Crypto Flow Technology Limited — Annual Report 2008

Mar 26, 2009

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MelcoLot Limited

(formerly known as Melco LottVentures Limited)

(incorporated in the Cayman Islands with limited liability) website: http://www.melcolot.com (Stock Code: 8198)

ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2008

CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (“GEM”) OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “STOCK EXCHANGE”)

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

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

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

This announcement, for which the directors of MelcoLot Limited collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange (the “GEM Listing Rules”) for the purpose of giving information with regard to MelcoLot Limited. The directors of MelcoLot Limited, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief: (1) the information contained in this announcement is accurate and complete in all material respects and not misleading; (2) there are no other matters the omission of which would make any statement in this announcement misleading; and (3) all opinions expressed in this announcement have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

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CHAIRMAN’S STATEMENT

TO OUR SHAREHOLDERS

For and on behalf of the board of directors (the “Board”), I present the annual results of MelcoLot Limited (the “Company”) (formerly known as Melco LottVentures Limited) and its subsidiaries (collectively, “MelcoLot” or the “Group”) for the year ended 31 December 2008 (the “Review Period”).

During the Review Period, turnover of the Group increased by approximately 67% to approximately HK$607 million (2007: HK$362 million). However, the difficult economic environment in 2008 coupled with a technical application of the accounting rules requiring certain non cash charges for impairment and deemed non-cash expenses on convertible bonds led to the Group reporting a net loss of HK$469.08 million (2007: net loss HK$476.38 million).

These non-cash impairments and deemed non-cash expense on convertible bonds amounted to HK$398.03 million (2007: HK$478.93 million) were also of nonoperational nature and will not affect the cash flow or current assets of the Group. As at the end of the Review Period, cash and cash equivalent balance of the Group amounted to HK$156.97 million (2007: HK$143.82 million).

Details of the Group’s segmental performance during the Review Period are discussed further in the following pages under the Management Discussion and Analysis section.

FINAL DIVIDEND

The Board does not recommend payment of any dividend for the year ended 31 December 2008 (2007: Nil).

BUSINESS REVIEW

The Group’s traditional network system integration business continued to face keen competition in the market. The rapidly declining economic environment, future prospects and credit situation of customers have brought about deferment of decisions in their acquisition, replacement and up-grading of systems. All these have made 2008 a very challenging year for the network system integration business.

The past year was an important one for the lottery business of the Group and the lottery industry was not spared the ill effects of the economic downturn. However, the Group put up strong showing by expanding its product and service offerings in Mainland China. Great efforts were made to streamline the operating structure to gear up for the economic downturn. The Group’s performance was notable in the face of the adverse conditions created by natural disasters in the form of snowstorms and mega earthquake that afflicted the Mainland during 2008.

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The Group’s manufacturing entity Wu Sheng turned in a positive performance despite the economic environment by meeting its targets.

Furthermore, the Group was able to expand its geographic footprint in Asia by completing the acquisition of KTeMS Co., Ltd. (“KTeMS”) during the year. KTeMS is a 14% stakeholder in the Nanum Lotto consortium. Nanum Lotto is the government authorised consortium that has an exclusive licence to operate the South Korean Welfare Lottery (which presently enjoys average annual sales in excess of US$1.5 Billion).

2008 was also a milestone year for the Group as it acquired the capability to service the high value system and technology vertical of the lottery Industry. Global lottery giant Intralot S.A. Integrated Lottery Systems and Services (“Intralot”), reposed its confidence in the Group by injecting cash and a licence to its world leading lottery software into the Company, and taking up strategic stake in the Company. This was a very key strategic move for the company as part of its endeavour to obtain world class capabilities and cutting edge technological capabilities and enable itself to move up the value chain. As per the terms of the agreement approved by the shareholders in an Extraordinary General Meeting held in December 2008, Intralot would also support the Group by means of a Board seat (appointment approved by the Hong Kong Stock Exchange with effect from 30 January 2009) and by seconding their senior staff for the China market to be the Chief Operations Officer of the Group.

To reflect participation of Intralot as a strategic shareholder, the Company’s English name was changed to MelcoLot Limited.

PROSPECTS

For lottery business, the Group is looking at the large and lucrative Asian market. Starting with China, where the group already has a strong presence across the various industry vertical, such as venue management, supply of games, scratch card distribution, and lottery vending terminal manufacturing and distribution.

The China Lottery market has seen a blistering pace of growth in prior years:

• Lottery sales in China grew 15-fold from 1997 to 2006, to reach RMB82 billion.

• In 2007, total lottery sales reached RMB100 billion, a year-on-year growth of 22%.

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In 2008, however, growth was a modest 4% year on year. However, this assumes great significance in the face of negative growth seen in other industries due to the adverse economic environment and also the natural disasters that greatly impacted the public in 2008. For 2009, it is anticipated that the economic stimulus efforts taken by the government will support economic growth in general and help to counter the widespread economic malaise experienced by other nations. Specific to the lottery industry, there are encouraging news reports of test launch of single match sports betting by the lottery authorities in certain cities on a trial basis. Should this product be launched, it would provide an exciting new entertainment avenue for players. The Group’s well managed retail chain management service is already well positioned to benefit from this potential growth area. The Group’s integrated manufacturing capabilities will give it a competitive advantage, providing synergistic support to other areas of the lottery business. Furthermore, with the benefit of having Intralot, one of the largest global lottery companies as a strategic shareholder and having access to Intralot’s world leading software, the Group is now enabled to participate in future large scale projects in China.

