 94.7% and 5.3% of total issued share capital of Cheong Lee respectively.

On 19 December 2007, Ms. Au acquired all the shares in Cheong Lee then held by the other shareholder for cash at par in consideration of HK$ 800,000. As a result, Ms. Au holds 100% of the equity interest of Cheong Lee . On 9 January 2008, the company name was changed to “Cheong Lee Securities Limited”. The authorised share capital of Cheong Lee was increased five times thereafter. As at the Latest Practicable Date, the authorised and paid up share capital of Cheong Lee amounted to HK$ 40,000,000 .

In 2008, Cheong Lee upgraded its computer system and application server for a more advanced trading platform. Dealing capacity, which is measured by throttle rate on the basis of orders per second, has been increased from 3 to 5 by paying additional fee to the Stock Exchange . In June 2008, Cheong Lee introduced the on-line electronic trading services on its website (www.cheongleesec.com.hk) to complement and support its securities broking business. The online trading platform allows clients to place trading orders for securities in Hong Kong through the Internet.

In view of its increasing participation in underwriting and placing, Cheong Lee established the equity capital market department under the sales and marketing department in April 2009 to handle assignments of acting as underwriter, sub-underwriter or placing agent or sub-placing agent of IPOs and placing of securities carried out by companies listed/to be listed on the Stock Exchange or other stock exchange.

– 69 –

HISTORY AND DEVELOPMENT

In 2009, Cheong Lee commenced the futures broking business after obtaining all relevant licences. On 27 August 2009, Cheong Lee was registered with the SFC as a licensed corporation to carry on Type 2 (dealing in futures contracts) and Type 5 (advising on futures contracts) regulated activities under the SFO. On 12 October 2009, it was granted with the Futures Exchange Participant certificate and the Futures Exchange trading right from the Futures Exchange and the HKCC Participant certificate from HKCC. In November 2009, a futures contract dealing system was installed to provide a platform for clients to conduct trades through the OAPI located at Cheong Lee’s premises. Cheong Lee increased its throttle rate from 5 to 12 in 2009, and further from 12 to 14 in as at 30 September 2010 by paying additional fee to the Stock Exchange in order to cope with its business growth.

On 27 August 2010, the Company was incorporated with limited liability in the Cayman Islands with an authorised share capital of HK$ 390,000 divided into 39,000,000 Shares of par value of HK$ 0.01 each and 1 fully paid Share was issued to the subscriber which transferred the same Share at par value to Ms. Au on the same day . On 15 September 2010, Cheong Lee BVI was established as a direct wholly owned subsidiary of the Company. After the Reorganisation, the Company became the holding company of Cheong Lee BVI and Cheong Lee.

The following chart sets out the corporate structure of the Group immediately prior to the Reorganisation:

==> picture [100 x 117] intentionally omitted <==

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

Ms. Au
100%
Cheong Lee
----- End of picture text -----

– 70 –

HISTORY AND DEVELOPMENT

The following chart sets out the corporate structure immediately after [•] without taking into account the Shares to be allotted and issued pursuant to the exercise of any options granted under the Pre-[•] Share Option Scheme and any options which may be granted under the Share Option Scheme:

==> picture [172 x 265] intentionally omitted <==

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

Ms. Au
100%
BVI Holding
��
Company
75% 25%
100%
The Company
100%
Cheong Lee BVI
100%
Cheong Lee
----- End of picture text -----

The following summaries the Company’s (and/or its predecessor’s) development since incorporat ion and its respective achievements:

Date

Major development and achievements

November 2004 Cheong Lee was incorporated under the former name “Cheong Lee Securities Company Limited” November 2005 Cheong Lee was registered with the SFC as a licensed corporation to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities under the SFO June 2007 Ms. Au acquired 90% of the issued share capital of Cheong Lee from the original shareholder, being an Independent Third Party

– 71 –

HISTORY AND DEVELOPMENT

September 2007 Cheong Lee tapped into the underwriting and placing business
December 2007 Ms. Au acquired the remaining issued share capital of Cheong Lee
January 2008 Name changed to “Cheong Lee Securities Limited” February 2008 Cheong Lee obtained the re-issued Exchange Participant certificate and Exchange trading right from the Stock Exchange after the change of name
April – May 2008 Cheong Lee increased its throttle rate from 3 to 5 April 2009 Cheong Lee established the equity capital market department
August 2009 Cheong Lee was registered with the SFC as a licensed corporation to carry on Type 2 (dealing in futures contracts) and Type 5 (advising on futures contracts) regulated activities under the SFO
October 2009 Cheong Lee was granted with the Futures Exchange Participant certificate and the Futures Exchange trading right from the Futures Exchange and the HKCC Participant certificate from HKCC
February – October 2009 Cheong Lee increased its throttle rate from 5 to 12
November 2009 A futures contract dealing system was installed to provide a platform for clients to conduct trades through the OAPI located at Cheong Lee’s premises
September 2010 Cheong Lee increased its throttle rate further from 12 to 14

– 72 –

BUSINESS

The Group carries out its business through the Company’s wholly-owned subsidiary, Cheong Lee, which is a corporation licensed under the SFO to conduct Types 1 (dealing in securities), 2 (dealing in futures contracts), 4 (advising on securities) and 5 (advising on futures contracts) regulated activities. It is principally engaged in the provision of (i) securities , futures and options broking and trading ; and (ii) placing and underwriting services. The Group also provides ancillary services including application for new issues and nominee services such as collection of cash and scrip dividends . The Group’s income mainly comprises: (i) commission income arising from the broking business of securities and futures dealing, which is recognised on a trade-date basis; (ii) underwriting commission income, sub-underwriting commission income, placing commission and related handling fee, which are recogni sed when the relevant services are rendered; (iii) interest income from IPO financing to its clients; and (iv) handling service fees and dividend collection fees which are recogni sed when the relevant services have been provided. The Group currently operates one office.

Securities brokerage business

The Group provides brokerage services to clients for trading in securities listed on the Stock Exchange. According to the information from HKEx, Cheong Lee was classified as a Constituency B Exchange Participant in the years 2008 and 2009 and in the six-month period ended 30 June 2010; and transaction fee and levy collected by Cheong Lee represented approximately 0.963% of the total of the industry as at 30 June 2010. For the two years ended 31 March 2010 and the five months ended 31 August 2010, the total value of transactions in relation to dealing in securities other than placing and underwriting, by Cheong Lee amounted to approximately HK$220,489.7 million, HK$402,321.1 million and HK$ 116,875.7 million (of which, approximately HK$14.0 million, HK$32.8 million and HK$ 2.0 million were generated from trading for Cheong Lee’s own account and the Directors’ accounts) , which represented approximately 1.53%, 2.41% and 1.91% of the total trading value of securities on the Stock Exchange, respectively.

– 73 –

BUSINESS

For the two years ended 31 March 2010 and the five months ended 31 August 2010, transaction value of the Group contributed by securities dealing transaction of (i) Ms. Au, the Controlling Shareholder, and her associate; (ii) the Directors; ( iii) in-house employees; and ( iv) account executives for themselves for the two years ended 31 March 2010 and the five months ended 31 August 2010 are set out as below:

			Five months ended
	Year ended 31 March		31 August
	2009	2010	2010
Ms. Au and her associates
Value of transactions ( million)	HK$ 205,162.6	HK$ 229,369.8	HK$ 28,772.3
Commission income ( million)	HK$ 12.4	HK$ 8.9	HK$ 1.6
Approximate percentage to the Group’s
total value of transactions	93.1 %	57.0 %	24.6 %
Approximate percentage to the Group’s
total commission income from
securities dealings	80.2 %	29.8 %	15.8 %
Directors
Value of transactions	–	HK$ 40,680	–
Commission income	–	HK$ 150	–
Approximate percentage to the Group’s total
value of transactions	N/A	0.00001%	N/A
Approximate percentage to
the Group’s total commission income from
securities dealings	N/A	0.0005%	N/A
In-house employees
Value of transactions (million)	HK$ 6.8	HK$ 16.8	HK$ 2.6
Commission income	HK$ 8,588	HK$ 20,823	HK$ 3,818
Approximate percentage to the Group’s total
value of transactions	0.003 %	0.004 %	0.002 %
Approximate percentage to
the Group’s total commission income from
securities dealings	0.056 %	0.070 %	0.038 %
Account executives
Value of transactions (million)	HK$ 41.6	HK$ 47.4	HK$ 32.5
Commission income	HK$ 42,490	HK$ 76,636	HK$ 46,224
Approximate percentage to the Group’s total
value of transactions	0.019 %	0.012 %	0.028 %
Approximate percentage to
the Group’s total commission income from
securities dealings	0.27 6 %	0.25 9 %	0.456 %

– 74 –

BUSINESS

Clients may place orders to the Group for securities trading through telephone calls or the Group’s Internet platform or on-site at its office premises through the BSS. For the two years ended 31 March 2010 and the five months ended 31 August 2010, the proportion of orders for securities trading placed through the BSS, telephone calls or the Group’s Internet platform is set out as below:

		Year ended 31 March	Year ended 31 March		Five	months
	2009		2010		ended 31	August 2010
		% to total		% to total		% to total
		securities		securities		securities
	% to total	brokerage and	% to total	brokerage and	% to total	brokerage and
	transaction	commission	transaction	commission	transaction	commission
	value	income	value	income	value	income
BSS	98.70%	84.47%	98.64%	59.41%	96.25%	69.61%
Telephone calls	1.25%	14.89%	1.05%	36.93%	3.34%	25.64%
The Group’s Internet platform	0.05%	0.64%	0.31%	3.66%	0.41%	4.75%
Total	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%

As at the Latest Practicable Date, the Group charged its clients a fee at a range of between 0.01 % and 0.25 % of transaction value (subject to a minimum charge) for securities trading orders, which is determined based on the client’s transaction value and regardless of whether orders and placed by means of telephone , the Group’s Internet trading platform or on-site at its office premises. For individual clients with high trading volume who trade on-site and/or through telephone , a commission scheme whereby the client will be charged either by fixed commission or by 0.01% – 0.02% of the transaction value plus HK$1,000, whichever is the lower .

The Group launched its Internet platform for securities trading in June 2008 , which is not subject to any additional registration or licensing requirements pursuant to the “Guidance Note on Internet Regulation” （互聯網監管指引）released by the SFC in March 1999 (provided that such activities are not detrimental to the interests of the investing public in Hong Kong). For the five months ended 31 August 2010, the average utiltisation rate of securities trading capacity of the Group in terms of throttle usage was approximately 1.2 % calculated based on 382,752 orders placed in total divided by the Group’s trading capacity of approximately 31,881,600 orders (which is product of 12 transaction orders per second and 2,656,800 trading seconds given its 12 throttle rates subscribed from the Stock Exchange and on the assumptions of 4.5 trading hours each day and 164 trade days).

– 75 –

BUSINESS

As at 31 March 2009, 31 March 2010 and 31 August 2010, the Group had 175 , 332 and 388 securities clients respectively . Of the 388 securities clients as at 31 August 2010, 64 are corporate clients and 324 are retail clients . For the two years ended 31 March 2010 and the five months ended 31 August 2010 , the Group’s five largest clients of its securities brokerage business in aggregate contributed approximately 88.6 %, 61.1 % and 72.9 % respectively of its securities brokerage commission income. For the two years ended 31 March 2010 and the five months ended 31 August 2010, the Group’s five largest clients of its securities brokerage business include CAAL Capital Limited (“CAAL”, formerly known as Cheong Lee Capital Limited and is wholly owned by Ms. Au), and/or Chinacorp International Consultants Ltd.（中企國際顧問有限公司）(“Chinacorp”, a company which was 100% held by Ms. Au Yu Siu, a niece of Ms. Au until her transfer of 50% interest to an Independent Third Party on 21 September 2009); and/or China Merit International Holdings Limited (“China Merit”, a company wholly owned by Ms. Au) . The largest clients of the Group’s securities brokerage commission income for the two years ended 31 March 2009 and the five months ended 31 August 2010 are CAAL , China Corp and an Independent Third Party which contributed approximately 39.3 %, 8.8 % and 24.8 % of the Group’s securities brokerage commission income during the Track Record Period respectively.

Percentage of the Group’s securities brokerage commission income attributable to (i) CAAL; (ii) Chinacorp; and (iii) China Merit, each of which is/was connected person of the Company, for the two years ended 31 March 2010 and the five months ended 31 August 2010 and at the same time they were one of the five largest customers are set out as below:

CAAL Chinacorp China Merit Total	Year ended 31 March 2009 2010 39.3 % 12.7 % 22.5 % 8.8 % 18.2 % – 80.0 % 21.5 %	Five months ended 31 August 2010 15. 2 % – –
		15. 2 %

– 76 –

BUSINESS

For each of the two years ended 31 March 2010 and for the five months ended 31 August 2010, commission and brokerage derived from securities trading accounted for approximately 73.3 %, 40.8 % and 45.6 % of the Group’s total turnover.

Futures brokerage business

The Group provides brokerage services to clients for trading in futures and options , such as HSI futures and options and mini-HSI futures and options on the Futures Exchange since January 2010 .

Clients may place orders to the Group for futures trades through telephone calls or the Group’s Internet platform or on site at its office premises through the OAPI. For the year ended 31 March 2010 and the five months ended 31 August 2010, percentage of the Group’s futures brokerage commission income generated (i) through telephone calls; (ii) through the Group’s Internet platform; and (iii) on site at the Group’s office premises through the OAPI are set out as below:

		Five months
	Year ended	ended
	31 March	31 August
	2010	2010
Telephone calls	0.1%	0.1%
The Group’s Internet platform	–	24.9%
The OAPI	99.9%	75.0%

During the Track Record Period, the Group charged its clients at fixed amount in the range from HK$ 8 to HK$100 per contract for trading of futures or options regardless of the method of placing orders, which is determined based on the nature of futures or options and/or whether it is a day trade or overnight trade. As confirmed by the Directors, the fee range has been adjusted to HK$ 3 to HK$ 100 per contract since October 2010.

– 77 –

BUSINESS

As at 31 March 2009, 31 March 2010 and 31 August 2010, the Group had 0 , 18 and 43 future clients respectively. Of the 43 futures clients as at 31 August 2010, 8 are corporate clients and 35 are retail clients . For the two years ended 31 March 2010 and the five months ended 31 August 2010 , the Group’s five largest clients of its futures brokerage business in aggregate contributed approximately nil, 99.9 % and 96.4 % of its futures brokerage commission income respectively. The largest client accounted for approximately nil, 62.0 % and 58.8 % of the Group’s futures brokerage commission income respectively.

For each of the two years ended 31 March 2010 and the five months ended 31 August 2010, commission and brokerage fees from dealing in futures contracts accounted for nil, approximately 1.8 % and 3.0 % of the Group’s total turnover respectively.

Futures brokerage commission income contributed by clients introduced by Ms. Au, the controlling shareholder of the Group, (other than Ms. Au and her associates) during the Track Record Period accounted for approximately nil, 0.5 % and nil of the total futures brokerage commission income of the Group respectively.

Placing and underwriting services

The Group acts as an underwriter or a sub-underwriter or a placing agent or a sub-placing agent in IPOs and placing of existing and/or new shares and/or convertible bonds of companies listed on the Stock Exchange or other stock exchange and of shareholders of companies listed on the Stock Exchange . The placing or underwriting commission charged by the Group is subject to negotiation with the company concerned and is generally in line with market practice.

For the two years ended 31 March 2010 and the five months ended 31 August 2010, the Group generated commission income of approximately HK$ 0.3 million, HK$ 32.3 million and HK$ 8.2 million, representing approximately 1.2 %, 44.0 % and 36.7 % of the Group’s total turnover, from 2 , 32 and 12 fund raising activities involving placing and/or underwriting amount of approximately HK$ 35.8 million, HK$ 1,231.6 million and HK$ 388.5 million respectively. Revenue generated from the fund raising activities participated by the Group on underwritten basis accounted for 100%, approximately 2.4% and nil of the total placing and underwriting commission income of the Group respectively. Revenue generated from the fund raising activities participated by the Group on best effort basis accounted for nil, approximately 97.6% and 100.0% of the total placing and underwriting commission income the Group respectively.

– 78 –

BUSINESS

Placing and underwriting commission contributed by clients introduced by Ms. Au, the controlling shareholder of the Group, (other than Ms. Au and her associates) during the Track Record Period accounted for approximately 1.9 %, 62. 9 % and 30. 4 % of the total placing and underwriting commission income of the Group respectively.

Financing

Management of the Group is required to assess the risk before providing IPO financing to clients based on various aspects including the business performance of the issuer, market response to the IPO and credit history and background of clients requesting for IPO financing. In addition, management of the Group would review the FRR position of the Group to ensure that it has sufficient liquid capital to comply with SFO requirements. Formal agreements will be entered into with the bank(s) each time when a loan is advanced and the Group will normally be required to pledge a deposit with the bank and subject to an interest rate for drawing down of loans. In turn, clients will repay the principal amount and higher interests to the Group for its arrangement of funding. As at the Latest Practicable Date, the Group had no outstanding amount of such bank loans.

As at the Latest Practicable Date, the Group maintained master stagging facility letters/term loan facility letter with three banks for the IPO financings. Pursuant to the master stagging facility letters, the bank may from time to time make short term Hong Kong dollar loans to the Group to finance in whole or part amounts (as the case may be) payable by the Group on applications to be made on the behalf of the Group or the clients of the Group (as the case may be) and in the name of the bank’s nominee for shares, warrants and/or other securities to be listed on the Stock Exchange pursuant to a new issue or offer for sale to the public. In the event that the Group wishes to request for a loan, it shall make a loan request in the manner as prescribed under the agreement including specifying the amount of the loan, the rate of interest (subject to the bank’s approval), the purpose of the loan, the repayment date , the shares, warrants and/or other securities to be financed by the loan and the date of the application for the relevant securities. The bank has the right to accept or reject a loan request. As one of the conditions precedent of advancing each loan, the Group shall execute a charge over the relevant securities in favour of the bank to secure the Group’s obligations in respect of the relevant loan. The bank also has the right to require further security including a cash deposit as security for all sums owing in respect of the relevant loan. The loan will only be advanced in one lump sum.

– 79 –

BUSINESS

Pursuant to the term loan facility letter, the bank may from time to time at its absolute discretion grant each term loan facility to the Group for the purpose of financing up to 90% (or such lower percentage as the bank in its absolute discretion determine) of the amount payable by the Group to the bank in relation to the specific application to be made on behalf of the Group in the name of the bank’s nominee for subscription of a particular new issue share/warrant/bond/unit trust/investment fund or other exchange-traded instruments. The applicable interest rate to each drawing shall be set out in the specific application subject to the approval and variation of the basis of calculation of the interest rate by the bank. Subject to the compliance of all conditions precedent as set out in the letter and the specific application, the Group shall be deemed to have given a drawdown notice requesting for a lump sum drawing. All specific application will be irrevocable once given.

Under the master stagging facility letters/term loan facility letter, if the application of the relevant securities is wholly or partly unsuccessful, the bank’s nominee will hold all rights to the refund of the application money and pay the refunded amount to the bank and the balance (if any) to the Group in the manner as set out in the letter. Two of the above facilities are subject to review by the bank on a regular basis and may expire at any time after the review date.

For each of the two years ended 31 March 2010 and the five months ended 31 August 2010, interest income derived from the Group’s IPO financing business accounted for nil , approximately 0.4 1 % and 0.01 % of the Group’s total turnover. The Group has not made any provision for bad debts in relation to IPO financing during the Track Record Period.

While licences under the Money Lenders Ordinance（放債人條例）(Chapter 163 of the Laws of Hong Kong（香港法例）) are generally required for the type of financing services provided by the Group, the Group is exempted from such requirement as Cheong Lee, which provides such financing services to clients, is a corporation licensed to carry on a business in dealing in securities under Part V of the SFO which engages in securities margin financing in order to facilitate acquisitions or holdings of securities by the corporation for its client.

– 80 –

BUSINESS

A breakdown on turnover by major services provided by the Group for each of the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010 is set out as below:

		For the year	ended 31 March			For the five months	ended 31 August
	2009		2010		2009		2010
	Turnover		Turnover		Turnover		Turnover
	(in HK$)	%	(in HK$)	%	(in HK$)	%	(in HK$)	%
					(unaudited)
Commission and brokerage from
securities dealing	15,442,656	73.3	29,941,974	40.8	13,567,071	44.3	10,127,250	45.6
Commission and brokerage fees
on dealing in futures contracts	–	N/A	1,317,406	1.8	–	N/A	668,040	3.0
Placing and underwriting
commission	262,781	1.2	32,288,270	44.0	12,701,250	41.4	8,157,040	36.7
Clearing and settlement fee	4,479,671	21.3	8,219,488	11.2	3,906,995	12.7	2,405,122	10.8
Handling service and dividend
collection fee	375,288	1.8	457,195	0.6	209,363	0.7	173,560	0.8
Interest income from
authorised financial
institutions/clients/others	509,026	2.4	1,096,432	1.5	271,405	0.9	699,590	3.1

– 81 –

BUSINESS

Commission and fee

	Year ended 31 March			Five months ended 31 August	Five months ended 31 August
	2009	2010		2010
Securities brokerage commission	(i) 0.01% to 0.25% of	(i)	0.01% to 0.25% of	(i)	0.01% to 0.25% of
	transaction value (subject		transaction value (subject		transaction value (subject
	to a minimum charge) or		to a minimum charge) or		to a minimum charge) or
	(ii) 0.02% of transaction		(ii) 0.02% of transaction		(ii) 0.02% of transaction
	value plus HK$1,000 or		value plus HK$1,000 or		value plus HK$1,000 or
	a fixed charge per month		a fixed charge per month		a fixed charge per month
	whichever is the lower		whichever is the lower		whichever is the lower
Futures brokerage commission	Day trade HK$8 – HK$60	Day trade HK$8 – HK$60		Day trade HK$8 – HK$60
	Overnight trade	Overnight trade		Overnight trade
	HK$12 – HK$100		HK$12 – HK$100		HK$12 – HK$100
Underwriting commission	0.25% – 4%	1% – 4%		n/a	(Note 1)
Sub – underwriting commission	1% – 4%	n/a	(Note 2)	n/a	(Note 1)
Placing commission and related	1% – 4%	1% – 4%		1% – 4%
handling service fees
IPO financing interest	1% – 3%	n/a	(Note 3)	1% – 3%
Handling services fees (including	Fixed charge on one time	Fixed charge on one time		Fixed charge on one time
services fees for handling	basis or on monthly basis		basis or on monthly basis		basis or on monthly basis
IPO applications, transmission	depending on nature of		depending on nature of		depending on nature of
and chats of funds, reprinting	handling services		handling services		handling services
invoices, refund cheques,
stamp duty for brought and
sold notes and real time quotations)
Dividend collection fees	0.3% of the dividend amount	0.3% of the dividend amount		0.3% of the dividend amount
	subject to a minimum		subject to a minimum		subject to a minimum charge
	charge		charge

Notes: 1. There were only placing activities conducted on best effort basis by the Group for the five months ended 31 August 2010.

2 No sub-underwriting activities participated by the Group during the year ended 31 March 2010.
No IPO financing conducted by the Group during the year ended 31 March 2010.

– 82 –

BUSINESS

LICENCES AND TRADING RIGHTS

Cheong Lee was registered with the SFC as an investment adviser and a dealer under the SFO for securities and futures contracts in November 2005 and August 2009 respectively. Cheong Lee is licensed to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 5 (advising on futures contracts) regulated activities. Under the SFO, a licensed corporation shall not carry on any regulated activity unless not less than two Responsible Officers are approved by the SFC in relation to the regulated activity. From 16 October 2009 to 27 October 2009, Cheong Lee had only one Responsible Officer carrying Type 2 (dealing in futures contracts) licence; and from 16 October 2009 to 13 September 2010, Cheong Lee had only one Responsible Officer carrying Type 5 (advising on futures contracts) licence. As confirmed by the Directors, Cheong Lee did not carry out any Type 2 or Type 5 regulated activities during the respective shortfall period . The SFC had been advised of the shortfall situation and was fully aware of Cheong Lee’s process in re-complying with the relevant requirements. The Directors confirmed that Cheong Lee has not less than two Responsible Officers in relation to each of the above four regulated activities as at the Latest Practicable Date. The Directors also confirmed that Cheong Lee maintained the required paid-up share capital and liquid capital under the FRR in order to engage in each of the above four regulated activities as at the Latest Practicable Date. The following table sets out the identities of the Responsible Officers for each of the Group’s regulated businesses during the Track Record Period:

				From 1 September
	Year ended	31 March	Five months ended	2010 to the Latest
	2009	2010	31 August 2010	Practicable Date
Type 1 (dealing in securities)	Chow Ka Man	Man Kam Cheuk (since	Man Kam Cheuk	–
regulated activity	(resigned on	28 October 2009)	(resigned on
	7 April 2008)		30 June 2010)
	Lam Wing Hi	Lam Wing Hi	Lam Wing Hi	–
	(since 29 May 2008)		(resigned on
			9 July 2010)
	Linda Yu	Linda Yu	Linda Yu	Linda Yu
	(since 13 May 2008)
	Chau Yueh Jen	Chau Yueh Jen	Kwok Kin Chung	Kwok Kin Chung
		(resigned on	(since 30 June 2010)
		16 January 2010)
	Lau Ka Lung Ali	Lau Ka Lung Ali	Lau Ka Lung Ali	Lau Ka Lung Ali

– 83 –

BUSINESS

					From 1 September
	Year ended	31	March	Five months ended	2010 to the Latest
	2009	2010		31 August 2010	Practicable Date
Type 4 (advising on securities)	Chow Ka Man	Linda Yu (since		Linda Yu	Linda Yu
regulated activity	(resigned on		8 July 2009)
	7 April 2008)
	Lam Wing Hi (since	Lam Wing Hi		Lam Wing Hi	–
	23 September 2008)			(resigned on
				9 July 2010)
	Chau Yueh Jen	Chau Yueh Jen		Kwok Kin Chung (since	Kwok Kin Chung
			(resigned on	14 September 2010)
			16 January 2010)
	Fung Man Chun	Fung Man Chun		Fung Man Chun	Fung Man Chun
					(resigned on 1
					December 2010)
	Lau Ka Lung Ali	Lau Ka Lung Ali		Lau Ka Lung Ali	Lau Ka Lung Ali
Type 2 (dealing in futures	–	Lau Ka Lung Ali (since		Lau Ka Lung Ali	Lau Ka Lung Ali
contracts) regulated activity			27 August 2009)
	–	Man Kam Cheuk (since		Man Kam Cheuk	–
			28 October 2009)	(resigned on
				30 June 2010)
	–	–		Lam Wing Hi	–
				(from 23 June 2010
				to 9 July 2010)
	–	–		Kwok Kin Chung (since	Kwok Kin Chung
				30 June 2010)
Type 5 (advising on futures	–	Lau Ka Lung Ali (since		Lau Ka Lung Ali	Lau Ka Lung Ali
contracts) regulated activity			27 August 2009)
				Kwok Kin Chung (since	Kwok Kin Chung
				14 September 2010)

– 84 –

BUSINESS

The following table sets out the licences and trading rights held by the Group, its manpower involved and system/hardware equipped as at the Latest Practicable Date for carrying out each regulated activity:

				Type 5
	Type 1 (dealing in	Type 2 (dealing in	Type 4 (advising	(advising on
	securities)	futures contracts)	on securities)	futures contracts)
Relevant licenses	SFC type 1 licence	SFC type 2 licence	SFC type 4 licence	SFC type 5 licence
or trading rights	Stock Exchange	Futures Exchange
	Trading Right	Trading Right
	Certificate	Certificate
	Stock Exchange	Futures Exchange
	Participant	Participant
	Certificate	Certificate
	HKSCC Direct	HKCC Participantship
	Clearing	Certificate
	Participantship
Manpower	3 Responsible Officers	2 Responsible Officers	3 Responsible Officers	2 Responsible Officers
involved	who hold SFC type	who hold SFC type	who hold SFC type 4	who hold SFC type
	1 licence and have	2 licence and have	licence	5 licence and have
	approximately 5-10	approximately 5-10	2 dealing staff who are	approximately 5-10
	years experience in	years experience in	degree holders with	years experience in
	securities industry	futures industry	approximately 1-3	futures industry
	2 dealing staff who are	2 dealing staff who are	years experience in	2 dealing staff (since
	degree holders with	degree holders with	securities industry	October 2010) who
	approximately 1-3	approximately 1-3	2 account executives	are degree holders
	years experience in	years experience in	with approximately	with approximately
	securities industry	futures industry	1- 2 years experience	1 year experience in
	5 account executives	2 account executives	in securities industry	futures industry
	whose experience	whose experience	and are degree
	various from	various from	holders
	approximately 1 to 7	approximately 1 to 4
	years and majority	years and are degree
	of which are degree	holders
	holders
	2 sales and marketing	2 sales and marketing	2 sales and marketing
	staff who are	staff who are	staff who are
	degree holders with	degree holders with	degree holders with
	experience various	approximately 1 year	experience various
	from approximately	experience	from approximately
	1 to 2 years		1 to 2 years

– 85 –

BUSINESS

				Type 5
	Type 1 (dealing in	Type 2 (dealing in	Type 4 (advising	(advising on
	securities)	futures contracts)	on securities)	futures contracts)
System or	1 multiple work station	1 network gateway
hardware	server	server
equipped	3 OG server	1 application server
	3 application servers	1 settlement server
	1 settlement server	E-Broker system ( OAPI)
	E-Broker system (BSS)	1 click station
	multiple work station
	system
	Ayers supply servers
	(BSS) for trial

Date of issue/admission/ Licence/certificate/participantship re-issue/renewal Licence under SFO to carry on Type 1 (dealing in 24 November 2005 securities) and Type 4 (advising on securities) regulated activities Licence under SFO to carry on Type 2 (dealing in 27 August 2009 futures contracts) and Type 5 (advising on futures contracts) regulated activities Stock Exchange Trading Right Certificate 11 February 2008 Stock Exchange Participant Certificate 11 February 2008 HKSCC Direct Clearing Participantship 24 November 2005 Futures Exchange Trading Right Certificate 12 October 2009 Futures Exchange Participant Certificate 12 October 2009 HKCC Participant Certificate 12 October 2009

– 86 –

BUSINESS

Except the late notification (notification on 12 October 2007) by Cheong Lee to the SFC on the change of its share capital (effective from 14 September 2007) which was beyond the required seven-day notice period under the SFO and Securities & Futures (Licensing and Registration) (Information) Rules, the Directors confirm that (i) the Group has obtained all licences, permits or certificates necessary to conduct its operations from the relevant governmental bodies in the jurisdictions where the Group operates, and that the Group has been and is in full compliance with all applicable laws and regulations, and codes in all material respects, in the performance of its relevant business in all jurisdictions where it operates since its establishment; and (ii) the Group (including its predecessor companies) has not committed any offence, violation or breach of laws or regulations in all jurisdictions where it operates.

SALES AND MARKETING

The Group’s sales and marketing team is responsible for opening client accounts and handling clients’ enquiries. As at the Latest Practicable Date , the Group’s sales and marketing team comprises a Responsible Officer, an associate director and 5 account executives who are responsible for taking orders placed by clients and providing investment advice when required . Activities of account executives are closely monitored at all times on a real time basis through the Group’s computer system by the Responsible Officer as well as its settlement department . All dealing transactions performed by account executives are monitored and reviewed by the Responsible Officer on daily basis. Any unusual trading activities will be immediately reported to the Responsible Officer , and appropriate actions will be taken. Client account openings are processed by licensed staff of customer service and approved by the Responsible Officer.

The Group from time to time advertises on newspapers in Hong Kong to enhance public awareness towards its brand and services . It also sponsors charity functions such as golf competitions for charity purpose. Through the company website, both the existing and prospective clients can obtain detailed information on the Group’s services. The Group’s experienced sales and marketing team also regularly contacts clients to maintain good business relationship and to expand network by soliciting new clients though referrals from existing clients.

Going forward, the Directors believe that the Group will continue to assist clients in making investment decisions under different market conditions to maximise their returns .

– 87 –

BUSINESS

CLIENT MIX

Clients of the Group’s brokerage business comprises corporate clients and retail clients from Hong Kong and the PRC. Clients of the Group’s underwriting and placing business are companies listed on the Main Board or GEM or other stock exchange.

With its competitive brokerage commission rates and efficient services, the Group’s client base has experienced a significant growth since 2008. 18 , 24 and 28 new brokerage clients were originated by the account executives; and 55 , 155 and 57 new brokerage clients were originated by the in-house employees or walk in clients or clients referred by existing clients respectively for the two years ended 31 March 2010 and the five months ended 31 August 2010. A client that is originated by an account executive or in-house employee will be managed and served by the respective account executive or in-house employee. For walk-in clients and clients referred by the existing clients, such accounts will be managed and served by in-house employees. All new clients of the placing and underwriting business during the Track Record Period were originated by inhouse employees. Movements of the Group’s retail and corporate clients including number of new trading accounts opened and trading account closed during the Track Record Period are shown as below:

Securities trading – at the beginning of the financial year/period – new accounts opened – accounts closed – at the end of the financial year/period Futures trading – at the beginning of the financial year/period – new accounts opened – accounts closed – at the end of the financial year/period Placing and underwriting – at the end of the financial year/period	20 Number of retail clients 81 64 – 145 – – – – –	Year ended 09 Number of corporate clients 21 9 – 30 – – – – 2	31 March 20 Number of retail clients 145 135 (4) 276 – 10 – 10 –	10 Number of corporate clients 30 26 – 56 – 8 – 8 18	Five months ended 31 August 2010 Number of retail clients Number of corporate clients 276 56 50 10 (2) (2) 324 64 10 8 25 – – – 35 8 – 9	From 1 September 2010 to the Latest Practicable Date Number of retail clients Number of corporate clients 324 64 136 25 (13) (2) 447 87 35 8 8 2 – – 43 10 – 11	From 1 September 2010 to the Latest Practicable Date Number of retail clients Number of corporate clients 324 64 136 25 (13) (2) 447 87 35 8 8 2 – – 43 10 – 11
							87

							8 2 –
							10

							11

Notes:

If a client has both a securities trading account and a futures trading account with the Group, this client will be recognised as two clients in the table above and in the other relevant part(s) of this document. For the two years ended 31 March 2010 and the five months ended 31 August 2010, there were 0, 18 and 43 clients having both securities trading account and futures trading account with Cheong Lee.
Number of clients for placing and writing shown in the above table represents the number of clients for which the Group had provided placing and underwriting services during the relevant financial years.

– 88 –

BUSINESS

Breakdown of the Group’s clients including both retail and corporate clients of brokerage business segments by transaction frequency, transaction volume and commission income during the Track Record Period are shown as below:

Number of clients by transaction frequency

No purchase and/or sale of securities/futures transaction At least 1 purchase and/or sale of securities/futures transaction (i.e. at least 1 transaction per annum on average) At least 2 purchases and/or sales of securities/futures transactions (i.e. at least 1 transaction per half year on average) At least 4 purchases and/or sales of securities/futures transactions (i.e. at least 1 transaction per quarter on average) At least 12 purchases and/or sales of securities/futures transactions (i.e. at least 1 transaction per month on average)	Year ended 31 March Five months ended 31 August 2010 2009 2010 80 145 No purchase and/or sale of securities/futures transaction 268 8 7 At least 1 purchase and/or sale of securities/futures transaction 35 14 23 – 28 56 – 45 119 At least 5 purchases and/or sales of securities/futures transactions (i.e. at least 1 transaction per month on average during the period) 128 175 350 431	Year ended 31 March Five months ended 31 August 2010 2009 2010 80 145 No purchase and/or sale of securities/futures transaction 268 8 7 At least 1 purchase and/or sale of securities/futures transaction 35 14 23 – 28 56 – 45 119 At least 5 purchases and/or sales of securities/futures transactions (i.e. at least 1 transaction per month on average during the period) 128 175 350 431
		431

Despite the fact that the total number of the Group’s clients by transaction frequency increased from 350 for the year ended 31 March 2010 to 431 for the five months ended 31 August 2010, the number of the Group’s clients who performed at least 1 purchase and/or sale of securities/ futures transaction decreased from 205 for the year ended 31 March 2010 to 163 for the five months ended 31 August 2010.

– 89 –

BUSINESS

Number of clients by transaction volume

Less than or equal to HK$100,000 HK$100,001 to HK$500,000 HK$500,001 to HK$1,000,000 HK$1,000,001 to HK$5,000,000 HK$5,000,001 to HK$10,000,000 Over HK$10,000,000	Year ended 31 March 2009 2010 120 219 13 19 5 12 11 25 4 21 22 54 175 350	Five months ended 31 August 2010 325 26 11 24 8 37
		431

Number of clients by commission income

Less than or equal to HK$10,000 HK$10,001 to HK$50,000 HK$50,001 to HK$100,000 HK$100,001 to HK$500,000 Over HK$500,000	Year ended 31 March 2009 2010 149 275 11 39 5 7 6 20 4 9 175 350	Five months ended 31 August 2010 382 30 4 10 5
		431

As a result of the expansion of its client base and in order to better serve its clients’ needs, the number of employees has also increased . As at 31 March 2009 , the Group had a total of 12 full time employees, including 5 Responsible Officers and 3 Licensed Representatives, together with 9 account executives who were also Licensed Representatives. As at 31 March 2010, the Group had a total of 14 full time employees, including 5 Responsible Officers and 4 Licensed Representatives, together with 10 account executives who were also Licensed Representatives.

– 90 –

BUSINESS

Clients are served by the Group’s employees or account executives engaged by the Group, who are responsible for introducing clients and business to Cheong Lee and carrying out sales and dealing procedures on behalf of Cheong Lee. Account executives are not considered as the Group’s employees during the Track Record Period as they were not under employment contracts with the Group and were not entitled to any monthly fixed salary or employee benefit. Each account executive is responsible for a portfolio of clients whom they serve personally while clients originated by the Group are served by members of the house team. There is no major difference between account executives and in-house employees in terms of academic and professional qualifications as well as license status since majority of both in-house employees and account executives are degree holders and all of them fulfilled the requirements for the licensed person carrying on regulated activities.

MAJOR CLIENTS AND SUPPLIERS

For the two years ended 31 March 2010 and the five months ended 31 August 2010 , the Group’s largest client accounted for approximately 28.8 %, 10.9 % and 11. 3 % of the Group’s total turnover respectively. The Group’s top five largest clients, in aggregate, accounted for approximately 65.0 %, 39.5 % and 40. 0 % of the Group’s total turnover respectively .

Except for CAAL and China Merit both are wholly owned by Ms. Au, none of the Directors or their respective associates or the existing Shareholders who own more than 5% of the Company’s issued share capital, has any interest in any of the Group’s five largest clients. For the two years ended 31 March 2010 and the five months ended 31 August 2010, the Group’s turnover attributable to CAAL amounted to approximately HK$6.1 million, HK$ 3.8 million and HK$1.5 million representing approximately 28.8%, 5.2% and 6.9% of the Group’s total turnover respectively; and the Group’s turnover attributable to China Merit amounted to approximately HK$2.8 million, HK$2.4 million and HK$38,380 representing approximately 13.3%, 3.2% and 0.2% of the Group’s total turnover respectively.

Due to the nature of its principal business activities, the Group has no major suppliers . The Group engages IT vendors which facilitate the operation of its trading platform and the provision of securities market information and price quotations. None of the Directors or their respective associates or the existing Shareholders who own more than 5% of the Company’s issued share capital, has any interest in any of the Group’s IT vendors.

– 91 –

BUSINESS

COMPETITION

The Directors believe that competition can come from licensed corporations carrying on the same types of regulated activities as the Group . As at 31 December 2010, there were respectively a total of 836 , 246 , 838 and 132 licensed corporations which were accredited to conduct Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 5 (advising on futures contracts) regulated activities in Hong Kong. As at 31 January 2011, there were a total of 518 Exchange Participants and 178 local Futures Exchange Participants; 487 and 178 of which were trading participants while the remaining 31 and nil were non-trading participants in the securities and futures industry in Hong Kong respectively.

Both local and international licensed corporations compete for fees and commissions. Since 1 April 2003, minimum brokerage commission rates in respect of securities and commodities trading in Hong Kong have been deregulated, and therefore brokerage commissions are subject to market forces and negotiations with clients and may become susceptible to downward pressure from time to time. Market players have to adapt to this more competitive commission regime. Apart from pricing, the Group also competes on client relationship, name recognition, resources and technical competence.

The Directors are of the view that the Group makes every effort to compete effectively by striving to stay in touch with the market to understand clients’ needs and tactics of its competitors , seeking to capture new clients and satisfy the requirements from existing clients by delivering services up to their expectations, recruiting and retaining experienced staff in order to provide quality services to clients , maintaining suitable professionals and management personnel to improve corporate control, IT infrastructure, marketing strategies and technical expertise so as to cater any changes in market conditions and finally, maintaining an efficient and lean cost structure in order to maximise Shareholders’ returns.

As at the Latest Practicable Date, Cheong Lee’s paid-up share capital of HK$ 40 million has exceeded the minimum requirement of HK$5 million for its existing business activities and even exceeded the minimum requirement of HK$10 million for the margin finance business has yet to be developed.

