Crypto Flow Technology Limited — Interim / Quarterly Report 2008

Aug 13, 2008

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Melco LottVentures Limited

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

INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2008

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

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. 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 Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

The principal means of information dissemination on GEM is publication on the Internet website operated by the Exchange. GEM-listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website at www.hkgem.com in order to obtain up-to-date information on GEM-listed issuers.

The Exchange takes no responsibility for the contents of this announcement, 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 announcement.

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

This announcement, for which the directors (the “Directors”) of Melco LottVentures Limited (the “Company”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on the GEM (the “GEM Listing Rules”) for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief: (i) the information contained in this announcement is accurate and complete in all material respects and not misleading; (ii) there are no other matters the omission of which would make any statement in this announcement misleading; and (iii) 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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TO OUR SHAREHOLDERS

The board of directors (the “Board”) of Melco LottVentures Limited (the “Company”) hereby announce the unaudited consolidated results of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2008 (the “Review Period”) and the comparative unaudited figures for the correspondence period in 2007.

BUSINESS OVERVIEW AND REVIEW

For the Review Period, the Group was engaged in two main business streams, namely (i) network system integration (“SI Business”) and (ii) lottery business management services (“Lottery Management Business”), which the Group acquired in December 2007 after the completion of the very substantial acquisition (“VSA”) as detailed in the announcement of the Company dated 21 October 2007 (the “Announcement”) and the circular to shareholders of the Company dated 19 November 2007 (the “Circular”). As a result, certain comparative figures for the Lottery Management Business are not applicable in this second quarterly results announcement.

The VSA was approved by the shareholders at the extraordinary general meeting held on 5 December 2007 and was completed on 13 December 2007.

Total turnover of the Group during the Review Period amounted to approximately HK$235.2 million (2007: HK$195.2 million), the 20% increase in turnover came mostly from the newly acquired Lottery Management Business since December 2007.

Included in the overheads during the Review Period, there were other expenses totaling approximately HK$44.5 million (2007: HK$15.5 million) out of which HK$24.0 million (2007: HK$15.5 million) were from SI Business while HK$20.5 million (2007: Not applicable) were from the newly added Lottery Management Business.

Consolidated loss attributable to equity holders of the Company amounted to approximately HK$55.6 million for the Review Period (2007: profit HK$3.7 million), after charging the following recurrent and non-cash items resulting from the VSA for the Review Period:

• (i) A deemed expense on convertible bonds amounting to HK$18.6 million;

• (ii) An amortisation expense on intangible assets in fair value of HK$25.9 million.

Excluding (i) and (ii) above and other non-cash items, consolidated cash loss attributable to equity holders of the Company during the Review Period amounted to approximately HK$4.2 million, while there was total cash and cash equivalent on hand of approximately HK$76.7 million at the end of the Review Period.

Network System Integration Business

The second quarter of the year saw SI Business sales pick up, making up from the traditional slow season in the previous three months. Turnover during the Review Period amounted to approximately HK$194.0 million (2007: HK$195.2 million), turning in an operating profit of approximately HK$8.4 million (2007: HK$6.1 million).

The reorganisation of the telecommunications industry in China and Beijing’s hosting of the 2008 Olympics has created new opportunities. However, competition will continue to be keen for the SI Business segment of the Group. Continued sharpening of the Group’s edge in its good professional reputation and strong customer relations will help maintain the position of the Group to withstand the competition and to help capture new opportunities.

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Lottery Business Management Services

For the Lottery Business Management Services, the Group has been strengthening its developmental efforts during the Review Period, both in China as well as in other parts of Asia, for its various lottery management services. In addition to higher turnover during the 2nd quarter of 2008, the commencement of lottery terminals manufacturing in the Group’s factory in Pudong area in Shanghai has had a good start and reported a full quarter sales and profit contribution during the Review Period.

On a sad note, however, the earthquake in Sichuan Province in China has created yet another challenge to the people of China, the government and businesses following the snowstorms in the first quarter. The combined effects had adversely affected the sales and the services of the Group in the lottery industry. Total turnover for the Lottery Business during the Review Period amounted to approximately HK$41.2 million (2007: Not applicable), representing an increase of 82.2% in the 2nd quarter over that of the 1st quarter of 2008.

During the Review Period, management has reviewed and fine tuned its plans in the development of sales network in China with the view of maximising sales and to enlarging operational scale benefits.

With regard to international markets, the Group took its first step in early March 2008. The proposed acquisition of KTeMS Company Limited of South Korea, which owns 14% equity interest in Nanum-Lotto Co. Ltd., an exclusively licensed consortium that operates South Korea’s off-line lotto games, received shareholders’ approval at an extraordinary general meeting held on 15 April 2008. Detailed due diligence is near completion, and the transaction is scheduled for completion before the end of September 2008. The Group holds high hopes for the market in South Korea and expects such investments will bear lucrative returns.

The Group is very optimistic about the prospects of the China lottery market which, when compared with markets elsewhere in the world, is still at its early developmental stage. It is understood that, as the result of the consultation undertaken by the Chinese lottery authorities, the lottery market in China will be more opened up with new game products and services in a regulated market. In this direction that the Group is consistently seeking opportunities to strengthen its position in the China market so as to reap the benefits of the expected much enlarged market in both the Sports Lottery and Welfare Lottery in China.

