Concord New Energy Group Ltd. - Proxy Solicitation & Information Statement 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to what action to take, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other independent professional advisers.

If you have sold or transferred all your securities in Hantec Investment Holdings Limited (the “ Company ”), you should at once hand this circular to the purchaser or the transferee or to the bank manager, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

This circular is for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities in Hantec Investment Holdings Limited.

The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

Hantec Investment Holdings Limited 亨達國際控股有限公司 *

(incorporated in Bermuda with limited liability)

(stock code: 111)

MAJOR TRANSACTION

Financial adviser

Hantec Capital Limited

* For identification purposes only

30 August 2006

CONTENT

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Appendix 1 – Financial information on the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Appendix 2 – Accountants’ report on CHI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	68
Appendix 3 – Pro forma financial information on the Enlarged Group . . . . . . . . . . . . . . . . . . .	107
Appendix 4 – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	114

DEFINITIONS

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

“Acquisition” the proposed acquisition of 70% of the entire issued share capital of CHI by the Company from the Vendors pursuant to the Sale and Purchase Agreement “Announcement” the announcement of the Company dated 29 June 2006 regarding details of the Acquisition

“associates” has the meaning ascribed to it under the Listing Rules “Business Day” a day (excluding Saturday and any day on which a tropical cyclone warning no. 8 or above or a “black” rainstorm warning is hoisted or remains hoisted between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon) on which licensed banks in Hong Kong are open for business

“Board” the board of Directors

“Company” Hantec Investment Holdings Limited “Completion” completion of the Sale and Purchase Agreement

“Completion Accounts” the financial statements of CHI for the Relevant Period comprising a balance sheet of CHI as at the last day of the Relevant Period, the profit and loss account for CHI for the Relevant Period and the cash flow statement of CHI for the Relevant Period, which are to be prepared in accordance with the provisions under the Sale and Purchase Agreement

“Completion Date” the date on which Completion takes place “connected person” has the meaning ascribed to it under the Listing Rules
“Consideration” HK$25.64 million, being the consideration payable by the Company to the Vendors under the Sale and Purchase Agreement
“Consideration Shares” up to 23,000,000 new Shares to be allotted and issued, credited as fully paid, at an issue price of HK$0.68 per Share for satisfaction of part of the Consideration (where applicable, as adjusted)

“CHI”

Cosmos Hantec Investment (NZ) Limited, a 30% owned associated company of the Company

“CHI Group”

CHI and its subsidiaries

DEFINITIONS

“Directors” the directors of the Company “Enlarged Group” the Group and the CHI Group “Group” the Company and its subsidiaries “Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China
“Latest Practicable Date” 28 August 2006, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange “Put Option” the option granted by the Vendors to the Company pursuant to the terms of the Sale and Purchase Agreement, the exercise of which by the Company will compel the Vendors to buy back the Sale Shares from the Company at the Consideration or, where applicable, the adjusted Consideration
“Relevant Business” the business of leveraged foreign exchange and bullion trading and broking
“Relevant Period” the period commencing from 1 January 2006 up to (and including) the Completion Date or if the Completion Date is not the last day of a calendar month, the last day of that month
“Sale and Purchase the conditional agreement dated 26 June 2006 entered into between the Agreement” Company and the Vendors in relation to the Acquisition
“Sale Shares” 700,000 shares of NZ$1.0 in CHI, being 70% of the entire issued share capital of CHI
“Share(s)” ordinary share(s) of HK$0.1 each in the share capital of the Company “Shareholders” holders of the Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited “Vendors” Mr. Chan Kwok Sung and Up.Com Ltd. “HK$” Hong Kong dollars, the lawful currency of Hong Kong

DEFINITIONS

“NZ$” New Zealand dollars, the lawful currency of New Zealand “%” per cent.

Unless otherwise specified in this circular, amounts denominated in NZ$ have been translated, for the purpose of illustration only, into HK$ at an exchange rate of NZ$1.0 = HK$5.0

LETTER FROM THE BOARD

Hantec Investment Holdings Limited 亨達國際控股有限公司 *

(incorporated in Bermuda with limited liability)

(stock code: 111)

Executive Directors:

Mr. Tang Yu Lap Mr. Chung Shui Ming, Timpson Mr. Tang Ping Sum Mr. Lam Ngok Fung Ms. Ng Chiu Mui Mr. Law Kai Yee

Non-executive Director:

Mr. Fong Wo, Felix

Registered Office: Clarendon House 2 Church Street Hamilton, HM11 Bermuda

Principal place of business:

45th Floor COSCO Tower 183 Queen’s Road Central Hong Kong

Independent non-executive Directors:

Mr. Yu Man Woon Mr. Cheng Wing Chi Professor Nyaw Mee Kau Mr. Yu Hon To, David

30 August 2006

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

INTRODUCTION

On 26 June 2006, the Company and the Vendors entered into the Sale and Purchase Agreement pursuant to which the Company has conditionally agreed to acquire from the Vendors the Sale Shares at the Consideration amounted to HK$25.64 million.

* For identification purposes only

LETTER FROM THE BOARD

meeting of the Company (if one was convened) convened to approve the Acquisition. Pursuant to Rule 14.44 of the Listing Rules, the Company has obtained a written approval (in lieu of holding a general meeting of the Company) regarding the Acquisition from Hantec Holdings Limited, being the holder of 256,372,000 Shares, representing approximately 65.5% of the issued share capital of the Company as at the Latest Practicable Date. Accordingly, no special general meeting of the Company will be convened for the purposes of considering and approving the Acquisition.

The primary purposes of this circular are to provide you details, among other things, (i) further information on the Acquisition; (ii) the financial information on the Group; (iii) an accountants’ report on CHI and (iv) pro forma financial information on the Enlarged Group.

THE SALE AND PURCHASE AGREEMENT

Date:

26 June 2006

Parties:

(i) the Company as purchaser
(ii) Mr. Chan Kwok Sung and Up.Com Ltd., being the Vendors

The principal business activity of Up.Com Ltd. is investment holding. To the best knowledge of the Directors and having made all reasonable enquiries, each of the Vendors and the ultimate beneficial owner of Up.Com Ltd. is a third party independent of the Company and connected persons of the Company.

Assets to be acquired:

The Sale Shares, representing 70% of the total issued share capital of CHI (as to 35% from Mr. Chan Kwok Sung and 35% from Up.Com Ltd.)

Consideration

The Consideration shall be HK$25.64 million which was agreed between the parties to the Sale and Purchase Agreement based on arm’s length negotiations and represents a price earnings multiple of approximately 6.02 times based on the equity interest of 70% of the audited consolidated net profit of CHI of approximately NZ$1.21 million (equivalent to approximately HK$6.08 million) for the year ended 31 December 2005. The price earnings multiple of 6.02 used in calculating the Consideration is determined with reference to the historical price earnings multiple of companies engaged in the provision of financial services and listed on the Stock Exchange.

The Consideration is to be satisfied by the Company as to HK$10 million in cash at Completion and HK$15.64 million by the Company allotting and issuing 23,000,000 Consideration Shares to the Vendor, credited as fully paid, at an issue price of HK$0.68 per Consideration Share on the 30th calendar

LETTER FROM THE BOARD

day after the Completion Accounts are made available to the Company. The cash portion of the Consideration will be financed by the internal resources of the Group. The Consideration will be adjusted downwards only in case the monthly average of the consolidated profit of CHI during the Relevant Period as calculated using the Completion Accounts is less than that for the year ended 31 December 2005 and no adjustment to the Consideration will be required to be made in the event the monthly average of the consolidated profit of CHI during the Relevant Period as calculated using the Completion Accounts is equal to or more than that for the year ended 31 December 2005. The adjustment to be made will be equal to 6.02 times of the annualised difference between the monthly average of the consolidated profit of CHI during the Relevant Period and the monthly average of the consolidated profit of CHI for the year ended 31 December 2005 (which equals to approximately HK$507,025). In case of any adjustment, the number of Consideration Shares will be reduced so that the monetary value of the reduced number of the Consideration Shares (based on the issue price of HK$0.68 per Consideration Share) together with the cash portion of the Consideration is equal to the adjusted Consideration. In the event that the difference between the Consideration and the adjusted Consideration is equal to or more than HK$15.64 million, no Consideration Shares will be allotted and issued to the Vendors but the cash part of the Consideration will remain at HK$10 million. The adjustment mechanism can be demonstrated by the following formula:

A = 6.02 x 12 x (HK$507,025 - B)/HK$0.68

where A is the reduction in the number of Consideration Shares B is the monthly average of the consolidated profit of CHI during the Relevant Period expressed in HK$

The maximum number of the Consideration Shares represents approximately 5.88% of the issued share capital of the Company as at the Latest Practicable Date and 5.55% of the issued share capital as enlarged by the allotment and issuance of the Consideration Shares. The Consideration Shares shall be issued under the general mandate granted to the Directors at the annual general meeting held on 29 May 2006, which allows the Directors to deal with up to 78,226,000 Shares. Such general mandate has not been utilised as at the Latest Practicable Date. Application has been made by the Company to the Stock Exchange for the listing of and permission to deal in the Consideration Shares on the Stock Exchange.

The issue price of HK$0.68 per Consideration Share represents:

(i) a premium of approximately 1.49% over the closing price of HK$0.67 as quoted on the Stock Exchange on 26 June 2006, being the last trading day immediately before the date of the Announcement;
(ii) a premium of approximately 4.62% over the average closing price of HK$0.65 for the last five trading days up to and including 26 June 2006;
(iii) a premium of approximately 3.03% over the closing price of HK$0.66 as quoted on the Stock Exchange on the Latest Practicable Date;
(iv) a premium of approximately 3.03% over the average closing price of HK$0.66 for the last five trading days up to and including the Latest Practicable Date; and
R14.58(8)

LETTER FROM THE BOARD

(v) a discount of approximately 8.11% to the audited consolidated net assets of the Company per Share of HK$0.74 as at 31 December 2005.

The issue price of the Consideration Shares was determined after arm’s length negotiations between the Company and the Vendors. The Board considers that the terms of the Sale and Purchase Agreement, including the issue price of the Consideration Shares, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Conditions precedent

Completion of the Sale and Purchase Agreement shall be conditional upon fulfillment or waiver, as the case may be, of the following conditions:

(a) the approval of the Shareholders of the Sale and Purchase Agreement and the transactions contemplated thereunder, whether by way of an ordinary resolution at a special general meeting of the Company to be convened or by way of shareholders’ written approval as permitted under the Listing Rules, being obtained;
(b) the granting of the approval for the listing of, and permission to deal in, the Consideration Shares by the Listing Committee of the Stock Exchange (whether subject to conditions or not);
(c) if necessary, all approvals, consents, authorisations and licences in relation to the change in the beneficial ownership of CHI as contemplated by the Sale and Purchase Agreement having been obtained from the requisite government or regulatory authorities or any third parties;
(d) the legal opinion to be issued by a firm of New Zealand lawyers acceptable to the Company covering such matters (including without limitation the legality and validity of CHI’s incorporation and operations in New Zealand and CHI’s interest in landed properties) relevant to the transactions contemplated under the Sale and Purchase Agreement in such form and substance to the satisfaction of the Purchaser having been obtained;
(e) the Company being satisfied with the results of the review of CHI’s assets, liabilities, activities, operations, prospects and affairs as it may consider appropriate; and
(f) where it is required under any legal or regulatory requirements that CHI or any of its subsidiaries or any of their directors, officers or staff (collectively the “Relevant Persons”) shall obtain the requisite licences, permits or authorizations in respect of conducting of the Relevant Business by CHI, the Vendors obtaining all such licences, permits and authorisations for each Relevant Person and all such licences, permits and authorisations shall remain valid up to Completion.

The Company may waive the conditions referred to above in whole or in part in its absolute discretion except for the condition (a) and (b). As at the Latest Practicable Date, the Company has no intention to waive any of the above conditions. If any of the conditions set out above has not been

LETTER FROM THE BOARD

satisfied (or, as the case may be, waived by the Company) on or before 12:00 noon on 30 September 2006, or such later date as the parties may agree, the Sale and Purchase Agreement shall cease and determine and none of the parties shall have any obligations and liabilities towards each other save for any prior breaches of the terms of the Sale and Purchase Agreement.

In the event the Company waives the condition (f) above in whole or in part and proceed to Completion, the Vendors shall procure that each of the Relevant Persons shall have obtained the requisite licences, permits and authorisations in respect of the conducting of the Relevant Business by CHI on or before the first anniversary of the Completion Date, failing which, the Purchaser shall be entitled to exercise the Put Option to sell the Sale Shares back to the Vendors at a price equal to the Consideration (or, as the case may be, the adjusted Consideration) within a period of three months from the said first anniversary. The Put Option was negotiated and agreed to by the parties as a result of the parties’ knowledge to the probable declaration to be made by the Securities Commission in New Zealand regarding the leveraged foreign exchange business as more particularly described under the paragraph headed “Information on CHI” below.

Completion

Completion of the Sale and Purchase Agreement shall take place on the last Business Day of the calendar month in which all the conditions set out above (other than condition (f)) are fulfilled or, as the case may be, waived (except conditions (a) and (b) which cannot be waived).

EFFECT ON SHAREHOLDING STRUCTURE

The shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately upon the issue and allotment of the Consideration Shares pursuant to the Completion of the Sale and Purchase Agreement (assuming no adjustment to the Consideration will be made pursuant to the Sale and Purchase Agreement) are as follows:

Hantec Holdings Limited Mr. Chan Kwok Sung Up.Com Ltd. Other Shareholders Total	As at the Latest Practicable Date Number of Shares % 256,372,000 65.5 – – – – 134,758,000 34.5 391,130,000 100.0	Immediately upon the issue and allotment of the Consideration Shares Number of Shares % 256,372,000 61.9 11,500,000 2.8 11,500,000 2.8 134,758,000 32.5 414,130,000 100.0	Immediately upon the issue and allotment of the Consideration Shares Number of Shares % 256,372,000 61.9 11,500,000 2.8 11,500,000 2.8 134,758,000 32.5 414,130,000 100.0
			100.0

The allotment and issue of the Consideration Shares will not result in any change in control of the Company.

LETTER FROM THE BOARD

INFORMATION ON CHI

CHI is a company incorporated in New Zealand on 6 December 2002 with limited liability. As at the Latest Practicable Date, CHI was owned as to 30% by a wholly owned subsidiary of the Purchaser, 35% by Mr. Chan Kwok Sung and 35% by Up.Com Ltd.. Accordingly CHI is currently an associated company of the Company. The financial results of CHI have been accounted for by the Group using the equity method.

CHI, together with its subsidiaries, is principally engaged in the business of provision of leverage foreign exchange and bullion trading and broking services in New Zealand. As advised by the legal advisor to the Company as to New Zealand law, currently CHI does not require any specific licence or permit for engaging in the Relevant Business. However, according to a discussion paper recently issued by the Securities Commission in New Zealand, entitled “Proposal to declare certain foreign exchange contracts to be futures contracts under the Securities Markets Act 1988” dated 24 April 2006, it is the intention of the Securities Commission in New Zealand to declare rolling spot foreign exchange or margined foreign exchange transactions to be futures contracts. The effect of the Securities Commission’s proposed declaration will mean that people dealing in rolling spot foreign exchange transactions will be required to obtain authorisation to deal in futures contracts under the Securities Markets Act of New Zealand. It is the intention of CHI to obtain the relevant authorisation when the relevant rules and regulations become effective. As at the Latest Practicable Date, no such declaration has been made by the Securities Commission in New Zealand.

The following is a summary of the audited consolidated financial results of CHI for the three months ended 31 March 2006, for the two years ended 31 December 2005 and the audited financial results of CHI for the period from 6 December 2002 (the date of incorporation of CHI) to 31 December 2003.

	The period from
	6 December 2002 to		Year ended	31 December		3 months ended
	31 December 2003	2004		2005		31 March 2006
	Equivalent		Equivalent		Equivalent		Equivalent
	NZ$ HK$	NZ$	HK$	NZ$	HK$	NZ$	HK$
Total revenue	3,752,113 18,760,565	19,954,028	99,770,140	25,662,046	128,310,230	7,492,440	37,462,200
Profit/(loss)
before tax	160,539 802,695	2,916,327	14,581,635	1,879,791	9,398,955	(999,825)	(4,999,125)
Profit/(loss)
attributable to
shareholders	104,637 523,185	1,902,110	9,510,550	1,216,862	6,084,310	(670,299)	(3,351,495)

As at 31 December 2005, the audited consolidated net asset value of CHI was approximately NZ$4.22 million (equivalent to approximately HK$21.1 million). The Consideration represents a premium of approximately 73.6% to the 70% interest of the consolidated net asset value of CHI as at 31 December 2005. The Directors consider that although the Consideration represents such a premium to the consolidated net asset value of CHI, the Consideration, which is determined based on price earning multiple, is fair and reasonable since the net asset value of CHI is not a major factor determining its profitability.

R14.58(6)

LETTER FROM THE BOARD

After Completion, CHI will become a wholly owned subsidiary of the Company and the accounts of CHI will be consolidated into the accounts of the Company.

Management discussion and analysis

Set out in Appendix 2 to this circular is the accountants’ report on CHI for the period ended 31 December 2003, the two years ended 31 December 2005 and the three months ended 31 March 2006. Below is the management discussion and analysis on the performance of CHI.

CHI was incorporated in December 2002 and commenced operations in 2003. The CHI Group enjoyed a sales growth of approximately 28.6% and 431.8% during the year ended 31 December 2005 to approximately NZ$25.66 million (equivalent to approximately HK$128.3 million) and 31 December 2004 to approximately NZ$19.95 million (equivalent to approximately HK$99.77 million) as compared to the year ended 31 December 2004 and the period ended 31 December 2003 respectively. For the three months ended 31 March 2006, the sales of the CHI Group was approximately NZ$7.5 million (equivalent to approximately HK$37.5 million), representing approximately 5% decrease as compared with the three months ended 31 March 2005. The operating profit decreased to approximately NZ$1.88 million (equivalent to approximately HK$9.4 million) in 2005 from approximately NZ$2.92 million (equivalent to approximately HK$14.6 million) in 2004. The 2005 profit after taxation decreased by approximately 36% to approximately NZ$1.22 million (equivalent to approximately HK$6.1 million). The decrease in operating profit and profit after taxation was mainly attributable to the increases in the commission and agency fee and other operating expenses during 2005. The operating profit increased significantly by approximately 1,716% to approximately NZ$2.92 million (equivalent to approximately HK$14.6 million) in 2004 from approximately NZ$0.16 million (equivalent to approximately HK$0.8 million) for the period ended 31 December 2003. The 2004 profit after taxation improved by approximately 1,717% to approximately NZ$1.9 million (equivalent to approximately HK$9.5 million). The growth of operating profit and profit after taxation was largely due to full year operation in 2004 while the operation in 2003 is not a full year one. For the three months ended 31 March 2006, the operating loss and loss after taxation of CHI Group were approximately NZ$1 million (equivalent to approximately HK$5 million) and NZ$0.67 million (equivalent to approximately HK$3.3 million) respectively, representing approximately 2.6% and 3.7% decrease as compared with the three months ended 31 March 2005.

The top five customers of the CHI Group for the period ended 31 December 2003, the two years ended 31 December 2004 and 2005 and the three months ended 31 March 2006 accounted for approximately 91.6%, 61.1% 53.2% and 32.4% of its total revenues for the respective period..

The CHI Group had about 35 staff and 261 account executives as at 31 December 2005. Total staff costs was NZ$1.19 million, including health insurance and allowances, for the year ended 31 December 2005.

The CHI Group had no bank borrowings and had other loans of NZ$2.02 million (equivalent to approximately HK$10.1 million) as at 31 March 2006. Therefore, the CHI Group had a gearing ratio (a percentage of total borrowings over total assets) of approximately 5.1% as at 31 March 2006. The CHI Group has been financing its operations through shareholders’ funds and its operating income.

LETTER FROM THE BOARD

The CHI Group’s capital structure as of 31 March 2006 consisted of shareholders’ equity of approximately NZ$3.55 million (equivalent to approximately HK$17.8 million). As at 31 December 2005, the shareholders’ equity was approximately NZ$4.22 million (equivalent to approximately HK$21.1 million). As at 31 December 2004, the shareholders’ equity was approximately NZ$3 million (equivalent to approximately HK$15 million). As at 31 December 2003, the shareholders’ equity was approximately NZ$1.1 million (equivalent to approximately HK$5.5 million).

The CHI Group is exposed to currency and commodity risk as a result of transaction that are denominated in a currency other than the its functional currency, principally being amount due from related companies and trade and other receivables in foreign currencies and off-balance sheet foreign exchange and bullion transactions. The currency that give rise to currency risk in which CHI primarily deals are US Dollars, Hong Kong Dollars, Euro, Japanese Yen, Great British Pounds, Swiss Francs and Canadian Dollars. It is the CHI Group’s policy to place related companies balances and collateral deposits with banks in the same currency as received and to manage foreign currency exposure by foreign exchange trading within approved limits set by its executive management committee.

The CHI Group is also exposed to price risk on the net positions on bullion trading. The dealing function of bullion trading is responsible for managing the price risk under limits on positions and floating loss approved by the executive management committee.

Credit risk is the risk that the counterparty to a transaction with the CHI Group will fail to discharge its obligations, causing the CHI Group to incur a financial loss. The CHI Group is exposed to credit risk from its cash at banks, amount due from related companies, trade and other receivables and off-balance sheet financial instruments. The CHI Group has a credit policy used to manage its credit exposure. As part of the policy, limits on exposures have been set and is subject to defined lending criteria and where considered necessary cash collateral taken.

Liquidity risk is the risk that the CHI Group will encounter difficulty in raising funds at short notice to meet its financial commitments as they fall due. The CHI Group takes collateral deposits from clients to reduce exposure to liquidity risk.

The CHI Group is exposed to interest rate risk on the value of its assets and liabilities which will fluctuate due to changes in market interest rates. The CHI Group charged interest on its clients and paid interest to its clients as determined by the board of directors with reference to the market interest rate. Financial assets such as trade and other receivables, bank balances and cash deposits with regulatory bodies are primarily at floating rates. Financial liabilities subject to floating interest rates are trade and other payables.

REASONS FOR THE ACQUISITION

The Group is principally engaged in the provision of leveraged foreign exchange trading and broking services, securities broking, commodities and future broking, provision of corporate finance advisory services, fund management, financial planning and insurance broking, and trading and broking of precious metal contracts.

LETTER FROM THE BOARD

As a result of the Acquisition, CHI will become a wholly owned subsidiary of the Company and the Group will have absolute control over the management and the development plan of CHI. The Acquisition is in line with the Group’s plan to establish more strategic footholds in the overseas market and to build up an overseas operation platform to support and co-ordinate the Group’s overseas business network as set out in the annual report of the Company for the year ended 31 December 2005.

The Acquisition will expand the client base of the Group and strengthen the Group’s overseas market presence, which will enhance the earning potential of the Group.

PROSPECTS OF THE GROUP

After 12 consecutive rate hikes the views as to whether the US interest rate will be topping off and turn around in the second half of this year remain diverse; and that oil price is likely to remain at its present high level. On the other hand, the outlook of the Mainland China economy still remains buoyant even though there is pressure to increase interest rate and re-value its currency. It is expected that domestic demand in the Mainland China economy will continue to sustain the growth of the economy. The strategic plans of the Group is to maintain a powerful base in Hong Kong to perform strategic functions like maintaining a robust control and risk management structure and liaison with its major bankers, and at the same time further expand our business presence in the Mainland China market by building up more sales and marketing network. In addition to the subsidiary company in Switzerland which was opened mid last year, it is the Group’s plan to establish more strategic footholds in the overseas market and to build up overseas operation platform to support and co-ordinate the Group’s overseas business network. With such a long term strategic plan, the Group plans to open a representative office in Vancouver to promote the image of the Group and to research for local market information. Given its core competencies and competitive advantages, the Group’s focus is to develop a robust global network with a view to providing high quality leveraged foreign exchange trading services to its clients in major markets, and to bring in better returns for the Shareholders in the forthcoming years. The Acquisition is an important step of the Group’s long term plan to develop its overseas market.