– 92 –

BUSINESS

COMPETITIVE STRENGTHS

The Directors are of the view that the Group generally has the following competitive advantages:

Management experience and expertise

The Group is managed by a team of experienced professionals who formulate corporate strategies, monitor compliance and day-to-day operations and implement plans for business development. The management team comprises mainly Responsible Officers and persons with over five years of experience in the securities dealing and financial services industry. With the extensive experience and knowledge of the management team, the Group is able to react promptly to changes of market conditions and implement suitable measures in accordance with changing credit risks. Please refer to the section headed “Directors, senior management and staff” of this document for further details on the experience of the Directors and senior management.

Well-established relationship with clients and expanding customer base

The Group recognises that market reputation and clients’ confidence in its services are keys to success, which will enable the Group to attract new clients from the market and solicit client referrals from its existing clients. In this regard, the Group places great emphasis on winning customer loyalty by providing them with tailor made services, for instance, modifying computer screen interface for retrieving securities market information in accordance with clients’ requirements and keeping clients abreast of market development by giving them access to real-time market information and price quotations from external securities market information service providers. With its continuous effort, the Group has successfully retained existing clients and attracted new clients and gradually developed a more diversified client base over the years.

Solid platform for placing and underwriting business

The Group’s placing and underwriting business can leverage on its extensive securities client network which comprises institutional investors and retail clients. It also maintains good relationship with other brokerage firms which may provide opportunities to the Group to act as sub-placing agents for various new issues and fund raising exercises in the market. The Group has also successfully retained several companies listed on the Main Board or GEM in its client base, such that they or their shareholders may consider appointing the Group as the placing agent, underwriter and/or sub-underwriter when they have funding requirements.

– 93 –

BUSINESS

Advanced computer system and technology

The Group invests in the upgrading of its computer system to enhance the technological infrastructure to meet clients’ increasing needs and in an attempt to stay ahead when technological upgrades for securities trading are introduced to the market. The Group has established stable and efficient online trading platform for its clients to access the securities market. Both its BSS and OAPI trading systems are equipped with the powerful and advanced IT infrastructures, servers and terminals as well as tailor-made computer screen interfaces for retrieving securities market information to suit clients’ different requirements.

Capable professional

As at the Latest Practicable Date, the Group has 5 account executives serving 66 trading accounts and 7 in-house employees serving 521 trading accounts. The account executives caring out securities sales on behalf of Cheong Lee and serve clients of his/her own portfolio . Most of the Group’s account executives are degree holders with over 1 to 6 years experience in the securities industry and have been with the Group for more than one year . The Group has regularly provided professional training to its account executives. The Directors believe that the solid client base is built up by the Group’s account executives over the years. Movements of account executives of the Group during the Track Record Period are as below:

			For the five	Up to
			months ended	the Latest
	For the year ended 31 March		31 August	Practicable
	2009	2010	2010	Date
Number of account
executives brought
forward	1	9	10	9
New appointment	8	1	2	1
Leave (Note)	0	0	(3)	(5)
Number of account
executives	9	10	9	5

Note: One account executive during the five months ended 31 August 2010 and one account executive during the period from 1 September 2010 to the Latest Practicable Date became an employee of Cheong Lee.

– 94 –

BUSINESS

Account executives are not considered as the Group’s employees during the Track Record Period as they were not under employment contracts with the Group but they entered into account executive agreements with Cheong Lee. Pursuant to the agreements, Cheong Lee engaged account executives on fully commission basis without any contractual fixed remuneration package. The account executives were not entitled to any employee benefit. As such, the Group would be able to minimise unpredictable business risk, in particular, during downturn of the securities markets . The account executives maintain the relevant licence(s) with Cheong Lee only and thus, they should conduct the relevant regulated activity(ies) exclusively on behalf of Cheong Lee. Account executive(s) should be liable to compensate for any loss incurred as a result of his/their misconduct/fraudulent acts. Under such circumstances, clients may claim against Cheong Lee for compensation; and the relevant account executive shall indemnify Cheong Lee and keep it indemnified against such claims and losses. Details of the control policies and measures to monitor the securities dealing activities of the Group are set out in the paragraphs headed “Segregation of duties” under the sub-section headed “lnternal Control” of this section.

For the two years ended 31 March 2010 and the five months ended 31 August 2010, the contribution from account executives to the Group’s total value of transactions in relation to dealing in securities amounted to approximately HK$96.2 million, HK$318.5 million and HK$241.3 million , representing approximately 0.04%, 0.08% and 0.21% of the Group’s total value of transactions, respectively. The brokerage commission income from the account executives amounted to approximately HK$0.2 million, HK$0.6 million and HK$0.5 million , representing approximately 1.4%, 2.1% and 4.7% of the Group’s total securities brokerage income, respectively.

CREDIT CONTROL AND RISK MANAGEMENT

Clients are assigned a trade limit to reflect the degree of risk that they intend to take after considering clients’ background and investment experience. Trade limits are subject to the approval from the Responsible Officer in charge.

Client receivables for dealing in securities are settled on T+2 whereas client receivables for dealing in futures contracts are settled on T+1. The Group has from time to time identified those receivables which are not properly settled on the prescribed settlement basis. Calls will be made by handling persons for settlement of overdue amounts of receivables. For prolonged overdue receivables, information will be referred to and reviewed by the management who will decide the appropriate follow-up actions. Trade receivables that are considered uncollectible will be written off.

– 95 –

BUSINESS

No trading activities of a particular client would be allowed if his cash position is negative. The Responsible Officers are responsible for monitoring clients’ securit ies and cash positions to ensure no short sales transaction. Regulated activities of Cheong Lee are covered by license holders indemnity insurance in an aggregate amount of HK$ 15 million for a period from 1 April 2010 to 31 March 2011 for third parties liabilities or failure to complete transactions as stipulated in the insurance policy as required under the Securities and Futures (Insurance) Rules（證券及期貨（保險）規則）.

Operational control

The Group’s operation manual covers controls on different aspects of its business operations including but not limited to client accounts operation, order execution, client settlement as well as BSS and OAPI and settlement system operations.

Client accounts operation

The operation manual specifies the criteria that must be satisfied by an individual or corporation who wishes to open an account with Cheong Lee. Account executives and in-house employees must gather relevant documents from the clients and the settlement department would check the adequacy of information provided. Clients account documents should be kept and stored in a locked cabinet and should only be accessed by authorised personnel. Operation of an account by a person other than the account holder is discouraged unless with proper authorization from client and such account will be renewed on an annual basis depending on whether the client wishes to continue to effect such authorization.

Order execution

No trading order through telephone is accepted unless identity of the client could be verified. Account details such as clients’ names or account numbers should always be identified at the time of placing orders to the dealer or entered into the BSS and the OAPI . When an account executive or in-house employee receives order from clients, he/she should check trading limit or funds available to cover the order before placing the order through the trading system. For orders placed to dealers verbally, a buy/sell ticket should be prepared with time chopped and passed to the dealer, who would then record the order on dealing record sheet and place the order through trading system.

Client settlement

Account executives and in-house employees who serve trading accounts are not allowed to process settlement to ensure proper segregation of duty. Cheong Lee is obliged to ensure that transfer deeds are properly executed for selling orders. Statement on the date where a transaction is carried and monthly statements should be sent to clients for their information on movement of funds and stock positions.

– 96 –

BUSINESS

BSS, OAPI and settlement system operations

The settlement department downloads closing price from the Stock Exchange and uploads to the back office settlement system after market close s each trading day. Trades of the day would then be exported from the BSS and the OAPI to the back office settlement system for matching process. Reports will be generated for reconciliation and audit trail. Back up of transactions data is automatically performed by the system on a daily basis.

Data protection

System users are assigned different levels of access authority according to their ranking and needs. They are required to keep each password confidential and reset of passwords can only be performed by the system administrator. Management is responsible for reviewing the access authority periodically and any changes in access rights must be approved by the management. For IT vendor who can remotely access the system, a timetable for remote access should be obtained and any urgent repairs must be approved by a Responsible Officer. Back-ups of all clients’ transactions are kept for at leas t seven years and will be in a place outside the office premises to be identified by the Group .

Risk management

A credit committee comprising three Responsible Officers, namely Mr. Kwok Kin Chung, Mr. Lau Ka Lung Ali and Mr. KH Lau and the Finance Manager, namely Mr. Chan Kam Wah ha s been established . Please refer to the sub-sections headed “Executive Directors” and “Senior Management” under the section headed “Directors, senior management and staff” of this document for details of their expertise and professional qualifications. The credit committee carries out the functions of approving and reviewing trading limit of clients according to the delegated line of authority, approving margin ratio, overdue interest rate and/or granting waiver for overdue interest, approving share placement transactions, and making decision on liquidation of client’s stock. Any member of the credit committee who is involved in decision making process for operational matters (for example, approving or annual reviewing credit limit or deciding on whether to give tolerance to clients who fail to meet margin calls, etc) shall abstain from making decisions on such matters. No trading activities of a client would be allowed if his cash position is negative.

– 97 –

BUSINESS

Account executives and in-house employees serving trading accounts should review and monitor client transactions, identify and report any discrepancy in the daily report to the settlement department. Responsible Officer is responsible for monitoring clients’ securit ies and cash positions to ensure no short sales transaction; and reviewing client outstanding position and portfolio on a daily basis. Responsible Officer will recommend actions to be taken having considered various factors such as account valuation status, past settlement record and quality of securities held. Cheong Lee has the right to sell custodians stock of relevant clients at any time to settle the outstanding amount. For futures contracts dealing, only clients who have good trading record in securities dealing are allowed to open an account. Responsible Officers and/or the settlement department would review futures clients’ account from time to time to ensure margin clients maintain sufficient funds for settlement. Cheong Lee would only provide IPO financing to clients who have placed sufficient cash deposit as required by Cheong Lee . For IPO financing and the new margin financing business, Cheong Lee has the right to sell the stock of clients to cover any unsettled position .

Anti-money laundering

The Group has adopted policies and procedures in its operation manual to identify and detect money laundering activities, which include the following:–

(i) Customer due diligence – Staff is required to
(a) identify the customer, i.e. know who the individual or legal entity is;
(b) verify the customer’s identity using reliable source documents, data or information;
(c) identify and verify beneficial ownership and control and/or the person on whose behalf a transaction is being conducted; and
(d) conduct ongoing due diligence and scrutiny, i.e. perform ongoing scrutiny of the transactions and account throughout the course of the business relationship to ensure that the transactions being conducted are consistent with their knowledge of the customer, its business and risk profile, taking into account, where necessary, the customer’s source of funds;

– 98 –

BUSINESS

(ii) Retention of Records – Staff is required to
(a) maintain all necessary records on transactions, both domestic and international, for at least seven years ; and
(b) keep records on customer identification, account files and business correspondence for at least five years after the account is closed ;
(iii) The Company provides anti-money laundering and anti-terrorist financing training to staff at regular intervals; and
(iv) Staff are required to report any suspicious transactions directly to the Compliance Officer or a Responsible Officer for further action.

The Directors confirmed that during the Track Record Period, the Group has not reported any suspected or actual cases of money laundering to the Joint Financial Intelligence Unit（聯合財富情報組）.

Budget planning and IPO financing control

In addition, the Group intends to appoint an external professional to perform compliance review over the finance function of the Group . The Group has included detailed investment plan and procedures, IPO financing procedures and other compliance procedures in its new operation manual which has already been adopted. Authority limits for granting approvals on investment plans will be assigned to members of senior management; and prior approval(s) from management with proper signing authority must be sought for any investment plan. One of the Responsible Officers will be responsible for reviewing and approving daily statements of house account . The Group will determine the scale of IPO financing after discussion among the management before the IPO financing applications. Once the subscription is over the scale, the Group will cease the IPO financing activity immediately.

INTERNAL CONTROL

Cheong Lee has adopted its operation and risk control manuals, setting out proper policies and procedures to detect and prevent fraud and misconduct by employees, account executives and third parties. Management and the compliance department of the Group will periodically review the policies and procedures to identify weaknesses and address them by updating the manuals. The compliance unit is independent from other departments of the Group and directly reports to the Board. Its mission is to ascertain proper monitoring and enforcement on the SFC regulations and internal policy and procedures.

– 99 –

BUSINESS

The Group has engaged an internal control auditor to prepare an internal control review on the Group . Following such review, the Group has adopted a revised operation manual which has included recommendations from the internal control auditor. Findings and material deficiencies identified in the internal control review report and the procedures adopted by the Group in the revised operation manual addressing the deficiencies identified are set out in the following table:

	Key Area/	Findings and	Procedures adopted in the revised
	Process	material deficiencies	operation manual
1.	Policy on employee’s	A policy on employee’s code of conduct	Employee’s code of conduct and a copy of
	code of conduct	should be established. Personnel	Code of Conduct issued by SFC will be
		registered as “relevant individuals”	given to staff. Staff is required to sign
		with SFC had yet to identify and	the acknowledgement form within 10
		disclose all related accounts and	days upon joining the company (for new
		report transactions of related	employees) or immediately upon receipt
		accounts to the management.	(for existing employees).
			Staff as well as the account executives
			is required to declare his/her related
			accounts in Cheong Lee and outside
			accounts, and is required to update the
			declarations annually.
2.	Middle office and	Absence of independent compliance	The compliance department is responsible for
	compliance function	function to take up the	ongoing monitoring of internal control
		responsibilities of establishing and	and periodically reviewing procedures to
		maintaining policy and procedures;	ensure compliance with operation manual.
		and monitoring compliance of	The compliance department is responsible
		relevant SFC regulations and internal	to update the operation manual for any
		policy and procedures. The financial	changes in business operation, and SFC
		controller was responsible for	and regulatory requirements.
		monitoring compliance of relevant
		regulations or ordinance.
3.	Compliance management	A formal policy and relevant	Relevant policy and procedural guidelines
	policy and procedures	procedural guidelines were	have been covered in the revised operation
		not in place to govern: human	manual.
		resources management, fixed assets
		management, treasury management,
		procurement/expenditure
		management, IT policy, preparation
		of FRR, share placement management
		and related party transactions.

– 100 –

BUSINESS

	Key Area/	Findings and	Procedures adopted in the revised
	Process	material deficiencies	operation manual
4.	Segregation between	A Responsible Officer headed both	New organi sational chart adopted such
	dealing and settlement	dealing and settlement department.	that the department heads of dealing
	functions	One of the Responsible Officers was	and settlement are different persons.
		responsible for settlement process	Commencing from mid July 2010, the
		and could perform trading for clients.	Responsible Officer responsible for
		The same Responsible Officer was	approving settlement instructions and
		also responsible for approving	clients’ funds withdrawal will not be
		settlement instructions, clients’ funds	responsible for settlement process.
		withdrawal, etc.
			There shall be a detailed job description
			for all positions to enable the relevant
			personnel to understand his scope of
			responsibilities.
5.	Management of client	Non-settlement staff had access rights to	Removed unuathorised access to print client’s
	statements	the system to print client statements	statements. Management is responsible
		without restrictions.	for reviewing the access authority
			periodically (i.e. half-yearly). Any
			changes in access rights must have written
			approvals from the management.
6.	Dissemination of client	No client statements distributed to	Monthly statements will be sent to individual/
	statements for dormant	dormant account holders on monthly	corporate clients with transactions
	accounts	basis. Only verbal confirmations with	during the month and also to clients with
		account holders would be performed	portfolios and cash balance.
		between the duration of one to three
		months.
7.	Access rights to trading	No periodic independent verification on	Management is responsible to review the
	and settlement systems	the access rights granted to users of	access authority periodically (i.e. half-
		trading systems; and users are not	yearly). Any changes in access rights
		required to change passwords on	must have written approvals from the
		regular basis. A perpetual remote	management. All systems password
		access through open connections	(including operating systems) is required
		was granted to IT vendor for system	to change periodically (e.g. 30 – 60 days)
		support.	in order to protect against unauthorised
			modification destruction.
			For IT vendors who can remotely access to
			the trading system, a timetable for remote
			access will be required. Any urgent repairs
			must be approved by the Responsible
			Officer.

– 101 –

BUSINESS

	Key Area/	Findings and	Procedures adopted in the revised
	Process	material deficiencies	operation manual
8.	Preparation of annual	Annual/quarterly budgets may be	Annual budget will be prepared by the
	budget	prepared and analysis on major	finance manager as a controlling tool for
		variances for budgeted and actual	evaluating financial performance and the
		figures may be performed.	actual figures will be reviewed annually.
9.	Segregation of duties for	Monthly payroll summary and master	Human resources department is responsible
	staff listing and payroll	staff summary update are prepared by	to prepare monthly staff list/payroll
		the same person. Human resources	summary. Finance manager is responsible
		personnel did not retain historical	for checking and reviewing such record
		record of master staff list.	to ensure no misstatement. The payroll
			instruction is authorised by two persons to
			ensure proper checking and review exists.
10.	Staff performance	No regular performance appraisals	“Staff Performance Appraisal Form” shall be
	appraisals	conducted. There was no key	prepared for every staff annually by his
		performance indicators established	immediate supervisor and countersigned
		to assess the capability of employees	by the head of human resources or an
		from different department.	executive director.
11.	Quotation for acquisition	The process for acquisition of fixed assets	For any equipment acquisition over
	of fixed assets	may not be strictly followed by staff.	HK$20,000, at least 2 quotations should
			be obtained to support the application.
			All fixed assets acquisition, all purchases
			invoices together with purchases
			application form(s) and relevant
			quotation(s) must be filed properly.
12.	Calculation basis for	Accounting treatment for depreciation of	Depreciation is calculated on monthly basis
	depreciation	fixed assets was only calculated on an	using the straight-line method.
		annual basis.
13.	Lack of investment plan	Investment plans should be established	Management should prepare the overall
		for investment activities in house	investment strategy periodically (e.g.
		accounts.	quarterly or annually) on the types of
			investment or nature of industries. The
			plan should be reviewed by the board of
			directors. Approval from personnel within
			authority limit for the investment amount
			must be obtained. Back office shall
			monitor and report to the management
			on the investment limits and the open
			positions at the end of each month.

– 102 –

BUSINESS

	Key Area/	Findings and	Procedures adopted in the revised
	Process	material deficiencies	operation manual
14.	No proper safeguard of	Business contingency plan had yet to be	Off-site storage facility will be established in
	backup data	established.	order to have adequate capacity to cater
			for the Company’s database management.
			Currently, system data is backed-up
			regularly and stored.
15.	IPO subscription process	Written documentations were not	An application form with proper terms and
		required for IPO financing	conditions is required to be completed and
		applications. There were no legally	signed by the client/account executive.
		binding contracts or terms and	Application forms and checklist for client
		conditions furnished to clients and no	assessment are required to be signed off
		evidence that Responsible Officers	by the Responsible Officer after assessing
		had reviewed clients’ transaction	his/her history and background.
		history prior to approval.
16.	Scale of financing	A scale of financing capacity for each	Management will discuss the scale of
	capacity	IPO financing activity had yet to be	financing capacity. Such scale will be
		established.	properly recorded. Once the subscription
			is over the scale, the IPO financing
			activity should be ceased immediately.
17.	Bank quotations for	Proper documentations evidencing	Finance department should obtain interest
	borrowing rates	benchmarked quotation prior to	rate/borrowing limit quotation from banks
		initiating on bank borrowings for IPO	via email/fax and file them properly.
		financing should be maintained.	Management should select the most
			favorable package for the activities.
18.	IPO financing policy and	IPO financing policy had not been	The revised operation manual covers
	procedures	formally approved and signed off by	IPO financing policy including the
		the management and circulated to all	relevant sections; and has been
		staff; and did not include contract	approved and adopted since October
		management/terms and conditions,	2010.
		segregation of duties for IPO
		financing activities and determination
		of IPO financing scale for each
		project.

The Directors confirmed that during the Track Record Period and up to the Latest Practicable Date, Cheong Lee has not been subject to any review by the SFC or other regulatory authorities. Apart from Mr. Lau Ka Lung Ali, an executive Director, who was reprimanded and fined by the SFC and details of which are disclosed in “Directors, senior management and staff” of this

– 103 –

BUSINESS

document, there has been no public disciplinary action or reprimand by any regulatory authority against Cheong Lee, its directors or any of its staff during the Track Record Period and up to the Latest Practicable Date .

In order to avoid the reoccurrence of the incident of Mr. Lau Ka Lung Ali, the Group has adopted policy and procedures on discretionary trades in its operation manual. Discretionary trades are discouraged unless with the prior approval of two Responsible Officers who should ascertain that sufficient human resources are available to handle the transactions. Trade instructions from different customers involving the same securities and of the same discretionary instructions should be handled by different dealers. If trades arising from different customers involving the same securities and of the same instructions are to be handled by the same dealer, such trades should be aggregated and executed through trading terminals at one point in time with the same price, and be allocated fairly and evenly amongst the customers afterwards. The Responsible Officers should also closely supervise the responsible dealers and review their activities and credit exposure of all discretionary accounts on regular basis.

Segregation of duties

The Group adopts segregation of duties to minimise the chance of collusion between different departments:

Customer service – All account openings are processed by account executives or licensed persons of the sales and marketing department who are licensed by the SFC and further approved by the Responsible Officer. Any exception, for example on commission charges, requires the management’s approval.

The Group has applied certain procedures for handling complaints. All complaints from clients relating to business shall be channeled to senior management and are reported to and handled by the compliance department. Upon receipt of a complaint, the compliance department would study the details and conduct investigation. Where necessary, the results of investigation may be reported to the Board for taking appropriate actions. Ultimately, the compliance department reverts to the client with investigation results and takes remedial action as appropriate.

On 20 August 2010, a customer of Cheong Lee alleged that two buy/sell shares transactions had been carried out through his account without the knowledge and approval of the authorised persons of the complainant. According to Cheong Lee, its record shows that such transactions were made pursuant to the orders from an authori sed person of the complainant as stated in the account opening documents. In the latest correspondence on 18 November 2010, the customer requested only the updated monthly statement from Cheong Lee which was provided by Cheong Lee on 24 November 2010. The Directors confirmed that as at the Latest Practicable Date, there is no

– 104 –

BUSINESS

further action taken by the said complainant against Cheong Lee. The Company and the Directors confirmed that, save as disclosed, neither the Group, Cheong Lee nor its directors have received any other customer complaints during the Track Record Period and up to the Latest Practicable Date.

Sales – Account executives and certain in-house employees are responsible for taking daily orders placed by clients and providing investment advice to them when required.

Dealing – Dealing orders placed by clients will be input by dealers of the dealing department into the BSS and the OAPI, which interfaced Stock Exchange’s trading system. As part of the internal control, error trade reports will be reviewed by the Responsible Officer. Error trade may be due to system or human error. Number of error trade occurred was 0, 3 and 1 respectively during the Track Record Period. The Directors confirm that all of the error trades during the Track Record Period were due to human error arose from input mistake on the company stock code, or quantity of order by in-house employees/an account executive or misunderstanding of client instructions and has been resolved by buying relevant number of Shares in market to ratify the error position which had not resulted in any profit/loss to the Group for the year ended 31 March 2009; but resulted in loss to the Group of approximately HK$ 1,430 for the year ended 31 March 2010, representing approximately 0.00 5 % of the commission and brokerage from securities dealing of the Group, and profit of approximately HK$ 159 for the five months ended 31 August 2010 , representing approximately 0.002 % of the commission and brokerage from securities dealing of the Group. For the period from 1 September 2010 up to the Latest Practicable Date, losses from error trades amounted to approximately HK$ 10,483 . During the Track Record Period and up to the Latest Practicable Date, the Group was not subject to any regulatory fines or penalties as a result of error trades.

In order to prevent the reoccurrence of error trade, management would alert all dealers, account executives and in-house employees serving trading accounts when error trade occurred and remind them the importance of exercising clients’ orders with care. Warnings would be given to the account executive, in-house employee serving trading accounts or dealer who repeatedly commits error trades. Management will also from time to time review the workflow of placing orders to ensure that sufficient manpower to handle clients’ orders. Nevertheless, occurrence of error trade cannot be totally eliminated even with proper measures in place as error trade is mainly the result of human error made by dealers.

Settlement – The settlement department handles clients’ monies and securities assets. All cash or securities withdrawals are executed by two different management personnel and have to undergo checking and approval procedures. In addition, high-level review on the transactions is performed to monitor and detect any irregularities.

– 105 –

BUSINESS

Conflict of interests

It is the Group’s policies to ensure adequate level of staff awareness of issues relating to conflict of interests and understanding of basic principles relating to client priority, insider dealing, confidentiality and staff dealing. The operation and risk control manuals address situations where two or more interests are present and compete or conflict with each other. Staff must avoid actual or potential conflict of interests whenever possible. Where a conflict cannot be avoided, staff must ensure that the conflict is properly disclosed to the relevant parties and approval is sought from management before any action can be taken.

The Board will adopt the Code on Corporate Governance Practices as set out in Appendix 15 of the [•] immediately before [•] as additional corporate governance measures to manage potential conflicts of interests between the Group and the Directors such that in the event that a Director has a conflict or potential conflict of interest in a matter, such Director shall declare to the Board the nature of the matter, the relationship between the parties and the issue involved. In the event that the Board has determined the conflict to be material, the matter shall not be dealt with by way of circulation or by a committee but a board meeting would be held. Such Director must abstain from voting on such Board meeting and that he/she and his/her associates shall not be counted in the quorum present at such Board meeting. Independent non-executive Directors who, and whose associates, have no material interest in the transaction shall be present and take the lead at such Board meeting.

Staff dealing

To avoid actual and potential conflicts of interest and duty, the Group has established new policies on employee’s code of conduct and has adopted a new operation manual with effect on 26 October 2010 which covers, amongst other things, staff dealing rules. Staff members of the Group as well as the account executives are required to follow the staff dealing policy in the operation manual. Employee’s code of conduct and a copy of Code of Conduct issued by the SFC and/or a copy of the staff dealing policy will be given to and the receipt of which will be acknowledged by the staff and account executives. The accounts of the staff and account executives are given an identifying code and activities reports of such accounts are regularly reviewed by the Responsible Officer for irregular or extraordinary transactions. Staff as well as account executives are required to disclose at all times of his/her related accounts in Cheong Lee, details of his/her outside account(s) at the time he or she joins Cheong Lee and any changes thereafter.

– 106 –

BUSINESS

Staff and account executives must not engage in “front running” which includes personal dealing in anticipation of the Company’s major client orders, liquidation orders, and where he or she is in receipt of advanced information not generally available to the public , he or she must not engage in “insider dealing” which means they must not deal in any securities of a corporation or procure another person to deal in such securities when in the possession of confidential pricesensitive information relating to such corporation. Salary based staff members may only execute their orders through designated dealers. For account executives , since they can directly place orders with dealers in the BSS and the OAPI, client priority must be observed to avoid conflict of interest. Failure to comply the staff dealing rules may lead to disciplinary action against the relevant staff or account executives by Cheong Lee , termination of employment of the staff or appointment of the account executives or reporting the case to the SFC and the Stock Exchange. Direct in-house cross dealing between a staff or an account executive and a client is strictly forbidden.

INTELLECTUAL PROPERTY RIGHTS

The Group has been marketing its business in Hong Kong using the brand name Cheon GLee . It has applied for registration of its trademark s in Hong Kong on 15 December 2010 and 7 February 201 1 respectively and such applications were still in progress as at the Latest Practicable Date. The Group expects that the applications could be completed in [•] provided that there are no objections from the Trade Marks Registry or opposition from third parties.

Detailed information of the intellectual property rights of the Group is set out in the section headed “Intellectual property rights of the Group” in Appendix V to this document.

COMPETING BUSINESS

The Directors and the Controlling Shareholder s confirmed that they do not have any interest, either directly or indirectly, in a business which competes or is likely to compete with the businesses of the Group.

– 107 –

CONNECTED TRANSACTIONS

Each of the persons stated below had individually maintained either a securities and/ or a futures and options account with the Group and obtained brokerage services (“ Brokerage Services ”) and/or IPO financing services provided by the Group during the Track Record Period, and is either a Director or a controlling shareholder of the Group or an associate of such Director or shareholder, and is therefore each a connected person (“ Connected Person(s) ”) . As certain continuing connected transactions were entered into with the parties connected or otherwise associated with one another, the transactions entered into with such connected persons will be categorised as same class of transactions and will be aggregated into a series of connected transactions for the purpose of calculating the considerations as referred to in the table below under the column “Aggregation of transactions”.

Connected
Persons	Connected relationship	Aggregate of transactions
Ms. Au	Controlling shareholder of	Ms. Au and her nephew and sisters and
	the Company	private companies controlled by Ms.
		Au (excluding Chinacorp which no
		longer is a Connected Person since
		21 September 2009), together as “Ms.
		Au’s Group”
Ms. Yu	Director of the Company	Ms. Yu

BROKERAGE SERVICES

The aggregate amount of the brokerage commission income paid by the relevant Connected Persons for the Brokerage Services provided by the Group for the two years ended 31 March 2010 and the five months ended 31 August 2010 and the annual caps for the three years ending 31 March 2013 are set as below:

			Five months
			ended
			31 August	Nine months	ended		Annual caps
	Year ended 31 March		2010	31 December 2010		Year	ending 31 March
	2009	2010	A ctual	Actual	Annualised	2011	2012	2013
	(audited)	(audited)	(audited)	(unaudited)
	(HK$)	(HK$)	(HK$)	(HK$)	(HK$)	(HK$)	(HK$)	(HK$)
Ms. Au’s Group	8,907,621	6,301,652	1,595,781	3,549,090	4,732,120	4,800,000	4,800,000	4,800,000
Ms. Yu	–	150	–	–	–	–	–	–

– 108 –

CONNECTED TRANSACTIONS

Pricing Standard

The Directors consider that the historical commission and brokerage fees paid by the Connected Persons during the Track Record Period are mainly determined by the pricing policy of Cheong Lee which may be adjusted according to the prevailing economy and stock market sentiment of Hong Kong. The securities brokerage commission rate charged to each of the Connected Persons was the same as the standard brokerage commission rate charged by Cheong Lee to other customers who are Independent Third Parties and in accordance with the pricing policy of Cheong Lee. The futures brokerage commission rate charged to the Connected Person(s) was lower than the standard brokerage commission rate charged by Cheong Lee to other customers who are Independent Third Parties. Such lower rate was charged for the purpose of trial run of the futures brokerage business commencing from January 2010 and in aggregate only generated commission income of HK$ 916 and HK$ 300 to the Group for the year ended 31 March 2010 and the five-month period ended 31 August 2010. As confirmed by the Directors, the future brokerage commission rate cha rged to the Connected Person(s) would be no less favourable to those offered to independent customers since October 2010 .

The Directors (including the independent non-executive Directors) consider that brokerage services provided to each of Ms. Au’s Group and Ms. Yu and their payments of commission to the Group are made in the ordinary and usual course of the Group’s business and are on normal commercial terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Annual Caps

In determining the proposed annual caps for the Brokerage Services, the Directors have taken into consideration the following principal factors: (i) the unaudited annualised actual commission and brokerage generated from the relevant Connected Persons for the nine months ended 31 December 2010; and ( ii) the expected economic conditions and market sentiment of the securities markets in Hong Kong.

– 109 –

CONNECTED TRANSACTIONS

IPO FINANCING SERVICES

The aggregate maximum amounts of IPO financings advanced by the Group and the amount of interest income received from the relevant Connected Persons for the two years ended 31 March 2010 and the five months ended 31 August 2010 and the annual caps for the three years ending 31 March 2013 are set as below:

				Five months
				ended
				31 August	Nine months ended			Annual caps
		Year ended	31 March	2010	31 December 2010		Year	ending 31 March
		2009	2010	Actual	Actual	Annualised	2011	2012	2013
		(audited)	(audited)	(audited)	(unaudited)
		(HK$)	(HK$)	(HK$)	(HK$)	(HK$)	(HK$)	(HK$)	(HK$)
Ms. Au’s Group	Maximum amounts of	–	522,337,943	257,502	257,502	343,336	344,000	344,000	344,000
	IPO financings
	Interest income received	–	139,387	87	87	116	120	120	120
	Total	–	522,477,330	257,589	257,589	343,452	344,120	344,120	344,120
Ms. Yu	Maximum amounts of	–	1,454,530	–	–	–	–	–	–
	IPO financings
	Interest income received	–	287	–	–	–	–	–	–
	Total	–	1,454,817	–	–	–	–	–	–

Pricing Standard

The interest rates charged to the relevant Connected Persons in relation to IPO financing were comparable to rates offered to other customers of Cheong Lee who are Independent Third Parties and in accordance with the pricing policy of Cheong Lee.

The Directors (including the independent non-executive Directors) consider that the advance of IPO financing to each of Ms. Au’s Group and Ms. Yu and their payments of interest income to the Group are made in the ordinary and usual course of the Group’s business and are on normal commercial terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Annual Caps

The historical amount of IPO financings provided to each of Ms. Au’s Group and Ms. Yu were mainly determined by the investment strategies of each individual member of Ms. Au’s Group or Ms. Yu which were largely affected by their own analysis and perception of the economic and stock market condition in Hong Kong. For the year ended 31 March 2010 and the five months ended 31 August 2010, the maximum amounts of IPO financing advanced by the Group to Ms. Au’s Group amounted to approximately HK$522.3 million and HK$257,502 which represented approximately 44.5% and 8.8% of the total amount of IPO financing of approximately HK$1,174.0 million and HK$2.9 million advanced by the Group respectively. In determining the proposed annual caps for IPO financing, the Directors have taken into consideration the following principal factors: (i) the expected interest rates for the three years ending 31 March 2013; (ii) the unaudited annualised actual IPO financings advanced to the relevant Connected Persons for the nine months ended 31 December 2010; and (iii) the expected economic conditions and market sentiments of the securities markets in Hong Kong.

– 110 –

CONNECTED TRANSACTIONS

A. Discontinued connected transactions

During the Track Record Period, Cheong Lee received commission income from Chinacorp for the provision of brokerage services. For the two years ended 31 March 2010 and the five months ended 31 August 2010, the Group’s turnover attributable to Chinacorp amounted to approximately HK$3.5 million, HK$4.9 million and HK$1.0 million, representing approximately 16.5%, 6.7% and 4.6% of the Group’s total turnover respectively. Chinacorp was 100% held by Ms. Au Yu Siu, a niece of Ms. Au; and therefore, was a connected person ; and the transactions with Cheong Lee constituted continuing connected transactions. On 21 September 2009, Chinacorp allotted one share to an Independent Third Party resulting in a reduction of the shareholding of Ms. Au Yu Siu in Chinacorp to 50%. Since then, Ms. Au Yu Siu holds 50% interest in Chinacorp and does not have the right to exercise or control the exercise of more than 50% of the voting power at general meetings or control the composition of a majority of the board of directors of Chinacorp . The transactions between Chinacorp and Cheong Lee no longer constitute continuing connected transactions as defined under the [•].

During the Track Record Period, each of Mr. Chee Kwok Wing Waymond（池國榮）, an independent non-executive Director, and Mr. Ang Wing Fung, the spouse of Ms. Choy Wing Man （蔡詠雯）, an independent non-executive Director , has opened a securities account with Cheong Lee and Cheong Lee has received commission income from Mr. Chee in the sum of HK$0, HK$0 and HK$ 248 respectively and from Mr. Ang in the sum of HK$0, HK$50 and HK$ 0 respectively for the two years ended 31 March 2010 and the five months ended 31 August 2010. Such connected transactions with Mr. Ang ha d been discontinued as his securities account ha d been terminated by Mr. Ang with effect from 18 October 2010. Mr. Chee still maintains his securities account with Cheong Lee and the Group will monitor the transactions with this account to ensure compliance of the relevant requirements for connected transactions where appropriate.

B. Continuing connected transactions exempt from the reporting, announcement and independent Shareholders’ approval requirements

Cheong Lee has entered into brokerage services agreement with Ms. Yu on [•] (“ Ms. Yu’s Brokerage Services Agreement ”) , pursuant to which Cheong Lee may, upon request, provide or Cheong Lee may procure any other company amongst the Group to provide to her (where applicable, including her associates) with the Brokerage Services, from time to time on normal commercial terms and at rates comparable to rates offered to other customers of the Group who are Independent Third Parties of similar transaction turnover and/or credit standing, trading record and quality of collaterals given , and in accordance with the relevant policy of the Group from time to time. Ms. Yu’s Brokerage Services Agreement is for a term commencing from [•] and ending on 31 March 2013.

– 111 –

CONNECTED TRANSACTIONS

The maximum of the total commission to be paid by Ms. Yu (where applicable, including her associates) for the Brokerage Services provided by the Group for each of the three years ending 31 March 2013 is expected to be less than HK$1,000,000 .

Cheong Lee has entered into IPO financing services agreement with each of Ms. Au’s Group (“ Ms. Au’s IPO Financing Services Agreement ”) and Ms. Yu (“ Ms. Yu’s IPO Financing Services Agreement ”) on [•], pursuant to which Cheong Lee may, upon request, provide or Cheong Lee may procure any other company amongst the Group to provide to each of them (including their associates) with the IPO financing services, from time to time on normal commercial terms and at the interest rates comparable to rates offered to other customers of the Group who are Independent Third Parties of similar credit standing, trading record and quality of collaterals given , and in accordance with the relevant policy of the Group from time to time. Ms. Au’s IPO Financing Services Agreement and Ms. Yu’s IPO Financing Services Agreement are for a term commencing from [•] and ending on 31 March 2013.

The maximum of the aggregate amount of IPO financing to be advanced to and interest income to be paid by Ms. Yu and Ms. Au and their respective associates for each of the three years ending 31 March 2013 is expected to be less than HK$1,000,000 .

C. Continuing connected transactions subject to the reporting, announcement but exempt from independent Shareholders’ approval requirements

Cheong Lee has entered into a brokerage services agreement (“ Ms. Au’s Brokerage Services Agreement ”) with Ms. Au on [•] , pursuant to which Cheong Lee may, upon request, provide or Cheong Lee may procure any other company amongst the Group to provide to Ms. Au ( including her associates) the Brokerage Services , from time to time on normal commercial terms and at rates comparable to rates offered to other customers of the Group who are Independent Third Parties of similar transaction turnover and/or credit standing, trading record and quality of collaterals given , and in accordance with the relevant policy of the Group from time to time. Ms. Au’s Brokerage Services Agreement is for a term commencing from [•] and ending on 31 March 2013.

– 112 –

CONNECTED TRANSACTIONS

The maximum of the total commission to be paid by Ms. Au and her associates for the brokerage services provided by the Group for each of the three years ending 31 March 2013 is expected to be less than HK$10,000,000 .

The Directors (including independent non-executive Directors) are of the view that the continuing connected transactions described above have been and shall be entered into on normal commercial terms and in the ordinary and usual course of business of the Company that are fair and reasonable and in the interest of the Shareholders and will be so in the future, and the transactions and proposed annual caps set out above are fair and reasonable and in the interests of the Shareholders as a whole.

RELATED PARTY TRANSACTIONS

During the Track Record Period, the Group entered into certain related party transactions. Details of which are set out in Note 34 headed “ Related Party Transactions ” in the Accountants’ Report as set out in Appendix I to this document.

– 113 –

FUTURE PLANS AND PROSPECTS

BUSINESS OBJECTIVES

The business objective of the Group is to continue the growth of its broking business by broadening its client portfolio and developing and offering new and timely services to meet customer demands.

BUSINESS STRATEGIES

The Directors have developed the following business strategies:

1. Entering into the new margin financing business

The Group plans to develop margin financing activities to allow flexibility to clients by providing funds directly to then for purchasing securities on a margin basis. Under the SFO, if a company is licensed for Type 1 (dealing in securities) regulated activity, it needs not separately be licensed for Type 8 (securities margin financing) regulated activity to carry out securities margin financing for its clients. However, according to the current rules and regulations for margin financing activities, it would need to have a minimum paid-up share capital of HK$10 million and a minimum liquid capital of HK$3 million. Cheong Lee currently has a paid-up capital of HK$40 million . The Group’s liquid capital amounted to approximately HK$18.5 million, HK$53.3 million and HK$59.8 million respectively as at 31 March 2009, 31 March 2010 and 31 August 2010. Accordingly, the Group is permitted to engage in the margin financing business. Margin loans to clients of the Group will be secured by pledged securities listed on the Stock Exchange and/or cash deposits. The Group will regularly review the securities pledged by clients, update their respective margin ratio and communicate to clients. The margin ratio for each of the acceptable securities will generally be determined by the credit committee with reference to the margin ratio set by other financial institutions. The Group will also review the margin ratios when qualities of particular securities deteriorate rapidly.

2. Maintaining and enhancing efficiency of trading platform

3. Expanding client network

– 114 –

FUTURE PLANS AND PROSPECTS

IMPLEMENTATION PLANS

All of the above strategies are ongoing business pursuits and are not confined to post- [•]. The Directors will use their best endeavours to anticipate changes, yet allowing for flexibility to implement the following plans:

Funding to develop the margin financing business

The Group will step into the margin financing business in Hong Kong in March 2011 after Cheong Lee notified the SFC in writing of its engagement in the margin financing business and provided the SFC with certain related documents for reference , as a complementary service to its brokerage clients in the first quarter of 2011. Margin financing will offer funding flexibility to clients of the Group by assisting leverage their investments. The existing BSS of the Group can support the operations of the margin financing business. In order to meet demand from its clients for advancing of margin loans, the Group will have to retain higher level of funding resources from time to time. The Group will inject fund in the first quarter of 2011 to start its margin financing business.

