THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular, you should consult a licensed securities dealer or other registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in MelcoLot Limited , you should at once hand this circular and the accompanying form of proxy to the licensed securities dealer or registered institution in securities or other agents through whom the sale was effected for transmission to the purchaser.

Subject to the granting of listing of, and permission to deal in, the Offer Shares on the Stock Exchange, the Offer Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Offer Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Dealings in the securities of the Company may be settled through CCASS and you should consult your licensed securities dealer, registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser for details of the settlement arrangements and how such arrangements may affect your rights and interests.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.

This circular is for information only. It does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of the Company.

==> picture [52 x 53] intentionally omitted <==

==> picture [63 x 32] intentionally omitted <==

MelcoLot Limited

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 8198)

(I) VERY SUBSTANTIAL DISPOSALS, CB REPURCHASES AND CONNECTED TRANSACTIONS; (II) INTRADAK EXCLUSIVITY UNDERTAKING AND CONNECTED TRANSACTION; (III) PROPOSED OPEN OFFER ON THE BASIS OF THREE OFFER SHARES FOR EVERY EXISTING SHARE HELD ON THE RECORD DATE; (IV) WHITEWASH WAIVER; AND

(V) PROPOSED INCREASE IN AUTHORISED CAPITAL

Independent Financial Adviser to

the Independent Board Committee, the GEM LR Independent Board Committee, the Independent Shareholders and the GEM LR Transactions Independent Shareholders

Capitalised terms used in this cover page shall have the same meanings as those defined in the section headed ‘‘Definitions’’ in this circular.

A letter from the Board is set out on pages 14 to 63 of this circular. A letter from the Independent Board Committee is set out on pages 64 to 65 of this circular. A letter from the GEM LR Independent Board Committee is set out on pages 66 to 67 of this circular.

A letter from AIM, the independent financial adviser, containing its advice to the Independent Board Committee, the GEM LR Independent Board Committee, the Independent Shareholders and the GEM LR Transactions Independent Shareholders is set out on pages 68 to 117 of this circular.

A notice convening the EGM to be held at Units 3101-2A, 31st Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong, at 11:30 a.m. on Monday, 15 October 2012 or any adjournment thereof is set out on pages EGM-1 to EGM-5 of this circular. A proxy form for use in the EGM is enclosed. Whether or not you are able to attend the EGM, you are requested to complete the enclosed proxy form in accordance with the instructions printed thereon and return the same to the office of the branch share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

If the Underwriters terminate the Underwriting Agreement or if the conditions to the Underwriting Agreement have not been fulfilled in accordance therewith, the Open Offer will not proceed. Shareholders and potential investors are advised to exercise due caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers.

The Board wishes to inform that, as the number of Underwritten Shares is below that of the Offer Shares, the Open Offer is not fully underwritten. Subject to fulfillment of the conditions of the Open Offer and the Underwriting Agreement, the Open Offer will proceed regardless of the ultimate subscription level as there are no requirements for minimal levels of subscription pursuant to the Company’s constitutional documents or the law of Cayman Islands.

The Board also wishes to emphasize that the Open Offer is inter-conditional with Intralot Disposal Completion and GCH Disposal Completion which in turn are subject to the Independent Shareholders’ approval including, among others, approval of the off-market repurchase of the Intralot 2013 Convertible Bonds and the GCH 2012 Convertible Bonds by at least three-fourths of the votes cast on a poll by the Independent Shareholders in attendance in person or by proxy at the EGM. As such, there is no assurance of all the resolutions including but not limited to the above resolutions will be approved by the Independent Shareholders and all the conditions precedent to the Intralot Agreement, the GCH Agreement and the Underwriting Agreement will be fulfilled and/or waived (as the case may be). If any of the conditions precedent set out in the aforesaid agreements cannot be fulfilled and/or waived (as the case may be), the Open Offer will not proceed. Shareholders and potential investors are urged to exercise caution when dealing in the securities of the Company.

This circular will remain on the GEM website at www.hkgem.com on the “Latest Company Announcements” page for 7 days from the date of this circular and the website of the Company at www.melcolot.com.

26 September 2012

CHARACTERISTICS OF GEM

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.

THE OPEN OFFER IS NOT FULLY UNDERWRITTEN

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Letter from the GEM LR Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Letter from AIM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Appendix I – Accountants’ report of Precious Success. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II – Accountants’ report of Gain Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Appendix III – Accountants’ report of Oasis Rich. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Appendix IV – Financial information and accountants’ report of the Group. . . . . . . . . . . . IV-1
Appendix V – Other financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
Appendix VI – Unaudited pro forma financial
information of the Remaining Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
Appendix VII – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EGM-1

iii

DEFINITIONS

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

“2012 CB Holders”

together, Firich, GCH, Intralot and Melco LV

“2012 Convertible Bonds”
the 0.1% convertible bonds due on 13 December 2012 in the principal amount of HK$606,800,000 with a conversion price of HK$0.85 per Conversion Share, which is owned as to (i) HK$399,505,732 by Melco LV; (ii) HK$175,188,566 by GCH; (iii) HK$17,677,251 by Firich; and (iv) HK$14,428,451 by Intralot, conferring rights entitling the 2012 CB Holders to subscribe for 713,882,352 Conversion Shares upon exercise of the conversion rights attached to the 2012 Convertible Bonds in full
“acting in concert” has the meaning ascribed to it in the Takeovers Code
“Announcement”
the announcement of the Company dated 14 August 2012 in respect of, among other things, the GEM LR Transactions and the Transactions
“Approved LVM” the lottery vending machines with specification approved and selected by the CSLA upon Authentication from time to time
“Asset Transfer Agreement”
the agreement dated 7 September 2008 as amended by a supplemental agreement dated 26 September 2008 and entered into between Intralot and the Company in respect of transfer of certain assets, which include the Licence, from Intralot to the Company in return for the Shares and the Intralot 2013 Convertible Bonds
“associate(s)”
has the same meaning as defined in the GEM Listing Rules
“Authentication”
the lottery vending machines approval and selection process conducted by the CSLA at the very beginning of the lottery vending machines procurement cycle that the authorised distributor must provide the specifications and models of lottery vending terminals to the CSLA for its evaluation and selection before supplying such particular approved model to the CSLA
“Beijing Haiyin” Beijing Haiyin Huacai Information Technology Limited[#] (北京海熒華彩信息技術有限公司), a company established in the PRC and the holder of 37.5% equity interest in Beijing Telenet, which is owned as to 10.0%, 75.0%, 10.0% and 5.0% by Mr. Ding, Mrs. Ding, Mr. Li and an Independent Third Party respectively
“Beijing Huaying” Beijing Hua Ying Feng Cai Technology Ltd.[#] (北京華盈風彩科技有限公司), a company established in the PRC and wholly owned by PAL Beijing

DEFINITIONS

“Beijing Telenet”
Beijing Telenet Information Technology Ltd.[#] (北京電信達信息技術有限公司), a company established in the PRC, 52.5% of the entire equity interest of which is indirectly beneficially owned by the Company and the remaining 5.0%, 5.0% and 37.5% of the entire equity interest of which are owned by Mr. Ding, Mr. Li and Beijing Haiyin respectively
“Beijing Telenet Articles” the articles of association of Beijing Telenet
“Board” the board of Directors
“Business Day” a day (excluding Saturday, Sunday or public or statutory holiday in Hong Kong and any day on which a tropical cyclone warning No. 8 or above is hoisted or remains hoisted between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon or on which a “black” rainstorm warning signal is hoisted or remains in effect between 9:00 a.m. and 12:00 noon and is not discontinued at or before 12:00 noon) on which licenced banks in Hong Kong are generally open for business in Hong Kong throughout their normal business hours
“CB Repurchases” the repurchase of the Intralot 2013 Convertible Bonds and the GCH 2012 Convertible Bonds by the Company pursuant to the Intralot Agreement and the GCH Agreement, respectively
“CB Undertakings” the irrevocable undertakings given by each of the 2012 CB Holders and the holder of the Intralot 2013 Convertible Bonds in favour of the Company and the Underwriters not to exercise the conversion rights attached the 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds respectively on or before the Record Date
‘‘CCASS’’ the Central Clearing and Settlement System established and operated by HKSCC
“Company” MelcoLot Limited, a company incorporated in the Cayman Islands with limited liability, the issued Shares of which are listed on GEM
“connected person(s)” has the same meaning as defined in the GEM Listing Rules
“Conversion Shares” the new Shares to be allotted and issued upon the exercise of conversion rights attached to the 2012 Convertible Bonds and/or the Intralot 2013 Convertible Bonds

DEFINITIONS

“CSLA” the China Sports Lottery Administration Centre of the PRC, the state-owned exclusive sports lottery operator responsible for the administration of the issuance of sports lotteries in the PRC at a national level
“CWL” the China Welfare Lottery Issuance Centre of the PRC, the stateowned exclusive welfare lottery operator responsible for the administration of the issuance of welfare lotteries in the PRC at a national level
“Deed of Assignment and the deed to be entered into by Intralot, the Company and PAL Novation” upon Intralot Disposal Completion for the purpose of, among other matters, assignment of rights and novation of obligations of the Company under the Licence Agreement
“Deed of Assignment and the deed to be entered into by Intralot, the Company and PAL Novation of Supply upon the Intralot Disposal Completion for the purpose of, Agreement” among other matters, assignment of rights and novation of obligations of the Company under the Supply Agreement
“Director(s)” the director(s) of the Company
“Disposal Agreements” together, the GCH Agreement and the Intralot Agreement
“EGM” the extraordinary general meeting of the Company to be convened at 11:30 a.m. on Monday, 15 October 2012 to consider and, if thought fit, to approve, among other things, the Disposal Agreements (including the CB Repurchases), the Intradak Exclusivity Undertaking, the Open Offer, the Underwriting Agreement (including the Whitewash Waiver) and the Proposed Increase in Authorised Capital
“Excluded Options” a total of 37,778,000 Share Options granted to parties acting in concert with any of the Underwriters
“Excluded Options the irrevocable undertakings given by each of the holders of Undertakings” the Excluded Options in favour of the Company and the Underwriters not to exercise the Excluded Options granted to him/ her on or before the completion date of the Open Offer
“Exclusivity Undertakings” the Wu Sheng Exclusivity Undertaking and the Intradak Exclusivity Undertaking
“Executive” the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director

DEFINITIONS

“Firich” Firich Enterprises Co., Ltd., a company with its shares listed on the Taiwan Gre Tai Securities Market, a Shareholder holding 12,977,498 Shares (representing approximately 2.58% of the issued share capital of the Company as at the Latest Practicable Date) and the holder of the Firich 2012 Convertible Bonds
“Firich 2012 Convertible the 2012 Convertible Bonds in the principal amount of Bonds” HK$17,677,251 with a conversion price of HK$0.85 per Conversion Share, which entitle Firich to subscribe for 20,796,766 Conversion Shares upon the exercise of the conversion rights attached thereto in full
“Firich International” Firich International Co., Ltd., a wholly-owned subsidiary of Firich “GA Sale Shares” such number of issued shares in Gain Advance, representing the entire issued share capital of Gain Advance beneficially owned by Rising Move, a direct wholly-owned subsidiary of the Company
“Gain Advance” Gain Advance Group Limited, a company incorporated in the British Virgin Islands with limited liability and an indirect wholly-owned subsidiary of the Company as at the Latest Practicable Date
“GCH” Global Crossing Holdings Ltd., a company incorporated in the Independent State of Samoa with limited liability, a Shareholder holding 20,787,042 Shares (representing approximately 4.13% of the issued share capital of the Company as at the Latest Practicable Date), the holder of the GCH 2012 Convertible Bonds, the shareholder of approximately 32.86% of the entire issued share capital of Oasis Rich and a wholly-owned subsidiary of Universal Rich
“GCH 2012 Convertible the 2012 Convertible Bonds in the principal amount of Bonds” HK$175,188,566 with a conversion price of HK$0.85 per Conversion Share, which entitle GCH to subscribe for 206,104,195 Conversion Shares upon exercise of the conversion rights attached thereto in full
“GCH Agreement” the agreement dated 26 June 2012 and entered into between GCH and the Company in respect of the GCH Disposal
“GCH Disposal” the disposal of the OR Sale Shares by the Company pursuant to the GCH Agreement
“GCH Disposal Completion” completion of the GCH Disposal
“GEM”

the Growth Enterprise Market of the Stock Exchange

DEFINITIONS

“GEM Listing Committee”
the listing committee of the Stock Exchange with responsibility for GEM
“GEM Listing Rules” the Rules Governing the Listing of Securities on GEM
“GEM LR Independent Board Committee”
an independent committee of the Board, comprising all the independent non-executive Directors in compliance with the GEM Listing Rules, namely Mr. Tsoi, David, Mr. Pang Hing Chung, Alfred and Mr. So Lie Mo, Raymond, constituted to advise the GEM LR Transactions Independent Shareholders as regards the terms of the GEM LR Transactions
“GEM LR Transactions” together, the Disposal Agreements, the Intradak Exclusivity Undertaking, the Open Offer, the Underwriting Agreement, the Proposed Increase in Authorised Capital and the transactions contemplated thereunder
“GEM LR Transactions Independent Shareholders”
the Shareholders other than those who are required to abstain from voting in the EGM to consider and approve the GEM LR Transactions under the GEM Listing Rules
“Group”

the Company and its subsidiaries from time to time

“HKSCC”

Hong Kong Securities Clearing Company Limited

“Hong Kong”

the Hong Kong Special Administrative Region of the PRC

“Independent Board Committee”

an independent committee of the Board, comprising all the nonexecutive Directors and independent non-executive Directors in compliance with Rule 2.8 of the Takeovers Code, who have no direct or indirect interest in the Transactions, namely Mr. Chan Sek Keung, Ringo, Mr. Wang, John Peter Ben, Mr. Tsoi, David, Mr. Pang Hing Chung, Alfred and Mr. So Lie Mo, Raymond, constituted to advise the Independent Shareholders as regards the terms of the Transactions

“Independent Financial Adviser” or “AIM”

Asia Investment Management Limited, a licensed corporation to carry out type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO, and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Transactions and the GEM LR Independent Board Committee and the GEM LR Transactions Independent Shareholders in relation to the terms of the GEM LR Transactions

DEFINITIONS

“Independent Shareholders”
the Shareholders, other than (i) Melco LV, Intralot, Firich and GCH together with their respective associates and parties acting in concert with any of them; (ii) those who are involved in or interested in the Transactions; and (iii) those who are required to abstain from voting in the EGM to consider and approve the Transactions under the Takeovers Code and the Repurchase Code
“Independent Third Party(ies)” person(s) and their respective associates or, in the case of companies, their ultimate beneficial owner(s) and their respective associates, who are independent of and not connected with the Company and its subsidiaries and their respective connected persons
“Intradak” Beijing Intradak System Technology Co., Ltd.[#] (北京英特達系統技術有限公司), a company established in the PRC with limited liability and owned as to 35%, 20% and 45% by Beijing Haiyin, Mr. Ding and an Independent Third Party respectively
“Intradak Exclusivity the conditional exclusivity undertaking entered into between Undertaking” Beijing Telenet and Intradak dated 13 August 2012 in respect of Beijing Telenet’s exclusive rights to supply the Approved LVM mutually specified by Beijing Telenet and Intradak to Intradak
“Intralot” Intralot International Limited, a company incorporated in the Republic of Cyprus with limited liability and a wholly-owned subsidiary of Intralot S.A., a substantial Shareholder holding 52,973,779 Shares (representing approximately 10.53% of the issued share capital of the Company as at the Latest Practicable Date) and the holder of the Intralot 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds
“Intralot 2012 Convertible Bonds”
the 2012 Convertible Bonds in the principal amount of HK$14,428,451 with a conversion price of HK$0.85 per Conversion Share, which entitle Intralot to subscribe for 16,974,648 Conversion Shares upon the exercise of the conversion rights attached thereto in full
“Intralot 2013 Convertible Bonds”
the 0.1% convertible bonds due on 9 December 2013 in the principal amount of HK$277,175,310 with a conversion price of HK$0.991 per Conversion Share, which entitle Intralot to subscribe for 279,692,542 Conversion Shares upon the exercise of the conversion rights attached thereto in full
“Intralot Agreement”
the agreement dated 26 June 2012 and entered into among Intralot, Rising Move and the Company in respect of the Intralot Disposal