FINANCIAL EFFECT OF THE ACQUISITION

Set out in Appendix 3 to this circular is the unaudited pro forma financial information on the Enlarged Group which illustrates the financial impact of the Acquisition on the assets and liabilities of the Group, assuming the Acquisition had been completed as at 31 December 2005.

Net asset value

As set out in the pro forma balance sheet of the Enlarged Group in Appendix 3 to this circular, goodwill of approximately HK$16.2 million would be generated as a result of the Acquisition, which represents the excess of the Consideration over the Group’s interest in the estimated fair value of the net identifiable assets and liabilities of CHI. Such amount will be maintained as an intangible asset in the consolidated balance sheet of the Enlarged Group and subject to impairment test annually as stipulated under the Hong Kong Financial Reporting Standards. The actual goodwill to be booked in the accounts of the Group will depend on the fair value of the net assets of CHI upon Completion. The unaudited pro forma consolidated net assets of the Enlarged Group would be approximately HK$306.7 million, representing an increase of about 5.4% from the audited consolidated net assets of the Group of approximately HK$291.1 million as at 31 December 2005.

LETTER FROM THE BOARD

Earnings

Upon Completion, CHI will become a wholly-owned subsidiary of the Group, the results of which will be consolidated into the Group’s financial statements. The Directors believe that the Acquisition will contribute to the earnings base of the Group but the quantification of such impact will depend on the future performance of CHI.

GENERAL

The Acquisition constitutes a major transaction for the Company and is subject to the requirements of announcement, circular and Shareholders’ approval in general meeting under the Listing Rules. Since the Vendors and their respective associates are not Shareholders and no Shareholder has any special interest in the Acquisition, no Shareholder would be required to abstain from voting at a special general meeting of the Company (if one was convened) convened to approve the Acquisition. Pursuant to Rule 14.44 of the Listing Rules, the Company has obtained a written approval (in lieu of holding a general meeting of the Company) regarding the Acquisition from Hantec Holdings Limited, being the holder of 256,372,000 Shares, representing approximately 65.5% of the issued share capital of the Company as at the Latest Practicable Date. Accordingly, no special general meeting of the Company will be convened for the purposes of considering and approving the Acquisition.

ADDITIONAL INFORMATION

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

By order of the Board of Hantec Investment Holdings Limited Tang Ping Sum Executive Director

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

A. SUMMARY OF FINANCIAL RESULTS OF THE GROUP

The following is a summary of the audited consolidated result, assets and liabilities of the Group for the three years ended 31 December 2005 which are extracted from the respective annual reports of the Company.

Results Profit/(loss) after taxation Assets and liabilities Total assets Total liabilities Total equity	Year ended 31 December 2005 2004 2003 HK$’000 HK$’000 HK$’000 27,447 23,161 2,878 As at 31 December 2005 2004 2003 HK$’000 HK$’000 HK$’000 409,209 369,403 357,607 (118,116) (94,404) (101,401) 291,093 274,999 256,206

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

B. AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

Set out below are the audited financial statements of the Group together with accompanying notes as extracted from the annual report of the Company for the year ended 31 December 2005:

CONSOLIDATED BALANCE SHEET

As at 31st December 2005

Note ASSETS Non-current assets Intangible assets 5 Fixed assets 6 Interests in associates 8 Other assets 9 Held-to-maturity investments 12 Investment in securities held for non-trading purposes 10 Available-for-sale financial assets 10 Deferred income tax assets 11 Current assets Investment in securities held for trading purposes 12 Financial assets at fair value through profit or loss 12 Taxation recoverable Trade and other receivables 13 Bank balances and cash 14 Total assets EQUITY Capital and reserves attributable to the equity holders of the Company Share capital 15 Other reserves 16 Retained earnings Proposed final dividend 16 Others 16 Minority interests Total equity	2005 HK$’000 1,499 9,398 15,480 3,809 – – 12,089 5,431 47,706 -------------- – 1,305 1,186 196,873 162,139 361,503 -------------- 409,209 39,113 192,290 – 59,690 291,093 – 291,093 --------------	2004 HK$’000 2,284 8,580 12,445 4,050 15,546 3,267 – 1,092
		47,264 -------------- 708 – 206 200,926 120,299
		322,139 --------------
		369,403

		39,113 191,627 9,778 31,243
		271,761 3,238
		274,999 --------------

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Note LIABILITIES Non-current liabilities Obligations under finance lease 17 Deferred income tax liabilities 11 Current liabilities Trade and other payables 18 Bank overdrafts – secured 19 – unsecured Short-term bank loan – unsecured 19 Current portion of obligations under finance lease 17 Taxation payable Total liabilities Total equity and liabilities	2005 HK$’000 154 175 329 -------------- 88,103 13,586 195,141 10,000 107 850 117,787 -------------- 118,116 -------------- 409,209	2004 HK$’000 – 227
		227 -------------- 59,688 6,794 13,713 10,000 – 3,982
		94,177 --------------
		94,404 --------------
		369,403

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Balance Sheet

As at 31st December 2005

Note ASSETS Non-current assets Fixed assets 6 Investment in subsidiaries 7 Current assets Investment in securities held for trading purposes 12 Financial assets at fair value through profit or loss 12 Trade and other receivables 13 Bank balances and cash 14 Total assets EQUITY Capital and reserves attributable to the equity holders of the Company Share capital 15 Other reserves 16 Retained earnings Proposed final dividend 16 Others 16 Total equity LIABILITIES Current liabilities Trade and other payables 18 Total equity and liabilities	2005 HK$’000 775 307,098 307,873 -------------- – 733 3,188 8,397 12,318 -------------- 320,191 39,113 222,886 – 57,419 319,418 -------------- 773 773 -------------- 320,191	2004 HK$’000 114 279,955
		280,069 -------------- 708 – 1,834 4,354
		6,896 --------------
		286,965

		39,113 222,886 9,778 14,336
		286,113 -------------- 852
		852 --------------
		286,965

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Consolidated Income Statement

For the year ended 31st December 2005

Note Turnover 20 Other revenues 20 Total revenues Staff costs 21 Commission expenses Operating leases for land and buildings Other operating expenses 22 Total operating expenses Operating profit Finance costs 23 Share of profits of associates Profit before taxation Income tax credits/(expenses) 24 Profit for the year Attributable to: Equity holders of the company Minority interest Dividends 26 Basic earnings per share 27 Diluted earnings per share 27	2005 HK$’000 215,255 2,002 217,257 ---------------- 53,244 78,936 9,346 51,751 193,277 ---------------- 23,980 (2,090) 21,890 4,472 26,362 701 27,063 27,447 (384) 27,063 – HK7.02 cents HK7.01 cents	2004 HK$’000 169,731 3,259 172,990 ---------------- 42,891 61,397 9,192 39,092 152,572 ---------------- 20,418 (1,542) 18,876 8,240 27,116 (4,326) 22,790 23,161 (371) 22,790 9,778 HK5.92 cents HK5.91 cents

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Consolidated Statement of Changes in Equity

For the year ended 31st December 2005

Note Balance at 1st January 2004 Acquisition of a subsidiary Reserves transferred to income statement upon disposal of investment securities held for non-trading purposes Exchange difference Profit for the year Dividend 26 Reduction in cost of investment in a subsidiary Balance at 31st December 2004 Balance at 1st January 2005 as per above Opening adjustment for the adoption of HKAS 39 2.1 Balance at 1st January 2005, as restated Acquisition of a subsidiary Surplus on revaluation of available-for-sale financial assets Exchange difference Profit for the year Dividend 26 Balance at 31st December 2005	Attributable to equity holders of the Company Share Other Retained capital reserves earnings HK$’000 HK$’000 HK$’000 39,113 190,852 26,241 – – – – (565) – – 1,340 – – – 23,161 – – (9,778) – – 1,397 39,113 191,627 41,021 39,113 191,627 41,021 – – 1,000 39,113 191,627 42,021 – – – – 2,491 – – (1,828) – – – 27,447 – – (9,778) 39,113 192,290 59,690	Minority interest HK$’000 – 3,470 – 139 (371) – – 3,238 3,238 – 3,238 (2,899) – 45 (384) – –	Total HK$’000 256,206 3,470 (565) 1,479 22,790 (9,778) 1,397 274,999 274,999 1,000 275,999 (2,899) 2,491 (1,783) 27,063 (9,778) 291,093

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Consolidated Cash Flow Statement

For the year ended 31st December 2005

Note Net cash Inflow/(outflow) from operations 30(a) Investing activities Purchase of fixed assets Sale of fixed assets Sale of shares of an associate Sale of trading securities Sale of securities held for non-trading purposes Sale of financial assets at fair value through profit or loss Dividends received from listed securities Dividend from an associate Purchase of trading securities Purchase of financial assets at fair value through profit or loss Purchase of available-for-sale financial assets Purchase of subsidiaries, net of cash (paid)/acquired 30(d) Net cash inflow/(outflow) from investing activities Net cash inflow/(outflow) before financing Financing activities Dividend paid 26 Interest paid Advance from finance lease Repayments for finance lease Net cash outflow from financing Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1st January Effect of foreign exchange rate changes Cash and cash equivalents at 31st December Analysis of balances of cash and cash equivalents Bank balances and cash – general accounts Bank overdrafts Bank loan – unsecured	2005 HK$’000 54,171 -------------- (5,475) 186 – – – 38,687 33 549 – (22,714) (6,331) (2,975) 1,960 -------------- 56,131 -------------- (9,778) (2,069) 329 (68) (11,586) -------------- 44,545 66,777 (992) 110,330 139,057 (18,727) (10,000) 110,330	2004 HK$’000 (22,362) -------------- (5,419) 58 2,326 694 1,978 – 281 316 (665) – – (6,787) (7,218) -------------- (29,580) -------------- (9,778) (1,512) – – (11,290) -------------- (40,870) 107,193 454 66,777 97,284 (20,507) (10,000) 66,777

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Notes to the Financial Statements

1. General information

The principal activity of the Company is investment holding. The activities of the subsidiaries are set out in Note 7 to the financial statements.

The Company is a limited liability company incorporated in Bermuda. The address of its registered office is Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda.

The Company has its primary listing on The Stock Exchange of Hong Kong Limited.

These consolidated financial statements are presented in thousands of units of HK dollars (HK$’000) unless otherwise stated. These consolidated financial statements have been approved for issue by the Board of Directors on 20th April 2006.

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The consolidated financial statements of Hantec Investment Holdings Limited have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”), and interpretation issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and financial assets at fair value through profit or loss, which are carried at fair value.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4.

The adoption of new/revised HKFRSs

In 2005, the Group adopted the new/revised HKFRSs as set out below, which are relevant to its operations. The 2004 comparatives have been amended as required, in accordance with the relevant requirements.

HKAS 1 Presentation of Financial Statements HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 12 Income Taxes HKAS 14 Segment Reporting HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 28 Investments in Associates HKAS 32 Financial Instruments: Disclosures and Presentation HKAS 33 Earnings per Share HKAS 36 Impairment of Assets HKAS 38 Intangible Assets HKAS 39 Financial Instruments: Recognition and Measurement HKFRS 2 Share-based Payments HKFRS 3 Business Combinations

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

The adoption of new/revised HKASs 1, 7, 8, 10, 12, 14, 16, 17, 21, 23, 24, 27, 28 and 33 did not result in substantial changes to the Group’s accounting policies. In summary:

HKAS 1 has affected the presentation of minority interest, share of net after-tax results of associates and other disclosures. In accordance with the implementation guidance in HKAS 1, the Group has changed the presentation and includes the share of taxation of associates accounted for using the equity method in the respective shares of profits reported in the consolidated income statement before arriving at the Group’s profit before taxation. In prior years, the Group’s share of taxation of associates accounted for using the equity method was included as part of the Group’s taxation in the consolidated income statement. These changes in presentation have been applied retrospectively with comparatives restated.
HKAS 24 has affected the identification of related parties and some other related party disclosures.

The adoption of HKASs 32 and 39 has resulted in a change in the accounting policy relating to the classification of financial assets at fair value through profit or loss and available-for-sale financial assets and the fair-value valuation of trade and other receivables.

The adoption of HKFRS 3, HKAS 36 and HKAS 38 results in a change in the accounting policy for goodwill. Until 31st December 2004, goodwill was:

Amortised on a straight line basis over a period of 3 years; and
Assessed for an indication of impairment at each balance sheet date.
In accordance with the provisions of HKFRS 3:
The Group ceased amortisation of goodwill from 1st January 2005;
Accumulated amortisation as at 31st December 2004 has been eliminated with a corresponding decrease in the cost of goodwill; and
From the year ended 31st December 2005 onwards, goodwill is tested annually for impairment, as well as when there is an indication of impairment.

The Group has reassessed the useful lives of its intangible assets in accordance with the provisions of HKAS 38. As a result, the useful lives of Stock Exchange trading rights, Futures Exchange trading right and membership of The Chinese Gold & Silver Exchange Society are reassessed to be indefinite.

All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. All standards adopted by the Group require retrospective application other than:

HKAS 21 – prospective accounting for goodwill and fair value adjustments as part of foreign operations;
HKAS 39 – does not permit to recognise, derecognise and measure financial assets and liabilities in accordance with this standard on retrospective basis. The Group applied the previous SSAP 24 “Accounting for investments in securities” to investments in securities. The adjustments required for the accounting differences between SSAP 24 and HKAS 39 are determined and recognised at 1st January 2005;
HKFRS 2 – only retrospective application for all equity instruments granted after 7th November 2002 and not vested at 1st January 2005; and
HKFRS 3 – prospectively after the adoption date.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

The adjustments to the consolidated balance sheet at 1st January 2005 as a result of adopting HKAS 39 are as follows:

	HK$’000
Increase in trade and other receivables	1,000
Increase in retained earnings	1,000
Increase in financial assets at fair value through profit or loss	16,254
Increase in available-for-sale financial assets	3,267
Decrease in investment in securities held for non-trading purposes	(3,267)
Decrease in investment in securities held for trading purposes	(708)
Decrease in held-to-maturity investments	(15,546)

The estimated effect of adopting these new/revised accounting standards on consolidated balance sheet items at 31st December 2005 are as follows:

	HK$’000
Adoption of HKAS 39
Increase in trade and other receivables	1,000
Increase in retained earnings	1,000
Increase in financial assets at fair value through profit or loss	1,305
Increase in available-for-sale financial assets	12,089
Decrease in investment in securities held for non-trading purposes	(12,089)
Decrease in investment in securities held for trading purposes	(1,305)

The estimated effect of adopting these new/revised accounting standards on consolidated income statement items are as follows:

	2005	2004
	HK$’000	HK$’000
Adoption of HKAS 1 and HKAS 38
Decrease in share of profits of associates	(2,151)	(3,806)
Decrease in other operating expenses	(542)	–
Decrease in income tax expenses	–	(3,806)
Increase in income tax credits	2,151	–

The HKICPA has issued a number of new and revised HKFRSs which are effective for accounting periods beginning on or after 1 January 2006. The Group has not early adopted any of the following new Standards or Interpretations which are relevant to the Group:

HKAS 1 (Amendment)	Capital Disclosures
HKAS 39 (Amendment)	Cash Flow Hedge Accounting of Forecast Intragroup Transactions
HKAS 39 (Amendment)	The Fair Value Option
HKFRS 71	Financial Instruments: Disclosures
HKFRS-Int 4	Determining whether an Arrangement contains a Lease

1 HKFRS 7 which is effective for accounting period beginning on or after 1st January 2007

The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

2.2 Consolidation

The consolidated financial statements include the financial statements of the Company and all its subsidiaries made up to 31 December.

(a) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. 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 fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted by the Company on the basis of dividend received and receivable.

(b) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (see Note 2.6).

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet the investments in associates are stated at cost less provision for impairment losses. The results of associates are accounted for by the Company on the basis of dividend received and receivable.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

2.3 Segment reporting

A business segment is a group of assets and operations engaged in providing services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

In respect of geographical segment reporting, analysis on consolidated turnover is based on the country in which the customer is located. Total assets and capital expenditure are where the assets are located.

2.4 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in HK dollars, which is the Company’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Translation differences on non-monetary items, such as equity instruments held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation difference on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.

(c) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each income statement are translated at average exchange rates (unless the average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
(iii) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.5 Fixed assets

Fixed assets are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are expensed in the income statement during the financial period in which they are incurred.

Depreciation of fixed assets is calculated using the straight-line method to allocate cost or revalued amounts to their residual values over their estimated useful lives, as follows:

Leasehold improvements over the lease periods Furniture and fixtures 20% Office and computer equipment 20% Motor vehicles 25%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.7).

2.6 Intangible assets

(a) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary or associates at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash generating units for the purpose of impairment testing.

(b) Trading rights

Trading rights held in The Stock Exchange of Hong Kong Limited and Hong Kong Futures Exchange Limited (the “Stock Exchange trading rights” and “Futures Exchange trading right” respectively) are classified as intangible assets. Trading rights have an indefinite useful life and are carried at cost less accumulated impairment losses.

(c) Membership

The membership of The Chinese Gold & Silver Exchange Society is recognised as an intangible asset on the balance sheet. The membership has an indefinite useful life and is carried at cost less accumulated impairment losses.

2.7 Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation, which are at least tested annually for impairment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment wherever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

2.8 Investments

From 1st January 2004 to 31st December 2004:

The Group classified its investments in securities, other than subsidiaries and associates, as non-trading securities and trading securities.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

(a) Non-trading securities

Investments which were held for non-trading purpose were stated at fair value at the balance sheet date. Changes in the fair value of individual securities were credited or debited to the investment revaluation reserve until the securities were sold, or were determined to be impaired. Upon disposal, the cumulative gain or loss representing the difference between the net sales proceeds and the carrying amount of the relevant securities, together with any surplus/deficit transferred from the investment revaluation reserve, was dealt with in the income statement.

Where there was objective evidence that individual investments were impaired the cumulative loss recorded in the revaluation reserve was taken to the income statement.

(b) Trading securities

Trading securities were carried at fair value. At each balance sheet date, the net unrealised gains or losses arising from the changes in fair value of trading securities were recognised in the income statement. Profits or losses on disposal of trading securities, representing the difference between the net sales proceeds and the carrying amounts, were recognised in the income statement as they arose.

From 1st January 2005 onwards:

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments are acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date.

(a) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet (see Note 2.9).

(c) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. During the year, the Group did not hold any investments in this category.

(d) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Purchases and sales of investments are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains or losses from investment securities.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active and for unlisted securities, the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.

2.9 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.

2.10 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

2.11 Financial liabilities

Financial liabilities are generally classified as financial liabilities at fair value through profit or loss or other financial liabilities. Financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value being recognised in income statement directly. Other financial liabilities including bank and other borrowings, trade and other payables and amounts due to subsidiaries for the Company are carried at amortised cost using the effective interest method after initial recognition.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

2.12 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Where any Group company purchases the Company’s equity share capital, the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.

2.13 Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

2.14 Employee benefits

(a) Employee leave entitlements

Employee entitlement to annual leave is recognised when it accrues to employees. An accrual is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

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

(b) Profit sharing and bonus plan

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

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

(c) Pension obligations

The Group contributes to the mandatory provident fund (“MPF Scheme”), a defined contribution plan in Hong Kong, which is available to all employees. The assets of the MPF Scheme are held separately from the Group in an independently administered fund.

The Group’s contribution to the MPF Scheme is based on 5% of the monthly relevant income of each employee up to a maximum monthly relevant income of HK$20,000 in accordance with the Mandatory Provident Fund Schemes Ordinance. The contributions are recognised as employee benefit expenses when they are due and are reduced by contributions forfeited by those employees who leave the scheme prior to vesting fully in the contributions.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

(d) Share options

Share options are granted to directors and employees of the Group. The adoption of HKFRS 2 does not require the Group expenses the cost of share options in the income statement as all the share options were granted by the Company before 7th November 2002. Instead, the financial impact of share options granted by the Company is not recognised in these financial statements until such time when the options are exercised and the allotments of shares is approved. Upon such approval, share capital is credited at par for each share issued, with share premium credited at the excess of net proceeds received over total share capital credited.

2.15 Provisions

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

2.16 Revenue recognition

Brokerage commission income arising from leveraged foreign exchange transactions, securities broking, precious metal contracts and commodities and futures broking are recognised and accounted for on a trade date basis.

Brokerage commission income arising from the brokerage of mutual funds and insurance products is recognised when services rendered. An amount, based on a certain percentage of the commission income and expenses and based on the historical statistics on the occurrence of the clawback of the brokerage commission income from the savings plans, has been provided for the possible clawback that may be claimed against the Group.

Net revenue from foreign exchange options trading and broking includes both realised and unrealised gains less losses from the foreign currency option contracts. Open option contracts are carried at fair value, with related unrealised gains or losses recognised in the income statement. The open option contracts are valued using pricing models that consider, among other factors, contractual and market prices, time value and volatility factors.

All transactions related to precious metal contracts dealings are recorded in the financial statements based on trade dates. Accordingly, only those transactions whose trade dates fall within the accounting year have been taken into account.

Swap interest and foreign exchange trading revenue include both realised and unrealised gains less losses. The swap interest and foreign exchange spread in relation to open positions arising from leveraged foreign exchange transactions are recognised on an accrual basis. The net residual positions of each foreign currency resulting from broking and trading foreign currencies are carried at fair value, with related unrealised gains or losses recognised in the income statement.

Underwriting commissions are recognised when the relevant work or service has been rendered.

Revenue from corporate finance services is recognised in accordance with the terms of agreement for the underlying transactions.

Management fee and subscription fee on asset management are recognised on an accrual basis.

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

Dividend income is recognised when the right to receive payment is established.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

2.17 Leases

(a) Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are expensed in the income statement on a straight-line basis over the period of the lease.

(b) Finance lease

Leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in current and non-current borrowings. The interest element of the finance cost is recognised in the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

2.18 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

2.19 Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group.

A contingent asset is not recognised but is disclosed in the notes to the financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

2.20 Finance costs

Finance costs are charged to the income statement in the year in which they are incurred.

2.21 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees are commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

2.22 Trust accounts

Trust accounts maintained by the subsidiaries of the Company to hold clients’ monies are not recognised as an asset in the financial statements. Accordingly, the amounts recognised as “Bank balances and cash – segregated trust accounts” and the clients’ monies deposited in two designated accounts maintained with HKFE Clearing Corporation Limited and The SEHK Options Clearing House Limited classified under trade and other receivables on the balance sheet, were taken off the balance sheet and netted against the corresponding amounts classified under trade and other payables.

2.23 Off-balance sheet financial instruments

Off-balance sheet financial instruments arising from the leveraged foreign exchange trading and option transactions are marked to market and the gain or loss thereof is recognised in the income statement as foreign exchange trading revenue or net premium income from foreign currency option.

2.24 Fiduciary Activities

The Group commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group.

3. Financial risk management

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, fair value interest risk and price risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

Risk management is carried out by a Risk Management Committee (“RMC”) under policies approved by the Board of Directors. RMC identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The RMC recommends overall risk management policy for the approval of the Board or the Executive Management Committee (“EMC”) of the Group, covering specific areas, such as foreign exchange risk, interest-rate risk, credit risk, use of derivative financial instruments and nonderivative financial instruments, and investing excess liquidity.

(a) Market risk

(i) Foreign exchange risk

The Group carries out business in foreign exchange trading and has certain investments overseas and therefore is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the HK dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arises from the net assets of the Group’s foreign operations in China, Taiwan, New Zealand, Japan and Switzerland.

The Group’s net trading positions are denominated in currencies other than its functional currency or presentation currency and are subject to fluctuation in foreign exchange among the different currencies. The treasury function of the Group is responsible for managing the foreign exchange risk under prudent guidelines on position limits and floating loss limits. The RMC reviewed the limits from time to time to cope with changes in volatility in the market.