As at the Latest Practicable Date, the Directors confirmed that some of the staff of the Group has the experience in margin financing business. Currently, t wo Responsible Officers have over 5 years and over 10 years of experience in margin financing respectively, a settlement staff has over 5 years of experience in monitoring clients’ positions, maintaining and updating margin ratio in the BSS for margin financing activities; and two account executives have over 10 years of relevant experience. The Group will employ additional staff to ensure sufficient manpower to operate the margin financing business . It will determine the pricing for margin financing on prime rate basis subject to adjustments with reference to the then prevailing market conditions.

Margin loans to clients of the Group will be secured by pledged securities listed on the Stock Exchange and/or cash deposits. The Group will regularly review list of securities pledged by clients, update their respective margin ratio and communicate to clients. The margin ratio for each of the acceptable securities will generally be determined by the credit committee comprising three Responsible Officers and the Finance Manager, with reference to the margin ratio set by other financial institutions.

– 115 –

FUTURE PLANS AND PROSPECTS

The following control policies and measures have been/will be in place to monitor the margin financing business of the Group :

Review of financial resources and liquid capital position

Under the FRR, Cheong Lee would be required to have minimum paid up share capital of HK$10 million and minimum liquid capital of HK$3 million for margin financing business. The Responsible Officer has been closely monitor ing the level of FRR position to ensure compl iance with SFO requirement , by monitoring the financial position of Cheong Lee at each day end to identify any significant changes in its assets and liabilities that would have significant impact on Cheong Lee’s liquid capital. Cheong Lee has also prepared financial returns based on its financial statements and lodged to the SFC each month after obtaining approval from the Responsible Officer, with supporting schedules for each FRR item and breakdown showing adjustments as required under the FRR.

Margin ratio of different pledged assets

A list of securities acceptable as pledges to the Group and their respective margin ratios are regularly updated and communicated to clients. Margin ratio for each of the acceptable securities is generally determined by the credit committee with reference to those set by other financial institutions, and is reviewed on a regular basis and also on an urgent basis when qualities of particular securities deteriorate rapidly. The Group will also review the margin ratios when qualities of particular securities deteriorate rapidly.

Minimum margin requirement

The Company would set a range list for the minimum margin requirement. Customers have to place sufficient cash/securities into the account with Cheong Lee for obtaining margin financing. The Responsible Officers would monitor the customers’ security cash/securities level on a daily basis to ensure they meet the requirement.

Credit limit

The Group has established policies and procedures to evaluate financial condition of the client, including annual income, net worth, capital bases, occupation, investment objective and experience, cash and securities positions in the account with Cheong Lee, recent trading and past payment and default record and etc. prior to approving client’s trading line. One of the Responsible Officers monitors the daily utilization of trading limit of every client. The credit limits of clients will be subject to annual review by the credit committee annually. The annual credit review will mainly review and evaluate the approval of credit limits with reference to the clients’ trading and margin call records maintained by Cheong Lee.

– 116 –

FUTURE PLANS AND PROSPECTS

Margin call policy

One of the Responsible Officers will review the margin position of each client based on the margin evaluation report generated by the settlement department on a daily basis. The report shows balance of account, portfolio value and due/undue settlement cash and margin. The relevant account executive or in-house employee serving trading accounts will contact client who would need to top up margin deposits based on the margin evaluation report. The Responsible Officer will monitor clients’ margin position and determin e when a margin call would be made on clients having insufficient collateral in margin accounts. He has discretion on margin call on a case by case basis after taking into account factors such as net outstanding amount, portfolio and financial background of clients as well as market value of pledged securities. It is the intention of Cheong Lee that the maximum tolerance level would be up to 70% of the market value of clients’ portfolio. The Responsible Officer will continue to closely monitor the account until the margin position has been ratified. The Responsible Officer will base on the results of margin call and the margin evaluation report to prepare an assessment report on whether liquidation of client’s securities is needed. The assessment report will be reviewed by the credit committee comprising three Responsible Officers and the Finance Manager to decide whether liquidation of client’s stocks is necessary. In case of a need of liquidating client’s stocks, the Responsible Officer will be responsible for execution of selling stocks on the market, and such decision will be communicated to the client by the relevant account executive or in-house employee .

The credit committee will review margin calls and newly granted credit limit exceeding a pre-determined limit monthly to ensure Cheong Lee has followed the margin call and implemented liquidation policies and credit assessment procedures properly. The credit risk committee will also review the margin lending, margin call and collateral policies bi-annually to determine areas for further refinement.

In addition, the compliance department will also perform periodic review to ensure that the margin lending, margin call and liquidation policies and procedures of Cheong Lee are properly followed and will refer any discrepancies to the audit committee.

– 117 –

FUTURE PLANS AND PROSPECTS

Upgrading computer systems and trading platform

The Group aims to offer customers more efficient and feature-enhanced trading solutions by upgrading its existing computer system and electronic trading services. Throttle rate is calculated based on order per second. Since a large number of order inputs are always given at one time when the morning session commences, the utilization of the capacity of the Group’s trading system may reach its peak at such time, despite the overall daily utilization rate is low. In order to enhance the efficiency of trading platform of the Group where more orders can be put through the trading system at one time per second and to avoid bottlenecks in order processing during the peak time , the Group plans to increase the efficiency of its BSS by investing to increase number of throttles from 14 to 24 by 31 March 2013.

The Group will also spend to upgrade and improve its existing computer system and Internet trading platform by acquiring new hardware and associated software to enhance the capability of reinstating data in case of disaster such as virus attack or hardware failure on servers. The Group’s upgrading of its existing computer system to offer on-site clients with more powerful configurations; and implementing of additional server(s) for data processing will enable on-site clients and/or staff of Cheong Lee to get real time price quotations and market information and clients’ position (in the case of staff of Cheong Lee) more quickly and thus, will enhance efficiency of trading.

Expanding client network

The Group has one office and has not conducted any business outside Hong Kong during the Track Record Period. It has leased a new office in Hong Kong and will recruit more qualified personnel and new staff. It is expected that the expansion of its sales team through the new office will enable the Group to better serve its retail and institutional clients of securities brokerage business.

The Group will employ 1 to 2 Responsible Officer(s), 1 to 2 dealing staff and 5 to 6 sales and marketing staff and if necessary, certain supporting staff. All staff members of the new branch office are required to comply with the Group’s operation manual. The Responsible Officer(s) would directly report to the Directors and all transactions of and information submitted by the new office would be reviewed by the management of the head office.

– 118 –

FUTURE PLANS AND PROSPECTS

For the period from the Latest Practicable Date to 31 March 2011

Entering into	Maintaining and
the new margin	enhancing efficiency of	Expanding client
financing business	trading platform	network
Contribute funds to conduct	Increase number of throttles for	Conduct initial setup and
margin financing business	BSS , upgrade and enhance	renovation
	existing computer system
	and electronic trading
	platform and maintenance

For the period from 1 April 2011 to 30 September 2011

Entering into	Maintaining and
the new margin	enhancing efficiency of	Expanding client
financing business	trading platform	network
–	Increase number of throttles	Conduct initial setup and
	for BSS, upgrade ,enhance	renovation, settle the
	existing computer system	relevant expense, recruit
	and electronic trading	new staff and account
	platform , implementation	executives for the new
	of Enterprise Resource	office
	Planning system and
	maintenance

– 119 –

FUTURE PLANS AND PROSPECTS

For the period from 1 October 2011 to 31 March 2012

Entering into	Maintaining and
the new margin	enhancing efficiency of	Expanding client
financing business	trading platform	network
–	Increase number of throttles for	Settle the remaining initial
	BSS, upgrade and enhance	setup and renovation
	existing computer system	cost, recruit new staff
	and electronic trading	and account executives
	platform , implementation	for the new office
	of Enterprise Resource
	Planning system and
	maintenance

For the period from 1 April 2012 to 30 September 2012

Entering into	Maintaining and
the new margin	enhancing efficiency of	Expanding client
financing business	trading platform	network
–	Increase number of throttles	Recruit new staff and
	for BSS and implementation	account executives for
	of Enterprise Resource	the new office
	Planning system and
	maintenance

– 120 –

FUTURE PLANS AND PROSPECTS

For the period from 1 October 2012 to 31 March 2013

Entering into Maintaining and the new margin enhancing efficiency of Expanding client financing business trading platform network – Increase number of throttles for Recruit new staff and BSS and maintenance account executives for the new office

BASES AND ASSUMPTIONS

The Directors have adopted the following principal assumptions in the preparation of the future plans up to and including 31 March 2013:–

(a) there will be no material changes in the existing political, legal, fiscal or economic conditions in Hong Kong and any other place in which any member of the Group carries on or will carry on business;
(b) there will be no material changes in the bases or rates of taxation in Hong Kong or in any other place in which any member of the Group operates or will operate or is incorporated;
(c) [•];
(d) the Group will be able to retain its key staff in the management and the professional staff;
(e) the Group will obtain equity and/or debt capital for its future growth when it becomes necessary;
(f) the Group will not be materially affected by any risk factors set out in the section headed “Risk factors” in this document; and
(g) the Group will be able to continue its operation in substantially the same manner as it has been operating during the Track Record Period and the Group will also be able to carry out its development plans without disruptions.

– 121 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

EXECUTIVE DIRECTORS

Date of appointment
Name Age Position/title as Director Roles and responsibilities Mr. LAU Ka Lung Ali 43 Executive Director [•] Responsible for formulatory （劉嘉隆） and Responsible corporate strategies and overall Officer of management of the Group and Cheong Lee managing daily operations and supervising dealing staff as well as overseeing and supervising risk control such as monitoring trades and funding
Mr. KWOK Kin Chung 36 Executive Director [•] Managing daily operations and （郭建聰） and Responsible supervising dealing staff Officer of Cheong Lee
Mr. LAU Kin Hon 43 Executive Director [•] Managing the compliance function （劉建漢） of the Group and the provision of advice to the Group on legal and regulatory compliance matters
Ms. Linda YU 38 Executive Director 27 August Business development, marketing, （余蓮達） and Responsible 2010 maintenance of clients’ Officer of relations and such other matters Cheong Lee as the Board shall from time to time direct

INDEPENDENT NON-EXECUTIVE DIRECTORS

			Date of
Name	Age	Position/title	appointment	Roles and responsibilities
Mr. AU-YEUNG Tai	53	Independent	21 February	providing independent judgement
Hong Rorce		non-executive	2011	on issues of strategy,
（歐陽泰康）		Director		performance, resources and
				standard of conduct of the
				Company
Ms. CHOY Wing Man	33	Independent	21 February	providing independent judgement
（蔡詠雯）		non-executive	2011	on issues of strategy,
		Director		performance, resources and
				standard of conduct of the
				Company
Mr. CHEE Kwok Wing	49	Independent	21 February	providing independent judgement
Waymond		non-executive	2011	on issues of strategy,
（池國榮）		Director		performance, resources and
				standard of conduct of the
				Company

For identification purpose only

– 122 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

Mr. LAU Ka Lung Ali（劉嘉隆） , aged 43 , is an executive Director and a director and Responsible Officer of Cheong Lee. He joined the Group in September 2007 and was appointed as director of Cheong Lee on 16 July 2007 and an executive Director and Chairman of the Company on 17 February 2011. Mr. Lau is responsible for managing daily operations and supervising dealing staff and will be responsible for formulating corporate strategies and overall management of the Group. He also oversees and supervises risk control of the Group such as monitoring trades and funding. In [•], Mr. Lau obtained a diploma in China Finance（中國金融文憑）from the Adult Education College of Shenzhen University（深圳大學成人教育學院）of the PRC.

Mr. Lau has over 10 years of experience in securities and commodities dealing and has worked for the following companies:–

Year	Company Name	Position /responsibility
March 1995	Emperor Management Service	Junior Dealer
	(H.K.) Limited
February 1996 to	Emperor Gold & Silver Company	Floor Trader
January 1997	Limited（英皇金號有限公司）	• mainly responsible for handling clients’
		orders and commodities price quoting
February 1997 to	Emperor Futures Limited	Marketing assistant and Senior dealer
September 2006	（英皇期貨有限公司）
January 2007 to	Asialink Securities Limited	Account Executive
June 2007	（恆亞證券有限公司）	• responsible for handling clients’
		transactions with or through such
		company

In the three years preceding the Latest Practicable Date, Mr. Lau did not hold any directorship in any other listed company.

As mentioned in a press release published on the SFC’s website on 13 December 2010, the SFC has issued a reprimand to Mr. Lau and fined him HK$50,000 for failing to maintain a proper audit trail of his clients’ orders. Between June and July 2009, Mr. Lau was given an identical discretionary order to trade a stock by three Mainland Chinese clients. The SFC found that Mr. Lau failed to keep a proper audit trail of the discretionary trades and systematically allocate the trades to the three clients, resulting in uneven allocations of shares to the three clients. In deciding to reprimand and fine Mr. Lau, the SFC took into account that (i) Mr. Lau did not act dishonesty; (ii) there is no evidence that the clients had been prejudiced by Mr. Lau’s conduct; (iii) Mr. Lau agreed to resolve the disciplinary action by consent; and (iv) Mr. Lau’s otherwise clear disciplinary record.

All the Directors ( including the independent non-executive Directors but excluding Mr. Lau) are of the view that Mr. Lau is suitable and is able to discharge his role as an executive Director on the basis that (i) Mr. Lau has not taken, no r has he been implied of having taken, any benefit for himself personally or for any other person or corporation from the incident; (ii) Mr. Lau only acted according to, and within the instructions given by, the clients involved ; and (iii) neither Cheong Lee nor the clients concerned have suffered any loss as a result of the incident.

– 123 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

Mr. Lau’s relevant license as required under the SFO and set out in the paragraphs headed “Licences” and “Trading Rights” under the section headed “Business” of this document, has never been suspended during the Track Record Period and up to the Latest Practicable Date.

Mr. KWOK Kin Chung（郭建聰） , aged 36 , is an executive Director and a director and Responsible Officer of Cheong Lee. He joined the Group in July 2010 and was appointed as a director of Cheong Lee on 8 September 2010 and an executive Director on [•]. Mr. Kwok is responsible for managing daily operations and supervising dealing staff. He has obtained a Master’s degree in Finance in 2006 from Curtin University of Technology（科庭科技大學[*] ）of Australia and a professional diploma in Corporate Finance from The Hong Kong Management Association （香港管理專業協會）.

Mr. Kwok has over 10 years of experience in securities and derivatives dealing and has worked for the following companies:–

Year	Company Name	Position /responsibility	Position /responsibility
July 1993 to	Top Rank Investment Ltd.	Dealer
June 1994	（統一投資有限公司）	•	responsible for providing foreign
			exchange rate to clients and execution of
			transactions
July 1994 to	Harlow Butler (HK) Ltd.	Foreign Exchange Broker
January 1995	（毅聯滙業有限公司）	•	responsible for providing foreign
			exchange rate to bankers and execution
			of transactions
February 1995 to	Exco (HK) Ltd.	Money	Broker
May 1997		•	responsible for providing foreign interest
			rate and swap to bankers and execution
			of transactions
June 1997 to	Kaiser Investment Holdings	Dealing Manager
April 2007	Limited（嘉信控股有限公司）	•	responsible for the management of
			daily operations of the Securities and
			Derivatives departments and made a
			lot of contribution in setting up the
			operations of the Derivatives Settlement
			division
May 2007 to	Kaiser Investment Holdings	Licensed Representative
January 2009	Limited（嘉信控股有限公司）
February 2009 to	Mavin International Investment	Senior Manager
December 2009	Group Limited（萬域國際投資	•	responsible for managing daily
	集團有限公司）		operations

For identification purpose only

– 124 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

In the three years preceding the Latest Practicable Date, Mr. Kwok did not hold any directorship in any other listed company.

Mr. LAU Kin Hon（劉建漢） (“Mr. KH Lau”), age 43 , is an executive Director and a director of Cheong Lee. He joined the Group on 8 January 2008 and was appointed as a director of Cheong Lee on 8 January 2008 and an executive Director on 17 February 2011. Mr. KH Lau is responsible for managing the compliance function of the Group and the provision of advice to the Group on legal and regulatory compliance matters. Mr. KH Lau is a practicing solicitor in Hong Kong . Mr. KH Lau received his bachelor of laws degree in 1989 with honours from University College, London（倫敦大學學院[*] ）, U.K. Currently, Mr. KH Lau has over 15 years experience in legal and compliance. He has been a partner of Tang Tso & Lau（鄧曹劉律師行）since February 1995 . He is a director of three private limited companies namely More Power Trading Limited, Robos Secretarial Limited and Wangxiang Ecological Agricultural Development Limited, the principal businesses of which are consultancy, provision of secretarial services and agriculture business respectively in Hong Kong and the PRC .

As a partner in Tang Tso & Lau, Mr. KH Lau provides legal services to corporate and private clients in areas including general commercial, corporate finance, property, dispute resolution and intellectual property. To the best knowledge of the Company after reasonable enquiry with Mr. KH Lau, such role has no conflict or duplication with Mr. KH Lau’s role as the executive Director in the Company. There has not been, during the Track Record Period, and there will not be any engagement by the Group with Tang Tso & Lau for its legal services that may constitute connected transactions of the Group .

Save for the appointment as a non-executive director of Magician Industries (Holdings) Limited （通達工業（集團）有限公司）(Stock code: 526) (now known as Lisi Group (Holdings) Limited（利時集團（控股）有限公司）) since April 2005 , in the three years preceding the Latest Practicable Date, Mr. KH Lau did not hold any directorship in any other listed company.

Mr. KH Lau had been the independent non-executive director of Fujian Group Limited（褔海集團有限公司）(now known as Fujian Holdings Limited（閩港控股有限公司）) (“FGL”) during the period from 11 June 1996 to 11 December 2003, Seapower Resources International Limited （凱暉國際實業有限公司）(now known as China Timber Resources Group Limited（中國木業資源集團有限公司）) (“SRI”) during the period from 15 August 2000 to 5 December 2003 and I-China Holdings Limited (now known as Build King Holdings Limited（利基控股有限公司）) (“ICL”) during the period from 1 April 2001 to 23 April 2004. Each of FGL, SRI and ICL was a company listed on the Stock Exchange during Mr. KH Lau’s directorship and Mr. KH Lau took the responsibilities as an independent non-executive director to provide independent judgement on relevant issues of the Company.

For identification purpose only

– 125 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

FGL

FGL was incorporated in Hong Kong whose principal business was property investment. FGL was served a winding up petition at the High Court（高等法院）of Hong Kong dated 21 January 2002 which was instituted by 6 former employees for severance payment, payment in lieu of notice, provident fund and litigation fees in an aggregate amount of HK$489,425.20. FGL was in severe financial difficulty and had continued to negotiate with its major bankers and its then controlling shareholder on restructuring of FGL’s debts. FGL was subject to another winding up petition at the High Court（高等法院）of Hong Kong instituted by The Hongkong and Shanghai Banking Corporation Limited（香港上海滙豐銀行有限公司）on 15 January 2003 and provisional liquidators were appointed on the same date. The principal reason for the appointment of provisional liquidators was to facilitate and expedite a restructuring of FGL’s affairs. Successful debt restructuring of FGL involving, inter alia, restructuring of the debts owed to creditors of FGL (including secured creditors of approximately HK$236 million and unsecured creditors of approximately HK$493 million as at 31 December 2002) was completed on 11 December 2003 and the said winding up petition(s) and provisional liquidators were discharged on the same date.

SRI

SRI was incorporated in the Cayman Islands whose principal businesses were property investment and cold storage. Each of SRI and four of its then subsidiaries was served a winding up petition at the High Court（高等法院）of Hong Kong on 12 December 2001 by a banking syndicate for recovery of the amount due and outstanding under a loan facility and provisional liquidators were appointed on 31 December 2001. As at 5 December 2001, the amount outstanding and due to the banking syndicate was approximately HK$491 million. Successful restructuring of SRI was completed on 5 December 2003 and the said winding up petition and provisional liquidators were discharged accordingly.

ICL

ICL was incorporated in Bermuda whose principal business was investment holding. ICL was subject to a winding up petition at the High Court（高等法院）of Hong Kong in December 2002 and provisional liquidators were appointed on 5 December 2002 as a result of ICL’s failure to repay a debt in the amount of approximately HK$5.4 million due to Seapower Finance Limited（海裕財務有限公司）. Successful restructuring of ICL was completed on 23 April 2004 and the said winding up petition and provisional liquidators were discharged accordingly.

Mr. KH Lau has confirmed that there was no wrongful act on his part leading to the winding up petitions in respect of FGL, SRI and ICL. Having considered that Mr. KH Lau was an independent non-executive director in each of the aforesaid three companies and had no active role in the formulation of corporate strategy, daily operation and overall management in each of the aforesaid three companies, all the Directors ( including the independent non-executive Directors but excluding Mr. KH Lau) are of the view that Mr. KH Lau is suitable and is able to discharge his roles as an executive Director . Save as disclosed above, Mr. KH Lau has confirmed that there is no other matter relating to him that is required to be disclosed .

– 126 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

Ms. Linda YU（余蓮達） , aged 38 , is an executive Director and a director and Responsible Officer of Cheong Lee. She joined the Group in October 2007 and was appointed as director of Cheong Lee on 14 April 2009 and an executive Director on 27 August 2010 . Ms. Yu is responsible for the Company’s business development, marketing, maintenance of clients’ relations and such other matters as the Board shall from time to time direct .

Ms. Yu has over 15 years of experience in the securities industry and has worked for the following company:–

Year	Company Name	Position /responsibility
October 1994 to	Realink Securities Limited	Financial Consultant
June 2007	（滙信數碼証券有限公司）

In the three years preceding the Latest Practicable Date, Ms. Yu did not hold any directorship in any other listed company.

Mr. AU-YEUNG Tai Hong Rorce（歐陽泰康） , aged 53 , is an independent non-executive Director of the Company appointed on 21 February 2011. He holds a Bachelor’s Degree in Science (Business Administration (Accounting)) from San Jose State University（聖荷西州立大學[] ）in 1983 and a Juris Doctor from Santa Clara University（聖克拉拉大學[] ）of the United States of America in 1987. Mr. Au-Yeung was admitted as an attorney and counselor at law of the State Bar of California（加州律師協會[*] ）on 11 December 1989. Currently, he is the Chief Executive Officer of Nova Solar Limited（新日能有限公司）(“NovaSolar”).

Mr. Au-Yeung is a director and Chief Executive Officer of and indirectly holds 68% of the issued share capital of Nova Solar , a BVI Company in which CAAL Capital Company Limited (formerly known as Cheong Lee Capital Limited and wholly owned by Ms. Au), holds approximately 5.2% of its issued share capital. On the basis that CAAL Capital Company Limited is merely a minority shareholder of NovaSolar with an approximately 5.2% interest in its issued share capital, and neither CAAL Capital Company Limited nor its ultimate beneficial owner is involved in the management of NovaSolar , the Company is of the view that the interest of CAAL Capital Company Limited in NovaSolar would not affect the independence of Mr. Au-Yeung as an independent non-executive Director. Save as disclosed, Mr. Au-Yeung has no past or present financial or other interest in the business of the Company or its subsidiaries or any connection with any connected person of the Company . In the three years preceding the Latest Practicable Date, Mr. Au-Yeung did not hold any directorship in any other listed company .

For identification purposes only

– 127 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

Ms. CHOY Wing Man （蔡詠雯） , aged 33 , is an independent non-executive Director of the Company appointed on 21 February 2011. Ms. Choy has been the Regional Auditor of an international high fashion company since June 2004. Ms. Choy attended the University of New South Wales（新南威爾斯大學[*] ）, graduating in 1999 with a Bachelor of Commerce in Accounting and Finance.

Ms. Choy has worked for the following company until she was appointed as an independent non-executive Director of the Company:–

Year	Company Name	Position /responsibility
September 1999 to	Deloitte Touche Tohmatsu	Senior Accountant II
March 2004	（德勤•關黃陳方會計師行）

She is a member of ISACA, the Information Systems Audit and Control Association（國際電腦稽核協會）, a Certified Practising Accountant of CPA Australia（澳州會計師公會[] ）, and a member of the Institute of Internal Auditors（國際內部審計師協會[] ）. She is also a member of the Hong Kong Institute of Certified Public Accountants（香港會計師公會）.

The spouse of Ms. Choy, Mr. Ang Wing Fung (“Mr. Ang”), has maintained a securities account with Cheong Lee during the Track Record Period until 18 October 2010. For the two years ended 31 March 2010 and from 1 April 2010 to 31 August 2010, the transaction amount involving dealings in such account were HK$0, HK$50 and HK$0 respectively.

On the basis that:–

(i) the securities account maintained by Mr. Ang with Cheong Lee is a cash account with no margin facilities granted to Mr. Ang ;
(ii) the brokerage commission from Mr. Ang in each of the two years ended 31 March 2010 and the five months ended 31 August 2010 constituted nil, approximately 0.0001% and nil of the revenue from securities and futures broking of Cheong Lee in the respective periods;
(iii) the business dealings between Cheong Lee and Mr. Ang were in the ordinary course of business of Cheong Lee; and
(iv) Mr. Ang has already closed his securities account with Cheong Lee on 18 October 2010,

The Company is of the view that the previous business dealings between Mr. Ang and Cheong Lee during the Track Record Period would not affect the independence of Ms. Choy as an independent non-executive Director. Save as disclosed above, Ms. Choy has no past or present financial or other interest in the business of the Company or its subsidiaries or any connection with any connected person of the Company . In the three years preceding the Latest Practicable Date, Ms. Choy did not hold any directorship in any other listed company .

For identification purpose only

– 128 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

Mr. CHEE Kwok Wing Waymond（池國榮） , aged 49 , is an independent non-executive Director of the Company appointed on 21 February 2011. Currently, Mr. Chee is a Assistant Vice President at ICAP AP (Singapore) Private Ltd. He graduated the University of Hong Kong（香港大學）in 1983 with a Bachelor’s of Social Sciences.

Mr. Chee has worked for the following companies prior to being appointed as an independent non-executive Director of the Company:–

Year	Company Name	Position /responsibility
August 1993 to	Lehman Brothers（雷曼兄弟*）	Senior Dealer
December 1994
February 1991 to	Barclays Bank PLC	Chief FX Trader
September 1993	（栢克萊國際銀行）
June 1983 to	JPMorgan（JP摩根*）	Deputy Chief Dealer
February 1991

Mr. Chee has maintained a securities account with Cheong Lee. For the two years ended 31 March 2010 and from 1 April 2010 to 31 August 2010, the brokerage commission involving dealings in such account were HK$0, HK$0 and HK$ 248 respectively. Save as disclosed above, Mr. Chee has no past or present financial or other interest in the business of the Company or its subsidiaries or any connection with any connected person of the Company . In the three years preceding the Latest Practicable Date, Mr. Chee did not hold any directorship in any other listed company .

Save as disclosed above, there are no other matters concerning the Directors that need to be brought to the attention of the Shareholders and there is no other information relating to the Directors that needs to be disclosed .

Matter bought to attention of the Shareholders

Prior to the appointment of Mr. Lau Ka Lung Ali as the Chairman of the Company on 22 February 2011, the Board has appointed Mr. To Hang Ming (“Mr. To”) as executive Director on 18 February 2011 and proposed to appoint Mr. To as the chairman of the Company. However, since Mr. To could not reach a consensus on the terms of the remuneration package in respect of his appointment as the executive Director and the proposed chairman of the Company, Mr. To has on 20 February 2011 tendered his resignation with effect from 21 February 2011 . Accordingly, Mr. To would not be the executive director and chairman of the Company . Mr. To was an account executive of Cheong Lee for the period from February 2010 to August 2010, and became an employee and the Marketing Director of Cheong Lee in September 2010 up to his resignation and was responsible for formulating corporate strategies and overall management of the Group.

For identification purpose only

– 129 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

Mr. To has confirmed that he has no disagreement with the Board and other members of the senior management during the period of his employment and up to the Latest Practicable Date and there is nothing that needs to be brought to the attention of the shareholders of the Company .

On 22 February 2011, the board of Directors has appointed Mr. Lau Ka Lung Ali as chairman of the Company and Mr. Lau Ka Lung Ali will be responsible for formulating corporate strategies and overall management of the Group.

SENIOR MANAGEMENT

Mr. CHAN Kam Wah（陳錦華） , aged 35 , is the Company Secretary and the Finance Manager of the Group. He joined the Group in May 2010 and is responsible for the overall accounting and financial management functions. Mr. Chan has obtained a Bachelor’s degree in Accounting from Napier University, Edinburgh（愛丁堡納皮爾大學[*] ）of Scotland in 1999. He is also an associate and a fellow of the Association of Chartered Certified Accountants （特許公認會計師公會）since October 1998 and November 2003 respectively and an associate of the Hong Kong Society of Accountants（香港會計師公會）, now known as Hong Kong Institute of Certified Public Accountants （香港會計師公會） since 8 October 1999.

Mr. Chan has over 10 years of experience in the accounting and finance industry and has worked for the following companies:–

Year	Company Name	Position /responsibility	Position /responsibility
October 2009 to	World Fair International Limited	Accounting Manager
May 2010	（世逸國際有限公司）	•	oversee the daily operation of the
			financial accounting department which
			included handling of financial reporting
			to management
March 2002 to	Lisboa Bakeries Ltd.	Accounting Manager
October 2009	（葡京餅店有限公司）	•	assist in company secretarial functions
			and to undertake the overall supervision
			of the accounting department, help to
			set up and implement new accounting
			procedures and systems and improve
			control over data access and system
			administration
June 1997 to	Nelson Wheeler（黎樊會計師行）	Audit	Senior II
November 2000
July 1995 to	Tony CM Yau & Co.	Audit	Assistant
March 1997	（邱智明會計師事務所）

For identification purpose only

– 130 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

Mr. Chan is able to discharge his roles as a company secretary in view of his experience in undertaking certain company secretarial duties during the employment period for over 6 years with Lisboa Bakeries Ltd.

AUDIT COMMITTEE

The Company has established an Audit Committee on [•] which comprises Ms. Choy Wing Man, Mr. Au-Yeung Tai Hong Rorce and Mr. Chee Kwok Wing Waymond with Ms. Choy Wing Man being the chairman of the committee. Among other things, the primary duties of the Audit Committee are to review and supervise the financial reporting process and internal control system of the Group.

REMUNERATION COMMITTEE

The Company has established a Remuneration Committee on [•] which comprises Mr. Au-Yeung Tai Hong Rorce, Ms. Choy Wing Man and Mr. Lau Kin Hon, with Mr. Au-Yeung Tai Hong Rorce being the chairman of the committee. Among other things, the primary duties of the Remuneration Committee include the evaluation of the performance and the making of recommendations on the remuneration package of the Directors and senior management.

NOMINATION COMMITTEE

The Company has established a Nomination Committee on [•] which comprises Mr. Chee Kwok Wing Waymond, Ms. Choy Wing Man and Mr. Lau Ka Lung Ali with Mr. Chee Kwok Wing Waymond being the chairman of the committee. The primary duties of the Nomination Committee include nominating potential candidates for directorship, reviewing the nomination of directors and making recommendations to the Board on terms of such appointment.

– 131 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

STAFF OF THE GROUP

Overview of the staff of the Group

As at 31 March 2009 , the Group employed 12 full-time employees (including the executive Directors) who were engaged in the following activities:

Management Dealing and settlement Sales & marketing and equity capital market General administration and accounting Compliance and company secretary Total	Number 4 2 1 3 1
	12

Note:

(1) As at 31 March 2009, there were 5 Responsible Officers and 3 representatives qualified as licensed persons under the SFO.
(2) The number of employees excludes account executives .

As at 31 March 2010 , the Group employed 14 full-time employees (including the executive Directors) who were engaged in the following activities:

Management Dealing and settlement Sales & marketing and equity capital market General administration and accounting Compliance and company secretary Total	Number 4 3 3 3 1
	14

Note:

(1) As at 31 March 2010, there were 5 Responsible Officers and 4 representatives qualified as licensed persons under the SFO.
(2) The number of employees excludes account executives .

– 132 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

As at the Latest Practicable Date, the Group employed 15 full-time employees (including the executive Directors) who were engaged in the following activities:

Management Dealing and settlement Sales & marketing and equity capital market General administration and accounting Compliance and company secretary Total	Number 2 4 4 4 1
	15

Note:

(1) As at the Latest Practicable Date, there were 3 Responsible Officers and 6 representatives qualified as Licensed Persons under the SFO.
(2) The number of employees excludes account executives .

STAFF RELATIONS

The Company provides continuous professional training to its staff, has maintained a cordial relationship with its staff and has not encountered any major labour disputes with its staff or experienced any interruptions to its operations as a result of disputes with its staff .

REMUNERATION OF DIRECTORS AND STAFF

Apart from Mr. KH Lau, all directors of Cheong Lee during the Track Record Period who will remain as executive Directors of the Group were paid with directors’ remuneration. As advised by the Group, Mr. KH Lau agreed with Cheong Lee that no directors’ remuneration would be paid to him for acting as a director of Cheong Lee after taking into account that Mr. KH Lau is not a Responsible Officer for fulfilling the licensing requirement of Cheong Lee and he was willing to invest his time by taking the director role in Cheong Lee in anticipating that he would be able to benefit from the future growth and expansion of Cheong Lee. Each of the executive Directors has entered into a service agreement with the Company for an initial fixed term of 3 years from [ •], which will continue thereafter until terminated by not less than three months’ written notice or payment in lieu to the other party. Each of the executive Directors will receive a fee which is subject to an annual adjustment at a rate to be determined at the discretion of the Board. The total remuneration received by the Directors for the year ended 31 March 2010 was approximately HK$ 0.8 million. The total estimated remuneration of the Directors for the year ending 31 March 2011 is approximately HK$ 1.5 million which reflects the remuneration packages in respect of similar capacity and responsibilities in the Group in the context of and with due reference to the market and the responsibilities of the Directors concerned.

– 133 –

DIRECTORS, SENIOR MANAGEMENT AND STAFF

The Company’s policy concerning the remuneration of the Directors is that the amount of remuneration is determined by reference to the relevant Director’s experience, responsibilities, workload and the time devoted to the Group. Details of the terms of the service contracts are set out in the section headed “Service contracts” in Appendix V to this document.

The remuneration package of the Group’s staff includes salary and discretionary bonus . Employees’ remuneration is determined based on the individual’s qualification, experience, position, job responsibility and market conditions. Salary adjustments and staff promotion are based on evaluation of staff performance by way of annual review, and discretionary bonuses are paid to staff in [•] each year with reference to the financial performance of the Group of the preceding financial year.

SHARE OPTION SCHEMES

The Company has conditionally adopted the Pre-[•] Share Option Scheme on [•] 2011 under which certain selected classes of participants (including, among others, full-time employees) have been granted options to subscribe for the new Shares. As at the date of this document, options to subscribe for 6,300,000 Shares under the Pre-[•] Share Option Scheme have been granted to Directors and certain selected staff of the Group. The Company has also conditionally adopted the Share Option Scheme. No option has been granted under the Share Option Scheme. The principal terms of each of the Share Option Schemes are summarised in the sections headed “ Pre-[•] Share Option Scheme” and “Share Option Scheme” in Appendix V to this document, respectively.

RETIREMENT BENEFIT SCHEME

In Hong Kong, the Group participates in the mandatory provident fund prescribed by the Mandatory Provident Fund Schemes Ordinance（強制性公積金計劃條例）, Chapter 485 of the Laws of Hong Kong（香港法例）and has made the relevant contributions in accordance with the aforesaid laws and regulations .

Save as the aforesaid, the Group has not participated in any other pension schemes.

– 134 –

CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS

CONTROLLING SHAREHOLDERS

So far as the Directors are aware, immediately following completion of [•] (but without taking into account of any new Shares which may be allotted and issued pursuant to the exercise of options that were granted or may be granted under the Pre-[•] Share Option Scheme and the Share Option Scheme), the following persons are entitled to exercise or control the exercise of 30% or more of the voting power at the general meetings of the Company :

			Approximate
			percentage of
			shareholding
			(assuming no
			exercise of
			the options
			to be granted
			or may be
			granted under
			the Pre-[•]
			Share Option
			Scheme and
	Capacity and nature of	Number of	the Share
Name	interests	Shares held	Option Scheme )
		(Note)
Ms. Au	Corporate- interest	[•]	[•] %
	in controlled corporation
BVI Holding	Beneficial owner	[•]	[•] %
Company

Note: These Shares were held by BVI Holding Company, a company incorporated in the BVI which is wholly and beneficially owned by Ms. Au. Accordingly, Ms. Au is deemed to be interested in all the [•] Shares held by BVI Holding Company under the SFO and their interests duplicate with each other.

Ms. Au currently does not hold any licences for carrying on securities and trading activities. However, she was registered as a dealer’s representative under the repealed Securities Ordinance during the period from January 1991 to March 2003 (other than the period from January 1992 to January 1997 and from July 2001 to September 2002). She was also registered as a dealer’s representative under the repealed Commodities Trading Ordinance during the period from June 1991 to July 2001 (other than the period from September 1992 to January 1997). Ms. Au was also a Licensed Representative to engage in Type 1 (dealing in securities) regulated activity during the period from April 2003 to October 2003.

In addition, Ms. Au was interested in approximately 99% of Wintech Securities Limited through her interest in Treasure Scene Limited from November 2000 to June 2001.

– 135 –

CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS

On 19 July 2001, the SFC made a public reprimand against Ms. Au in her capacity as a then dealer’s representative under the repealed Securities Ordinance and Commodities Trading Ordinance which followed on SFC inquiry into the placement of shares of Kin Don Holdings Limited (“Kin Don”) (stock code: 208, currently named as Polytec Asset Holdings Limited) on 23 June 1999.

As disclosed in the announcement relating to the reprimand, many people who bought Kin Don shares in the course of that placement had the mistaken impression that they were buying shares placed by Kin Don’s controlling shareholder who would then replenish his interest through a top-up arrangement to raise funds to exploit a trading right that the press reported Kin Don had recently acquired. Kin Don subsequently issued an announcement denying the market rumors and press reports stating that it was not aware of any reason for the price movements in its shares following which Kin Don’s share price fell by approximately 47% to HK$0.88 on 25 June 1999. Following the conduct of the placement, the SFC received complaints from members of the public about the placement.

The SFC found that Ms. Au in the course of soliciting other brokers to act as sub-placing agents had told them that the placement was a top-up placement and that Kin Don had recently acquired a trading right in China. The SFC found that Ms. Au had failed to take all reasonable steps to verify the accuracy or otherwise of this information before informing the prospective sub-placing agents. As a result, misleading information was disseminated to the market about the placement.

In deciding on the public reprimand the SFC took into account that Ms. Au had surrendered her registrations under the repealed Securities Ordinance and the Commodities Trading Ordinance for a period of eight months.

Ms. Au currently holds interests in the following companies (Note):

	% of
Name	shareholding	Principal business
Billion Wealth Holdings Limited	100%	Property investments
Million Advanced Limited	99%	Property investments
Goldie Trend Limited	50%	Garment trading
CAAL	100%	Investment in securities
China Merit	100%	Investment in securities
C.L. Management Services Limited	100%	Management services

Note: Ms. Au did not hold any interest in Chinacorp . This company was previously wholly-owned by her niece, Ms. Au Yu Siu, and it is now 50% held by Ms. Au Yu Siu and as to the remaining 50% by an Independent Third Party.

– 136 –

CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS

Ms. Au has confirmed that save for the aforesaid companies, she and/or any of her associate(s) does not hold or has not held, either directly or indirectly, any other business or companies during the Track Record Period and up to and including the Latest Practicable Date. Ms. Au has also confirmed that there is no actual or potential competition between the businesses of the Group and the businesses of the aforesaid companies.

SUBSTANTIAL SHAREHOLDER S

Save as disclosed in the sub-paragraph headed “Controlling Shareholders” under this section and so far as the Directors are aware, immediately following the completion of [•], but taking no account of any Shares which may be allotted and issued pursuant to [•] and the exercise of options that were granted or may be granted under the Pre-[•] Share Option Scheme and the Share Option Scheme, no person will have interests and/or short positions in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which would be recorded in the register of the Company required to be kept under Section 336 of the SFO or who are directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

INDEPENDENCE FROM THE CONTROLLING SHAREHOLDERS

The Directors believe that the Group is capable of carrying on its business independently of the Controlling Shareholders and their respective associates , have taken into consideration the following factors :

Management Independence

Each of the Directors is aware of his or her fiduciary duties as a director of the Company which require, among other things, that he or she acts for the benefit and in the best interests of the Company and does not allow any conflict between his or her duties as a Director and his or her personal interest. In the event that there is a potential conflict of interest arising out of any transaction to be entered into between the Group and the Directors or their respective associates, the interested Director(s) shall abstain from voting at the relevant board meetings of the Company in respect of such transactions and shall not be counted in the quorum.

The Directors and senior management of the Group are independent of the Controlling Shareholders.

The Directors are satisfied that they are able to perform their roles in the Company independently, and the Directors are of the view that the Company is capable of managing the business independently from the Controlling Shareholders after [•].

– 137 –

CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS

Operational Independence

The Group’s reliance on the business from Ms. Au and her associates has been decreasing. Turnover of the Group generated from transactions with Ms. Au and her associates accounted for approximately 58.8%, 12.1% and 7.2% of the total turnover for the two years ended 31 March 2010 and the five months ended 31 August 2010 respectively. The Group has established its own set of organisational structure made up of individual departments, each with specific areas of responsibilities. The Group has independent access to the suppliers as well as customers. The Company has also established a set of internal controls to facilitate the effective operation of the business.