DEFINITIONS

“Intralot Disposal”

the disposal of the GA Sale Shares and the PS Sale Shares by Rising Move to Intralot pursuant to the Intralot Agreement

“Intralot Disposal Completion”
completion of the Intralot Disposal
“Intralot S.A.” Intralot S.A. Integrated Lottery Systems and Services, a company with its shares listed on the Athens Exchange and the holding company of Intralot
“Intralot Supplemental together, the Second Supplemental Agreement, the Supplemental Agreements” SLA, the Deed of Assignment and Novation, the Deed of Assignment and Novation of Supply Agreement and the Precious Success Shareholders Agreement
“Last Trading Day” 26 June 2012, being the last full trading day prior to the release of the Announcement
“Latest Lodging Time”
4:30 p.m. on 18 October 2012 or such other date and/or time as the Company may reasonably decide as the latest time for lodging transfer of the Shares and/or exercising the Share Options (excluding the Excluded Options) in order to qualify for the Open Offer
“Latest Practicable Date” 21 September 2012, being the latest practicable date for the purpose of ascertaining certain information included in this circular
“Latest Time for Acceptance” 4:00 p.m. on 7 November 2012 or such later time or date as the Company may reasonably decide (which shall not be later than 31 December 2012), being the latest time for acceptance of, and payment for, the Offer Shares as described in the Prospectus
“Latest Time for Termination” 6:00 p.m. on the third Business Day following (but excluding) the Latest Time for Acceptance or such later time or date as the Underwriters may reasonably decide and inform the Company in writing, being the latest time to terminate the Underwriting Agreement
“Licence” the non-exclusive licence right to use the most current version of certain computer software programs and the documentations for projects related to the CSLA and the non-exclusive licence right to use the most current version of certain computer software programs and the documentations for projects related to the CWL

“Licence Agreement” the agreement dated 9 December 2008 entered into between Intralot and the Company, pursuant to which Intralot granted the Company the exclusive rights to use and sublicense the Licence

DEFINITIONS

“LottVision” LottVision Limited, a company incorporated in Bermuda with limited liability with its shares listed on the Singapore Exchange Securities Trading Limited
“LottVision Investments” LottVision Investments Holdings Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of LottVision
“Melco” Melco International Development Limited, a company incorporated in Hong Kong and the issued shares of which are listed on the Main Board of the Stock Exchange and a substantial Shareholder
“Melco LV” Melco LottVentures Holdings Limited, a company incorporated in the British Virgin Islands with limited liability and a whollyowned subsidiary of Melco, a substantial Shareholder holding 58,674,619 Shares and the holder of the 2012 Convertible Bonds in the principal amount of HK$399,505,732, which entitle Melco LV to subscribe for 470,006,743 Conversion Shares upon the exercise of the conversion rights attached thereto in full
“Mr. Chang” Mr. Chang Tung-Bing, a former employee of Firich and the holder of the entire equity interest in Universal Rich, which, in turn, holds the entire equity interest in GCH
“Mr. Ding” Mr. Ding Jingge, a substantial shareholder of Beijing Haiyin, a shareholder and a director of Beijing Telenet and a substantial shareholder of Intradak
“Mr. Li” Mr. Li Xuefeng, a substantial shareholder of Beijing Haiyin and a shareholder and a director of Beijing Telenet
“Mrs. Ding” the spouse of Mr. Ding “Non-Qualifying Letter” a letter from the Company to the Non-Qualifying Shareholders explaining the circumstances in which the Non-Qualifying Shareholders are not permitted to participate in the Open Offer
“Non-Qualifying the Overseas Shareholder(s) whom the Directors, after making Shareholder(s)” enquiries regarding the legal restrictions under the laws of the relevant places and the requirements of the relevant overseas regulatory bodies or stock exchanges, consider it necessary or expedient to exclude them from the Open Offer

DEFINITIONS

“Oasis Rich” Oasis Rich International Ltd., a company incorporated in the Republic of Mauritius with limited liability and an indirect 60%-owned subsidiary of the Company as at the Latest Practicable Date
“Offer Period” the period commencing from 14 August 2012 up to and including the Latest Practicable Date
“Offer Share(s)” the new Share(s) to be allotted and issued under the Open Offer, which will be a total of not less than 1,508,900,799 Shares and not more than 1,716,014,799 Shares
“Open Offer” the proposed issue of the Offer Shares on the basis of 3 Offer Shares for every existing Share held by the Qualifying Shareholders on the Record Date on the terms to be set out in the Prospectus Documents
“OR Sale Shares” 420,000 shares in Oasis Rich, representing 60% of the entire issued share capital of Oasis Rich beneficially owned by the Company as at the Latest Practicable Date
“Outsource Agreement” the outsource agreement dated 26 June 2012 (as supplemented by the supplemental agreement to the Outsource Agreement entered into by the parties to the Outsource Agreement on the even date) and entered into between PAL Beijing and Beijing Yobit Games Limited, a company established in the PRC with limited liability and wholly owned by Beijing Haiyin
“Overseas Shareholder(s)” the Shareholder(s) with registered address on the register of members of the Company outside Hong Kong at the close of business on the Record Date
“PAL” PAL Development Limited, a company incorporated in Hong Kong with limited liability, an indirect wholly-owned subsidiary of the Company as at the Latest Practicable Date
“PAL Beijing” PAL (Beijing) Information Technology Ltd.# (寶加(北京)信息技術有限公司), a company established in the PRC and indirectly, beneficially and wholly owned by the Company
“PAL Beijing Group” PAL Beijing, Beijing Huaying and Shandong Kai Chuan Ji Yuan
“Power Way”
Power Way Group Limited, a company incorporated in the British Virgin Islands with limited liability and the equity interest of which is owned as to approximately 58.70%, 28.87% and 12.43% by Melco LV, GCH and LottVision Investments, respectively as at the Latest Practicable Date

DEFINITIONS

“Power Way Agreement” a sale and purchase agreement dated 19 September 2011 (as amended by a supplemental agreement dated 18 January 2012) and entered into among Melco LV, GCH and LottVision Investments in relation to the acquisition by Melco LV and GCH of the 12.43% equity interest in Power Way held by LottVision Investments

“Power Way Loan” the aggregate of the principal amount of loan and the interest accrued thereon owed by the Company to Power Way of approximately HK$89,338,196 as at 31 May 2012
“PRC” the People’s Republic of China, which for the purpose of this circular excludes Hong Kong, the Macao Special Administration Region of the PRC and Taiwan
“Precious Success” Precious Success Holdings Limited, a company incorporated in the British Virgin Islands with limited liability and an indirect wholly-owned subsidiary of the Company as at the Latest Practicable Date
“Precious Success the shareholders’ agreement to be entered into on Intralot Shareholders Agreement” Disposal Completion among Intralot, Rising Move and Precious Success to regulate their relationship and to record the respective rights and obligations as shareholders of Precious Success with respect to finance, management and operations
“Proposed Increase in the proposed increase in the authorised share capital of the Authorised Capital” Company from HK$20,000,000 to HK$55,000,000 by the creation of additional 3,500,000,000 unissued Shares
“Prospectus” the prospectus to be issued by the Company in relation to the Open Offer
“Prospectus Documents” the Prospectus and the application form to be used by the Qualifying Shareholders to apply for the Offer Shares
“Prospectus Posting Date” 24 October 2012 or such later date as the Company may accordingly decide for the despatch of the Prospectus Documents
“PS Sale Shares” such number of issued shares in Precious Success, representing 49% of the entire issued share capital of Precious Success beneficially owned by Rising Move

“Qualifying Shareholders” the Shareholders, other than the Non-Qualifying Shareholder(s), whose names appear on the register of members of the Company as at the close of business on the Record Date

DEFINITIONS

“Record Date”	19 October 2012, or such later date the Company may reasonably
	decide for the determination of the assured entitlements under the
	Open Offer
“Relevant Period”	the period commencing from 14 February 2012, being the period
	from the date falling 6 months immediately prior to the date of the
	Announcement up to and including the Latest Practicable Date
“Remaining Group”	the Company and its subsidiaries immediately upon completion
	of the Disposal Agreements, which are expected to be principally
	engaged in the operations of (i) distribution of lottery vending
	machines in the PRC; and (ii) conduct of lottery business in the
	PRC
“Repurchase Code”	the Hong Kong Code on Share Repurchases
“Rising Move”	Rising Move International Limited, a company incorporated in the
	British Virgin Islands with limited liability and a direct wholly-
	owned subsidiary of the Company
“Second Supplemental	the second supplemental agreement to be entered into between
Agreement”	Intralot and the Company on Intralot Disposal Completion for
	the purpose of alteration of certain terms of the Asset Transfer
	Agreement
“Set Off”	the set off of the Power Way Loan as at 31 May 2012 in order to
	settle the underwriting and payment obligations of Power Way in
	accordance with the Underwriting Agreement
“SFC”	the Securities and Futures Commission of Hong Kong
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Shandong Kai	Shandong Kai Chuan Ji Yuan Electronic and Information
Chuan Ji Yuan”	Technology Ltd#(山東省開創紀元電子商務信息有限公司),
	a company established in the PRC and owned as to 65% of its
	equity interest by Beijing Huaying
“Share(s)”	the ordinary share(s) of HK$0.01 each in the share capital of the
	Company
“Shareholder(s)”	the holder(s) of the issued Shares
“Share Options”	the 106,816,000 share options granted under the share option
	scheme approved by the Shareholders on 20 April 2002
	outstanding as at the Latest Practicable Date

DEFINITIONS

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Subscription Price” the subscription price of HK$0.078 per Offer Share
“substantial shareholder(s)” has the meaning as defined in the GEM Listing Rules “Supplemental SLA” the supplemental agreement to be entered into between Intralot and the Company on Intralot Disposal Completion for the purpose of alteration of certain terms of the Licence Agreement
“Supply Agreement” the agreement dated 15 July 2010 entered into between Intralot and the Company, pursuant to which Intralot agreed to deliver, install, implement, customise, test and maintain hardware, software and services for the CWL project in Chongqing, the PRC
“Takeovers Code” the Hong Kong Code on Takeovers and Mergers
“trading day” a day on which the Stock Exchange is open for the business of dealings in securities
“Transactions” together, the Disposal Agreements (including the CB Repurchases), the Open Offer, the Underwriting Agreement (including the Whitewash Waiver), the Proposed Increase in Authorised Capital and the transactions contemplated thereunder
“Underwriters” together, Melco LV and Power Way
“Underwriting Agreement” the agreement dated 14 August 2012 and entered into among the Underwriters and the Company in relation to the Open Offer
“Underwritten Shares” 1,273,566,615 Untaken Shares to be underwritten by the Underwriters of which a maximum of 128,205,128 Untaken Shares will be underwritten by Melco LV and a maximum of 1,145,361,487 Untaken Shares will be underwritten by Power Way pursuant to the terms of the Underwriting Agreement
“Universal Rich” Universal Rich Holdings Limited, a company incorporated in the Independent State of Samoa with limited liability and the holder of the entire equity interest in GCH, the entire issued shares of which are owned by Mr. Chang
“Untaken Shares”
those Offer Shares not taken up by the Shareholders

DEFINITIONS

“Whitewash Waiver” a waiver from the obligation of the Underwriters and the parties acting in concert with any of them to make a mandatory general offer to the Shareholders in respect of the Shares and securities issued by the Company not already owned or agreed to be acquired by the Underwriters and the parties acting in concert with any of them as a result of the underwriting of the Offer Shares under the Underwriting Agreement in accordance with Note 1 on dispensations from Rule 26 of the Takeovers Code
“Wu Sheng” Wu Sheng Computer Technology (Shanghai) Co., Ltd.[#] (伍盛計算機科技(上海)有限公司), a company established in the PRC with limited liability and a wholly-owned subsidiary of Oasis Rich
“Wu Sheng Exclusivity the exclusivity undertaking entered into between Beijing Telenet Undertaking” and Wu Sheng dated 13 August 2012 in respect of Beijing Telenet’s exclusive right to procure the Approval LVM mutually specified by Wu Sheng and Beijing Telenet from Wu Sheng
“Zhonghuicai” Zhonghuicai (Beijing) Information Technology Limited[#] (中滙彩(北京)信息技術有限公司), a private company established in the PRC with limited liability and beneficially owned by an Independent Third Party
“HK$” Hong Kong dollars, the lawful currency of Hong Kong “RMB” Renminbi, the lawful currency of the PRC “US$” the United States of America dollar(s), the lawful currency of the United States of America
“%” per cent.

In this circular, unless otherwise specified, amounts in RMB and US$ are converted to HK$ at the conversion rates of HK$1.22 = RMB1.00 and HK$7.80 = US$1.00, respectively for illustration only. No representation was made that any amounts in RMB and US$ could have been or could be converted into HK$ at such rate or any other rates.

# the English translations of Chinese names or words in this circular, where indicated, are included for information purpose only, and should not be regarded as the official English translation of such Chinese names or words.

LETTER FROM THE BOARD

==> picture [52 x 53] intentionally omitted <==

==> picture [63 x 32] intentionally omitted <==

MelcoLot Limited

(incorporated in the Cayman Islands with limited liability) (Stock Code: 8198)

Executive Directors: Mr. Ko Chun Fung, Henry (Chief Executive Officer) Mr. Chrysafidis, Evangelos

Non-executive Directors: Mr. Chan Sek Keung, Ringo (Chairman) Mr. Wang, John Peter Ben

Independent Non-executive Directors: Mr. Tsoi, David Mr. Pang Hing Chung, Alfred Mr. So Lie Mo, Raymond

Registered office: 4th Floor, Scotia Centre P.O. Box 2804 George Town Grand Cayman Cayman Islands

Head office and principal place of business in Hong Kong: Units 3101-2A, 31st Floor The Centrium 60 Wyndham Street Central, Hong Kong

26 September 2012

To the Shareholders

Dear Sir or Madam,

(I) INTRODUCTION

Reference is made to the Announcement in relation to, among other thing, the GEM LR Transactions and the Transactions.

LETTER FROM THE BOARD

On 26 June 2012, the Company, Rising Move and Intralot entered into the Intralot Agreement in relation to the disposal of the GA Sale Shares and the PS Sale Shares by Rising Move, for a consideration of HK$277,175,310, and the repurchase of the Intralot 2013 Convertible Bonds by the Company for a consideration of HK$277,175,310. The consideration payable by Intralot for the purchase of the GA Sale Shares and the PS Sale Shares and the consideration payable by the Company for the repurchase of the Intralot 2013 Convertible Bonds shall be set off against each other at Intralot Disposal Completion.

On 26 June 2012, the Company and GCH entered into the GCH Agreement in relation to the disposal of the OR Sale Shares by the Company for a consideration of HK$175,188,566 and the repurchase of the GCH 2012 Convertible Bonds by the Company for a consideration of HK$175,188,566. The consideration payable by GCH for the purchase of the OR Sale Shares and the consideration payable by the Company for the repurchase of the GCH 2012 Convertible Bonds shall be set off against each other at GCH Disposal Completion.

To secure the supply of the Approved LVM and the business of Beijing Telenet and its role under the CSLA Supply Chain after GCH Disposal Completion, on 13 August 2012, Beijing Telenet has entered into an unconditional exclusivity undertaking with Wu Sheng and a conditional exclusivity undertaking with Intradak respectively.

The Company proposes to raise not more than approximately HK$133.8 million, before expenses, by issuing not more than 1,716,014,799 Offer Shares (assuming all Shareholders take up their assured entitlements under the Open Offer and full exercise of the subscription rights attaching to the Share Options (excluding the Excluded Options) on or before the Latest Lodging Time) by way of the Open Offer at a price of HK$0.078 per Offer Share on the basis of three Offer Shares for every existing Share held by the Qualifying Shareholders on the Record Date. The Open Offer will be available only to the Qualifying Shareholders.