After establishing operations in South Korea for the first year, Nanum Lotto is expected to gain momentum from 2009 onwards, thus increasing the value of the Group’s lottery investment in South Korea. The Group will also carefully evaluate other lottery opportunities in Asia with the objective of securing a diversified operating portfolio.

The Group’s comprehensive suite of service has been greatly enhanced with the software licence obtained from Intralot. The Group’s positioning in the market remains strong with its existing management team and support from its strategic shareholders.

CONCLUSION

On behalf of the Board of Directors, I would like to take the opportunity to thank all staff members for their contribution in the past year. My thanks also go to our customers, suppliers, bankers, business partners, shareholders for their continued trust and support in the past year. I look forward to building MelcoLot into a successful corporation and growing its business with all staff members in the years ahead.

Last but not least, to my fellow directors, thank you for your wise counsel and support to me personally and your contribution of time and efforts to the Group during the year.

To our faithful shareholders, I would say that the Group’s lottery business is consolidating itself well and shows promise. Notwithstanding the economic downturn, the Board and management team remains committed and focussed on the success of the Group.

CHAN Sek Keung, Ringo Chairman

Hong Kong, 26 March 2009

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MANAGEMENT DISCUSSION AND ANALYSIS SIGNIFICANT EVENTS AND DEVELOPMENTS

Following the acquisition in late 2007 of the lottery business from the Melco Group, 2008 has been a year of execution of its plans in the deepening of its involvements in the lottery market in mainland China, and started to set foot in other parts of Asia.

In September 2008, completion of the Group’s acquisition of the entire issued share capital of KTeMS was accomplished. KTeMS has a 14% equity interest in Nanum Lotto Inc. (“Nanum Lotto”) which has an exclusive national license to operate off-line lotto games in South Korea. Nanum Lotto is a consortium formed by renowned international and Korean partners.

On 28 September 2008, the Company made an announcement that on 7 September 2008, the Company entered into an asset transfer agreement, as amended by a supplemental agreement dated 26 September 2008, (the “Asset Transfer Agreement”) with Intralot International Limited, a wholly owned subsidiary of Intralot, the world’s second largest gaming and lottery technology services provider whose shares are traded at the Athens Stock Exchange. At a total consideration of HK$305,130,367.558 the Company would acquire (i) the perpetual exclusive licence right to use and sublicense certain of Intralot’s software for the sports lottery projects in China and (ii) the perpetual non-exclusive right to use and sublicense certain of Intralot’s software for the welfare lottery projects in China and (iii) HK$50,000,000 in cash. Consideration for the acquisition were to be satisfied by the issue of 28,208,938 shares in the Company at HK$0.991 per share and HK$277,175,310 5-year 0.1% bonds convertible into shares of the Company at HK$0.991 per share. The Asset Transfer Agreement also carries an arrangement where Intralot will be awarded a success payment of HK$75,000,000 when two projects have been secured by the Company after the completion of the acquisition. The success payment will be satisfied by the Company issuing convertible bonds of the same amount convertible into shares of the Company at HK$1.0759 per share.

The acquisition was approved by shareholders at the extraordinary general meeting held on 4 December 2008 and completion took place on 9 December 2008.

To reflect the close business relationship with the Intralot Group, the name of the Company was changed to “MelcoLot Limited 新濠環彩有限公司” and registered in Hong Kong on 13 January 2009.

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Backed by the top notch alliance of gaming expertise, forefront technical knowhow, manufacturing leadership and financial strength from a combination of the Melco Group of Hong Kong, Firich Group of Taiwan and Intralot Group of Greece, the Group is confident that our experienced international management team will be able to make MelcoLot one of the top lottery operators in Asia.

OUTLOOK

The Group has already established its presence in China across various lottery industry verticals, such as venue management, supply of games, scratch card distribution, and lottery vending terminal manufacturing and distribution. The Group will endeavour to consolidate and strengthen its operations. Having acquired the valuable software licence from Intralot in December 2008, it will now seek to enter the area of technology and services where it can utilize this asset.

In terms of general economic environment, 2008 was a difficult year. It is hoped that the China government’s stimulus plan will help boost domestic consumption levels and support its gross domestic product growth in 2009.

Specific to the lottery industry, there are reports of test launch of single match sports betting by the lottery authorities in certain cities on a trial basis. Should this product be launched, it would provide an exciting new entertainment avenue for players. The Group will endeavour to capitalise on such market developments through increased revenues from the retail chain management service, increased manufacturing and distribution of lottery point of sales machines and provision of technology/services using its software licences.

The Group will also explore and carefully evaluate other lottery opportunities in Asia with the objective of securing a diversified operating portfolio.

FINANCIAL REVIEW

For the year under review, the Group was engaged in two main business streams, namely (i) network system integration and (ii) lottery business.