Financial Independence

The Group has an independent financial system and makes financial decisions according to the Group’s own business needs.

The Group’s overdraft facilities of HK$10 million obtained from the bank was against a fixed deposit of not less than HK$5 million from Cheong Lee and personal guarantee from Ms. Au for not less than HK$10 million. Personal guarantee provided by Ms. Au will be released or replaced by the Group’s corporate guarantee .

Having considered the above factors, the Directors consider that there is no financial dependence on the Controlling Shareholders.

Therefore, in view of the above fact, the Group is considered independent in all material aspects including finance, management and operations of the Controlling Shareholders.

– 138 –

SHARE CAPITAL

HK$ Authorised share capital: 5,000,000,000 Shares 50,000,000 Issued , fully paid or credited as fully paid: [•] Shares in issue as at the Latest Practicable Date [•]

Share Option Schemes

The Company has conditionally adopted the Pre-[•] Share Option Scheme and the Share Option Scheme, the major terms of which are set out in the sections headed “ Pre-[•] Share Option Scheme ” and “Share Option Scheme” in Appendix V to this document, respectively. No options have been granted under the Share Option Scheme.

– 139 –

FINANCIAL INFORMATION

You should read this section in conjunction with the Group’s audited combined financial statements, including the notes thereto, as set out in the accountants’ report set out in Appendix I to this document. The Group’s financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards（香港財務報告準則）. You should read the entire accountants’ report and not merely rely on the information contained in this section.

The following discussion and analysis contains certain forward-looking statements that reflect the current views with respect to future events and financial performance. These statements are based on assumptions and analyses made by the Group in light of the Group’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors the Group believes are appropriate under the circumstances. However, whether actual outcomes and developments will meet the Group’s expectations and projections depend on a number of risks and uncertainties over which the Group does not have control. For further information, you should refer to the section headed “Risk factors” in this document.

MAJOR FACTORS AFFECTING THE GROUP’S REVENUE

The Group is principally engaged in the provision of (i) securities , futures and options broking and trading ; and (ii) placing and underwriting services . The Group also provides ancillary services including application for new issues and nominee services such as collection of cash and scrip dividends.

The Group’s income mainly comprises: (i) commission income arising from the broking business of securities and futures dealing, which is recognised on a trade-date basis; (ii) underwriting commission income, sub-underwriting commission income, placing commission and related handling fee, which are recognised when the relevant services are rendered; (iii) interest income from IPO financing to its clients; and (iv) handling service fees and dividend collection fees which are recognised when the relevant services have been provided. Details of the breakdown of turnover by business activities of the Group are set out in note 6 to the accountants’ report contained in Appendix I to this document.

– 140 –

FINANCIAL INFORMATION

The Group’s business focuses mainly on the capital markets in Hong Kong and is transaction driven. Its revenue is directly related to the number and size of transactions undertaken by the Group on behalf of its clients. Therefore, the Directors believe that the major factors affecting the Group’s revenue include:

(a) performance of the stock and futures markets in Hong Kong;
(b) number of players and market competition in Hong Kong;
(c) capacity of the Group’s trading system; and
(d) changes in the laws and regulations governing the securities industry in Hong Kong.

Performance of the stock and futures markets in Hong Kong

The performance of the stock and futures markets in Hong Kong is dependent on the domestic and international political and economic conditions.

The Hong Kong securities market was adversely affected due to the outbreak of global financial crisis in late 2008. Since then, the worldwide market was clouded by many uncertainties, in particular the increasing concern over the health of U.S. financial institutions. The local securities market in Hong Kong remained stagnant until the first quarter of 2009 when the PRC government implemented additional stimulus plans and general anticipation for better corporate earnings. Strong capital inflows into the Hong Kong stock market and property market also lent support. By the end of 2009, the Hang Seng Index and the Hang Seng China Enterprise Index had risen by approximately 52% and 62% respectively from last year.

Trading activities in the local stock market were quiet in the first half of 2009, with average daily turnover in 2009 amounting to approximately HK$62 billion, approximately 14% lower than that in 2008 , but became active in the second half of 2009 due to improved sentiment and strong funds inflow. Even though the Hong Kong financial markets remained volatile in the first half of 2010 amid global market instability and sovereign liquidity concerns in Europe, average daily turnover on the Stock Exchange and the Futures Exchange increased by 9% and 2% respectively and number of new listings increased by 56% as compared to the same period in 2009.

– 141 –

FINANCIAL INFORMATION

Although the G-20, or the Group of Twenty, recently declared that it would continue to cooperate and undertake appropriate actions to bolster economic growth and foster a strong and lasting recovery, the global economy is still struggling to emerge from a long shadow. Investors are likely to stay cautious when making investment decisions.

	Year	ended 31 December
	2010	2009	2008
Hang Seng Index	23,035 (+5%)	21,872 (+52%)	14,387
Number of listed companies	1,413 (+7%)	1,319 (5%)	1,261
Market capitalisation (HKD billion)	21.08 (+18%)	17.87 (+74%)	10.30
Average daily turnover (HKD billion)	69.12 (+11%)	62.31 (-14%)	72.05
Average daily contract volume of
futures and options	467,961 (+18%)	398,134 (-8%)	432,126

Note: Hang Seng Index is sourced from Bloomberg. Number of listed companies, market capitalisation, average daily turnover and average daily contract volume of futures and options are sourced from the website of HKEx.

Number of players and market competition in Hong Kong

Exchange Participants and trading right holders status (as at 31 January 2011)

	Stock	Futures
	Exchange	Exchange
Exchange Participants
– Trading	487	178
– Non-trading	31	–
Trading rights holders	961	244

As at 31 January 2011, there were 178 Futures Exchange Participants and 487 active Exchange Participants in Hong Kong. The Group faces intense competition for its stock and futures brokerage business.

– 142 –

FINANCIAL INFORMATION

Capacity of the Group’s trading system

The Group relies heavily on its securities and futures trading systems to generate its revenue. As such, the capacity of the Group’s trading system plays a crucial role in ensuring that the Group is capable of executing stock transactions in an efficient and accurate manner.

The capacity of the Group’s trading system is measured by the throttle rate which determine s the rate at which trade orders can be sent through the Open Gateway to the AMS/3 by the Group. The standard throttle rate is one order per second.

As at the Latest Practicable Date, Cheong Lee held 14 throttle rates subscribed from the Stock Exchange, which translated to a capacity of 14 transaction orders per second. For the five months ended 31 August 2010, the average utilisation rate of securities trading capacity of the Group in terms of throttle usage was approximately 1.2% calculated based on 382,752 orders placed in total divided by the Group’s trading capacity of approximately 31,881,600 orders (which is product of 12 transaction orders per second and 2,656,800 trading seconds given its 12 throttle rates subscribed from the Stock Exchange and on the assumptions of 4.5 trading hours each day and 164 trade days). Maximum utilization of the capacity of the Group’s trading system usually occurs when the trading session commences. Any insufficiency in the capacity of the Group’s trading system may adversely affect the Group’s operations and hence its financial performance.

The Directors confirmed that if future business needs of the Group require, the throttle rates of the Group could be increased without incurring substantial costs. As at the Latest Practicable Date, the one-time charge by HKEx for each additional throttle rate was HK$ 100,000 .

Changes in the laws and regulations governing the securities industry in Hong Kong

The law and regulations governing the securities industry in Hong Kong may change in a way that may affect the Group’s revenue. For example, new laws and regulations may be implemented to change the brokerage commission structure and the amount of liquid capital required for the Group’s business which determines the volume and size of transactions that the Group can carry out. These may therefore affect the Group’s revenue. In addition, changes in other relevant laws (e.g. the Companies Ordinance and the Securities and Futures Ordinance) and regulations (e.g. the Listing Rules and the Takeovers Code) may affect listed companies’ abilities to implement corporate exercises, such as fund raising in the market including IPOs and secondary market equity fund-raising which will, in turn, affect the Group’s revenue.

In November 2010, HKEx announced the extension of its trading hours from the current 4 hours to 5 hours with effect from 7 March 2011, and further to 5.5 hours with effect from 5 March 2012, to align with mainland sessions and to offer yuan-denominated products. Such changes may affect the turnover in stock and future markets in Hong Kong and therefore the Group’s revenue.

– 143 –

FINANCIAL INFORMATION

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The financial statements of the Group were prepared in accordance with Hong Kong Financial Reporting Standards（香港財務報告準則）(“HKFRSs”), which require the Group to use certain critical accounting estimates and the management of the Group to exercise its judgment in the process of applying accounting policies. Therefore, the financial information included in this document may not necessarily reflect the results of operations, financial and cash flow positions of the Group in the future or what they would have been had the Group been a separate, stand-alone entity during the periods presented.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable arising from financial services and is recognised on the following basis:

i) Commission income for broking business of securities, futures and options dealing is recorded as income on a trade-date basis.
ii) Underwriting commission income, sub-underwriting income, placing commission and related handling fee whether on an underwritten or on a best effort basis are recognised when the shares are allotted to the placees .
iii) Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
iv) Handling service fees and dividend collection fee are recognised when the agreed services have been provided.
v) Profit and loss from trading in investments at fair value through profit or loss are recognised when the relevant contract notes are executed.

– 144 –

FINANCIAL INFORMATION

Impairment losses on tangible and intangible assets other than goodwill

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. In addition, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as revaluation decrease under that standard.

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

Others

For details of the significant accounting policies and key sources of estimation uncertainty relating to the Group’s financial information, please refer to notes 2 and 3 to the Accountants’ Report as set out in Appendix I to this document.

RESULTS OF OPERATIONS

The following is a summary of the audited combined results of the Group for each of the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010 extracted from the accountants’ report, the text of which is set out in Appendix I to this document. The audited combined results are prepared in accordance with HKFRSs on the basis of presentation set out in the accountants’ report in Appendix I to this document. This summary should be read in conjunction with the accountants’ report set out in Appendix I to this document.

– 145 –

FINANCIAL INFORMATION

Total value of transactions Turnover Net other (loss) income Administrative expenses Finance costs Profit before taxation Income tax expenses Profit for the year/period attributable to the owners of the Company Other comprehensive income Net change in fair value on available-for- sale financial assets Total comprehensive income for the year/period attributable to the owners of the Company Dividends	Year ended 31 March 2009 2010 HK$ HK$ 220,489,741,628 402,321,072,198 21,069,422 73,320,765 (1,783,823) 1,855,694 (15,171,732) (28,724,167) (60) (184,536) 4,113,807 46,267,756 (674,832) (7,609,382) 3,438,975 38,658,374 – 1,970,116 3,438,975 40,628,490 852,000 15,008,000	Five months ended 31 August 2009 2010 HK$ HK$ (unaudited) 191,666,695,42 5 116,875,744,173 30,656,084 22,230,602 432,211 (180,285) (9,658,604) (11,249,514) (27,945) – 21,40 7,746 10,800,803 (3,521,898) (1,878,173) 17,879,848 8,922,630 – (55,580) 17,879,848 8,867,050 5,000,000 –	Five months ended 31 August 2009 2010 HK$ HK$ (unaudited) 191,666,695,42 5 116,875,744,173 30,656,084 22,230,602 432,211 (180,285) (9,658,604) (11,249,514) (27,945) – 21,40 7,746 10,800,803 (3,521,898) (1,878,173) 17,879,848 8,922,630 – (55,580) 17,879,848 8,867,050 5,000,000 –
			22,230,602 (180,285) (11,249,514) –
			10,800,803 (1,878,173)
			8,922,630

			(55,580)
			8,867,050

			–

Principal Income Statement Components

Turnover

The Group’s turnover mainly comprises (i) commission and brokerage from securities dealing on the Stock Exchange which accounted for approximately 73.3%, 40.8%, 44.3 % and 45.6 % of the turnover of the Group respectively for the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010; (ii) commission and brokerage fees on dealing in futures contracts which accounted for nil, approximately 1.8%, nil and 3.0 % respectively for the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010; (iii) placing and underwriting commission which accounted for approximately 1.2%, 44.0%, 41.4 % and 36.7% respectively for the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010; and (iv) clearing and settlement fee which accounted for approximately 21.3%, 11.2%, 12.7 % and 10.8% respectively for the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010.

– 146 –

FINANCIAL INFORMATION

Breakdown on turnover by business activities of the Group for each of the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010 is set out as below:

Commission and brokerage from securities dealing on – the Stock Exchange Commission and brokerage fees on dealing in futures contracts Placing and underwriting commission Clearing and settlement fee Handling service and dividends collection fee (Note 1) Interest income from – authorised financial institutions (Note 2) – clients – others	Year ended 31 March 2009 2010 HK$ HK$ 15,442,656 29,941,974 – 1,317,406 262,781 32,288,270 4,479,671 8,219,488 375,288 457,195 177,934 143,105 331,071 953,322 21 5 21,069,422 73,320,765	Five months ended 31 August 2009 2010 HK$ HK$ (unaudited) 13,567,071 10,127,250 – 668,040 12,701,250 8,157,040 3,906,995 2,405,122 209,363 173,560 47,806 101,723 223,598 597,803 1 64 30,656,084 22,230,602

Note 1: Handling service fee includes fee from providing services to clients for handling IPO applications, transmission and chats of funds, reprinting invoices, refund checks, stamp duty for bought and sold note and real time quotations.

Note 2: Interest income from authorised financial institutions represents bank interest income for deposits held in house accounts.

Global market shows signs of recovery from the financial tsunami since early 2009. Local market sentiment has been alleviated with the introduction of stimulus economic plans by the PRC government and general public’s anticipation for improvement in corporate earnings. In order to capture the upward swing of market momentum, the Group has put much effort on soliciting new clients. Number of brokerage clients has been increased substantially from 175 as at 31 March 2009 to 350 as at 31 March 2010 . While total value of transaction increased by approximately 82.5% from about HK$220,489.7 million to HK$402,321.1 million, turnover of the Group increased substantially by approximately 248.0% from about HK$21.1 million in 2009 to HK$73.3 million in 2010.

– 147 –

FINANCIAL INFORMATION

Performance of securities and futures brokerage business

The Group’s brokerage income generated from dealing in securities increased by approximately 94.2% from approximately HK$15.4 million to HK$29.9 million. As a result, income relating to clearing and settlement fee and handling services and dividends collection fee also increased by approximately 83.5% from approximately HK$4.5 million to HK$8.2 million and by approximately 21.8% from approximately HK$375,288 to HK$457,195 respectively.

Starting from January 2010, the Group extended its brokerage services to cover futures traded on the Futures Exchange and retained 18 futures clients as at 31 March 2010. As the Group’s futures brokerage business is at the beginning stage, income generated from futures dealings was limited amounting to approximately HK$1.3 million for the year ended 31 March 2010. The increase in interest income was mainly because the increase in interest received from clients for the arrangement of IPO financings .

Compared with the corresponding period of five months ended 31 August 2009, turnover of the Group decreased by approximately 27.5% from approximately HK$30.6 million to HK$ 22.2 million for the five months ended 31 August 2010. Securities market was more active during the five month s ended 31 August 2009 than the same period in 2010 as the overall economy started to pick up from the global financial tsunami since the second quarter of 2009. Total value of securities traded on the Stock Exchange was approximately HK$7,337.3 billion for the five months ended 31 August 2009 as compared to approximately HK$6,125.3 billion of the same period in 2010. For the five months ended 31 August 2010 as compared with the same period in 2009, the Group’s commission and brokerage income generated from securities dealings reduced by approximately 25.7% from approximately HK$13.6 million to HK$10.1 million; and income relating to clearing and settlement fee and handling services and dividend collection fee decreased by approximately 38.4% from approximately HK$3.9 million to HK$2.4 million and by approximately 17% from approximately HK$209,363 to HK$ 173,560. Interest income increased from HK$271,405 to HK$699,590 mainly because of the interest income incurred from overdue amount of approximately HK$4.0 million from client from May to August 2010. Such overdue amount ha d been settled in September 2010.

Performance of placing and underwriting business

Under normal circumstances, Cheong Lee acts as an underwriter or a sub-underwriter on underwritten basis or a placing agent or sub-placing agent on best effort basis for fund raising activities. It would take the role on underwritten basis only if it received special requests from the issuers and/or their respective placing/underwriting agents.

The following table sets out details of the fund raising activities which generated underwriting/placing commission income to the Group for the two years ended 31 March 2010 and the five months ended 31 August 2010:

– 148 –

FINANCIAL INFORMATION

																										(Note 2)								(Note 3)
		Commission	income derived	by Cheong Lee	HK$		$5,000.0	$257,781.3	$262,781.3		$140,000.0	$80,850.0	$70,000.0	$2,759,400.0		$775,200.0		$1,547,000.0		$4,712,400.0	$24,400.0			$2,592,000.0		$0.0	$100,000.0	$160,000.0			$1,600.0	$114,025.0	$477,517.8	$1,000,000.0	$175,000.0	$3,650,850.0	$50,336.0	$4,680,000.0	$1,450,000.0	$265,500.0		$100,000.0			$265,500.0

Allotted by Cheong Lee	Number of	shares/	underlying	shares Amount	HK$		4,000,000 1,000,000	33,170,000 34,828,500	35,828,500		50,000,000 14,000,000	16,500,000 5,280,000	8,500,000 2,805,000	511,000,000 137,970,000		170,000,000 38,760,000		260,000,000 61,880,000		523,600,000 188,496,000	10,000,000 1,220,000			480,000,000 86,400,000		75,000,000 10,500,000	16,000,000 4,000,000	8,000,000 16,000,000			64,000 19,200	300,000,000 15,000,000	1,000,000 1,250,000	– –	12,500,000 10,000,000	570,000,000 104,310,000	600,000 858,000	300,000,000 156,000,000	2,000,000,000 58,000,000	90,000,000 10,620,000		250,000,000 25,000,000			90,000,000 10,620,000
Size of fund raising exercise	Number of	shares/	underlying	shares Amount	HK$		160,000,000 40,000,000	112,750,000 118,387,500	158,387,500		50,000,000 14,000,000	16,500,000 5,280,000	8,500,000 2,805,000	511,000,000 137,970,000		170,000,000 38,760,000		260,000,000 61,880,000		523,600,000 188,496,000	10,000,000 1,220,000			480,000,000 86,400,000		152,000,000 21,280,000	16,000,000 4,000,000	8,000,000 16,000,000			111,000,000 33,300,000	5,522,864,580 276,143,229	413,960,000 517,450,000	– –	175,000,000 140,000,000	570,000,000 104,310,000	250,000,000 357,500,000	300,000,000 156,000,000	2,000,000,000 58,000,000	90,000,000 10,620,000		250,000,000 25,000,000			90,000,000 10,620,000
			Role of	Cheong Lee			Underwriter	Underwriter			Placing Agent	Placing Agent	Placing Agent	Placing Agent		Placing Agent		Placing Agent		Placing Agent	Placing Agent			Placing Agent		Sub-placing agent	Placing Agent	Placing Agent			Underwriter	sub-underwriter	Underwriter	Placing Agent	Sub-placing agent	Placing Agent	Underwriter	Placing Agent	Placing Agent	Placing Agent		Placing Agent			Placing Agent
			Underwritten/	best effort basis			Underwritten	Underwritten			Best Effort	Best Effort	Best Effort	Best Effort		Best Effort		Best Effort		Best Effort	Best Effort			Best Effort		Best Effort	Best Effort	Best Effort			Underwritten	Underwritten	Underwritten	Best Effort	Best Effort	Best Effort	Underwritten	Best Effort	Best Effort	Best Effort		Best Effort			Best Effort
				Fund raising type			IPO	IPO			Top up placing	Issue of new shares	Issue of new shares	Top up placing		Top up placing		Top up placing		Top up placing	Placing of shares for	shareholder of a listed	company in Hong Kong	Top up placing		Issue of new shares	Top up placing	Placing of shares for	shareholder of a listed	company in Hong Kong	IPO	Open Offer	IPO	Placing of convertible bonds	Issue of new shares	Top up placing	IPO	Top up placing	Issue of new shares	Placing of convertible bond		Placing of convertible bond	for shareholder of a listed	company in Hong Kong	Placing of convertible bond
				Identity of customer			VINCO FINANCIAL GROUP LIMITED	CVM MINERALS LIMITED			CODE AGRICULTURE (HOLDINGS) LIMITED	CODE AGRICULTURE (HOLDINGS) LIMITED	CODE AGRICULTURE (HOLDINGS) LIMITED	CHINA YUNNAN TIN MINERALS GROUP	COMPANY LIMITED	CHINA YUNNAN TIN MINERALS GROUP	COMPANY LIMITED	CHINA YUNNAN TIN MINERALS GROUP	COMPANY LIMITED	CULTURE LANDMARK INVESTMENT LIMITED	N/A (Note 1)			CHINA YUNNAN TIN MINERALS GROUP	COMPANY LIMITED	SOLARTECH INTERNATIONAL HOLDINGS LIMITED	CODE AGRICULTURE (HOLDINGS) LIMITED	N/A (Note 1)			JIANGCHEN INTERNATIONAL HOLDINGS LIMITED	CHINA WATER PROPERTY GROUP LIMITED	CHINA TONTINE WINES GROUP LIMITED	EFORCE HOLDINGS LTD	CHINA AU GROUP HOLDINGS LIMITED	CHINA PUBLIC HEALTHCARE (HOLDING) LIMITED	MEIKE INTERNATIONAL HOLDINGS LIMITED	CODE AGRICULTURE (HOLDINGS) LIMITED	SIBERIAN MINING GROUP COMPANY LIMITED	CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED	N/A (Note 1)			CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED
			Date of Stock code	agreement (if applicable)		For the year ended 31 March 2009	1 15 May 2008 8340	2 22 Dec 2008 705		For the year ended 31 March 2010	1 12 May 2009 8153	2 15 May 2009 8153	3 19 May 2009 8153	4 21 May 2009 263		5 01 Jun 2009 263		6 07 Aug 2009 263		7 07 Aug 2009 674	8 18 Aug 2009 N/A			9 26 Aug 2009 263		10 31 Aug 2009 1166	11 10 Sep 2009 8153	12 21 Sep 2009 N/A			13 23 Sep 2009 8305	14 12 Oct 2009 2349	15 18 Nov 2009 389	16 30 Nov 2009 943	17 02 Dec 2009 8176	18 18 Dec 2009 8116	19 25 Jan 2010 953	20 27 Jan 2010 8153	21 01 Feb 2010 1142	22 10 Feb 2010 736		23 19 Feb 2010 N/A			24 02 Mar 2010 736

– 149 –

FINANCIAL INFORMATION

													(Note 4)																			(Note 4)				(Note 5)
		Commission	income derived	by Cheong Lee	HK$	$1,062,000.0		$265,500.0		$265,500.0		$2,900,000.0	$191,691.0	$900,000.0	$1,285,200.0		$226,800.0		$32,288,269.8		$706,457.5	$302,400.0	$1,212,525.0	$294,000.0			$392,000.0			$687,500.0		($13,933.0)	$874,350.0	$487,500.0		$100,000.0		$825,840.0	$410,400.0		$228,000.0		$1,650,000.0		$8,157,039.5
Size of fund raising exercise Allotted by Cheong Lee	Number of Number of	shares/ shares/	underlying underlying	shares Amount shares Amount	HK$ HK$	360,000,000 42,480,000 360,000,000 42,480,000		90,000,000 10,620,000 90,000,000 10,620,000		90,000,000 10,620,000 90,000,000 10,620,000		200,000,000 116,000,000 200,000,000 116,000,000	200,000,000 380,000,000 6,600,000 12,540,000	120,000,000 30,000,000 120,000,000 30,000,000	510,000,000 42,840,000 510,000,000 42,840,000		90,000,000 7,560,000 90,000,000 7,560,000		2,907,154,229 1,231,648,200		387,100,000 56,516,600 387,100,000 56,516,600	72,000,000 20,160,000 72,000,000 20,160,000	317,000,000 48,501,000 317,000,000 48,501,000	140,000,000 39,200,000 140,000,000 39,200,000			140,000,000 39,200,000 140,000,000 39,200,000			500,000,000 27,500,000 500,000,000 27,500,000		N/A N/A N/A N/A	100,500,000 29,145,000 100,500,000 29,145,000	500,000,000 19,500,000 500,000,000 19,500,000		– – – –		148,000,000 27,528,000 148,000,000 27,528,000	180,000,000 13,680,000 180,000,000 13,680,000		100,000,000 7,600,000 100,000,000 7,600,000		600,000,000 60,000,000 600,000,000 60,000,000		388,530,600 388,530,600
			Role of	Cheong Lee		Placing Agent		Placing Agent		Placing Agent		Placing Agent	Underwriter	Placing Agent	Placing Agent		Placing Agent				Sub-placing agent	Placing Agent	Placing Agent	Placing Agent			Placing Agent			Placing Agent		N/A	Placing Agent	Placing Agent		–		Placing Agent	Placing Agent		Placing Agent		Placing Agent
			Underwritten/	best effort basis		Best Effort		Best Effort		Best Effort		Best Effort	Underwritten	Best Effort	Best Effort		Best Effort				Best Effort	Best Effort	Best Effort	Best Effort			Best Effort			Best Effort		N/A	Best Effort	Best Effort		–		Best Effort	Best Effort		Best Effort		Best Effort
				Fund raising type		Placing of convertible bond		Placing of convertible bond		Placing of convertible bond		Top up placing	IPO	Issue of new shares	Top up placing		Issue of new shares				Top up placing	Top up placing	Top up placing	Placing of shares for	shareholder of a listed	company in Hong Kong	Placing of shares for	shareholder of a listed	company in Hong Kong	Top up placing		N/A	Issue of new shares	Top up placing		Placing of convertible bond		Issue of new shares	Issue of new shares		Top up placing		Top up placing
				Identity of customer		CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED	CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED	CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED	CODE AGRICULTURE (HOLDINGS) LIMITED	FLYKE INTERNATIONAL HOLDINGS LTD	INNO-TECH HOLDINGS LTD.	CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED	CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED			CHINA WATER PROPERTY GROUP LIMITED	ETERNITE INTERNATIONAL COMPANY LIMITED	EFORCE HOLDINGS LTD	N/A (Note 1)			N/A (Note 1)			CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED	FLYKE INTERNATIONAL HOLDINGS LTD	NAM HING HOLDINGS LTD	CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED	CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED	INNO-TECH HOLDINGS LTD	CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED	CHINA PROPERTIES INVESTMENT	HOLDINGS LIMITED	CHINA YUNNAN TIN MINERALS GROUP	COMPANY LIMITED
			Date of Stock code	agreement (if applicable)		25 15 Mar 2010 736		26 17 Mar 2010 736		27 22 Mar 2010 736		28 22 Mar 2010 8153	29 23 Mar 2010 1998	30 29 Mar 2010 8202	31 29 Mar 2010 736		32 29 Mar 2010 736			For the five months ended 31 August 2010	1 08 Apr 2010 2349	2 08 Apr 2010 8351	3 21 Apr 2010 943	4 11 May 2010 N/A			5 14 May 2010 N/A			6 28 May 2010 736		13 May 2010 1998	7 31 May 2010 986	8 15 Jun 2010 736		25 Jun 2010 736		9 29 Jun 2010 8202	10 05 Aug 2010 736		11 06 Aug 2010 736		12 10 Aug 2010 263

– 150 –

FINANCIAL INFORMATION

Notes:

Identity of the customer for the relevant placing had not been publicly announced.
No agreement has been entered with the placing agent and no placing commission had been generated after placing of shares by Cheong Lee.
Non-refundable handling fee received by Cheong Lee despite no convertible bond had finally been placed.
Actual income was HK$$177,758, amount of HK$13,933 was overstated and had been adjusted in May 2010.
Charge for extending the period for fulfillment of convertible bond placement from June 2010 to December 2010 in relation to the original agreement dated 15 August 2009.

During the year ended 31 March 2010, the Group participated in more placing and underwriting exercises . The Group generated placing and underwriting commission of approximately HK$32.3 million from 32 fund raising activities involving fund raising amount of approximately HK$1,231.6 million for the year ended 31 March 2010 as compared to placing and underwriting commission of approximately HK$262,781 from 2 fund raising activities all conducted on underwritten basis involving fund raising amount of approximately HK$35.8 million for the year ended 31 March 2009. Of the 32 fund raising activities conducted for the year ended 31 March 2010, 4 were conducted on an underwritten basis and 28 were conducted on best effort basis.

Compared with the corresponding period of five months ended 31 August 2009, the Group’s placing and underwriting commission for the five months ended 31 August 2010 reduced from approximately HK$12.7 million to HK$8.2 million due to less participation in fund raising activities. During the five months ended 31 August 2010, the Group generated placing and underwriting commission from 12 fund raising activities all conducted on best effort basis involving fund raising amount of approximately HK$388.5 million .

– 151 –

FINANCIAL INFORMATION

For the two years ended 31 March 2010 and the five months ended 31 August 2010, the average transaction amount per order of the Group’s securities and futures brokerage business amounted to approximately HK$344,954, HK$329,969 and HK$305,356 respectively; where the average number of orders made per client account was approximately 3,652, 3,673 and 986 respectively. The following table sets out average commission rate charged for the Group’s securities brokerage business during the Track Record Period:

						Year ended	31 March	31 March				Five months ended 31 August 2010	Five months ended 31 August 2010	Five months ended 31 August 2010
				2009						2010
				Brokerage		Average				Brokerage	Average		Brokerage	Average
		Value of		commission		commission		Value of		commission	commission	Value of	commission	commission
	transaction			income		rate	transaction			income	rate	transaction	income	rate
	(HK$’mil)			(HK$)				(HK$’mil)		(HK$)		(HK$’mil)	(HK$)
Clients entitled to commission scheme
– charged on fixed basis		219,126.6		13,294,187		0.0061%		396,794.9		17,780,741	0.0045%	114,891.6	7,188,219	0.0063%
– Internet sub-accounts charged on variable			387.6	369,309		0.0953%		1,864.4		1,556,669	0.0835%	986.1	810,785	0.0822%
basis as other clients
Other clients (charged on variable basis)			975.6	1,779,160		0.1824%		3,661.8		10,604,564	0.2896%	998.1	2,128,246	0.2132%
Total		220,489. 8		15,442,656		0.0070%		402,321.1		29,941,974	0.0074%	116,875. 8	10,127,250	0.0087%

her (loss) income
Breakdown on net other			(loss) income of the					Group for each of the two years ended 31
2010 and the five months			ended 31		August 2009 and					2010 is	set out	as below:
												Five months ended
					Year ended			31 March				31 August
						2009				2010		2009		2010
						HK$				HK$		HK$		HK$
											(unaudited)
Gain on trading of financial
assets at fair value
through profit or loss					676,224				639,608			356,679		49,256
Loss on trading in futures						–				(3,860)		–		(26)
Dividends income						–				9,758		9,758		–
Net change in fair value		of
financial assets at fair
value through profit	or
loss				(2,467,065)				1,116,721				65,773	(299,650)
Other income						7,018				93,467		1		70,135
				(1,783,823)				1,855,694				432,211	(180,285)

Net other (loss) income

Breakdown on net other (loss) income of the Group for each of the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010 is set out as below:

– 152 –

FINANCIAL INFORMATION

The Group traded equity securities listed in Hong Kong. During the year ended 31 March 2010, the Group generated gain of approximately HK$639,608 on trading of such financial assets and recorded an unrealised gain of approximately HK$1.1 million. The Directors confirmed that it is mainly due to the global market recovery from the financial tsunami since early 2009. Equity securities held by the Group had a fair value of approximately HK$1.9 million and dividend income distributed to the Group was approximately HK$9,758 as at 31 March 2010. The Group started trading futures in November 2009 and incurred a loss of approximately HK$3,860. Other income increased from approximately HK$7,018 to HK$93,467 mainly because of handling charges of approximately HK$48,000 for a placing exercise which was terminated subsequently and compensation of HK$17,500 received from a computer retailer.

During the five months ended 31 August 2010, the Group generated gain of approximately HK$49,256 on trading of equity securities listed in Hong Kong , recorded an unrealised loss of approximately HK$ 299,650 and no dividend income as compared to gain of approximately HK$356,679, an unrealised gain of HK$65,773 and dividend income of approximately HK$9,758 during the corresponding period in 2009. From 1 September 2010 to the Latest Practicable Date, the Group generated gain of HK$ 149,138 on the trading of listed equity securities listed and recorded an unrealised loss of HK$ 725,937.The Director confirmed that it is the Group’s long term strategy to invest in low risk financial assets with low to medium return . The Group’s investment criteria cover equities listed in those healthy developed securities markets, funds invested in healthy capital market and/or operated by well known bankers and/or any other investments that are supported by industrial analysis report(s). Purchases and disposals of financial assets are subject to the Board’s approval from time to time. As at the Latest Practicable Date, the value of the Group’s own securities trading portfolio amounted to approximately HK$ 9.2 million.

Administrative expenses

The following table shows the major administrative expenses of the Group for each of the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010:

CCASS charges Commission paid Subscription and membership fee Rent, rates and management fee Salary and allowances Consultation fee Directors’ remuneration Depreciation Others	Year ended 31 March 2009 2010 HK$ HK$ 4,794,307 8,750,840 350,369 3,642,019 2,970,966 3,679,81 7 2,057,514 2,896,992 1,324,523 2,736,434 218,404 2,005,277 1,188,975 825,260 1,029,680 1,076,18 3 1,236,995 3,111,345 15,171,733 28,724,167	Five months ended 31 August 2009 2010 HK$ HK$ (unaudited) 4,106,644 2,601,387 241,166 1,188,973 1,616,650 1,729,089 1,183,908 1,223,549 923,800 1,032,129 – – 233,500 433, 205 372,907 377,731 980,029 2,663,451 9,658,604 11,249,514	Five months ended 31 August 2009 2010 HK$ HK$ (unaudited) 4,106,644 2,601,387 241,166 1,188,973 1,616,650 1,729,089 1,183,908 1,223,549 923,800 1,032,129 – – 233,500 433, 205 372,907 377,731 980,029 2,663,451 9,658,604 11,249,514
			11,249,514

– 153 –

FINANCIAL INFORMATION

CCASS charges

Total value of transactions in relation to dealing in securities (other than underwriting or placing) over the Group’s platform increased substantially to approximately HK$402,321.1 million for the year ended 31 March 2010 as compared to approximately HK$ 220,489.7 million for the year ended 31 March 2009. In addition, securities underwritten or placed out by the Group amounted to approximately HK$ 1,231.6 million for the year ended 31 March 2010 as compared to approximately HK$ 35.8 million for the year ended 31 March 2009. Accordingly, CCASS charges paid to HKSCC for clearing services increased by approximately 82.5% from approximately HK$4.8 million to approximately HK$8.8 million.

CCASS charges paid to HKSCC for clearing services reduced by approximately 36.7% from approximately HK$4.1 million for the five months ended 31 August 2009 to approximately HK$2.6 million for the corresponding period in 2010; which was in line with the approximately 39% decrease in total value of transactions of the Group from approximately HK$ 191,666.6 million to HK$ 116,875.7 million and approximately 26.8 % decrease in amount of securities underwritten or placed out by the Group from approximately HK$ 547.3 million to HK$ 388.5 million.

Commission paid

Commission paid to account executives, who are not employees of the Group, based on their performance of services rendered. The average commission rate paid to account executives during the Track Record Period is between 0.05% to 0.17% of transaction value for securities trading. It is subjected to a minimum charge for HK$50 per transaction. Commission paid also includes commission rebate to third parties for referrals of placing/underwriting business . Such amount increased by approximately 939.5% from approximately HK$0.4 million to approximately HK$3.6 million for the year ended 31 March 2010 due to improvement of sales performance in the year, and increment of the number of account executives retained by the Group from 9 to 10 for strengthening its sales and marketing team.

The Group paid a total of approximately HK$1.0 million rebate to its futures clients for the five months end 31 August 2010 in order to strengthen the client relationship. During the promotion stage of the futures trading business from January to October 2010, the Company has set a preagreed brokerage limit for the futures contracts clients. Amount of commission received from a futures client exceeded the pre-agreed brokerage limit would be rebated to such client. As such, commission paid was higher at approximately HK$1.2 million as compared with approximately HK$241,166 for the five months ended 31 August 2009.

– 154 –

FINANCIAL INFORMATION

Subscription and membership fee

Subscription and membership fee relates to the payments for licences from IT vendors, including e-broker, ETNet and AA stock for the use of BSS and OAPI system and market information and price quotation services. As the Group purchased additional stations connecting to systems provided by such IT vendors and its number of users had increased, subscription and membership fee of the Group increased by approximately 23.9% to approximately HK$3.7 million for the year ended 31 March 2010 accordingly.

Subscription and membership for the five months ended 31 August 2010 maintained at the same level of approximately HK$ 1.7 million as the corresponding period last year.

Rent, rates and management fees

On 27 April 2009, Cheong Lee entered into a lease agreement for two years commencing on 1 April 2009 and expiring on 31 March 2011 for a unit located adjacent to its existing office premises. Pursuant to the lease agreement, Cheong Lee is obliged to pay the rates and rent to the landlord. As a result, rent, rates and management fee paid by the Group increased by approximately 40.8% from approximately HK$2.1 million to HK$2.9 million for the year ended 31 March 2010.

Rent, rate and management fees for the five months ended 31 August 2010 maintained at the same level of approximately HK$1.2 as the corresponding period last year.

Salary and allowances

Salary and allowances paid by the Group increased by approximately 106.6% from approximately HK$ 1.3 million to approximately HK$ 2.7 million, which was because of the increase in number of employees from 12 to 14 for the year ended 31 March 2010 and bonus payment of approximately HK$ 664,275 whereas there was no bonus payment for the year ended 31 March 2009.

The Group had 12 and 15 employees during the five months ended 31 August 2009 and 2010 respectively. Salary and allowances paid by the Group reached approximately HK$ 923,800 and HK$ 1,032,129 respectively, representing a growth of approximately 11.7% as a result of the increase in number of staff.

Consultation fee

The Group employed external professional firms for marketing consultation services on one placing exercise in each of the years ended 31 March 2009 and 2010 . As a result, it incurred total consultation fee of approximately HK$218,404 and HK$ 2.0 million for the years ended 31 March 2009 and 2010 respectively. Pursuant to the agreements, the external professional firms would use best effort to identify and screen underwriting opportunities for the Group.

– 155 –

FINANCIAL INFORMATION

Other administrative expenses

Other administrative expenses included directors’ remuneration, depreciation, advertising and promotion, trading tariff, etc. Directors’ remuneration and depreciation maintain at similar level for each of the two years ended 31 March 2010. The Group sponsored clients’ annual dinners and posted advertisements on newspapers in order to attract public awareness to its brand name and services. As a result, its advertising and promotion expenses increased from approximately HK$11,049 to HK$516,899 for the year ended 31 March 2010. Trading tariff is charged by the Stock Exchange based on number of trades. This amount increased by approximately 86.6% to approximately HK$0.7 million for the year ended 31 March 2010, which was in line with the increase in trading activities of the Group.

Other administrative expenses for the five months ended 31 August 2010 mainly comprised of donation of HK$795,785 and entertainment expense of HK$713,540 for maintaining client relationship and approaching potential customers.

Finance costs

Finance costs mainly represented interest expenses on bank loans in aggregate of approximately HK$1,150 million for the year ended 31 March 2010 to support the financing of applications made by the Group or its clients for securities to be listed on the Stock Exchange pursuant to new issues or offers for sale to the public. Such loans were settled by the Group within one to two weeks. As at 31 March 2010, the Group had no outstanding of bank overdrafts or bank loans.

Finance costs amounted to approximately HK$27,945 and nil for the five months ended 31 August 2009 and 2010 respectively. The Group obtained IPO loans of approximately HK$200.0 million from a bank during the five months ended 31 August 2009.

Income tax expenses

Income tax expenses of the Group increased from approximately HK$ 674,832 in March 2009 to approximately HK$7,609,382 in March 2010. For the years ended 31 March 2009 and 2010, the effective tax rates of the Group remained at 16.5%. The increase in income tax expenses was due to the increase in profit before taxation of approximately HK$42 million for the year ended 31 March 2010 as compared with the previous year.

Income tax expenses of the Group decreased by approximately 45.7% from approximately HK$3.5 million for the five months ended 31 August 2009 to approximately HK$1.9 million for the five months ended 31 August 2010 which was mainly attributable to the decrease in profit before taxation of approximately HK$10.6 million for the five months ended 31 August 2010 as compared with the same period in 2009.

– 156 –

FINANCIAL INFORMATION

Net change in fair value on available-for-sale financial assets

On 30 November 2009, Cheong Lee resolved to invest and subscribe the shares of Galaxy China Special Situations Fund in an amount of US$1 million. Galaxy China Special Situations Fund focuses on listed companies in Greater China which are either in their early stages of development or challenged by the need to effect immediate changes by way of a special situations, such as companies subject to merger and acquisition activities, corporate restructuring/reorganisation, stock placements, distress, spin-offs or other significant corporate events or transactions. The Group generated an unrealisable gain on fair value of approximately HK$2 million as at 31 March 2010 but loss on fair value of approximately HK$55,580 as at 31 August 2010. Cheong Lee served a redemption notice on 29 October 2010 to redeem its entire investment in Galaxy China Special Situations Fund having considered (i) the lock-up period of the fund of one year from its subscription date of 4 December 2009; (ii) the latest available redemption date for Cheong Lee’s investment will end on 3 January 2011; and (iii) 45 days’ notice is required for redemption. Redemption of such investment took place on 3 January 2011 at fair value of US$1,376,194 and Cheong Lee recorded a gain of approximately HK$2.9 million.