The authorised share capital of the Company is HK$20,000,000 comprising 2,000,000,000 Shares, of which 502,966,933 Shares are in issue as at the Latest Practicable Date. The authorised unissued 1,497,033,067 Shares are insufficient for the issuance of the Offer Shares in full. The Board proposes to increase the authorised share capital of the Company from HK$20,000,000 to HK$55,000,000 by the creation of additional 3,500,000,000 unissued Shares which will rank pari passu in all respects with the existing issued Shares. The Proposed Increase in Authorised Capital is conditional upon the passing of an ordinary resolution by the Shareholders at the EGM.

The purpose of this circular is to provide the Shareholders with, among other things, the following:–

(i) further information on the GEM LR Transactions and the Transactions;
(ii) the accountants’ reports of the Precious Success, Gain Advance and Oasis Rich;
(iii) the accountants’ reports of the Group;
(iv) the unaudited pro forma financial information of the Remaining Group;

LETTER FROM THE BOARD

(v) the recommendations of the GEM LR Independent Board Committee and the Independent Board Committee in respect of the terms of the GEM LR Transactions and the Transactions respectively and as to voting;
(vi) the advice of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of Transactions and the GEM LR Independent Board Committee and the GEM LR Transactions Independent Shareholders in relation to the terms of the GEM LR Transactions and as to the voting;
(vii) the notice of EGM; and
(viii) other information as required under the GEM Listing Rules, the Takeovers Code and the Repurchase Code.
(II) VERY SUBSTANTIAL DISPOSALS, THE CB REPURCHASES AND CONNECTED TRANSACTIONS

1. THE INTRALOT AGREEMENT

Date : 26 June 2012

Parties : Intralot;

Rising Move; and

the Company

Intralot is an investment holding company and a wholly-owned subsidiary of Intralot S.A.. As at the Latest Practicable Date, Intralot is interested in 52,973,779 Shares (representing approximately 10.53% of the issued share capital of the Company). Accordingly, Intralot is a substantial shareholder of the Company and hence a connected person of the Company. Intralot is also the holder of the Intralot 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds.

Rising Move is an investment holding company and a direct wholly-owned subsidiary of the Company and is the beneficial owner of 100% issued share capital of Gain Advance and Precious Success as at the Latest Practicable Date.

Subject matters of the Intralot Agreement

(i) the GA Sale Shares, representing 100% of the entire issued share capital of Gain Advance beneficially owned by Rising Move;
(ii) the PS Sale Shares, representing 49% of the entire issued share capital of Precious Success beneficially owned by Rising Move; and
(iii) the Intralot 2013 Convertible Bonds, being the 0.1% convertible bonds due on 9 December 2013 in the principal amount of HK$277,175,310 with a conversion price of HK$0.991 per Conversion Share, which entitle Intralot to subscribe for 279,692,542 Shares upon the exercise of the conversion rights attached thereto in full.

LETTER FROM THE BOARD

Pursuant to the Intralot Agreement, (i) the Company has conditionally agreed to procure Rising Move to dispose of and Intralot has conditionally agreed to acquire (or to procure one of its whollyowned subsidiaries to acquire) the GA Sale Shares and the PS Sale Shares; and (ii) the Company has conditionally agreed to repurchase and Intralot has conditionally agreed to dispose of the Intralot 2013 Convertible Bonds.

Consideration payable under the Intralot Agreement

The consideration payable by Intralot to Rising Move for the Intralot Disposal is HK$277,175,310 and the consideration payable by the Company to Intralot for the repurchase of the Intralot 2013 Convertible Bonds is HK$277,175,310. Pursuant to the Intralot Agreement, the consideration payable by Intralot for the purchase of the GA Sale Shares and the PS Sale Shares and the consideration payable by the Company for the repurchase of the Intralot 2013 Convertible Bonds shall be set off against each other at Intralot Disposal Completion.

The considerations for both the Intralot Disposal and the repurchase of Intralot 2013 Convertible Bonds were determined after arm’s length negotiations between Intralot and the Company with reference to primarily the principal amount of the Intralot 2013 Convertible Bonds and, among other things, the net asset value of Gain Advance attributable to the GA Sale Shares, the net asset value of Precious Success attributable to the PS Sale Shares and the historical operating results of Gain Advance and Precious Success.

Conditions precedent of the Intralot Agreement

Pursuant to the Intralot Agreement, the conditions precedent of the Intralot Disposal are as follows:

(a) the passing by the Independent Shareholders at the EGM, among other things, the following resolutions by way of poll:
(i) an ordinary resolution to approve the implementation of the transactions envisaged by the Intralot Agreement (including but not limited to the sale and purchase of the GA Sale Shares and the PS Sale Shares); and
(ii) approval of the off-market repurchase of the Intralot 2013 Convertible Bonds by at least three-fourths of the votes cast on a poll by Independent Shareholders in attendance in person or by proxy at the EGM;
(b) if applicable, the passing by the shareholders of the holding company of Intralot at its general meeting to be convened and held to approve the Intralot Agreement and the transactions contemplated thereunder (including but not limited to the sale and purchase of the GA Sale Shares, the PS Sale Shares and the repurchase of the Intralot 2013 Convertible Bonds);
(c) all necessary consents, approvals, authorisations and release required to be obtained on the part of the Company in respect of the Intralot Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect;

LETTER FROM THE BOARD

(d) all necessary consents, approvals, authorisations and release required to be obtained on the part of Intralot in respect of the Intralot Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect;
(e) the approval by the Executive for the repurchase of the Intralot 2013 Convertible Bonds pursuant to Rule 2 of the Repurchase Code and remaining in full force and effect and any condition(s) to which such approval is/are subject to having been satisfied in all respects;
(f) the GCH Agreement having becoming unconditional (save for the condition for the Intralot Agreement having becoming unconditional);
(g) the Underwriting Agreement having becoming unconditional (save for the condition for Intralot Disposal Completion and GCH Disposal Completion);
(h) the warranties given by the Company in the Intralot Agreement remaining true and accurate in all respects; and
(i) the warranties given by Intralot in the Intralot Agreement remaining true and accurate in all respects.

None of the conditions precedent is capable of being waived by the parties to the Intralot Agreement, save that Intralot may waive condition (h) and the Company may waive condition (i) above. If the conditions precedent are not satisfied by 4:00 p.m. on 31 December 2012, or such other date as Intralot and the Company may agree, the Intralot Agreement shall cease to have effect and determine.

As at the Latest Practicable Date, none of the conditions precedent above have been satisfied.

Completion

Completion of the Intralot Agreement shall take place on the third Business Day after the conditions precedent having been fulfilled or at such other date as the parties to the Intralot Agreement may mutually agree.

Upon Intralot Disposal Completion, Gain Advance will cease to be a subsidiary of the Company and Precious Success will become an indirect 51% subsidiary of the Company. The Company has no intention to dispose of the remaining equity interest in Precious Success.

Information on Gain Advance

Gain Advance is an indirect wholly-owned subsidiary of the Company. Through its 100% equity interest in KTeMS Co., Ltd., a company incorporated in South Korea, Gain Advance indirectly holds a 14% equity interest in Nanum Lotto Inc., a company incorporated in South Korea, which is principally engaged in the technology development, operation and investment in lottery-related businesses in South Korea and the Asian region. Nanum Lotto Inc. operates the national online lottery game in South Korea

LETTER FROM THE BOARD

under an exclusive lottery licence granted by the Lottery Commission of the Ministry of Strategy and Finance of South Korea. Intralot S.A. also holds 15% equity interest in Nanum Lotto Inc..

As at 31 May 2012, Gain Advance had an audited consolidated net asset value of approximately HK$137.3 million. For the two years ended 31 December 2010 and 2011, the audited consolidated net losses (both before and after taxation) of Gain Advance were approximately HK$98,000 and HK$124,000 respectively.

Gain Advance is an investment holding company and its principal asset, through its 100% equity interest in KTeMS Co., Ltd., is 14% indirect equity interest in Nanum Lotto Inc..

On 28 February 2008, Gain Advance entered into an agreement for the acquisition of 100% equity interest in KTeMS Co., Ltd. at the consideration of US$12 million (equivalent to approximately HK$93.6 million). Details of the acquisition of KTeMS Co., Ltd. are disclosed in the announcement of the Company dated 6 March 2008.

Information on Precious Success

Precious Success is an investment holding company and an indirect wholly-owned subsidiary of the Company. The subsidiaries of Precious Success are principally engaged in the provision of management services for distribution of lottery products in the PRC. Precious Success is also interested in the entire equity interest of PAL, which, through its subsidiaries, is engaged in the lottery business in the PRC.

As at 31 May 2012, Precious Success had an audited consolidated net asset value of approximately HK$9.3 million. For the two years ended 31 December 2010 and 2011, the audited consolidated net losses (both before and after taxation) of Precious Success were approximately HK$24.9 million and HK$29.2 million respectively.

Information on the Intralot 2013 Convertible Bonds

On 9 December 2008, the Company issued the Intralot 2013 Convertible Bonds with principal amount of HK$277,175,310 as part of the consideration for the acquisition of intangible assets comprising (i) (a) the exclusive license right to use and sublicense the most current version of certain computer software programs and the documentations for projects related to the CSLA for an initial period of 3-years commencing from the completion of the Asset Transfer Agreement, which was lapsed on 9 December 2011; and thereafter (b) the perpetual non-exclusive license right to use and sublicence the most current version of certain computer software programs and the documentations for projects related to the CSLA; and (ii) the perpetual non-exclusive licence right to use and sublicence the most current version of certain computer software programs and the documentations for projects related to the CWL. The software is a system platform to support and upgrade the lottery products and gaming operations. The Intralot 2013 Convertible Bonds are denominated in HK$ and entitle the holders to convert them into Share within 5 years from the date of issue of the Intralot 2013 Convertible Bonds at a conversion price of HK$0.991 per Conversion Share subject to anti-dilutive adjustments in accordance with the agreement and are transferrable. The Intralot 2013 Convertible Bonds bore interest at 0.1% per annum payable semi-annually in arrears. If the Intralot 2013 Convertible Bonds have not been converted, they will be redeemed on maturity date of 9 December 2013 at par plus accrued interest. Up to the Latest Practicable Date, none of the Intralot 2013 Convertible Bonds has been converted into Shares.

LETTER FROM THE BOARD

As at 31 December 2011, the audited book value of the Intralot 2013 Convertible Bonds was approximately HK$173.1 million.

The Intralot Supplemental Agreements

Each of Intralot and the Company agrees that upon Intralot Disposal Completion, certain rights and obligations under the Asset Transfer Agreement and the Licence Agreement shall cease to have effect. The parties therefore agree to amend certain provision in the Asset Transfer Agreement and the Licence Agreement to reflect the parties’ intention, and Intralot and the Company shall enter into the Second Supplemental Agreement and the Supplemental SLA.

Upon Intralot Disposal Completion, the Company, Intralot and certain subsidiaries of the Company will enter into the Intralot Supplemental Agreements, comprising (i) the Second Supplemental Agreement; (ii) the Supplemental SLA; (iii) the Deed of Assignment and Novation; (iv) the Deed of Assignment and Novation of Supply Agreement; and (v) the Precious Success Shareholders Agreement. In general, these agreements release the obligations of the Company created when issuing the Intralot 2013 Convertible Bonds and shift the cooperation, rights and obligations between the Company and Intralot from the Company level to mainly PAL level. The Second Supplemental Agreement will release the obligations of the Company, which have allowed Intralot to participate in the management of the Company and have given the performance related incentive to Intralot. The Supplemental SLA will release the noncompetition obligations of the Company. The Deed of Assignment and Novation and the Deed of Assignment and Novation of Supply Agreement will transfer all rights and obligations under the Licence Agreement and the Supply Agreement respectively from the Company to PAL so that Intralot and the Company will continue their co-operation in the level of PAL. The Precious Success Shareholders Agreement record the respective rights and obligations in the new venture. Further details of these agreements are set out in this section below.

The Second Supplemental Agreement

Upon Intralot Disposal Completion, Intralot and the Company shall enter into the Second Supplemental Agreement, pursuant to which the Company and Intralot agree to amend the Asset Transfer Agreement so that Intralot shall cease to have the right to:

(i) nominate a Director, who shall be included in the nomination committee of the Company, and the chief operating officer of the Company under the Asset Transfer Agreement;
(ii) jointly with Melco LV nominate the chief financial officer of the Company under the Asset Transfer Agreement; and
(iii) be entitled to a success payment of HK$75,000,000 in the form of convertible bonds from the Company when two service agreements in relation to projects associated with CSLA and/ or CWL in the PRC are secured.

The Supplemental SLA

Upon Intralot Disposal Completion, Intralot and the Company shall enter into the Supplement SLA, pursuant to which the Company shall no longer be restricted from marketing, selling, licensing or otherwise granting any licence to CSLA or CWL to use any software which is similar or competitive to, or likely to be competitive to the Licence.

LETTER FROM THE BOARD

The Deed of Assignment and Novation

Upon Intralot Disposal Completion, Intralot, the Company and PAL shall enter into the Deed of Assignment and Novation, pursuant to which (i) the Company shall assign all its rights, benefits, obligations and liabilities under the Licence Agreement to PAL; (ii) PAL shall act in place and stead of the Company to fulfill and discharge all the conditions, terms and covenants of the Licence Agreement; and (iii) Intralot, as the licensor, consents to release and discharge the Company from all obligations and liabilities in respect of the Licence Agreement and PAL to assume all obligations and liabilities of the Company and to observe and perform the terms, conditions and covenants of the Licence Agreement.

The Deed of Assignment and Novation of Supply Agreement

Upon Intralot Disposal Completion, Intralot, the Company and PAL shall enter into the Deed of Assignment and Novation of Supply Agreement pursuant to which (i) the Company shall assign all its rights and benefits under the Supply Agreement to PAL; (ii) PAL shall act in place and stead of the Company to observe and perform all the conditions, terms and covenants of the Supply Agreement; and (iii) Intralot, as the supplier, consents to release and discharge the Company from all obligations and liabilities in respect of the Supply Agreement and PAL to observe and perform the terms, conditions and covenants of the Supply Agreement.

The Precious Success Shareholders Agreement

At Intralot Disposal Completion, Intralot will enter into a shareholders’ agreement with Rising Move and Precious Success, to record the respective rights and obligations as shareholders of Precious Success with respect to finance, management and operations of the Precious Success and its subsidiaries.

Under the Precious Success Shareholders Agreement, among other things, Rising Move shall be entitled to appoint three directors and Intralot shall be entitled to appoint two directors to the board of Precious Success. Rising Move shall be entitled to appoint the chief executive officer and Intralot shall be entitled to appoint the chief operating officer. Rising Move and Intralot shall jointly appoint the chief financial officer and business development director of Precious Success. Any transfer of shares or interest in shares by a shareholder thereafter will be subject to the first right of refusal of the other shareholder.

Upon the entering into of the Intralot second Supplemental Agreements, Precious Success will continue to be a subsidiary of the Company and it is anticipated that there will be no significant impact on Precious Success’ operations since Precious Success has operated the business and carried out transactions under the Licence Agreement and the Supply Agreement prior to the Intralot Disposal.

2. THE GCH AGREEMENT

Date : 26 June 2012 Parties : GCH; and

the Company

LETTER FROM THE BOARD

GCH is an investment holding company. As at the Latest Practicable Date, GCH is interested in approximately 32.86% of the entire issued share capital of Oasis Rich, which is an indirect 60% owned subsidiary of the Company, and is interested in 20,787,042 Shares (representing approximately 4.13% of the issued share capital of the Company). Accordingly, GCH is a connected person of the Company under the GEM Listing Rules. GCH is also the holder of the GCH 2012 Convertible Bonds.

GCH is wholly owned by Universal Rich. Universal Rich acquired the entire equity interest in GCH from Firich International on 15 December 2011.

Subject matters of the GCH Agreement

(i) the OR Sale Shares, being 420,000 shares in Oasis Rich, representing 60% of the entire issued share capital of Oasis Rich beneficially owned by the Company; and
(ii) the GCH 2012 Convertible Bonds, being the 0.1% convertible bonds due on 13 December 2012 in the principal amount of HK$175,188,566 with a conversion price of HK$0.85 per Conversion Share, which are legally and beneficially owned by GCH and entitle the holder thereof to subscribe for 206,104,195 Shares upon exercise of the conversion rights attached thereto in full.