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The segmental information shown in Note 5 to the financial statements is reproduced below with some minor re-arrangements:

Segment Result: Network system integration Segment Result: Lottery business Group’s operating result Unallocated corporate income Unallocated corporate expenses Share of (losses)/profits of jointly controlled entities Finance cost Loss before taxation Taxation Loss for the year Minority interests Loss for the year attributable to equity holders of the Company	Year ended 31-Dec-08 HK$’000 1,441 (403,817) (402,376) 5,555 (22,300) (15,701) (46,088) (480,910) 11,826 (469,084) 26,943 (442,141)	Year ended 31-Dec-07 HK$’000 (restated) 11,889 (480,247) (468,358) 812 (390) 691 (7,460) (474,705) (1,676) (476,381) 933 (475,448)

Consolidated loss attributable to equity holders of the Company amounted to approximately HK$442.14 million for the Review Period (2007: HK$475.45 million), after charging the following recurrent and non-cash items resulting from the VSA for the Review Period:

• (i) A deemed non-cash expense on convertible bonds amounting to HK$39.50 million (2007: HK$1.93 million);

• (ii) An impairment loss on intangible assets of HK$98.59 million (2007: HK$1.00 million); and

• (iii) An impairment loss on goodwill of HK$259.94 million (2007: HK$476.00 million).

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Excluding (i) – (iii) above and other non-cash items, the Group would have recorded a consolidated EBITDA of approximately HK$29.1 million for Review Period, an increase of 23.0% over the previous year (2007: HK$23.7 million), while there was total cash and cash equivalent on hand of approximately HK$157.0 million at the end of the year (2007: 143.8 million).

EBITDA stripping out non-cash items from the segment of network system integration amounted to approximately HK$18.5 million (2007: HK$25.4 million). For the segment of lottery business, EBITDA stripping out non-cash items from this segment amounted to approximately HK$10.6 million (2007: loss of HK$1.7 million).

Network System Integration Business

This segment generated revenue of approximately HK$426.30 million (2007: HK$361.65 million), an increase of 17.9% over the previous year. A breakdown of the sales by main business segments is set out as follows:

Network infrastructure solutions Network professional services Sales of network software Total	Year ended 31-Dec-08 HK$’000 346,766 74,847 4,687 426,300	Year ended 31-Dec-07 HK$’000 299,124 58,781 3,740
		361,645

Contribution from Network System Integration decreased from approximately HK$11.9 million to approximately HK$1.4 million, an decrease of 88.2% over the previous year.

Lottery Business

The Group’s lottery business is conducted via 80%-owned PAL Development Limited (“PAL”) and 60%-owned Wu Sheng Computer Technology (Shanghai) Co., Limited (“Wu Sheng”). PAL manages one of the largest lottery retail sales networks in China, while Wu Sheng is a Shanghai-based manufacturer of lottery vending terminals.

For the year ended 31 December 2008, losses from this segment amounted to approximately HK$403.8 million (2007: HK$480.2 million). Such losses were primarily due to certain non-cash charges for impairment and amortization required by the accounting rules. By stripping out non-cash items, lottery business had positive EBITDA amounted to HK$10.6 million (2007: loss of HK$1.7 million).

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Unallocated Corporate Income

During the Review Period, other income amounted to HK$5,555,000 (2007: HK$812,000), the bulk of which was attributable to bank interests which amounted to HK$845,000 (2007: HK$523,000).

Unallocated Corporate Expenses

During the Review Period, unallocated corporate expenses amounted to HK$22,300,000 (2007: HK$390,000).

Share of (Losses)/Profits of Jointly Controlled Entities

During the Review Period, the share of losses of jointly controlled entities amounted to HK$15,701,000 (2007: profits HK$691,000). These are made up of the following:

Share of (loss)/profit of Beijing Telenet Information Technology Limited (“BTI”) (1) Share of loss of PALTECH Company Limited (“PALTECH”)(2)	Year ended 31-Dec-08 HK$’000 (141) (15,560) (15,701)	Year ended 31-Dec-07 HK$’000 747 (56) 691

(1) Share of (loss)/profit of BTI

BTI is a jointly controlled entity owned as to 51% by PAL. BTI is engaged in the distribution of lottery vending terminals in 22 provinces in China. It is the largest authorized lottery vending terminal supplier approved by Sports Lottery.

During the Review Period, operational loss attributable to the Group amounted to approximately HK$141,000 (2007: profit HK$747,000).

(2) Share of loss of PALTECH

PALTECH is a jointly controlled entity owned as to 60% by PAL. PALTECH is principally engaged in the development of computer systems and software applications and related technologies in connection with the printed lottery and/ or online or mobile lottery operations worldwide with a particular focus on Asian market.

During the Review Period, operational loss attributable to the Group amounted to approximately HK$15,560,000 (2007: HK$56,000).

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Finance Costs

During the Review Period, finance costs amounted to approximately HK$46.08 million (2007: HK$7.46 million). The increase was primarily attributable to the increase in shareholder loan interest payable amounting to approximately HK$1.7 million as a result of the increased funding needs, and the deemed interest expense on the liability component of convertible bonds amounting to approximately HK$39.50 million. It should be noted that this deemed interest expense is notional and of a non-cash nature.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

During the Review Period, the Group kept its conservative policies in cash and financial management. Surplus funds were placed on interest-bearing deposits with banks. The Group generally financed its operations and serviced its debts with its internal resources, short-term bank loans, other loans and shareholder’s loan.