INTERIM DIVIDEND

The Board does not recommend the payment of an interim dividend for the Review Period (2007: Nil).

CHAN Sek Keung, Ringo Chairman

Hong Kong, 13 August 2008

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MANAGEMENT DISCUSSION & ANALYSIS

Liquidity, Financial Resources and Capital Structure

The Group had total cash and bank deposits of HK$76.7 million as at 30 June 2008 (31 December 2007: 143.8 million). The Group had no bank overdraft as at 30 June 2008 (31 December 2007: Nil).

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 and other loans.

The Group remained healthy in the financial and liquidity position during the Review Period. As at 30 June 2008, the Group recorded net current assets of approximately HK$187.1 million as compared with approximately HK$196.6 million as at 31 December 2007. The current ratio decreased to approximately 1.73 from 2.20 as at 31 December 2007.

Non-current portion of other loan as at 30 June 2008 amounted to approximately HK$1.0 million (31 December 2007: HK$5.6 million).

As at 30 June 2008, all assets and liabilities of the Group were denominated in U.S. dollars, Hong Kong dollars and Renminbi.

Acquisitions, Disposals and Significant Investment

The Group had not made any significant acquisitions, disposals or investments during the Review Period.

Segmental Information

The segmental information of the Group is covered in the Financial Review and in note 2 to the unaudited Condensed Consolidated Financial Statements.

Employee Information

As at 30 June 2008, the Group had 361 employees (2007: 167 employees) comprising 31 employees (2007: 20 employees) based in Hong Kong and 330 employees (2007: 147 employees) based in mainland China. The Group continues to provide remuneration packages to employees in accordance with market practices and staff past performance. In addition to basic remuneration, the Group also provides other benefits such as a mandatory provident fund, medical scheme, share option scheme and staff training programs to employees.

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Charges on Group Assets

As at 30 June 2008, the Group had a pledged bank deposit of approximately HK$11.7 million for securing certain banking facilities (31 December 2007: HK$12.4 million).

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

Gearing Ratio

As at 30 June 2008, the gearing ratio, expressed as total liabilities over total assets, increased to approximately 0.53 from approximately 0.47 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.

Order Book & Prospects for New Business

As at 30 June 2008, the Group had contracts on hand for sales amounting to approximately HK$63.0 million (2007: HK$38.3 million) which would be booked as revenue upon delivery and implementation. These contracts on hand were all from the SI Business which are mostly of project type of business, and can have different completion cycles from contract signing.

Contingent Liabilities

As at 30 June 2008, the Company has given corporate guarantees totaling approximately HK$56.5 million (31 December 2007: HK$77.5 million) to secure various credit facilities granted to its wholly-owned subsidiaries.

Future plans for Investments or Capital Assets and Sources of Funding

As published in the announcement of the Company dated 6 March 2008, the Group had conditionally agreed to acquire, inter alias, the entire issued share capital of KTeMS Company Limited as part of the Company’s plan to expand its business geographically within Asia. The proposed acquisition was approved by shareholders of the Company at its extraordinary general meeting held on 15 April 2008. Completion of the acquisition is expected to take place during the third quarter of 2008. Agreement has been reached with Power Way Group Limited, a substantial shareholder of the Company, to make a shareholder’s loan of HK$80 million to the Company for the financing of the project.

Save as disclosed above and the continuous search for expansion, the Group does not have any immediate plan for any significant investments, acquisitions of capital assets or additional sources of funding.

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FINANCIAL INFORMATION

Condensed Consolidated Income Statement (Unaudited)

Note Turnover 2 Cost of sales and services Gross profit Other income Employee expense Depreciation and amortisation Share of losses of jointly controlled entities Other expenses Finance costs 3 (Loss)/Profit before taxation 4 Taxation 5 (Loss)/Profit for the period (Loss)/Profit attributable to: Equity holders of the Company Minority interest (Loss) Earnings per share – Basic (cents) 6 – Diluted (cents) 6	For the three months ended 30 June 2008 2007 HK$’000 HK$’000 152,893 144,615 (112,514) (123,766) 40,379 20,849 3,644 56 (21,171) (5,835) (14,652) (1,192) (1,524) – (24,388) (7,906) (9,875) (1,355) (27,587) 4,617 (1,618) – (29,205) 4,617 (26,874) 4,617 (2,331) – (29,205) 4,617 (6.17) 1.59 N/A 1.57	For the six months ended 30 June 2008 2007 HK$’000 HK$’000 235,222 195,167 (172,891) (159,825) 62,331 35,342 4,251 87 (32,984) (11,401) (29,289) (2,269) (1,152) – (44,539) (15,543) (20,951) (2,557) (62,333) 3,659 (1,618) – (63,951) 3,659 (55,596) 3,659 (8,355) – (63,951) 3,659 (12.79) 1.26 N/A 1.25
	2008 HK$’000 152,893 (112,514) 40,379 3,644 (21,171) (14,652) (1,524) (24,388) (9,875) (27,587) (1,618) (29,205) (26,874) (2,331) (29,205) (6.17) N/A	2008 HK$’000 235,222 (172,891) 62,331 4,251 (32,984) (29,289) (1,152) (44,539) (20,951) (62,333) (1,618) (63,951) (55,596) (8,355) (63,951) (12.79) N/A

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Condensed Consolidated Balance Sheet (Unaudited)