(ii) Price risk

The Group is exposed to price risk on the net positions on bullion trading. The dealing function of bullion trading is responsible for managing the price risk under limits on positions and floating loss approved by the EMC.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

(b) Credit risk

The Group has no significant credit risk. It has policies in place to ensure that credits are granted to customers with an appropriate credit history and/or collateral deposited with the Group. For leveraged foreign exchange trading, futures trading and bullion trading, an initial margin will be collected before opening of trading positions. Moreover, the Group has no significant concentration of credit risk as credits are granted to a vast variety of clients. Derivative counterparties and cash transactions are limited to high-credit-quality financial institutions and only brokers having sound credit ratings will be accepted. The Group has maintained relationship with various financial institutions, and has policies that limit the amount of credit exposure to any financial institution.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group employs a prudent liquidity policy.

(d) Cash flow and fair value interest rate risk

The company charged interest on its clients on the basis of its cost of funding plus a mark-up and paid interest to clients on the basis of the interest the company earned from financial institutions less a charge. Financial assets such as trade and other receivables, bank balances and cashdeposits with regulatory bodies are primarily at floating rates. Financial liabilities subject to floating interest rates are trade and other payables, bank overdrafts and loans. Obligations under finance lease are subject to fixed interest rate determined by the inception of the relevant lease. The Group’s income and operating cash flows are not subject to significant interest rate risk.

3.2 Fair value estimation

The fair value of financial instruments traded in active markets (such as publicly traded derivatives and trading securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price.

The fair value of financial instruments that are not traded in an active market (for example, over-the counter derivatives and available-for-sale securities) is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for longterm debt.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The carrying values of other financial assets and liabilities approximate their fair values.

4. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstance.

(a) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

(b) Income taxes

The Group is subject to income taxes in several jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

(c) Estimate of fair value of financial instruments

The best evidence of fair value is current prices in an active market for listed equity securities. In the absence of such information, the Group determines the amount within a range of reasonable fair value estimates.

(d) Litigation

The Group considers each case involving litigation individually to assess the probability of any outflow of resources. If in the opinion of the directors that an outflow of resources embodying economic benefits will be required to settle the litigation, a provision will be made to the extent of the probable outflow. In other case, unless the possibility of an outflow of resources embodying economic benefits is remote, a contingent liability will be disclosed.

5. Intangible assets

At 1st January 2004 Cost Accumulated amortisation and impairment Net book amount Year ended 31st December 2004 Opening net book amount Acquisition of a subsidiary Amortisation expenses Impairment expenses Closing net book amount At 31st December 2004 Cost Accumulated amortisation and impairment Accumulated impairment losses Net book amount	Stock Exchange trading rights HK$’000 6,653 (4,495) 2,158 2,158 – (332) (913) 913 6,653 (4,827) (913) 913		Group		Total HK$’000 8,453 (5,093) 3,360 3,360 1,087 (844) (1,319) 2,284 9,540 (5,937) (1,319) 2,284
		Futures Exchange trading right HK$’000 1,500 (538) 962 962 – (150) (406) 406 1,500 (688) (406) 406	Membership of The Chinese Gold & Silver Exchange Society HK$’000 300 (60) 240 240 – (60) – 180 300 (120) – 180	Goodwill on acquisition of subsidiaries HK$’000 – – – – 1,087 (302) – 785 1,087 (302) – 785

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Year ended 31st December 2005 Opening net book amount Acquisition of a subsidiary Impairment expenses Closing net book amount At 31st December 2005 Cost Accumulated impairment losses Net book amount	Stock Exchange trading rights HK$’000 913 – – 913 913 – 913		Group		Total HK$’000 2,284 76 (861) 1,499 2,360 (861) 1,499
		Futures Exchange trading right HK$’000 406 – – 406 406 – 406	Membership of The Chinese Gold & Silver Exchange Society HK$’000 180 – – 180 180 – 180	Goodwill on acquisition of subsidiaries HK$’000 785 76 (861) – 861 (861) –

In the current year, management considered the recoverable amount of the goodwill on acquisition of subsidiaries to be nil and established a provision for impairment loss on such goodwill. The resulting loss was taken to the income statement.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

6. Fixed assets

Cost At 1st January 2004 Additions Disposals Exchange difference At 31st December 2004 and 1st January 2005 Additions Disposals Exchange difference At 31st December 2005 Accumulated depreciation At 1st January 2004 Charge for the year Disposals Exchange difference At 31st December 2004 and 1st January 2005 Charge for the year Disposals Exchange difference At 31st December 2005 Net book value At 31st December 2005 At 31st December 2004	Leasehold improvements HK$’000 559 1,196 (116) – 1,639 2,284 (222) (3) 3,698 ------------------ 521 345 (116) 3 753 894 (129) (8) 1,510 ------------------ 2,188 886		Group		Total HK$’000 15,253 5,419 (953) (3) 19,716 5,475 (2,326) (16) 22,849 ------------------ 8,141 3,726 (733) 2 11,136 4,051 (1,725) (11) 13,451 ------------------ 9,398 8,580
		Furniture & fixtures HK$’000 915 989 (397) – 1,507 941 (16) – 2,432 ------------------ 550 291 (315) – 526 344 (12) (2) 856 ------------------ 1,576 981	Office & computer equipment HK$’000 12,095 3,234 (440) (3) 14,886 2,187 (2,088) (13) 14,972 ------------------ 6,069 2,695 (302) (1) 8,461 2,696 (1,584) – 9,573 ------------------ 5,399 6,425	Motor vehicles HK$’000 1,684 – – – 1,684 63 – – 1,747 ------------------ 1,001 395 – – 1,396 117 – (1) 1,512 ------------------ 235 288

APPENDIX 1

FINANCIAL INFORMATION ON THE GROUP

Cost At 1st January 2004 Additions Disposals At 31st December 2004 and 1st January 2005 Additions Disposals At 31st December 2005 Accumulated depreciation At 1st January 2004 Charge for the year Disposals At 31st December 2004 and 1st January 2005 Charge for the year Disposals At 31st December 2005 Net book value At 31st December 2005 At 31st December 2004 7. Investment in subsidiaries Investment at cost, unlisted shares Amounts due from subsidiaries_(Note (a)) Amount due to a subsidiary(Note (a))_			Company
		Leasehold improvement HK$’000 – – – – 597 – 597 --------------------- – – – – 185 – 185 --------------------- 412 –

			---------------

			---------------

(a) The amounts due from/(to) subsidiaries are unsecured, interest free and repayable on demand.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

(b) The following is a list of subsidiaries at 31st December 2005:

		Principal
		activities and	Particulars of	Interest	Interest
	Place of	place of	issued share	held	held
Name	incorporation	operation	capital	directly	indirectly
Hantec International	Hong Kong	Leveraged foreign	100 ordinary shares of	–	100%
Limited (“HIL”)		exchange trading	HK$1 each, and
		in Hong Kong	100,000,000 non-voting
			deferred shares
			of HK$1 each
Hantec International	Hong Kong	Securities broking and	20,000,100 ordinary	–	100%
Finance Group Limited		margin financing	shares of HK$1 each, and
(“HIFGL”)		services in Hong Kong	50,000,000 non-voting
			deferred shares
			of HK$1 each
HT Futures Limited	Hong Kong	Commodities and	3,000,100 ordinary	–	100%
(“HTFL”)		futures broking	shares of HK$1 each, and
		in Hong Kong	10,000,000 non-voting
			deferred shares
			of HK$1 each
Hantec Investment	Hong Kong	Financial planning and	3,000,100 ordinary shares	–	100%
Consultant Limited		insurance broking	of HK$1 each, and
(“HICL”)		in Hong Kong	5,500,000 non-voting
			deferred shares
			of HK$1 each
Hantec Bullion	Hong Kong	Trading and broking	7,500,000 ordinary	–	100%
Investments Limited		of precious metal	shares of HK$1 each
(“HBIL”)		contracts in Hong Kong
Hantec Asset Management	Hong Kong	Asset management	6,000,100 ordinary shares	–	100%
Limited (“HAML”)		in Hong Kong	of HK$1 each, and
			2,000,000 non-voting
			deferred shares
			of HK$1 each
Hantec Asset Management	Cayman	Asset management	2 ordinary shares of	–	100%
(Cayman) Limited #	Islands	in Hong Kong	US$1 each
(“HAMCL”)
Hantec Capital Limited	Hong Kong	Provision of corporate	100 ordinary shares	–	100%
(“HCL”)		finance services	of HK$1 each, and
		in Hong Kong	21,000,000 non-voting
			deferred shares
			of HK$1 each
Hantec Financial	Hong Kong	Investment holding	100 ordinary shares	–	100%
Services Limited		in Hong Kong	of HK$1 each
(“HFSL”)
Hantec Business Consultant	Hong Kong	Investment holding	1,000,000 ordinary	–	100%
Limited (“HBCL”)		in Hong Kong	shares of HK$1 each
北京康景商業顧問	People’s Republic	Provision of	US$150,000 registered	–	100%
有限公司* #	of China	consultation services	and paid-up capital
(“康景”)		in the People’s
		Republic of China

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

		Principal
		activities and	Particulars of	Interest	Interest
	Place of	place of	issued share	held	held
Name	incorporation	operation	capital	directly	indirectly
Chinacorp Nominees	Hong Kong	Holding of leases	100 ordinary shares	–	100%
Limited (“CNL”)		and provision of	of HK$1 each and
		administrative support	10,000 non-voting
		services in Hong Kong	deferred shares
			of HK$1 each
Hantec Wealth	Hong Kong	Financial planning	500,000 ordinary shares	–	100%
Management Advisor		and insurance broking	of HK$1 each
Limited (“HWMAL”)		in Hong Kong
Hantec Taiwan Investments	Hong Kong	Investment holding	10,000 ordinary shares	–	100%
Limited (“HTIL”)		in Hong Kong	of HK$1 each
亨達富林證券投資	Taiwan	Provision of wealth	5,000,000 ordinary shares	–	100%
顧問股份有限公司		management, investment	of NT$10 each
(formerly known as		advisory and consultancy
富林國際證券投資		services in Taiwan
顧問股份有限公司)
(“富林”)
Hantec Financial Service	Switzerland	Provision of broking	1,000,000 ordinary shares	–	100%
(Suisse) S.A. (“HFSS”)		and trading services	of CHF1 each
		in foreign exchange
		in Switzerland
Hantec Strategic (BVI)	British	Investment holding	50,000 ordinary shares	100%	–
Holdings Limited #	Virgin Islands	in Hong Kong	of US$1 each
(“HSBVIHL”)
HT (BVI) Limited	British Virgin	Investment holding	7 ordinary shares of	100%	–
(“HTBVIL”)	Islands	in Hong Kong	US$1 each
Macro Jess Limited #	British Virgin	Investment holding	1 ordinary share of	100%	–
(“MJL”)	Islands	in Hong Kong	US$1 each
Hantec Strategic Plan	British Virgin	Investment holding	1 ordinary share of	100%	–
(HK) Limited #	Islands	in Hong Kong	US$1 each
(“HSPL”)

Incorporated in the People’s Republic of China as a Wholly Foreign Owned Enterprises limited liability company.
Subsidiaries not audited by PricewaterhouseCoopers

The aggregate net assets of the subsidiaries not audited by PricewaterhouseCoopers amounted to approximately 2.06% (2004: 4.72%) of the Group’s net assets.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

8. Interests in associates

Share of net assets at 1st January Share of associates’ results – profit before taxation – taxation – minority interest Disposal of an associate Other equity movements Exchange difference Share of net assets at 31st December Goodwill on acquisition less impairment Investment at cost, unlisted shares The Group’s interest in its principal associates, all of which are unlisted,	Group 2005 2004 HK$’000 HK$’000 11,897 8,621 6,504 11,821 (2,151) (3,806) (10) – 16,240 16,636 – (5,446) (549) (316) (759) 1,023 14,932 11,897 548 548 15,480 12,445 7,296 7,296 were as follows:	Group 2005 2004 HK$’000 HK$’000 11,897 8,621 6,504 11,821 (2,151) (3,806) (10) – 16,240 16,636 – (5,446) (549) (316) (759) 1,023 14,932 11,897 548 548 15,480 12,445 7,296 7,296 were as follows:
		16,636 (5,446) (316) 1,023
		11,897 548
		12,445

		7,296

Particulars of issued Country of Name shares held incorporation 2005 Cosmos Hantec 300,000 ordinary New Zealand Investment (NZ) shares of NZ$1 Limited (“CHI”) each Cosmos Foreign Exchange 2,400,000 ordinary Taiwan International Company shares of NT$10 Limited (“CFX”) each 2004 Cosmos Hantec 300,000 ordinary New Zealand Investment (NZ) shares of NZ$1 Limited (“CHI”) each Cosmos Foreign Exchange 2,400,000 ordinary Taiwan International Company shares of NT$10 Limited (“CFX”) each	Assets HK$’000 36,889 10,621 47,510 52,026 8,143 60,169	Liabilities HK$’000 30,159 2,419 32,578 46,957 1,315 48,272	Revenue HK$’000 42,212 8,782 50,994 31,181 5,116 36,297	% of interest held Profit indirectly HK$’000 2,002 30% 2,341 20% 4,343 2,813 30% 1,208 20% 4,021	% of interest held Profit indirectly HK$’000 2,002 30% 2,341 20% 4,343 2,813 30% 1,208 20% 4,021


					30% 20%

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

9. Other assets

			Group
		2005	2004
		HK$’000	HK$’000
	Stock Exchange stamp duty deposit	75	75
	Stock Exchange Fidelity Fund deposit	100	100
	Stock Exchange Compensation Fund deposit	100	102
	Guarantee Fund deposits with the Hong Kong
	Securities Clearing Company Limited	100	100
	Statutory deposits and deposits with the Hong Kong
	Futures Exchange Limited (“HKFE”)	1,570	1,961
	Statutory deposits with the Securities and
	Futures Commission	200	200
	Reserve fund deposit with the SEHK Options
	Clearing House Limited	1,664	1,512
		3,809	4,050

10.	Available-for-sale financial assets
			2005
			HK$’000
	Fair value of unlisted securities transferred from
	Investment in securities held for non-trading
	purposes at 1st January 2005		3,267
	Additions		6,331
	Revaluation surplus transfer to equity_(Note 16)_		2,491
	End of year		12,089
	There were no disposal or impairment provisions on available-for-sale financial assets in		2005.
	Available-for-sale financial assets include the following:
			2005
			HK$’000
	Unlisted securities
	Equity securities traded on inactive markets and of private issuers		12,089

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

11. Deferred income tax

Deferred taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% (2004: 17.5%).

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:

Deferred tax assets Deferred tax liabilities	2005 HK$’000 (5,431) 175 (5,256)	Group 2004 HK$’000 (1,092) 227 (865)	Company 2005 2004 HK$’000 HK$’000 (18) (15 18 15 – –	Company 2005 2004 HK$’000 HK$’000 (18) (15 18 15 – –
				–

The gross movement on the deferred income tax account is as follows:

Beginning of the year Effect on change in exchange rate Acquisition of a subsidiary Deferred taxation credited to income statement_(Note 24)_ End of the year	2005 HK$’000 (865) 18 – (4,409) (5,256)	Group 2004 HK$’000 – – (274) (591) (865)	Company 2005 2004 HK$’000 HK$’000 – – – – – – – – – –	Company 2005 2004 HK$’000 HK$’000 – – – – – – – – – –
				–

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

	Group
Accelerated tax depreciation HK$’000 966 – (35) 931 – (265) 666	Tax losses HK$’000 (966) (274) (556) (1,796) 18 (4,144) (5,922)	Total HK$’000 – (274) (591)
		(865) 18 (4,409)
		(5,256)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

	Company
Accelerated tax depreciation HK$’000 – 15 15 3 18	Tax losses HK$’000 – (15) (15) (3) (18)	Total HK$’000 – –
		– –
		–

Deferred income tax assets are recognised for tax losses carried forward to the extent that realisation of the related tax benefit through the future taxable profits is probable. The Group has unrecognised tax losses of HK$21,442,752 (2004: HK$46,887,442) to carry forward against future taxable income. Tax losses have no expiry date except that losses amounting to HK$49,293 (2004: HK$49,293), HK$1,483,586 (2004: HK$1,483,586) and HK$4,741,661 (2004: Nil) expire in 2007, 2008 and 2009 respectively.

12. Financial assets at fair value through profit or loss

Listed securities: Equity securities – Hong Kong Market value of listed securities	Group 2005 HK$’000 1,305 1,305	Company 2005 HK$’000 733
		733

At 1st January 2005, an unlisted 10-year callable note with fair value of HK$15,546,775 and the listed securities with fair value of HK$708,450 were transferred from held-to-maturity investments and investment in securities held for trading purposes respectively to financial assets at fair value through profit or loss in respect of the adoption of HKAS 39.

Change in fair values of financial assets at fair value through profit or loss are recorded in the income statement.

13. Trade and other receivables

Trade and other receivables
Trade receivables from clients Less: provision for impairment of receivables Margin finance loans_(Note (c)) Less: provision for impairment of receivables Margin and other trade related deposits with brokers and financial institutions(Note (b))_ Trade receivables from clearing houses Total trade receivables, net Rental and utilities deposits Prepayments and other receivables Total trade and other receivables	2005 HK$’000 25,973 – 59,550 – 100,264 28 185,815 4,778 6,280 196,873	Group 2004 HK$’000 36,143 (6,430) 72,495 (4,745) 88,424 7,426 193,313 4,248 3,365 200,926	Company 2005 2004 HK$’000 HK$’000 – – – – – – – – – – – – – – – 62 3,188 1,772 3,188 1,834
				– 62 1,772
				1,834

The carrying amounts of total trade and other receivables approximate their fair value.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

(a) As at 31st December 2005, the aging analysis of the trade receivables was as follows:

Current 30-60 days Over 60 days Less: Provision for impairment of receivables	Group 2005 2004 HK$’000 HK$’000 184,717 193,163 301 60 797 11,265 185,815 204,488 – (11,175) 185,815 193,313

(b) The Group undertakes foreign exchange transactions, precious metal contracts and executes client trades on overseas commodities and futures contracts with recognised counterparties, local or overseas brokers as appropriate. A recognised counterparty is a counterparty of a licensed leveraged foreign exchange trader recognised under the Securities and Futures Ordinance which includes authorised institutions under the Hong Kong Banking Ordinance. Trade receivables at 31st December 2005 and 2004 include margin deposits and floating profits in respect of transactions and open positions in leveraged foreign exchange, precious metal contracts and commodities and futures trading with recognised counterparties and brokers and are considered current. Trade receivables from cash securities trading clients is resulted from amounts due from clients on outstanding trades not yet settled, normally within two to three days after the execution of the trades.
(c) The margin clients of the securities broking business are required to pledge their shares to the Group for credit facilities for securities trading. The amount of credit facilities granted to them is determined by the discounted value of shares acceptable by the Group after making reference to industry practices.
(d) Credits are extended to other clients on a case-by-case basis in accordance with the financial status of clients such as their financial conditions, trading records, business profile and collateral available to the Group. Clients trading in leveraged foreign exchange contracts, commodities and futures contracts, precious metal contracts and obtaining securities margin financing from the Group are required to observe the Group’s margin policies. For leveraged foreign exchange contracts, commodities and futures contracts and precious metal contracts, initial margins are normally required before trading and thereafter clients are normally required to keep the equity position at a prescribed maintenance margin level.
(e) The Group maintains designated accounts with The SEHK Options Clearing House Limited (“SEOCH”) and HKFE Clearing Corporation Limited (“HKFECC”) as a result of its normal business transactions. At 31st December 2005, the designated accounts with SEOCH and HKFECC not otherwise dealt with in these accounts amounted to HK$1,304,984 (2004: HK$160,169) and HK$10,140,046 (2004: HK$7,776,847) respectively.
(f) The Group has no concentration of credit risk with respect to trade receivables and margin loans, as the Group has a large number of customers, widely dispersed. In addition, margin and trade related deposits are deposited with high-credit-quality financial institutions.
(g) The effective interest rate charged on trade receivables and margin loans as at the balance sheet date ranged from 7.75% to 15.75% per annum (2004: 5% to 13.5%). The effective interest rate for margins and other trade related deposits ranged from 1.5% to 4.3125% per annum (2004: 0.35% to 2.225%).

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

14. Bank balances and cash

Cash in hand Bank balances – pledged – general accounts By maturity: Bank balances – Current and savings accounts – Fixed deposits (maturing within three months)	2005 HK$’000 638 ------------------- 23,082 138,419 161,501 ------------------- 162,139 116,697 44,804 161,501	Group 2004 HK$’000 316 ------------------- 23,015 96,968 119,983 ------------------- 120,299 117,499 2,484 119,983	Company 2005 2004 HK$’000 HK$’000 17 72 ------------------- ------------------- – – 8,380 4,282 8,380 4,282 ------------------- ------------------- 8,397 4,354 8,380 4,282 – – 8,380 4,282	Company 2005 2004 HK$’000 HK$’000 17 72 ------------------- ------------------- – – 8,380 4,282 8,380 4,282 ------------------- ------------------- 8,397 4,354 8,380 4,282 – – 8,380 4,282
				4,282 -------------------
				4,354

				4,282 –
				4,282

As at 31st December 2005, bank deposits amounting to HK$10,762,271 (2004: HK$10,530,779) have been pledged to a bank for banking facilities to the extent of HK$26 million (2004: HK$26 million) in securities broking of the Group. In addition, bank deposits amounting to HK$12,319,973 (2004: HK$12,483,995) have been pledged to a financial institution for trading facilities in leveraged foreign exchange broking of the Group.

As at 31st December 2005, included in the aggregate banking facilities of HK$130 million (2004: HK$130 million) granted to the Group, HK$118 million (2004: HK$118 million) were granted under the Company’s corporate guarantee (see Note 31(d)). Whereas, a subsidiary of the Company which engages in securities broking has utilised HK$28,724,837 (2004: HK$20,507,362) of the aggregate banking facilities.

The subsidiaries of the Group maintained segregated trust accounts with authorised institutions as a result of their respective business activities. As at 31st December 2005, segregated trust accounts not otherwise dealt with in these financial statements amounted to HK$226,594,219 (2004: HK$221,396,256).