The Group’s financial and liquidity position remained healthy. As at 31 December 2008, the Group had net current assets of approximately HK$200.0 million, a 3.8% increase over last year end of HK$192.7 million. The current ratio decreased from 2.18 to 1.75 cash and cash equivalents amounted to approximately HK$157.0 million (2007: HK$143.8 million), total borrowings (including bank and other borrowings, and shareholder’s loan) of approximately HK$115.4 million (2007: HK$82.9 million) of which, HK$35.4 million (2007: 77.3 million) is due within 1 year while HK$80 million (2007: HK$5.6 million) is due after 1 year. The increase in bank and cash during the year was mainly due to HK$50 million cash acquired from the assets transfer in 2008.

As at 31 December 2008, all assets and liabilities of the Group were denominated in U.S. dollars, Hong Kong dollars, Renminbi and Korean Won.

As at 31 December 2008, the total number of issued ordinary shares of the Group was 499,430,433 of HK$0.01 each (2007: 432,198,495 of HK$0.01 each). The increase in issued shares was due to the allotment of 35,700,000 consideration shares for the acquisition of the available-for-sale investment, 28,208,938 consideration share for acquisition of software license right, as well as the exercise of share options.

ORDER BOOK AND PROSPECTS OF NEW BUSINESS

As at 31 December 2008, the Group had contracts on hand for sales amounting to approximately HK$29.9 million (2007: HK$38.3 million) which would be booked as revenue upon delivery and implementation.

SIGNIFICANT INVESTMENT HELD

The Group did not hold any significant investment at the beginning of the Review Period. Acquisitions during the Review Period are detailed below under the heading “Acquisitions, disposals and significant investments”.

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SEGMENTAL INFORMATION

The segmental information of the Group is covered in note 5 to the financial statements.

CHARGES ON GROUP ASSETS

As at 31 December 2008, the Group had a pledged bank deposit of approximately HK$15.31 million (2007: HK$12.42 million) for securing certain banking facilities.

As at 31 December 2008, the Group had charged (i) 90% of its shareholdings in Oasis Rich International Ltd. and in Precious Success Holdings Ltd. (ii) its entire shareholdings in KTeMS to ensure the performance of its obligations under the convertible bonds due 2012 and convertible bonds due 2013, respectively.

Save as disclosed above, the Group did not have any significant charges on assets.

GEARING RATIO

As at 31 December 2008, the gearing ratio, expressed as total liabilities over total assets, increased to approximately 0.82 times from approximately 0.52 times as at 31 December 2007.

FOREIGN EXCHANGE EXPOSURE

During the Review Period, the Group earned revenue and incurred costs and expenses mainly in U.S. dollars, Hong Kong dollars and Renminbi. As the impact of foreign exchange exposure has been insignificant and positive, no hedging or other alternatives have been implemented.

ACQUISITIONS, DISPOSALS AND SIGNIFICANT INVESTMENT

During the Review Period, the Group had completed the following acquisitions:

1. KTeMS Acquisition

In September 2008, completion of the Group’s acquisition of the entire issued share capital of KTeMS was accomplished. KTeMS has a 14% equity interest in Nanum Lotto Inc. (“Nanum Lotto”) which has an exclusive national license to operate off-line lotto games in South Korea. Nanum Lotto is a consortium formed by renowned international and Korean partners.

One part of this acquisition had involved the Group acquiring debts totaling HK$78.72 million owing by KTeMS and its major shareholder and director to PAL Development Limited, an 80% indirectly owned subsidiary of the Company and from LottVision Limited. HK$39.36 million of the loans acquired were satisfied by the Company issuing 5% promissory notes and the balance HK$15.60 million were applied to set off the purchase consideration of the KTeMS shares described in the following paragraph.

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The other part of this acquisition had involved the Group acquiring the entire issued share capital of KTeMS at a total consideration of US$12 million (approximately HK$93,600,000), which was satisfied by the payment of HK$27.3 million in cash, HK$50.7 million by the issue of 35,700,000 shares of the Company at HK$1.42 per shares and HK$15.6 million set off part of the acquired loan described in the previous paragraph.

Details of the KTeMS acquisition are contained in the circular of the Company dated 27 March 2008.

2. Intralot Asset Transfer

On 9 December 2008, the acquisition of assets from Intralot International Limited, a wholly own subsidiary of Intralot, was completed.

At a total consideration of HK$305,130,367.558, this acquisition involves the Group acquiring (i) the perpetual exclusive licence right to use and sublicense certain of Intralot’s software for the sports lottery projects in China and (ii) the perpetual, non-exclusive right to use and sublicense certain of Intralot’s software for the welfare lottery projects in China and (iii) HK$50,000,000 in cash. Consideration for the acquisition were to be satisfied by the issue of 28,208,938 shares in the Company at HK$0.991 per share and HK$277,175,310 5-year 0.1% bonds convertible into shares of the Company at HK$0.991 per share.

The agreement for this acquisition also carries an arrangement where Intralot will be awarded a success payment of HK$75,000,000 when two projects have been secured by the Company after the completion of the acquisition. The success payment will be satisfied by the Company issuing convertible bonds of the same amount convertible into shares of the Company at HK$1.0759 per share.

Details of the Intralot Assets Transfer are contained in the circular of the Company dated 11 November 2008.

FUTURE PLANS FOR INVESTMENTS OR CAPITAL ASSETS AND SOURCES OF FUNDING

There are no immediate plans for any signification investments in capital assets. However, the Group will continuously search and identify investment opportunities which will add to the synergetic well being of the Group in the lottery business sector, to be financed from internal funds or by the bring in strategic business partners.