Condensed Consolidated Balance Sheet (Unaudited)
Note Non-current assets Property, plant and equipment 7 Goodwill Intangible assets 8 Interest in jointly controlled entities Loan receivable Current assets Inventories Trade and other receivables 9 Amounts due from jointly controlled entities Amount due from a shareholder of jointly controlled entity Pledged bank deposits Cash and cash equivalents Current liabilities Trade and other payables 10 Tax payable Amount due to a jointly controlled entity Amounts due to related companies Bank borrowings Other loans Net current assets Total assets less current liabilities Non-current liabilities Other loans Convertible bonds Net assets Capital and reserves Share capital 11 Reserves Total equity attributable to equity holders of the Company Minority interest Total equity	(Unaudited) As at 30 June 2008 HK$’000 31,114 485,079 171,064 96,481 – 783,738 69,217 231,201 22,346 31,263 11,731 76,717 442,475 107,441 2,798 – 59,602 32,299 53,270 255,410 187,065 970,803 961 398,579 571,263 4,355 497,965 502,320 68,943 571,263		(Audited) As at 31 December 2007
				HK$’000 32,051 485,026 194,711 97,633 396
				809,817
				12,057 159,861 1,431 30,348 12,424 143,816
				359,937
				81,774 2,163 2,140 – 45,712 31,565
				163,354
				196,583
				1,006,400
				5,600 380,030
				620,770
				4,322 539,756
				544,078 76,692
				620,770

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Condensed Consolidated Statement of Changes in Equity (Unaudited)

Share capital HK$’000 As at 1 January 2007 2,900 Recognition of equity settled share-based payments – Exercise of share options, net of expenses 16 Exchange difference on translation of foreign operations – Profit for the six months ended 30 June 2007 – As at 30 June 2007 2,916 As at 1 January 2008 4,322 Recognition of equity settled share-based payments – Exercise of share options, net of expenses 33 Exchange difference on translation of foreign operations – Loss for the six months ended 30 June 2008 – Minority interests arising from acquisition of interests in subsidiaries – As at 30 June 2008 4,355	Share premium HK$’000 55,824 – 308 – – 56,132 334,020 – 820 – – – 334,840	Share- based payments reserve HK$’000 643 89 (114) – – 618 359 10,720 (92) – – – 10,987	Statutory surplus reserves fund HK$’000 1,505 – – – – 1,505 1,505 – – – – – 1,505	Convertible Enterprise bonds expansion equity fund reserve HK$’000 HK$’000 502 – – – – – – – – – 502 – 502 611,692 – – – – – – – – – – 502 611,692	Attributable Retained to equity profits/ holders Exchange (Accumulated of the reserve losses) Company HK$’000 HK$’000 HK$’000 1,196 2,643 65,213 – – 89 – – 210 834 – 834 – 3,659 3,659 2,030 6,302 70,005 4,483 (412,805) 544,078 – – 10,720 – – 761 2,357 – 2,357 – (55,596) (55,596) – – – 6,840 (468,401) 502,320	Minority interests HK$’000 – – – – – – 76,692 – – 79 (8,355) 527 68,943	Total HK$’000 65,213 89 210 834 3,659 70,005 620,770 10,720 761 2,436 (63,951) 527 571,263

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Condensed Consolidated Cash Flow Statement (Unaudited)

Net cash (used in)/generated from operating activities Net cash generated from/(used in) investing activities Net cash generated from/(used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of period Effect of foreign exchange rate changes Cash and cash equivalents at the end of period Analysis of the balances of cash and cash equivalents Cash and cash equivalents	Six months ended 30 June 2008 HK$’000 (70,376) 224 2,012 (68,140) 143,816 1,041 76,717 76,717	Six months ended 30 June 2007 HK$’000 1,120 (2,886) (11,976) (13,742) 47,276 – 33,534 33,534

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of presentation

The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard No.34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the applicable disclosure requirements of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited.

The accounting policies adopted in preparing the condensed consolidated financial report were in consistent with those applied for the annual financial report for the year ended 31 December 2007.

The condensed consolidated financial statements are unaudited but have been reviewed by the audit committee of the Company (the “Audit Committee”).

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(2) Segment Information

a. Business segment

An analysis of the Group’s turnover and results by business segment is as follow:

(Unaudited) For the six months ended 30 June 2008 Lottery Network business system management integration services Corporate Total HK$’000 HK$’000 HK$’000 HK$’000 Turnover 194,032 41,190 – 235,222 Operating cost (183,804) (52,300) (14,310) (250,414) Operating profit/(loss) before depreciation and amortisation 10,228 (11,110) (14,310) (15,192) Depreciation and amortisation (1,795) (27,494) – (29,289) Result 8,433 (38,604) (14,310) (44,481) Other income 4,251 Share of losses of jointly controlled entities (1,152) (1,152) Finance costs (20,951) (Loss)/Profit before taxation (62,333) Taxation (1,618) (Loss)/Profit for the period (63,951) Operating cost included the non cash item: Share-based payments 1,669 832 8,219 10,720	(Unaudited) For the six months ended 30	(Unaudited) For the six months ended 30	June 2007
	Network system integration HK$’000 195,167 (186,753) 8,414 (2,269) 6,145 89	Corporate HK$’000 – (16) (16) – (16) –	Total HK$’000 195,167 (186,769)
			8,398 (2,269)
			6,129 87 – (2,557)
			3,659 –
			3,659
			89

b. Geographical segment

An analysis of the Group’s turnover by geographical location is as follow:

Hong Kong PRC	(Unaudited) For the six months ended 30 June	(Unaudited) For the six months ended 30 June
	2008 HK$’000 9,201 226,021 235,222	2007 HK$’000 9,386 185,781
		195,167

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(3) Finance costs

Interest expenses on bank borrowings Interest expenses on other loans Effective interest expenses on convertible bonds	For the three months ended 30 June 2008 2007 HK$’000 HK$’000 650 835 360 520 8,865 – 9,875 1,355	For the six months ended 30 June	For the six months ended 30 June
	2008 HK$’000 650 360 8,865 9,875	2008 HK$’000 1,591 811 18,549 20,951	2007 HK$’000 1,409 1,148 –
			2,557

(4) (Loss)/Profit before taxation

(Loss)/Profit before taxation has been arrived at after charging:

Amortisation of intangible assets Depreciation of property, plant and equipment Staff costs (including directors’ remuneration) Salary and wages Share-based payments and after crediting: Bank interest income Other interest income Other services income	For the three months ended 30 June 2008 2007 HK$’000 HK$’000 12,891 740 1,761 452 11,637 5,774 9,534 61 237 56 712 – 2,695 –	For the six months ended 30 June
		2008 2007 HK$’000 HK$’000 25,910 1,390 3,379 879 22,264 11,312 10,720 89 585 87 971 – 2,695 –

(5) Taxation

No provision for Hong Kong profits tax has been made as the Group had no assessable profit for the six months ended 30 June 2008 and its corresponding period in 2007.

The charge represents PRC income tax calculated on the estimated assessable profit for the year at the rates applicable to respective PRC subsidiaries.

Certain subsidiaries of the Group operating in the PRC are eligible for certain tax holidays and concessions and were exempted from PRC income tax.

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On 16 March 2007, the People’s Republic of China promulgated the Law of the People’s Republic of China on Enterprise Income Tax (the “New Law”) by Order No.63 of the President of the People’s Republic of China. On 6 December 2007, the State Council of the PRC issued Implementation Regulations of the New Law. The New Law and Implementation Regulations will change the tax rate from 33% to 25% for certain subsidiaries of the Group from 1 January 2008. The Group has unutilised tax losses available for offset against future profits; therefore, there is no impact on the deferred tax balance of the Group.

No deferred tax asset has been recognised in respect of the unutilised tax losses due to the unpredictability of future profit streams.

(6) (Loss)/Earnings per share

The calculation of basic loss per share for the three months and the six months ended 30 June 2008 is based on the unaudited loss attributable to equity holders of the Company of approximately HK$26,874,000 (2007: profit HK$4,617,000) and approximately HK$55,596,000 (2007: profit HK$3,659,000) respectively and on the weighted average number of approximately 434,724,000 (2007: 290,378,000) shares in issue during the period.

Diluted loss per share has not been presented for the three months and six months ended 30 June 2008 since the effect is anti-dilutive.

(7) Property, plant and equipment

Movements in property, plant and equipment were:

Cost At 1 January 2008 Additions Exchange differences Disposals Acquisition of subsidiary At 30 June 2008 Accumulated depreciation At 1 January 2008 Charged for the period Exchange differences Written back on disposals At 30 June 2008 Net book value At 30 June 2008 At 31 December 2007	Lottery terminals HK$’000 10,328 – 420 – – 10,748 99 1,103 50 – 1,252 9,496 10,229	Machinery and equipment HK$’000 12,680 1,368 351 (647) – 13,752 9,629 754 203 (131) 10,455 3,297 3,051	Furniture, fixtures and office equipment HK$’000 19,478 798 390 (1,402) 1,092 20,356 2,090 1,112 76 (152) 3,126 17,230 17,388	Motor vehicle HK$’000 1,218 – 20 – – 1,238 864 110 16 – 990 248 354	Tools HK$’000 7,275 89 139 – – 7,503 6,246 300 114 – 6,660 843 1,029	Total HK$’000 50,979 2,255 1,320 (2,049) 1,092 53,597 18,928 3,379 459 (283) 22,483 31,114 32,051

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(8) Intangible assets

Movements in intangible assets were:

Software product development cost HK$’000 Cost At 1 January 2008 22,773 Additions 1,729 Exchange differences 377 At 30 June 2008 24,879 Accumulated depreciation At 1 January 2008 15,172 Charged for the period 1,088 Exchange differences 180 At 30 June 2008 16,440 Net book value At 30 June 2008 8,439 At 31 December 2007 7,601	License Technologies rights know-how HK$’000 HK$’000 164,166 25,252 – – 360 – 164,526 25,252 2,036 272 21,667 3,155 23 – 23,726 3,427 140,800 21,825 162,130 24,980	Total
		HK$’000 212,191 1,729 737
		214,657
		17,480 25,910 203
		43,593
		171,064
		194,711

(9) Trade and other receivables

Trade receivables Retention money receivables Other receivables Prepaid maintenance charges Prepayment and deposits	As at	As at
	30 June 31 December 2008 2007 HK$’000 HK$’000 155,334 102,441 6,062 11,596 38,690 30,020 – 17 31,115 15,787 231,201 159,861
		159,861

There was no change in the Group’s credit policies since 31 December 2005.