15. Share capital

Share capital
Authorised Ordinary shares of HK$0.10 each Issued and fully paid Ordinary shares of HK$0.10 each At 1st January and at 31st December	No. of shares ’000 1,000,000 391,130	2005 Nominal value HK$’000 100,000 39,113	No. of shares ’000 1,000,000 391,130	2004 Nominal value HK$’000 100,000

				39,113

Share options are granted to employees of the Group, including executive directors of the Group. A consideration at HK$1 was paid by the employees for each lot of share options granted. Share options can be exercised within five years commencing on the expiry of three months from the date of grant of the option. During the year, no option has been granted to or exercised by any eligible person or grantee respectively. The Group has no legal obligation to settle the options in cash.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Movements in the number of share options outstanding during the year are as follows:

At the beginning of the year Granted Exercised Lapsed At the end of the year	Number of options 2005 2004 ’000 ’000 13,950 14,250 – – – – (2,350) (300) 11,600 13,950	Number of options 2005 2004 ’000 ’000 13,950 14,250 – – – – (2,350) (300) 11,600 13,950
		13,950

Share options outstanding at the end of the year have the following terms:

Exercise Expiry Date price Directors – 1st February 2006 0.6600 – 8th August 2006 0.6128 Other employees – 1st February 2006 0.6600 – 8th August 2006 0.6128	Number of options 2005 2004 2,850,000 3,350,000 2,300,000 3,300,000 5,150,000 6,650,000 ----------------- ----------------- 3,800,000 4,250,000 2,650,000 3,050,000 6,450,000 7,300,000 ----------------- ----------------- 11,600,000 13,950,000	Vested 2005 100% 100% ----------------- 100% 100% -----------------	percentages 2004 100% 100%
			----------------- 100% 100%
			-----------------

An option covering 950,000 (2004: 200,000) ordinary shares at HK$0.1 each exercisable at HK$0.66 and 1,400,000 (2004: 100,000) ordinary shares at HK$0.1 each exercisable at HK$0.6128 were lapsed as a result of resignation of grantees during the year.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

16. Reserves

Balance at 1st January 2004 Reserves transferred to income statement upon disposal of investment securities held for non-trading purposes Profit for the year Dividend Exchange difference Reduction in cost of investment in a subsidiary Balance at 31st December 2004 Balance at 1st January 2005, as per above Opening adjustment for the adoption of HKAS 39 Balance at 1st January 2005, as restated Profit for the year Dividend Surplus on revaluation of available-for-sale financial assets Exchange difference At 31st December 2005 At 31st December 2005 Company and subsidiaries Associates At 31st December 2004 Company and subsidiaries Associates			Group	Group		Total HK$’000 217,093 (565) 23,161 (9,778) 1,340 1,397 232,648 232,648 1,000 233,648 27,447 (9,778) 2,491 (1,828) 251,980 243,796 8,184 251,980 227,499 5,149 232,648
	Share premium HK$’000 89,785 – – – – – 89,785 89,785 – 89,785 – – – – 89,785 89,785 – 89,785 89,785 – 89,785	Capital reserves HK$’000 100,189 – – – – – 100,189 100,189 – 100,189 – – – – 100,189 100,189 – 100,189 100,189 – 100,189	Investment revaluation reserves HK$’000 565 (565) – – – – – – – – – – 2,491 – 2,491 2,491 – 2,491 – – –	Retained earnings HK$’000 26,241 – 23,161 (9,778) – 1,397 41,021 41,021 1,000 42,021 27,447 (9,778) – – 59,690 52,064 7,626 59,690 37,189 3,832 41,021	Exchange differences HK$’000 313 – – – 1,340 – 1,653 1,653 – 1,653 – – – (1,828) (175) (733) 558 (175) 336 1,317 1,653

APPENDIX 1 FINANCIAL INFORMATION ON THE GROUP

At 1st January 2004 Profit for the year Dividend At 31st December 2004 Profit for the year Dividend At 31st December 2005 (a) Retained earnings are represented Representing: Final dividend proposed Others Retained earnings as at 31st December			Company
		Share premium HK$’000 89,785 – – 89,785 – – 89,785 as follows: 2005 HK$’000 – 59,690 59,690	Retained earnings HK$’000 26,321 7,571 (9,778) 24,114 43,083 (9,778) 57,419 Group 2004 HK$’000 9,778 31,243 41,021

(b) Capital reserves

The capital reserves of the Group represents the difference between the nominal value of the shares issued by the Company in exchange for the nominal value of the deferred share capital of a subsidiary acquired in 2000.

(c) Contributed surplus

Contributed surplus arose as a result of the Group’s reorganisation in 2000 and represents the difference between the aggregate net asset value of subsidiaries acquired and the nominal amount of the Company’s shares issued for the acquisition.

(d) Investment revaluation reserve

The investment revaluation reserve of the Group represents the changes in the fair value of available-forsale financial assets/non-trading securities.

(e) Distributable reserves

Under the Company Act 1981 of Bermuda (as amended), the contributed surplus account of the Company is available for distribution. However, the Company cannot declare or pay a dividend, or make a distribution out of the contributed surplus account if:

(i) it is, or would after the payment be, unable to pay its liabilities as they become due; or
(ii) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

17. Obligations under finance lease

At 31st December 2005, the Group’s finance lease liabilities were repayable as follows:

Not later than one year Later than one year and not later than five years Future finance charges on finance leases Present value of finance lease liabilities The present value of finance lease liabilities is as follows: Not later than one year Later than one year and not later than five years Trade and other payables 2005 HK$’000 Trade payable to securities trading clients 21,606 Margin and other deposits payable to other clients 42,294 Trade payable to brokers and clearing houses arising from the ordinary course of business of broking in securities, commodities and futures contracts and leveraged foreign exchange trading 6,434 Total trade payables 70,334 Accruals and other payables 17,769 Total trade and other payables 88,103	2005 2004 HK$’000 HK$’000 121 – 162 – 283 – (22) – 261 – 2005 2004 HK$’000 HK$’000 107 – 154 – 261 – Group Company 2004 2005 2004 HK$’000 HK$’000 HK$’000 39,624 – – 4,637 – – 839 – – 45,100 – – 14,588 773 852 59,688 773 852	2004 HK$’000 – –
		– –
		–

		2004 HK$’000 – –
		–

		– 852
		852

18. Trade and other payables

The settlement terms of trade payables from the ordinary course of business of broking in securities payable to clearing houses and securities trading clients ranging from two to three days after the trade date of those transactions. The margin and other deposits payable to other clients principally represent the margin deposits received from clients for their trading of leveraged foreign exchange, precious metal contracts, commodities and futures contracts.

Other trade payables are aged within 30 days.

The carrying amounts of total trade and other payables approximate their fair value.

The effective interest rate paid on trade payables as at the balance sheet date ranged from 1.5% to 2% per annum (2004: 0.01% to 0.35%)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

19. Borrowings

Secured bank overdrafts Unsecured bank overdrafts Unsecured short-term bank loan Total borrowings	Group 2005 2004 HK$’000 HK$’000 13,586 6,794 5,141 13,713 10,000 10,000 28,727 30,507	Group 2005 2004 HK$’000 HK$’000 13,586 6,794 5,141 13,713 10,000 10,000 28,727 30,507
		30,507

All the borrowings are repayable within one year and classified as current liabilities. The carrying amounts of the borrowings approximate their fair value.

Total borrowings include secured liabilities of HK$13,585,172 (2004: HK$6,794,200) which is secured by collaterals deposited by clients.

The exposure of the Group’s borrowings to interest-rate changes and the contractual repricing dates are as follows:

At 31st December 2005 Total borrowings At 31st December 2004 Total borrowings The effective interest rates at the balance sheet date were as follows:	Group 6 months or less Total HK$’000 HK$’000 28,727 28,727 30,507 30,507	Group 6 months or less Total HK$’000 HK$’000 28,727 28,727 30,507 30,507

		30,507


	2005	2004
Secured bank overdrafts	5.75%-7.75%	3%-5%
Unsecured bank overdrafts	7.75%	5%
Unsecured short-term bank loan	5.79%	2.12%

All the borrowings of the Group are denominated in HK Dollars.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

20. Turnover, revenue and segment information

The Company is an investment holding company. The Group is principally engaged in the provision of leveraged foreign exchange trading and broking services, securities broking, commodities and futures broking, provision of corporate financial advisory services, fund management, financial planning and insurance broking, and trading and broking of precious metal contracts. Total revenues recognised during the year are as follows:

Turnover Fees and commission Net revenue from – foreign currency option trading – foreign currency option broking – bullion trading Net premium income from insurance broking Swap interest and foreign exchange trading revenue Interest income Underwriting commission Management fee and subscription fee income Other revenues Dividend income from listed securities Other income including exchange gains Total revenues	2005 HK$’000 91,564 2,007 789 20,701 450 77,536 13,514 1,592 7,102 215,255 ----------------- 33 1,969 2,002 ----------------- 217,257	2004 HK$’000 77,254 7,693 163 6,283 368 67,325 8,219 396 2,030
		169,731 ----------------- 281 2,978
		3,259 -----------------
		172,990

Primary reporting format – Business Segments

The business of the Group was organised into the following segments during the year:

Leveraged foreign exchange trading/broking – provision of dealing and broking in leveraged forex trading services on the world’s major currencies including online broking services
Securities broking – provision of broking services in securities, equity linked products, unit trusts and stock options traded in Hong Kong and selected overseas markets and margin financing services to those broking clients
Commodities and futures broking – provision of broking services in commodities and futures contracts traded in Hong Kong and selected overseas markets
Corporate finance – provision of corporate finance and advisory services to companies listed in Hong Kong
Asset management – managing private funds and acting as an investment manager for investment companies
Financial planning and insurance broking – acting as an agent for the sale of savings plans, unit trusts, general and life insurance and providing advisory services on securities investment and discretionary fund management
Precious metal contracts trading/broking – provision of dealing and broking trading services on selected precious metals

There were no significant transactions between the business segments.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Secondary reporting format – Geographical Segments

Based on the geographical location of the clients, the Group’s business could be divided into six main geographical areas:

Hong Kong – mainly consists of retail clients
China – mainly consists of retail clients
New Zealand – mainly consists of corporate clients
Switzerland – mainly consists of retail clients.
Taiwan – mainly consists of retail clients.
Other countries – principally consist of clients from a number of countries or regions including Japan, Singapore and United Kingdom, etc

There were no significant transactions between the geographical segments.

Turnover Segment results Operating profit Finance costs Share of profits of associates Profit before taxation Income tax credits Profit after taxation Minority interests Profit attributable to equity holders Segment assets Interests in associates Deferred income tax assets Total assets Segment liabilities Deferred income tax liabilities Total liabilities Capital expenditure Impairment charge Depreciation Other non-cash expenses	Leveraged foreign exchange trading/ broking 2005 HK$’000 114,362 18,127 2,131 157,373 6,730 14,032 1,400 – 874 235	Commodities Securities and futures broking broking 2005 2005 HK$’000 HK$’000 24,579 15,986 4,332 1,236 – – 113,902 25,619 – – 57,901 15,365 179 21 – – 1,288 37 71 23	Corporate Asset finance management 2005 2005 HK$’000 HK$’000 7,718 3,185 1,329 959 – – 10,067 6,767 – – 240 545 – – – – 9 3 5 –	Financial planning/ insurance broking 2005 HK$’000 21,012 (4,836) – 23,905 – 5,475 1,989 – 523 93	Precious metal contracts trading/ broking 2005 HK$’000 28,323 5,574 – 15,041 – 3,528 50 – 21 28	Unallocated 2005 HK$’000 90 (2,741) 2,341 35,624 8,750 20,855 1,988 861 1,296 137	Total 2005 HK$’000 215,255

							23,980

							23,980 (2,090)
							21,890 4,472
							26,362 701
							27,063 384
							27,447

							388,298 15,480 5,431
							409,209

							117,941 175
							118,116

							5,627 861 4,051 592

APPENDIX 1 FINANCIAL INFORMATION ON THE GROUP

Turnover Segment results Operating profit Finance costs Share of profits of associates Profit before taxation Income tax expenses Profit after taxation Minority interests Profit attributable to equity holders Segment assets Interests in associates Deferred income tax assets Total assets Segment liabilities Deferred income tax liabilities Total liabilities Capital expenditure Impairment charge Depreciation Amortisatiton charge Other non-cash expenses	Leveraged foreign exchange trading/ broking 2004 HK$’000 95,438 25,703 3,040 151,585 5,069 8,635 1,059 – 1,129 – 132	Commodities Securities and futures broking broking 2004 2004 HK$’000 HK$’000 24,451 9,591 (1,262) (1,261) – 3,992 126,033 22,698 – – 73,088 12,968 312 10 913 406 1,548 40 332 150 824 33	Corporate Asset finance management 2004 2004 HK$’000 HK$’000 6,149 1,264 (794) (1) – – 9,361 4,704 – – 496 158 – 3 – – 11 2 – – 1,312 –	Financial planning/ insurance broking 2004 HK$’000 23,097 (1,809) – 18,696 – 3,564 946 – 153 – 56	Precious metal contracts trading/ broking 2004 HK$’000 8,923 3,420 – 3,083 – (6,300) 4 – 16 60 –	Unallocated 2004 HK$’000 818 (3,578) 1,208 19,706 7,376 1,568 3,085 – 827 667 –	Total 2004 HK$’000 169,731

							20,418

							20,418 (1,542)
							18,876 8,240
							27,116 (4,326)
							22,790 371
							23,161

							355,866 12,445 1,092
							369,403

							94,177 227
							94,404

							5,419 1,319 3,726 1,209 2,357

Unallocated costs represent corporate expenses. Segment assets consist primarily of intangible assets, fixed assets, receivables and operating cash, and mainly exclude investment in associates and deferred tax assets. Segment liabilities comprise operating liabilities and exclude deferred tax liabilities. Capital expenditure comprises additions to intangible assets and fixed assets, including additions resulting from acquisitions through purchases of subsidiaries.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Secondary reporting format – Geographical Segments

Hong Kong China New Zealand Switzerland Taiwan Other countries Interests in associates Deferred income tax assets Total assets	Turnover 2005 2004 HK$’000 HK$’000 154,489 116,405 15,513 21,052 26,449 21,248 (615) – 11,608 703 7,811 10,323 215,255 169,731	Total assets 2005 2004 HK$’000 HK$’000 257,645 253,361 6,309 6,755 – – 24,194 – 17,005 11,736 83,145 84,014 388,298 355,866 15,480 12,445 5,431 1,092 409,209 369,403	Capital expenditure 2005 2004 HK$’000 HK$’000 1,999 4,352 504 157 – – 735 – 2,385 910 4 – 5,627 5,419	Capital expenditure 2005 2004 HK$’000 HK$’000 1,999 4,352 504 157 – – 735 – 2,385 910 4 – 5,627 5,419
				5,419

The total assets in other countries mainly represent margin and other deposits placed with overseas brokers and financial institutions.

21. Staff costs

Salaries and allowances Defined contribution plans_(Note 28)_	2005 HK$’000 51,769 1,475 53,244	2004 HK$’000 41,823 1,068
		42,891

Staff costs include directors’ emoluments as set out in Note 29.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

22. Other operating expenses

Advertising and promotion Amortisation cost of trading rights and membership Amortisation of goodwill Auditors’ remuneration Bad debts written off Bank charges Communication expenses Consultancy fee Depreciation of fixed assets Entertainment Equipment rental expenses Exchange loss Impairment charge – trading right – goodwill Insurance Legal and professional fee Loss on disposal of fixed assets Miscellaneous expenses Printing and stationery Provision for doubtful debts Repairs and maintenance Staff welfare Travelling expenses 23. Finance costs Interest on bank overdrafts Interest on bank loans Interest on other loans Interest on obligation under finance leases	2005 HK$’000 3,541 – – 1,771 280 312 1,880 2,395 4,051 1,988 5,991 2,913 – 861 1,618 3,773 455 8,439 1,368 – 1,859 1,523 6,733 51,751 2005 HK$’000 976 1,101 – 13 2,090	2004 HK$’000 2,278 542 667 1,550 1,423 317 1,404 942 3,726 1,549 5,451 19 1,319 – 1,440 3,006 162 5,083 1,395 645 2,452 695 3,027
		39,092

		2004 HK$’000 956 584 2 –
		1,542

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

24. Income tax expenses

Hong Kong profits tax has been provided at the rate of 17.5% (2004: 17.5%) on the estimated assessable profit for the year. Taxation on overseas profits has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the countries in which the Group operates.

The amount of taxation (credited)/charged to the consolidated income statement:

Current taxation: – Hong Kong profits tax – Overseas taxation – Under provisions for taxation Deferred taxation relating to the origination and reversal of temporary differences Taxation (credits)/expenses	2005 HK$’000 3,281 390 37 (4,409) (701)	2004 HK$’000 4,811 99 7 (591)
		4,326

The taxation on the Group’s profits before taxation differs from the theoretical amount that would arise using the taxation rate of the home country of the Company as follows:

Profits before taxation Calculated at a taxation rate of 17.5% (2004: 17.5%) Effect of different taxation rates in other countries Tax effect of income not subject to taxation Tax effect of expenses not deductible for taxation purposes Utilisation of previously unrecognised tax losses Tax losses for which no deferred income tax assets was recognised Under provisions for taxation Taxation (credits)/expenses	2005 HK$’000 21,890 3,831 (214) (1,124) 412 (5,542) 1,899 37 (701)	2004 HK$’000 18,876

		3,303 (187) (675) 982 (68) 964 7
		4,326

25. Profit attributable to shareholders

The profit attributable to shareholders is dealt with in the financial statements of the Company to the extent of a profit of HK$43,083,613 (2004: HK$7,570,798).

26. Dividends

	2005	2004
	HK$’000	HK$’000
Proposed final dividend of HK$nil (2004: HK$0.025)
per ordinary share	–	9,778

The directors do not recommend the payment of a final dividend for the year ended 31st December 2005 (2004: HK$0.025 per share)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

27. Earnings per share

The calculation of basic earnings per share and diluted earnings per share are based on the Group’s profit attributable to shareholders of HK$27,446,846 (2004: HK$23,160,933) and the weighted average number of 391,130,000 (2004: 391,130,000) ordinary shares in issue during the year.

Diluted earnings per share is calculated based on the adjusted weighted average number of 391,309,385 (2004: 391,668,991) ordinary shares which is calculated adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares in respect of share options. The calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have issued assuming the exercise of the share options.

28. Defined contribution plans – MPF Scheme

The aggregate employer’s contributions, net of forfeited contributions, which have been dealt with in the income statement for the year amounted to:

Gross employer’s contributions Less: Forfeited contributions utilised to offset employer’s contribution for the year Net employer’s contributions charged to income statement	2005 HK$’000 1,605 (130) 1,475	2004 HK$’000 1,229 (161)
		1,068

29. Directors’ and senior management’s emoluments

(a) Directors’ and senior management’s emoluments

The remuneration of every director for the year ended 31st December 2005 is set out below:

Name of Director Tang Yu Lap Tang Ping Sum Sze Chong Hoi Chan Na Wah Lam Ngok Fung Ng Chiu Mui Poon Wai Ming Law Kai Yee Fong Wo Man Kong Yui Chung Shui Ming Yu Man Woon Cheng Wing Chi Nyaw Mee Kau	Fee HK$’000 – – – – – – – – 105 39 189 115 105 89 642	Salary HK$’000 1,200 1,860 1,200 105 780 540 732 86 – – – – – – 6,503	Discretionary bonuses HK$’000 125 227 50 – 113 72 81 60 – – – – – – 728	Other benefits HK$’000 – – – 104 15 – – 8 – – – – – – 127	Employer’s contribution to pension scheme HK$’000 12 12 12 3 12 12 12 – – – – – – – 75	Total HK$’000 1,337 2,099 1,262 212 920 624 825 154 105 39 189 115 105 89
						8,075

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

The remuneration of every director for the year ended 31st December 2004 is set out below:

Name of Director Tang Yu Lap Man Kong Yui Tang Ping Sum Sze Chong Hoi Chan Na Wah Lam Ngok Fung Ng Chiu Mui Poon Wai Ming Fong Wo Fan Sheung Tak Chung Shui Ming Yu Man Woon Cheng Wing Chi Cheung Man Kok	Fee HK$’000 – 84 – – – – – – 100 74 173 100 25 75 631	Salary HK$’000 241 126 1,793 600 600 720 174 664 – – – – – – 4,918	Discretionary bonuses HK$’000 160 – 150 150 150 90 60 60 – – – – – – 820	Other benefits HK$’000 – – – 580 585 3 – – – – – – – – 1,168	Employer’s contribution to pension scheme HK$’000 12 2 12 12 12 12 9 11 – – – – – – 82	Total HK$’000 413 212 1,955 1,342 1,347 825 243 735 100 74 173 100 25 75
						7,619

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include four directors (2004: four) whose emoluments are reflected in the analysis presented above. The emolument payable to the remaining one (2004: one) individual during the year is as follows:

Basic salaries, other allowances, share options and benefits in kind Bonus Defined contribution plans The emoluments fell within the following bands: Emolument bands HK$1,000,001 – HK$1,500,000	2005 2004 HK$’000 HK$’000 984 960 63 35 12 12 1,059 1,007 Number of individuals 2005 2004 1 1	2004 HK$’000 960 35 12
		1,007

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

30. Notes to the consolidated cash flow statement

(a) Reconciliation of operating profit to net cash inflow/(outflow) from operating activities:

Operating profit before taxation
Depreciation of fixed assets
Amortisation cost of trading rights and membership
Amortisation of goodwill
Amortisation of discount for investment in
held-to-maturity securities
Appreciation in value of financial assets at
fair value through profit or loss
Impairment charge
– trading right
– goodwill
Interest expenses
Dividend income from listed securities
Loss on disposal of fixed assets (net)
Profit on disposal of interests in an associate
Realised gain on listed securities
Profit on disposal of financial assets at fair value
through profit or loss
Written back of provision for doubtful debt
and clawback
Bad debts written off
Provision for doubtful debts and clawback
Unrealised profit with associates
Increase in pledged deposits
Operating profit before working capital changes
Decrease/(increase) in other assets
Increase in trading securities
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Cash outflow generated from operations
Hong Kong profits tax paid (net)
Net cash Inflow/(outflow) generated from operations
Analysis of changes in financing during the year
As at 1st January
Repurchase of shares
As at 31st December

2005
2004
HK$’000
HK$’000
21,890
18,876
4,051
3,726
–
542
–
667
–
(5)
(84)
–
–
1,319
861
–
2,090
1,542
(33)
(281)
392
162
–
(155)
–
(887)
(939)
–
(137)
–
280
1,423
93
699
129
225
(67)
(7,199)
28,526
20,654
241
(52)
–
(27)
4,773
(35,037)
28,439
(6,840)
61,979
(21,302)
(7,808)
(1,060)
54,171
(22,362)
Share capital
including share premium
2005
2004
HK$’000
HK$’000
128,898
128,898
–
–
128,898
128,898

(b) Analysis of changes in financing during the year

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

(c) Purchase of subsidiaries:

Net assets acquired Trade and other receivables Bank balances and cash – general accounts Deferred tax assets Trade and other payables Remaining minority interests of a subsidiary acquired Goodwill Satisfied by: Cash	2005 HK$’000 – – – – 2,899 2,899 76 2,975 2,975	2004 HK$’000 6,344 1,678 183 (107) – 8,098 1,087 9,185 9,185

The subsidiaries acquired during the year contributed revenues of HK$1,191,931 (2004: HK$705,843) and net loss of HK$1,160,530 (2004: HK$1,633,053) to the Group for the period from the acquisition to the end of the year.

(d) Analysis of the net cash outflow in respect of the purchase of subsidiaries:

Cash consideration Bank balances and cash in hand acquired Net cash outflow in respect of the purchase of subsidiaries	2005 HK$’000 (2,975) – (2,975)	2004 HK$’000 (9,185) 2,398 (6,787)

31. Contingent liabilities

(a) The Company received a writ of summons on 28th July 2000, filed by a company named Hantec Investment Limited which is unrelated to the Group. The plaintiff sought for injunction to restrain the Company from using the plaintiff’s alleged trade name and damages.

The directors have commenced a defence action and will continue to defend it. Potential damages, losses, fees, expenses, proceedings and claims which have been and may be incurred by the Group as a result of the action have been covered by a joint and several indemnity, given by the ultimate controlling shareholders and accordingly no provision has been made by the Group as at 31st December 2005 and 2004.

(b) An indirect wholly owned subsidiary of the Company, Hantec international Limited (“HIL”) received a writ of summon on 28th March 2006 from two clients jointly as plaintiffs claiming for damages against HIL and two of its licensed representatives for an amount of HK$20,600,000 together with costs as a result of a number of transactions of leveraged foreign exchange trading. The directors of HIL have instructed the Company’s legal representative to commence defence action. the directors, after considering the fact and the information available, and after assessing the opinion provided by the Group’s legal advisors, are of the opinion that no provision is required to be made at this stage. The directors will closely monitor the development of the case and consider appropriate treatment in the financial statements should the circumstances turning adverse to HIL. As the writ of summon was issued and served to HIL after the balance sheet date, it is also considered as a post balance event.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

(c) Another client of HIL commenced proceedings against HIL by way of arbitration under the Securities and Futures Ordinance (the “SFO”) for an amount of HK$933,948 arising out of the alleged provision of misleading information and/or wrongful misrepresentation by a licensed representative of HIL in respect of leveraged foreign exchange trading. HIL has commenced defence on the claim. Based on the advice from the legal counsel, the directors consider that no provision is required.
(d) As at 31st December 2005, the Company had issued corporate guarantees to certain banks for credit facilities up to an amount of HK$118,000,000 (2004: HK$118,000,000) granted to a subsidiary which engages in securities broking. In addition, the Company had issued corporate guarantees to certain financial institutions for foreign exchange trading and precious metals contracts trading facilities granted to subsidiaries which engage in leveraged foreign exchange trading and precious metals trading. The guarantee amounts vary and are subject to the volume of contracts traded with the financial institutions.