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EMPLOYEE INFORMATION

As at 31 December 2008, the Group had 322 employees comprising 31 employees based in Hong Kong and 291 employees based in mainland China. Total employee expense, excluding for directors and advisors, was approximately HK$46.77 million (2007: HK$22.51 million) during the Review Period. The Group continues to provide remuneration package to employees according to market practices and past performance. In addition to basic remuneration, the Group also provides employees with other benefits such as a mandatory provident fund, medical insurance scheme, share option schemes and staff training program. There has been no major change on staff remuneration policies during the year.

CONTINGENT LIABILITIES

As at 31 December 2008, the Company has not issued corporate guarantees to banks in respect of their general banking facilities granted to the wholly owned subsidiaries of the Company (2007: HK$77.47 million).

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

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

CORPORATE GOVERNANCE PRACTICES

The Company applies the principles set out in the Code on Corporate Governance Practices (the “Code”) contained in Appendix 15 to the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited (“GEM Listing Rules”) to provide a sound system of checks and balance in the leadership, executive management and business operations of the Group.

In practising corporate governance in line with, sometimes exceeding, the Code provisions, the board of directors of the Company (“Directors” or “the Board”) are conscientious as to the need for transparency of operations of the Company for the benefits of its shareholders and the investing public.

During the year ended 31 December 2008 under review, the Company complied with all the Code provisions except that the roles of the Chairman and Chief Executive Officer of the Company were performed by the same individual, Mr. Chan Sek Keung, Ringo, until to 30 April 2008.

AUDIT COMMITTEE

The Audit Committee was established for the purposes of reviewing and providing supervision over the financial reporting process and internal controls of the Group.

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AUDITED CONSOLIDATED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008

The Board announces the audited consolidated results of the Group for the year ended 31 December 2008 together with the comparative audited consolidated results for 2007 as follows:

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December, 2008

Notes Revenue 4 Changes in inventories of finished goods and work-in-progress Purchase of inventories and raw materials consumed Other income and gains Employee benefits costs Depreciation and amortisation Impairment loss on goodwill Impairment loss on intangible assets Share of (losses) profits of jointly controlled entities Other expenses Finance costs 6 Loss before taxation 7 Taxation 8 Loss for the year Attributable to: Equity holders of the Company Minority interests Loss per share 9 Basic	2008 HK$’000 607,016 56,740 (502,161) 5,555 (53,369) (58,442) (259,943) (98,587) (15,701) (115,930) (46,088) (480,910) 11,826 (469,084) (442,141) (26,943) (469,084) (98.89) HK cents	2007 HK$’000 (Restated) 361,936 6,455 (286,078) 812 (24,470) (7,331) (476,000) (1,001) 691 (42,259) (7,460) (474,705) (1,676) (476,381) (475,448) (933) (476,381) (159.09) HK cents

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CONSOLIDATED BALANCE SHEET

As at 31 December, 2008

Notes NON-CURRENT ASSETS Property, plant and equipment Goodwill Intangible assets Interests in jointly controlled entities Available-for-sale investment Loan receivables – due after one year CURRENT ASSETS Inventories Trade and other receivables 10 Loan receivables – due within one year Amounts due from jointly controlled entities Amount due from a shareholder of a jointly controlled entity Amount due from a related company Pledged bank deposits Bank balances and cash CURRENT LIABILITIES Trade and other payables 11 Amount due to a jointly controlled entity Amount due to a shareholder Amounts due to related companies Tax payable Bank and other borrowings – due within one year NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	2008 HK$’000 30,809 283,632 121,121 11,519 132,502 – 579,583 70,878 174,591 3,890 44,458 – 148 15,310 156,967 466,242 213,478 – 1,695 1,098 14,541 35,408 266,220 200,022 779,605	2007 HK$’000 (Restated) 32,051 508,918 194,711 27,220 – 4,286
		767,186
		12,057 148,571 7,400 1,431 30,348 – 12,424 143,816
		356,047
		81,774 2,140 – – 2,163 77,277
		163,354
		192,693
		959,879

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NON-CURRENT LIABILITIES Other borrowings – due after one year Convertible bonds Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Share capital Reserves Equity attributable to equity holders of the Company Minority interests TOTAL EQUITY	2008 HK$’000 80,000 501,331 8,535 589,866 189,739 4,994 154,521 159,515 30,224 189,739	2007 HK$’000 (Restated) 5,600 380,030 33,982
		419,612
		540,267
		4,322 479,756
		484,078 56,189
		540,267

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December, 2008

Share capital HK$’000 At 1 January, 2007 2,900 Exchange differences arising on translation of foreign operations recognised directly in equity – Loss for the year (restated) – Total recognised income and expense for the year – Recognition of equity-settled share-based payments – Issue of ordinary shares upon exercise of share options 122 Issue of convertible bonds – Shares issued 580 Transaction costs attributable to issue of shares – Shares issued on acquisition of subsidiaries 720 Minority interests arising from acquisition of subsidiaries (restated) – As restated 720		Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Sub-total HK$’000 65,213 3,287 (475,448) (472,161) 157 3,986 611,692 104,135 (2,464) 173,520 – 173,520	Minority interests HK$’000 – – (933) (933) – – – – – – 57,122 57,122	Total equity HK$’000 65,213
		Share-based Share payment premium reserve HK$’000 HK$’000 55,824 643 – – – – – – – 157 4,305 (441) – – 103,555 – (2,464) – 172,800 – – – 172,800 –	PRC Convertible statutory bonds equity reserves reserve HK$’000 HK$’000 (note) 2,007 – – – – – – – – – – – – 611,692 – – – – – – – – – –	Retained profits Exchange (accumulated reserve losses) HK$’000 HK$’000 1,196 2,643 3,287 – – (475,448) 3,287 (475,448) – – – – – – – – – – – – – – – –
							3,287 (476,381)
							(473,094)
							157 3,986 611,692 104,135 (2,464)
							173,520 57,122
							230,642