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The following is an ageing analysis of trade receivables at the balance sheet date:

Age 0 to 90 days 91 to 180 days 181 to 365 days over 365 days Less: Accumulated impairment	As at	As at
	30 June 31 December 2008 2007 HK$’000 HK$’000 110,577 50,983 24,471 24,067 18,302 20,409 13,719 17,544 167,069 113,003 (11,735) (10,562) 155,334 102,441
		113,003 (10,562)
		102,441

(10) Trade and other payables

Trade payables Other payables	As at	As at
	30 June 31 December 2008 2007 HK$’000 HK$’000 62,220 33,097 45,221 48,677 107,441 81,774
		81,774

The following is an ageing analysis of trade payables at the balance sheet date:

Age 0 to 90 days 91 to 180 days over 180 days	As at	As at
	30 June 31 December 2008 2007 HK$’000 HK$’000 59,244 28,979 1,224 1,404 1,752 2,714 62,220 33,097
		33,097

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(11) Share capital

Authorised – ordinary shares of HK$0.01 each – at 1 January 2008 and 30 June 2008 Issued and fully paid – at 1 January 2008 – Exercise of share options – at 30 June 2008	Number of shares ’000 2,000,000 432,198 3,281 435,479	Nominal value
		HK$’000 20,000
		4,322 33
		4,355

(12) Share-based payments

The Group has two share option schemes for certain directors, advisors and employees. They are the Pre-IPO Share Option Scheme and Post-IPO Share Option Scheme and are described below:

	Pre-IPO Share Option Scheme	Post-IPO Share Option Scheme
Exercise Price	HK$0.55 per share, which was the same as the placing price per share at the time of IPO	Average closing price of 5 trading days immediately prior to the date of grant
Vesting Period	One-half to three years	One-half to four years
Contractual Life	10 years from date of grant	2 to 10 years from date of grant
Lapse	After 3 months from the departure of grantees from the Group	After 3 months from the departure of grantees from the Group

Details of the share option outstanding during the Review Period are as follows:

Outstanding at 1 January, Granted during the period Lapsed during the period Exercised during the period Outstanding at 30 June Exercisable at 30 June	2008 Number of Weighted share average options exercise price ’000 HK$ 17,791 0.910 30,000 0.890 (515) 0.354 (3,280) 0.233 43,996 0.953 6,728 1.237	2007
		Number of Weighted share average options exercise price ’000 HK$ 18,329 0.354 6,980 0.088 (37) 0.245 (1,570) 0.138 23,702 0.290 16,186 0.382

Options granted during the six months ended 30 June 2008 were 30,000,000 shares (2007: 6,980,000 shares).

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(13) Operating lease commitments

a. Operating lease commitments

• As at 30 June 2008, the Group had operating lease commitments of approximately HK$14,314,000 (31 December 2007: HK$12,088,000), out of which approximately HK$7,238,000 was payable within 1 year (31 December 2007: HK$6,093,000).

b. Capital commitments

As the balance sheet date, the capital commitments contracted but not provided for in financial statements are as follows:

Capital contribution on – investment in a subsidiary – acquisition of intangible assets	As at	As at
	30 June 31 December 2008 2007 HK$’000 HK$’000 – 2,675 – 1,070 – 3,745
		3,745

(14) Related party transactions

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

Sales of goods to jointly controlled entity Purchases the materials and unfinished parts from related company Reimbursement of office and administrative expenses to related company	(Unaudited) Six months ended 30 June
	2008 2007 HK$’000 HK$’000 23,118 – 59,003 – 352 –

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PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY

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

SHARE OPTION SCHEMES

The Company, at the general meeting held on 20 April 2002, adopted both a pre-IPO share option scheme (the “Pre-IPO Share Option Scheme”) and a post-IPO share option scheme (the “Post-IPO Share Option Scheme”).

No options granted pursuant to either the Pre-IPO Share Option Scheme or the Post-IPO Share Option Scheme were cancelled during the Review Period.

Details of the movements in the number of share options during the Review Period for both schemes are as follows:

(a) Pre-IPO Share Option Scheme

One single grant of 11,913,000 shares in aggregate was made to various participants on 30 April 2002 under this scheme. As at 30 June 2008, options comprising an aggregate of 3,000,000 shares were outstanding, as detailed below:

Type of participants: Directors Advisor Employees	Exercise price per share HK$ 0.55 0.55 0.55		Number of share options	Number of share options	Number of share options
		Outstanding as at 1.1.2008 3,000,000 750,000 187,000 3,937,000	Exercised during Review Period – 750,000 187,000 937,000	Lapsed during Outstanding Review as at Period 30.6.2008 – 3,000,000 – – – – – 3,000,000
					3,000,000 – –
					3,000,000

Pre-IPO share options are exercisable as to (i) a maximum of 25% of the total number of options granted between six months and twelve months after 17 May 2002 (the “Listing Date”); (ii) a maximum additional 6.25% of the total number of options granted after the expiry of each successive 3-months period, twelve months after the Listing Date; and (iii) the remaining options on or after the third anniversary of the Listing Date until the end of the option period or lapse of an option.

The above outstanding options may be exercised, in accordance with the terms of the Pre-IPO Share Option Scheme, before 30 April 2012.