Pursuant to the GCH Agreement, (i) the Company has conditionally agreed to dispose of and GCH has conditionally agreed to acquire (or to procure one of its wholly-owned subsidiaries to acquire) the OR Sale Shares; and (ii) the Company has conditionally agreed to repurchase and GCH has conditionally agreed to dispose of the GCH 2012 Convertible Bonds.

Consideration payable under the GCH Agreement

The consideration payable by GCH to the Company for the GCH Disposal is HK$175,188,566 and the consideration payable by the Company to GCH for the repurchase of the GCH 2012 Convertible Bonds is HK$175,188,566. Pursuant to the GCH Agreement, the consideration payable by GCH for the purchase of the OR Sale Shares and the consideration payable by the Company for the repurchase of the GCH 2012 Convertible Bonds shall be set off against each other at GCH Disposal Completion.

The considerations for both the GCH Disposal and the repurchase of the GCH 2012 Convertible Bonds were determined after arm’s length negotiations between GCH and the Company with reference to primarily, the principal amount of the GCH 2012 Convertible Bonds and, among other things, the net asset value of Oasis Rich attributable to the OR Sale Shares and the historical operating results of Oasis Rich.

LETTER FROM THE BOARD

Conditions precedent of the GCH Agreement

Pursuant to the GCH Agreement, the conditions precedent of the GCH Disposal are as follows:

(a) the passing by the Independent Shareholders at the EGM, among other things, the following resolutions by way of poll:
(i) an ordinary resolution to approve the implementation of the transactions envisaged by the GCH Agreement (including but not limited to the sale and purchase of the OR Sale Shares); and
(ii) approval of the off-market repurchase of the GCH 2012 Convertible Bonds by at least three-fourths of the votes cast on a poll by Independent Shareholders in attendance in person or by proxy at the EGM;
(b) all necessary consents, approvals, authorisations and releases required to be obtained on the part of the Company in respect of the GCH Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect;
(c) all necessary consents, approvals, authorisations and releases required to be obtained on the part of GCH in respect of the GCH Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect;
(d) the approval by the Executive for the repurchase of the GCH 2012 Convertible Bonds, pursuant to Rule 2 of the Repurchase Code and remaining in full force and effect and any condition(s) to which such approval is/are subject to having been satisfied in all respects;
(e) the Intralot Agreement having becoming unconditional (save for the condition for the GCH Agreement having becoming unconditional);
(f) the Underwriting Agreement having becoming unconditional (save for the condition for Intralot Disposal Completion and GCH Disposal completion);
(g) the warranties given by the Company in the GCH Agreement remaining true and accurate in all respects; and
(h) the warranties given by GCH in the GCH Agreement remaining true and accurate in all respects.

None of the conditions precedent is capable of being waived by the parties to the GCH Agreement, save that GCH may waive condition (g) and the Company may waive condition (h) above. If the conditions precedent are not satisfied by 4:00 p.m. on 31 December 2012, or such other date as GCH and the Company may agree, the GCH Agreement shall cease and determine.

As at the Latest Practicable Date, none of the conditions precedent above have been satisfied.

LETTER FROM THE BOARD

Completion

The GCH Disposal Completion shall take place on the third Business Day after the conditions precedent having been fulfilled or at such other date as the parties to the GCH Agreement may mutually agree.

Upon GCH Disposal Completion, Oasis Rich will cease to be a subsidiary of the Company.

Information on Oasis Rich

The Company is indirectly interested in 60% of the issued share capital of Oasis Rich as at the Latest Practicable Date. The OR Sale Shares represent the entire interest of the Company in Oasis Rich.

Oasis Rich is an investment holding company which, through its subsidiary, Wu Sheng, is principally engaged in the manufacturing of lottery terminals for CSLA.

On 8 October 2007, the Group entered into an agreement with Power Way to purchase 60% of the equity interest of Oasis Rich and 80% of the equity interest of PAL at the aggregate consideration of approximately HK$668 million. Details of the aforesaid acquisitions are disclosed in the announcement of the Company dated 8 October 2007.

As at 31 May 2012, Oasis Rich had an audited consolidated net asset value of approximately HK$21.3 million. For the two years ended 31 December 2010 and 2011, the audited consolidated net losses (both before and after taxation) of Oasis Rich were approximately HK$0.7 million and HK$11.6 million respectively.

Information on the GCH 2012 Convertible Bonds

On 13 December 2007, the Company issued the 2012 convertible Bonds with principal amount of HK$606,800,000 as part of the consideration for the acquisition of subsidiaries. As to HK$175,188,566 of the principal amount is owned by GCH, being the GCH 2012 Convertible Bonds. The GCH 2012 Convertible Bonds are denominated in HK$ and entitle the holders to convert them into Shares within 5 years from the date of issue of the GCH 2012 Convertible Bonds at a conversion price of HK$0.85 per Conversion Share subject to anti-dilutive adjustments in accordance with the agreement. The GCH 2012 Convertible Bonds bore interest at 0.1% per annum payable semi-annually in arrears. If the GCH 2012 Convertible Bonds have not been converted, they will be redeemed on maturity date of 13 December 2012 at par plus accrued interest.

As at 31 December 2011, the audited book value of the GCH 2012 Convertible Bonds was approximately HK$160.2 million. Up to the Latest Practicable Date, none of the GCH 2012 Convertible Bonds has been converted into Shares.

LETTER FROM THE BOARD

3. CORPORATE STRUCTURE

The simplified corporate structure of the Group and parties involved in connection with the Disposal Agreements as at the Latest Practicable Date and immediately upon completion of the Disposal Agreements (but without taking into account the effects of the Open Offer) are as follows:

As at the Latest Practicable Date

==> picture [435 x 542] intentionally omitted <==

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

Mr. Chang [(1)]
100%
Universal Rich Melco Intralot S.A.
100% 100% 100%
GCH [(2)(3)(4)(7)] Melco LV [ (2)(3)(4)] Firich [ (3)(4)(6)] Intralot [ (3)(4)(5)(6)(8)]
4.13% 11.67% 2.58% 10.53%
the Company
100%
Rising Move
32.86% 60% 52.5% 100% 100%
Oasis Rich Beijing Telenet Precious Success Gain Advance
100% 100% 100%
Wu Sheng PAL KTeMS Co., Ltd.
100% 14% 15%
PAL Beijing Nanum Lotto Inc.
100%
Beijing Huaying
65%
Shandong Kai
Chuan Ji Yuan
----- End of picture text -----*

indirect shareholding controlled by the Company

LETTER FROM THE BOARD

Upon completion of the Disposal Agreements (but without taking into account the effects of the Open Offer)

==> picture [455 x 563] intentionally omitted <==

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

Mr. Chang [(1)]
100%
Universal Rich Melco
Intralot S.A.
100% 100% 100%
GCH [(2)(3)(4)(7)] Melco LV [(2)(3)(4)] Firich [(3)(4)(6)] Intralot [(3)(4)(5)(6)(8)]
4.13% 11.67% 2.58% 10.53%
the Company
100%
92.86%
Oasis Rich Rising Move
100% 52.5% 51% 49% 100%
Wu Sheng Beijing Telenet Precious Success Gain Advance
100% 100%
PAL KTeMS Co., Ltd.
100% 14% 15%
PAL Beijing Nanum Lotto Inc.
100%
Beijing Huaying
65%
Shandong Kai
Chuan Ji Yuan
----- End of picture text -----*

indirect shareholding controlled by the Company

LETTER FROM THE BOARD

Notes:

(1) Mr. Chang, a former employee of Firich, is indirectly interested in the entire equity interest in GCH, through his interest in Universal Rich. As at the Latest Practicable Date, GCH is interested in (i) 32.86% equity interest in Oasis Rich; (ii) 4.13% of the issued share capital of the Company; and (iii) the GCH 2012 Convertible Bonds in the principal amount of HK$175,188,566, which entitle GCH to subscribe for 206,104,195 Conversion Shares upon the exercise of the conversion rights attached thereto in full.
(2) Each of Melco LV, GCH and LottVision Investments is interested in approximately 58.70%, 28.87% and 12.43% equity interest in Power Way respectively.
(3) Melco LV, GCH, Intralot and Firich are parties to certain agreements and undertakings in connection with the Asset Transfer Agreement, which was completed on 9 December 2008, details of which are set out in the announcement of the Company dated 28 September 2008. In view of each of Melco LV, GCH, Intralot and Firich entering into of the aforesaid agreements and undertakings in respect of governing their respective shareholdings in the Company, each of them is party acting in concert with each other. Under the Transactions, Melco LV and Power Way are applicants for the Whitewash Waiver, and GCH, Intralot and Firich are part of the concert party group of Melco LV and Power Way.
(4) Melco LV, GCH, Firich and Intralot are the holders of the 2012 Convertible Bonds in the principal amounts of HK$399,505,732, HK$175,188,566, HK$17,677,251 and HK$14,428,451 respectively.
(5) Intralot is the sole holder of the Intralot 2013 Convertible Bonds in the principal amount of HK$277,175,310.
(6) Firich and Intralot have certain ongoing business arrangements with each other.
(7) Pursuant to the GCH Agreement, the Company shall repurchase and GCH shall dispose of the GCH 2012 Convertible Bonds in the principal amount of HK$175,188,566.
(8) Pursuant to the Intralot Agreement, the Company shall repurchase and Intralot shall dispose of the Intralot 2013 Convertible Bonds in the principal amount of HK$277,175,310.

4. REASONS FOR ENTERING INTO THE DISPOSAL AGREEMENTS

The Company is primarily an investment holding company and its subsidiaries are principally engaged in lottery business in the PRC.

The Company has been pursuing lottery business since 2007 after a series of acquisitions of various lottery related businesses and assets. However, the performance of the Group has been unsatisfactorily reporting significant net losses in the past few years and in light of the concern over the build-up of significant total liabilities of the Group, which is mainly attributable to the outstanding 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds in the aggregate principal amount of HK$883,975,310 as at the Latest Practicable Date, the Board intends to carry out a reorganisation of its lottery business and the Disposal Agreements form part of such group reorganisation, which also includes (i) the amendment of Beijing Telenet Articles as disclosed in the announcement of the Company dated 27 July 2011 and set out under the paragraph headed “Beijing Telenet” below; (ii) the acquisition of the remaining 20% equity interest of PAL as disclosed in the announcement of the Company dated 19 September 2011 and set out under the paragraph headed “PAL” below; and (iii) the Open Offer and the Underwriting Agreement (including the Set Off). Details of the aforesaid group reorganisation activities have been set out in the announcements of the Company dated 27 July 2011 and 19 September 2011 and in the Announcement, respectively.

LETTER FROM THE BOARD

The Intralot Disposal and the GCH Disposal are expected to result in substantial debt reduction of convertible bonds in the principal amount of HK$452,363,876 and gains of approximately HK$30.3 million and HK$136.7 million respectively for the Group. The estimated gain of the Intralot Disposal has been calculated with reference to the excess of the carrying value of the Intralot 2013 Convertible Bonds (attributable to the disposal of the GA Sale Shares based on the allocation in proportion to the amount of net assets of Gain Advance and its subsidiary and the Precious Success and its subsidiaries as at 31 May 2012) of approximately HK$191.7 million over the fair value of net asset values of approximately HK$142.7 million attributable to the GA Sale Shares and PS Sale Shares as at 31 May 2012 and less the PRC capital gain taxes of approximately HK$18.7 million. The estimated gain of the GCH Disposal has been calculated with reference to the excess of the carrying value of the GCH 2012 Convertible Bonds of approximately HK$166.6 million over the net asset value of approximately HK$12.8 million attributable to the OR Sale Shares as at 31 May 2012 and less the PRC capital gain taxes of approximately HK$17.1 million. The actual gains arising from the Intralot Disposal and the GCH Disposal however will be calculated based on the audited financial information of Gain Advance and Precious Success as at Intralot Disposal Completion and that of Oasis Rich as at GCH Disposal Completion respectively, which may be different from the estimated gains disclosed above.

The Disposal Agreements

As at the Latest Practicable Date, the Company has outstanding convertible bonds in the principal amount of HK$883,975,310 (comprising the 2012 Convertible Bonds in the principal amount of HK$606,800,000 and the Intralot 2013 Convertible Bonds in the principal amount of HK$277,175,310). The Company will not receive any proceeds in cash from the Intralot Disposal and the GCH Disposal but the Disposal Agreements will facilitate the repurchases and cancellations of the entire Intralot 2013 Convertible Bonds and part of the 2012 Convertible Bonds in the principal amount of HK$175,188,566, which will reduce the liabilities of the Group significantly and settle the outstanding principal amounts of the Intralot 2013 Convertible Bonds and the GCH 2012 Convertible Bonds.

a) The Intralot Agreement

Through Gain Advance, the Company is indirectly interested in 14% equity interest in Nanum Lotto Inc. which is principally engaged in the technology development, operation and investment in lottery-related businesses in South Korea and other Asian region. As a minority shareholder, the Company has limited influence over the operations of Nanum Lotto Inc.. The Board regards the disposal of Gain Advance as an opportunity to focus on lottery business in the PRC.

Intralot S.A., the holding company of Intralot, is a leading supplier of integrated gaming and transaction processing systems, innovative game content and sports betting management. The Board believes that the disposal of 49% equity interest in Precious Success to Intralot will bring Intralot’s expertise in lottery business to the Group.

b) The GCH Agreement

Oasis Rich is engaged in the manufacturing of lottery terminals for CSLA related projects in the PRC. As disclosed in the annual report of the Company for the year ended 31 December 2011, new equipment procurement cycle of the CSLA has been subject to prolonged delay. The management is of the view that the demand and timing of the equipment procurement cycle from the customers are uncertain and further investments in the manufacturing operations may require significant additional working capital. Therefore, the Board believes that it will be prudent to divest the manufacturing operations and reduce the level of liabilities of the Company.

LETTER FROM THE BOARD

Beijing Telenet currently sources its lottery terminals from Wu Sheng, a wholly-owned subsidiary of Oasis Rich, for distribution. For the two years ended 31 December 2010 and 2011, lottery terminals and related equipment supplied by Wu Sheng to Beijing Telenet amounted to approximately HK$67.0 million and HK$77.4 million respectively, equivalent to approximately 78.7% and 100% of the cost of sales of Beijing Telenet for the corresponding years. Upon completion of the GCH Disposal, Wu Sheng will remain the major supplier of Beijing Telenet.

The Remaining Group

Upon completion of the Disposal Agreements, the Remaining Group will consist of, among others, (i) 52.5% equity interest in Beijing Telenet; and (ii) 51% equity interest in Precious Success, which is interested in 100% equity interest in PAL, details of which are set out below:

a) Beijing Telenet

Beijing Telenet is principally engaged in the distribution of lottery terminals in the PRC and is one of the largest authorised terminal distributors approved by the CSLA. Its principal office is located in Beijing, the PRC and it also has supporting teams located in 12 provinces in the PRC. As at the date of Latest Practicable Date, Beijing Telenet has 42 employees, including 26 employees in the provision of technical support, 6 employees in sales and 10 employees in administrative and finance functions.

Set out below is the CSLA lottery supply chain in the PRC (from the perspective of the supply chain of lottery terminals where each of Wu Sheng, Beijing Telenet and Intradak takes part (the “ CSLA Supply Chain ”)).

==> picture [290 x 83] intentionally omitted <==

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

Beijing Telenet
Wu Sheng Intradak
Sourcing, distribution
Manufacturing of the Bidding for the CSLA
and maintenance of
Approved LVM projects
the Approved LVM
----- End of picture text -----

As set out in the diagram above, the members of the CSLA Supply Chain are amongst the system providers which provide the Approved LVM used by the CSLA to sell lottery tickets and run lottery games. Since the establishment of Beijing Telenet in 2006, Intradak has been the sole customer of Beijing Telenet and, vice versa, Beijing Telenet has been the sole supplier to Intradak. The business model of Beijing Telenet in the CSLA Supply Chain has been operated and remained unchanged since 2006 and is expected to remain so after the Transactions.