Financial performance for the nine months ended 31 December 2010 and the possible impact of certain non-recurring expenses to financial performance

Financial results for the nine months ended 31 December 2010

The increase in unaudited turnover of the Group for the nine months ended 31 December 2010 was mainly attributable to the increase in unaudited placing and underwriting commission for the nine months ended 31 December 2010. The unaudited total value of transactions carried out by the Group for the nine months ended 31 December 2010 decreased as compared with the same for corresponding period in 2009. Despite there was decrease in unaudited total value of transactions, as a result of the increase in fixed commission charged to certain clients with high trading volume, the Group’s unaudited commission and brokerage from securities dealing for the nine months ended 31 December 2010 maintained at similar level as compared with the same for the corresponding period in 2009. Since the Group only commenced the futures brokerage business in January 2010, no commission and brokerage from futures dealing was recognized by the Group for the nine months ended 31 December 2009. In addition, since the Group had participated in more fund raising activities with a higher aggregate fund raising amount for the nine months ended 31 December 2010, the unaudited placing and underwriting commission recognized by the Group is higher than the same for the corresponding period in 2009. As a result of the decrease in unaudited total value of transactions carried out for the nine months ended 31 December 2010, the corresponding unaudited clearing and settlement fee received by the Group also decreased as compared with the same for the corresponding period in 2009.

– 157 –

FINANCIAL INFORMATION

Based on the unaudited management accounts of the Group for the nine months ended 31 December 2010, there was increase in the unaudited administrative expenses of the Group as compared with the same for the corresponding period in 2009 which was mainly attributable to increases in the unaudited staff costs and commission paid. Since the Group had not obtained IPO loans from banks for the nine months ended 31 December 2010, no finance cost was recognized by the Group. As a result of the above, the unaudited profit before taxation of the Group for the nine months ended 31 December 2010 was higher than the same for the corresponding period in 2009.

Financial position as at 31 December 2010

– 158 –

FINANCIAL INFORMATION

Possible impact of certain non-recurring expenses to financial performance

Notwithstanding the financial performance of the Group for the nine months ended 31 December 2010 mentioned above, the Group’s financial results would be affected by certain nonrecurring expenses .

Accordingly, the Board wishes to inform the Shareholders and potential [•] that the Group’s financial results for the year ending 31 March 2011 would be affected by the estimated expenses .

– 159 –

FINANCIAL INFORMATION

No material adverse change

Save as disclosed in the paragraph headed “ Financial Performance for the nine months ended 31 December 2010 and the possible impact of certain non-recurring expenses to financial performance” of this section, the Directors have confirmed that, during the period from 1 September 2010 to the Latest Practicable Date (both dates inclusive), there had been no material adverse change in the financial or trading position or prospects of the Group and no event had occurred that would materially affect the information shown in the Accountants’ Report set out in Appendix I to this document.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow

The Group’s working capital and other capital requirements were principally satisfied by cash generated from its operations. It also utilised overdraft and bank loans for financing application of securities made by itself or its clients.

The following table summarised the Group’s cash flows for the period indicated:

			Five months ended	Five months ended
	Year ended	31 March	31 August
	2009	2010	2009	2010
	HK$	HK$	HK$	HK$
			(unaudited)
Cash and cash equivalents at
the beginning of the year/
period	14,786,362	20,930,604	20 ,930,604	59,787,786
Net cash generated from
operating activities	5,873,405	41,094,657	19,035,216	6,358,835
Net cash (used in) generated
from investing activities	(3,617,589)	(7,044,939)	488,803	448,856
Net cash generated from
financing activities	3,888,426	4,807,464	4,972,055	–
Net increase in cash and
cash equivalents	6,144,242	38,857,182	24,496,074	6,807,691
Cash and cash equivalents at
the end of the year/period	20,930,604	59,787,786	45,426,678	66,595,477

– 160 –

FINANCIAL INFORMATION

Operating activities

Cash flow from operating activities reflects profit for the year/period adjusted for non-cash items such as depreciation, amorti sation, realised and unrealised gain on financial assets at fair value through profit or loss, the effects of cash flows arising from increases or decreases in trade receivables, bank balances and cash in trust account for clients’ undrawn monies/excess deposits placed with the Group, trade payables as well as interest income/expenses and dividend income. The Group maintains segregated trust accounts with licensed banks to hold clients’ monies arising from its normal course of business. The Group has classified the clients’ monies as cash held on behalf of customers under the current assets section of the statement of financial position and recognised the corresponding accounts payable to respective clients on the grounds that it is liable for any loss or misappropriation of clients’ monies. The Group is not allowed to use the clients’ monies to settle its own obligations.

Net cash generated from operating activities for the year ended 31 March 2009 was approximately HK$5.9 million. The Group generated approximately HK$6.4 million net cash inflow from operating activities before movements in working capital. There was an aggregate net cash outflow of approximately HK$0.6 million which was mainly a result of increase in trade receivables of approximately HK$2.9 million, increase in bank balance and cash in trust account of approximately HK$37.7 million and increase in trade payables of HK$39.6 million. The stock market in Hong Kong started to pick up since second half of 2009, which benefited the Group’s securities brokerage business and caused increases in trade receivables and trade payables.

Net cash generated from operating activities for the year ended 31 March 2010 was approximately HK$41.1 million. The Group generated approximately HK$44.7 million net cash from operating activities before movements in working capital mainly due to the substantial increase in profit before taxation. The stock market in Hong Kong continued the recovery momentum and became more active in 2010. Commission income generated by the Group from its brokerage business and placing and underwriting business experienced a remarkable growth. There was an aggregate net cash outflow of approximately HK$3.6 million which was mainly a result of increase in trade receivables of approximately HK$43.1 million, increase in other assets of approximately HK$1.6 million arising from the deposit with the HKCC in contribution to the reserve fund as deposit for futures trading, increase in bank balance and cash in trust account of approximately HK$89.1 million and increase in trade payables of approximately HK$131.3 million.

Net cash generated from operating activities for the five months ended 31 August 2009 was approximately HK$19.0 million. The Group generated approximately HK$21.1 million net cash inflow from operating activities before movements in working capital. There was an aggregate net cash outflow of approximately HK$2.1 million which was mainly a result of increase in trade receivables of approximately HK$8.2 million, increase in bank balance and cash in trust account of approximately HK$34.7 million and increase in trade payables of HK$39.1 million. Trade receivables and trade payables are in line with the increase in transaction turnover of the Group during this period as a result of the more favourable market sentiment.

– 161 –

FINANCIAL INFORMATION

Net cash generated from operating activities for the five months ended 31 August 2010 was approximately HK$6.4 million. The Group generated approximately HK$10.8 million net cash inflow from operating activities before movements in working capital, which was lower than approximately HK$21.1 million of the same period last year primarily due to the decrease in profit before taxation from approximately HK$21.4 million to HK$10.8 million resulting from the decrease in commission income from securities brokerage and placing and underwriting. There was an aggregate net cash outflow of approximately HK$4.4 million which was mainly a result of increase in bank balance and cash in trust account of approximately HK$7.9 million and decrease in trade receivables of approximately HK$41.6 million offset by the decrease in trade payables of approximately HK$37.0 million. The decrease in trade receivables and trade payables was in line with the decrease in transaction turnover as compared to the corresponding period in 2009.

Investing activities

The Group’s net cash outflow from investing activities for the year ended 31 March 2009 was approximately HK$3.6 million. The cash outflow was mainly due to the purchase of plant and equipment of approximately HK$1.2 million and purchase of financial assets at fair value through profit or loss, being equity securities listed in Hong Kong, of approximately HK$9.5 million offset partially by the proceeds from disposal of equity securities of approximately HK$6.7 million.

The Group’s net cash outflow from investing activities for the year ended 31 March 2010 was approximately HK$7.0 million. The cash outflow was mainly due to the purchase of plant and equipment of approximately HK$1.1 million, purchase of intangible assets of approximately HK$0.3 million was the trading right of futures acquired during the year ended 31 March 2010, purchase of equity securities listed in Hong Kong of approximately HK$17.1 million offset by the proceeds from disposal of equity securities of approximately HK$18.1 million. In addition, the Group purchased available-for-sale financial assets, being investment in Galaxy China Special Situations Funds, of approximately HK$7.8 million.

The Group’s net cash inflow from investing activities for the five months ended 31 August 2009 was approximately HK$0.5 million. The cash inflow was mainly due to the proceeds of approximately HK$13.3 million from disposal of financial assets at fair value through profit or loss, comprising Hong Kong listed equities, which was partly offset by new purchase of approximately HK$12.4 million. The Group also purchased plant and equipment of approximately HK$0.7 million and received interest of approximately HK$0.3 million during this period.

The Group’s net cash inflow from investing activities for the five months ended 31 August 2010 was approximately HK$0.4 million. The cash inflow was mainly due to the interest received of approximately HK$0.7 million offset by the purchase of plant and equipment of approximately HK$0.3 million.

– 162 –

FINANCIAL INFORMATION

Financing activities

The Group’s net cash generated from financing activities for the year ended 31 March 2009 was approximately HK$3.9 million. This was mainly due to the proceeds from issue of shares relating to the increase in share capital of approximately HK$5.0 million which was slightly offset by the dividend paid of approximately HK$0.9 million and repayment of amount due to Ms. Au of approximately HK$0.3 million.

The Group’s net cash generated from financing activities for the year ended 31 March 2010 was approximately HK$4.8 million. This was mainly due to the proceeds from issue of shares relating to the increase in share capital of approximately HK$20.0 million which was offset by dividend paid of approximately HK$15.0 million.

The Group’s net cash generated from financing activities for the five months ended 31 August 2009 was approximately HK$5.0 million. This was mainly due to the proceeds from issue of shares relating to the increase in share capital of approximately HK$ 10.0 million which was slightly offset by the dividend paid of approximately HK$5.0 million.

There were no financing activities for the five months ended 31 August 2010.

Statement of net assets

As at 31 March 2009 and 2010 and 31 August 2010, the Group had net assets of approximately HK$23.7 million, HK$69.3 million and HK$ 78.1 million respectively. Details of the components are set out as follows:

Non-current assets Plant and equipment Intangible assets Other assets Available-for-sale financial assets	As at 31 March 2009 2010 HK$ HK$ 2,218,310 2,278,056 – 279,120 205,000 1,775,530 – 9,723,483 2,423,310 14,056,189	As at 31 August 2010 HK$ 2,194,860 250,045 1,776,110 9,667,903 13,888,918	As at 31 December 2010 HK$ (unaudited) 2,028,556 226,785 1,794,367 9,723,483 13,773,191

– 163 –

FINANCIAL INFORMATION

Current assets Trade receivables Other receivables, deposits and prepayments Financial assets at fair value through profit or loss Bank balances and cash – trust accounts Bank balances and cash – general accounts Current liabilities Trade payables Other payables and accruals Amount due to a shareholder Tax payable Net current assets Total assets less current liabilities Non-current liability Deferred tax liabilities Net assets	As at 31 March 2009 2010 HK$ HK$ 5,859,087 48,921,036 1,107,811 1,212,872 1,261,138 1,930,400 53,237,734 142,385,744 20,930,604 59,787,786 82,396,374 254,237,838 57,648,468 188,991,829 2,644,609 2,616,024 – – 609,298 7,101,037 60,902,375 198,708,890 21,493,999 55,528,948 23,917,309 69,585,137 264,000 311,338 23,653,309 69,273,799	As at 31 August 2010 HK$ 7,367,834 3,158,590 1,631,152 150,236,342 66,595,477 228,989,395 152,025,562 3,575,024 – 8,841,431 164,442,017 64,547,378 78,436,296 295,447 78,140,849	As at 31 December 2010 HK$ (unaudited) 9,951,519 5,479,002 5,178,610 164,706,110 82,478,990
			267,794,231
			169,534,101 13,054,324 20,000,000 6,947,367
			209, 535,792
			58,258,439
			72,031,630
			311,338
			71,720,292

– 164 –

FINANCIAL INFORMATION

As at 31 March 2009, the Group had net current assets of approximately HK$21.5 million comprising current assets of approximately HK$82.4 million and current liabilities of approximately HK$60.9 million. The current assets as at 31 March 2009 were made up of trade receivables of approximately HK$5.9 million, other receivables, deposits and prepayments of approximately HK$1.1 million, financial assets at fair value through profit or loss representing equity securities of five companies listed in Hong Kong at fair value of approximately HK$1.3 million, bank balances and cash of approximately HK$53.2 million and HK$20.9 million in trust accounts to hold clients’ monies and in general accounts to hold cash held by the Group respectively. The current liabilities were made up of trade payables of approximately HK$57.6 million, other payables and accruals of approximately HK$2.6 million and tax payable of approximately HK$0.6 million.

As at 31 March 2010, the Group had net current assets of approximately HK$55.5 million comprising current assets of approximately HK$254.2 million and current liabilities of HK$198.7 million. The current assets as at 31 March 2010 were made up of trade receivables of approximately HK$48.9 million, other receivables, deposits and prepayments of approximately HK$1.2 million, financial assets at fair value through profit or loss representing equity securities of three companies listed in Hong Kong at fair value of approximately HK$1.9 million, bank balances and cash of approximately HK$142.4 million and HK$59.8 million in trust accounts to hold clients’ monies and in general accounts to hold cash held by the Group respectively. The current liabilities were made up of trade payables of approximately HK$189.0 million, other payables and accruals of approximately HK$2.6 million and tax payable of approximately HK$7.1 million.

As at 31 August 2010, the Group had net current assets of approximately HK$ 64.5 million comprising current assets of approximately HK$ 229.0 million and current liabilities of approximately HK$ 164.4 million. The current assets as at 31 August 2010 were made up of trade receivables of approximately HK$ 7.4 million, other receivables, deposits and prepayments of approximately HK$3.2 million (of which, approximately HK$2.2 million was the prepaid expense for the [•] professional fee), financial assets at fair value through profit or loss representing equity securities of three companies listed in Hong Kong at fair value of approximately HK$ 1.6 million, bank balances and cash of approximately HK$150.2 million and HK$66.6 million in trust accounts to hold clients’ monies and in general accounts to hold cash held by the Group respectively. The current liabilities were made up of trade payables of approximately HK$ 152.0 million, other payables and accruals of approximately HK$3.6 million and tax payable of approximately HK$ 8.8 million.

– 165 –

FINANCIAL INFORMATION

As at 31 December 2010, the Group had unaudited net current assets of approximately HK$ 58. 3 million comprising unaudited current assets of approximately HK$ 267. 8 million and unaudited current liabilities of approximately HK$ 209.5 million. The unaudited current assets as at 31 December 2010 were made up of trade receivables of approximately HK$ 9.9 million, other receivables, deposits and prepayments of approximately HK$ 5.5 million, financial assets at fair value through profit or loss representing equity securities of 4 companies listed in Hong Kong or Toronto of approximately HK$ 5.2 million (which had fair value of HK$ 9.2 million as at the Latest Practicable Date), bank balances and cash of approximately HK$ 82.5 million and HK$ 164.7 million in trust accounts to hold clients’ monies and in general accounts to hold cash held by the Group respectively. The unaudited current liabilities were made up of trade payables of approximately HK$ 169.5 million, other payables and accruals of approximately HK$ 13.1 million, amount due to a shareholder of HK$20 million and tax payable of approximately HK$ 6.9 million.

Trade receivables and trade payables

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

According to the risk management policy and procedures of the Group, the Group may at its discretion allow a client to overdue payment for more than two days after the trade date, by way of the granting of a trade limit, based on client’s past settlement record and type and liquidity of stock held with the Group if such amount outstanding when compared with market value of client’s stock held with the Group is below 50%.

The following sets out the breakdown on trade receivables as at 31 August 2010 of the Group which were over 3 months but less than 1 year past due:

Client 1 Client 2 Client 3 Client 4 Client 5 Total	Amount (HK$) 2,440,187 47 6 23 477,779
	2,918,042

The outstanding amount of HK$2,440,187 and HK$477,779 ha d been fully settled on 24 September 2010 and 10 September 2010 respectively. The remaining balance of HK$76 represents small amounts not settled by clients, which would be reviewed by the Group at year end to consider if any provision or write-off is necessary.

– 166 –

FINANCIAL INFORMATION

The settlement terms of trade payables arising from the business of dealing in securities are two days after the trade date, and trade payables arising from the business of dealing in futures are one day after the trade date. As at 31 March 2010, trade payables to cash clients of the Group amounted to approximately HK$182,431,995, of which approximately HK$142,385,744 client monies were placed in the Group’s bank balances as trust accounts. Certain cash clients sold their stock on 30 March 2010 and 31 March 2010 through Cheong Lee for an aggregate amount of approximately HK$40 million. Cheong Lee would deposit monies from sales of stock to clients’ trust accounts only if it received monies from the clearance house, which would take two days after the trade date according to the settlement terms. Accordingly, the difference of approximately HK$40 million between the amount of trade payables to cash clients and client’s monies placed in the Group’s trust account as at 31 March 2010 was due to the timing difference.

The Group’s trade receivables and trade payables amounted to approximately HK$7,367,834 and HK$152,025,562 respectively as at 31 August 2010. As at 31 August 2010, cash clients’ undrawn monies/excess deposits of approximately HK$150,236,342 placed with Cheong Lee in its trust accounts were included in trade payables. As at the Latest Practicable Date, trade receivables of HK$ 7,358,358 and HK$ 1,789,220 (not taking into account clients’ monies in trust accounts) have already been settled. The Group will review unsettled trade receivables at year end to consider if any provision or write-off is necessary.

Foreign exchange liabilities

As at the Latest Practicable Date, the Group did not have any foreign exchange liabilities.

Dividend

Pursuant to the resolutions passed at the board meeting of Cheong Lee on 18 September 2008, the directors of Cheong Lee declared and paid an interim dividend of HK$5.68 per share amounting to HK$852,000 to Ms. Au . Pursuant to the resolutions passed at the respective board meetings of Cheong Lee on 9 July 2009 , 4 January 2010 and 6 October 2010, quarterly and final dividends of HK$10 or HK$16.68 per share in aggregate amounting to HK$15,008,000 were paid to Ms. Au for the year ended 31 March 2010 and a dividend of HK$90 per share amounting to HK$36,000,000 was declared and paid by Cheong Lee to Ms. Au.

The declaration and payment of future dividends and their amounts will be subject to the discretion of the Directors and will depend on, among other things, the Group’s operations, earnings, capital requirements and surplus, general financial conditions, contractual restrictions and such other factors as the Directors may deem relevant. Accordingly, the above dividend payments should not be regarded as an indication of the Company’s future dividend policy.

– 167 –

FINANCIAL INFORMATION

WORKING CAPITAL

The Directors are of the opinion that, taking into account [•] and its retained resources, the Group will have sufficient working capital for its present requirements and for at least the next 12 months from the date of this document.

NO MATERIAL ADVERSE CHANGE

The Directors have confirmed that there has been no material adverse change in the Group’s financial or trading position since 31 August 2010 (being the date to which the Group’s latest audited combined financial statements were prepared which were set out in the accountants’ report in Appendix I to this document).

INDEBTEDNESS

Borrowings

As at 31 December 2010 , the Group had no borrowings outstanding but had been granted overdraft facilities of HK$ 10 million and facilities pre-arranged with banks for financing the Group’s or its clients’ applications of securities pursuant to new issues or offers for sale to the public.

Capital commitments

As at 31 December 2010 , the Group did not have any significant capital commitments.

Financial resources

Prior to [•], the Group’s operations and investments are financed principally by revenues generated from business operations. The Group intends to finance its future operations, capital expenditure and other capital requirements with revenues generated from its business operations, existing bank balances available . As at 31 December 2010 , the Group had cash and bank balances of approximately HK$ 82.5 million.

Security

As at 31 December 2010 , the Group’s overdraft facilities of HK$ 10 million obtained from the bank were secured against a fixed deposit of not less than HK$ 5 million from Cheong Lee and personal guarantee from Ms. Au for not less than HK$10 million which will be released or replaced by the Group’s corporate guarantee .

Contingent liabilities

As at 31 December 2010 , the Group did not have any material contingent liabilities.

– 168 –

FINANCIAL INFORMATION

Disclaimer

Save as aforesaid and as otherwise mentioned in the paragraph headed “Borrowings” and “Security” above and apart from normal trade payables, the Group had no outstanding mortgages, charges, debentures or other loan capital or bank overdrafts, loans or other similar indebtedness or acceptance credits or hire purchase commitments or finance lease commitments or any guarantees or other material contingent liabilities at the close of business on 31 December 2010 . The Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Group since 31 December 2010 .

PROPERTY INTERESTS

Property interests leased in Hong Kong

The Group leases the following properties from Independent Third Parties:

Rooms 1104-1106 on 11th Floor, Mass Mutual Tower, 38 Gloucester Road, Wanchai, Hong Kong
Rooms 905-906 on 9th Floor, Mass Mutual Tower, 38 Gloucester Road, Wanchai, Hong Kong

Property valuation

The property interests of the Group have been valued by BMI Appraisals Limited, an independent property valuer, at no commercial value as at 31 January 2011 . The text of its letter, summary of value and valuation certificates are set out in Appendix III to this document.

– 169 –

FINANCIAL INFORMATION

DISTRIBUTABLE RESERVES

There was no reserve available for distribution to the Shareholders as at August 2010 , as the Company was incorporated on August 2010. It has not carried out any business since the date of its incorporation save for the transactions related to the Reorganisation.

TAX

The Group’s profits arising in or derived from Hong Kong are subject to Hong Kong profits tax. Provision for Hong Kong profits tax has been calculated at the applicable rates of 16.5% for each of the two years ended 31 March 2010 and the five months ended 31 August 2009 and 2010 , on the estimated assessable profits arising in Hong Kong of the Group.

NO MATERIAL CHANGE

The Directors confirm that there has been no material adverse change in the financial or trading position or prospects of the Group since 31 August 2010 , being the date to which the latest audited financial statements of the Group were made up.

– 170 –

APPENDIX I ACCOUNTANT S’ REPORT

The following is the text of a report, prepared for the purpose of incorporation in this document, received from the reporting accountants of the Company, HLM & Co., Certified Public Accountants, Hong Kong.

==> picture [141 x 52] intentionally omitted <==

==> picture [159 x 57] intentionally omitted <==

28 February 2011

The Board of Directors

CL Group (Holdings) Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) related to CL Group (Holdings) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the years ended 31 March 2009, 2010 and five months ended 31 August 2010 (the “ Track Record Period”) .

The Company was incorporated and registered as an exempted limited liability company in the Cayman Islands under the Companies Law of the Cayman Islands on 27 August 2010. The principal activity of the Company is investment holding. Through a group reorganisation as more fully explained in the paragraph headed “ Reorganisation” in Appendix V to this document (the “Reorganisation”), the Company became the holding company of the Group.

As at the date of this report, no audited financial statements have been prepared for the Company and CL Group (BVI) Limited as they were newly incorporated and have not carried out any significant business transactions except for the Reorganisation as set out in note 1 of Section II below. All companies comprising the Group have adopted 31 March as their financial year end date. We have, however, reviewed all significant transactions of these companies for the periods from their respective dates of incorporation to 31 August 2010, for the purpose of this report.

I – 1

APPENDIX I

ACCOUNTANT S’ REPORT

As at the date of this report, the Company has direct or indirect interests in the following subsidiaries, all of which are private companies (or, if incorporated or established outside Hong Kong, have substantially the same characteristics as a Hong Kong private company). The particulars of the subsidiaries are set out below:

Attributable Place and date of Issued and fully equity interest Name of subsidiary incorporation paid share capital of the Group Principal activities Directly owned subsidiary CL Group (BVI) Limited British Virgin Islands US$1 100% Investment holding (“Cheong Lee BVI ”) (note a) (“BVI”), 15 September 2010 Indirectly owned subsidiary Cheong Lee Securities Limited Hong Kong, HK$40,000,000 100% Provision of securities and (“Cheong Lee”) (note b) 10 November 2004 futures brokerage and trading and providing placing and underwriting services

Notes:

(a) No audited financial statements have been prepared for Cheong Lee BVI for the period from the date of their incorporation/establishment as it has not reached its first financial year end in accordance with the relevant rules and regulations in BVI.
(b) The statutory financial statements of Cheong Lee were prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The financial statements for the year ended 31 March 2009 and 31 March 2010 were audited by Ronny Wah, Chan Certified Public Accountant (Practising) and us, respectively.

BASIS OF PREPARATION

For the purpose of this report, the directors of the Company have prepared the combined financial statements of the Group for the Track Record Period (the “Underlying Financial Statements”), based on the audited financial statements or, where appropriate, unaudited management accounts of the companies now comprising the Group.

I – 2

APPENDIX I

ACCOUNTANT S’ REPORT

The combined statements of comprehensive income, combined statements of changes in equity and combined statements of cash flows of the Group for the Track Record Period , and the combined statements of financial position of the Group as at 31 March 2009, 2010 and five months ended 31 August 2010 together with the notes thereto (collectively the “Combined Financial Information”) have been prepared based on the Underlying Financial Statements on the basis set out in note 1 of Section II below, for the purpose of preparing this report for inclusion in this document. Adjustments have been made on the Underlying Financial Statements for the Track Record Period are considered necessary for the purpose of preparing the Combined Financial Information which are in accordance with HKFRSs promulgated by the HKICPA. The Combined Financial Information also includes the applicable disclosure requirements of the Hong Kong Companies Ordinance and [•] .

RESPECTIVE RESPONSIBILITY OF DIRECTORS AND REPORTING ACCOUNTANTS

The directors of the Company are responsible for the preparation of the Combined Financial Information which gives a true and fair view and the contents of this document in which this report is included. The responsibility includes of designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the Combined Financial Information that are free from material misstatement whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

It is our responsibility to form an independent opinion on the Combined Financial Information based on our audit procedures.

BASI S OF OPINION

For the purpose of this report, we have carried out an independent audit on the Combined Financial Information for the Track Record Period in accordance with Hong Kong Standards on Auditing issued by the HKICPA and have carried out such additional procedures as we considered necessary . Those standards require that we comply with ethical requirements and plan and perform our work to obtain reasonable assurance as to whether the Combined Financial Information is free from material misstatement.

I – 3

APPENDIX I

ACCOUNTANT S’ REPORT

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Combined Financial Information. The procedures selected depend on the reporting accountant’s judgement, including the assessment of the risk of material misstatement of the Combined Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountant considers internal control relevant to the entity’s preparation and true and fair presentation of the Combined Financial Information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimate made by the directors, as well as evaluating the overall presentation of the Combined Financial Information.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

We have not audited any financial statement of the companies comprising the Group in respect of any period subsequent to 31 August 2010.

OPINION

In our opinion, the Combined Financial Information, for the purpose of this report, prepared on the basis set out in note 1 of Section II below, gives a true and fair view of the state of affairs of the Group as at 31 March 2009, 2010 and 31 August 2010 and of the combined results and combined cash flows of the Group for the Track Record Period .

COMPARATIVE FINANCIAL INFORMATION

Respective responsibility of directors and reporting accountants

The directors of the Company are responsible for the preparation of the unaudited combined financial information of the Group including the combined statement of comprehensive income, combined statement of changes in equity and combined statement of cash flows for the five months ended 31 August 2009 (the “Comparative Financial Information”), together with the notes thereon.

It is our responsibility to form an independent conclusion, based on our review, on the Comparative Financial Information.

I – 4

APPENDIX I

ACCOUNTANT S’ REPORT

Review work performed

For the purpose of this report, we have reviewed the unaudited Comparative Financial Information, together with the notes thereto in accordance with Hong Kong Standard of Review Engagements 2410 “Review of Interim Financial Information Performed by Independent Auditor of the Entity” issued by HKICPA. Our review of the Comparative Financial Information consisted of making enquires, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the Comparative Financial Information.

Review conclusion

Based on our review which does not constitute an audit, nothing has come to our attention that causes us to believe that the Comparative Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Combined Financial Information which conform with Hong Kong Financial Reporting Standards .

I – 5

ACCOUNTANT S’ REPORT

APPENDIX I

I. COMBINED FINANCIAL INFORMATION

1. COMBINED STATEMENTS OF COMPREHENSIVE INCOME

NOTES Turnover 6 Net other (loss) income 7 Administrative expenses Finance costs 8 Profit before taxation 9 Income tax expenses 12 Profit for the year/period attributable to the owners of the Company Other comprehensive income Net change in fair value on available-for-sale financial assets Total comprehensive income for the year/period attributable to the owners of the Company Dividends 13	Year ended 31 March 2009 2010 HK$ HK$ 21,069,422 73,320,765 (1,783,823) 1,855,694 (15,171,732) (28,724,167) (60) (184,536) 4,113,807 46,267,756 (674,832) (7,609,382) 3,438,975 38,658,374 – 1,970,116 3,438,975 40,628,490 852,000 15,008,000	Five months ended 31 August 2009 2010 HK$ HK$ ( unaudited) 30,656,084 22,230,602 432,211 (180,285) (9,658,604) (11,249,514) (27,945) – 21,401,746 10,800,803 (3,521,898) (1,878,173) 17,879,848 8,922,630 – (55,580) 17,879,848 8,867,050 5,000,000 –	Five months ended 31 August 2009 2010 HK$ HK$ ( unaudited) 30,656,084 22,230,602 432,211 (180,285) (9,658,604) (11,249,514) (27,945) – 21,401,746 10,800,803 (3,521,898) (1,878,173) 17,879,848 8,922,630 – (55,580) 17,879,848 8,867,050 5,000,000 –
			10,800,803 (1,878,173)
			8,922,630
			(55,580)
			8,867,050

			–

I – 6

APPENDIX I

ACCOUNTANT S’ REPORT

2. COMBINED STATEMENTS OF FINANCIAL POSITION

NOTES Non-current assets Plant and equipment 15 Intangible assets 16 Other assets 17 Available-for-sale financial assets 18 Current assets Trade receivables 19 Other receivables, deposits and prepayments 20 Financial assets at fair value through profit or loss 21 Bank balances and cash – trust accounts 22 Bank balances and cash – general accounts 22 Current liabilities Trade payables 23 Other payables and accruals 24 Tax payable Net current assets Total assets less current liabiliti es Non-current liability Deferred tax liabilities 25 Net assets Capital and reserves Share capital 26 Reserves	At 31 March 2009 2010 HK$ HK$ 2,218,310 2,278,056 – 279,120 205,000 1,775,530 – 9,723,483 2,423,310 14,056,189 5,859,087 48,921,036 1,107,811 1,212,872 1,261,138 1,930,400 53,237,734 142,385,744 20,930,604 59,787,786 82,396,374 254,237,838 57,648,468 188,991,829 2,644,609 2,616,024 609,298 7,101,037 60,902,375 198,708,890 21,493,999 55,528,948 23,917,309 69,585,137 264,000 311,338 23,653,309 69,273,799 20,000,000 40,000,000 3,653,309 29,273,799 23,653,309 69,273,799	At 31 August 2010 HK$ 2,194,860 250,045 1,776,110 9,667,903
		13,888,918
		7,367,834 3,158,590 1,631,152 150,236,342 66,595,477
		228,989,395
		152,025,562 3,575,024 8,841,431
		164,442,017
		64,547,378
		78,436,296
		295,447
		78,140,849

		7,500,000 70,640,849
		78,140,849

I – 7

APPENDIX I

ACCOUNTANT S’ REPORT

3. COMBINED STATEMENTS OF CHANGES IN EQUITY

At 1 April 2008 Issue of shares Total comprehensive income for the year Dividends paid for the year At 31 March 2009 and 1 April 2009 Issue of shares Total comprehensive income for the year Dividends paid for the year At 31 March 2010 and 1 April 2010 Total comprehensive income for the period Shares swap pursuant to group reorganisation At 31 August 2010 Unaudited At 1 April 2009 Issue of shares Total comprehensive income for the period Dividends paid for the period At 31 August 2009	Share capital HK$ 15,000,000 5,000,000 – – 20,000,000 20,000,000 – – 40,000,000 – (32,500,000) 7,500,000 Share capital HK$ 20,000,000 10,000,000 – – 30,000,000	Merger reserve HK$ – – – – – – – – – – 32,500,000 32,500,000 Merger reserve HK$ – – – – –	Investments revaluation reserve HK$ – – – – – – 1,970,116 – 1,970,116 (55,580) – 1,914,536 Investments revaluation reserve HK$ – – – – –	Retained profits HK$ 1,066,334 – 3,438,975 (852,000) 3,653,309 – 38,658,374 (15,008,000) 27,303,683 8,922,630 – 36,226,313 Retained profits HK$ 3,653,309 – 17,879,848 (5,000,000) 16,533,157	Total HK$ 16,066,334 5,000,000 3,438,975 (852,000) 23,653,309 20,000,000 40,628,490 (15,008,000) 69,273,799 8,867,050 – 78,140,849 Total HK$ 23,653,309 10,000,000 17,879,848 (5,000,000) 46,533,157

I – 8

APPENDIX I

ACCOUNTANT S’ REPORT

4. COMBINED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES Profit before taxation Adjustments for: Depreciation of plant and equipment Amortisation of intangible assets Loss on disposal of plant and equipment Net change in fair value of financial assets at fair value through profit or loss Gain on trading of financial assets at fair value through profit or loss Interest income Interest expenses Dividends income Operating cash flows before movements in working capital (Increase) decrease in trade receivable (Increase) decrease in other receivables, deposits and prepayments Decrease (increase) in other assets Increase in bank balances and cash – trust account Increase (decrease) in trade payables Increase (decrease) in other payables and accruals Cash generated from operations Hong Kong Profit tax paid NET CASH GENERATED FROM OPERATING ACTIVITIES	At 31 March 2009 2010 HK$ HK$ 4,113,807 46,267,756 1,029,680 1,076,183 – 69,780 – – 2,467,065 (1,116,721) (676,224) (639,608) (509,026) (1,096,432) 60 184,536 – (9,758) 6,425,362 44,735,736 (2,861,813) (43,061,949) (418,087) (105,061) 25,000 (1,570,530) (37,660,098) (89,148,010) 39,613,070 131,343,361 749,971 (28,585) 5,873,405 42,164,962 – (1,070,305) 5,873,405 41,094,657	At 31 August 2009 2010 HK$ HK$ (unaudited) 21,401,746 10,800,803 372,907 377,731 – 29,075 – 5,053 (65,773) 299,650 (356,679) (49,256) (271,405) (699,590) 27,945 – (9,758) – 21,098,983 10,763,466 (8,183,795) 41,553,202 131,948 (1,945,718) (25,000) (580) (34,661,494) (7,850,598) 39,066,401 (36,966,267) 1,608,173 959,000 19,035,216 6,512,505 – (153,670) 19,035,216 6,358,835	At 31 August 2009 2010 HK$ HK$ (unaudited) 21,401,746 10,800,803 372,907 377,731 – 29,075 – 5,053 (65,773) 299,650 (356,679) (49,256) (271,405) (699,590) 27,945 – (9,758) – 21,098,983 10,763,466 (8,183,795) 41,553,202 131,948 (1,945,718) (25,000) (580) (34,661,494) (7,850,598) 39,066,401 (36,966,267) 1,608,173 959,000 19,035,216 6,512,505 – (153,670) 19,035,216 6,358,835
			10,763,466 41,553,202 (1,945,718) (580) (7,850,598) (36,966,267) 959,000
			6,512,505 (153,670)
			6,358,835

I – 9

ACCOUNTANT S’ REPORT


APPENDIX I	ACCOU	NTANT S’ REPORT
INVESTING ACTIVITIES Interest received Dividends received Purchase of plant and equipment Purchase of intangible assets Purchase of financial assets at fair value through profit or loss Proceeds from disposal of financial assets at fair value through profit or loss Purchase of available-for-sale financial assets NET CASH (USED IN) GENERATED FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Dividends paid Interest paid Proceeds from issue of shares Repayment of amount due to sole shareholder NET CASH GENERATED FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS Cash and bank balances	At 31 March 2009 2010 HK$ HK$ 509,026 1,096,432 – 9,758 (1,237,386) (1,135,929) – (348,900) (9,539,395) (17,053,858) 6,650,166 18,140,925 – (7,753,367) (3,617,589) (7,044,939) (852,000) (15,008,000) (60) (184,536) 5,000,000 20,000,000 (259,514) – 3,888,426 4,807,464 6,144,242 38,857,182 14,786,362 20,930,604 20,930,604 59,787,786 20,930,604 59,787,786	At 31 August 2009 2010 HK$ HK$ (unaudited) 271,405 699,590 9,758 – (693,190) (299,588) – – (12,358,781) (1,985,105) 13,259,611 2,033,959 – – 488,803 448,856 (5,000,000) – (27,945) – 10,000,000 – – – 4,972,055 – 24,496,074 6,807,691 20,930,604 59,787,786 45,426,678 66,595,477 45,426,678 66,595,477
			448,856
			– – – –
			–
			6,807,691 59,787,786
			66,595,477

			66,595,477

I – 10

ACCOUNTANT S’ REPORT

APPENDIX I

II. NOTES TO THE COMBINED FINANCIAL INFORMATION

1. Corporate information and basis of presentation

The Company was incorporated in the Cayman Islands as a exempted limited liability company on 27 August 2010. The Company is an investment holding company. Particulars of the subsidiaries (together with the Company are collectively referred to the Group) have been set out in the foregoing section. The address of the Company’s registered office is Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands.

Pursuant to the Reorganisation as detailed in the subsection headed “ Reorganisation” in Appendix V to this document, in preparation for [•] and for the purpose of rationalising the Group’s structure, the Company became the holding company of the subsidiaries now comprising the Group on 15 September 20 10 . The Reorganisation involved business combinations of entities under common control before and immediately after the Reorganisation. Consequently, immediately after the Reorganisation, there was a continuation of the risks and benefits to the controlling parties that existed prior to the Reorganisation. The Group is regarded and accounted for as a continuing group resulting from the Reorganisation since all of the entities which took part in the Reorganisation were under common control in a manner similar to pooling of interests. Accordingly, for the purpose of this report, the Combined Financial Information has been prepared on a combined basis by applying the principles of merger accounting in accordance with the Accounting Guideline No. 5, “Merger Accounting for Common Control Combinations” issued by the HKICPA.

The Combined Financial Information has been presented as if the current group structure had been in existence throughout the Track Record Period or from the respective dates of incorporation of the companies comprising the Group, where there is a shorter period.

All significant intra-group transactions and balances have been eliminated on combination.

The Combined Financial Information is presented in Hong Kong Dollars (“HK$”), which is also the functional currency of the Company.

I – 11

ACCOUNTANT S’ REPORT

APPENDIX I

2. Significant accounting policies

Statement of compliance

The Combined Financial Information set out in this report has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) which collective term includes all applicable individual Hong Kong Financial Reporting Standard (“HKFRS”), Hong Kong Accounting Standards (“HKAS”) and Interpretations (“HK(IFRIC) – Int”) issued by the HKICPA. The Combined Financial Information also includes the applicable disclosure requirements of the Hong Kong Companies Ordinance and [•].

Basis of preparation of the combined financial information

During the Track Record Period , the Group has adopted all the new and amended HKFRSs which are first effective for the reporting year and relevant to the Group. The adoption of these new and amended HKFRSs did not result in material changes to the Group’s accounting policies.

The Group has not early adopted the following HKFRSs that have been issued but are not yet effective.

HKFRSs (Amendments)	Improvements to HKFRSs issued in 20102
HKAS 24 (Revised)	Related Party Disclosures3
HKFRS 1 (Amendment)	Limited Exemption from Comparative HKFRS 7
	Disclosures for First-time Adopters1
HKFRS 9	Financial Instruments4
HK(IFRIC)-Int 14	Prepayments of a Minimum Funding
(Amendment)	Requirement3
HK(IFRIC)-Int 19	Extinguishing Financial Liabilities with Equity
	Instruments1

1 Effective for annual periods beginning on or after 1 July 2010

2 Effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate
3 Effective for annual periods beginning on or after 1 January 2011 4 Effective for annual periods beginning on or after 1 January 2013

HKFRS 9 will affect the classification and measurement of financial assets, as well as the presentation of relevant information to users of financial statements.

I – 12

ACCOUNTANT S’ REPORT

APPENDIX I

The directors are currently assessing the impact of other new and amended HKFRSs upon initial application. So far, the directors have preliminarily concluded that the initial application of these HKFRSs is unlikely to have a significant impact on the Combined Financial Information.

The Combined Financial Information have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values, as explained in the accounting policies below.

The financial statements have been prepared in accordance with HKFRSs issued by HKICPA and the Hong Kong Companies Ordinance.

Basis of combination

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

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

Business combination under common control

The Financial Information incorporates the financial statement items of the combining entities in which the common control combination occurs as if they had been combined from the date when the combining entities first came under the control of the controlling party. The net assets of the combining entities are combined using the existing book values from the controlling parties’ perspective. No amount is recognised in respect of goodwill or excess of acquirers’ interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest. The combined statements of comprehensive income include the results of each of the combining entities from the earliest date presented or since the date when the combining entities first came under the common control combination, where there is a shorter period, regardless of the date of the common control combination.