32. Lease commitments

At 31st December 2005, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

Not later than one year Later than one year and not later than five years	Land and buildings 2005 2004 HK$’000 HK$’000 7,956 5,213 6,224 6,945 14,180 12,158	2005 HK$’000 703 667 1,370	Others 2004 HK$’000 400 607
			1,007

At 31st December 2005, the Group had licence fees expected to be received under non-cancellable operating leases as follows:

Land and buildings Not later than one year Later than one year and not later than five years	2005 HK$’000 72 36 108	2004 HK$’000 – –
		–

33. Foreign exchange risk

At 31st December 2005, the Group was exposed to foreign currency exchange risk as follows:

(a) On-balance sheet net assets

– PHP – JPY – USD – EUR – CHF – RMB – TWD – SGD	2005 HK$’000 65 6,662 130,874 1,200 6,312 746 11,485 147 157,491	2004 HK$’000 62 4,639 137,482 556 – 222 9,736 –
		152,697

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

(b) Off-balance sheet foreign exchange open positions

Notional value of leveraged foreign exchange trading contracts to purchase foreign currencies – AUD – CAD – CHF – EUR – GBP – NZD – YEN Notional value of leveraged foreign exchange trading contracts to sell foreign currencies – AUD – CAD – CHF – EUR – GBP – NZD – YEN Notional value of option contracts to purchase foreign currencies – GBP – YEN – EUR Notional value of option contracts to sell foreign currencies – GBP – YEN – EUR	2005 HK$’000 22,322 47,042 37,449 303,659 803,235 36,386 497,328 1,747,421 24,154 54,600 51,331 301,720 801,128 31,340 539,290 1,803,563 215,531 134,187 – 349,718 214,531 134,966 – 349,497	2004 HK$’000 123,632 60,106 1,405,359 402,782 125,104 11,519 1,365,484
		3,493,986

		129,113 21,313 1,369,156 382,059 161,911 10,395 1,322,489
		3,396,436

		– – 53,137
		53,137

		– – 53,137
		53,137

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

34. Related party transactions

34.1 Related party transactions

The following is a summary of significant related party transactions which were carried out in the normal course of the Group’s business:

Net premium expenses from foreign currency option trading and broking_(Note (a)(ii)) Commission income received(Note (a)(ii)) Financial advisory service fee received(Note (b)) Financial advisory service fee paid(Note (c)) Miscellaneous expenses(Note (d)) Amount payable to an associate(Note (e))_	2005 HK$’000 (4,400) 7 – – (127) 5,741	2004 HK$’000 (7) – 702 (936) (694) –

(a) During the year, the associate in New Zealand transacted leveraged foreign exchange trading, precious metal trading and securities trading through the subsidiaries of the Group.
(i) For leveraged foreign exchange transactions and precious metal trading transactions, spreads are based on relevant market rates at the time of each transaction available to other customers and counterparties of the Group with comparable standing. The aggregate notional amount of the transactions entered by the associates amounted to HK$139,289 million (2004: HK$126,929 million) for leveraged foreign exchange trading contracts and HK$772 million (2004: HK$187 million) for precious metal trading contracts out of the total aggregate notional amount of the transactions of HK$371,677 million (2004: HK$585,476 million) and HK$27,050 million (2004: HK$17,176 million) respectively entered by the Group during the year.
(ii) Commission and option premium income were charged to these transactions on normal commercial terms. During the year, the commission of HK$6,808 (2004: nil) was charged on the transactions and net option premium expenses of HK$4,400,260 (2004: HK$7,067) were contributed to the turnover of the Group.
(b) In 2004, financial services fee of HK$702,000 was charged by the Group to the associate in New Zealand, for providing certain corporate financial advisory services. The service fee was charged at normal commercial terms.
(c) In 2004, the associate in New Zealand provided advisory services to the Group and received HK$936,000 as advisory fee. The service fee was charged at normal commercial terms.
(d) During the year, the Group incurred HK$127,000 (2004: HK$694,000) for purchasing Chinese paintings as souvenir from a company in which the Chairman of the Group held 70% equity interest. The amount was charged at normal commercial terms.
(e) The amount represents the trade payable arising from the ordinary course of business of leveraged foreign exchange trading to an associate of the Group. The amount is unsecured, interest free and repayable on demand.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

34.2 Compensation of key management personnel

The remunerations of directors and other members of key management during the year were as follows:

		Group
	2005	2004
	HK$’000	HK$’000
Salaries and other short-term employee benefits	13,301	12,618

The remunerations of directors and key executives were reviewed by the Remuneration Committee having regard to the performance of individuals and market trends.

35. Capital commitments

Capital commitments for system software development and fixed asset acquisition

		Group
	2005	2004
	HK$’000	HK$’000
Contracted but not provided for	547	585

36. Ultimate holding company

The directors regard Hantec Holdings Limited, a company incorporated in Hong Kong, as being the ultimate holding company.

37. Post balance sheet event

Save as disclosed in Note 31(b) above, there are no post balance sheet events to be disclosed, whether adjusting or non-adjusting.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

C. INDEBTEDNESS

STATEMENT OF INDEBTEDNESS

As at the close of business on 30 June 2006, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had the borrowings amounting to approximately HK$30,249,000 and contingent liabilities and guarantees amounting to approximately HK$139,534,000, details of which are as follows:

Borrowings

The following table illustrates the Enlarged Group’s bank and other borrowings as at 30 June 2006:

Bank borrowings – secured – unsecured Obligations under finance leases Short term loan from others (unsecured)	HK$ 3,907,000 15,270,000
	19,177,000 222,000 10,850,000
	30,249,000

Notes:

As at 30 June 2006, the Enlarged Group’s bank borrowings of HK$3,907,000 are secured by re-pledging clients’ marketable securities with an aggregate market value of HK$9,767,000.

Contingent liabilities and guarantees

(a) As at 30 June 2006, the Company provided corporate guarantees for credit facilities made available to a subsidiary engaging in securities broking and margin financing in an aggregate amount of HK$118,000,000. In addition, the Company also issued corporate guarantees to certain financial institutions for foreign exchange trading and precious metal contracts trading facilities granted to two subsidiaries of the Company. The guarantee amount varies according to the volume of contracts traded with the financial institutions.
(b) As at 30 June 2006, the Enlarged Group had contingent liabilities of approximately HK$20,600,000 out of damages claims made by two clients of a subsidiary jointly and approximately HK$934,000 from another client of a subsidiary of the Company by way of a claim through arbitration under the Securities and Futures Ordinance.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

Other outstanding litigations

(a) The Company received a writ of summons on 28 July 2000, filed by a company named Hantec Investment Limited which is unrelated to the Group. The plaintiff sought for injunction to restrain the Company from using the plaintiff’s alleged trade name and damages.

The Directors have commenced a defence action and will continue to defend it. Potential damages, losses, fees, expenses, proceedings and claims which have been and may be incurred by the Group as a result of the action have been covered by a joint and several indemnity, given by the ultimate controlling shareholders and accordingly no provision has been made by the Group as at 31 December 2005 and 2004.

(b) The CHI Group and CHI had no contingent liabilities as at 31 December 2003, 2004 and 2005. As at 31 March 2006, the CHI Group and CHI had received a claim of approximately NZ$250,000 from a former employee of CHI in respect of unjustified dismissal, disadvantage and unpaid commission. The legal adviser to the CHI Group and CHI on this claim is of the opinion that the potential liability would be approximately NZ$60,000 to NZ$80,000, if any. On this basis, the directors of CHI consider that the claims will unlikely result in any material financial impact on the CHI Group and CHI.

Disclaimer

Save as disclosed above and apart from intra-group liabilities, the Enlarged Group did not have any loan capital issued and outstanding or agreed to be issued, any loan capital, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges or loans or acceptance credits or hire purchase commitments, guarantees or other material contingent liabilities as at the close of business on 30 June 2006.

No material adverse change

Save as disclosed herein, the Directors have confirmed that there has not been any material change in the indebtedness and contingent liabilities of the Enlarged Group since 30 June 2006.

D. WORKING CAPITAL

The Directors are of the opinion that, following completion of the Acquisition, taking into account the financial resources available to the Enlarged Group, including the internally generated funds and the present available banking facilities, the Enlarged Group will have sufficient working capital for its present requirements.

E. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005, being the date to which the latest published audited consolidated financial statements of the Company were made up.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX 1

F. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date was, and at Completion will be, as follows:

Authorised: 1,000,000,000 Shares Issued and fully paid: 391,130,000 Shares 23,000,000 Consideration Shares to be allotted and issued at Completion 414,130,000	HK$’000 100,000

	39,113 2,300
	41,413

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

A. ACCOUNTANTS’ REPORT

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Grant Thornton, Certified Public Accountants, Hong Kong.

Certified Public Accountants

Member of Grant Thornton International

==> picture [118 x 35] intentionally omitted <==

30 August 2006

The Directors

Hantec Investment Holdings Limited 45th Floor COSCO Tower 183 Queen’s Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information of Cosmos Hantec Investment (NZ) Limited (“CHI”) and its subsidiaries (hereinafter collectively referred to as the “CHI Group”), in Sections I and II, including the balance sheets of CHI as at 31 December 2003, 2004, 2005 and 31 March 2006, consolidated balance sheets of the CHI Group as at 31 December 2004, 2005 and 31 March 2006, income statement, cash flow statement, statement of changes in equity and the notes thereto of CHI for the period from 6 December 2002 (date of incorporation of CHI) to 31 December 2003, consolidated income statements, consolidated cash flow statements, consolidated statement of changes in equity and the notes thereto of the CHI Group for each of the two years ended 31 December 2004 and 2005 and for the three months ended 31 March 2006 (the “Relevant Periods”) prepared for inclusion in the circular of Hantec Investment Holdings Limited (“Hantec”) dated 30 August 2006 in connection with the proposed acquisition of the remaining 70% equity interest in CHI (the “Circular”).

CHI is a company incorporated in New Zealand on 6 December 2002 with limited liability with an authorised share capital of NZ$1,000,000 divided into 1,000,000 shares of NZ$1 each which were all issued and fully paid up. CHI is principally engaged in the provision of leveraged foreign exchange and bullion trading and broking services in New Zealand. The address of CHI’s registered office and principal place of business is Level 13, 1 Queen Street, Auckland, New Zealand.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

As at the date of this report, the particulars of CHI’s subsidiaries are as follows:

		Nominal value of
		issued ordinary	Attributable equity
	Date and place of	share/ registered	interest directly	Principal activities and
Name	incorporation	capital	held by CHI	place of operations
Cosmos Hantec International	21 September 2004,	Registered capital	100%	Provision of supporting
Investments Limited	Macau	of MOP25,000		and administration
(“CHIIL”)				services in Macau
Hantec (New Zealand)	3 October 2005,	10,000 ordinary shares	100%	Dormant
Investment Company Limited	New Zealand	of NZ$1 each
(“HICL”)

All companies comprising the CHI Group have adopted 31 December as their financial year end date.

The financial statements of CHI for the period from 6 December 2002 (date of incorporation of CHI) to 31 December 2003 and the consolidated financial statements of the CHI Group for each of the two years ended 31 December 2005 and for the three months ended 31 March 2006 (collectively referred to as the “Underlying Financial Statements”), which were prepared in accordance with the relevant accounting principles and financial regulations applicable to the companies incorporated in New Zealand, were audited by KPMG, Auckland, New Zealand.

The financial statements of CHIIL for the period from 21 September 2004 (date of incorporation) to 31 December 2004 and for the year ended 31 December 2005 were audited by Chan Hoi Wan, Certified Public Accountants and in accordance with accounting principles generally accepted in Macau.

No audited financial statements have been prepared for HICL as it has not carried on any business since its date of incorporation.

The financial information prepared in accordance with the Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the notes thereto (the “Financial Information”) for the Relevant Periods set out in this report have been prepared by the directors of CHI (the “Directors”) based on the Underlying Financial Statements. Adjustments have been made, for the purpose of this report, where necessary to conform with HKFRS. For the purpose of this report, we have examined the Financial Information and carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The preparation of the Underlying Financial Statements and the Financial Information which give a true and fair view is the responsibility of the Directors. The directors of Hantec are responsible for the contents of the Circular in which this report is included. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of CHI as at 31 December 2003, 2004 and 2005 and 31 March 2006 and of CHI’s results and cash flows for the period from 6 December 2002 (date of incorporation) to 31 December 2003; the state of affairs of the CHI Group as at 31 December 2004 and 2005 and 31 March 2006 and of the CHI Group’s results and cash flows for the two years ended 31 December 2005 and for the three months ended 31 March 2006.

The unaudited comparative Financial Information (the “Comparative Financial Information”) of the CHI Group for the three months ended 31 March 2005 has been prepared solely for the purpose of this report. The Directors are responsible for preparing the Comparative Financial Information. It is our responsibility to form an independent conclusion, based on our review, on the Comparative Financial Information and to report our conclusion to you. For the purpose of this report, we have performed a review of the Comparative Financial Information for the three months ended 31 March 2005 in accordance with Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. Our review consists principally of making enquiries of management and applying analytical procedures to the Comparative Financial Information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the Comparative Financial Information for the three months ended 31 March 2005.

For the purpose of this report and on the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the Comparative Financial Information for the three months ended 31 March 2005.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

I. FINANCIAL INFORMATION

A. INCOME STATEMENTS

CHI
Period from
6 December
2002 (date of
incorporation)
to 31 December
2003
Notes
NZ$
Revenue
5(a)
2,269,360
Other income
5(b)
1,482,753
Total income
3,752,113
Staff costs
6
367,657
Commission and agency fee
2,017,124
Operating leases expense
49,848
Other operating expenses
1,156,945
Total operating expenses
3,591,574
Operating profit/ (loss)
7
160,539
Finance costs
8
–
Profit/ (Loss) before income tax
160,539
Income tax (expense)/ benefit
9
(55,902)
Profit/ (Loss) for the year/period
104,637
Earnings/ (Loss) per share
10
– Basic
0.105
– Diluted
N/A

The CHI Group
Two years ended
Three months ended
31 December
31 March
2004
2005
2005
2006
NZ$
NZ$
NZ$
NZ$
(Unaudited)
13,596,312
19,205,090
6,766,051
3,947,959
6,357,716
6,456,956
1,134,230
3,544,481
19,954,028
25,662,046
7,900,281
7,492,440
912,290
1,192,560
227,893
297,709
13,630,873
14,708,732
4,337,171
3,868,826
96,953
142,745
35,254
58,422
2,165,599
7,661,818
4,319,647
4,249,431
16,805,715
23,705,855
8,919,965
8,474,388
3,148,313
1,956,191
(1,019,684)
(981,948)
(231,986)
(76,400)
(6,803)
(17,877)
2,916,327
1,879,791
(1,026,487)
(999,825)
(1,014,217)
(662,929)
330,298
329,526
1,902,110
1,216,862
(696,189)
(670,299)
1.902
1.217
(0.696)
(0.670)
N/A
N/A
N/A
N/A

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

B. CONSOLIDATED BALANCE SHEETS

ASSETS AND LIABILITIES Notes Non-current assets Property, plant and equipment 12 Deferred tax assets 13 Current assets Financial assets at fair value through profit or loss 16 Prepayments and other receivables Trade receivables 17 Amounts due from related companies 25(b)(i) Amount due from a shareholder 25(b)(iv) Bank balances and cash – pledged 18 Bank balances and cash 18 Current liabilities Bank overdrafts (secured) 18 Trade payables 19 Other payables and accruals Amounts due to related companies 25(b)(ii) Amount due to a shareholder 25(b)(iv) Other loans 20 Provision for income tax Net current assets Total assets less current liabilities EQUITY Share capital 21 Retained profits 22 Total equity	As at 31 December 2004 2005 NZ$ NZ$ 775,294 811,251 21,616 11,568 796,910 822,819 2,502,613 3,626,269 76,595 263,843 1,427,119 3,240,234 13,888,627 4,700,232 36,207 26,225 3,364,462 636,855 11,134,426 9,832,967 32,430,049 22,326,625 2,364,676 – 23,470,299 16,626,567 2,848,015 1,414,920 606,018 486,009 – – – – 931,204 398,339 30,220,212 18,925,835 2,209,837 3,400,790 3,006,747 4,223,609 1,000,000 1,000,000 2,006,747 3,223,609 3,006,747 4,223,609	As at 31 March 2006 NZ$ 794,928 341,094
		1,136,022 3,913,001 452,267 7,884,948 8,070,843 – 2,343,511 15,506,927
		38,171,497 – 28,734,119 2,172,741 – 2,436,647 2,023,684 387,018
		35,754,209
		2,417,288
		3,553,310

		1,000,000 2,553,310
		3,553,310

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

C. BALANCE SHEETS

ASSETS AND LIABILITIES Notes Non-current assets Property, plant and equipment 12 Investment in subsidiaries 14 Deferred tax assets 13 Current assets Available-for-sales financial assets 15 Financial assets at fair value through profit or loss 16 Prepayments and other receivables Trade receivables 17 Amount due from a subsidiary 25(b)(iii) Amounts due from related companies 25(b)(i) Amount due from a shareholder 25(b)(iv) Bank balances and cash – pledged 18 Bank balances and cash 18 Current liabilities Bank overdrafts (secured) 18 Trade payables 19 Other payables and accruals Amounts due to related companies 25(b)(ii) Amount due to a shareholder 25(b)(iv) Other loans 20 Provision for income tax Net current assets Total assets less current liabilities EQUITY Share capital 21 Retained profits 22 Total equity	As at 31 December 2003 2004 2005 NZ$ NZ$ NZ$ 862,256 775,294 756,779 – 4,598 4,598 16,899 21,616 11,568 879,155 801,508 772,945 99,483 – – 3,139,781 2,502,613 3,626,269 39,905 76,595 249,723 1,077,857 1,427,119 3,240,234 – – 874,051 16,762 13,888,627 4,700,232 – 36,207 26,225 – 3,364,462 636,855 7,669,338 11,134,426 8,642,607 12,043,126 32,430,049 21,996,196 – 2,364,676 – 771,383 23,470,299 16,626,567 726,850 2,848,015 1,398,418 10,246,610 610,616 – – – – – – – 72,801 931,204 398,339 11,817,644 30,224,810 18,423,324 225,482 2,205,239 3,572,872 1,104,637 3,006,747 4,345,817 1,000,000 1,000,000 1,000,000 104,637 2,006,747 3,345,817 1,104,637 3,006,747 4,345,817	As at 31 March 2006 NZ$ 737,286 4,598 326,941
		1,068,825 – 3,913,001 437,281 7,884,948 449,678 8,059,736 – 2,343,511 14,726,116
		37,814,271 – 28,734,119 2,142,902 – 2,436,647 1,478,157 387,018
		35,178,843
		2,635,428
		3,704,253

		1,000,000 2,704,253
		3,704,253

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

D. CASH FLOW STATEMENTS

CHI
Period from
6 December
2002 (date of
incorporation)
to 31 December
2003
Notes
NZ$
Cash flows from operating
activities
Profit/(Loss) before income tax
160,539
Adjustments for:
Depreciation
7
92,991
Fair value (gain)/loss on
financial assets at fair value
through profit or loss
5(b), 7
(53,124)
Dividend income
5(a)
–
Interest expenses
8
–
Operating profit/(loss) before
working capital changes
200,406
Increase in prepayments and
other receivables
(39,905)
(Increase)/Decrease in trade
receivables
(1,077,857)
(Increase)/Decrease in amount
due from related companies
(16,762)
Change in balance with
a shareholder
–
Increase/(Decrease) in trade
payables
771,383
Increase/(Decrease) in other
payables and accruals
726,850
Increase/(Decrease) in amount
due to related companies
3,476,333
(Increase)/Decrease in pledged
bank balances
–
Exchange difference
–

The CHI Group
Two years ended
Three months ended
31 December
31 March
2004
2005
2005
2006
NZ$
NZ$
NZ$
NZ$
(Unaudited)
2,916,327
1,879,791
(1,026,487)
(999,825)
135,748
139,720
14,738
36,923
(719,319)
(317,724)
76,471
98,908
(1,525)
(97,563)
–
–
231,986
76,400
6,803
17,877
2,563,217
1,680,624
(928,475)
(846,117)
(36,690)
(187,248)
(524,061)
(188,424)
(349,262)
(1,813,115)
206,525
(4,644,714)
(13,871,865)
9,188,395
(5,988,071)
(3,370,611)
(36,207)
9,982
(16,179)
2,462,872
22,698,916
(6,843,732)
7,897,096
12,107,552
2,121,165
(1,433,095)
(819,398)
757,821
(2,198,855)
–
–
–
(3,364,462)
2,727,607
(1,471,410)
(1,706,656)
260,453
–
(46,723)
(391,947)

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

D. CASH FLOW STATEMENTS (Continued)

CHI
Period from
6 December
2002 (date of
incorporation)
to 31 December
2003
Notes
NZ$
Cash generated from/(used in)
operations
4,040,448
Income tax paid
–
Net cash generated from/(used in)
operating activities
4,040,448
Cash flows from investing activities
Dividend received
–
Purchase of property, plant
and equipment
(955,247)
Proceed from disposal of property,
plant and equipment
–
Purchase of financial assets
at fair value through
profit or loss
(3,086,657)
(Payment to acquire)/Proceed
from disposal of available-for-sale
financial assets
(99,483)
Net cash used in investing activities
(4,141,387)
Cash flows from financing activities
Interest paid
–
Increase/ (Decrease) in amounts
due to related companies
6,770,277
Increase in other loans
–
Capital contribution
1,000,000
Net cash generated from/(used in)
financing activities
7,770,277

The CHI Group
Two years ended
Three months ended
31 December
31 March
2004
2005
2005
2006
NZ$
NZ$
NZ$
NZ$
(Unaudited)
7,786,410
3,329,418
(1,690,696)
4,179,776
(160,531)
(1,185,746)
(1,000,000)
(11,321)
7,625,879
2,143,672
(2,690,696)
4,168,455
1,525
97,563
–
–
(48,786)
(185,887)
(25,456)
(14,293)
–
10,210
–
–
(181,444)
(805,932)
(591,594)
–
99,483
–
–
–
(129,222)
(884,046)
(617,050)
(14,293)
(231,986)
(76,400)
(6,803)
(17,877)
(6,164,259)
(120,009)
(606,018)
(486,009)
–
–
–
2,023,684
–
–
–
–
(6,396,245)
(196,409)
(612,821)
1,519,798

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

D. CASH FLOW STATEMENTS (Continued)

CHI Period from 6 December 2002 (date of incorporation) to 31 December 2003 Notes NZ$ Net increase/ (decrease) in cash and cash equivalents 7,669,338 Cash and cash equivalents at beginning of period/ year – Cash and cash equivalents at end of period/year 7,669,338 Analysis of balances of cash and cash equivalents Bank balances and cash 7,669,338 Bank overdrafts – 7,669,338	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 1,100,412 1,063,217 (3,920,567) 5,673,960 7,669,338 8,769,750 8,769,750 9,832,967 8,769,750 9,832,967 4,849,183 15,506,927 11,134,426 9,832,967 7,562,664 15,506,927 (2,364,676) – (2,713,481) – 8,769,750 9,832,967 4,849,183 15,506,927	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 1,100,412 1,063,217 (3,920,567) 5,673,960 7,669,338 8,769,750 8,769,750 9,832,967 8,769,750 9,832,967 4,849,183 15,506,927 11,134,426 9,832,967 7,562,664 15,506,927 (2,364,676) – (2,713,481) – 8,769,750 9,832,967 4,849,183 15,506,927
		15,506,927

		15,506,927 –
		15,506,927

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

E. STATEMENTS OF CHANGES IN EQUITY

CHI
Period from
6 December
2002 (date of
incorporation)
to 31 December
2003
Notes
NZ$
Total recognised income and
expenses for the period/year:
Profit/ (Loss) for the period/ year
22
104,637
104,637
Movements in equity arising from
capital transactions:
Issue of shares
21
1,000,000
Movements in equity for
the period/year
1,104,637
Total equity at beginning of
the period/year
–
Total equity at end of
the period/year
1,104,637

The CHI Group
Two years ended
Three months ended
31 December
31 March
2004
2005
2005
2006
NZ$
NZ$
NZ$
NZ$
(Unaudited)
1,902,110
1,216,862
(696,189)
(670,299)
1,902,110
1,216,862
(696,189)
(670,299)
–
–
–
–
1,902,110
1,216,862
(696,189)
(670,299)
1,104,637
3,006,747
3,006,747
4,223,609
3,006,747
4,223,609
2,310,558
3,553,310

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PRESENTATION

The Financial Information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which include all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations (“INTs”) issued by the HKICPA and has been consistently applied throughout the Relevant Periods. The Financial Information also included all the applicable disclosure requirements of the Listing Rules.