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Attributable to equity holders of the Company

Share capital HK$’000 At 31 December, 2007 (restated) 4,322 Exchange differences arising on translation of foreign operations recognised directly in equity – Loss for the year – Total recognised income and expense for the year – Recognition of equity-settled share-based payments – Transfer – Issue of ordinary shares upon exercise of share options 33 Issue of convertible bonds – Shares issued 639 Acquisition of a subsidiary – At 31 December, 2008 4,994	Share-based Share payment premium reserve HK$’000 HK$’000 334,020 359 – – – – – – – 15,979 – – 825 (94) – – 33,695 – – – 368,540 16,244	PRC Convertible statutory bonds equity reserves reserve HK$’000 HK$’000 (note) 2,007 611,692 – – – – – – – – 3,582 – – – – 33,800 – – – – 5,589 645,492	Retained profits Exchange (accumulated reserve losses) HK$’000 HK$’000 4,483 (472,805) 32,701 – – (442,141) 32,701 (442,141) – – – (3,582) – – – – – – – – 37,184 (918,528)	Sub-total HK$’000 484,078 32,701 (442,141) (409,440) 15,979 – 764 33,800 34,334 – 159,515	Minority interests HK$’000 56,189 603 (26,943) (26,340) – – – – – 375 30,224	Total equity HK$’000 540,267
						33,304 (469,084)
						(435,780)
						15,979 – 764 33,800 34,334 375
						189,739

Note: The People’s Republic of China, other than Hong Kong (the “PRC”) statutory reserves are reserves required by the relevant PRC laws applicable to the Group’s PRC subsidiaries.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December, 2008

1. GENERAL

The Company is a public limited company incorporated in the Cayman Islands and its shares are listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) since 12 May, 2002. The addresses of the registered office and principal place of business of the Company are disclosed in the corporate information attached to the annual report.

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

The Company acts as an investment holding company. Its subsidiaries are principally engaged in (i) the provision of network system integration in Hong Kong and the PRC; and (ii) lottery business in the PRC.

Pursuant to a special resolution passed at an extraordinary general meeting held on 4 December, 2008, the name of the Company was changed from Melco LottVentures Limited新濠環彩有限公司 to MelcoLot Limited新濠環彩有限公司with effect from 4 December, 2008.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied, for the first time, the following amendments and interpretations (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) which are or have become effective.

HKAS 39 & HKFRS 7	Reclassification of Financial Assets
(Amendments)
HK(IFRIC) – Int 11	HKFRS 2: Group and Treasury Share Transactions
HK(IFRIC) – Int 12	Service Concession Arrangements
HK(IFRIC) – Int 14	HKAS 19 – The Limit on a Defined Benefit Asset,
	Minimum Funding Requirements and their
	Interaction

The adoption of the new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

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The Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments) Improvements to HKFRSs[1] HKAS 1 (Revised) Presentation of Financial Statements[2] HKAS 23 (Revised) Borrowing Costs[2] HKAS 27 (Revised) Consolidated and Separate Financial Statements[3] HKAS 32 & 1 (Amendments) Puttable Financial Instruments and Obligations Arising on Liquidation[2] HKAS 39 (Amendment) Eligible Hedged Items[3] HKFRS 1 & HKAS 27 Cost of an Investment in a Subsidiary, Jointly Controlled (Amendments) Entity or Associate[2] HKFRS 2 (Amendment) Vesting Conditions and Cancellations[2] HKFRS 3 (Revised) Business Combinations[3] HKFRS 7 (Amendment) Improving Disclosures about Financial Instruments[2] HKFRS 8 Operating Segments[2] HK(IFRIC) – Int 9 & HKAS 39 Embedded Derivatives[4] (Amendments) HK(IFRIC) – Int 13 Customer Loyalty Programmes[5] HK(IFRIC) – Int 15 Agreements for the Construction of Real Estate[2] HK(IFRIC) – Int 16 Hedges of a Net Investment in a Foreign Operation[6] HK(IFRIC) – Int 17 Distributions of Non-cash Assets to Owners[3] HK(IFRIC) – Int 18 Transfers of Assets from Customers[7]

• 1 Effective for annual periods beginning on or after 1 January, 2009 except the amendments to HKFRS 5, effective for annual periods beginning on or after 1 July, 2009

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

• 3 Effective for annual periods beginning on or after 1 July, 2009

• 4 Effective for annual periods ending on or after 30 June, 2009

• 5 Effective for annual periods beginning on or after 1 July, 2008

• 6 Effective for annual periods beginning on or after 1 October, 2008

• 7 Effective for transfers on or after 1 July, 2009

The adoption of HKFRS 3 (Revised) may affect the Group’s accounting for business combinations for which the acquisition date is on or after 1 January, 2010. HKAS 27 (Revised) will affect the Group’s accounting treatment for changes in a parent’s ownership interest in a subsidiary.