(b) Post-IPO Share Option Scheme

There have been a total of 8 lots of Post-IPO share options granted. The lots were (1) 5,277,000 shares on 12 July 2002; (2) 7,859,000 shares on 20 February 2003; (3) 385,000 shares on 10 October 2003; (4) 2,844,000 shares on 23 February 2004; (5) 828,000 shares on 11 October 2004; (6) 6,980,000 shares on 12 January 2007; (7) 4,818,000 shares on 7 December 2007 and (8) 30,000,000 shares on 31 March 2008.

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A summary of the Post-IPO Share Option Scheme movements during the Review Period are as follows:

Date of grant 12.7.2002 (Note 2) 20.2.2003 (Note 2) 10.10.2003 (Note 2) 23.2.2004 (Note 2) 11.10.2004 (Note 2) 12.1.2007 (Note 2) 7.12.2007 (Note 3) 31.3.2008 (Note 4)	Type of participants Employees Directors Advisors Employees Employees Employees Employees Directors Employees Directors Employees Directors Advisors Employees	Exercisable period 12.7.2003 to 11.7.2012 20.2.2004 to 19.2.2013 20.2.2004 to 19.2.2013 20.2.2004 to 19.2.2013 10.10.2004 to 9.10.2013 23.2.2005 to 22.2.2014 11.10.2005 to 10.10.2014 12.1.2008 to 11.1.2017 12.1.2008 to 11.1.2017 7.6.2008 to 6.12.2009 7.6.2008 to 6.12.2009 1.10.2008 to 31.3.2018 1.10.2008 to 31.3.2018 1.10.2008 to 31.3.2018	Exercise price per share HK$ 0.384 0.138 0.138 0.138 0.142 0.165 0.124 0.088 0.088 2.720 2.720 0.890 0.890 0.890 Total:		Number of share options	Number of share options	Number of share options
				Outstanding as at 1.1.2008 16,000 1,200,000 300,000 25,000 1,525,000 – 402,500 112,750 750,000 6,230,000 6,980,000 1,150,000 3,668,000 4,818,000 – – – – 13,854,250	Granted during Review Period – – – – – – – – – – – – – – 4,354,000 (Note 6) 17,906,000 7,740,000 30,000,000 30,000,000	Exercised during Review Period 16,000 – 300,000 25,000 325,000 – 301,000 7,000 187,500 (Note 5) 1,507,000 1,694,500 – – – – – – – 2,343,500	Lapsed during Review Period (Note 1) – – – – – – – – – 462,500 462,500 – 52,000 52,000 – – – – 514,500	Outstanding as at 30.6.2008
								–
								1,200,000 – –
								1,200,000
								–
								101,500
								105,750
								562,500 4,260,500
								4,823,000
								1,150,000 3,616,000
								4,766,000
								4,354,000 17,906,000 7,740,000
								30,000,000
								40,996,250

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Notes:

• (1) These options lapsed according to the rules of this scheme due to the employees having left the Group.

• (2) These grants under the Post-IPO Share Option Scheme are exercisable starting from the first anniversary of the date of grant at stepped annual increment of 25% of the total options granted, for a period not later than 10 years from the date of grant.

• (3) These grants under the Post-IPO Share Option Scheme are exercisable starting from six months of the date of grant at stepped six-months increment of 50% of the total options granted, for a period not later than 2 years from the date of grant.

• (4) These grants under the Post-IPO Share Option Scheme are exercisable starting from six months of the date of grant at stepped six-months increment of 50% of the total options granted, for a period not later than 10 years from the date of grant.

• (5) Mr. David Tsoi exercised 187,500 share options on 16 January 2008 in respect of the 750,000 options granted to him on 12 January 2007.

• (6) These share options were granted to Mr. Henry Ko, executive director and chief executive officer of the Company.

The above outstanding options may be exercised within such exercise period in accordance with the terms of the Post-IPO Share Option Scheme.

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DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS OR SHORT POSITION IN SHARES AND UNDERLYING SHARES OF THE COMPANY

As at 30 June 2008, the interests and short positions of the Directors, the chief executive of the Company and their respective associates (as defined in the GEM Listing Rules) in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)), as recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Exchange pursuant to the required standard of dealings by Directors as referred to in Rule 5.46 to 5.67 of the GEM Listing Rules, were as follows:

(a) Long positions in shares of the Company:

Name of Director Mr. Chan Sek Keung, Ringo Mr. David Tsoi Mr. Pang Hing Chung, Alfred	Nature of interests Personal Corporate (Note 2) Personal Personal	Number of Shares interested 18,592,000 56,400,000 413,500 1,500,000	Approximate percentage of Shares interested
			4.27% 12.95% 0.09% 0.34%

Notes:

• (1) As at 30 June 2008, the total number of issued shares of the Company was 435,478,995.

• (2) Mr. Chan Sek Keung, Ringo is deemed, by virtue of the SFO, to be interested in the 56,400,000 Shares held by Woodstock Management Limited, a company wholly-owned by him.