The CHI Group has previously prepared its financial statements in accordance with the relevant accounting rules and regulations applicable in New Zealand (“New Zealand GAAP”). These are the CHI Group’s first Financial Information prepared under HKFRS and HKFRS 1, First-time adoption of Hong Kong Financial Reporting Standards, has been applied. In preparing the Financial Information under HKFRS, there are no significant GAAP differences being identified. Accordingly, the CHI Group has not adjusted any significant amounts reported previously in the financial statements prepared in accordance with New Zealand GAAP.

2. ADOPTION OF NEW AND REVISED HKFRS

The CHI Group has not early adopted the following standards or interpretations of HKFRSs which are relevant to the CHI Group and that have been issued but are not yet effective.

HKAS 1 (Amendment) Capital Disclosures[1] HKFRS 7 Financial Instruments – Disclosures[1]

Notes:

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

The CHI Group has already commenced an assessment of the impact of these new HKFRSs and has concluded that the adoption of these new HKFRSs is unlikely to have a significant impact on the disclosures of the Financial Information.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The significant accounting policies that have been used in the preparation of the Financial Information are summarised below.

The Financial Information has been prepared on the historical cost basis except for the revaluation of certain financial instruments. The measurement bases are fully described in the accounting policies below.

It should be noted that accounting estimates and assumptions have been used in preparation of the Financial Information. Although these estimates and assumptions are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates and assumptions.

Consolidated income statement, statement of changes in equity and cash flow statement has not been presented for the period from 6 December 2002 (date of incorporation) to 31 December 2003 as CHI did not have any subsidiary during this period.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of CHI and its subsidiaries made up to 31 December each year. All material inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

(c) Subsidiaries

Subsidiaries are entities over which CHI has the power to control the financial and operating policies. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether CHI controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to CHI. They are deconsolidated from the date that control ceases.

In CHI’s balance sheet, subsidiaries are carried at cost less impairment losses. The results of the subsidiaries are accounted for by CHI on the basis of dividends received and receivable.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d) Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the CHI Group and when the revenue can be measured reliably on the following bases:

(i) Brokerage commission income arising from the leveraged foreign exchange trading are recognised and accounted for on a trade date basis.
(ii) Foreign exchange and bullion trading revenue includes both realised and unrealised gains less losses. Foreign exchange spread in relation to open positions arising from leveraged foreign exchange transactions are recognised on an accrual basis. The net residual positions of each foreign currency resulting from broking and trading foreign currencies are carried at fair value, with related unrealised gains or losses recognised in the income statement.
(iii) Interest income is recognised on a time proportion basis by reference to the principal outstanding and the effective interest rate applicable.
(iv) Option premium income is recognised on a trade date basis and the related option contract is marked to market during its life.
(v) Dividend income is recognised when the right to receive payment is established.
(vi) Rental income is recognised on a straight-line basis over the period of the relevant leases.

(e) Property, plant and equipment

Property, plant and equipment are stated at acquisition cost less accumulated depreciation and impairment losses.

The gain or loss arising on the disposal is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the CHI Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the period in which they are incurred.

Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives at the following rates:

Furniture and fittings 7.8% – 28.8% Office equipment 9.6% – 48.0% Computer software 36% Building 3% Motor vehicles 21.6%

The assets’ residual values and useful lives are reviewed, and adjusted, if appropriate, at each balance sheet date.

(f) Impairment of assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required, the asset’s recoverable amount is estimated. 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 asset’s recoverable amount is calculated as the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

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 accounted for in accordance with the relevant accounting policy for that revalued asset.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(f) Impairment of assets (Continued)

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but to the extent 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.

(g) Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the periods of the respective leases.

(h) Financial assets

The CHI Group classifies its financial assets into the following categories: loans and receivables, financial assets at fair value through profit or loss and available-for-sales financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial assets is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available.

All regular way purchases or sales of financial assets are recognised on the trade date (i.e., the date that the CHI Group commits to purchase the asset). 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. All financial assets that are not classified as fair value through profit or loss are initially recognised at fair value, plus transaction costs.

Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at each balance sheet date whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.

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

(i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the CHI Group provides money, goods or services directly to a debtor with no intention of trading the receivables. Loans and receivables (including trade receivables, prepayment and other receivables, amount due from related companies, cash at banks and in hand and amounts due from subsidiaries of the CHI) are subsequently measured at amortised cost using the effective interest method, less impairment losses. An impairment loss is recognised in income statement when there is objective evidence that the CHI Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

(ii) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets that are either classified as held for trading or are designated by the entity to be carried at fair value through profit or loss upon initial recognition.

At each balance sheet date subsequent to initial recognition, the financial assets included in this category are measured at fair value, with changes in fair value recognised directly in income statement in the period in which they arise.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(h) Financial assets (Continued)

(iii) Available-for-sale financial assets

Available-for-sale financial assets are non-derivative that are designated as available-for-sale or are not classified in any other categories of financial assets. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value with changes in fair value recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is removed from equity and recognised in income statement. Any impairment losses on available-for-sale financial assets are recognised in income statement. Impairment losses on equity investments classified as available-for-sale are not reversed through income statement in subsequent periods.

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 because the variability in the range of reasonable fair value estimates is significant for that investment or the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such investments are stated at cost less impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in income statement when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not be reversed in subsequent periods.

(i) Cash and cash equivalents

Cash and cash equivalents include cash at banks and in hand as well as short term highly liquid investments with original maturities of three months or less, and bank overdrafts.

(j) Share capital

Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued.

(k) Accounting for income taxes

Income tax comprises current tax and deferred tax.

Current income tax assets and/or liabilities comprise those obligations to, or claims from, tax authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of income tax expense in the income statement.

Deferred tax is calculated using the liability method on temporary differences at the balance sheet date between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, tax losses available to be carried forward as well as other unused tax credits, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised.

Deferred tax assets and liabilities are not recognised if the temporary difference arises from initial recognition of assets and liabilities in a transaction that affects neither taxable nor accounting profit or loss.

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

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(k) Accounting for income taxes (Continued)

Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the period the liability is settled or the asset realised, provided they are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised in the income statement or in equity if they relate to items that are dealt with directly in equity.

(l) Financial liabilities

Financial liabilities include trade and other payables, amount due to a shareholder and amounts due to related companies.

Financial liabilities are recognised when the CHI Group becomes a party to the contractual agreements of the instrument. Financial liabilities are recognised initially at their fair values and subsequently measured at amortised costs, using the effective interest method.

(m) Employee benefits

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

Non-accumulating compensated absences such as sick leaves are not recognised until the time of leave.

(n) Provisions

Provisions are recognised when present obligations will probably lead to an outflow of economic resources from the CHI Group which can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events. Provisions are not recognised for future operating losses.

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Any reimbursement expected to be received in the course of settlement of the present obligation is recognised as a separate asset, not exceeding the amount of the related provision. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. In addition, long term provisions are discounted to their present values, where time value of money is material.

All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

(o) Foreign currencies translation

The financial statements are presented in New Zealand dollars (“NZ$”), which is also the functional currency of CHI.

In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the income statements under “other income” or “other operating expenses”, respectively. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

In the consolidated financial statements, all separate financial statements of the consolidated entities originally presented in a currency different from the CHI Group’s presentation currency, have been converted into NZ$. Assets and liabilities have been translated into NZ$ at the closing rate at the balance sheet date. Income and expenses have been converted into the CHI Group’s presentation currency at the average rates over the reporting period. Any differences arising from this procedure are charged or credited to the exchange reserve in equity.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(p) Related parties

Parties are considered to be related to the CHI Group if:

(i) directly, or indirectly through one or more intermediaries, the party:
controls, is controlled by, or is under common control with, the CHI Group;
has an interest in the CHI Group that gives it significant influence over the CHI Group; or
has joint control over the CHI Group;
(ii) the party is an associate;
(iii) the party is a jointly-controlled entity;
(iv) the party is a member of the key management personnel of the CHI Group or its parent;
(v) the party is a close member of the family of any individual referred to in (i) or (iv);
(vi) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or
(vii) the party is a post-employment benefit plan for the benefit of employees of the CHI Group, or of any entity that is a related party of the CHI Group.

(q)

Off-balance sheet financial instruments

Off-balance sheet financial instruments arise from the leveraged transactions undertaken in the foreign exchange markets and bullion trading. These are marked to market and the gains or losses are recognised in the income statement as foreign exchange trading profits and bullion trading profits respectively.

(r) Borrowing costs

Borrowing costs are charged to the income statement in the period/year in which they are incurred.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The CHI Group makes estimates and judgements concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Provision for impairment of receivables

The CHI Group assesses the recoverability of the receivables according to its original terms both on a case-bycase basis and on a collective basis. Provision for impairment of receivables will be made when there is objective evidence that the CHI Group cannot collect the receivable according to its original terms. Collectively, the CHI Group assesses the receivables based on historical loss ratio and other macro factors so as to ascertain whether there is impairment loss.

Litigation

The CHI Group considers each case involving litigation individually to assess the probability of any outflow of resources. Whenever the directors consider that an outflow of resources embodying economic benefits will be required to settle the litigation, a provision will be made to the extent of the probable outflow. For other cases, a disclosure as contingent liabilities will be made unless the possibility of an outflow of resources embodying economic benefits is remote.

Estimation of fair value

Certain assets are accounted for at its fair value. The best evidence of fair value is current prices in an active market for similar assets. In the absence of such information, the CHI Group estimates the amount within a range of reasonable fair value estimates. For listed investment, the CHI Group estimates the closing bid price quoted in the relevant stock exchange to be the fair value.

5. REVENUE AND OTHER INCOME

a) Revenue recognised during the Relevant Periods is as follows:

CHI Period from 6 December 2002 (date of incorporation) to 31 December 2003 NZ$ Commission income 1,543,413 Interest income 725,947 Option premium income – Dividend income – 2,269,360	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 10,094,435 7,911,582 1,822,509 1,563,091 3,500,352 10,423,000 4,909,698 2,384,868 – 772,945 33,844 – 1,525 97,563 – – 13,596,312 19,205,090 6,766,051 3,947,959	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 10,094,435 7,911,582 1,822,509 1,563,091 3,500,352 10,423,000 4,909,698 2,384,868 – 772,945 33,844 – 1,525 97,563 – – 13,596,312 19,205,090 6,766,051 3,947,959
		3,947,959

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

5. REVENUE AND OTHER INCOME (Continued)

b) Other income recognised during the Relevant Periods is as follows:

CHI Period from 6 December 2002 (date of incorporation) to 31 December 2003 NZ$ Bullion trading profit – Fair value gain on financial assets at fair value through profit or loss 53,124 Foreign exchange trading profits 1,428,802 Miscellaneous income 27 Rental income 800 1,482,753	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 40,164 28,625 30,677 3,535,642 719,319 317,724 – – 5,574,958 6,078,210 1,100,193 – 12,775 18,957 – 7,099 10,500 13,440 3,360 1,740 6,357,716 6,456,956 1,134,230 3,544,481	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 40,164 28,625 30,677 3,535,642 719,319 317,724 – – 5,574,958 6,078,210 1,100,193 – 12,775 18,957 – 7,099 10,500 13,440 3,360 1,740 6,357,716 6,456,956 1,134,230 3,544,481
		3,544,481

6. STAFF COSTS (INCLUDING DIRECTORS’ EMOLUMENTS)

	CHI		The CHI Group	The CHI Group
	Period from
	6 December
	2002 (date of
	incorporation) to	Two years ended		Three months ended
	31 December	31 December		31 March
	2003	2004	2005	2005	2006
	NZ$	NZ$	NZ$	NZ$	NZ$
				(Unaudited)
Salaries and allowances	367,657	912,290	1,192,560	227,893	297,709

Staff costs included directors’ emoluments, which are set out in Note 11(a).

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

7. OPERATING PROFIT/ (LOSS)

	CHI		The CHI Group	The CHI Group
	Period from
	6 December
	2002 (date of
	incorporation) to	Two years ended		Three months ended
	31 December	31 December		31 March
	2003	2004	2005	2005	2006
	NZ$	NZ$	NZ$	NZ$	NZ$
				(Unaudited)
Operating profit/ (loss)
is arrived at after charging:
Auditors’ remuneration
– Audit	47,500	47,500	52,500	11,955	100,400
– Other services	8,500	12,544	6,600	–	10,000
Depreciation	92,991	135,748	139,720	14,738	36,923
Fair value loss on financial
assets at fair value through
profit or loss	–	–	–	76,471	98,908
Interest expenses	669,942	1,358,574	6,607,723	4,049,486	799,685

8. FINANCE COSTS

CHI Period from 6 December 2002 (date of incorporation) to 31 December 2003 NZ$ Bank overdraft interest – Loan interest – –	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 231,986 15,872 6,754 – – 60,528 49 17,877 231,986 76,400 6,803 17,877	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 231,986 15,872 6,754 – – 60,528 49 17,877 231,986 76,400 6,803 17,877
		17,877

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

9. INCOME TAX EXPENSE/ (BENEFIT)

New Zealand profits tax has been provided at the rate of 33% on the estimated assessable profits for the Relevant Periods.

The income tax expenses/ (benefits) charged/ (credited) to the income statements represent:

CHI Period from 6 December 2002 (date of incorporation) to 31 December 2003 NZ$ Current tax – current period/ year 72,801 – under/(over) provision in prior years – 72,801 Deferred tax – current period/ year (16,899) – over provision in prior years – (16,899) Income tax expenses/ (benefits) for the period/ year 55,902	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 1,007,434 656,289 – – 11,500 (3,408) – – 1,018,934 652,881 – – (4,717) (1,760) (330,298) (329,526) – 11,808 – – (4,717) 10,048 (330,298) (329,526) 1,014,217 662,929 (330,298) (329,526)

Reconciliation between income tax expense/ (credit) and profit/ (loss) for the period/ year at applicable tax rate is as follows:

CHI
Period from
6 December
2002 (date of
incorporation) to
31 December
2003
NZ$
Profit/ (Loss) before income tax
160,539
Tax at applicable rate of 33%
52,978
Tax effect of non-deductible
expenses
2,924
Tax effect of tax losses not
recognised as deferred tax assets
–
Under/ (Over) provision in
prior years
–
Income tax expenses/ (benefits)
for the period/ year
55,902

The CHI Group
Two years ended
Three months ended
31 December
31 March
2004
2005
2005
2006
NZ$
NZ$
NZ$
NZ$
(Unaudited)
2,916,327
1,879,791
(1,026,487)
(999,825)
962,388
620,331
(338,741)
(329,942)
40,279
5,677
8,443
416
–
40,329
–
–
11,550
(3,408)
–
–
1,014,217
662,929
(330,298)
(329,526)

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

10. EARNINGS PER SHARE

The calculation of earnings per share is based on the profit for each of the Relevant Periods and the 1,000,000 ordinary shares in issue throughout the Relevant Periods.

No diluted earnings per share for each of the Relevant Periods have been presented as there were no potential dilutive shares throughout the Relevant Periods.

11. DIRECTORS’ REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ emoluments

Period from 6 December 2002 (date of incorporation) to 31 December 2003

Name of director CHAN, Kwok Sung MAN, Kong Yui NG, Chiu Mui SOEN, Len Kiat WONG, Wah Kin	Fee NZ$ – – – – – –	Salary NZ$ 29,615 – – – – 29,615	Bonuses NZ$ – – – – – –	Employer’s contribution Other to Pension benefits Scheme NZ$ NZ$ – – – – – – – – – – – –	Total NZ$ 29,615 – – – –
					29,615

Year ended 31 December 2004

Name of director CHAN, Kwok Sung MAN, Kong Yui * NG, Chiu Mui SOEN, Len Kiat WONG, Wah Kin	Fee NZ$ – – – – – –	Salary NZ$ 49,270 – – 31,262 – 80,532	Bonuses NZ$ 6,988 – – – – 6,988	Employer’s contribution Other to Pension benefits Scheme NZ$ NZ$ – – – – – – – – – – – –	Total NZ$ 56,258 – – 31,262 –
					87,520

Year ended 31 December 2005

Name of director CHAN, Kwok Sung LAM, Chi Wing # ME, Shun Chun Hung # NG, Chiu Mui SOEN, Len Kiat WONG, Wah Kin TANG, Ping Sum #	Fee NZ$ 5,000 5,000 5,000 5,000 – – 5,000 25,000	Salary NZ$ 50,607 30,800 – – 13,257 – – 94,664	Bonuses NZ$ 4,287 4,400 – – – – – 8,687	Employer’s contribution Other to Pension benefits Scheme NZ$ NZ$ – – – – – – – – – – – – – – – –	Total NZ$ 59,894 40,200 5,000 5,000 13,257 – 5,000
					128,351

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

11. DIRECTORS’ REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS (Continued)

(a) Directors’ emoluments (Continued)

Three months ended 31 March 2005 (unaudited)

Name of director CHAN, Kwok Sung LAM, Chi Wing # ME, Shun Chun Hung # NG, Chiu Mui SOEN, Len Kiat WONG, Wah Kin TANG, Ping Sum #	Fee NZ$ – – – – – – – –	Salary NZ$ 12,360 – – – 8,000 – – 20,360	Bonuses NZ$ – – – – – – – –	Employer’s contribution Other to Pension benefits Scheme NZ$ NZ$ – – – – – – – – – – – – – – – –	Total NZ$ 12,360 – – – 8,000 – –
					20,360

Three months ended 31 March 2006

Name of director CHAN, Kwok Sung LAM, Chi Wing ME, Shun Chun Hung NG, Chiu Mui TANG, Ping Sum	Fee NZ$ – – – – – –	Salary NZ$ 12,860 13,200 – – – 26,060	Bonuses NZ$ 4,287 4,400 – – – 8,687	Employer’s contribution Other to Pension benefits Scheme NZ$ NZ$ – – – – – – – – – – – –	Total NZ$ 17,147 17,600 – – –
					34,747

MAN, Kong Yui, SOEN, Len Kiat and WONG, Wah Kin resigned as directors of CHI on 17 January 2004, 26 May 2005 and 26 May 2005 respectively.
LAM, Chi Wing, ME, Shun Chun Hung and TANG, Ping Sum was appointed as directors of CHI on 31 May 2005, 26 May 2005 and 26 May 2005 respectively.

There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Periods.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

11. DIRECTORS’ REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS (Continued)

(b) Five highest paid individuals

The five highest paid individuals included one, one, two, one and two directors for the period from 6 December 2002 (date of incorporation) to 31 December 2003, each of the two years ended 31 December 2005 and for the three months ended 31 March 2005 and 2006 respectively, details of whose emoluments are set out above. The emoluments of the remaining four, four, three, four and three individuals are as follows:

CHI Period from 6 December 2002 (date of incorporation) to 31 December 2003 NZ$ Salaries and allowances 87,924 Bonus – 87,924	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 167,049 122,534 32,155 33,492 7,350 8,600 – 10,600 174,399 131,134 32,155 44,092	The CHI Group Two years ended Three months ended 31 December 31 March 2004 2005 2005 2006 NZ$ NZ$ NZ$ NZ$ (Unaudited) 167,049 122,534 32,155 33,492 7,350 8,600 – 10,600 174,399 131,134 32,155 44,092
		44,092

The number of individuals fell within the following emolument band (excluding directors):

	CHI		The CHI Group	The CHI Group
	Period from
	6 December
	2002 (date of
	incorporation) to	Two years ended		Three months ended
	31 December	31 December		31 March
Emolument bands	2003	2004	2005	2005	2006
	NZ$	NZ$	NZ$	NZ$	NZ$
				(Unaudited)
Nil to NZ$200,000
(equivalent to Nil to
HK$1,000,000)	4	4	3	4	3

During the Relevant Periods, no emoluments were paid by the CHI Group to the five highest paid individuals, including the directors of CHI, as an inducement to join or upon joining the CHI Group or as compensation for loss of office.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

12. PROPERTY, PLANT AND EQUIPMENT

The CHI Group

Year ended 31 December 2004 Opening net book amount Addition Disposal Depreciation Closing net book amount At 31 December 2004 Cost Accumulated depreciation Net book amount Year ended 31 December 2005 Opening net book amount Addition Disposal Depreciation Closing net book amount At 31 December 2005 Cost Accumulated depreciation Net book amount Three months ended 31 March 2006 Opening net book amount Addition Disposal Depreciation Exchange difference Closing net book amount At 31 March 2006 Cost Accumulated depreciation Net book amount	Land NZ$ 210,000 – – – 210,000 210,000 – 210,000 210,000 – – – 210,000 210,000 – 210,000 210,000 – – – – 210,000 210,000 – 210,000	Buildings NZ$ 208,030 – – (6,390) 201,640 213,000 (11,360) 201,640 201,640 – – (6,390) 195,250 213,000 (17,750) 195,250 195,250 – – (1,598) – 193,652 213,000 (19,348) 193,652	Furniture and fittings NZ$ 211,701 1,581 – (23,067) 190,215 241,242 (51,027) 190,215 190,215 58,710 (311) (24,206) 224,408 275,784 (51,376) 224,408 224,408 720 – (7,564) 3,771 221,335 280,561 (59,226) 221,335	Office equipment NZ$ 116,430 22,535 – (53,524) 85,441 174,400 (88,959) 85,441 85,441 125,441 (9,899) (54,576) 146,407 308,348 (161,941) 146,407 146,407 699 – (16,736) 1,318 131,688 312,032 (180,344) 131,688	Computer software NZ$ 116,095 1,670 – (51,111) 66,654 142,391 (75,737) 66,654 66,654 1,736 – (50,684) 17,706 145,199 (127,493) 17,706 17,706 12,874 – (9,990) 1,218 21,808 158,074 (136,266) 21,808	Motor vehicle NZ$ – 23,000 – (1,656) 21,344 23,000 (1,656) 21,344 21,344 – – (3,864) 17,480 23,000 (5,520) 17,480 17,480 – – (1,035) – 16,445 23,000 (6,555) 16,445	Total NZ$ 862,256 48,786 – (135,748) 775,294 1,004,033 (228,739) 775,294 775,294 185,887 (10,210) (139,720) 811,251 1,175,331 (364,080) 811,251 811,251 14,293 – (36,923) 6,307 794,928 1,196,667 (401,739) 794,928

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

12. PROPERTY, PLANT AND EQUIPMENT (Continued)

CHI

At 6 December 2002 (date of incorporation) Cost Accumulated depreciation Net book amount Year ended 31 December 2003 Opening net book amount Addition Disposal Depreciation Closing net book amount At 31 December 2003 Cost Accumulated depreciation Net book amount Year ended 31 December 2004 Opening net book amount Addition Disposal Depreciation Closing net book amount At 31 December 2004 Cost Accumulated depreciation Net book amount	Land NZ$ – – – – 210,000 – – 210,000 210,000 – 210,000 210,000 – – – 210,000 210,000 – 210,000	Buildings NZ$ – – – – 213,000 – (4,970) 208,030 213,000 (4,970) 208,030 208,030 – – (6,390) 201,640 213,000 (11,360) 201,640	Furniture and fittings NZ$ – – – – 239,661 – (27,960) 211,701 239,661 (27,960) 211,701 211,701 1,581 – (23,067) 190,215 241,242 (51,027) 190,215	Office equipment NZ$ – – – – 151,865 – (35,435) 116,430 151,865 (35,435) 116,430 116,430 22,535 – (53,524) 85,441 174,400 (88,959) 85,441	Computer software NZ$ – – – – 140,721 – (24,626) 116,095 140,721 (24,626) 116,095 116,095 1,670 – (51,111) 66,654 142,391 (75,737) 66,654	Motor vehicle NZ$ – – – – – – – – – – – – 23,000 – (1,656) 21,344 23,000 (1,656) 21,344	Total NZ$ – – – – 955,247 – (92,991) 862,256 955,247 (92,991) 862,256 862,256 48,786 – (135,748) 775,294 1,004,033 (228,739) 775,294

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

12. PROPERTY, PLANT AND EQUIPMENT (Continued)

CHI

Year ended 31 December 2005 Opening net book amount Addition Disposal Depreciation Closing net book amount At 31 December 2005 Cost Accumulated depreciation Net book amount Three months ended 31 December 2006 Opening net book amount Addition Disposal Depreciation Closing net book amount At 31 March 2006 Cost Accumulated depreciation Net book amount	Land NZ$ 210,000 – – – 210,000 210,000 – 210,000 210,000 – – – 210,000 210,000 – 210,000	Buildings NZ$ 201,640 – – (6,390) 195,250 213,000 (17,750) 195,250 195,250 – – (1,598) 193,652 213,000 (19,348) 193,652	Furniture and fittings NZ$ 190,215 24,800 (311) (22,711) 191,993 241,824 (49,831) 191,993 191,993 476 – (5,753) 186,716 242,300 (55,584) 186,716	Office equipment NZ$ 85,441 100,464 (9,899) (51,656) 124,350 283,272 (158,922) 124,350 124,350 699 – (16,384) 108,665 283,971 (175,306) 108,665	Computer software NZ$ 66,654 1,736 – (50,684) 17,706 145,199 (127,493) 17,706 17,706 12,874 – (8,772) 21,808 158,074 (136,266) 21,808	Motor vehicle NZ$ 21,344 – – (3,864) 17,480 23,000 (5,520) 17,480 17,480 – – (1,035) 16,445 23,000 (6,555) 16,445	Total NZ$ 775,294 127,000 (10,210) (135,305) 756,779 1,116,295 (359,516) 756,779 756,779 14,049 – (33,542) 737,286 1,130,345 (393,059) 737,286

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

13. DEFERRED TAX ASSETS

Deferred taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 33% during the Relevant Periods.