I – 13

APPENDIX I

ACCOUNTANT S’ REPORT

Subsidiary

Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable arising from financial services and is recognised on the following basis:

i) Commission income for broking business of securities, futures and option dealing is recorded as income on a trade-date basis.
ii) Underwriting commission income, sub-underwriting income, placing commission and related handling fee whether under the basis of underwritten or best effort are recognised when the shares allotted to the placee.
iii) Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
iv) Handling service fees and dividend collection fee are recognised when the agreed services have been provided.
v) Profit and loss from trading in financial assets at fair value through profit or loss are recognised when the relevant contract notes are executed.

I – 14

ACCOUNTANT S’ REPORT

APPENDIX I

Plant and equipment

Plant and equipment are stated at cost less depreciation and accumulated impairment losses. Depreciation is provided to write off the cost or valuation of items of plant and equipment over their estimated useful lives and after taking into account their estimated residual value, using the straight-line method, at the following rate per annum:

Leasehold improvements 50% or remaining lease term Furniture & equipment 20% Computer equipment 20%

An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the combined statements of comprehensive income in the year/period in which the item is derecognised.

Intangible assets

Intangible assets represent the trading rights, with which the holders have the rights to trade on the Stock Exchange and Hong Kong Futures Exchange Limited (“HKFE”). On initial recognition, intangible assets acquired separately are recognised at cost. After initial recognition, intangible assets with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives.

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

Operating lease

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

I – 15

APPENDIX I

ACCOUNTANT S’ REPORT

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

Borrowing costs

All borrowing costs are recognised as and included in finance costs in the combined statements of comprehensive income in the period in which they are incurred.

Foreign currencies

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

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of the Company’s net investment in a foreign operation, in which case, such exchange differences are recognised in other comprehensive income in the consolidated financial statements and will be reclassified from equity to profit or loss on disposal of the foreign operation. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in other comprehensive income, in which cases, the exchange differences are recognised directly in other comprehensive income.

I – 16

APPENDIX I

ACCOUNTANT S’ REPORT

For the purpose of presenting combined financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising if any, are recognised in other comprehensive income and accumulated in equity under the heading of foreign currency translation reserve (attributed to non- controlling interests as appropriate).

On disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, a disposal involving loss of control over a subsidiary that includes a foreign, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange difference accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

In the case of a partial disposal that does not result in the Group losing over a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interest and are not recognised in profit or loss. For all other partial disposal (i.e. partial disposals of associates or jointly controlled entities that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

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

Goodwill and fair value adjustments on identifiable assets acquired arising on the acquisition of a foreign operation before 1 January 2005 are treated as nonmonetary foreign currency items of the acquirer and reporting using historical cost prevailing at the date of acquisition.

I – 17

ACCOUNTANT S’ REPORT

APPENDIX I

Taxation

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

The tax currently payable is based on taxable profit differs from profit as reported in the combined statements of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

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

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

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

I – 18

APPENDIX I

ACCOUNTANT S’ REPORT

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to cover or settle the carrying amount of its asset and liabilities. Deferred tax is recognised in profit and loss, expect when it relates to items that are recognised in other comprehensive income or directly in equity, in which case, the deferred tax is also recognised in other comprehensive income or directly in equity respectively.

Impairment losses on tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. In addition, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as revaluation decrease under that standard.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

I – 19

APPENDIX I

ACCOUNTANT S’ REPORT

The amounts recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect is material).

Segment reporting

Operating segments, and the amounts of each segment item reported in the Financial Information, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material maybe aggregated if they share a majority of these criteria.

Financial instruments

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

I – 20

APPENDIX I

ACCOUNTANT S’ REPORT

Financial assets

The Group’s financial assets are classified into one of the four categories, including financial assets at fair value through profit or loss (“FVTPL”), loans and receivables, held-to-maturity investments and available-for-sale (“AFS”) financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that from an integral of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis for debt instruments other than financial assets classified as at FVTPL, of which interest income is included in net gains and losses.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL.

A financial asset is classified as held for trading if:

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

I – 21

ACCOUNTANT S’ REPORT

APPENDIX I

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

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

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at FVTPL, loans and receivables or held-tomaturity investments.

Available-for-sale financial assets are measured at fair value at the end of the reporting period. Changes in fair value are recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve until the financial asset is disposed of or determined to be impaired, at which time, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss (see the accounting policy in respect on impairment loss on financial assets below).

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at the end of the reporting period (see the accounting policy in respect on impairment loss on financial assets below).

I – 22

ACCOUNTANT S’ REPORT

APPENDIX I

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of the reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

For an AFS equity investment, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

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

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are assessed for impairment on a collective basis. Object evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the assets carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

I – 23

APPENDIX I

ACCOUNTANT S’ REPORT

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

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

In respect of AFS equity securities, impairment losses previously recognised in previously recognised in profit or loss are not reversed through profit or loss in subsequent periods. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. In respect of AFS debt securities, impairment losses are subsequently reversed if an increase in the fair value of investment can be objectively related to an event occurring after the recognition of the impairment loss.

Financial liabilities and equity

Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

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

I – 24

APPENDIX I

ACCOUNTANT S’ REPORT

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees on points paid or received that form an integral part of the effective rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis other than financial liabilities classified as at FVTPL, of which interest expense is included in net gains and losses.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL on initial recognition.

A financial liability is classified as held for trading if:

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

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

I – 25

ACCOUNTANT S’ REPORT

APPENDIX I

the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designed as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss includes any interest paid on the financial liabilities.

Other financial liabilities

Other financial liabilities (including borrowings, a loan from government, trade and other payables) are subsequently measured at amortised cost using the effective interest method.

Equity instruments

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

Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

Derivative financial instruments

Derivatives are initially recognised at fair value at the date when derivative contracts are entered into and are subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which case the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

I – 26

ACCOUNTANT S’ REPORT

APPENDIX I

Embedded derivatives

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when a financial asset is transferred, the Group has transferred substantially all the risks rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognised its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Retirement benefit costs

Retirement benefits are provided to eligible staff of the Group. Hong Kong employees enjoy retirement benefits under the Mandatory Provident Fund Scheme. The employer’s monthly contribution is 5% of each employee’s monthly salary with maximum amount of HK$1,000 per month for each employee.

Payment to defined contribution retirement benefit plans, state-managed retirement benefit schemes, the Mandatory Provident Fund Scheme, are charged as an expense when employees have rendered service entitling them to the contributions.

I – 27

ACCOUNTANT S’ REPORT

APPENDIX I

Related parties

For the purposes of the Financial Information, a party is considered to be related to the Group if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a joint venture in which the Group is a venturer;
(iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

3. Key sources of estimation uncertainty

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

I – 28

ACCOUNTANT S’ REPORT

APPENDIX I

Depreciation and amortisation

The Group depreciates and amortises the plant and equipment and intangible assets over their estimated useful lives respectively and after taking into account their estimated residual values, using the straight line method. The estimated useful lives reflect the directors’ estimate of the periods that the Group intends to derive future economic benefits from the use of the Group’s plant and equipment and intangible assets. The residual values reflect the directors’ estimated amount that the Group would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the assets were already of the age and in the condition expected at the end of its useful life.

4. Financial risk management and fair value

Exposure to credit, liquidity, interest rate and foreign currency risks arises in the normal course of the Group’s business. The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

Credit risk

The Group’s credit risk is primarily attributable to accounts receivable due from clients, brokers and clearing houses. Management has a credit policy in place and the exposure to the credit risk is monitored on an on-going basis.

In respect of accounts receivable due from clients, individual credit evaluations are performed on all clients. Cash clients are required to place deposits as prescribed by the Group’s credit policy before execution of any purchase transactions. Receivables due from cash clients are due within the settlement period commonly adopted by the relevant market convention, which is usually within a few days from the trade date. Because of the prescribed deposit requirements and the short settlement period involved, credit risk arising from the accounts receivable due from cash clients is considered small. For futures broking, initial margin is required before opening of a trading position. Market conditions and adequacy of securities collateral and margin deposits of each futures account are monitored by management on a daily basis. Margin calls and forced liquidation are made where necessary.

I – 29

APPENDIX I

ACCOUNTANT S’ REPORT

In respect of accounts receivable from brokers and clearing houses, credit risks are considered low as the Group normally enters into transactions with brokers and clearing houses which are registered with regulatory bodies and with sound reputation in the industry.

The Group has no significant concentration of credit risk as credits are granted to a large population of clients.

The maximum exposure to credit risk without taking account of any collateral held is represented by the carrying amount of each financial asset in the statement of financial position. The Group does not provide any other guarantees which would expose the Group to credit risk.

Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the raising of loans to cover expected cash demands, and to ensure compliance with the Financial Resources Rules. The Group’s policy is to regularly monitor its liquidity requirement and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash and funding in the short and longer term. All of the Group’s liabilities are expected to be settled within one year. And the carrying amounts of all financial liabilities equal to the contractual undiscounted cash outflow.

Interest rate risk

i. Interest rate profile

The Group charged interest on its cash clients on the basis of its cost of funding plus a mark-up. Financial assets such as deposits with banks are primarily at floating rates. The Group’s income and operating cash flows are not subject to significant interest rate risk.

I – 30

ACCOUNTANT S’ REPORT

APPENDIX I

The interest rate profile of the Group at the end of reporting period is as follows:

	At 31 March 2009	At 31 March 2009	At 31 March 2010	At 31 March 2010	At 31 August 2010	At 31 August 2010
	Effective		Effective		Effective
	interest		interest		interest
	rate	HK$	rate	HK$	rate	HK$
set
Bank balances
and cash – trust
accounts	0.01-2.65%	53,237,734	0.001-0.85%	142,385,744	0.001-0.50%	150,236,342
Bank balances and
cash – general
accounts	0.01-2.65%	20,930,604	0.001-0.85%	59,787,786	0.001-0.50%	66,595,477
		74,168,338		202,173,530		216,831,819

Asset

ii. Sensitivity analysis

As at 31 March 2009, 31 March 2010 and 31 August 2010 if interest rates had been 1 basis point higher/lower with all other variables held constant, the Group’s profit before taxation would have increased/decreased by approximately HK$7,400, HK$20,200 and HK$21,600 respectively.

The increase/decrease in profit before taxation results mainly from higher/lower interest income from deposits with banks. Other components of equity would not be affected by the changes in interest rates.

The sensitivity analysis above indicates the instantaneous change in the Group’s profit before taxation for the Track Record Period that would arise assuming that the change in interest rates had occurred at the year/ period ended and had been applied to re-measure those financial instruments held by the Group which expose the Group to interest rate risk at the end of reporting period.

I – 31

ACCOUNTANT S’ REPORT

APPENDIX I

Foreign currency risk

The Group’s business is principally conducted in HKD and United States dollars (“USD”) and most of the Group’s monetary assets and liabilities are denominated in HKD. As the HKD is pegged to the USD, the Group considers the risk of movements in exchange rates between the HKD and the USD to be insignificant. Accordingly, the directors consider the Group’s exposure to foreign currency risk is minimal.

Price risk management

The Group’s investments in equity listed in Hong Kong. Decisions to buy or sell trading securities are based on daily monitoring of the performance of individual securities compared to that of the relevant stock market index and other industry indicators, as well as the Group’s liquidity needs. To manage its price risk arising from the equity securities, the Group maintains a portfolio of diversified investments with different risk profiles.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to equity price risk at the Track Record Period . For sensitivity analysis purpose, the sensitivity rate is increased to 5% in the current year/period as a result of the volatile financial market.

If listed equity prices had been 5% higher/lower, profit for the Track Record Period would increase/decrease as follow:

	At 31 March		At 31August
	2009	2010	2010
	HK$	HK$	HK$
Fair value changes	63,057	96,520	81,558

This is mainly due to the changes in fair value of financial assets at fair value through profit or loss.

I – 32

ACCOUNTANT S’ REPORT

APPENDIX I

Fair values

The following table provides an analysis of financial instruments that are measures subsequent to initial recognition at fair value, grouped into Level 1 to 3 based on the degree to which the fair value is observable:

Level 1: fair values measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: fair values measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: fair values measurements are those derived from valuation techniques that include inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

Assets Financial assets at fair value through profit or loss Assets Financial assets at fair value through profit or loss Available-for-sale financial assets	Level 1 HK$ 1,261,138 Level 1 HK$ 1,930,400 – 1,930,400	Level 2 HK$ – Level 2 HK$ – 9,723,483 9,723,483	31 March 2009 Total HK$ 1,261,138

			31 March 2010 Total HK$ 1,930,400 9,723,483
			11,653,883

I – 33

ACCOUNTANT S’ REPORT

APPENDIX I	ACC	OUNTANT S	REPORT
Assets Financial assets at fair value through profit or loss Available-for-sale financial assets	Level 1 HK$ 1,631,152 – 1,631,152	Level 2 HK$ – 9,667,903 9,667,903	31 August 2010 Total HK$ 1,631,152 9,667,903
			11,299,055

There were no transfers between Levels 1 and 2 in the Track Record Period .

The fair values of financial instruments are determined as follows:

The fair values of financial assets with standard terms and conditions and traded in active markets are based on quoted market prices at the end of the reporting period without deduction for transaction costs.
The fair values of available-for-sales financial assets are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives.

Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as debt divided by total capital. Debt is total bank borrowings (including current and non-current bank borrowings). Total capital is calculated as “equity”, as shown in the statement of financial position, plus debt.

As at the Track Record Period , the Group has no bank borrowings and, accordingly, the gearing ratio during the reporting period is 0%.

I – 34

ACCOUNTANT S’ REPORT

APPENDIX I

5. Business and geographical segments

Business segments

The Group is principally engaged in two main operating divisions, namely, securities and futures broking and placing and underwriting. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Securities and futures broking – Provision of securities and futures and other wealth management products broking services – Placing and underwriting Provision of placing and underwriting services

All of the activities of the Group are based in Hong Kong and all of the Group’s revenue is derived from Hong Kong. Accordingly, no analysis by geographical segments is presented.

I – 35

APPENDIX I

ACCOUNTANT S’ REPORT

For the year ended 31 March 2009

REVENUE Segment revenue RESULTS Segment results Loss from investments Other interest income Other income Unallocated other operating expenses Finance costs Profit before taxation Income tax expenses Profit for the year	Securities and futures Broking HK$ 20,628,686 8,774,182	Placing and underwriting HK$ 262,781 216,389	Total HK$ 20,891,467 8,990,571 (1,790,841) 177,955 7,018 (3,270,836) (60) 4,113,807 (674,832) 3,438,975

I – 36

APPENDIX I	ACCOUNTANT S’ REPORT	ACCOUNTANT S’ REPORT	ACCOUNTANT S’ REPORT
ASSETS Segment assets Unallocated corporate assets Total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Total liabilities OTHER INFORMATION Additions to plant and equipment Depreciation of plant and equipment	Securities and futures Broking HK$ 61,520,131 60,132,174 1,237,386 1,029,680	Placing and underwriting HK$ – – – –	Total HK$ 61,520,131 23,299,553
			84,819,684

			60,132,174 1,034,201
			61,166,375

			1,237,386 1,029,680

I – 37

APPENDIX I

ACCOUNTANT S’ REPORT

For the year ended 31 March 2010

REVENUE Segment revenue RESULTS Segment results Gain from investments Other interest income Other income Unallocated other operating expenses Finance costs Profit before taxation Taxation Profit for the year	Securities and futures Broking HK$ 40,889,385 24,005,441	Placing and underwriting HK$ 32,288,270 26,182,008	Total HK$ 73,177,655 50,187,449 1,762,227 143,110 93,467 (5,907,300) (11,197) 46,267,756 (7,609,382) 38,658,374

I – 38

APPENDIX I	ACCOUNTANT S’ REPORT	ACCOUNTANT S’ REPORT	ACCOUNTANT S’ REPORT
ASSETS Segment assets Unallocated corporate assets Total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Total liabilities OTHER INFORMATION Additions to plant and equipment Depreciation of plant and equipment Additions to intangible assets Amortisation of intangible assets	Securities and futures Broking HK$ 195,220,994 191,474,275 1,135,929 1,076,183 348,900 69,780	Placing and underwriting HK$ 418,491 31,200 – – – –	Total HK$ 195,639,485 72,654,542
			268,294,027

			191,505,475 7,514,753
			199,020,228

			1,135,929 1,076,183 348,900 69,780

I – 39

APPENDIX I

ACCOUNTANT S’ REPORT

For the period ended 31 August 2010

REVENUE Segment revenue RESULTS Segment results Gain from investments Other interest income Other income Unallocated other operating expenses Profit before taxation Taxation Profit for the period	Securities and futures Broking HK$ 13,971,775 7,094,976	Placing and underwriting HK$ 8,157,040 7,655,690	Total HK$ 22,128,815 14,750,666 (250,420) 101,787 70,135 (3,871,365) 10,800,803 (1,878,173) 8,922,630

I – 40

APPENDIX I	ACCOUNTANT S’ REPORT	ACCOUNTANT S’ REPORT	ACCOUNTANT S’ REPORT
ASSETS Segment assets Unallocated corporate assets Total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Total liabilities OTHER INFORMATION Additions to plant and equipment Depreciation of plant and equipment Amortisation of intangible assets	Securities and futures Broking HK$ 161,825,191 155,390,770 299,588 377,731 29,075	Placing and underwriting HK$ – 31,200 – – –	Total HK$ 161,825,191 81,053,122
			242,878,313

			155,421,970 9,315,494
			164,737,464

			299,588 377,731 29,075

I – 41

APPENDIX I

ACCOUNTANT S’ REPORT

6. Turnover

Commission and brokerage from securities dealing on – The Stock Exchange of Hong Kong Limited Commission and brokerage fees on dealing in futures contracts Placing and underwriting commission Clearing and settlement fee Handling service and dividends collection fee Interest income from – authorised financial institutions – clients – others	At 31 March 2009 2010 HK$ HK$ 15,442,656 29,941,974 – 1,317,406 262,781 32,288,270 4,479,671 8,219,488 375,288 457,195 177,934 143,105 331,071 953,322 21 5 21,069,422 73,320,765	At 31 August 2009 2010 HK$ HK$ (unaudited) 13,567,071 10,127,250 – 668,040 12,701,250 8,157,040 3,906,995 2,405,122 209,363 173,560 47,806 101,723 223,598 597,803 1 64 30,656,084 22,230,602	At 31 August 2009 2010 HK$ HK$ (unaudited) 13,567,071 10,127,250 – 668,040 12,701,250 8,157,040 3,906,995 2,405,122 209,363 173,560 47,806 101,723 223,598 597,803 1 64 30,656,084 22,230,602
			22,230,602

7. Net other (loss) income

Gain on trading of financial assets at fair value through profit or loss Loss on trading in futures contract Dividends income Net change in fair value of financial assets at fair value through profit or loss Other income	At 31 March 2009 2010 HK$ HK$ 676,224 639,608 – (3,860) – 9,758 (2,467,065) 1,116,721 7,018 93,467 (1,783,823) 1,855,694	At 31 August 2009 2010 HK$ HK$ (unaudited) 356,679 49,256 – (26) 9,758 – 65,773 (299,650) 1 70,135 432,211 (180,285)	At 31 August 2009 2010 HK$ HK$ (unaudited) 356,679 49,256 – (26) 9,758 – 65,773 (299,650) 1 70,135 432,211 (180,285)
			(180,285)

I – 42

APPENDIX I

ACCOUNTANT S’ REPORT

8. Finance costs

Interest on: – Bank loans for IPO financing – Other bank loans and overdraft	At 31 March 2009 2010 HK$ HK$ – 173,339 60 11,197 60 184,536	At 31 August 2009 2010 HK$ HK$ (unaudited) 27,945 – – – 27,945 –	At 31 August 2009 2010 HK$ HK$ (unaudited) 27,945 – – – 27,945 –
			–

9. Profit before taxation

Profit before taxation has been arrived at after charging: Staff costs (note 10) Auditors’ remuneration Depreciation of plant and equipment Amortisation of intangible assets Operating lease payments in respect of: Rented premises Equipment	At 31 March 2009 2010 HK$ HK$ 2,596,378 3,678,234 63,000 50,000 1,029,680 1,076,183 – 69,780 2,057,514 2,896,992 14,856 8,666	At 31 August 2009 2010 HK$ HK$ (unaudited) 1,202,683 1,521,422 – – 372,907 377,731 – 29,075 1,183,908 1,223,549 6,190 –

10. Staff costs (including directors’ remuneration)

Salaries and allowances Defined contribution retirement benefit scheme contributions	At 31 March 2009 2010 HK$ HK$ 2,513,498 3,561,694 82,880 116,540 2,596,378 3,678,234	At 31 August 2009 2010 HK$ HK$ (unaudited) 1,157,300 1,465,334 45,383 56,088 1,202,683 1,521,422	At 31 August 2009 2010 HK$ HK$ (unaudited) 1,157,300 1,465,334 45,383 56,088 1,202,683 1,521,422
			1,521,422

I – 43

ACCOUNTANT S’ REPORT

APPENDIX I

11. Directors’ remuneration and senior management’s emoluments

(a) Directors’ remunerations

The remunerations paid or payable to each of the directors for the Group during the Track Record Period were as follows:

Year ended 31 March 2009

Executive directors Kwok Kin Chung Lau Ka Lung Ali Lau Kin Hon To Hang Ming (note 1) Yu, Linda Independent non-executive directors Au Yeung Tai Hong Rorce Choy Wing Man Chee Kwok Wing Waymond	Fees HK$ – – – – – – – – –	Salaries , allowances and benefit in kind HK$ – 828,458 – – 360,517 – – – 1,188,975	Discretionary bonuses HK$ – – – – – – – – – –	Defined contribution retirement benefit scheme contributions HK$ – 11,700 – – 11,000 – – – 22,700	Total HK$ – 840,158 – – 371,517 – – –
					1,211,675

Year ended 31 March 2010

Executive directors Kwok Kin Chung Lau Ka Lung Ali Lau Kin Hon To Hang Ming (note 1) Yu, Linda Independent non-executive directors Au Yeung Tai Hong Rorce Choy Wing Man Chee Kwok Wing Waymond	Fees HK$ – – – – – – – – –	Salaries , allowances and benefit in kind HK$ – 316,500 – – 357,260 – – – 673,760	Discretionary bonuses HK$ – 63,500 – – 88,000 – – – 151,500	Defined contribution retirement benefit scheme contributions HK$ – 12,000 – – 11,533 – – – 23,533	Total HK$ – 392,000 – – 456,793 – – –
					848,793

I – 44

APPENDIX I

ACCOUNTANT S’ REPORT

Period ended 31 August 2009 (unaudited)

Executive directors Kwok Kin Chung Lau Ka Lung Ali Lau Kin Hon To Hang Ming (note 1) Yu, Linda Independent non-executive directors Au Yeung Tai Hong Rorce Choy Wing Man Chee Kwok Wing Waymond Period ended 31 August Executive directors Kwok Kin Chung Lau Ka Lung Ali Lau Kin Hon To Hang Ming (note 1) Yu, Linda Independent non-executive directors Au Yeung Tai Hong Rorce Choy Wing Man Chee Kwok Wing Waymond	Fees HK$ – – – – – – – – – 2010 Fees HK$ – – – – – – – – –	Salaries , allowances and benefit in kind HK$ – 133,500 – – 100,000 – – – 233,500 Salaries , allowances and benefit in kind HK$ 76,205 157,000 – – 200,000 – – – 433,205	Discretionary bonuses HK$ – – – – – – – – – Discretionary bonuses HK$ – – – – – – – – –	Defined contribution retirement benefit scheme contributions HK$ – 5,000 – – 5,000 – – – 10,000 Defined contribution retirement benefit scheme contributions HK$ 2,460 5,000 – – 5,000 – – – 12,460	Total HK$ – 138,500 – – 105,000 – – –
					243,500

					Total HK$ 78,665 162,000 – – 205,000 – – – 445,665

During the Track Record Period , no director received any emoluments from the Group as an inducement to join or leave the Group or compensation for loss of office and, no director waived or has agreed to waive any emoluments.

note 1: Mr. To Hang Ming appointed as Executive director on 18 February 2011 and resigned on 21 February 2011.

I – 45

ACCOUNTANT S’ REPORT

APPENDIX I

(b) Five highest paid individuals

The five highest paid individuals of the Group for the Track Record Period included two, two, one and two directors for the years ended 31 March 2009 and 2010 and five months ended 31 August 2009 and 2010 whose emoluments are disclosed in note 11(a). The remuneration of the remaining individuals which fell within the band of Nil – HK$1 million for the Track Record Period are as follows:

Salaries, allowances and benefit in kind Discretionary bonuses Defined contribution retirement benefit scheme contributions	At 31 March 2009 2010 HK$ HK$ 849,654 952,92 8 – 476,500 31,720 35,450 881,374 1,464,878	At 31 August 2009 2010 HK$ HK$ (unaudited) 631,350 379,766 – – 19,650 13,595 651,000 393,361	At 31 August 2009 2010 HK$ HK$ (unaudited) 631,350 379,766 – – 19,650 13,595 651,000 393,361
			393,361

During the Track Record Period , no emoluments were paid by the Group to any of the five highest paid individuals as an inducement to join, or upon joining the Group or as compensation for loss of office.

12. Income tax expenses

Hong Kong profits tax – current year Deferred tax – current year	At 31 March 2009 2010 HK$ HK$ 609,298 7,562,044 65,534 47,338 674,832 7,609,382	At 31 August 2009 2010 HK$ HK$ (unaudited) 3,507,250 1,894,064 14,648 (15,891) 3,521,898 1,878,173	At 31 August 2009 2010 HK$ HK$ (unaudited) 3,507,250 1,894,064 14,648 (15,891) 3,521,898 1,878,173
			1,878,173

I – 46

APPENDIX I

ACCOUNTANT S’ REPORT

The tax expenses for the year/period can be reconciled to the profit before taxation per the combined statements of comprehensive income as follows:

Profit before taxation Tax at the domestic income tax rate of 16.5% (2009: 16.5%) Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of temporary difference not recognised Decrease in opening deferred tax liability resulting from a decrease in applicable tax rate Tax for the year/period	At 31 March 2009 2010 HK$ HK$ 4,113,807 46,267,756 678,778 7,634,179 2,047 425 (29,359) (25,222) 34,707 – (11,341) – 674,832 7,609,382	At 31 August 2009 2010 HK$ HK$ (unaudited) 21,401,746 10,800,803 3,531,288 1,782,132 – 112,825 (9,390) (16,784) – – – – 3,521,898 1,878,173	At 31 August 2009 2010 HK$ HK$ (unaudited) 21,401,746 10,800,803 3,531,288 1,782,132 – 112,825 (9,390) (16,784) – – – – 3,521,898 1,878,173

			1,782,132 112,825 (16,784) – –
			1,878,173

13. Dividends

No dividend has been paid or declared by the Company since its incorporation on 27 August 2010.

I – 47

APPENDIX I

ACCOUNTANT S’ REPORT

The dividends during the Track Record Period represented those declared by Cheong Lee to its then shareholders prior to the Reorganisation.

2010 First quarter, paid – HK$10 per share (2009: HK$nil) 2010 Interim, paid – HK$16.68 per share (2009: HK$5.68) 2010 Third quarter, paid – HK$16.68 per share (2009: HK$nil) 2009 Final, paid – HK$10 per share (2009: 2008 Final, HK$nil)	At 31 March 2009 2010 HK$ HK$ – 2,500,000 852,000 5,004,000 – 5,004,000 – 2,500,000 852,000 15,008,000	At 31 August 2009 2010 HK$ HK$ (unaudited) 2,500,000 – – – – – 2,500,000 – 5,000,000 –	At 31 August 2009 2010 HK$ HK$ (unaudited) 2,500,000 – – – – – 2,500,000 – 5,000,000 –
			–

14. Earnings per share

No earning per share information is presented as its inclusion for the purpose of this report, is not meaningful due to the Reorganisation and the preparation of the results for the Track Record Period on a combined basis as described in note 1 above.

I – 48

APPENDIX I

ACCOUNTANT S’ REPORT

15. Plant and equipment

COST At 1 April 2008 Additions At 31 March 2009 Additions Disposals At 31 March 2010 Additions Disposals At 31 August 2010 ACCUMULATED DEPRECIATION At 1 April 2008 Charge for the year At 31 March 2009 Charge for the year Written back upon disposal At 31 March 2010 Charge for the period Written back upon disposal At 31 August 2010 CARRYING VALUES At 31 March 2009 At 31 March 2010 At 31 August 2010	Leasehold improvement HK$ 1,194,431 83,801 1,278,232 401,000 (649,831) 1,029,401 – – 1,029,401 597,215 443,616 1,040,831 343,133 (649,831) 734,133 67,333 – 801,466 237,401 295,268 227,935	Furniture & equipment HK$ 242,167 25,678 267,845 53,052 – 320,897 19,338 (13,780) 326,455 48,433 53,569 102,002 64,180 – 166,182 26,944 (8,727) 184,399 165,843 154,715 142,056	Computer equipment HK$ 1,534,568 1,127,907 2,662,475 681,877 – 3,344,352 280,250 – 3,624,602 314,914 532,495 847,409 668,870 – 1,516,279 283,454 – 1,799,733 1,815,066 1,828,073 1,824,869	Total HK$ 2,971,166 1,237,386
				4,208,552 1,135,929 (649,831)
				4,694,650 299,588 (13,780)
				4,980,458
				960,562 1,029,680
				1,990,242 1,076,183 (649,831)
				2,416,594 377,731 (8,727)
				2,785,598
				2,218,310

				2,278,056

				2,194,860

I – 49

APPENDIX I

ACCOUNTANT S’ REPORT

16. Intangible assets

COST At 1 April 2008 and 31 March 2009 Addition At 31 March 2010 and 31 August 2010 AMORTISATION At 1 April 2008 and 31 March 2009 Charge for the year At 31 March 2010 Charge for the period At 31 August 2010 NET BOOK VALUES At 31 March 2009 At 31 March 2010 At 31 August 2010	Futures trading right HK$ – 348,900
	348,900
	– 69,780
	69,780 29,075
	98,855
	–

	279,120

	250,045

I – 50

APPENDIX I ACCOUNTANT S’ REPORT

17. Other assets

Admission fee paid to Hong Kong Securities Clearing Company Limited Stamp duty deposit with The Stock Exchange of Hong Kong Limited Contributions in cash to a guarantee fund with Hong Kong Securities Clearing Company Limited Compensation fund with The Stock Exchange of Hong Kong Limited Fidelity fund with The Stock Exchange of Hong Kong Limited Deposit with HKFE Clearing Corporation Limited in contribution to the reserve fund	At 31 March 2009 2010 HK$ HK$ 50,000 50,000 5,000 75,000 50,000 50,000 50,000 50,000 50,000 50,000 – 1,500,530 205,000 1,775,530	At 31 August 2010 HK$ 50,000 75,000 50,000 50,000 50,000 1,501,110
		1,776,110

I – 51

APPENDIX I

ACCOUNTANT S’ REPORT

18. Available-for-sale financial assets

			At
	At 31	March	31 August
	2009	2010	2010
	HK$	HK$	HK$
Unlisted investment fund in HK,
at fair value	–	9,723,483	9,667,903

The balance represents an investment in Galaxy China Special Situations Funds. It is measured at fair value and is classified as Level 2 fair value measurement.

19. Trade receivables

Trade receivables from the business of dealing in futures contracts: Clearing houses Trade receivables from the business of dealing in securities: Cash clients Clearing houses Trade receivables from placing and underwriting	At 31 March 2009 2010 HK$ HK$ – 4,038,570 5,859,087 1,170,900 – 43,293,075 – 418,491 5,859,087 48,921,036	At 31 August 2010 HK$ 185,626 5,828,867 1,353,341 –
		7,367,834

I – 52

APPENDIX I

ACCOUNTANT S’ REPORT

The aged analysis of the trade receivables are as follows:

Less than 1 month past due 1 to 3 months past due Over 3 months but less than 1 year past due Over 1 year past due	At 31 March 2009 2010 HK$ HK$ 5,175,576 48,880,014 148,550 13 534,961 7,437 – 33,572 5,859,087 48,921,036	At 31 August 2010 HK$ 3,238,663 1,174,667 2,918,042 36,462
		7,367,834

The Directors consider that the carrying amounts of trade receivables approximate their fair values.

The group held the stock on behalf of those clients who overdue payment more than one month are of HK$5,959,071, HK$164,941,190 and HK$26,346,883 as at 31 March 2009, 2010 and 31 August 2010 respectively.

20. Other receivables, deposits and prepayments

Other receivables Rental and other deposits Prepayments	At 31 March 2009 2010 HK$ HK$ 77,990 895 750,147 965,988 279,674 245,989 1,107,811 1,212,872	At 31 August 2010 HK$ – 713,029 2,445,561
		3,158,590

None of the above assets is either past due or impaired. The financial assets included in the above balances relate to deposits and receivables for which there was no recent history of default.

I – 53

APPENDIX I

ACCOUNTANT S’ REPORT

21. Financial assets at fair value through profit or loss

Equity securities listed in Hong Kong, at fair value Bank balances and cash Bank balances – trust accounts – general accounts and cash	At 31 March 2009 2010 HK$ HK$ 1,261,138 1,930,400 At 31 March 2009 2010 HK$ HK$ 53,237,734 142,385,744 20,930,604 59,787,786 74,168,338 202,173,530	At 31 August 2010 HK$ 1,631,152

		At 31 August 2010 HK$ 150,236,342 66,595,477
		216,831,819

22. Bank balances and cash

The Group maintains segregated trust accounts with licensed banks to hold clients’ monies arising from its normal course of business. The Group has classifies the clients’ monies as cash held on behalf of customers under the current assets section of the statement of financial position and recognised the corresponding accounts payable to respective clients on the grounds that it is liable for any loss or misappropriation of clients’ monies. The Group is not allowed to use the clients’ monies to settle its own obligations.

The general accounts and cash comprise cash held by the Group and bank deposits bearing interest at commercial rates with original maturity of three months or less. The fair values of these assets at the end of the reporting period approximate their carrying amounts.

I – 54

APPENDIX I

ACCOUNTANT S’ REPORT

23. Trade payables

Trade business from the business of dealing in futures contracts: Margin clients Trade payables from the business of dealing in securities: Cash clients Clearing houses	At 31 March 2009 2010 HK$ HK$ – 6,559,834 54,165,982 182,431,995 3,482,486 – 57,648,468 188,991,829	At 31 August 2010 HK$ 2,531,543 149,494,019 –
		152,025,562

The settlement terms of trade payables arising from the business of dealing in securities are two days after trade date, and trade payables arising from the business of dealing in futures contracts are one day after trade date. No aged analysis is disclosed as in the opinion of the directors; the aged analysis does not give additional value in view of the nature of this business.

Included in trade payables to cash clients attributable to dealing in securities and futures transaction is an amount of HK$53,237,734, HK$142,385,744 and HK$150,236,342 representing these clients’ undrawn monies/excess deposits placed with the Group. The balances are repayable on demand as at 31 March 2009, 31 March 2010 and 31 August 2010 respectively.

The directors consider that the carrying amounts of trade payables approximate their fair values.

I – 55

APPENDIX I

ACCOUNTANT S’ REPORT

24. Other payables and accruals

Accrued charges Stamp duty, trading levy and trading fee payables Other payables	At 31 March 2009 2010 HK$ HK$ 523,710 839,690 2,120,899 1,774,834 – 1,500 2,644,609 2,616,024	At 31 August 2010 HK$ 962,247 2,550,967 61,810 3,575,024

All accrued expenses and other payables are expected to be settled or recognised as income within one year.

25. Deferred tax liabilities

The following is the major deferred tax liabilities recognised by the Group and movements thereon during the Track Record Period :

At 1 April 2008 Charge to statement of comprehensive income At 31 March 2009 Charge to statement of comprehensive income As at 31 March 2010 Credit to statement of comprehensive income As at 31 August 2010	Depreciation allowance in excess of the related depreciation HK$ 204,171 59,829 264,000 47,338 311,338 (15,891) 295,447

I – 56

ACCOUNTANT S’ REPORT

APPENDIX I

26. Share capital

Share capital in the combined statements of financial position as at 31 March 2009, 2010 and 31 August 2010 represents the aggregate amount of paid-up capital of CL Group (Holdings) Limited, CL Group (BVI) Limited, and Cheong Lee Securities Limited in which the equity shareholders of the Company held direct/indirect interests.

Increase in paid-up share capital

The Company was incorporated in the Cayman Islands on 27 August 2010 with an authori sed share capital of HK$390,000 divided into 39,000,000 ordinary shares of HK$0.01 each. The Company issued 1 ordinary share for a total consideration of HK$0.01 on 27 August 2010. Further details of the changes in authorised and issued share capital of the Company after 31 August 2010 are set out in the section headed “Changes in the authorised and issued share capital of the Company” in Appendix V to this document.

For the purpose of this report, share capital of the Group as at 31 March 2009, 2010 and five months ended 31 August 2010 represented the issued share capital of the companies at the end of each reporting period are as follows:

The Company Cheong Lee	At 31 March 2009 2010 HK$ HK$ – – 20,000,000 40,000,000 20,000,000 40,000,000	At 31 August 2010 HK$ 7,500,000 –
		7,500,000

On [•] 2010, the Company acquired 400,000 ordinary shares of HK$100 each in Cheong Lee, being its entire issued share capital, from Ms. Au . In consideration thereof, an aggregate of 749,999,999 new ordinary shares of HK$0.01 each of the Company, credited as fully paid, were evenly allotted and issued to Ms. Au.

27. Reserves

The movements in the Group’s reserves for the Track Record Period are presented in the combined statements of changes in equity.

I – 57

APPENDIX I

ACCOUNTANT S’ REPORT

28. Information about the statement of financial position of the Company

Assets Amount due from Cheong Lee BVI Investment in Cheong Lee BVI Total Assets Capital and reserve Share capital Merger reserve	At 31 March 2009 2010 HK$ HK$ – – – – – – – – – – – –	At 31 August 2010 HK$ 39,999,992 8
		40,000,000

		7,500,000 32,500,000
		40,000,000

The Company issued aggregate of 749,999,999 shares to Ms. Au for Cheong Lee BVI to acquire the entire equity interests in Cheong Lee. Further details of the changes amounts due from Cheong Lee BVI, share capital and merger reserve of the Company are set out in the section headed “Reorganisation” in Appendix V to this document.

The Company incorporated at 27 August 2010, One share of HK$0.01 has been issued and fully paid up.

29. Retirement benefit plans

The Group operates a Mandatory Provident Fund Scheme (“the MPF scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance and not previously covered by the defined benefit retirement plan. The MPF scheme is a defined contribution retirement plan administered by independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$20,000. Contributions to the plan vest immediately.

I – 58

ACCOUNTANT S’ REPORT

APPENDIX I

30. Banking facilities

At the end of each reporting period , the Group has the follow overdraft facilities:

			At
	At 31 March		31 August
	2009	2010	2010
	HK$	HK$	HK$
Overdraft facilities	7,000,000	–	10,000,000

These facilities are secured by the bank deposits of the sole shareholder.

The Group and the Company did not have any assets pledged to banks for banking facilities.

31. Operating lease commitment

The Group as lessee

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

Within one year In the second to fifth years inclusive	At 31 March 2009 2010 HK$ HK$ 1,848,168 2,435,808 3,080,280 1,167,264 4,928,448 3,603,072	At 31 August 2010 HK$ 2,150,428 437,724
		2,588,152

The Company as lessee

The Company has no significant operating lease commitments at 31 August 2010.

I – 59

ACCOUNTANT S’ REPORT

APPENDIX I

32. Capital commitments

The Group and the Company had no significant capital commitments at 31 August 2010.

33. Contingent liabilities

The Group and the Company had no significant contingent liabilities at the end of each of the reporting period.