Beijing Telenet plays a critical role in the CSLA Supply Chain. Under a typical sales contract entered into between Intradak and Beijing Telenet, in addition to the supply of the Approved LVM, Beijing Telenet’s services would include, among other things, (i) providing free warranty service for a period of 3 years; (ii) providing timely replacement for faulty parts of the Approved LVM during the warranty period; and (iii) ensuring the average monthly faulty rate of the Approved LVM to be less than 1% of the total procurement volume during the warranty

LETTER FROM THE BOARD

period. Beijing Telenet charges a fixed price for sales and distribution of the Approved LVM which includes maintenance and on-site after-sales services support such as installation of terminals and on-site training for sales agents during the warranty period in a timely manner.

As at the Latest Practicable Date, both Beijing Telenet and Intradak are two of the only seven authorised distributors in the PRC which are permitted to bid for the CSLA projects. Albeit Beijing Telenet is able to bid for the CSLA projects, it is the intention of the Directors to focus on the principal business activities of the trading, distribution and maintenance of the Approved LVM instead of bidding for the CSLA projects mainly due to (i) the stable margins that Beijing Telenet can earn by providing trading, distribution and maintenance services; (ii) the advantage of bidding for the CSLA projects lies with Intradak owing to its expertise and experience in the lottery related business in the PRC; and (iii) the benefits brought about by overall business model of the CSLA Supply Chain.

Prior to the implementation of the amendments to the Beijing Telenet Articles, the then Beijing Telenet Articles require that all the Beijing Telenet board resolutions shall be passed by more than two-thirds majority votes or above. Upon the implementation of the amendments to the then Beijing Telenet Articles in late July 2011, certain Beijing Telenet board resolutions can be passed by simple majority votes. The Company, which had appointed four Beijing Telenet directors out of seven Beijing Telenet directors, would have the voting rights to govern those financial and operating policies of Beijing Telenet, which require simple majority votes of the Beijing Telenet Board upon the implementation of the amendments to the then Beijing Telenet Articles. Accordingly, pursuant to the relevant Hong Kong accounting standards, Beijing Telenet has been accounted for as an indirect non wholly-owned subsidiary of the Company and its financial information has been consolidated into the financial statements of the Company. Please refer to the announcement of the Company dated 27 July 2011 for further details. The amendments of the Beijing Telenet Articles have been completed and are independent of the Transactions.

Based on the published audited financial statements of Beijing Telenet for the two years ended 31 December 2010 and 2011, the revenue, net profit before and after taxation of Beijing Telenet amounted to approximately RMB80.3 million, RMB1.0 million and RMB0.8 million respectively (equivalent to approximately HK$98.0 million, HK$1.2 million and HK$1.0 million, respectively) for 2010 and amounted to approximately RMB84.7 million, approximately RMB1.5 million and approximately RMB1.1 million respectively (equivalent to approximately HK$103.3 million, approximately HK$1.8 million and approximately HK$1.3 million, respectively) for 2011.

The unaudited net asset value of Beijing Telenet was approximately RMB23.7 million (equivalent to approximately HK$28.9 million) as at 31 May 2012.

b) PAL

PAL, through its subsidiaries, is principally engaged in the lottery business in the PRC. Its principal subsidiary, PAL Beijing, is located in Beijing, the PRC. As at the Latest Practicable Date, the PAL Beijing Group has 29 employees, including 6 employees in the provision of technical support, 9 employees in sales and 14 employees in administrative and finance functions.

LETTER FROM THE BOARD

PAL Beijing, principally engaged in the provision of management services for distribution of lottery products, is a wholly-owned subsidiary of PAL and represents substantially all of the business operation of PAL. Apart from running 4 shops and 77 lottery vending terminals for the distribution of CSLA lottery products on behalf of Zhonghuicai, which engaged PAL Beijing to provide management services for its entire lottery business, the PAL Beijing Group’s other business lines which vary and focus on the distribution of CWL lottery products are set out below:

(i) Tianjin branch of Beijing Huaying is engaged in the sale of scratch cards in bulk and distributing the scratch cards to the sales agents in Tianjin;
(ii) Chongqing branch of Beijing Huaying is a system provider and owner of a highfrequency lottery game system in Chongqing and is also engaged in system and set-top boxes maintenance and upgrade; and
(iii) Shandong Kai Chuan Ji Yuan is engaged in the design and development of the telebetting system as well as the sale of the paperless lottery tickets through the telebetting system to its members in Shandong.

As disclosed by the Company in its announcement dated 19 September 2011, Precious Success is interested in the entire equity interest of PAL pursuant to the acquisition of the remaining 20% equity interest in PAL from LottVision Investments. Upon Intralot Disposal Completion, PAL will become an indirect non wholly-owned subsidiary of the Company.

Based on the audited consolidated financial statements of PAL for the two years ended 31 December 2010 and 2011 respectively, the revenue of PAL amounted to approximately HK$12.2 million and HK$25.7 million for 2010 and 2011 respectively. The audited consolidated net losses of PAL both before and after taxation for 2010 were approximately HK$24.9 million, respectively and for 2011 were approximately HK$29.1 million and HK$29.2 million, respectively. The unaudited net liabilities of PAL amounted to approximately HK$75.0 million as at 31 May 2012.

The acquisition of the remaining 20% equity interest in PAL has already been completed and is independent of the Transactions.

The Remaining Group will focus on its lottery business in the PRC including the distribution of lottery terminals in the PRC through Beijing Telenet and its other lottery businesses in the PRC through PAL. Pursuant to Hong Kong Accounting Standard 27 (Revised) “Consolidated and Separate Financial Statements”, both Precious Success, which is interested in the entire equity interest of PAL, and Beijing Telenet are accounted for as subsidiaries of the Company. The respective accounts, including the results and the assets and liabilities, of Precious Success and Beijing Telenet are consolidated with that of the Group.

Given (i) the scale of operations and size of revenue of Beijing Telenet; and (ii) the substantial reduction in the total liability of the Company immediately upon completion of the group reorganisation, the Directors consider that the Group will have sufficient operations upon completion of the Disposal Agreements to satisfy the requirements under 17.26 of the GEM Listing Rules.

LETTER FROM THE BOARD

As set out in this section above, the lottery terminal distribution business in the PRC has been contributing a small profit during the last two financial years and, while the lottery business in the PRC is currently recording losses, management of the Group is committed to the revival of this lottery business through the development of lottery products associated with the Licence. On the other hand, lottery terminal manufacturing operation has been making losses in the last two financial years and its prospect remains uncertain and further investments in the manufacturing operations may require significant additional working capital. In light of the above and taking into account the considerable debt burden and the increasing factory labour costs and overheads, the Company, through the currently contemplated group reorganisation, intends to realign the focus of the Group to lottery terminal distribution and its lottery businesses in the PRC, which require substantially less working capital, and divest the capital intensive manufacturing operations. Save for the Disposal Agreements, the Company has no intention to conduct any further disposal, downscaling or termination of its existing business as at the Latest Practicable Date.

Accordingly, the Directors (other than the non-executive Directors and the independent nonexecutive Directors whose views are set out in the letters from the GEM LR Independent Board Committee and the Independent Board Committee (as the case may be) in this circular) consider the terms of the Intralot Agreement and the GCH Agreement and the Intradak Exclusivity Undertaking, all of which form part of the aforesaid group reorganisation to reduce the overall liabilities of the Group, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

To avoid any unnecessary delay in the group reorganisation timetable and in order not to complicate the existing group reorganisation procedures, the Company undertakes to conduct a share consolidation as soon as practicable after completion of the Open Offer.

The outstanding principal amount of the 2012 Convertible Bond (after completion of the Transactions) will be approximately HK$431.6 million which will fall due on 13 December 2012. The Company has obtained assurances from its substantial shareholders of the Company (as defined under the SFO) that it is their intention to provide support and assistance as may be required to enable the Group to maintain capital and liquidity levels sufficient to meet its obligations. Furthermore, the holders of the Company’s convertible bonds and Power Way have agreed not to request cash redemption of those bonds on or before the maturity dates and not to request repayment of the Power Way Loan when they/it fall(s) due unless the Group has the necessary financial resources available for cash redemption and repayment to occur respectively (the “ Financial Support ”). Still, the Company would consider whether to raise equity, debt financing or a combination of both to satisfy its aforesaid payments obligations under the 2012 Convertible Bonds. In addition, the Company has negotiated and will continue to negotiate with the 2012 CB Holders for the purpose of seeking their consent to convert any remaining 2012 Convertible Bonds prior to/upon maturity, in accordance with the terms of the 2012 Convertible Bonds.

5. THE EXCLUSIVITY UNDERTAKINGS

To secure the supply of the Approved LVM and the business of Beijing Telenet and its role under the CSLA Supply Chain after the GCH Disposal Completion, on 13 August 2012, Beijing Telenet has entered into an unconditional exclusivity undertaking with Wu Sheng and a conditional exclusivity undertaking with Intradak respectively.

Details of the Wu Sheng Exclusivity Undertaking has been set out in the Announcement.

LETTER FROM THE BOARD

Pursuant to the Intradak Exclusivity Undertaking, Intradak granted an exclusive right to Beijing Telenet for supplying the Approved LVM mutually specified by Intradak and Beijing Telenet for a term of one year. During the term of the Intradak Exclusivity Undertaking, Intradak shall solely procure the Approved LVM from Beijing Telenet and shall not directly or indirectly, without the written consent of Beijing Telenet, procure the Approved LVM from any other third party enterprises, corporations or individuals other than Beijing Telenet. The Intradak Exclusivity Undertaking is conditional on the approval from the GEM LR Transactions Independent Shareholders at the EGM and such condition is not capable of waiver. For the avoidance of doubt, the Intradak Exclusivity Undertaking is not conditional on the Transactions and/or the Wu Sheng Exclusivity Undertaking or vice versa. In the event that the Intradak Exclusivity Undertaking becomes unconditional, it will take effect on the following Business Day irrespective of completion of the Transactions.

(III) PROPOSED OPEN OFFER ON THE BASIS OF THREE OFFER SHARES FOR EVERY EXISTING SHARE HELD ON THE RECORD DATE

1. THE OPEN OFFER

Details of the Open Offer are set out below:

Basis of Open Offer : three Offer Shares for every existing Share held by the Qualifying Shareholders on the Record Date Number of Shares in issue : 502,966,933 Shares Number of outstanding : 106,816,000 Share Options (including the Excluded Share Options Options) Number of Offer Shares : Not less than 1,508,900,799 Offer Shares and not more than 1,716,014,799 Offer Shares, proposed to be offered to the Qualifying Shareholders Number of Offer Shares : Up to 128,205,128 Underwritten Shares to be underwritten by the underwritten by Melco LV, provided that the total Underwriters subscription price of the Underwritten Shares to be taken by Melco LV shall not exceed the amount of HK$10 million;

up to 1,145,361,487 Underwritten Shares to be underwritten by Power Way; and

LETTER FROM THE BOARD

immediately upon completion of the Open Offer, the Underwritten Shares to be subscribed by Power Way together with the Shares held or to be held by Melco LV and other non public shareholders shall not be more than 75% of the total shareholdings of the Company as enlarged by the Offer Shares

Subscription Price for : HK$0.078 per Offer Share the Offer Shares Aggregate nominal value : Not less than approximately HK$15,089,008 and of the Offer Shares no more than approximately HK$17,160,148 Underwriters : Melco LV and Power Way

As the date the of the Announcement, 111,160,000 Share Options (including the Excluded Options) were outstanding. Since then, 4,344,000 Share Options were lapsed and as at the Latest Practicable Date, the remaining outstanding 106,816,000 Share Options entitle the holders to subscribe for 106,816,000 Shares. As at the Latest Practicable Date, the Underwriters and parties acting in concert with any of them are interested in 37,778,000 Excluded Options and the Company has obtained undertakings from the holders of the Excluded Options not to exercise nor transfer the Excluded Options on or before the completion date of the Open Offer. Assuming full exercise of the subscription rights attaching to the Share Options (excluding the Excluded Options) on or before the Record Date, a total of 69,038,000 new Shares will fall to be issued, which will result in the issue of additional 207,114,000 Offer Shares.

The expenses in connection with the Open Offer are estimated to be approximately HK$1.5 million and will be payable by the Company.

The undertakings

Each of the 2012 CB Holders and the holder of the Intralot 2013 Convertible Bonds has given an irrevocable undertaking in favour of the Company and the Underwriters not to exercise the conversion rights attached to the 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds held by it on or before the Record Date.

Each of the holders of the Excluded Options has given an irrevocable undertaking in favour of the Company and the Underwriters not to exercise nor transfer the Excluded Options granted to him/her on or before the completion date of the Open Offer.

Based on the above, the maximum number of Offer Shares that may be issued under the Open Offer will be 1,716,014,799 Offer Shares.

LETTER FROM THE BOARD

As at the Latest Practicable Date, save for the underwriting obligations of the Underwriters under the Underwriting Agreement, no Shareholders or the parties acting in concert with the Underwriters have indicated whether they will take up their assured entitlements under the Open Offer or not. As Melco LV is interested in 58,674,619 Shares as at the Latest Practicable Date, Melco LV is entitled to subscribe for 176,023,857 Offer Shares. The underwriting obligations of Melco LV to underwrite not more than 128,205,128 Offer Shares is independent of and does not include any of Melco LV’s entitlement to take up its entitled Offer Shares. Melco LV has not indicated whether it will take up its entitlement under the Open Offer.

As at the Latest Practicable Date, save for (i) 106,816,000 Share Options; (ii) the 2012 Convertible Bonds in the principal amount of HK$606,800,000 conferring rights entitling the holders of which to subscribe for 713,882,352 Conversion Shares; and (iii) the Intralot 2013 Convertible Bonds in the principal amount of HK$277,175,310 conferring rights entitling the holders of which to subscribe for 279,692,542 Conversion Shares, the Company has no other outstanding warrants, options or convertible securities.

Qualifying Shareholders

The Open Offer is only available to the Qualifying Shareholders. The Company will send (i) the Prospectus Documents to the Qualifying Shareholders; and (ii) the Prospectus with the Non-Qualifying Letter, for information only, to the Non-Qualifying Shareholders.

To qualify for the Open Offer, the Shareholder must be registered as a member of the Company on the Record Date and must not be a Non-Qualifying Shareholder.

In order to be registered as members of the Company on the Record Date, Shareholders must lodge any transfers of Shares (together with the relevant share certificates(s)) with the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, on or before Thursday, 18 October 2012. Holders of Share Options (save and except for the Excluded Options) who wish to participate in the Open Offer should exercise their Share Options in accordance with their respective terms no later than the Latest Lodging Time.

Closure of register of members

The Company’s register of members is expected to be closed from Friday, 19 October 2012 to Sunday, 21 October 2012 (both dates inclusive) for the purpose of, among other things, establishing assured entitlements to the Open Offer. No transfer of Shares will be registered during this period.

Terms of the Open Offer

Subscription Price

The Subscription Price is HK$0.078 per Offer Share, payable in full when a Qualifying Shareholder applies for the Offer Shares.

LETTER FROM THE BOARD

The Subscription Price represents:

(a) a discount of approximately 21.2% to the closing price of HK$0.099 per Share quoted on the Stock Exchange on the Last Trading Day;
(b) a discount of approximately 23.5% to the average of the closing prices of approximately HK0.102 per Share for the last five full trading days up to and including the Last Trading Day;
(c) a discount of approximately 28.4% to the average of the closing prices of approximately HK$0.109 per Share for the last ten full trading days up to and including the Last Trading Day;
(d) a discount of approximately 6.0% to the theoretical ex-entitlement price of approximately HK$0.083 per Share (assuming that all Shareholders take up their respective assured entitlements to the Offer Shares) based on the closing price of HK$0.099 per Share quoted on the Stock Exchange on the Last Trading Day;
(e) a discount of approximately 9.3% to the theoretical ex-entitlement price of approximately HK$0.086 (assuming that no Shareholders take up their respective assured entitlements to the Offer Shares and the Underwriters are called upon to subscribe for the Underwritten Shares subject to the terms and conditions under the Underwriting Agreement) based on the closing price of HK$0.099 per Share quoted on the Stock Exchange on the Last Trading Day; and
(f) a discount of approximately 40.9% to the closing price of HK$0.132 per Share quoted on the Stock Exchange on the Latest Practicable Date.