The movement on the deferred tax assets is as follows:

The CHI Group

Accelerated tax depreciation At beginning of the period/ year Credited to income statement (Note 9) Over provision in prior years CHI Accelerated tax depreciation At beginning of the period/ year Credited to income statement Over provision in prior years 14. INVESTMENT IN SUBSIDIARIES CHI Unlisted shares, at cost	As at 31 December 2004 2005 NZ$ NZ$ 16,899 21,616 4,717 1,760 – (11,808) 21,616 11,568 As at 31 December 2003 2004 2005 NZ$ NZ$ NZ$ – 16,899 21,616 16,899 4,717 1,760 – – (11,808) 16,899 21,616 11,568 As at 31 December 2003 2004 2005 NZ$ NZ$ NZ$ – 4,598 4,598	As at 31 March 2006 NZ$ 11,568 329,526 –
		341,094

		As at 31 March 2006 NZ$ 11,568 315,373 –
		326,941

		As at 31 March 2006 NZ$ 4,598

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

14. INVESTMENT IN SUBSIDIARIES (Continued)

Particulars of CHI’s subsidiaries are as follows:

		Nominal value of	Attributable equity	Principal activities
	Date and place of	issued ordinary	interest directly	and place of
Name	incorporation	share/registered capital	held by CHI	operations
Cosmos Hantec International	21 September 2004,	Registered capital of	100%	Provision of supporting and
Investments Limited (“CHIIL”)	Macau	MOP25,000		administration services
				in Macau
Hantec (New Zealand) Investment	3 October 2005,	10,000 ordinary shares	100%	Dormant
Company Limited (“HICL”)	New Zealand	of NZ$1 each

The directors of CHI are of the opinion that the underlying value of the subsidiaries is not less than the carrying amount of the investment in subsidiaries at the respective balance sheet date.

15. AVAILABLE-FOR-SALES FINANCIAL ASSETS

CHI

							As at
		As at	31	December		31	March
	2003			2004	2005		2006
	NZ$			NZ$	NZ$		NZ$
Unlisted equity investments, at cost	99,483			–	–		–

The unlisted equity investments are carried at cost less accumulated impairment losses, as they do not have a quoted market price in an active market, the range of reasonable fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed. The unlisted equity investments were disposed of during the year ended 31 December 2004 at the then carrying value.

The CHI Group did not have any unlisted equity investment as at 31 December 2004, 2005 and 31 March 2006.

16. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

	CHI	The CHI Group and	The CHI Group and	CHI
				As at
		As at 31 December		31 March
	2003	2004	2005	2006
	NZ$	NZ$	NZ$	NZ$
Listed equity securities in Hong Kong held
for trading, at fair values	3,139,781	2,502,613	3,626,269	3,913,001

The fair value of the listed equity securities are based on quoted market bid prices available on the Stock Exchange.

Changes in the fair values of the financial assets at fair value through profit or loss are dealt with in the income statement.

CHI held the listed investments on behalf of Hantec Commercial Bank Limited until 23 June 2004. The investment decisions were made by Hantec Commercial Bank Limited and all income and losses were passed onto Hantec Commercial Bank Limited. CHI purchased the listed investments on 23 June 2004 at the then market value.

The above listed equity securities are pledged as collateral for leveraged trading with Hantec International Limited.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

17. TRADE RECEIVABLES

(a) Trade receivables at the respective balance sheet dates include margin deposits receivables and floating gains/losses in respect of transactions and open positions in leveraged foreign exchange and bullion contracts trading with clients and are considered current.
(b) Credits are extended to clients on a case-by-case basis in accordance with the financial status of clients such as their financial conditions, trading records, business profile and collateral available to the CHI Group and CHI. Clients trading in leveraged foreign exchange contracts and bullion contracts are required to observe the CHI Group and CHI’s margin policies. For leveraged foreign exchange contracts and bullion contracts, initial margins are normally required before trading and thereafter clients are normally required to keep the equity position at a prescribed maintenance margin level.
(c) The CHI Group and CHI has no concentration of credit risk with respect to trade receivables as the CHI Group and CHI has a large number of customers, widely dispersed. In addition, margin deposits are deposited with high-credit-quality financial institutions.
(d) The effective interest rate charged on trade receivables as at 31 December 2003, 2004, 2005 and 31 March 2006 is 1.3%, 1.3%, 1.3% and 1.3% per annum respectively.
(e) The carrying amounts of trade receivables approximate their fair values.

18. BANK BALANCES AND CASH/ BANK OVERDRAFTS

The CHI Group

Bank balances – pledged (Note) Cash in hand Bank balances – general accounts	As at 31 December 2004 2005 NZ$ NZ$ 3,364,462 636,855 230 224 11,134,196 9,832,743 11,134,426 9,832,967	As at 31 March 2006 NZ$ 2,343,511

		793 15,506,134
		15,506,927

CHI

Bank balances – pledged (Note) Cash in hand Bank balances – general accounts	As at 31 December 2003 2004 2005 NZ$ NZ$ NZ$ – 3,364,462 636,855 63 230 – 7,669,275 11,134,196 8,642,607 7,669,338 11,134,426 8,642,607	As at 31 March 2006 NZ$ 2,343,511

		552 14,725,564
		14,726,116

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

18. BANK BALANCES AND CASH/ BANK OVERDRAFTS (Continued)

Note:

Deposits were pledged to a financial institution as security for trading facilities in leveraged foreign exchange trading.

As at 31 December 2003, 2004, 2005 and 31 March 2006, included in the bank balances – general accounts were client monies of NZ$3,081,007, NZ$10,342,123, NZ$7,231,610 and NZ$12,532,349 respectively, for which funds had been deposited to the CHI’s bank/time deposits accounts by clients for settlement of leveraged foreign exchange and bullion contracts transactions in accordance with the industry practice.

The bank overdrafts were secured by the deposits pledged to a financial institution as security for trading facilities in leveraged foreign exchange trading.

19. TRADE PAYABLES

Trade payables to clients attributable to dealing in foreign exchange and bullion contracts transactions include margin deposits received from clients for their trading and clients’ undrawn monies/excess deposits placed with the CHI Group. All these payables are repayable on demand and therefore, no aged analysis is disclosed.

The carrying amounts of trade payables approximate their fair value.

The effective interest rate charged on trade payables as at 31 December 2003, 2004, 2005 and 31 March 2006 is 0.3%, 0.3%, 0.3% and 0.3% per annum respectively.

20. OTHER LOANS

The CHI Group

Unsecured and repayable within one year: Interest-free, denominated in US Dollar Interest bearing at floating rate, denominated in US Dollar	As at 31 December 2004 2005 NZ$ NZ$ – – – – – –	As at 31 March 2006 NZ$ 545,527 1,478,157
		2,023,684

The effective interest rate (which is also equal to contracted interest rate) on the CHI Group’s other loan is US Dollar Prime Rate – 1%.

CHI

				As at
		As at 31 December		31 March
	2003	2004	2005	2006
	NZ$	NZ$	NZ$	NZ$
Unsecured and repayable within one year:
Interest bearing at floating rate, denominated
in US Dollar	–	–	–	1,478,157

The effective interest rate (which is also equal to contracted interest rate) on CHI’s other loan is US Dollar Prime Rate – 1%.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

21. SHARE CAPITAL

Authorised: 1,000,000 ordinary shares of NZ$1 each Issued and fully paid: 1,000,000 ordinary shares of NZ$1 each	As at 31 December 2003 2004 2005 NZ$ NZ$ NZ$ 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000	As at 31 March 2006 NZ$ 1,000,000

		1,000,000

CHI was incorporated on 6 December 2002 with an authorised share capital of 1,000,000 divided into 1,000,000 ordinary shares of NZ$1 each. On incorporation, 1,000,000 ordinary shares were issued at par for cash to the subscribers.

22. RETAINED PROFITS

The CHI Group

Balance at beginning of the period/year Profit/(Loss) for the period/year Balance at end of the period/ year	As at 31 December 2004 2005 NZ$ NZ$ 104,637 2,006,747 1,902,110 1,216,862 2,006,747 3,223,609	As at 31 March 2006 NZ$ 3,223,609 (670,299)
		2,553,310

CHI

Balance at beginning of the period/year Profit/(Loss) for the period/year Balance at end of the period/ year	As at 31 December 2003 2004 2005 NZ$ NZ$ NZ$ – 104,637 2,006,747 104,637 1,902,110 1,339,070 104,637 2,006,747 3,345,817	As at 31 March 2006 NZ$ 3,345,817 (641,564)
		2,704,253

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

23. OPERATING LEASE COMMITMENTS

At the respective balance sheet dates, the total future minimum lease payments in respect of land and buildings under non-cancellable operating leases are payable by the CHI Group and CHI as follows:

The CHI Group

Within one year In the second to fifth years, inclusive	As at 31 December 2004 2005 NZ$ NZ$ 76,078 154,076 240,914 271,080 316,992 425,156	As at 31 March 2006 NZ$ 132,818 261,090
		393,908

CHI

Within one year In the second to fifth years, inclusive Over five years	As at 31 December 2003 2004 2005 NZ$ NZ$ NZ$ 76,078 76,078 107,456 304,312 240,914 259,425 12,680 – – 393,070 316,992 366,881	As at 31 March 2006 NZ$ 94,955 261,090 –
		356,045

The CHI Group and CHI lease properties under operating leases. The leases run for an initial period of one to six years. None of these leases include contingent rentals.

24. FINANCIAL RISK MANAGEMENT

The CHI Group’s activities expose itself to a variety of financial risks: market risk (including foreign exchange rate, fair value interest rate risk and price risk), credit risk, liquidity risk and cashflow interest rate risk. The CHI Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the CHI Group’s financial performance. Risk management is carried out by Executive Management Committee (the “EMC”) of the CHI Group, covering specific areas, such as foreign exchange risk, interest-rate risk, credit risk, use of derivatives financial instruments and non-derivative financial instruments, and investing excess liquidity.

The significant financial risks to which the CHI Group is exposed to are described below.

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

24. FINANCIAL RISK MANAGEMENT (Continued)

(a) Market risk

(i) Foreign exchange and commodity risk

Foreign exchange and commodity risk is the risk that the value of the CHI Group’s assets, liabilities and future net earnings will fluctuate due to changes in foreign exchange and commodity rates. The CHI Group is exposed to currency and commodity risk as a result of transactions that are denominated in a currency other than CHI’s functional currency, principally being amount due from related companies and trade and other receivables in foreign currencies and off balance sheet foreign exchange and bullion transactions. The currencies that give rise to currency risk in which the CHI Group primarily deals are US Dollars, Hong Kong Dollars, Euro, Japanese Yen, Great British Pounds, Swiss Francs and Canadian Dollars.

It is the CHI Group’s policy to place related companies’ balances and collateral deposits with banks in the same currency as received and to manage foreign currency exposure created by foreign exchange trading and bullion trading within approved limits set by the EMC.

At the respective balance sheet dates, the CHI Group and CHI were exposed to foreign currency exchange risk and bullion risk as follows:

	CHI	The CHI Group and CHI	The CHI Group and CHI	The CHI Group and CHI	The CHI Group and CHI
		As at 31 December		As at		31 March
	2003	2004		2005		2006
	NZ$	NZ$		NZ$		NZ$
	Equivalent	Equivalent	Equivalent		Equivalent
Foreign currency risk
Australian Dollar (AUD)	–	–		8,082		8,625
Canadian Dollar (CAD)	–	–		278,735		309,106
US Dollar (USD)	314,597	(9,351,372)	(16,348,423)		(25,197,883)
Hong Kong Dollar (HKD)	(185,529)	8,074,517		5,839,469		7,431,136
Euro (EUR)	(773)	411,072		1,248,378		1,440,002
Japanese Yen (Yen)	60,245	(214,729)		151,311		118,733
Great British Pound (GBP)	262	55,107		55,107		1,239,681
Swiss Frank (CHF)	–	(2,080,786)		–		36,154
Bullion risk
Bullion (Gold)	–	–		41,350		(81,652)

The Bullion (Gold) contracts recorded above are not in the form of physical gold but rather in the form of forward gold purchase and sale contracts.

Notional principals on foreign exchange transactions:

	CHI	The CHI Group and CHI	The CHI Group and CHI	The CHI Group and CHI
		As at 31 December As at 31 March
	2003	2004	2005	2006
	NZ$	NZ$	NZ$	NZ$
	Equivalent	Equivalent	Equivalent	Equivalent
Client	116,523,028	900,145,160	142,560,128	578,029,426
Related parties	181,279,126	472,625,266	89,457,065	318,613,415
Other	4,366,812	138,831,000	14,806,912	16,637,068

The notional principal amounts of the foreign exchange and bullion transactions indicate the volume of transactions outstanding at the respective balance sheet dates, they do not represent amounts at risk.

100

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

24. FINANCIAL RISK MANAGEMENT (Continued)

(a) Market risk (Continued)

(ii) Price risk

The CHI Group is exposed to price risk on the net positions on bullion trading. The dealing function of bullion trading is responsible for managing the price risk under limits on positions and floating loss approved by the EMC.

(b) Credit risk

The CHI Group has a credit policy used to manage its credit exposure arising from off-balance sheet financial instruments. As part of the policy, limits on exposures have been set and is subject to defined lending criteria and where considered necessary cash collateral taken.

(c) Interest rate risk

Interest rate risk is the risk that the value of the CHI Group’s assets and liabilities will fluctuate due to changes in market interest rates. The CHI Group charged interest on its clients and paid interest to clients as determined by the board of directors with reference to the market interest rate. Financial assets such as trade and other receivables, bank balances and cash deposits with regulatory bodies are primarily at floating rates. Financial liabilities subject to floating interest rates are trade and other payables. The CHI Group’s income and operating cash flow are not subject to significant interest rate risk.

(d) Liquidity risk

(e) Fair value

The carrying amounts of the financial assets and liabilities approximate their fair values due to the relatively short period to maturity for these instruments. Off balance sheet financial instruments are carried at market values, so their carrying values approximate their fair values.

101

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

25. RELATED PARTY TRANSACTIONS AND BALANCES

Save as disclosed elsewhere in the report, the CHI Group had the following significant related party transactions during the Relevant Periods.

(a) Transactions with related parties:

==> picture [373 x 228] intentionally omitted <==

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

CHI The CHI Group
Period from
6 December
2002 (date of
incorporation) to Two years ended Three months ended
31 December 31 December 31 March
2003 2004 2005 2005 2006
NZ$ NZ$ NZ$ NZ$ NZ$
(Unaudited)
Net profits/ (losses) for
the foreign exchange
margin trading (note (i)) 14,556,129 11,444,226 (23,810,579) (15,815,043) 1,159,986
Net bullion trading
profits/(losses) (note (i)) – 40,164 28,625 30,677 (2,159,069)
Net option premium
income (note (ii)) – – 772,945 33,844 –
Net swap interest
expenses (note (iii)) 669,942 1,358,575 5,559,936 3,466,885 557,598
----- End of picture text -----

Notes:

(i) For leveraged foreign exchange and bullion transactions, spreads are based on relevant market rates at the time of each transaction available to other customers and counterparties of the CHI Group and CHI with comparable standing. During the Relevant Periods, the CHI Group and CHI transacted leveraged foreign exchange trading with Hantec International Limited, Hantec Financial Services (Suisse) Limited and related companies with common directorship. The CHI Group and CHI also transacted bullion trading with a shareholder. The net profit/ (losses) on leveraged foreign exchange and bullion trading were recognised as other income of the CHI Group and CHI.

The aggregate notional amount of the transactions for leveraged foreign exchange trading contracts entered by the CHI Group and CHI with Hantec International Limited and Hantec Financial Services (Suisse) Limited were NZ$5,169 million, NZ$21,163 million, NZ$25,100 million and NZ$3,574 million for the period from 6 December 2002 (date of incorporation) to 31 December 2003, year ended 31 December 2004, 2005 and three months ended 31 March 2006, respectively.

The aggregate notional amount of the transactions for bullion trading contracts entered into by the CHI Group and CHI with a shareholder were NZ$nil million, NZ$36 million, NZ$139 million and NZ$462 million for the period from 6 December 2002 (date of incorporation) to 31 December 2003, year ended 31 December 2004, 2005 and three months ended 31 March 2006, respectively.

(ii) During the Relevant Periods, net option premium income was paid to Hantec International Limited, a subsidiary of Hantec. The net option premium income was recognised as revenue of the CHI Group and CHI.
(iii) During the Relevant Periods, net swap interest expenses were paid to a shareholder, Hantec International Limited, Hantec Financial Services (Suisse) Limited and related companies with common directorship.

Hantec International Limited and Hantec Financial Services (Suisse) Limited are subsidiaries of Hantec.

102

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

25. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

(b) Balances with related parties:

(i) Amounts due from related companies included:

The CHI Group

Margin deposits with – Hantec International Limited – Hantec Financial Services (Suisse) Limited Amounts due in respect of foreign exchange leveraged transaction losses^ – Hantec International Limited – Hantec Financial Services (Suisse) Limited Prepayments to Hantec International Limited Current account with HT (Overseas) Limited*	As at 31 December 2004 2005 NZ$ NZ$ 14,023,098 3,565,597 – 1,101,163 (134,471) (45,697) – (20,304) – 99,473 – – 13,888,627 4,700,232	As at 31 March 2006 NZ$ 6,179,462 2,038,518 (36,327) (196,641) 74,724 11,107 8,070,843

CHI

As at 31 December
2003
2004
2005
NZ$
NZ$
NZ$
Margin deposits with
– Hantec International Limited
228,281
14,023,098
3,565,597
– Hantec Financial Services
(Suisse) Limited
–
–
1,101,163
Amounts due in respect of foreign
exchange leveraged
transaction losses^
– Hantec International Limited
(211,519)
(134,471)
(45,697)
– Hantec Financial Services
(Suisse) Limited
–
–
(20,304)
Prepayments to Hantec
International Limited*
–
–
99,473
16,762
13,888,627
4,700,232

As at
31 March
2006
NZ$
6,179,462
2,038,518
(36,327)
(196,641)
74,724
8,059,736

Margin deposits were pledged as security for foreign exchange leveraged trading entered into with these related companies.
^ The amounts due in respect of foreign exchange leveraged transaction were secured by the margin deposits, interest-free and without fixed terms of repayment.

Hantec International Limited, Hantec Financial Services (Suisse) Limited and HT (Overseas) Limited are subsidiaries of Hantec.

103

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

25. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

(b) Balances with related parties: (Continued)
- (ii) Amounts due to related companies included:

The CHI Group

==> picture [342 x 103] intentionally omitted <==

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

As at
As at 31 December 31 March
2004 2005 2006
NZ$ NZ$ NZ$
Loans from #
– –
– Hantec Financial Services (NZ) Limited (606,018)
– –
– Hantec Group International Limited (486,009)
(606,018) (486,009) –
----- End of picture text -----

CHI

Margin deposits with – Hantec Commercial Bank Limited Amounts due in respect of foreign exchange leveraged transaction losses^ – Hantec Commercial Bank Limited Loans from*# – Hantec Financial Services (NZ) Limited – Hantec Commercial Bank Limited	As at 31 December 2003 2004 2005 NZ$ NZ$ NZ$ 157,086 – – (3,633,419) – – (3,630,496) (610,616) – (3,139,781) – – (10,246,610) (610,616) –	As at 31 March 2006 NZ$ – – – –
		–

Margin deposits were pledged as security for foreign exchange leveraged trading entered into with these related companies.
The Loans were unsecured, interest-free and without fixed terms of repayment.
^ The amounts due in respect of foreign exchange leveraged transaction were secured by the margin deposits, interest-free and without fixed terms of repayment.

Hantec Group International Limited, Hantec Commercial Bank Limited and Hantec Financial Services (NZ) Limited are related companies which have common directors with CHI.

(iii) Amount due from a subsidiary is unsecured, interest-free and without fixed terms of repayment.

104

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

25. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

(b) Balances with related parties: (Continued)

(iv) Amounts due from/ (to) a shareholder, Hantec Bullion Investments Limited, included:

The CHI Group

As at 31 December 2004 2005 NZ$ NZ$ Margin deposits 36,207 41,350 Amounts due in respect of bullion leveraged transaction losses^ – (15,125) 36,207 26,225 CHI As at 31 December 2003 2004 2005 NZ$ NZ$ NZ$ Margin deposits – 36,207 41,350 Amounts due in respect of bullion leveraged transaction losses^ – – (15,125) – 36,207 26,225	As at 31 March 2006 NZ$ (81,652) (2,354,995) (2,436,647) As at 31 March 2006 NZ$ (81,652) (2,354,995) (2,436,647)

Margin deposits were pledged as security for bullion leveraged trading entered into with the shareholder.

^ The amounts due in respect of bullion leveraged transaction losses were secured by the margin deposits, interest-free and without fixed terms of repayment.

(c) Compensation of key management personnel:

The remunerations of directors and other members of key management during the Relevant Periods were as follows:

==> picture [371 x 111] intentionally omitted <==

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

CHI The CHI Group
Period from
6 December
2002 (date of
incorporation) to Two years ended Three months ended
31 December 31 December 31 March
2003 2004 2005 2005 2006
NZ$ NZ$ NZ$ NZ$ NZ$
(Unaudited)
Short-term benefits 52,325 136,720 179,619 44,248 48,847
----- End of picture text -----

The remunerations of directors and key management were reviewed by the board of directors having regard to the performance of individuals and market trends.

105

ACCOUNTANTS’ REPORT ON CHI

APPENDIX 2

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

26. SEGMENT INFORMATION

The CHI Group’s revenue is substantially derived from foreign exchange broking. The CHI Group is based in New Zealand and all transactions are conducted in a range of internationally traded currencies. These transactions are negotiated and concluded in New Zealand.

27. CAPTIAL COMMITMENTS

The CHI Group and CHI had no capital commitments as at the respective balance sheet dates.