The directors of the Company anticipate that the application of these standards, amendments or interpretations will have no material impact on the results and the financial position of the Group.

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the historical cost basis.

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange and by the Hong Kong Companies Ordinance.

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BASIS OF PREPARATION

These consolidated accounts have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The accounting policies adopted in the preparation of these accounts are consistent with those used in the 2007 annual accounts.

The Group has not early adopted the amendments, new standards and interpretations issued by the HKICPA that are not yet effective for the year ended 31 December, 2008.

4. REVENUE

An analysis of the Group’s revenue for the year is as follows:

Network system integration Network infrastructure solutions Network professional services Sales of network software Lottery business Service fee income from management of electronic gaming machine lounges Commission income from agency service Manufacturing and sales of lottery terminals and POS systems	2008 HK$’000 346,766 74,847 4,687 426,300 6,250 16,574 157,892 180,716 607,016	2007 HK$’000 299,124 58,781 3,740
		361,645
		161 130 –
		291
		361,936

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5. BUSINESS AND GEOGRAPHICAL SEGMENTS

For management purposes, the Group is currently organised into two operating divisions. These divisions are the basis on which the Group reports its primary segment information.

Business segment

During the year, the Group has presented its business by the following segments:

• Network system integration; and

• Lottery business

For the year ended 31 December, 2008

CONSOLIDATED INCOME STATEMENT

Network system integration HK$’000 REVENUE External sales 426,300 RESULT Segment result 1,441 Unallocated corporate income Unallocated corporate expenses Share of losses of jointly controlled entities – Finance costs Loss before taxation Taxation Loss for the year	Lottery business Consolidated HK$’000 HK$’000 180,716 607,016 (403,817) (402,376) 5,555 (22,300) (15,701) (15,701) (46,088) (480,910) 11,826 (469,084)

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As at 31 December, 2008

CONSOLIDATED BALANCE SHEET

	Network system	Lottery
	integration	business	Consolidated
	HK$’000	HK$’000	HK$’000
ASSETS
Segment assets	216,577	508,485	725,062
Interests in jointly controlled entities	–	11,519	11,519
Unallocated corporate assets			309,244
			1,045,825
LIABILITIES
Segment liabilities	118,196	92,746	210,942
Unallocated corporate liabilities			645,144
			856,086
OTHER INFORMATION
	Network system	Lottery
	integration	business	Consolidated
	HK$’000	HK$’000	HK$’000
Capital additions	4,570	80,020	84,590
Depreciation and amortisation	3,852	54,590	58,442
Impairment loss on goodwill	–	259,943	259,943
Impairment loss on intangible assets	2,629	95,958	98,587
Impairment loss on trade receivables	9,521	–	9,521
Impairment loss on amounts due from
jointly controlled entities	–	1,788	1,788
Loss on disposal of property, plant and
equipment	–	1,879	1,879
Allowance for inventories	1,068	254	1,322

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For the year ended 31 December, 2007

CONSOLIDATED INCOME STATEMENT

Network system integration HK$’000 REVENUE External sales 361,645 RESULT Segment result 11,889 Unallocated corporate income Unallocated corporate expenses Share of profits of jointly controlled entities – Finance costs Loss before taxation Taxation Loss for the year As at 31 December, 2007 CONSOLIDATED BALANCE SHEET Network system integration HK$’000 ASSETS Segment assets 147,533 Interests in jointly controlled entities – Unallocated corporate assets LIABILITIES Segment liabilities 54,015 Unallocated corporate liabilities

Lottery business Consolidated HK$’000 HK$’000 (Restated) 291 361,936 (480,247) (468,358) 812 (390) 691 691 (7,460) (474,705) (1,676) (476,381) Lottery business Consolidated HK$’000 HK$’000 (Restated) 748,613 896,146 27,220 27,220 199,867 1,123,233 26,865 80,880 502,086 582,966

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OTHER INFORMATION

	Network system	Lottery
	integration	business	Consolidated
	HK$’000	HK$’000	HK$’000
			(Restated)
Capital additions	5,283	1,362	6,645
Depreciation and amortisation	4,785	2,546	7,331
Impairment loss on goodwill	–	476,000	476,000
Impairment loss on intangible assets	1,001	–	1,001
Impairment loss on trade receivables	6,829	–	6,829
Loss on disposal of property, plant
and equipment	2	–	2
Allowance for inventories	854	–	854

Geographical segment

The Group’s two divisions operate in two principal geographical areas – the PRC and Hong Kong. The following table provides an analysis of the Group’s sales by geographical markets based on location of customer, irrespective of the origin of the goods and services:

PRC Hong Kong	Revenue from external customers 2008 2007 HK$’000 HK$’000 537,296 230,022 69,720 131,914 607,016 361,936	Revenue from external customers 2008 2007 HK$’000 HK$’000 537,296 230,022 69,720 131,914 607,016 361,936
		361,936

The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located:

PRC Hong Kong	Carrying amount of segment assets 2008 2007 HK$’000 HK$’000 607,876 748,613 117,186 147,695 725,062 896,308	Additions to property, plant and equipment and intangible assets 2008 2007 HK$’000 HK$’000 84,531 6,518 59 127 84,590 6,645	Additions to property, plant and equipment and intangible assets 2008 2007 HK$’000 HK$’000 84,531 6,518 59 127 84,590 6,645
			6,645