The Subscription Price was arrived at after arm’s length negotiation among the Company and the Underwriters with reference to, among other things, the then market environment, the prevailing market price of the Shares, the financial position of the Group and the funding requirements in repaying the Power Way Loan and exploring potential investment opportunities. The Directors (other than the nonexecutive Directors and the independent non-executive Directors whose views are set out in the letters from the Independent Board Committee and the GEM LR Independent Board Committee (as the case maybe) in this circular) consider the terms of the Open Offer and Subscription Price to be fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

Basis of assured entitlement

Three Offer Shares for every existing Share held by a Qualifying Shareholder on the Record Date will be offered to the Qualifying Shareholders.

Fractions of the Offer Shares

Given the basis of the Open Offer is three Offer Shares for every existing Share held by the Qualifying Shareholder on the Record Date, there will not be any fractional entitlements of Offer Shares.

LETTER FROM THE BOARD

No application for excess Offer Shares

The invitation to subscribe for Offer Shares to be made to the Qualifying Shareholders will not be transferable. The Company has also decided that the Qualifying Shareholders will not be entitled to subscribe for any Offer Share in excess of their respective assured entitlements.

The absence of the excess application arrangement may not be desirable from the point of view of those Qualifying Shareholders who wish to take up additional Offer Shares in excess of their assured entitlements. However, having considered (i) the structure of the Open Offer was arrived at after arm’s length negotiation among the Underwriters and the Company; (ii) the relatively thin discount of the theoretical ex-entitlement price to the then prevailing market prices of the Shares (details of which are set out under paragraph headed “Terms of the Open Offer”) provides no significant incentive for the Qualifying Shareholders to take up additional Offer Shares; (iii) those Qualifying Shareholders who choose to accept their respective assured entitlements under the Open Offer in full can maintain their respective existing shareholdings in the Company after the Open Offer; and (iv) the Open Offer already assures the Qualifying Shareholders who are optimistic about the future development of the Company to entitle to the Offer Shares in proportion to their shareholding, the Directors (excluding the non-executive Directors and the independent non-executive Directors whose views are set out in the letters from the Independent Board Committee and the GEM LR Independent Board Committee (as the case maybe) in this circular) consider that the absence of excess application arrangement is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The Offer Shares not taken up by the Qualifying Shareholders will be underwritten by the Underwriters as described in the section headed “Underwriting Arrangements” below.

Since no excess application procedure for the Offer Shares is available and Melco LV, being one of the Underwriters, is a substantial shareholder of the Company, the absence of an excess application procedure under the Open Offer must be specifically approved by the GEM LR Transactions Independent Shareholders at the EGM in compliance with Rule 10.42(2) of the GEM Listing Rules.

Status of the Offer Shares

Rights of the Non-Qualifying Shareholders

The Prospectus Documents will not be registered or filed under the applicable securities or equivalent legislation of any jurisdictions other than Hong Kong. Prior to the despatch of the Prospectus Documents, the Company will make enquiries as to whether the offer or issue of Offer Shares to the Overseas Shareholders may contravene the applicable securities legislation of the relevant overseas places or the requirements of the relevant regulatory bodies or stock exchanges pursuant to Rule 17.41(1) of the GEM Listing Rules. If after making such enquiry the Board is of the opinion that it will be necessary or expedient not to offer the Offer Shares to such Overseas Shareholders, the Open Offer will not be available to such Overseas Shareholders. Accordingly the Offer Shares will not be offered to the NonQualifying Shareholders and no application for the Offer Shares will be accepted from the Non-Qualifying Shareholders. The Company will send copies of the Prospectus to the Non-Qualifying Shareholders for their information only, but will not send the application forms to them.

LETTER FROM THE BOARD

The basis for excluding the Non-Qualifying Shareholders, if any, from the Open Offer will be set out in the Prospectus to be issued. So long as the Non-Qualifying Shareholders are the GEM LR Transactions Independent Shareholders or the Independent Shareholders (as the case maybe), they are entitled to cast their votes on the resolution(s) in relation to the Open Offer and the Whitewash Waiver in the EGM.

Further details on the entitlement of the Overseas Shareholders will be made in the Prospectus Documents.

Share Certificates for the Offer Shares

Subject to the fulfillment of the conditions of the Open Offer and the Underwriting Agreement, certificates for all Offer Shares are expected to be posted to successful applicants at their own risk on or before Wednesday, 14 November 2012.

Application for listing

The Company will apply to the GEM Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Offer Shares.

2. WARNING OF THE RISKS OF DEALING IN SHARES

Existing Shares are expected to be dealt in on an ex-entitlement basis from Wednesday, 17 October 2012. If the Underwriters terminate the Underwriting Agreement (see the paragraph headed “Termination of the Underwriting Agreement” below), or if any of the conditions of the Open Offer and the Underwriting Agreement (see the section headed “Conditions of the Open Offer and the Underwriting Agreement” below) is not fulfilled, the Open Offer will not proceed.

3. REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

Pursuant to the loan agreement dated 14 July 2008 (as amended by supplemental agreements dated 1 December 2009, 21 March 2011 and 24 February 2012) entered into between Power Way and the Company, Power Way had advanced a loan in the sum of HK$80.0 million to the Company and such loan bears interest at the rate of 5% per annum for the period up to 13 July 2010, and at the rate of 1% per annum for the period of 14 July 2010 to 14 July 2013, being its maturity date. Power Way provided the Power Way Loan to finance the Group’s acquisition, through Gain Advance, of the entire equity interest in KTeMS Co., Ltd. at the consideration of US$12 million (equivalent to approximately HK$93.6 million) in 2008. As at 31 May 2012, the Power Way Loan, which is the aggregate of the principal amount of such loan and the interest accrued thereon, amounted to approximately HK$89,338,196. The Directors consider that the settlement of the Power Way Loan under the Underwriting Agreement through the Set Off will enable the Group to repay substantial part of the liabilities of the Company under the Power Way Loan without cash outflow and will allow the Group to reduce its gearing level.

LETTER FROM THE BOARD

Notwithstanding the view of the Directors that the Group has the financial ability to meet the interest payments on the Power Way Loan as they fall due, the Directors are mindful of the significant deterioration in economic and credit conditions that have affected the world economies in recent months. Given the uncertain economic outlook in the near to medium term, the Group is well conscious of the risk that the Company may not be able to obtain the necessary funding, either through debt or equity financing or both, to re-finance the Power Way Loan as and when it falls due.

The Directors, having taken the prudent approach in evaluating the current financial position of the Group, consider the Open Offer will allow the Group to (i) strengthen its capital base; (ii) improve its gearing ratio; (iii) remove the uncertainty over the Company’s financial position to pay all of the outstanding remaining balance under the Power Way Loan; (iv) save the future interest expense in connection with the Power Way Loan; and (v) provide an equitable means for the Shareholders to participate in the future development of the Company. In addition, the Directors consider that the Open Offer will provide additional working capital and strengthen the Group’s financial position. As set out in the unaudited interim report of the Company for the six months ended 30 June 2012, the total net liabilities of the Group were approximately HK$668.8 million as at 30 June 2012.

The Directors and the senior management of the Company have also explored other financing methods through discussions with and enquiries to certain financial institutions and placing agents on the possibility of debt financing and equity issuances, including but not limited to share placement and rights issue. However, the Company is in a net liability position, debt financing would result in the Company being subject to additional interest burden and further increase its gearing ratio and jeopardize the financial structure of the Company. Share placement would only be available to certain placees which may cause dilution effect to the existing Shareholders, and the Directors and the senior management were unable to procure underwriting support from independent underwriters to underwrite a rights issue of a similar size at a reasonable cost to the Company. In view of the above, the Directors considered that it would be more beneficial to the Company to raise long-term equity capital through the Open Offer rather than the aforesaid alternate means of financing. The Underwriting Agreement, in particular, the underwriting obligations of the Underwriters and the number of Underwritten Shares, was determined after arm’s length discussion among the Company and the Underwriters. Therefore, the Directors (excluding the non-executive Directors and the independent non-executive Directors whose views are set out in the letters from the Independent Board Committee and the GEM LR Independent Board Committee (as the case maybe) in this circular) consider that the Underwriting Agreement is in the interests of the Company and Shareholders as a whole.

The gross proceeds from the Open Offer are estimated to be not less than approximately HK$58.4 million, of which HK$48.4 million is subject to the Set Off (i.e. Scenario 2 as defined in the paragraph headed “Effect on shareholding structures of the Company as a result of the Open Offer in this circular”) and not more than HK$133.8 million (i.e. Scenario 3 as defined in the paragraph headed “Effect on shareholding structures of the Company as a result of the Open Offer” in this circular). Under Scenario 2, the minimum gross proceeds from the Open Offer of approximately HK$58.4 million is estimated based on the Underwriters will take up 748,419,206 Offer Shares at HK$0.078 per Offer Share, assuming (i) no Shareholders take up their respective assured entitlements under the Offer Shares; and (ii) no subscription rights attached to the outstanding Share Options have been exercised. After deducting estimated expenses relating to the Open Offer, the net proceeds from the Open Offer will amount to not less than approximately HK$56.9 million (equivalent to approximately HK$0.076 per Offer Share). The Company

LETTER FROM THE BOARD

intends to use the entire net proceeds from the Open Offer to repay the Power Way Loan. The remaining balance of the Power Way Loan will only be repaid when the Group has the necessary financial resources available for repayment.

Under Scenario 3 and Scenario 1 (as defined in the paragraph headed “Effect on shareholding structures of the Company as a result of the Open Offer” in this circular), the maximum gross proceeds of approximately HK$133.8 million and the gross proceeds of approximately HK$117.7 million from the Open Offer are estimated based on 1,716,014,799 Offer Shares and 1,508,900,799 Offer Shares will be issued at HK$0.078 per Offer Share respectively, assuming, for Scenario 3, (i) all Shareholders take up their respective assured entitlements under the Offer Shares; and (ii) all subscription rights attached to the outstanding Share Options (excluding the Excluded Options) have been exercised before the Latest Lodging Time and their respective assured entitlements to the Offer Shares have been take-up; and, for Scenario 1, (i) all Shareholders take up their respective assured entitlements to the Offer Shares; and (ii) no subscription rights attached to the outstanding Share Options have been exercised. It is noted that the exercise prices of the Share Options (excluding in Excluded Options) are ranging from HK$0.088 to HK$0.890 and most of the Share Options are out-of-money and substantially above the Share price of HK$0.099 as quoted on the Stock Exchange on the Last Trading Day. After deducting estimated expenses relating to the Open Offer, the net proceeds from the Open Offer will amount to not more than approximately HK$132.3 million and approximately HK$116.2 million (both equivalent to approximately HK$0.077 per Offer Share) for Scenario 3 and Scenario 1 respectively. The Company intends to use the net proceeds from the Open Offer to fully repay the Power Way Loan amounting to approximately HK$89.3 million as at 31 May 2012. The remaining amount of the net proceeds from the Open Offer of approximately HK$43.0 million (under Scenario 3) and HK$26.9 million (under Scenario 1) will be used as additional working capital to strengthen the Company’s financial position and to develop its lottery business, including but not limited to, system upgrade for a high-frequency lottery game system in Chongqing, the development of its paperless lottery sales channels, such as mobile network and/or internet, and the balance for upgrading tele-betting system in Shandong and marketing expenses.

As at the Latest Practicable Date, the Company has neither identified nor commenced any negotiations for any potential acquisitions.

4. CONDITIONS OF THE OPEN OFFER AND THE UNDERWRITING AGREEMENT

The Open Offer and completion of the Underwriting Agreement are conditional upon the satisfaction of the following conditions:

(a) the delivery to the Stock Exchange for authorisation and the registration with the Registrar of Companies in Hong Kong respectively one copy of each of the Prospectus Documents duly signed by two Directors (or by their agents duly authorised in writing) as having been approved by resolution of the Directors (and all other documents required to be attached thereto) and otherwise in compliance with the GEM Listing Rules and the Companies Ordinance not later than the Prospectus Posting Date;
(b) the posting of the Prospectus Documents to the Qualifying Shareholders on the Prospectus Posting Date and a letter in the agreed form to the Non-Qualifying Shareholders, if any, for information purpose only explaining the circumstances in which they are not permitted to participate in the Open Offer on or before the Prospectus Posting Date;

LETTER FROM THE BOARD

(c) the GEM Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked listing of and permission to deal in the Offer Shares by no later than the first day of their dealings;
(d) the obligations of the Underwriters becoming unconditional and that the Underwriting Agreement is not terminated in accordance with its terms;
(e) compliance with and performance of an irrevocable undertaking by each of the 2012 CB Holders and the holder of the Intralot 2013 Convertible Bonds in favour of the Company and the Underwriters not to exercise the conversion rights attached to the 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds, such undertaking shall be in the agreed form;
(f) compliance with and performance of an irrevocable undertaking by each of the holders of the Excluded Options in favour of the Company and the Underwriters not to exercise the Excluded Options;
(g) the Executive or his delegate granting the Whitewash Waiver to the Underwriters and parties acting in concert with any of them and the satisfaction of all conditions (if any) attached to the Whitewash Waiver granted;
(h) the GCH Disposal Completion;
(i) the Intralot Disposal Completion;
(j) the passing by no later than the Prospectus Posting Date by the Shareholders (or, where appropriate, the Independent Shareholders) at the EGM, among other things, the following resolutions:
(i) an ordinary resolution to approve the Proposed Increase in Authorised Capital;
(ii) an ordinary resolution to approve the Open Offer; and
(iii) an ordinary resolution to approve the Whitewash Waiver;
(k) all necessary consents and approvals required to be obtained on the part of Power Way in respect of the Underwriting Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect;
(l) all necessary consents and approvals required to be obtained on the part of Melco LV in respect of the Underwriting Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect; and
(m) if applicable, all necessary consents and approvals required to be obtained by Melco in respect of the Underwriting Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect.

LETTER FROM THE BOARD

As at the Latest Practicable Date, the relevant consents and approvals in conditions (k), (l) and (m) above identified are the respective board approvals of each of the parties to the Underwriting Agreement.

As at the Latest Practicable Date, save for conditions (k), (l) and (m) above, none of conditions precedent above have been satisfied.

None of the conditions set out above are capable of being waived. If any of the above conditions is not satisfied by the Latest Time for Termination, completion of the Open Offer will not proceed. As the Open Offer is subject to the above conditions, it may or may not proceed accordingly.

The Board wishes to emphasise that the Open Offer is inter-conditional with Intralot Disposal Completion and GCH Disposal Completion which in turn are subject to the Independent Shareholders’ approval including, among others, approval of the off-market repurchase of the Intralot 2013 Convertible Bonds and the GCH 2012 Convertible Bonds by at least three-fourths of the votes cast on a poll by the Independent Shareholders in attendance in person or by proxy at the EGM. As such, there is no assurance of all the resolutions including but not limited to the above resolutions will be approved by the Independent Shareholders and all the conditions in the Intralot Agreement, the GCH Agreement and the Underwriting Agreement will be fulfilled and/or waived (as the case maybe). If any of the conditions precedent set out in the aforesaid agreements cannot be fulfilled and/or waived (as the case maybe), the Open Offer will not proceed. Shareholders and potential investors are urged to exercise caution when dealing in the securities of the Company.

5. FUND-RAISING ACTIVITIES BY THE COMPANY DURING THE PAST 12 MONTHS IMMEDIATELY PRECEDING THE ANNOUNCEMENT

The Company has not conducted any fund raising activities in the past 12 months immediately preceding the Latest Practicable Date.

6. EXPECTED TIMETABLE OF THE OPEN OFFER

The expected timetable for the Open Offer set out below is indicative only and it has been prepared on the assumption that the GEM LR Transactions and the Transactions will be approved at the EGM. The expected timetable is subject to change, and any such change will be announced in a separate announcement by the Company as and when appropriate.