28. OTHER COMMITMENTS

The CHI Group and CHI had outstanding commitments to extend credit to certain customers amounting to NZ$698,170, NZ$3,059,885, NZ$4,498,233 and NZ$5,491,003 as at 31 December 2003, 2004, 2005 and 31 March 2006 respectively.

29. LITIGATIONS AND CLAIMS

As at 31 March 2006, the CHI Group and CHI had received a claim of approximately NZ$250,000 from a former employee of CHI in respect of unjustified dismissal, disadvantage and unpaid commission. The legal adviser to the CHI Group and CHI on this claim is of the opinion that the potential liability would be approximately NZ$60,000 to NZ$80,000, if any. On this basis and as the case is still at its early stage, the directors of CHI consider that the claims will unlikely result in any material financial impact on the CHI Group and CHI.

30. SUBSEQUENT EVENTS

No significant event has taken place subsequent to 31 March 2006.

31. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the CHI Group, CHI or any of the companies comprising the CHI Group in respect of any period subsequent to 31 March 2006.

Yours faithfully,

Grant Thornton

Certified Public Accountants

Hong Kong

106

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX 3

1. INTRODUCTION TO THE UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The following is the unaudited pro forma statement of assets and liabilities of the Enlarged Group prepared in accordance with paragraph 29 of Chapter 4 of the Listing Rules for the purpose of illustrating the effect of the Acquisition on the financial position of Enlarged Group as at 31 December 2005. As it is prepared for illustrative purpose only, and because of its nature, it may not give a true picture of the financial position of the Enlarged Group following Completion of the Acquisition.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group is prepared based on the audited consolidated balance sheet of the Group as at 31 December 2005 extracted from the published annual report of the Group as set out in Appendix 1 to this circular and the audited consolidated balance sheet of the CHI Group as at 31 March 2006 as extracted from the accountants’ report set out in Appendix 2 to this circular as if the Acquisition had been completed on 31 December 2005, after making certain pro forma adjustments that are (i) directly attributable to the transactions; and (ii) factually supportable, as summarised in the accompanying notes.

For the purpose of presenting the unaudited pro forma statement of assets and liabilities of the Enlarged Group, the audited consolidated balance sheet of the CHI Group as at 31 March 2006 is translated at the exchange rate of NZ$1.0 = HK$5.0 which approximate to the exchange rate as at 31 March 2006.

2. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The CHI The CHI The Group Group Group as at as at as at 31 December 31 March 31 March 2005 2006 2006 HK$’000 NZ$’000 HK$’000 (Audited) (Audited) equivalent ASSETS AND LIABILITIES Non-current assets Intangible assets 1,499 – – Property, plant and equipment 9,398 795 3,975 Interests in associates 15,480 – – Other assets 3,809 – – Available-for-sale financial assets 12,089 – – Deferred tax assets 5,431 341 1,705 47,706 1,136 5,680	Pro forma Pro forma Enlarged Subtotal adjustments Notes Group HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) 1,499 16,243 (i) 17,742 13,373 13,373 15,480 (6,730) (i), (ii) 8,750 3,809 3,809 12,089 12,089 7,136 7,136 53,386 62,899	Pro forma Pro forma Enlarged Subtotal adjustments Notes Group HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) 1,499 16,243 (i) 17,742 13,373 13,373 15,480 (6,730) (i), (ii) 8,750 3,809 3,809 12,089 12,089 7,136 7,136 53,386 62,899
		62,899

107

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX 3

The CHI The CHI The Group Group Group as at as at as at 31 December 31 March 31 March 2005 2006 2006 HK$’000 NZ$’000 HK$’000 (Audited) (Audited) equivalent Current assets Financial assets at fair value through profit or loss 1,305 3,913 19,565 Tax recoverable 1,186 – – Prepayments and other receivables – 452 2,261 Trade receivables – 7,885 39,425 Trade and other receivables 196,873 – – Amounts due from related companies – 8,071 40,354 Bank balances and cash – pledged – 2,344 11,718 – unpledged – 15,507 77,535 Bank balances and cash 162,139 – – 361,503 38,172 190,858 Current liabilities Trade and other payables 88,103 – – Trade payables – 28,734 143,671 Other payables and accruals – 2,173 10,864 Amount due to a shareholder – 2,437 12,183 Bank overdrafts – secured 13,586 – – – unsecured 5,141 – – Short-term bank loan (unsecured) 10,000 – – Other loans – 2,024 10,118 Current portion of obligation under finance lease 107 – – Provision for income tax 850 387 1,935 117,787 35,755 178,771 Net current assets 243,716 2,417 12,087 Total assets less current liabilities 291,422 3,553 17,767	Pro forma Pro forma Enlarged Subtotal adjustments Notes Group HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) 20,870 20,870 1,186 1,186 2,261 (2,261) (iii) – 39,425 (39,425) (iii) – 196,873 41,686 (iii) 238,559 40,354 (40,354) (iv) – 11,718 (11,718) (iii) – 77,535 (14,873) (iii) (62,662) (vi) – 162,139 (11,640) (i) 26,591 (iii) 18,962 (iv), (viii) 196,052 552,361 456,667 88,103 91,873 (iii) 170,767 (9,209) (iv) 143,671 (81,009) (iii) (62,662) (vi) – 10,864 (10,864) (iii) – 12,183 (12,183) (iv) – 13,586 13,586 5,141 5,141 10,000 10,000 10,118 10,118 107 107 2,785 2,785 296,558 212,504 255,803 244,163 309,189 307,062	Pro forma Pro forma Enlarged Subtotal adjustments Notes Group HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) 20,870 20,870 1,186 1,186 2,261 (2,261) (iii) – 39,425 (39,425) (iii) – 196,873 41,686 (iii) 238,559 40,354 (40,354) (iv) – 11,718 (11,718) (iii) – 77,535 (14,873) (iii) (62,662) (vi) – 162,139 (11,640) (i) 26,591 (iii) 18,962 (iv), (viii) 196,052 552,361 456,667 88,103 91,873 (iii) 170,767 (9,209) (iv) 143,671 (81,009) (iii) (62,662) (vi) – 10,864 (10,864) (iii) – 12,183 (12,183) (iv) – 13,586 13,586 5,141 5,141 10,000 10,000 10,118 10,118 107 107 2,785 2,785 296,558 212,504 255,803 244,163 309,189 307,062
		456,667
		170,767 – – – 13,586 5,141 10,000 10,118 107 2,785
		212,504
		244,163
		307,062

108

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX 3

The CHI The CHI The Group Group Group as at as at as at 31 December 31 March 31 March 2005 2006 2006 HK$’000 NZ$’000 HK$’000 (Audited) (Audited) equivalent Non-current liabilities Obligation under finance lease 154 – – Deferred tax liabilities 175 – – 329 – – Net assets 291,093 3,553 17,767 EQUITY Share capital 39,113 1,000 5,000 Other reservers 192,290 – – Retained profits 59,690 2,553 12,767 Total equity 291,093 3,553 17,767	Pro forma Pro forma Enlarged Subtotal adjustments Notes Group HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) 154 154 175 175 329 329 308,860 306,733 44,113 2,300 (i), (v) (5,000) (i), (ii) 41,413 192,290 13,340 (i), (v) 205,630 72,457 (12,767) (i), (ii) 59,690 308,860 306,733	Pro forma Pro forma Enlarged Subtotal adjustments Notes Group HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) 154 154 175 175 329 329 308,860 306,733 44,113 2,300 (i), (v) (5,000) (i), (ii) 41,413 192,290 13,340 (i), (v) 205,630 72,457 (12,767) (i), (ii) 59,690 308,860 306,733
		329
		306,733

		41,413 205,630 59,690
		306,733

3. NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

(i) As at 31 December 2005, the Group had 30% equity interests in the CHI Group. The investment in the CHI Group was recorded as interests in associates and equity accounted for by the Group.

On 26 June 2006, the Company and the Vendors entered into the Sale and Purchase Agreement pursuant to which the Company has conditionally agreed to acquire from the Vendors of the remaining 70% equity interests in the CHI Group (the “Acquisition”) at a consideration of HK$25,640,000. The CHI Group is, therefore, considered by the Directors of the Company as a subsidiary of the Company upon the completion of the Acquisition (i.e. the date on which control is transferred to the Group).

The adjustment reflects goodwill arising from the excess of HK$16,243,000, of the consideration payable by the Group of HK$10,000,000 in cash and the issue of 23,000,000 shares at a price of HK$0.68 per share each (“Consideration Shares”) by the Company upon the acquisition of the remaining 70% equity interests in the CHI Group (“Acquisition”), net of the estimated costs of HK$1,640,000 which are directly attributable to the Acquisition, over the fair value of net identifiable assets of the CHI Group of NZ$3,553,310 (equivalent to approximately HK$17,767,000) as at 31 March 2006 less the Group’s interests in CHI of approximately HK$6,730,000 as at 31 December 2005 as if the Acquisition had been completed on 31 December 2005.

109

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX 3

(ii) The adjustment represents the elimination of the Group’s 30% equity interests in the CHI Group, including the capital and reserves of the CHI Group upon the completion of the Acquisition and consolidation of 100% equity interest in the CHI Group.
(iii) There are differences in the presentation of assets and liabilities shown in the respective balance sheets of the Group and the CHI Group. The adjustment represents reclassification of the assets and liabilities of the CHI Group in order to conform with the Group’s presentation.
(iv) The adjustments represent the elimination of intercompany balances between the Group and the CHI Group as if the CHI Group became the subsidiaries of the Group.
(v) The adjustment represents the issue of 23,000,000 shares at the issue price of HK$0.68 per share by the Company upon the Acquisition, giving rise to an increase in share capital of HK$2,300,000 at par value of HK$0.01 per share and an increase in share premium of HK$13,340,000 as a result of the issue of shares at a premium of HK$0.67 per share.
(vi) It is the Group’s accounting policies to exclude the segregated trust accounts with authorised financial institutions from the financial statements. The adjustment represents the reversal of client trust monies included in the bank balances of the CHI Group so as to conform with the Group’s accounting policies.
(vii) For the purposes of calculating the amount of goodwill arising from the Acquisition, the carrying amounts of assets and liabilities of the CHI Group as at 31 March 2006 and the Consideration Share is assumed to be the fair value of the identifiable assets and liabilities of the CHI Group and the fair value of the Consideration Share respectively at the date of completion.

Since the fair value of the identifiable assets and liabilities of the CHI Group and the fair value of the Consideration Shares at the date of completion may be substantially different from their fair values as at 31 March 2006, the actual goodwill arising from the Acquisition may be different from the estimated goodwill as shown above. The final amount of goodwill will be determined based on the consideration paid by the Group and the fair value of the identifiable assets and liabilities of the CHI Group on the date of completion in accordance with the Hong Kong Financial Reporting Standard 3 “Business Combinations” (“HKFRS 3”).

Goodwill arising from the Acquisition will be subject to annual impairment testing under HKFRS 3 which is effective from 1 January 2005.

(viii) The CHI Group transacted leveraged foreign exchange and bullion trade with the Group and maintained margin deposits with the Group (the “CHI Margin Deposits”). However, the CHI Margin Deposits were treated as client trust monies by the Group which were excluded from the bank balances and cash of the Group in accordance with its accounting policies of trust accounts. The adjustment on the bank balances and cash of HK$18,962,000 represents the recognition of the CHI Margin Deposits as if the CHI Group became the subsidiaries of the Group.

110

APPENDIX 3 PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

4. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of an accountants’ report dated 30 August 2006, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Grant Thornton, Certified Public Accountants, Hong Kong, in respect of the unaudited pro forma financial information of the Enlarged Group.

Certified Public Accountants Member of Grant Thornton International

==> picture [118 x 35] intentionally omitted <==

30 August 2006

The Directors

Hantec Investment Holdings Limited 45th Floor COSCO Tower 183 Queen’s Road Central Hong Kong

Dear Sirs

We report on the unaudited pro forma statement of assets and liabilities of Hantec Investment Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”), and Cosmos Hantec Investment (NZ) Limited (“CHI”) and its subsidiaries (the “CHI Group” and together with the Group collectively referred to as the “Enlarged Group”) (“Unaudited Pro Forma Statement of Assets and Liabilities”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of the remaining 70% equity interest in CHI by the Company (the “Proposed Acquisition”) might have affected the financial information presented, for inclusion in Appendix 3 of the circular dated 30 August 2006 (the “Circular”). The basis of preparation of the Unaudited Pro Forma Statement of Assets and Liabilities is set out in the section headed “Unaudited Pro Forma Financial Information of the Enlarged Group” in Appendix 3 of the Circular.

111

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX 3

Respective Responsibilities of Directors of the Company and Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“the Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the Unaudited Pro Forma Statement of Assets and Liabilities and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Statement of Assets and Liabilities beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Statement of Assets and Liabilities has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Statement of Assets and Liabilities as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The Unaudited Pro Forma Statement of Assets and Liabilities is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, does not give any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Enlarged Group as at 31 December 2005 or any future date.

112

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX 3

Opinion

In our opinion:

a. the Unaudited Pro Forma Statement of Assets and Liabilities has been properly compiled by the directors of the Company on the basis stated;
b. such basis is consistent with the accounting policies of the Group; and
c. the adjustments are appropriate for the purposes of the Unaudited Pro Forma Statement of Assets and Liabilities as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully

Grant Thornton

Certified Public Accountants Hong Kong

113

GENERAL INFORMATION

APPENDIX 4

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts not contained herein the omission of which would make any statement contained in this circular misleading.

2. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions of each Director and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be notified to the Company and the Stock Exchange, were as follows:

	The Company/
	name
	of associated
Name of Director	corporation	Capacity	Number of shares
Mr. Tang Yu Lap	The Company	Interest in a	256,372,000 Shares
		controlled corporation
		(Note)
	The Company	Beneficial owner	500,000 Shares
Mr. Chung Shui Ming,	The Company	Beneficial owner	14,500,000 Shares
Timpson
Mr. Lam Ngok Fung	The Company	Beneficial owner	274,000 Shares
Mr. Law Kai Yee	The Company	Beneficial owner	200,000 Shares

Note:

These Shares were held by Hantec Holdings Limited (“HHL”), a company in which Mr. Tang Yu Lap beneficially owned 35% of its issued share capital. By virtue of the provisions of the SFO, Mr. Tang Yu Lap is deemed to be interested in all the Shares in which HHL is interested.

114

GENERAL INFORMATION

APPENDIX 4

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interests or short positions in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any assets which have been, since 31 December 2005, being the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group since 31 December 2005, being the date to which the latest published audited financial statements of the Company were made up, and which was significant in relation to the business of the Group.

3. SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at the Latest Practicable Date, so far as was known to the Directors or the chief executive of the Company, the following are details of the persons (other than a Director or chief executive of the Company) who had an interest or short position in the Shares and 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 were 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 the Company and other members of the Group were as follows:

			Percentage
			of the
			Company’s
		Number of	issued share
Name	Capacity	Shares held	capital
Hantec Holdings Limited	Beneficial owner	256,372,000	65.55%
Convenient Way Limited	Interest through a	256,372,000	65.55%
	controlled corporation	(Note 1)
Mr. Yeung Sai Hong	Interest through	256,372,000	65.55%
	controlled corporations	(Note 1)
Ms. Chan Yu Suk	Spouse interest	256,372,000	65.55%
		(Note 2)

115

GENERAL INFORMATION

APPENDIX 4

Notes:

These Shares were held by HHL. The issued share capital of HHL was owned as to 35% by Convenient Way Limited in which Mr. Yeung Sai Hong holds 60% of its capital. By virtue of the provisions of the SFO, Mr. Yeung Sai Hong is deemed to be interested in all the Shares in which HHL is interested.
Ms. Chan Yu Suk is the wife of Mr. Yeung Sai Hong. By virtue of the provisions of the SFO, Ms. Chan Yu Suk is deemed to be interested in all the Shares in which Mr. Yeung Sai Hong is interested.

Save as disclosed above, there was no person known to the Directors, who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or were 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 the Company and other members of the Group.

4. SERVICE AGREEMENTS

As at the Latest Practicable Date, none of the Directors had entered or proposed to enter into a service contract with any member of the Group which is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

5. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business of the Company) have been entered into by the Company and/or member(s) of the Group within two years immediately preceding the date of this circular which are or may be material:

(a) the Sale and Purchase Agreement;
(b) a subscription agreement dated 26 September 2005 entered between Marco Jess Limited, a wholly owned subsidiary of the Company and Foreland Forex Company Limited (“Foreland”) to subscribe 1,500 shares of Foreland at a consideration of YEN90,000,000 (equivalent to approximately HK$6,211,180); and
(c) a sale and purchase agreement dated 11 May 2005 entered between Hantec Taiwan Investments Limited (“HTIL”), a wholly owned subsidiary of the Company and Ms. Chang Yi Chin under which HTIL was to acquire 30% of the issued share capital of 亨達富林國際證券投資顧問有限公司 at a consideration of NTD11,899,000 (equivalent to approximately HK$2,975,000).

116

GENERAL INFORMATION

APPENDIX 4

6. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors and their respective associates was interested in any business apart from the business of the Group, which competed or was likely to compete, either directly or indirectly, with that of the Group.

7. LITIGATION

As disclosed in the announcement of the Company dated 28 July 2000 and the annual report of the Company for the year ended 31 December 2000, the Company received a writ of summons on 28 July 2000, filed by a company named Hantec Investment Limited which is unrelated to the Group. The plaintiff sought for injunction to restrain the Company form using the plaintiff’s alleged trade name and damages. The Company has filed a defence action to the writ of summons. Up to the Latest Practicable Date, there was no further proceeding after the filing of the defence action.

As disclosed in the annual report of the Company for the year ended 31 December 2005, an indirect wholly owned subsidiary of the Company, Hantec international Limited (“HIL”) received a writ of summon on 28 March 2006 from two clients jointly as plaintiffs claiming for damages against HIL and two of its licensed representatives for an amount of HK$20,600,000 together with costs as a result of a number of transactions of leveraged foreign exchange trading. Another client of HIL commenced proceedings against HIL by way of arbitration under the Securities and Futures Ordinance (the “SFO”) for an amount of approximately HK$934,000 arising out of the alleged provision of misleading information and/or wrongful misrepresentation by a licensed representative of HIL in respect of leveraged foreign exchange trading. HIL has commenced defence on the claim. The directors of HIL have instructed the Company’s legal adviser to commence defence actions against both cases. Up to the Latest Practicable Date, there was no further development after the filing of the defence actions.

A writ of summons dated 11 July 2006 was served to three subsidiaries of the Company as defendants by a former account executive claiming against the three subsidiaries for a total amount of HK$700,000 as his rightful overriding commissions together with interest and/or alternatively, damages to be assessed. The subsidiaries have instructed their legal advisor to commence defence on the claim. The legal advisor has requested the plaintiff to state clearly his claim but the plaintiff has indicated to the court that he would not answer the same and as such the legal advisor opines that it is not clear whether the plaintiff will aggressively press ahead with his claim or he will keep the case in abeyance.

Save as disclosed above, as at the Latest Practicable Date, no member of the Group was engaged in any litigation or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against any members of the Group.

117

GENERAL INFORMATION

APPENDIX 4

8. QUALIFICATIONS OF EXPERTS

The following are the qualifications of the experts who has given opinion or, advice contained in this circular:

Name

Qualification

Grant Thornton

Certified Public Accountants

As at the Latest Practicable Date, Grant Thornton did not have any shareholding, directly or indirectly, in the Company or any of its members or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for shares in the Company or any of its members.

Grant Thornton did not have any direct or indirect interest in any assets which have, since 31 December 2005, being the date of the latest published audited accounts of the Company, been acquired or disposed of by, or leased to, or are proposed to be acquired or disposed of by, or leased to, any member of the Company.

Grant Thornton was not materially interested in any contract or arrangement entered into by any member of the Company which contract or arrangement is subsisting as at the date of this circular and which is significant in relation to the business of the Company taken as a whole.

9. CONSENT

Grant Thornton has given and has not withdrawn its written consent as to the issue of this circular with the inclusion herein of its opinions or letters or reports and/or reference to its name, opinions, letters or reports in the form and context in which they respectively appear.

118

GENERAL INFORMATION

APPENDIX 4

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company in Hong Kong during normal business hours from 30 August 2006 up to and including 13 September 2006:

(a) the Company’s memorandum of association and bye-laws of the Company;
(b) the material contracts as referred to in the paragraph 5 to this appendix;
(c) the annual report of the Group for each of the two financial years ended 31 December 2005;
(d) the accountants’ report on CHI prepared by Grant Thornton for the period from 6 December 2002 to 31 December 2003, the two years ended 31 December 2005 and the 3 months ended 31 March 2006 as set out in Appendix 2 to this circular;
(e) the report issued by Grant Thornton in connection with the pro forma statement of the assets and liabilities of the Enlarged Group as set out in Appendix 3 to this circular; and
(f) the letter of consent referred to in paragraph 9 of this appendix.

11. MISCELLANEOUS

(a) Mr. Lau Mun Chung is the qualified accountant and company secretary of the Company. He is a fellow member of the Association of Chartered Certified Accountants, an associate member of the Hong Kong Institute of Certified Public Accountants and a graduate of The Hong Kong Institute of Company Secretaries.
(b) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. The principal place of business of the Company in Hong Kong is at 45th Floor, COSCO Tower, 183 Queen’s Road Central, Hong Kong.
(c) The Hong Kong branch share registrar and transfer office of the Company is Secretaries Limited of 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.
(d) The English text of this circular shall prevail over the Chinese text in case of inconsistency.

119

AI assistant

Concord New Energy Group Ltd. — Proxy Solicitation & Information Statement 2006

35804_rns_2006-08-30_06f870c0-cc95-4440-bee6-86e137f2517e.pdf

**Hantec Investment Holdings Limited 亨達國際控股有限公司 ***

MAJOR TRANSACTION

Financial adviser

Hantec Capital Limited

CONTENT

DEFINITIONS

DEFINITIONS

**Hantec Investment Holdings Limited 亨達國際控股有限公司 ***

Executive Directors:

MAJOR TRANSACTION

INTRODUCTION

THE SALE AND PURCHASE AGREEMENT

Date:

Parties:

Assets to be acquired:

Consideration

LETTER FROM THE BOARD

Conditions precedent

Completion

EFFECT ON SHAREHOLDING STRUCTURE

INFORMATION ON CHI

Management discussion and analysis

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

PROSPECTS OF THE GROUP

FINANCIAL EFFECT OF THE ACQUISITION

Net asset value

LETTER FROM THE BOARD

Earnings

GENERAL

ADDITIONAL INFORMATION

A. SUMMARY OF FINANCIAL RESULTS OF THE GROUP

B. AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

CONSOLIDATED BALANCE SHEET

APPENDIX 1

Balance Sheet

Consolidated Income Statement

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Financial Statements

1. General information

2. Summary of significant accounting policies

2.1 Basis of preparation

2.2 Consolidation

(a) Subsidiaries

2.3 Segment reporting

2.4 Foreign currency translation

(a) Functional and presentation currency

(b) Transactions and balances

(c) Group companies

2.5 Fixed assets

2.6 Intangible assets

(a) Goodwill

(b) Trading rights

(c) Membership

2.7 Impairment of assets

2.8 Investments

(a) Non-trading securities

(b) Trading securities

(a) Financial assets at fair value through profit or loss

(b) Loans and receivables

(c) Held-to-maturity investments

(d) Available-for-sale financial assets

2.9 Trade and other receivables

2.10 Cash and cash equivalents

2.11 Financial liabilities

2.12 Share capital

2.13 Deferred income tax

2.14 Employee benefits

(a) Employee leave entitlements

(b) Profit sharing and bonus plan

(c) Pension obligations

(d) Share options

2.15 Provisions

2.16 Revenue recognition

2.17 Leases

(a) Operating lease

Concord New Energy Group Ltd. Proxy Solicitation & Information Statement 2006

Hantec Investment Holdings Limited 亨達國際控股有限公司 *

Hantec Investment Holdings Limited 亨達國際控股有限公司 *