34. Related parties transactions

i. In addition to the transactions forming part of the Reorganisation detailed in Appendix V to this document, the Group had the following material transactions with related parties during the Track Record Period :

Commission and brokerage income from securities trading: – Au Suet Ming Clarea Sole shareholder – Cheong Lee Capital Limited Owned by a shareholder – China Merit International Holdings Limited Owned by a shareholder – Au Yik Fei Shareholder’s connected party – Chinacorp International Consultants Limited Shareholder’s connected party – Kitty Au Nim Bing Shareholder’s connected party – Au Yuk Kit Shareholder’s connected party – Chee Kwok Wing Waymand Director – Lam Wai Hi Director – To Hang Ming Director – Yu Linda Director – Ang Wing Fung Director’s spouse – Li Wai Kwan Director’s spouse – Hilcrest Management Limited Owned by a Director Commission and brokerage income from futures contract trading: – China Merit International Holdings Limited Owned by a shareholder – To Hang Ming Director	At 31 March 2009 2010 HK$ HK$ 23,809 62,766 6,071,232 3,803,542 2,810,143 2,382,482 2,437 31,214 3,480,976 4,837,587 – 12,091 – 8,641 – – 50 50 – 43,870 – 150 – 50 105,461 40,286 – – – 916 – 3,280	At 31 August 2009 2010 HK$ HK$ (unaudited) 28,105 11,275 2,538,655 1,538,331 2,343,330 38,3 80 20,560 5,459 2,255,940 1,022,087 5,310 317 2,708 1,719 – 248 – – – 21,904 50 – – – 40,286 – – 26,842 – 300 – 1,040	At 31 August 2009 2010 HK$ HK$ (unaudited) 28,105 11,275 2,538,655 1,538,331 2,343,330 38,3 80 20,560 5,459 2,255,940 1,022,087 5,310 317 2,708 1,719 – 248 – – – 21,904 50 – – – 40,286 – – 26,842 – 300 – 1,040

			300 1,040

I – 60

APPENDIX I

ACCOUNTANT S’ REPORT

ii. Included in trade receivables and payables arising from the business of dealing in securities and futures contracts are amounts due from/(to) certain related parties, the net balance of which are as follows:

				At
		At 31	March	31 August
		2009	2010	2010
		HK$	HK$	HK$
Amount due from/(to)
related parties
– Au Suet Ming Clarea	Sole shareholder	(317,889)	(6,354,704)	(8,055,606)
– Cheong Lee Capital Limited	Owned by a shareholder	(13,560,351)	(18,184,458)	(27,918,699)
– China Merit International	Owned by a shareholder
Holdings Limited		(12,703,997)	(3,543,442)	(16,545,459)
– Au Yik Fei	Shareholder’s connected party	48,211	(197,584)	(142,299)
– Au Yuk Kit	Shareholder’s connected party	–	(385,650)	(446,146)
– Chinacorp International	Shareholder’s connected party
Consultants Limited		(4,972,880)	(5,232,493)	(7,224,322)
– Kitty Au Nim Bing	Shareholder’s connected party	–	(55,943)	(48,157)
– Chee Kwok Wing Waymond	Director	–	–	(333)
– To Hang Ming	Director	–	(1,793,232)	(475,048)
– Li Wai Kwan	Director’s spouse	(162)	–	–
– Hilcrest Management Limited	Owned by a Director	–	–	(1,048,958)

The fair values of the balances included in the accounts at the end of the reporting period approximate the corresponding carrying amounts.

The settlement terms of trade receivables/payables including transactions with related parties arising from the business of dealing in securities are T+2; and trade receivables/payables arising from the business of dealing in futures are T+1. The settlements terms are same as those with third parties. The related parties custodian, cash placed with the Group in it trust account were included in trade payables and would be settled upon request or the related party ceased to trade with the Company.

iii. Li Wai Kwan, Lam Wai Hi and Ang Wing Fung ceased to trade with the Company on 1 December 2009, 12 July 2010 and 18 October 2010 respectively. As at the Latest Practicable Date, the other related parties were continue to trade with the Company.
iv. In the Directors’ opinion, all of the related party transactions were conducted on normal commercial terms and in the ordinary and usual courses of the Company’s business.

I – 61

ACCOUNTANT S’ REPORT

APPENDIX I

(c) Compensation of key management personnel

The remuneration of Directors and other members of key management during the Track Record Period were as follows:

Short-term benefits Post-employment benefits	At 31 March 2009 2010 HK$ HK$ 1,188,975 825,260 22,700 23,533 1,211,675 848,793	At 31 August 2009 2010 HK$ HK$ (unaudited) 233,500 433,205 10,000 12,460 243,500 445,665	At 31 August 2009 2010 HK$ HK$ (unaudited) 233,500 433,205 10,000 12,460 243,500 445,665
			445,665

The remuneration of Directors and key executives is determined by the Board and reviewed by the remuneration committee having regard to the performance of individuals and market trends.

III. DIRECTORS’ REMUNERATION

Saved as disclosed in note 11 of Section II above, no other remuneration has been paid or is payable in respect of the Track Record Period to the directors of the Company.

IV. SUBSEQUENT EVENTS

The following significant events took place subsequent to 31 August 2010:

(a) Reorganisation

The Company was incorporated in Cayman Islands on 27 August 2010. The companies comprising the Group underwent and completed a reorganisation in preparation for [•]. Further details of the Reorganisation are set out in the paragraph headed “Reorganisation” in Appendix V to this document. As a result of the Reorganisation, the Company became the holding company of the Group.

(b) Dividend

A dividend of HK$90 per share amounting to HK$36,000,000 was declared and paid by Cheong Lee to its sole shareholder on 6 October 2010 .

I – 62

APPENDIX I ACCOUNTANT S’ REPORT

(c) Pre-[•] Share Option Schemes

Pursuant to a shareholder resolution passed on [•], the Company has conditionally adopted Pre-[•] Share Option Scheme. The summary of terms of the Pre-[•] Share Option Scheme is set out in the section headed “ Pre-[•] Share Option Scheme” in Appendix V to this document.

V. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company in respect of any period subsequent to 31 August 2010.

Yours faithfully,

HLM & Co.

Certified Public Accountants Hong Kong

I – 63

APPENDIX III PROPERTY VALUATION REPORT

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this document received from BMI Appraisals Limited, an independent valuer, in connection with its valuations as at 31 January 2011 of the properties leased by the Group in Hong Kong.

==> picture [227 x 77] intentionally omitted <==

[•]

The Directors

Room 1106, 11th Floor Mass Mutual Tower 38 Gloucester Road Wanchai Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from CL Group (Holdings) Limited (the “Company”) for us to value the properties leased by the Company and/or its subsidiaries (together referred to as the “Group”) located in Hong Kong. We confirm that we have conducted inspections, made relevant enquiries and obtained such further information, as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 31 January 2011 (the “date of valuation”).

BASIS OF VALUATION

Our valuations of the concerned properties have been based on the Market Value, which is defined as “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”.

III – 1

APPENDIX III

PROPERTY VALUATION REPORT

VALUATION METHODOLOGY

In valuing the properties leased by the Group, we are of the opinion that they have no commercial value either because of their non-assignability in the market or there are prohibitions against assignment and/or subletting contained in the tenancy agreements or the lack of marketable and substantial profit rents.

TITLE INVESTIGATION

We have not searched the titles of the properties and have not scrutinised the original title documents to verify ownership or to ascertain the existence of any amendments, which do not appear on the copies handed to us. However, we have been provided with a copy of the tenancy agreements of the properties leased by the Group. All documents have been used for reference only.

VALUATION ASSUMPTIONS

Our valuations have been made on the assumption that the properties are sold in the market without the benefit of deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which would serve to affect the values of the properties.

In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the properties and no forced sale situation in any manner is assumed in our valuations.

VALUATION CONSIDERATIONS

We have inspected the exterior and wherever possible, the interior of the properties. During the course of our inspections, we did not note any serious defects. However, no structural surveys have been made nor have any tests been carried out on any of the services provided in the properties. We are, therefore, unable to report that the properties are free from rot, infestation or any other structural defects.

In the course of our valuations, we have relied to a considerable extent on the information given by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenures, particulars of occupancy, floor areas, identification of the properties and other relevant information.

We have not carried out detailed on-site measurements to verify the correctness of the floor areas in respect of the properties but have assumed that the floor areas shown on the documents handed to us are correct. Dimensions, measurements and areas included in the valuation certificates are based on information contained in the documents provided to us by the Group and are therefore only approximations.

III – 2

APPENDIX III

PROPERTY VALUATION REPORT

We have no reason to doubt the truth and accuracy of the information provided to us by the Group and we have relied on the Group’s confirmation that no material facts have been omitted from the information so supplied. We consider that we have been provided with sufficient information to reach an informed view.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the properties or for any expenses or taxation, which may be incurred in effecting a sale.

Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

Our valuations have been prepared in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors .

Our valuations have been prepared under the generally accepted valuation procedures and is in compliance with [•] .

REMARKS

Unless otherwise stated, all money amounts stated herein are in Hong Kong Dollars (HK$) and no allowances have been made for any exchange transfer.

Our Summary of Values and the Valuation Certificates are attached herewith.

Yours faithfully, For and on behalf of

BMI APPRAISALS LIMITED

Dr. Tony C.H. Cheng

BSc., MUD, MBA(Finance), MSc.(Eng), PhD(Econ), MHKIS, MCIArb, AFA, SIFM, FCIM, MASCE, MIET, MIEEE, MASME, MIIE

Joannau W.F. Chan

BSc., MSc., MRICS, MHKIS, RPS(GP) Senior Director

Managing Director

Notes:

Dr. Tony C.H. Cheng is a member of the Hong Kong Institute of Surveyors (General Practice) who has over 18 years’ experience in valuations of properties in Hong Kong .

Ms. Joannau W.F. Chan is a member of the Hong Kong Institute of Surveyors (General Practice) who has over 18 years’ experience in valuations of properties in Hong Kong .

III – 3

APPENDIX III

PROPERTY VALUATION REPORT

SUMMARY OF VALUES

Market Value in existing state as at 31 January 2011 HK$

No. Property as at 31 January 2011 HK$ 1. Rooms 1104-1106 on 11th Floor, No Commercial Value Mass Mutual Tower, 38 Gloucester Road, Wanchai, Hong Kong 2. Rooms 905-906 on 9th Floor, No Commercial Value Mass Mutual Tower, 38 Gloucester Road, Wanchai, Hong Kong

Total: Nil

III – 4

APPENDIX III

PROPERTY VALUATION REPORT

VALUATION CERTIFICATE

				Market Value
			Particulars of	in existing state
No.	Property	Description and tenure	occupancy	as at 31 January 2011
				HK$
1.	Rooms 1104-1106	The property comprises two office	The property is occupied	No Commercial
	on	units on the 11th Floor of a 27-storey	by the Group for office	Value
	11th Floor,	office building which was completed	purpose.
	Mass Mutual Tower,	in 1985.
	38 Gloucester Road,
	Wanchai,	The total gross floor area (“GFA”) of
	Hong Kong	the property is approximately 5,525
		sq.ft. (or about 513.3 sq.m.).
		Pursuant to two tenancy agreements
		entered into between an independent
		third-party landlord and Cheong Lee
		Securities Limited (“Cheong Lee”)
		dated 27 April 2009 and 20 August
		2009, the property is leased to Cheong
		Lee for office use at a total monthly
		rent of HK$202,984 with the latter
		term expiring on 30 November 2011.

Note:

Pursuant to the aforesaid tenancy agreements, the tenant of the property is Cheong Lee, a wholly-owned subsidiary of the Company. The details of the tenancy agreements are summarised as follows:

No. Unit Date of Agreement Term 1. 1104 27 April 2009 1 April 2009 – 31 March 2011 2. 1105-06 20 August 2009 1 December 2009 – 30 November 2011 Total:	GFA in sq.ft. 1,502 4,023 5,525	Monthly Rent HK$ 57,076 145,908
		202,984

III – 5

APPENDIX III

PROPERTY VALUATION REPORT

VALUATION CERTIFICATE

				Market Value
			Particulars of	in existing state
No.	Property	Description and tenure	occupancy	as at 31 January 2011
				HK$
2.	Rooms 905-906 on	The property comprises an office unit	The property is occupied	No Commercial
	9th Floor,	on the 9th Floor of a 27-storey office	by the Group for office	Value
	Mass Mutual Tower,	building which was completed in	use.
	38 Gloucester Road,	1985.
	Wanchai,
	Hong Kong	The gross floor area of the property is
		approximately 3,955 sq.ft. (or about
		367.4 sq.m.).
		Pursuant to an offer letter from an
		independent third-party landlord and
		accepted by Cheong Lee Securities
		Limited (“Cheong Lee”) on [•], the
		property is leased to Cheong Lee
		for office use for a term of 2 years
		commencing on 14 February 2011 and
		expiring on 13 February 2013 (with
		rent free periods from 14 February
		2011 to 13 March 2011 and from 1
		April 2012 to 30 April 2012) at a
		monthly rent of HK$174,020 exclusive
		of Government rates, services charges
		and other outgoings.

Note: –

Pursuant to the aforesaid offer letter, the tenant of the property is Cheong Lee, a wholly-owed subsidiary of the Company.

III – 6

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

Set out below is a summary of certain provisions of the Memorandum and Articles of the Company and of certain relevant aspects of Cayman Companies Law.

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 27 August, 2010 under the Companies Law. The Memorandum and the Articles comprise its constitution.

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the Shares respectively held by them and that the objects for which the Company is established are unrestricted , and that the Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit, as provided in section 27(2) of the Companies Law and in view of the fact that the Company is an exempted company that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.
(b) The Company may by special resolution alter its Memorandum with respect to any objects, powers or other matters specified therein.

2. ARTICLES OF ASSOCIATION

The Articles were adopted on [•]. The following is a summary of certain provisions of the Articles:

(a) Directors

(i) Power to allot and issue shares and warrants

Subject to the provisions of the Companies Law and the Memorandum and Articles and to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the board may determine). Subject to the Companies Law, the rules of any Designated Stock Exchange (as defined in the Articles) and the Memorandum and Articles, any share may be issued on terms that, at the option of the Company or the holder thereof, they are liable to be redeemed.

IV – 1

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

The board may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may from time to time determine.

Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of any Designated Stock Exchange (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.

Neither the Company nor the board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.

(ii) Power to dispose of the assets of the Company or any subsidiary

There are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries. The Directors may, however, exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting.

(iii) Compensation or payments for loss of office

Pursuant to the Articles, payments to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must be approved by the Company in general meeting.

IV – 2

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(iv) Loans and provision of security for loans to Directors

There are provisions in the Articles prohibiting the making of loans to Directors.

(v) Disclosure of interests in contracts with the Company or any of its subsidiaries

A Director may hold any other office or place of profit with the Company (except that of the auditor of the Company) in conjunction with his office of Director for such period and, subject to the Articles, upon such terms as the board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration, profits or other benefits received by him as a director, officer or member of, or from his interest in, such other company. Subject as otherwise provided by the Articles, the board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company.

Subject to the Companies Law and the Articles, no Director or proposed or intended Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case, at the first meeting of the board after he knows that he is or has become so interested.

IV – 3

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

A Director shall not vote (nor be counted in the quorum) on any resolution of the board approving any contract or arrangement or other proposal in which he or any of his associates is materially interested, but this prohibition shall not apply to any of the following matters, namely:

(aa) any contract or arrangement for giving to such Director or his associate(s) any security or indemnity in respect of money lent by him or any of his associates or obligations incurred or undertaken by him or any of his associates at the request of or for the benefit of the Company or any of its subsidiaries;
(bb) any contract or arrangement for the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his associate(s) has himself/ themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;
(cc) [•]
(dd) any contract or arrangement in which the Director or his associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company;
(ee) any contract or arrangement concerning any other company in which the Director or his associate(s) is/are interested only, whether directly or indirectly, as an officer or executive or a shareholder or in which the Director and any of his associates are not in aggregate beneficially interested in 5 percent. or more of the issued shares or of the voting rights of any class of shares of such company (or of any third company through which his interest or that of any of his associates is derived); or

IV – 4

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(ff) any proposal or arrangement concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to Directors, his associates and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director, or his associate(s) as such any privilege or advantage not accorded generally to the class of persons to which such scheme or fund relates.

(vi) Remuneration

The ordinary remuneration of the Directors shall from time to time be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the board may agree or, failing agreement, equally, except that any Director holding office for part only of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he held office. The Directors shall also be entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably expected to be incurred or incurred by them in attending any board meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties as Directors.

Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the board may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a Director.

IV – 5

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

The board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company’s monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or ex Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and ex employees of the Company and their dependents or any class or classes of such persons.

The board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex employees or their dependents are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the board considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

(vii) Retirement, appointment and removal

At each annual general meeting, one third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not less than one third) will retire from office by rotation provided that every Director shall be subject to retirement at an annual general meeting at least once every three years. The Directors to retire in every year will be those who have been longest in office since their last re election or appointment but as between persons who became or were last re elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot. There are no provisions relating to retirement of Directors upon reaching any age limit.

IV – 6

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

The Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the board or as an addition to the existing board. Any Director appointed to fill a casual vacancy shall hold office until the first general meeting of members after his appointment and be subject to reelection at such meeting and any Director appointed as an addition to the existing board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election. Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification.

A Director may be removed by an ordinary resolution of the Company before the expiration of his period of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and may by ordinary resolution appoint another in his place. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two. There is no maximum number of Directors.

The office of director shall be vacated:

(aa) if he resigns his office by notice in writing delivered to the Company at the registered office of the Company for the time being or tendered at a meeting of the Board;
(bb) becomes of unsound mind or dies;
(cc) if, without special leave, he is absent from meetings of the board (unless an alternate director appointed by him attends) for six (6) consecutive months, and the board resolves that his office is vacated;
(dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors;
(ee) if he is prohibited from being a director by law;
(ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles.

IV – 7

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

The board may from time to time appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the board may determine and the board may revoke or terminate any of such appointments. The board may delegate any of its powers, authorities and discretions to committees consisting of such Director or Directors and other persons as the board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board.

(viii) Borrowing powers

The board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

Note: These provisions, in common with the Articles in general, can be varied with the sanction of a special resolution of the Company.

(ix) Proceedings of the Board

The board may meet for the despatch of business, adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have an additional or casting vote.

(x) Register of Directors and Officers

The Companies Law and the Articles provide that the Company is required to maintain at its registered office a register of directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within thirty (30) days of any change in such directors or officers.

IV – 8

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(b) Alterations to constitutional documents

The Articles may be rescinded, altered or amended by the Company in general meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to amend the Articles or to change the name of the Company.

(c) Alteration of capital

The Company may from time to time by ordinary resolution in accordance with the relevant provisions of the Companies Law:

(i) increase its capital by such sum, to be divided into shares of such amounts as the resolution shall prescribe;
(ii) consolidate and divide all or any of its capital into shares of larger amount than its existing shares;
(iii) divide its shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares attach thereto respectively any preferential, deferred, qualified or special rights, privileges, conditions or restrictions as the Company in general meeting or as the directors may determine;
(iv) sub divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum, subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares; or
(v) cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its capital by the amount of the shares so cancelled.

The Company may subject to the provisions of the Companies Law reduce its share capital or any capital redemption reserve or other undistributable reserve in any way by special resolution.

IV – 9

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(d) Variation of rights of existing shares or classes of shares

Subject to the Companies Law, all or any of the special rights attached to the shares or any class of shares may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be two persons holding or representing by proxy not less than one third in nominal value of the issued shares of that class and at any adjourned meeting two holders present in person or by proxy whatever the number of shares held by them shall be a quorum. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him.

The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

(e) Special resolution majority required

Pursuant to the Articles, a special resolution of the Company must be passed by a majority of not less than three fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice of not less than twenty-one (21) clear days and not less than ten (10) clear business days specifying the intention to propose the resolution as a special resolution, has been duly given. Provided that if permitted by the Designated Stock Exchange (as defined in the Articles), except in the case of an annual general meeting, if it is so agreed by a majority in number of the members having a right to attend and vote at such meeting, being a majority together holding not less than ninety-five per cent. (95%) in nominal value of the shares giving that right and, in the case of an annual general meeting, if so agreed by all Members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which notice of less than twenty-one (21) clear days and less than ten (10) clear business days has been given.

IV – 10

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

A copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within fifteen (15) days of being passed.

An ordinary resolution is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with the Articles.

(f) Voting rights

Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the Articles, at any general meeting on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing purposes as paid up on the share. A member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

At any general meeting a resolution put to the vote of the meeting is to be decided by way of a poll.

If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such person or persons as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by that clearing house (or its nominee(s)).

Where the Company has any knowledge that any shareholder is, under the rules of the Designated Stock Exchange (as defined in the Articles), required to abstain from voting on any particular resolution of the Company or restricted to voting only for or only against any particular resolution of the Company, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.

IV – 11

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(g) Requirements for annual general meetings

An annual general meeting of the Company must be held in each year, other than the year of adoption of the Articles (within a period of not more than fifteen (15) months after the holding of the last preceding annual general meeting or a period of eighteen (18) months from the date of adoption of the Articles, unless a longer period would not infringe the rules of any Designated Stock Exchange (as defined in the Articles)) at such time and place as may be determined by the board.

(h) Accounts and audit

The board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of the Company and of all other matters required by the Companies Law or necessary to give a true and fair view of the Company’s affairs and to explain its transactions.

The accounting records shall be kept at the registered office or at such other place or places as the board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the board or the Company in general meeting.

A copy of every balance sheet and profit and loss account (including every document required by law to be annexed thereto) which is to be laid before the Company at its general meeting, together with a printed copy of the Directors’ report and a copy of the auditors’ report, shall not less than twenty-one (21) days before the date of the meeting and at the same time as the notice of annual general meeting be sent to every person entitled to receive notices of general meetings of the Company under the provisions the Articles; however, subject to compliance with all applicable laws, including the rules of the Designated Stock Exchange (as defined in the Articles), the Company may send to such persons summarised financial statements derived from the Company’s annual accounts and the directors’ report instead provided that any such person may by notice in writing served on the Company, demand that the Company sends to him, in addition to summarised financial statements, a complete printed copy of the Company’s annual financial statement and the directors’ report thereon.

IV – 12

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

Auditors shall be appointed and the terms and tenure of such appointment and their duties at all times regulated in accordance with the provisions of the Articles. The remuneration of the auditors shall be fixed by the Company in general meeting or in such manner as the members may determine.

The financial statements of the Company shall be audited by the auditor in accordance with generally accepted auditing standards. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor shall be submitted to the members in general meeting. The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than the Cayman Islands. If so, the financial statements and the report of the auditor should disclose this fact and name such country or jurisdiction.

(i) Notices of meetings and business to be conducted thereat

An annual general meeting shall be called by notice of not less than twenty-one (21) clear days and not less than twenty (20) clear business days and any extraordinary general meeting at which it is proposed to pass a special resolution shall (save as set out in sub paragraph (e) above) be called by notice of at least twenty-one (21) clear days and not less than ten (10) clear business days. All other extraordinary general meeting shall be called by at least fourteen (14) clear days and not less than ten (10) clear business days. The notice must specify the time and place of the meeting and, in the case of special business, the general nature of that business. In addition notice of every general meeting shall be given to all members of the Company other than such as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, and also to the auditors for the time being of the Company.

Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned above if permitted by the rules of the Designated Stock Exchange, it shall be deemed to have been duly called if it is so agreed:

(i) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat; and
(ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than ninety-five per cent (95%) in nominal value of the issued shares giving that right.

IV – 13

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:

(aa) the declaration and sanctioning of dividends;
(bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors;
(cc) the election of directors in place of those retiring;
(dd) the appointment of auditors and other officers;
(ee) the fixing of the remuneration of the directors and of the auditors;
(ff) the granting of any mandate or authority to the directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company representing not more than twenty per cent (20%) in nominal value of its existing issued share capital; and
(gg) the granting of any mandate or authority to the directors to repurchase securities of the Company.

(j) Transfer of shares

All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by the Designated Stock Exchange (as defined in the Articles) or in such other form as the board may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the board may approve from time to time. The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the board may dispense with the execution of the instrument of transfer by the transferee in any case in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof. The board may also resolve either generally or in any particular case, upon request by either the transferor or the transferee, to accept mechanically executed transfers.

IV – 14

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

The board in so far as permitted by any applicable law may, in its absolute discretion, at any time and from time to time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

Unless the board otherwise agrees, no shares on the principal register shall be transferred to any branch register nor may shares on any branch register be transferred to the principal register or any other branch register. All transfers and other documents of title shall be lodged for registration and registered, in the case of shares on a branch register, at the relevant registration office and, in the case of shares on the principal register, at the registered office in the Cayman Islands or such other place at which the principal register is kept in accordance with the Companies Law.

The board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien.

The board may decline to recognise any instrument of transfer unless a fee of such maximum sum as any Designated Stock Exchange (as defined in the Articles) may determine to be payable or such lesser sum as the Directors may from time to time require is paid to the Company in respect thereof, the instrument of transfer, if applicable, is properly stamped, is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept accompanied by the relevant share certificate(s) and such other evidence as the board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The registration of transfers may be suspended and the register closed on giving notice by advertisement in a relevant newspaper and, where applicable, any other newspapers in accordance with the requirements of any Designated Stock Exchange (as defined in the Articles), at such times and for such periods as the board may determine and either generally or in respect of any class of shares. The register of members shall not be closed for periods exceeding in the whole thirty (30) days in any year.

IV – 15

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(k) Power for the Company to purchase its own shares

The Company is empowered by the Companies Law and the Articles to purchase its own Shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirements imposed from time to time by any Designated Stock Exchange (as defined in the Articles).

(l) Power for any subsidiary of the Company to own shares in the Company and financial assistance to purchase shares of the Company

There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary.

Subject to compliance with the rules and regulations of the Designated Stock Exchange (as defined in the Articles) and any other relevant regulatory authority, the Company may give financial assistance for the purpose of or in connection with a purchase made or to be made by any person of any shares in the Company.

(m) Dividends and other methods of distribution

Subject to the Companies Law, the Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the board.

The Articles provide dividends may be declared and paid out of the profits of the Company, realised or unrealised, or from any reserve set aside from profits which the directors determine is no longer needed. With the sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any other fund or account which can be authorised for this purpose in accordance with the Companies Law.

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

IV – 16

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the board may further resolve either (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the board may think fit. The Company may also upon the recommendation of the board by an ordinary resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, or in the case of joint holders, addressed to the holder whose name stands first in the register of the Company in respect of the shares at his address as appearing in the register or addressed to such person and at such addresses as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared the board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the board and shall revert to the Company.

No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company.

IV – 17

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(n) Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. Votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy.

(o) Call on shares and forfeiture of shares

Subject to the Articles and to the terms of allotment, the board may from time to time make such calls upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by installments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding twenty per cent. (20%) per annum as the board may agree to accept from the day appointed for the payment thereof to the time of actual payment, but the board may waive payment of such interest wholly or in part. The board may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate (if any) as the board may decide.

If a member fails to pay any call on the day appointed for payment thereof, the board may serve not less than fourteen (14) clear days’ notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event of non payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

IV – 18

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with (if the board shall in its discretion so require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding twenty per cent. (20%) per annum as the board determines.

(p) Inspection of register of members

Pursuant to the Articles the register and branch register of members shall be open to inspection for at least two (2) hours on every business day by members without charge, or by any other person upon a maximum payment of HK$2.50 or such lesser sum specified by the board, at the registered office or such other place at which the register is kept in accordance with the Companies Law or, upon a maximum payment of HK$1.00 or such lesser sum specified by the board, at the Registration Office (as defined in the Articles), unless the register is closed in accordance with the Articles.

(q) Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment of a chairman.

Save as otherwise provided by the Articles the quorum for a general meeting shall be two members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one third in nominal value of the issued shares of that class.

IV – 19

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

A corporation being a member shall be deemed for the purpose of the Articles to be present in person if represented by its duly authorised representative being the person appointed by resolution of the directors or other governing body of such corporation to act as its representative at the relevant general meeting of the Company or at any relevant general meeting of any class of members of the Company.

(r) Rights of the minorities in relation to fraud or oppression

There are no provisions in the Articles relating to rights of minority shareholders in relation to fraud or oppression. However, certain remedies are available to shareholders of the Company under Cayman law, as summarised in paragraph 3(f) of this Appendix.

(s) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares (i) if the Company shall be wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the shares held by them respectively and (ii) if the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively.

If the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.

IV – 20

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(t) Untraceable members

Pursuant to the Articles, the Company may sell any of the shares of a member who is untraceable if (i) all cheques or warrants in respect of dividends of the shares in question (being not less than three in total number) for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, the Company has not during that time received any indication of the existence of the member; and (iii) the Company has caused an advertisement to be published in accordance with the rules of the Designated Stock Exchange (as defined in the Articles) giving notice of its intention to sell such shares and a period of three (3) months, or such shorter period as may be permitted by the Designated Stock Exchange (as defined in the Articles), has elapsed since the date of such advertisement and the Designated Stock Exchange (as defined in the Articles) has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds, it shall become indebted to the former member of the Company for an amount equal to such net proceeds.

(u) Subscription rights reserve

The Articles provide that to the extent that it is not prohibited by and is in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants.

3. CAYMAN ISLANDS COMPANY LAW

The Company is incorporated in the Cayman Islands subject to the Companies Law and, therefore, operates subject to Cayman law. Set out below is a summary of certain provisions of Cayman company law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of Cayman company law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar:

(a) Operations

As an exempted company, the Company’s operations must be conducted mainly outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share capital.

IV – 21

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(b) Share capital

The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the value of the premiums on those shares shall be transferred to an account, to be called the “share premium account”. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association in (a) paying distributions or dividends to members; (b) paying up unissued shares of the company to be issued to members as fully paid bonus shares; (c) the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Law); (d) writing-off the preliminary expenses of the company; (e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; and (f) providing for the premium payable on redemption or purchase of any shares or debentures of the company.

No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course business.

The Companies Law provides that, subject to confirmation by the Grand Court of the Cayman Islands (the “Court”), a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, by special resolution reduce its share capital in any way.

The Articles includes certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. The consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required.

IV – 22

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(c) Financial assistance to purchase shares of a company or its holding company

Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries, its holding company or any subsidiary of such holding company in order that they may buy Shares in the Company or shares in any subsidiary or holding company. Further, subject to all applicable laws, the Company may give financial assistance to a trustee for the acquisition of Shares in the Company or shares in any such subsidiary or holding company to be held for the benefit of employees of the Company, its subsidiaries, any holding company of the Company or any subsidiary of any such holding company (including salaried Directors).

There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company to another person for the purchase of, or subscription for, its own or its holding company’s shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and acting in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. Such assistance should be on an arm’s-length basis.

(d) Purchase of shares and warrants by a company and its subsidiaries

Subject to the provisions of the Companies Law, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares. However, if the articles of association do not authorise the manner of purchase, a company cannot purchase any of its own shares unless the manner of purchase has first been authorised by an ordinary resolution of the company. At no time may a company redeem or purchase its shares unless they are fully paid. A company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any member of the company holding shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.

IV – 23

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

A company is not prohibited from purchasing and may purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific provision enabling such purchases and the directors of a company may rely upon the general power contained in its memorandum of association to buy and sell and deal in personal property of all kinds.

Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares.

(e) Dividends and distributions

With the exception of section 34 of the Companies Law, there is no statutory provisions relating to the payment of dividends. Based upon English case law, which is regarded as be persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see paragraph 2(m) above for further details).

(f) Protection of minorities

The Cayman Islands courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company, and (c) an irregularity in the passing of a resolution which requires a qualified (or special) majority.

In the case of a company (not being a bank) having a share capital divided into shares, the Court may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the Court shall direct.

IV – 24

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

Any shareholder of a company may petition the Court which may make a winding up order if the Court is of the opinion that it is just and equitable that the company should be wound up or, as an alternative to a winding up order, (a) an order regulating the conduct of the company’s affairs in the future, (b) an order requiring the company to refrain from doing or continuing an act complained of by the shareholder petitioner or to do an act which the shareholder petitioner has complained it has omitted to do, (c) an order authorising civil proceedings to be brought in the name and on behalf of the company by the shareholder petitioner on such terms as the Court may direct, or (d) an order providing for the purchase of the shares of any shareholders of the company by other shareholders or by the company itself and, in the case of a purchase by the company itself, a reduction of the company’s capital accordingly.

Generally claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the company’s memorandum and articles of association.

(g) Management

The Companies Law contains no specific restrictions on the power of directors to dispose of assets of a company. However, as a matter of general law, every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(h) Accounting and auditing requirements

A company shall cause proper books of account to be kept with respect to (i) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company; and (iii) the assets and liabilities of the company.

Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

IV – 25

APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(i) Exchange control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

(j) Taxation

Pursuant to section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Cabinet:

(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation shall apply to the Company or its operations; and
(2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on or in respect of the shares, debentures or other obligations of the Company.

The undertaking for the Company is for a period of twenty years from 14 September,

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties.

(k) Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands.

(l) Loans to directors

There is no express provision in the Companies Law prohibiting the making of loans by a company to any of its directors.

IV – 26

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(m) Inspection of corporate records

Members of the Company will have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the Company. They will, however, have such rights as may be set out in the Company’s Articles.

An exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as the directors may, from time to time, think fit. There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies of the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection.

(n) Winding up

A company may be wound up compulsorily by order of the Court; voluntarily; or, under supervision of the Court. The Court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the Court, just and equitable to do so.

A company may be wound up voluntarily when the members so resolve in general meeting by special resolution, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum or articles expires, or the event occurs on the occurrence of which the memorandum or articles provides that the company is to be dissolved, or, the company does not commence business for a year from its incorporation (or suspends its business for a year), or, the company is unable to pay its debts. In the case of a voluntary winding up, such company is obliged to cease to carry on its business from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above.

IV – 27

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

For the purpose of conducting the proceedings in winding up a company and assisting the Court, there may be appointed one or more than one person to be called an official liquidator or official liquidators; and the Court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such office, the Court shall declare whether any act hereby required or authorised to be done by the official liquidator is to be done by all or any one or more of such persons. The Court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the Court. A person shall be qualified to accept an appointment as an official liquidator if he is duly qualified in terms of the Insolvency Practitioners Regulations. A foreign practitioner may be appointed to act jointly with a qualified insolvency practitioner.

In the case of a members’ voluntary winding up of a company, the company in general meeting must appoint one or more liquidators for the purpose of winding up the affairs of the company and distributing its assets. A declaration of solvency must be signed by all the directors of a company being voluntarily wound up within twenty-eight (28) days of the commencement of the liquidation, failing which, its liquidator must apply to Court for an order that the liquidation continue under the supervision of the Court.

Upon the appointment of a liquidator, the responsibility for the company’s affairs rests entirely in his hands and no future executive action may be carried out without his approval.

A liquidator’s duties are to collect the assets of the company (including the amount (if any) due from the contributories), settle the list of creditors and, subject to the rights of preferred and secured creditors and to any subordination agreements or rights of set-off or netting of claims, discharge the company’s liability to them (pari passu if insufficient assets exist to discharge the liabilities in full) and to settle the list of contributories (shareholders) and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares.

As soon as the affairs of the company are fully wound up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. At least twenty-one (21) days before the final meeting, the liquidator shall send a notice specifying the time, place and object of the meeting to each contributory in any manner authorised by the company’s articles of association and published in the Gazette in the Cayman Islands.

IV – 28

APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW

(o) Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing seventy-five per cent. (75%) in value of shareholders or class of shareholders or creditors, as the case may be, as are present at a meeting called for such purpose and thereafter sanctioned by the Court. Whilst a dissenting shareholder would have the right to express to the Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Court is unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management.

(p) Compulsory acquisition

Where an offer is made by a company for the shares of another company and, within four (4) months of the offer, the holders of not less than ninety per cent. (90%) of the shares which are the subject of the offer accept, the offeror may at any time within two (2) months after the expiration of the said four (4) months, by notice in the prescribed manner require the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply to the Court within one (1) month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.

(q) Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the court to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime).

4. GENERAL

Conyers Dill & Pearman, the Company’s special legal counsel on Cayman Islands law, have sent to the Company a letter of advice summarising certain aspects of Cayman Islands company law. This letter, together with a copy of the Companies Law, is available for inspection as referred to in the paragraph headed “Documents available for inspection” in Appendix [•]. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice.

IV – 29

APPENDIX V

STATUTORY AND GENERAL INFORMATION

A. FURTHER INFORMATION ABOUT THE COMPANY

1. Incorporation

The Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 27 August 2010. The Company has established a principal place of business in Hong Kong at Room 1106, 11/F., Mass Mutual Tower, 38 Gloucester Road, Wanchai, Hong Kong and was registered as a non-Hong Kong company in Hong Kong under Part XI of the Companies Ordinance on 4 November 2010 . Loong & Yeung has been appointed as the authorised representative of the Company for the acceptance of service of process and notices on behalf of the Company in Hong Kong. As the Company is incorporated in the Cayman Islands, it operates subject to the Cayman Islands law and to its constitution, which comprises the Memorandum and the Articles. A summary of various provisions of its constitution and relevant aspects of the Companies Law is set out in Appendix IV to this document.

2. Changes in share capital of the Company

The authorised share capital of the Company as at the date of its incorporation was HK$ 390,000 divided into 39,000,000 Shares of par value of HK$ 0.01 each.

On 27 August 2010 , one fully paid Share was subscribed by Codan Trust Company (Cayman) Limited, the subscriber, and such share was transferred to Ms. Au for a consideration of HK$0.01 on the same date. On 14 January 2011 , such share was transferred to BVI Holding Company, a company incorporated in the BVI and wholly and beneficially owned by Ms. Au at a consideration of HK$0.01.

On [ •], the authorised share capital of the Company was increased from HK$ 390,000 to HK$ 50,000,000 by creation of additional 4,961,000,000 Shares which rank pari passu in all respects with the Shares then in issue.

On [•], pursuant to a sale and purchase agreement the Company allotted and issued [•] Shares, credited as fully paid, to BVI Holding Company in consideration of the transfer of the entire issued share capital of Cheong Lee from Ms. Au to Cheong Lee BVI. Immediately after the share transfer, the BVI Holding Company held an aggregate of 750,000,000 Shares, being the then entire issued share capital of the Company, and Cheong Lee became a whollyowned subsidiary of Cheong Lee BVI.

Assuming the [•] becomes unconditional and immediately after the completion of the [•], but taking no account of any Shares which may be issued under the Pre-[•] Share Option Scheme and the Share Option Scheme, the authorised share capital of the Company will be HK$ 50,000,000 divided into 5,000,000,000 Shares and the issued share capital of the Company will be HK$ [•] divided into [•] Shares, all fully paid or credited as fully paid, with [•] Shares remaining unissued.

V – 1

APPENDIX V

STATUTORY AND GENERAL INFORMATION

Other than pursuant to the general mandate to issue Shares referred to in the paragraph headed “Written resolutions of the sole Shareholder passed on [•]” in this Appendix and pursuant to the Pre-[•] Share Option Scheme and the Share Option Scheme, the Company does not have any present intention to issue any part of the authorised but unissued share capital of the Company and, without the prior approval of the Shareholders at general meeting, no issue of Shares will be made which would effectively alter the control of the Company.

Save as disclosed herein and in the paragraph headed “Written resolutions of the sole Shareholder passed on [•] 201 1”, there has been no alteration in the share capital of the Company since the date of its incorporation.

3. Written resolutions of the sole Shareholder passed on [•] 201 1

On [•], resolutions in writing were passed by the sole Shareholder pursuant to which, among other things:

(a) the Company approved and adopted the Articles, the terms of which are summarised in Appendix IV to this document;
(b) the Company approved and adopted the Memorandum, the terms of which are summarised in Appendix IV to this document;
(c) (i) [•];

V – 2

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(ii) the rules of the Pre-[•] Share Option Scheme , the principal terms of which are set out in the paragraph headed “ Pre-[•] Share Option Scheme” in th is Appendix, were approved and adopted, and the Directors were authorised, at their absolute discretion, subject to the terms and conditions of the Pre-[•] Share Option Scheme, to grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares pursuant to the exercise of subscription rights under any options which may be granted under the Pre-[•] Share Option Scheme and to take all such steps as they consider necessary or desirable to implement the Pre[•] Share Option Scheme;
( iii) the rules of the Share Option Scheme, the principal terms of which are set out in the paragraph headed “Share Option Scheme” in this Appendix, were approved and adopted and the Directors were authorised, at their absolute discretion, subject to the terms and conditions of the Share Option Scheme, to grant options to subscribe for Shares thereunder and to allot, issue and deal with the Shares pursuant to the exercise of subscription rights attaching to any options which may be granted under the Share Option Scheme and to take all such actions as they consider necessary or desirable to implement the Share Option Scheme; and
(iv) a general unconditional mandate was given to the Directors to allot, issue and deal with, otherwise than by way of rights issue or an issue of Shares pursuant to the exercise of any options which may be granted under the Pre-[•] Share Option Scheme, the Share Option Scheme or any other share option scheme of the Company or any Shares allotted and issued in lieu of the whole or part of a dividend on Shares in accordance with the Articles or pursuant to a specific authority granted by the Shareholders in general meeting or pursuant to the [•], Shares with an aggregate nominal value not exceeding 20% of the aggregate nominal value of the share capital of the Company in issue immediately following completion of the [•] but excluding any Shares which may be issued under or pursuant to the exercise of the options which may be granted under the Pre-[•] Share Option Scheme and the Share Option Scheme, such mandate to remain in effect until whichever is the earliest of:
(1) the conclusion of the next annual general meeting of the Company; or

V – 3

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(2) the expiration of the period within which the next annual general meeting of the Company is required by the Articles or the Companies Law or any other applicable laws of the Cayman Islands to be held; or
(3) the time when such mandate is revoked or varied by an ordinary resolution of the Shareholders in general meeting ;
(v) a general unconditional mandate was given to the Directors authorizing them to exercise all powers of the Company to repurchase on the Stock Exchange or on any other stock exchange on which the securities of the Company may be listed and which is recognised by the SFC and the Stock Exchange for this purpose such number of Shares as will represent up to 10% of the aggregate of the nominal value of the share capital of the Company in issue immediately following completion of the [•] but excluding any Shares which may be issued under or pursuant to the exercise of the options which may be granted under the Pre-[•] Share Option Scheme and the Share Option Scheme, such mandate to remain in effect until whichever is the earliest of:
(1) the conclusion of the next annual general meeting of the Company; or
(2) the expiration of the period within which the next annual general meeting of the Company is required by the Articles or the Companies Law or any other applicable laws of the Cayman Islands to be held; or
(3) the time when such mandate is revoked or varied by an ordinary resolution of the Shareholders in general meeting ; and

V – 4

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(vi) the general unconditional mandate mentioned in sub-paragraph (iv) above was extended by the addition to the aggregate nominal value of the share capital of the Company which may be allotted or agreed to be allotted by the Directors pursuant to such general mandate of an amount representing the aggregate nominal value of the share capital of the Company repurchased by the Company pursuant to the mandate to repurchase Shares referred to in sub-paragraph (v) above, provided that such extended amount shall not exceed 10% of the aggregate nominal value of the share capital of the Company in issue immediately following completion of the [•] but excluding any Shares which may be issued under or pursuant to the exercise of the options which may be granted under the Pre-[•] Share Option Scheme and the Share Option Scheme.