2012

Despatch of circular of the Transactions and the Intradak Exclusivity Undertaking Latest time for lodging forms of proxy for the purpose of the EGM

Date of the EGM

Wednesday, 26 September

11:30 a.m. on Saturday, 13 October 11:30 a.m. on Monday, 15 October

Publication of the EGM results announcement

Monday, 15 October

LETTER FROM THE BOARD

Last day of dealings in the Shares on

a cum-entitlements basis

First day of dealings in the Shares on an ex-entitlements basis

Latest time for lodging transfers of the Shares in order to qualify for the Open Offer

Closure of register of members to determine the eligibility of the Open Offer

The Record Date

Registration of the Prospectus Documents

The Prospectus Documents to be despatched on or about

Latest time for acceptance of and payment for the Offer Shares

Latest time for the Open Offer to become unconditional Announcement of results of the Open Offer

Certificates for the Offer Shares expected to be despatched on or before Dealings in the Offer Shares commence

UNDERWRITING ARRANGEMENTS

Tuesday, 16 October

Wednesday, 17 October

4:30 p.m. on Thursday, 18 October

Friday, 19 October Friday, 19 October Monday, 22 October Wednesday, 24 October

Wednesday, 24 October

4:00 p.m. on Wednesday, 7 November 6:00 p.m. on Monday, 12 November

By 7:00 p.m. on Tuesday, 13 November

Wednesday, 14 November Thursday, 15 November

The Underwriting Agreement

Date : 14 August 2012 Underwriters : Melco LV and Power Way[(Note)] Number of the : Not less than 1,508,900,799 Offer Shares and not more than Offer Shares 1,716,014,799 Offer Shares, proposed to be offered to the Qualifying Shareholders

LETTER FROM THE BOARD

Number of the Underwritten Shares

: Melco LV has agreed to underwrite not more than 128,205,128 Underwritten Shares in the first place provided that the total subscription price for the Offer Shares to be taken up by Melco LV shall not exceed the amount of HK$10 million and Power Way has agreed to underwrite not more than 1,145,361,487 Underwritten Shares in the second place provided that immediately upon completion of the Open Offer, the Underwritten Shares to be subscribed by Power Way together with the Shares held or to be held by Melco LV and other non public Shareholders shall not be more than 75% of the total shareholdings of the Company as enlarged by the Offer Shares

Commission : Nil Aggregate nominal value : Not more than approximately HK$12,735,666 of the Underwritten Shares

Note: Underwriting does not fall within the ordinary course of business of the Underwriters. The Company has explored and held discussions with potential commercial underwriters in relation to the possibility of underwriting the Open Offer. However, the Company was unable to procure other underwriter(s) at acceptable costs to the Company.

As at the Latest Practicable Date, (i) Melco LV, an indirect wholly-owned subsidiary of Melco, is a substantial shareholder of the Company; and (ii) Power Way is indirectly owned by Melco LV as to 58.70%. As at the Latest Practicable Date, Melco LV is interested in 58,674,619 Shares, representing approximately 11.67% of the issued share capital of the Company, and is entitled to subscribe for 176,023,857 Offer Shares. The underwriting obligations of Melco LV to underwrite not more than 128,205,128 Offer Shares is independent of and does not include any of Melco LV’s entitlement to take up its entitled Offer Shares. Save for the underwriting obligations of the Underwriters under the Underwriting Agreement, no Shareholders or the parties acting in concert with any of the Underwriters have indicated whether they will take up their assured entitlements under the Open Offer or not.

The Underwritten Shares

As the number of Underwritten Shares is below that of the Offer Shares, the Open Offer is not fully underwritten. Subject to fulfillment of the conditions of the Open Offer and the Underwriting Agreement, the Open Offer will proceed regardless of the ultimate subscription level as there are no requirements for minimal levels of subscription pursuant to the Company’s constitutional documents or the law of Cayman Islands. Having made reasonable enquiries, the Directors confirm that the Company has also complied with all the applicable statutory requirements regarding the minimal levels of subscription of the Open Offer. As at the Latest Practicable Date, none of the substantial shareholders of the Company have undertaken to take up their respective entitlement to the Open Offer either in part or in full.

LETTER FROM THE BOARD

The Set Off

The Power Way Loan, being the aggregate of the principal amount of such loan and the interest accrued thereon, amounts to approximately HK$89.3 million as at 31 May 2012. The aggregate Subscription Price required to be paid by Power Way under the Underwriting Agreement will be settled by way of set off against the Power Way Loan. The exact amount of the Power Way Loan to be set off will be equal to the product of the Subscription Price and the exact number of Offer Shares to be taken up by Power Way. The interest on the outstanding Power Way Loan from 1 June 2012 up to and including the date of completion of the Set Off will be settled by the Company in cash.

Effect on shareholding structures of the Company as a result of the Open Offer

Set out below are five scenarios of shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after completion of the Open Offer and the Disposal Agreements:

Scenarios	Assumptions	Assumptions
Scenario 1	(a)	all Shareholders take up their respective assured entitlements to the Offer
		Shares; and
	(b)	no subscription rights attached to the outstanding Share Options or
		conversion rights attached to the outstanding convertible bonds of the
		Company have been exercised.
Scenario 2	(a)	no Shareholders take up their respective assured entitlements to the Offer
		Shares; and
	(b)	no subscription rights attached to the outstanding Share Options or
		conversion rights attached to the outstanding convertible bonds of the
		Company have been exercised.
Scenario 3	(a)	all Shareholders take up their respective assured entitlements to the Offer
		Shares;
	(b)	all subscription rights attached to the outstanding Share Options
		(excluding the Excluded Options) have been exercised before the Latest
		Lodging Time and their respective assured entitlements to the Offer
		Shares have been taken up; and
	(c)	no conversion rights attached to the outstanding convertible bonds of the
		Company have been exercised.
Scenario 4	(a)	Melco LV and parties acting in concert with it, in the capacity of
		Shareholders, take up their respective assured entitlements to the Offer
		Shares;

(b) no other Shareholders take up their respective assured entitlements to the Offer Shares; and

LETTER FROM THE BOARD

(c) no subscription rights attached to the outstanding Share Options or conversion rights attached to the outstanding convertible bonds of the Company have been exercised.
Scenario 5 (a) all Shareholders take up their respective assured entitlements to the Offer Shares;
(b) all subscription rights attached to the outstanding Share Options (excluding the Excluded Options) have been exercised before the Latest Lodging Time and their respective assured entitlements to the Offer Shares have been taken up; and
(c) the exercise of the conversion rights attached to the outstanding convertible bonds of the Company in full after the Record Date.

In the event that no Qualifying Shareholders subscribe for the Offer Share and the Underwriters are called upon to subscribe for the Underwritten Shares pursuant to its obligation and subject to the conditions under the Underwriting Agreement, the public float of the Company will decrease from approximately 58.03% as at the Latest Practicable Date to 25.00% immediately upon completion of the Open Offer. Furthermore, the Underwriters will only take up 748,419,206 Offer Shares but not the fully underwritten 1,273,566,615 Offer Shares given one of the terms of the Underwriting Agreement requires, immediately upon completion of the Open Offer, the Underwritten Shares to be held and subscribed by the Underwriters and other non public Shareholders shall not be more than 75% of the total shareholding of the Company as enlarged by the Offer Shares.

LETTER FROM THE BOARD

	Scenario 5	Approx.	% of	No. of issued	Shares Shares				704,705,219 25.21%	– 0.00%	228,869,764 8.19%	72,706,758 2.60%	83,148,168 2.97%	192,000 0.01%	*1,089,621,909* *38.98%*			441,872,000 15.80%	1,264,303,980 45.22%	*2,795,797,889* *100.00%*	*1,420,350,906* *50.80%*				– *0.00%*

	Scenario 4	Approx.	% of	No. of issued	Shares Shares				362,903,604 21.90%	589,581,744 35.58%	211,895,116 12.79%	51,909,992 3.13%	83,148,168 5.02%	192,000 0.01%	*1,299,630,624* *78.43%*			78,472,000 4.73%	279,033,995 16.84%	*1,657,136,619* *100.00%*	*414,284,155* *25.00%*				*717,786,872* *43.31%*

	Scenario 3	Approx.	% of	No. of issued	Shares Shares				234,698,476 10.26%	– 0.00%	211,895,116 9.26%	51,909,992 2.27%	83,148,168 3.63%	192,000 0.01%	*581,843,752* *25.43%*			441,872,000 19.31%	1,264,303,980 55.26%	*2,288,019,732* *100.00%*	*1,399,554,140* *61.17%*				– *0.00%*

	Scenario 2	Approx.	% of	No. of issued	Shares Shares				186,879,747 14.94%	620,214,078 49.56%	52,973,779 4.23%	12,977,498 1.04%	20,787,042 1.66%	48,000 0.00%	*893,880,144* *71.43%*			78,472,000 6.27%	279,033,995 22.30%	*1,251,386,139* *100.00%*	*312,846,535* *25.00%*				*748,419,206* *59.81%*

	Scenario 1	Approx.	% of	No. of issued	Shares Shares				234,698,476 11.67%	– 0.00%	211,895,116 10.53%	51,909,992 2.58%	83,148,168 4.13%	192,000 0.01%	*581,843,752* *28.92%*			313,888,000 15.60%	1,116,135,980 55.48%	*2,011,867,732* *100.00%*	*1,251,386,140* *62.20%*				– *0.00%*
As at the	Latest Practicable Date	Approx.	% of	No. of issued	Shares Shares				58,674,619 11.67%	– 0.00%	52,973,779 10.53%	12,977,498 2.58%	20,787,042 4.13%	48,000 0.01%	*145,460,938* *28.92%*			78,664,000 15.64%	278,841,995 55.44%	*502,966,933* *100.00%*	*291,867,493* *58.03%*
					Shareholders	*Whitewash Waiver*	*applicants and their*	*respective concert parties*	Melco LV	Power Way	Intralot	Firich(1)	GCH(2)	Other(3)	*Sub-total*	Directors and directors	of the Group and their	respective associates(4)	Other Shareholders(4)	*Total*	*Public Shareholders*(1), (2), (5)	*Offer Shares taken up by*	*the Underwriters pursuant*	*to the Underwriting*	*Agreement*(6)

LETTER FROM THE BOARD

Notes:

(1) As Firich is not a connected person of the Company as defined under the GEM Listing Rules, Firich is a public Shareholder.
(2) GCH is wholly owned by Mr. Chang, a former employee of Firich. As GCH is not a connected person of the Company upon completion of the Transactions as defined under the GEM Listing Rules, GCH is a public Shareholder upon completion of the Transactions.
(3) “Other” under the “Whitewash Waiver applicants and their respective concert parties” category represents the spouse of a director of Power Way, who was not a Director or a director of members of the Group as at the Latest Practicable Date.
(4) A director of Oasis Rich owned 192,000 Shares as at the Latest Practicable Date. Upon completion of the Transactions, the director will no longer be a director of the Group and the Shares held by such director will be classified under the category of “Other Shareholders”.
(5) Public Shareholders comprise Firich, GCH, “Other” under the “Whitewash Waiver applicants and their respective concert parties” category and other Shareholders as at the Latest Practicable Date and in all 5 scenarios, except for GCH being a non-public Shareholder as at the Latest Practicable Date.
(6) Offer Shares taken up by the Underwriters pursuant to the Underwriting Agreements represent the number of the Offer Shares taken up by Melco LV and/or Power Way in the capacity of underwriters pursuant to the Underwriting Agreement. For the avoidance of doubt, the entitled Offer Shares taken up by Melco LV in the capacity of Shareholder are not included.

As at the Latest Practicable Date, Power Way is owned as to 58.70%, 28.87% and 12.43% by Melco LV, GCH and LottVision Investments, respectively. Pursuant to the Power Way Agreement, LottVision Investments has conditionally agreed to sell and Melco LV and GCH have conditionally agreed to purchase the 12.43% equity interest in Power Way held by LottVision Investments, completion of which is subject to completion of the Open Offer. However, completion of the disposal of 12.43% equity interest in Power Way by LottVision Investments is not a pre-condition of the Open Offer. Upon completion of the Power Way Agreement, Melco LV and GCH will be interested in approximately 67.03% and 32.97% of the equity interest in Power Way respectively. The Power Way Agreement is expected to be completed on the date when the Latest Time for Termination has been lapsed and provided that the Underwriting Agreement has not been terminated on or before the Latest Time for Termination.

Termination of the Underwriting Agreement

Either of the Underwriters may terminate the Underwriting Agreement by notice in writing to the Company at any time prior to the Latest Time for Termination, if at any time prior to the Latest Time for Termination:

(a) in the reasonable opinion of any of the Underwriters, the success of the Open Offer will be materially and adversely affected by:
(i) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the reasonable opinion of any of the Underwriters materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Open Offer; or

LETTER FROM THE BOARD

(ii) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/ or after the date thereof) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the reasonable opinion of any of the Underwriters materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or materially and adversely prejudice the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(b) any adverse change in market conditions (including without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the reasonable opinion of any of the Underwriters is likely to materially or adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(c) there is any change in the circumstances of the Company or any member of the Group which in the reasonable opinion of any of the Underwriters will adversely affect the prospects of the Company, including without limiting the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any of member of the Group or the destruction of any material asset of the Group; or
(d) any event of force majeure including, without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic, terrorism, strike or lock-out; or
(e) any other material adverse change in relation to the business or the financial or trading position or prospects of the Group as a whole whether or not ejusdem generis with any of the foregoing; or
(f) any matter which, had it arisen or been discovered immediately before the date of the Prospectus and not having been disclosed in the Prospectus, will have constituted, in the reasonable opinion of any of the Underwriters, a material omission in the context of the Open Offer; or
(g) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than ten consecutive Business Days, excluding any suspension in connection with the clearance of the Announcement, this circular, the Prospectus Documents or other announcements or circulars in connection with the Open Offer,

either of the Underwriters shall be entitled by notice in writing to the Company and the other Underwriter, served prior to the Latest Time for Termination, to terminate the Underwriting Agreement.

LETTER FROM THE BOARD

If the Underwriters terminate the Underwriting Agreement, the Open Offer will not proceed. A further announcement will be made if the Underwriting Agreement is terminated by the Underwriters.

General

The Prospectus Documents containing, among others, further details of the Open Offer, certain financial information and pro forma financial information of the Group, are expected to be sent to the Shareholders on or about Wednesday, 24 October 2012. The Prospectus will be despatched to the NonQualifying Shareholders for information only.

RISK FACTORS

Shareholders and prospective investors should consider carefully all the information set out in this circular and, in particular, should evaluate the following risks in connection with an investment in the Company before making any investment decision (including the Open Offer) in relation to the Company.

Risks relating to the Group’s business

Reliance on the major customer

As discussed above, since the establishment of Beijing Telenet in 2006, Intradak has been the sole customer of Beijing Telenet and, vice versa, Beijing Telenet has been the sole supplier to Intradak. For the five months ended 31 May 2012, Intradak, being the largest customer of the Group, accounted for approximately 79% of the Group’s revenue.

The Group, through Beijing Telenet, has entered into the Intradak Exclusivity Undertaking with Intradak in order to secure the business of the Group for a period of one year. Pursuant to the Intradak Exclusivity Undertaking, Intradak granted an exclusive right to Beijing Telenet for supplying the Approved LVM mutually specified by Intradak and Beijing Telenet for a term of one year. During the term of the Intradak Exclusivity Undertaking, Intradak shall solely procure the Approved LVM from Beijing Telenet and shall not directly or indirectly, without the written consent of Beijing Telenet, procure the Approved LVM from any other third party enterprises, corporations or individuals other than Beijing Telenet. In the event that the Intradak Exclusivity Undertaking failed to be renewed after one year and Intradak decides to terminate its business relationship with the Group, the Group may not be able to find a new customer(s) in a timely manner or on terms acceptable to the Group or at all, and any such new prospective customer(s) may not be able to replace the sales volume previously generated by Intradak, which will adversely affect the sales performance of the Group and thus its overall results of operation and financial position.