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(b) Long positions in the underlying shares in the Company (Directors’ rights to acquire shares)

Name of Director Mr. Chan Sek Keung, Ringo Mr. Ko Chun Fung, Henry Mr. David Tsoi Mr. Pang Hing Chung, Alfred Mr. So Lie Mo, Raymond	Number of Number of Number of Number of unlisted unlisted unlisted unlisted Approximate pre-IPO pre-IPO post-IPO post-IPO percentage share share share share of the option option option option Company’s outstanding outstanding outstanding outstanding issued Date of as at as at as at as at Aggregate share grant 1.1.2008 30.6.2008 1.1.2008 30.6.2008 interests capital 30.4.2002 3,000,000 3,000,000 – – 20.2.2003 – – 1,200,000 1,200,000 4,200,000 0.96% 31.3.2008 – – – 4,354,000 4,354,000 1.00% 12.1.2007 – – 750,000 562,500 (Note 3) 7.12.2007 – – 200,000 200,000 762,500 0.18% 7.12.2007 – – 200,000 200,000 200,000 0.05% 7.12.2007 – – 750,000 750,000 750,000 0.17%	Number of Number of Number of Number of unlisted unlisted unlisted unlisted Approximate pre-IPO pre-IPO post-IPO post-IPO percentage share share share share of the option option option option Company’s outstanding outstanding outstanding outstanding issued Date of as at as at as at as at Aggregate share grant 1.1.2008 30.6.2008 1.1.2008 30.6.2008 interests capital 30.4.2002 3,000,000 3,000,000 – – 20.2.2003 – – 1,200,000 1,200,000 4,200,000 0.96% 31.3.2008 – – – 4,354,000 4,354,000 1.00% 12.1.2007 – – 750,000 562,500 (Note 3) 7.12.2007 – – 200,000 200,000 762,500 0.18% 7.12.2007 – – 200,000 200,000 200,000 0.05% 7.12.2007 – – 750,000 750,000 750,000 0.17%
		0.96% 1.00% 0.18% 0.05% 0.17%

Notes:

• (1) Each of the above Directors is the personal beneficial owner of the share options granted to him.

• (2) Each of the Directors’ interests represent his respective long positions in the underlying shares in the Company by virtue of options granted to the Directors pursuant to the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme both adopted by the Company on 20 April 2002 (further details are set out under the section headed “Share Option Schemes”).

• (3) Mr. David Tsoi exercised 187,500 share options on 16 January 2008 in respect of the 750,000 options granted to him on 12 January 2007.

• (4) Options granted on 30 April 2002 were exercisable during the period from 17 November 2002 to 29 April 2012 at the exercise price of HK$0.55 per share.

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• (5) Options granted on 20 February 2003 were exercisable during the period from 20 February 2004 to 19 February 2013 at the exercise price of HK$0.138 per share.

• (6) Options granted on 12 January 2007 were exercisable during the period from 12 January 2008 to 11 January 2017 at the exercise price of HK$0.088 per share.

• (7) Options granted on 7 December 2007 were exercisable during the period from 7 June 2008 to 6 December 2009 at the exercise price of HK$2.72 per share.

• (8) Options granted on 31 March 2008 were exercisable during the period from 1 October 2008 to 31 March 2018 at the exercise price of HK$0.89 per share.

Other than as disclosed above, none of the Directors, the chief executive of the Company and their respective associates (as defined in the GEM Listing Rules), had any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations as at 30 June 2008.

REQUIRED STANDARD OF SECURITIES DEALINGS BY DIRECTORS

During the six months ended 30 June 2008, the Company had adopted a code of conduct for directors’ securities transactions on terms no less exacting than the required standard of dealings set out in Rules 5.48 to 5.67 of the GEM Listing Rules.

On 17 April 2008, Mr. Ringo Chan, inadvertently and unintentionally, purchased a total of 60,000 shares in the Company in the open market at an average price of HK$1.012 per share. This action breached the code that a director should not deal in the shares of the Company during the “blackout period”, that is within 1 month prior to the date which the Company announces its results. On being reminded of such violation when Mr. Chan filed his disclosure of interest, Mr. Chan reported this mishap to the Stock Exchange on 21 April 2008. The Company has not since heard further from either Mr. Chan or the Stock Exchange on this matter.

Other than disclosed above, having made specific enquiry with all the Directors, the Directors confirmed that they had complied with the required standard of dealings and the code of conducts for directors’ securities transactions during the six months ended 30 June 2008.

SUBSTANTIAL SHAREHOLDERS AND OTHER SHAREHOLDERS WHOSE INTERESTS ARE RECORDED UNDER SECTION 336 OF THE SFO

As at 30 June 2008, the following persons or corporations, in addition to the Directors, stated under the section headed “Directors’ and chief executive’s interests or short position in shares and underlying shares of the Company”, were interested in shares or underlying shares representing 5% or more in the issued share capital of the Company as recorded in the register of interests required to be kept by the Company pursuant to Section 336 of the SFO.