4. Corporate reorganisation

In preparing for [•], the companies comprising the Group underwent the Reorganisation to rationalise the corporate structure of the Group and the Company became the holding company of the Group. The Reorganisation involved the following:

(a) The Company was incorporated on 27 August 2010 in the Cayman Islands with Ms. Au being its sole Shareholder. At the time of its incorporation, 1 fully paid Share was issued to the subscriber which transferred the same Share at par value to Ms. Au on the same day.
(b) Cheong Lee BVI was incorporated on 15 September 2010 in BVI as an intermediate holding company. On 14 October 2010, 1 share of US$1.00, representing its entire issued share capital was issued and allotted to the Company.
(c) BVI Holding Company was incorporated on 22 April 2010 in the BVI. On 4 June 2010, 1 share of US$1.00 , representing its entire issued share capital was issued and allotted to Ms. Au. On 14 January 2011, Ms. Au transferred the one Share in the Company to BVI Holding Company at a nominal consideration of HK$0.01.
(d) On [•] 201 1, Cheong Lee BVI acquired the entire issued share capital of Cheong Lee from Ms. Au. As consideration, the Company, at the direction of Ms. Au, issued and allotted [•] Shares to BVI Holding Company credited as fully paid.

V – 5

APPENDIX V

STATUTORY AND GENERAL INFORMATION

B. FURTHER INFORMATION ABOUT THE BUSINESS

Summary of material contracts

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by the Company within the two years preceding the date of this document and are or may be material in relation to the business of the Company taken as a whole:

( a) a deed of non-competition undertaking dated [•] and executed by Ms. Au, BVI Holding Company, Mr. Kwok Kin Chung , Mr. Lau Ka Lung, Ali , Mr. Lau Kin Hon and Ms. Yu in favour of the Company (for itself and on behalf of its subsidiaries);
( b) a sale and purchase agreement dated [•] entered into between Ms. Au , Cheong Lee BVI and the Company, pursuant to which Ms. Au transferred 400,000 shares in Cheong Lee , representing the entire issued share capital of Cheong Lee , to Cheong Lee BVI at a consideration to be satisfied by the issue and allotment of [•] Shares by the Company, at the direction of Ms. Au, to BVI Holding Company credited as fully paid;
( c) an instrument of transfer dated [•] entered into between Ms. Au and Cheong Lee BVI, pursuant to which Ms. Au transferred 400,000 shares in Cheong Lee , representing the entire issued share capital of Cheong Lee , to Cheong Lee BVI, the consideration of which is set out in ( b) above;
( d) bought and sold notes dated [•] made between Ms. Au as transferor and Cheong Lee BVI as transferee for the transfer of 400,000 shares in Cheong Lee, the consideration of which is set out in ( b) above;
( e) [•]; and
( f) a deed of indemnity dated [•] and executed by BVI Holding Company and its beneficial owner , namely Ms. Au, in favour of the Company (for itself and on behalf of its subsidiaries) containing indemnities referred to in the paragraph headed “ Indemnities” in the section headed “Other information” of this appendix .

V – 6

APPENDIX V

STATUTORY AND GENERAL INFORMATION

C. INTELLECTUAL PROPERTY RIGHTS OF THE GROUP

(a) Trade marks

As at the Latest Practicable Date, the Group has applied for registration of the following trade mark with the relevant authorities in respect of the class of goods and services specified below:

	Class	Place of	Name of	Application	Date of
Trademark	(Note 1)	Registration	Applicant	Number	Application
	36	Hong Kong	Cheong Lee	301789895	15 December 2010
	36	Hong Kong	Cheong Lee	301789895	15 December 2010
(Note 2)
	36	Hong Kong	the Company	301827946	7 February 2011
	36	Hong Kong	the Company	301827946	7 February 2011
(Note 2)
	36	Hong Kong	the Company	301837431	18 February 2011
	36	Hong Kong	the Company	301837431	18 February 2011
(Note 2)

Note:

The relevant specifications of goods or services of the above trademark in class 36 include insurance; financial affairs, monetary affairs; real estate affairs.
Colour trademark

(b) Domain name

As at the Latest Practicable Date, the following member of the Group has registered the following domain name:

Registrant Domain Name Registration Date Expiry Date Cheong Lee cheongleesec.com.hk 30 July 2007 30 July 2011 (Note) Note:

The Group intends to apply for renewal of the domain name upon expiry.

V – 7

APPENDIX V STATUTORY AND GENERAL INFORMATION

D. INFORMATION ON THE SUBSIDIARIES OF THE GROUP

(i)	Name	Cheong Lee BVI
	Date of Incorporation	15 September 2010
	Place of Incorporation	BVI
	Nature	Investment holding
	Authorised Capital	US$50,000
	Issued Capital	US$1
	Shareholder	the Company
(ii)	Name	Cheong Lee
	Date of Incorporation	10 November 2004
	Place of Incorporation	Hong Kong
	Authorised Capital	HK$40,000,000
	Issued Capital	HK$40,000,000
	Shareholder	Cheong Lee BVI
	Scope of Business	General Trading

V – 8

APPENDIX V STATUTORY AND GENERAL INFORMATION

E. DISCLOSURE OF INTERESTS

1. Interest of Substantial Shareholders in Shares and Underlying Shares of the Company

So far as the Directors are aware, immediately following the completion of the [•], but taking no account of any Shares which may be issued and allotted upon the exercise of any options which may be granted under the Share Option Schemes or repurchased by the Company pursuant to the mandates as referred to in the section headed “Further information about the Company” in this Appendix, the persons (other than the Directors or chief executive of the Company) who have interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which are required to be recorded in the register of the Company required to be kept under section 336 of the SFO or who are directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group will be as follows:

Long position in Shares

			Approximate
		Number of	percentage of
Name	Capacity	Shares	shareholding
		(Note )
Ms. Au	Interest in controlled	[•]	[•] %
	corporation (Note)
BVI Holding Company	Beneficial owner	[•]	[•] %

Note: Ms. Au beneficially owned 100% interest in the BVI Holding Company. Therefore, Ms. Au was deemed, or taken to be, interested in the [•] Shares held by the BVI Holding Company under the SFO and their interests duplicate with each other.

V – 9

APPENDIX V

STATUTORY AND GENERAL INFORMATION

2. Interests of Directors in the Shares, Underlying Shares and Debentures of the Company and its associated corporations

The Directors confirmed that immediately following completion of the [•] and taking no account of any Shares which may be allotted and issued upon the exercise of any options which may be granted under the Share Option Schemes or repurchased by the Company pursuant to the mandates as referred to in the section headed “Further information about the Company” in this Appendix, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying Shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which, once the Shares are listed, will have to be notified to the Company and the Stock Exchange under Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO) or which will be required, pursuant to section 352 of the SFO, to be entered in the register as referred to therein, or pursuant to [•] relating to securities transactions by the Directors required to be notified to the Company and the Stock Exchange, will be as follows:

Long position in underlying Shares or equity derivatives of the Company

		Number of	Approximate
		underlying	percentage of
Name	Capacity	Shares	shareholding
		(Note )
Kwok Kin Chung	Beneficial owner	[•]	[•]%
Lau Ka Lung Ali	Beneficial owner	[•]	[•]%
Lau Kin Hon	Beneficial owner	[•]	[•]%
Yu Linda	Beneficial owner	[•]	[•]%

Note : These represented the underlying Shares under the options conditionally granted to each of the above Directors under the Pre-[•] Share Option Scheme.

V – 10

APPENDIX V

STATUTORY AND GENERAL INFORMATION

3. Particulars of service contracts

Each of the executive Directors has entered into a service contract with the Company. The terms and conditions of each of such service contracts are similar in all material respects. The service contracts are initially for a fixed term of three years commencing from [•] and will continue thereafter until terminated by not less than three months written notice . Each of these executive Directors is entitled to the respective basic salary set out below. An executive Director is required to abstain from voting and is not counted in the quorum in respect of any resolution of the Directors regarding the amount of the monthly salary and the discretionary bonus payable to him. The current basic annual salaries of the executive Directors are as follows:

Name	Amount
Mr. Kwok Kin Chung	HK$[•]
Mr. Lau Ka Lung Ali	HK$[•]
Mr. Lau Kin Hon	HK$[•]
Ms. Linda Yu	HK$[•]

Each of the independent non-executive Directors has entered into a service contract with the Company. The terms and conditions of each of such service contracts are similar in all material respects. Each of the independent non-executive Directors are appointed with an initial term of three years commencing from [•] subject to termination in certain circumstances as stipulated in the relevant service contracts. The annual remunerations payable to the independent non-executive Director under each of the service contracts are as follows:

Name	Amount
Mr. Au Yeung Tai Hong Rorce	HK$[•]
Mr. Chee Kwok Wing Waymond	HK$[•]
Ms. Choy Wing Man	HK$[•]

Save as disclosed above, none of the Directors has or is proposed to have any service agreement with the Company or any of its subsidiaries (other than contracts expiring or determinable by the employer within one year without payment of compensation other than statutory compensation).

V – 11

STATUTORY AND GENERAL INFORMATION

APPENDIX V

Remuneration of Directors

The aggregate remuneration paid by the Company to the Directors in respect of the two years ended 31 March 2009 and 31 March 2010 were HK$ 1.2 million and HK$ 0.9 million respectively.

Pursuant to the current arrangements, it is estimated that an aggregate amount of approximately HK$ 1.5 million will be paid to the Directors as basic salary for the year ending 31 March 2011.

The Company’s policy concerning the remuneration of the Directors is that the amount of remuneration is determined by reference to the relevant Director’s experience, workload and the time devoted to the Group.

4. Agency fees or commissions received

Save for (i) [•]; (ii) [•]; and (iii) [•], none of our Directors or the experts named in the paragraph headed “Consents of experts” in this Appendix had received any agency fee or commissions from the Group within the two years preceding date of this document.

5. Related party transactions

Save as disclosed in nots 34 of the Accountant’s Report set out in Appendix I to this document and other parts of this document, the Group has not engaged in any dealings with the Directors or their associates (as defined in relevant rules) during the two years immediately preceding the date of this document.

V – 12

APPENDIX V

STATUTORY AND GENERAL INFORMATION

6. Disclaimers

Save as disclosed in this document:

(a) taking no account of any Shares which may be issued upon the exercise of options which may be granted under the Pre-[•] Share Option Scheme and the Share Option Scheme or repurchased by the Company pursuant to the mandates as referred to in the section headed “Further information about the Company” in this Appendix, the Directors are not aware of any person (not being a Director or chief executive of the Company) who will, immediately following the completion of [•], have an interest or short position in the Shares or underlying Shares of the Company which will have to be notified to the Company and the Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or who will be, directly or indirectly, interested in 10% or more of the nominal value or any class of share capital carrying rights to vote in all circumstances at general meetings of the Company;
(b) none of the Directors or chief executive of the Company will have an interest or short position in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which will have to be notified to the Company and [•], in each case once [•];
(c) none of the Directors or the experts named in the paragraph headed “Qualifications of experts” of this Appendix is interested in the promotion of the Company, or in any assets which have been within the two years immediately preceding the issue of this document acquired or disposed of by or leased to the Company, or are proposed to be acquired or disposed of by or leased to the Company;
(d) none of the Directors or the experts named in the paragraph headed “Qualifications of experts” of this Appendix is materially interested in any contract or arrangement subsisting at the date of this document which is significant in relation to the business of the Company taken as a whole;
(e) none of the Directors or the experts named in the paragraph headed “Qualifications of experts” of this Appendix has any shareholding in the Company or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in the Company;

V – 13

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(f) none of the Directors has any existing or proposed service contracts with the Company (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)); and
(g) no remuneration or other benefits in kind have been paid by the Company to any Director since the date of incorporation of the Company, nor are any remuneration or benefits in kind payable by the Company to any Director in respect of the current financial year under any arrangement in force as at the Latest Practicable Date.

F. I. PRE-[•] SHARE OPTION SCHEME

Summary of terms

The purpose of the Pre-[•] Share Option Scheme is to recognise the contribution to the Group by certain executive directors and employees of the members of the Group. The principal terms of the Pre-[•] Share Option Scheme, approved by written resolutions of the sole Shareholder passed on [•] 201 1, are substantially the same as the terms of the Share Option Scheme except for the following:

(a) the purpose of the Pre-[•] Share Option Scheme is to aid the Company in retaining key and senior employees of the Group;
(b) the total number of Shares subject to the Pre-[•] Share Option Scheme is [•], representing (i) approximately [•]% of the total issued shares of the Company immediately upon completion of [•] (without taking into account any Shares which may be allotted and issued upon the exercise of any options which have been granted under the Pre-[•] Share Option Scheme or which may be granted under the Share Option Scheme); and (ii) approximately [•]% of the total issued share capital of the Company immediately upon completion of [•] and assuming that all options granted under the Pre-[•] Share Option Scheme are exercised at the same time (without taking into account any Shares which may be allotted and issued upon the exercise of any option which may be granted under the Share Option Scheme);
(c) the subscription price for the Shares under the Pre-[•] Share Option Scheme equals to [•];

V – 14

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(d) subject to the following vesting periods, any option granted under the Pre-[•] Share Option Scheme will be exercisable commencing on the day falling on the first anniversary of [•] and ending on the day immediately before the third anniversary of [•]. All holders of options granted under the Pre-[•] Share Option Scheme may only exercise their options in the following manner:

Maximum number of shares under the option exercisable

Period for exercise of the relevant option

A maximum of [•] Shares under On or after the date falling on the the Options granted first anniversary of [•] to the date to him, or if the number of immediately before the second the Shares under the Options anniversary of [•] granted to him is less than [•], his maximum entitlements under the Options granted to him The remaining Shares, On or after the date falling on if any, under the Options the second anniversary of granted to him [•] to the date immediately before the third anniversary of [•]

All the options granted under the Pre-[•] Share Option Scheme will not be exercisable prior to the first anniversary of [•]. Outstanding and unexercised options at the end of each vesting period may be rolled over to the next vesting period and exercisable during the option period.

(e) the Pre-[•] Share Option Scheme will remain in force for a period commencing on [•] 201 1, being the date on which the Pre-[•] Share Option Scheme is adopted by the sole Shareholder and ending on the day immediately prior to [•], after which period no further options will be granted thereunder but in all other respects the provisions of the Pre-[•] Share Option Scheme shall remain in full force and effect to the exercise of any options granted.

All options were conditionally granted to the grantees on [•] 201 1.

V – 15

STATUTORY AND GENERAL INFORMATION

APPENDIX V

Outstanding options granted under the Pre-[•] Share Option Scheme

As at the Latest Practicable Date, options to subscribe for an aggregate of [•] Shares (representing approximately [•]% of the total issued share capital of the Company immediately upon completion of [•] (without taking into account any Shares which may be allotted and issued upon the exercise of any options which have been granted under the Pre-[•] Share Option Scheme or which may be granted under the Share Option Scheme)) have been conditionally granted by the Company under the Pre-[•] Share Option Scheme for a consideration HK$ [•] per option. Particulars of the options granted under the Pre-[•] Share Option Scheme to employees and executive directors of the members of the Group are set out below. Save as disclosed below, no directors, substantial shareholders or other connected persons of the Company or any of its subsidiaries or their respective associates have been granted options under the Pre-[•] Share Option Scheme.

Options to subscribe for an aggregate of [•] Shares were conditionally granted to the following grantees on [•] 201 1 under the Pre-[•] Share Option Scheme:

			Approximate
			percentage of
			issued share
			capital of
			the Company
		No. of	immediately
Name and position of		Shares subject	after
grantee in the Group	Address	to the option	[•]
Directors
Lau Ka Lung Ali	Flat C, 34th Floor, Block	[•]	[•]%
Executive Director	2, 2 King San Path,
	Kingston Terrace,
	Tuen Mun,
	New Territories,
	Hong Kong
Yu Linda	Flat C, 18th Floor,	[•]	[•]%
Executive Director	Cathay Lodge
	125 Wanchai Road,
	Hong Kong
Lau Kin Hon	Flat A, 3rd Floor,	[•]	[•]%
Executive Director	Block 3
	Braemar Hill
	Mansions, 19
	Braema r Hill Road,
	North Point, Hong
	Kong

V – 16

APPENDIX V

STATUTORY AND GENERAL INFORMATION

			Approximate
			percentage of
			issued share
			capital of
			the Company
		No. of	immediately
Name and position of		Shares subject	after
grantee in the Group	Address	to the option	[•]
Kwok Kin Chung	2nd Floor,	[•]	[•]%
Executive Director	37 Tin Liu New
	Village
	Pak Lam Road,
	Ma Wan, New
	Territories
	Hong Kong
Employees
Au Nim Bing (Note)	13B, Tower 1,	[•]	[•]%
Human resources &	Residence Bel-Air
administration	Pok Fu Lam, Hong
manager	Kong
Lee Kit Fong Casey	G/F, 19H Hang Hau	[•]	[•]%
Assistant settlement	Village
manager	Tseung Kwan O
	New Territories,
	Hong Kong
Chan Kam Wah	Flat C, 20/F, Block 34	[•]	[•]%
Company secretary	Laguna City, Lam Tin
and finance manager	Kowloon, Hong Kong
Ho Ka Huen	20, 19/F Man Wah	[•]	[•]%
Senior dealer	Building
	Man Wu Street
	Jordan, Hong Kong
Lam Yin Fun	Room 1013	[•]	[•]%
Senior accounts	Lei Chak House
clerk	Ap Lei Chau Estate
	Hong Kong
Total		[•]	[•]%

Note : Ms. Au Nim Bing is the sister of Ms. Au, the controlling shareholder of the Company.

V – 17

APPENDIX V

STATUTORY AND GENERAL INFORMATION

If all options under the Pre-[•] Share Option Scheme are exercised, this would have a dilution effect on the shareholdings of the Shareholders of approximately [•]% and a dilution effect of approximately [•]% on earnings per Share. However, as the options are exercisable for a period of up to the third anniversary of [•], any such dilution and impact on earnings per Share will be affected for several years.

F. II. SHARE OPTION SCHEME

The Company has conditionally adopted the Share Option Scheme on [•] 201 1. The following is a summary of the principal terms of the Share Option Scheme but does not form part of, nor was it intended to be, part of the Share Option Scheme nor should it be taken as affecting the interpretation of the rules of the Share Option Scheme:

(a) Definitions

For the purpose of this section, the following expressions have the meanings set out below unless the context requires otherwise:

“Adoption Date”	[•], the date on which the Share Option Scheme is
	conditionally adopted by the Shareholders by way of
	written resolution
“Board”	the board of Directors or a duly authorised
	committee of the board of Directors
“Group”	the Company and any entity in which the Company,
	directly or indirectly, holds any equity interest
“Scheme Period”	the period commencing on the Adoption Date and
	expiring at the close of business on the business day
	immediately preceding the tenth anniversary thereof

V – 18

STATUTORY AND GENERAL INFORMATION

APPENDIX V

(b) Summary of terms

The following is a summary of the principal terms of the rules of the Share Option Scheme conditionally adopted by the written resolutions of the Shareholders passed on [•]:

(i) Purpose of the Share Option Scheme

The purpose of the Share Option Scheme is to attract and retain the best available personnel, to provide additional incentive to employees (full-time and part-time), directors, consultants, advisers, distributors, contractors, suppliers, agents, customers, business partners and service providers of the Group and to promote the success of the business of our Group .

(ii) Who may join and basis of eligibility

The Board may, at its absolute discretion and on such terms as it may think fit, grant any employee (full-time or part-time), director, consultant or adviser of our Group, or any substantial shareholder of our Group, or any distributor, contractor, supplier, agent, customer, business partner or service provider of our Group, options to subscribe at a price calculated in accordance with paragraph (iii) below for such number of Shares as it may determine in accordance with the terms of the Share Option Scheme.

The basis of eligibility of any participant to the grant of any option shall be determined by the Board (or as the case may be, the independent non-executive Directors) from time to time on the basis of his contribution or potential contribution to the development and growth of the Group.

(iii) Price of Shares

The subscription price of a Share in respect of any particular option granted under the Share Option Scheme shall be a price solely determined by the Board and notified to a participant and shall be at least the higher of: (i) [•]; (ii) [•]; and (iii) the nominal value of a Share on the date of grant of the option .

V – 19

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(iv) Grant of options and acceptance of offers

An offer for the grant of options must be accepted within seven days inclusive of the day on which such offer was made. The amount payable by the grantee of an option to our Company on acceptance of the offer for the grant of an option is HK$ [•].

(v) Maximum number of Shares

(aa) subject to sub-paragraph (bb) and (cc) below, the maximum number of Shares issuable upon exercise of all options to be granted under the Share Option Scheme and any other share option schemes of the Company as from the Adoption Date (excluding, for this purpose, Shares issuable upon exercise of options which have been granted but which have lapsed in accordance with the terms of the Share Option Scheme or any other share option schemes of the Company) must not in aggregate exceed 10% of all the Shares in issue as at [•]. Therefore, it is expected that the Company may grant options in respect of up to [•] Shares (or such numbers of Shares as shall result from a subdivision or a consolidation of such [•] Shares from time to time) to the participants under the Share Option Scheme.
(bb) The 10% limit as mentioned above may be refreshed at any time by obtaining approval of the Shareholders in general meeting provided that the total number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and any other share option schemes of the Company must not exceed 10% of the Shares in issue as at the date of approval of the refreshed limit. Options previously granted under the Share Option Scheme and any other share option schemes of the Company (including those outstanding, cancelled or lapsed in accordance with the terms of the Share Option Scheme or any other share option schemes of the Company) will not be counted for the purpose of calculating the refreshed 10% limit. A circular must be sent to the Shareholders containing the information as required under the relevant rules in this regard.

V – 20

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(cc) the Company may seek separate approval of the Shareholders in general meeting for granting options beyond the 10% limit provided the options in excess of the 10% limit are granted only to grantees specifically identified by the Company before such approval is sought. In such event, the Company must send a circular to the Shareholders containing a generic description of such grantees, the number and terms of such options to be granted and the purpose of granting options to them with an explanation as to how the terms of the options will serve such purpose, such other information required under the relevant rules.
(dd) The aggregate number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of the Company must not exceed 30% of the Shares in issue from time to time. No options may be granted under the Share Option Scheme or any other share option schemes of the Company, if this will result in such 30% limit being exceeded.

(vi) Maximum entitlement of each participant

The total number of Shares issued and to be issued upon exercise of options granted to any participant (including both exercised and outstanding options) under the Share Option Scheme, in any 12-month period up to the date of grant shall not exceed 1% of the Shares in issue. Any further grant of options in excess of such limit must be separately approved by Shareholders in general meeting with such grantee and his associates abstaining from voting. In such event, the Company must send a circular to the Shareholders containing the identity of the grantee, the number and terms of the options to be granted (and options previously granted to such grantee), and all other information required under the relevant rules. The number and terms (including the subscription price) of the options to be granted must be fixed before the approval of the Shareholders and the date of the Board meeting proposing such further grant should be taken as the date of grant for the purpose of calculating the subscription price.

(vii) Grant of options to certain connected persons

(aa) Any grant of an option to a Director, chief executive or substantial shareholder of the Company (or any of their respective associates) must be approved by the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the option).

V – 21

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(bb) Where any grant of options to a substantial Shareholder or an independent non-executive Director (or any of their respective associates) will result in the total number of Shares issued and to be issued upon exercise of all options already granted and to be granted to such person under the Share Option Scheme and any other share option schemes of the Company (including options exercised, cancelled and outstanding) in any 12-month period up to and including the date of grant:
(i) representing in aggregate over 0.1% of the Shares in issue; and
(ii) having an aggregate value, based on the closing price of the Shares at the date of each grant, in excess of HK$5 million,

such further grant of options is required to be approved by Shareholders at a general meeting of the Company, with voting to be taken by way of poll. The Company shall send a circular to the Shareholders containing all information as required under the relevant rules in this regard. All connected persons of the Company shall abstain from voting (except where any connected person intends to vote against the proposed grant). Any change in the terms of an option granted to a substantial shareholder or an independent non-executive Director or any of their respective associates is also required to be approved by Shareholders in the aforesaid manner.

(viii) Restrictions on the times of grant of options

(aa) An offer for the grant of options may not be made after a price sensitive event of the Group has occurred or a price sensitive matter has been the subject of a decision until such price sensitive information has been announced pursuant to the requirements of relevant rules. In particular, no options may be granted during the period commencing one month immediately preceding the earlier of:
(i) the date of the Board meeting (such date to first be notified to the Stock Exchange in accordance with the relevant rules) for the approval of the Company’s results for any year, half-year, quarterly or other interim period (whether or not required under the relevant rules); and

V – 22

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(ii) the deadline for our Company to publish an announcement of the results for any year, or half-year under the relevant rules, or quarterly or other interim period (whether or not required under the relevant rules).
(bb) Further to the restrictions in paragraph (aa) above, no option may be granted on any day on which financial results of the Company are published and:
(i) during the period of 60 days immediately preceding the publication date of the annual results or, if shorter, the period from the end of the relevant financial year up to the publication date of the results; and
(ii) during the period of 30 days immediately preceding the publication date of the quarterly results and half-year results or, if shorter, the period from the end of the relevant quarterly or half-year period up to the publication date of the results.

(ix) Time of exercise of option

An option may be exercised in accordance with the terms of the Share Option Scheme at any time during a period as the Board may determine which shall not exceed ten years from the date of grant subject to the provisions of early termination thereof.

(x) Performance targets

Save as determined by the Board and provided in the offer of the grant of the relevant options, there is no performance target which must be achieved before any of the options can be exercised.

V – 23

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(xi) Ranking of Shares

The Shares to be allotted upon the exercise of an option will be subject to all the provisions of the Articles for the time being in force and will rank pari passu in all respects with the fully paid Shares in issue on the date of allotment and accordingly will entitle the holders to participate in all dividends or other distributions paid or made after the date of allotment other than any dividend or other distribution previously declared or recommended or resolved to be paid or made with respect to a record date which shall be on or before the date of allotment, save that the Shares allotted upon the exercise of any option shall not carry any voting rights until the name of the grantee has been duly entered on the register of members of the Company as the holder thereof.

(xii) Rights are personal to grantee

An option shall not be transferable or assignable and shall be personal to the grantee of the option.

(xiii) Rights on cessation of employment by death

In the event of the death of the grantee (provided that none of the events which would be a ground for termination of employment referred to in (xiv) below arises within a period of 3 years prior to the death, in the case the grantee is an employee at the date of grant), the legal personal representative(s) of the grantee may exercise the option up to the grantee’s entitlement (to the extent which has become exercisable and not already exercised) within a period of 12 months following his death provided that where any of the events referred to in (xvii), (xviii) and (xix) occurs prior to his death or within such period of 6 months following his death, then his personal representative(s) may so exercise the option within such of the various periods respectively set out therein.

V – 24

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(xiv) Rights on cessation of employment by dismissal

In the event that the grantee is an employee of the Group at the date of grant and he subsequently ceases to be an employee of the Group on any one or more of the grounds that he has been guilty of serious misconduct, or has committed an act of bankruptcy or has become insolvent or has made any arrangement or composition with his creditors generally, or has been convicted of any criminal offence involving his integrity or honesty or (if so determined by the Board) on any other ground on which an employer would be entitled to terminate his employment at common law or pursuant to any applicable laws or under the grantee’s service contract with the Group, his option shall lapse automatically (to the extent not already exercised) on the date of cessation of his employment with our Group.

(xv) Rights on cessation of employment for other reasons

In the event that the grantee is an employee of the Group at the date of grant and he subsequently ceases to be an employee of the Group for any reason other than his death or the termination of his employment on one or more of the grounds specified in (xiv) above, the option (to the extent not already exercised) shall lapse on the expiry of 3 months after the date of cessation of such employment (which date will be the last actual working day with the Company or the relevant member of the Group whether salary is paid in lieu of notice or not).

(xvi) Effects of alterations to share capital

In the event of any alteration in the capital structure of the Company whilst any option remains exercisable, whether by way of capitalization of profits or reserves, rights issue, consolidation, subdivision or reduction of the share capital of the Company (other than an issue of Shares as consideration in respect of a transaction to which any member of the Group is a party), such corresponding adjustments (if any) shall be made in the number of Shares subject to the option so far as unexercised; and/or the subscription prices, as the auditors of or independent financial adviser to the Company shall certify or confirm in writing (as the case may be) to the Board to be in their opinion fair and reasonable in compliance with the relevant provisions of the relevant rules, or any guideline or supplemental guideline issued by the Stock Exchange from time to time (no such certification is required in case of adjustment made on a capitalization issue), provided that any alteration shall give a grantee the same proportion of the issued share capital of the Company as that to which he was previously entitled, but no adjustment shall be made to the effect of which would be to enable a Share to be issued at less than its nominal value.

V – 25

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(xvii) Rights on a general offer

In the event of a general offer (whether by way of takeover offer or scheme of arrangement or otherwise in like manner) being made to all the Shareholders (or all such holders other than the offeror and/or any persons controlled by the offeror and/or any person acting in association or concert with the offeror) and such offer becoming or being declared unconditional, the grantee (or, as the case may be, his legal personal representative(s)) shall be entitled to exercise the option in full (to the extent not already exercised) at any time within 1 month after the date on which the offer becomes or is declared unconditional.

(xviii) Rights on winding-up

In the event a notice is given by the Company to the members to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall on the same date as or soon after it despatches such notice to each member of the Company give notice thereof to all grantees and thereupon, each grantee (or, as the case may be, his legal personal representative(s)) shall be entitled to exercise all or any of his options at any time not later than 2 business days prior to the proposed general meeting of the Company by giving notice in writing to the Company, accompanied by a remittance for the full amount of the aggregate subscription price for the Shares in respect of which the notice is given whereupon the Company shall as soon as possible and, in any event, no later than the business day immediately prior to the date of the proposed general meeting referred to above, allot the relevant Shares to the grantee credited as fully paid.

V – 26

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(xix) Rights on compromise or arrangement

In the event of a compromise or arrangement between the Company and the Shareholders or the creditors of the Company being proposed in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company or companies pursuant to the Companies Law, the Company shall give notice thereof to all the grantees (or, as the case may be, their legal personal representatives) on the same day as it gives notice of the meeting to the Shareholders or the creditors to consider such a compromise or arrangement and the options (to the extent not already exercised) shall become exercisable in whole or in part on such date not later than 2 business days prior to the date of the general meeting directed to be convened by the court for the purposes of considering such compromise or arrangement (“Suspension Date”), by giving notice in writing to the Company accompanied by a remittance for the full amount of the aggregate subscription price for the Shares in respect of which the notice is given whereupon the Company shall as soon as practicable and, in any event, no later than 3:00 p.m. on the business day immediately prior to the date of the proposed general meeting, allot and issue the relevant Shares to the grantee credited as fully paid. With effect from the Suspension Date, the rights of all grantees to exercise their respective options shall forthwith be suspended. Upon such compromise or arrangement becoming effective, all options shall, to the extent that they have not been exercised, lapse and determine. The Board shall endeavour to procure that the Shares issued as a result of the exercise of options hereunder shall for the purposes of such compromise or arrangement form part of the issued share capital of the Company on the effective date thereof and that such Shares shall in all respects be subject to such compromise or arrangement. If for any reason such compromise or arrangement is not approved by the court (whether upon the terms presented to the court or upon any other terms as may be approved by such court), the rights of grantees to exercise their respective options shall with effect from the date of the making of the order by the court be restored in full but only up to the extent not already exercised and shall thereupon become exercisable (but subject to the other terms of the Share Option Scheme) as if such compromise or arrangement had not been proposed by the Company and no claim shall lie against the Company or any of its officers for any loss or damage sustained by any grantee as a result of such proposal, unless any such loss or damage shall have been caused by the act, neglect, fraud or willful default on the part of the Company or any of its officers.

V – 27

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(xx) Lapse of options

An option shall lapse automatically on the earliest of:

(aa) the expiry of the period referred to in paragraph (ix) above;
(bb) the date on which the Board exercises the Company’s right to cancel, revoke or terminate the option on the ground that the grantee commits a breach of paragraph (xii);
(cc) the expiry of the relevant period or the occurrence of the relevant event referred to in paragraphs (xiii), (xv), (xvii), (xviii) or (xix) above;
(dd) subject to paragraph (xviii) above, the date of the commencement of the winding-up of the Company;
(ee) the occurrence of any act of bankruptcy, insolvency or entering into of any arrangements or compositions with his creditors generally by the grantee, or conviction of the grantee of any criminal offence involving his integrity or honesty;
(ff) where the grantee is only a substantial shareholder of any member of the Group, the date on which the grantee ceases to be a substantial shareholder of such member of the Group; or
(gg) subject to the compromise or arrangement as referred to in paragraph (xix) become effective, the date on which such compromise or arrangement becomes effective.

(xxi) Cancellation of options granted but not yet exercised

Any cancellation of options granted but not exercised may be effected on such terms as may be agreed with the relevant grantee, as the Board may in its absolute discretion sees fit and in manner that complies with all applicable legal requirements for such cancellation.

V – 28

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(xxii) Period of the Share Option Scheme

The Share Option Scheme will remain in force for a period of ten years commencing on the date on the Adoption Date and shall expire at the close of business on the business day immediately preceding the tenth anniversary thereof unless terminated earlier by the Shareholders in general meeting.

(xxiii) Alteration to the Share Option Scheme

(aa) The Share Option Scheme may be altered in any respect by resolution of the Board except that alterations of the provisions of the Share Option Scheme which alters to the advantage of the grantees of the options relating to matters governed by the relevant rules shall not be made except with the prior approval of the Shareholders in general meeting.
(bb) Any amendment to any terms of the Share Option Scheme which are of a material nature or any change to the terms of options granted, or any change to the authority of the Board in respect of alteration of the Share Option Scheme must be approved by Shareholders in general meeting except where the alterations take effect automatically under the existing terms of the Share Option Scheme.
(cc) Any amendment to any terms of the Share Option Scheme or the options granted shall comply with the relevant requirements of the relevant rules or any guidelines issued by the Stock Exchange from time to time.

(xxiv) Termination to the Share Option Scheme

The Company by resolution in general meeting or the Board may at any time terminate the operation of the Share Option Scheme and in such event no further options will be offered but options granted prior to such termination shall continue to be valid and exercisable in accordance with provisions of the Share Option Scheme.

(xxv) Conditions of the Share Option Scheme

[•]

V – 29

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(c) Present status of the Share Option Scheme
[•]

As at the date of this document, no option has been granted or agreed to be granted under the Share Option Scheme.

G. OTHER INFORMATION

1. Indemnities

Each of BVI Holding Company and Ms. Au pursuant to a deed of indemnity referred to the paragraph headed “Summary of material contracts” of this Appendix, has given joint and several indemnities in respect of, among other things, (a) any liability under any law or legislation of any jurisdiction which might be incurred by any member of the Group on or before [•]; and (b) any taxation liabilities which might be payable by any member of the Group in respect of any income, profits or gains earned, accrued or received or deemed to have been earned, accrued or received on or before [•], save:

(a) to the extent that full provision or allowance has been made for such taxation in the audited consolidated accounts of the Group for each of the two years ended 31 March 2010 and the five months ended 31 August 2010 , as set out in Appendix I to this document;
(b) to the extent that such taxation arises or is incurred as a result of any retrospective change in law or retrospective increase in tax rates coming into force after [•];
(c) to the extent that the liability for such taxation is caused by the act or omission of, or transaction effected by, any members of the Group which are carried out or effected in the ordinary course of business or in the ordinary course of acquiring and disposing of capital assets after 31 August 2010 ; or carried out, made or entered into pursuant to a legally binding commitment created on or before 31 August 2010 or pursuant to any statement of intention made in this document; or consisting of any of the companies ceasing, or being deemed to cease, to be a member of any group of companies or being associated with any other company for the purposes of any matter of taxation; or

V – 30

STATUTORY AND GENERAL INFORMATION

APPENDIX V

(d) to the extent of any provisions or reserve made for taxation in the audited accounts of the Group up to 31 August 2010 which is finally established to be an over-provision or an excessive reserve.

The Directors have been advised that no material liability for estate duty is likely to fall on any member of the Group in the Cayman Islands and other jurisdiction in which the companies comprising the Group are incorporated.

2. Litigation

The Directors confirmed that as at the Latest Practicable Date, no member of the Group is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is pending or threatened by or against any member of the Group.

3. [•]

4. [•]

5. Preliminary expenses

The preliminary expenses relating to the incorporation of the Company are approximately HK$[•] and are payable by the Company.

6. Promoter

The Company has no promoter.

V – 31

APPENDIX V STATUTORY AND GENERAL INFORMATION

7. Qualifications of experts

The following are the respective qualifications of the experts who have given their opinion or advice which is contained in this document:

Name	Qualification
[•]	[•]
HLM & Co.	Certified public accountants
BMI Appraisals Limited	Professional property surveyors and valuers
Conyers Dill & Pearman	Cayman Islands attorney-at-law
Loong & Yeung	Legal advisers of the Company as to Hong Kong Laws

8. Consents of experts

Each of [•], HLM & Co., BMI Appraisals Limited, Conyers Dill & Pearman and Loong & Yeung has given and has not withdrawn their respective written consents to the issue of this document, with the inclusion of their letters, reports, and/or valuation certificates and/or opinions and/or references to their names (as the case may be), in the form and context in which they respectively appear.

9. Binding effect

[•]

10. [•]

V – 32

STATUTORY AND GENERAL INFORMATION

APPENDIX V

11. No material adverse change

The Directors confirm that there has been no material adverse change in the financial or trading position or prospects of the Company or its subsidiaries since 31 August 2010 (being the date to which the latest audited financial statements of the Group were made up).

12. Taxation of holders of Shares

(a) Hong Kong

Dealings in Shares registered on the Company’s Hong Kong branch register of members will be subject to Hong Kong stamp duty.

(b) Cayman Islands

Under the present Cayman Islands law, there is no stamp duty payable in the Cayman Islands on transfers of the Shares.

(c) [•]

V – 33

APPENDIX V

STATUTORY AND GENERAL INFORMATION

13. Miscellaneous

(a) Save as disclosed herein:
(i) Within the two years immediately preceding the date of this document:
- (aa) no share or loan capital of the Company has been issued, agreed to be issued or is proposed to be issued fully or partly paid either for cash or for a consideration other than cash;
- (bb) no commissions, discounts, brokerages or other special terms have been granted or agreed to be granted in connection with the issue or sale of any share or loan capital of the Company;
- (cc) [•]; and
- (dd) no founder, management or deferred shares of the Company have been issued or agreed to be issued.
(ii) No share or loan capital of the Company is under option or is agreed conditionally or unconditionally to be put under option.
(iii) The English text of this document shall prevail over the Chinese text.

V – 34

AI assistant

CL Group (Holdings) Limited — Proxy Solicitation & Information Statement 2011

51268_rns_2011-03-08_b307dad1-c1f2-49a5-a9e1-b94798064675.pdf

WARNING

Web Proof Information Pack of

CL GROUP (HOLDINGS) LIMITED 昌利（控股）有限公司

WARNING

CONTENTS

SUMMARY

BUSINESSES

Licence/certificate/participantship

SUMMARY

Securities brokerage business

SUMMARY

Futures brokerage business

SUMMARY

Placing and underwriting services

Financing

SUMMARY

Commission and fee

SUMMARY

CLIENT MIX

SUMMARY

Number of clients by transaction frequency

SUMMARY

Number of clients by transaction volume

Number of clients by commission income

SUMMARY

FINANCIAL INFORMATION

SUMMARY

SUMMARY

Financial performance for the nine months ended 31 December 2010 and the possible impact of certain non-recurring expenses to financial performance

Financial results for the nine months ended 31 December 2010

SUMMARY

Financial position as at 31 December 2010

SUMMARY

Possible impact of certain non-recurring expenses to financial performance

No material adverse change

SUMMARY

HISTORY AND DEVELOPMENT

SUMMARY

COMPETITIVE STRENGTHS

Management experience and expertise

Well-established relationship with clients and expanding customer base

Solid platform for placing and underwriting business

SUMMARY

Advanced computer system and technology

Capable professional

SUMMARY

BUSINESS STRATEGIES

1. Entering into the new margin financing business

2. Maintaining and enhancing efficiency of trading platform

3. Expanding client network

SUMMARY

DILUTION EFFECT ON SHAREHOLDING

RISK FACTORS

Risks relating to the Group

SUMMARY

Risks relating to the industry

Risks relating to conducting business in Hong Kong

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

GLOSSARY OF TECHNICAL TERMS

RISK FACTORS

RISKS RELATING TO THE GROUP

Risks associated with new margin financing business

Volatility of the securities and futures markets

RISK FACTORS

Risk associated with underwriting and placing business

RISK FACTORS

Fluctuations of net profit margin and change in major revenue drivers

Reliance on Controlling Shareholder

RISK FACTORS

Risks associated with error trading

Credit and settlement risks

RISK FACTORS

CL Group (Holdings) Limited Proxy Solicitation & Information Statement 2011