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6. FINANCE COSTS

Interest on: Bank borrowings wholly repayable within five years Other borrowings wholly repayable within five years Effective interest expenses on convertible bonds 7. LOSS BEFORE TAXATION Loss before taxation has been arrived at after charging: Amortisation of intangible assets Depreciation of property, plant and equipment Total depreciation and amortisation Directors’ emoluments Other staff costs: Salaries and other benefits Retirement benefit scheme contributions Share-based payments Total employee benefit expenses Auditor’s remuneration Impairment loss on amount due from a jointly controlled entity Impairment loss on trade receivables Impairment loss on loan receivable Loss on disposal of property, plant and equipment Operating lease rentals in respect of land and buildings Net foreign exchange losses Research and development costs Allowance for inventories and after crediting: Bank interest income Loan and other interest income Net foreign exchange gain	2008 HK$’000 2,674 3,911 39,503 46,088 2008 HK$’000 51,380 7,062 58,442 6,599 35,610 4,839 6,321 53,369 1,330 1,788 9,521 396 1,879 8,085 – 385 1,322 845 560 2,849	2007 HK$’000 3,054 2,478 1,928
		7,460
		2007 HK$’000 5,410 1,921
		7,331
		1,958 19,459 2,917 136
		24,470
		990 – 6,829 – 2 2,929 50 361 854 523 78 –

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8. TAXATION

TAXATION
PRC Enterprise Income Tax – Current year Deferred taxation – Current year	2008 HK$’000 13,621 (25,447) (11,826)	2007 HK$’000 1,676 –
		1,676

On 26 June, 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced corporate profits tax rate from 17.5% to 16.5% effective from the year of assessment 2008/2009. Therefore, Hong Kong Profits Tax is calculated at 16.5% (2007: 17.5%) of the estimated assessable profit for the year. No tax is payable on the profit for the year arising in Hong Kong since there is no assessable profit derived from or arising in Hong Kong.

PRC Enterprise Income Tax is calculated at the applicable rates to the PRC subsidiaries. Certain subsidiaries of the Company operating in the PRC are eligible to exemption from income tax for two years commencing from the first profit-making year and thereafter entitled to 50% relief from income tax for the next three years (“Tax Holidays”) and exempted from PRC income taxes for the years of 2008 and 2007. The maximum Tax Holidays period is 5 years from the first taxable profit year.

On 16 March, 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the “New Law”) by Order No.63 of the President of the PRC. On 6 December, 2007, the State Council of the PRC issued Implementation Regulation of the New Law. Under the New Law and Implementation Regulation, the Enterprise Income Tax rate of the Company’s PRC subsidiaries was reduced from 33% to 25% from 1 January, 2008 onwards.

9. LOSS PER SHARE

The calculation of the basic loss per share for the year is based on the loss attributable to equity holders of the Company of HK$442,141,000 (2007: HK$475,448,000) and on the weighted average number of 447,094,096 (2007: 298,846,213) ordinary shares in issued during the year.

No diluted loss per share has been presented since assuming the conversion and exercise of the Company’s outstanding convertible bonds and share options would result in a decrease in loss per share.

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10. TRADE AND OTHER RECEIVABLES

TRADE AND OTHER RECEIVABLES
Trade receivables Less: allowance for doubtful debts Retention money receivables Other receivables Prepayments and deposits	2008 HK$’000 146,685 (18,895) 127,790 7,806 30,559 8,436 174,591	2007 HK$’000 113,003 (10,562
		102,441 11,596 27,621 6,913
		148,571

The Group generally allows credit periods ranging from 30 to 90 days to its trade customers. The aging analysis of trade receivables is as follows:

Within 30 days 31 – 90 days 91 – 180 days 181 – 365 days	2008 HK$’000 63,041 24,120 23,768 16,861 127,790	2007 HK$’000 25,265 24,929 23,970 28,277
		102,441

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11. TRADE AND OTHER PAYABLES

Trade payables_(note)_ Other payables Accruals The aging analysis of trade payables is as follows: Within 30 days 31-90 days 91-180 days 181-365 days Over 365 days	2008 HK$’000 155,697 20,893 36,888 213,478 2008 HK$’000 79,928 57,157 15,156 1,115 2,341 155,697	2007 HK$’000 35,264 29,543 16,967
		81,774
		2007 HK$’000 23,726 6,320 1,404 1,981 1,833
		35,264

Note : Included in trade payables are amounts of HK$64,824,000 (2007: HK$2,308,000) due to minority shareholders of a subsidiary. The amounts are unsecured, interest-free and repayable according to credit terms granted by the minority shareholders.

By Order of the Board of MelcoLot Limited Chan Sek Keung, Ringo Chairman

Hong Kong, 26 March 2009

As at the date of this announcement, the Board consists of three executive Directors, namely, Mr. CHAN Sek Keung, Ringo, Mr. KO Chun Fung, Henry and Mr. Christos MOUMOURIS; and three independent non-executive Directors, namely, Mr. David TSOI, Mr. PANG Hing Chung, Alfred and Mr. SO Lie Mo, Raymond.

This announcement will remain on the “Latest Company Announcements” page of the GEM website at www.hkgem.com for at least 7 days from the date of its publication and on the Company’s website at www.melcolot.com.

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