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Long positions in shares of the Company

Name of shareholder Power Way Group Limited (“Power Way”) Melco LottVentures Holdings Limited Melco Leisure and Entertainment Group Limited (“Melco Leisure”) Melco International Development Limited (“Melco”) Mr. Ho, Lawrence Yau Lung (“Mr. Ho”) Mr. Ng Lai Yick (Note 8) North 22 Nominees Limited (Note 8) Enso Capital Management LLC (“Enso”) (Note 9) Enso Global Equities Master Partnership LP (Note 9) Legg Mason, Inc.	Capacity Beneficial owner Interest through a controlled corporation Interest through controlled corporations Interest through controlled corporations Interest through controlled corporations Beneficial owner Beneficial owner Interest through a controlled corporation Beneficial owner Interest through a controlled corporation Beneficial owner Interest through controlled corporations	Number of Shares interested 72,000,000 72,000,000 (Note 2) 72,000,000 (Note 3) 72,000,000 (Note 4) 72,000,000 (Note 5) 3,134,744 36,900,000 36,900,000 39,164,000 23,603,110 30,000,000	Number of underlying Shares interested 713,882,352 (Note 6) 713,882,352 (Note 6) 713,882,352 (Note 6) 713,882,352 (Note 6) 713,882,352 (Note 6) 4,354,000 (Note 7) – – – – – –	Approximate shareholding percentage
				180.46% 180.46% 180.46% 180.46% 180.46% 1.00% 0.72% 8.47% 8.47% 8.99% 5.42% 6.89%

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Notes:

• (1) As at 30 June 2008, the total number of issued shares of the Company was 435,478,995.

• (2) Melco LottVentures Holdings Limited is deemed to be interested in the 72,000,000 Shares by virtue of its controlling interests in Power Way.

• (3) Melco Leisure is deemed to be interested in the 72,000,000 Shares by virtue of its controlling interests in its wholly-owned subsidiary, Melco LottVentures Holdings Limited.

• (4) Melco is deemed to be interested in the 72,000,000 Shares by virtue of its controlling interests in its wholly-owned subsidiary, Melco Leisure.

• (5) Mr. Ho is deemed to be interested in the 72,000,000 Shares by virtue of his controlling interests in Melco, which are held by him personally and his controlled corporations.

• (6) Convertible bonds in the principal amount of HK$606,800,000 carrying the rights to subscribe for Shares at an initial conversion price of HK$0.85 per Share was issued by the Company to Power Way on 13 December 2007 to satisfy part of the consideration for the acquisition of the entire issued share capital of Precious Success Holdings Limited and 60% of the entire issued share capital of Oasis Rich International Limited under the agreement dated 8 October 2007 entered into among the Company, Rising Move International Limited (a wholly-owned subsidiary of the Company), Power Way, LottVision Limited, Melco International Development Limited and Firich Enterprises Co., Ltd. If Power Way exercises the conversion rights attaching to the said convertible bonds in full at the initial conversion price, a total of 713,882,352 Shares will be issued to Power Way. However, no conversion of the convertible bonds shall be made, if immediately upon such conversion, (1) Power Way and its parties acting in concert (as defined under the Takeovers Code) with it will be under an obligation to make a general offer under the Code; (2) each of (i) any of the existing Shareholders holding more than 20% or more of the voting rights of the Company as at the date of the Agreement; and (ii) Power Way and its parties acting in concert (as defined under the Takeovers Code) will hold 20% or more of the voting rights of the Company respectively; or (3) the public float of the Shares falls below 25% (or any given percentage as required by the GEM Listing Rules) of the issued Shares.

• (7) Mr. Ho is an advisor of the Company and the Group without receiving any compensation. He was granted the share options in recognition of his contributions in the past and for the future for the benefits of the Company and the Group.

• (8) Mr. Ng Lai Yick is deemed, by virtue of the SFO, to be interested in the 36,900,000 Shares held by North 22 Nominees Limited, a company wholly-owned by him, in addition to the 3,134,744 Shares held by him personally.

• (9) Enso is deemed, by virtue of the SFO, to be interested in the 39,164,000 Shares which include the 23,603,110 Shares held by Enso Global Equities Master Partnership LP, which is a discretionary fund controlled by Enso.

Save as disclosed above, the Company had not been notified of any other relevant interests or short positions in the shares or underlying shares in the Company as at 30 June 2008.

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AUDIT COMMITTEE

The Company established the Audit Committee on 29 October 2001 with written terms of reference in compliance with Rules 5.28 to 5.29 of the GEM Listing Rules and with reference to the guidelines published by the Hong Kong Institute of Certified Public Accountants.

The present Audit Committee consists of three independent non-executive Directors, namely, Mr. David Tsoi, Chairman, Mr. Pang Hing Chung, Alfred and Mr. So Lie Mo, Raymond.

The Audit Committee has reviewed the draft of this announcement and has provided advice and comments thereon.

BOARD PRACTICES AND PROCEDURES

The Company has complied with the board practices and procedures as set out in Rule 5.34 of the GEM Listing Rules during the Review Period.

CORPORATE GOVERNANCE

Prior to 1 May 2008, the roles of both the chairman and chief executive officer of the Company were carried out by the same individual, Mr. Chan Sek Keung, Ringo. This practice was not in line with paragraph A.2.1 in the Code on Corporate Governance Practices (the “Code”) as set out in Appendix 15 of the GEM Listing Rules.

With effect from 1 May 2008, after a review into the business and board structure change with the completion of the VSA in late 2007, Mr. Ko Chun Fung, Henry was appointed as Chief Executive Officer in place of Mr. Chan Sek Keung, Ringo, who stepped down from that position but remained Chairman of the Board.

Save as disclosed above, the Company was in compliance with all the provisions of the Code during the Review Period.

By Order of the Board of Melco LottVentures Limited CHAN Sek Keung, Ringo Chairman

Hong Kong, 13 August 2008

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.melcolottventures.com.hk.

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