LETTER FROM THE BOARD

Furthermore, it is noted the Intradak Exclusivity Undertaking is conditional on the approval from the GEM LR Transactions Independent Shareholders at the EGM and such condition is not capable of waiver. Furthermore, the Intradak Exclusivity Undertaking is not conditional on the Transactions. In the event that completion of the Transactions took place while the Intradak Exclusivity Undertaking failed to receive the approval from the GEM LR Transactions Independent Shareholders at the EGM, and Intradak decides to terminate its business relationship with the Group, the Group may not be able to find a new customer(s) in a timely manner or on terms acceptable to the Group or at all, and any such new prospective customer(s) may not be able to replace the sales volume previously generated by Intradak, which will adversely affect the sales performance of the Group and thus its overall results of operation and financial position.

It is further emphasised that given the strong reliance on a major customer, should there be business failure and any interruption in the business of Intradak arising from any unexpected or catastrophic events, the Group’s business and hence its operation and financial position will be adversely affected.

Reliance on the major supplier

For each of the three years ended 31 December 2011 and five months ended 31 May 2012, Wu Sheng, a wholly-owned subsidiary of Oasis Rich, being the largest supplier of the Group, accounted for approximately 99%, 99%, 100% and 100% respectively of the Group’s total purchase of raw materials. Upon completion of the Transactions, Wu Sheng will remain the major supplier of Beijing Telenet and also that of the Group.

As discussed above, pursuant to the Wu Sheng Exclusivity Undertaking, Wu Sheng granted an exclusive right to Beijing Telenet for procuring the Approved LVM mutually specified by Wu Sheng and Beijing Telenet for a term of one year. During the term of the Wu Sheng Exclusivity Undertaking, Wu Sheng shall solely supply the Approved LVM to Beijing Telenet at prices set in accordance with the existing pricing policy and shall not directly or indirectly, without the written consent of Beijing Telenet, supply the Approved LVM to (i) competitors or potential competitors of Beijing Telenet, (ii) Intradak; or (iii) any other third party enterprises, corporations or individuals other than Beijing Telenet. Wu Sheng further undertook that it shall not directly or indirectly compete with Beijing Telenet in connection with the supply of the Approved LVM. In the event that the Wu Sheng Exclusivity Undertaking failed to be renewed after one year and Wu Sheng decides to terminate its business relationship with the Group, the Group may not be able to find a new supplier(s) in a timely manner or on terms acceptable to the Group or at all, and the Group’s business, results of operations and financial condition could be adversely affected.

It is further emphasised that given the strong reliance on a major supplier, should there be business failure and any interruption in the business of Wu Sheng arising from any unexpected or catastrophic events, the Group’s business and hence its operation and financial position will be adversely affected.

LETTER FROM THE BOARD

The Group maintains a significant level of liabilities and the business of the Group may be adversely affected by the lack of refinancing options

The Group has been building up significant level of liabilities, which is mainly attributable to the outstanding convertible bonds in the principal amount of HK$883,975,310 as at the Latest Practicable Date. Upon completion of the Transactions, although it is expected that there will be substantial debt reduction of convertible bonds in the principal amount of HK$452,363,876 and a full or partial retirement of the Power Way Loan (as the case may be), there remains of significant portion of the 2012 Convertible Bonds that are outstanding and are expected to mature on 13 December 2012 and there is uncertainty as to how much of the Power Way Loan will remain outstanding. The Group is well conscious of the risk that the Company may not be able to obtain the necessary funding, either through debt or equity financing or both, to re-finance the Power Way Loan and to redeem the 2012 Convertible Bonds as and when they fall due. The current level of gearing could potentially constrain the Group’s operation with significant consequences such as, among others, (i) constrains on the Group’s working capital position and capital expenditures due to the use of a substantial portion of the Group’s cash flows for debt servicing, and (ii) limit the Group’s ability to obtain, as well as an increase in the cost of, additional financing to fund future working capital and capital expenditures. Hence, the Directors cannot provide absolute assurance that the Group will have the ability to raise necessary financing to fund the Group’s working capital, capital expenditures and other debt obligations. As such, the Group’s business, prospects and financial condition may be materially and adversely affected.

Availability of high quality and appropriately priced raw materials and products

The Group relies on external producers/suppliers for the supply of all raw materials and product parts. Liquid crystal display panels, scanners and printers, being the primary raw materials, as well as other components, are sourced from overseas and the PRC. If the Group is unable to find readily available high quality raw materials or products, the Group’s delivery schedule as well as its financial results and condition may be adversely affected.

LETTER FROM THE BOARD

Reliance on key executives and personnel

Given the specialised nature of the business for which the Group conducts in, the future success of the Group will depend to a large extent on the continued efforts of the Directors and senior management of the Group as a whole. There is no assurance that these key executives or personnel will not voluntarily terminate their employment with the Group. Although the Group does not rely on any one particular Director or senior management staff of the Group, the loss of any of the Group’s key executives or personnel could be detrimental to the ongoing success of the Group’s operations.

The Group’s continued success will also depend on its ability to attract and retain qualified personnel in order to manage its existing operations as well as its future growth. The Group may not be able to successfully attract, assimilate or retain the personnel they need and this could negatively impact on the Group’s ability to expand their business effectively.

Risk relating to seasonality

The Group has historically experienced seasonality, which is expected to continue. The Group generally receives more orders in the second half of the year. The Directors believe the reason for this is that agents of the CSLA generally reduce conducting purchases and replacement of Approved LVM during the first half of the year where this period has PRC national holidays such as the New Year and the Chinese New Year in January and February and the “Golden Week” in early May when the mainland Chinese celebrate during Labour Day. Although the Company issues quarterly reports, investors should be aware that comparisons of sales and operating results between different periods within a single financial year, or between different periods in different financial years, are not necessarily meaningful and cannot be relied on as indicators of the Group’s performance due to the seasonality factors.

Risk relating to the industry

Risk relating to the prolonged delays experienced in the new equipment procurement cycle of the CSLA

As disclosed in the annual report of the Company for the year ended 31 December 2011, new equipment procurement cycle of the CSLA has been subject to prolonged delay. The management is of the view that the demand for and timing of the new equipment procurement cycle from the customers are uncertain. Given the unpredictable nature of the CSLA’s new equipment procurement cycle and in the event of any material delays in the new equipment procurement cycle, the Group’s financial results and positions can be materially adversely affected as a result.

Risk relating to the Group’s ability to keep up with technological changes in the PRC lottery industry in order to remain competitive

The Group, through Beijing Telenet, is one of the largest authorised terminal distributors approved by the CSLA. However, the Group’s performance depends on the Group’s ability to continually adapt its existing products and technological know-how, timely recruitment of personnel with the relevant skills and development of new lottery products and technologies which keep up with the latest technological trends in the PRC lottery industry. In order to remain competitive, the Group has to invest funds and

LETTER FROM THE BOARD

resources, which include staff, offices and licences, to the continued research and development of existing and potential products and technologies. However, the effect of emerging and future technological changes in relation to product specifications to the Group’s research and development plans or the level of technologies required by CSLA and CWL are unpredictable. The inability to respond to the technological developments and requirements in the PRC lottery industry may lead to the loss of business, therefore will adversely affect the Group’s business operations and profitability. If the Group is not able to respond to new developments successfully or do not respond in a cost-effective way, the Group’s operations and financial results could be materially adversely affected.

Risk relating to the PRC

Reliance on the PRC market

Most of the Group’s assets are located in the PRC, and all of the Group’s products and services are sold in the PRC market. If there is any adverse change in the financial, economic, industrial, political, fiscal, social, legal or regulatory conditions in the PRC, the Group’s performance may be adversely affected.

Adverse changes in the PRC’s economic conditions

The growth of the PRC lottery industry is linked to the PRC’s economic conditions. In the event of an economic hard-landing in the PRC or that the growth of the economy in the PRC is at a lesser pace than anticipated, the demand for lottery products may decline or grow at a lesser pace than anticipated and, therefore, the Group’s operating results and profitability could be adversely affected.

Risk relating to the Open Offer

Termination of the Underwriting Agreement

Shareholders should note that the Underwriters are entitled to terminate their obligations under the Underwriting Agreement giving notice in writing to the Company upon the occurrence of any of the events stated in the paragraph headed “Termination of the Underwriting Agreement” in this circular on or before the Latest Time for Termination.

Protection to minority shareholders under Cayman Islands law

As a company incorporated in the Cayman Islands, the Company’s corporate affairs are governed by the memorandum and the articles of association of the Company, the Companies Law and common law of the Cayman Islands. Cayman Islands law relating to the protection of the interests of minority shareholders differs in certain respects from those established under statutes and under judicial precedents in Hong Kong or other jurisdictions. Such difference may mean that the remedies available to the Company’s minority shareholders may be different from those they would otherwise have or are familiar with under the laws of Hong Kong or other jurisdictions.

LETTER FROM THE BOARD

8. WHITEWASH WAIVER

The taking up of (i) the Offer Shares to which the Underwriters and parties acting in concert with any of them are entitled to under the Open Offer, and (ii) the Underwritten Shares to be subscribed for by the Underwriters as permissible under the Underwriting Agreement, based on the assumption that no other Qualifying Shareholders subscribe for the Offer Shares, will result in the aggregate percentage of the shareholdings of the Underwriters and parties acting in concert with any of them in the Company being increased from approximately 28.92% to approximately 78.43% and will therefore give rise to a mandatory offer obligation on the part of the Underwriters and parties acting in concert with any of them under Rule 26 of the Takeovers Code for all the Shares and other securities issued by the Company not already held or agreed to be acquired by the Underwriters and parties acting in concert with any of them unless the Whitewash Waiver is obtained.

As at the Latest Practicable Date, the Underwriters and parties acting in concert with any of them holds, owns, or has control or direction over the following Shares, convertible securities, warrants or options or any outstanding derivative in respect of relevant securities (as defined in note 4 to Rule 22 of the Takeovers Code) of the Company:

(a) Melco LV is interested in 58,674,619 Shares (representing approximately 11.67% of the issued share capital of the Company as at the Latest Practicable Date) and is one of the 2012 CB Holders holding the 2012 Convertible Bonds in the principal amount of HK$399,505,732 which entitles Melco LV to subscribe for 470,006,743 Shares (representing approximately 93.45% of the issued share capital of the Company as at the Latest Practicable Date) upon the exercise of the conversion rights attached thereto in full;
(b) Power Way is owned as to 58.70%, 28.87% and 12.43% by Melco LV, GCH and LottVision Investments, respectively;
(c) Ms. Man Yim Ping, Anne, the spouse of Mr. Li Kin Keung, Dennis, a director of Power Way, who is not a Director or a director of members of the Group, is interested in 48,000 Shares (representing approximately 0.01% of the issued share capital of the Company as at the Latest Practicable Date) and the directors of Melco LV and Power Way and parties acting in concert with any of them are interested in Share Options with subscription rights attached thereto, if exercised in full, would enable the option holders to subscribe for 37,778,000 Shares (representing approximately 7.51% of the issued share capital of the Company as at the Latest Practicable Date);
(d) GCH is interested in 20,787,042 Shares (representing approximately 4.13% of the issued share capital of the Company as at the Latest Practicable Date) and the holder of the GCH 2012 Convertible Bonds in the principal amount of HK$175,188,566, which entitles GCH to subscribe for 206,104,195 Shares (representing approximately 40.98% of the issued share capital of the Company as at the Latest Practicable Date) upon the exercise of the conversion rights attached thereto in full;

LETTER FROM THE BOARD

(e) Intralot is interested in 52,973,779 Shares (representing approximately 10.53% of the issued share capital of the Company as at the Latest Practicable Date) and the holder of the Intralot 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds which entitle Intralot to subscribe for 296,667,190 Shares (representing approximately 58.98% of the issued share capital of the Company as at the Latest Practicable Date) upon the exercise of the conversion rights attached thereto in full; and
(f) Firich is interested in 12,977,498 Shares (representing approximately 2.58% of the issued share capital of the Company as at the Latest Practicable Date) and the holder of the Firich 2012 Convertible Bonds, which entitles Firich to subscribe for 20,796,766 Shares (representing approximately 4.13% of the issued share capital of the Company as at the Latest Practicable Date) upon the exercise of the conversion rights attached thereto in full.

Save as disclosed above, the Underwriters and the parties acting in concert with any of them, which include LottVision and LottVision Investments, did not hold, own or has control or direction over any other Shares, convertible securities, warrants or options of the Company or any outstanding derivative in respect of relevant securities (as defined in note 4 to Rule 22 of the Takeovers Code) of the Company. The Underwriters and parties acting in concert with any of them and the Shareholders who are involved in or interested in the Transactions will be required to abstain from voting in respect of the resolutions approving the Transactions (other than the Proposed Increase in Authorised Capital) at the EGM. As at the Latest Practicable Date, the Underwriters and parties acting in concert with any of them own approximately 28.92% of the issued Shares.

Each of the parties above, including Melco LV, Power Way, Ms. Man Yim Ping, Anne, GCH, Intralot, Firich, LottVision and LottVision Investments, are deemed to be acting in concert with the Underwriters under the Takeovers Code. The Underwriters and parties acting in concert with any of them, which include LottVision and LottVision Investments, have not dealt in any Shares, convertible securities, warrants or options of the Company or any outstanding derivatives in respect of the relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company in the six months prior to the Announcement and up to the Latest Practicable Date.

An application has been made by the Underwriters to the Executive for the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, will be subject to, among other things, the approval of the Independent Shareholders at the EGM. The Underwriters and parties acting in concert with any of them and Shareholders who are involved in or interested in the Transactions will abstain from voting on the resolution(s) to approve the Open Offer, the Underwriting Agreement and the Whitewash Waiver at the EGM.

It is one of the conditions of the Open Offer and the Underwriting Agreement that the Whitewash Waiver be granted by the Executive and be approved by the Independent Shareholders at the EGM. If the Whitewash Waiver is not granted by the Executive or not approved by the Independent Shareholders, the Open Offer will not proceed.

LETTER FROM THE BOARD

The Directors (other than the non-executive Directors and the independent non-executive Directors whose views are set out in the letter from the Independent Board Committee in this circular) believe that the Open Offer, the Underwriting Agreement and the Whitewash Waiver, all of which form part of the group reorganisation to reduce the overall liabilities of the Group, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Shareholders and potential investors should be aware that there is a possibility that, upon completion of the Open Offer, the Underwriters and parties acting in concert with any of them will hold more than 50% of the voting rights in the Company. Hence, the Underwriters and persons acting in concert with any of them may increase their holding of voting rights in the Company without incurring any further obligation under Rule 26 of the Takeovers Code to make a general offer.

Upon completion of the Transactions, it is the intention of the Underwriters and the parties acting in concert with any of them to continue the business and the employment of the employees of the Remaining Group. The Underwriters and the parties acting in concert with any of them have no intention to introduce any major changes to the business, including any redeployment of the fixed assets of the Remaining Group.

(IV) PROPOSED INCREASE IN AUTHORISED CAPITAL

(V) FINANCIAL EFFECTS OF THE TRANSACTIONS

Upon Intralot Disposal Completion, Precious Success will become an indirect 51% subsidiary of the Company and the financial results and position of Precious Success will continue to be consolidated into the financial statements of the Group. Upon Intralot Disposal Completion, Gain Advance will cease to be a subsidiary of the Company and the financial results and position of Gain Advance will discontinue to be consolidated from the financial statements of the Group. Upon GCH Disposal Completion, Oasis Rich will cease to be a subsidiary of the Company and the financial results and position of Oasis Rich will discontinue to be consolidated from the financial statements of the Group.

LETTER FROM THE BOARD

For illustration purpose only and as set out in Appendix VI to this circular, the financial effects of completion of the Transactions are illustrated based on the following two scenarios, being: (i) assuming that (a) all Shareholders take up their respective assured entitlements to the Offer Shares; and (b) no subscription rights attached to the outstanding Share Options have been exercised (the “ Scenario I ”); and (ii) assuming that (a) no Shareholders take up their respective assured entitlements to the Offer Shares; and (b) no subscription rights attached to the outstanding Share Options have been exercised (the “ Scenario II ”).

Scenario I

Based on the unaudited pro forma consolidated balance sheet of the Remaining Group as set out in Appendix VI to this circular and assuming completion of the Transactions had taken place on 31 May 2012, as a result of completion of the Transactions, (i) the total assets would decrease by approximately 24.2% from approximately HK$281.0 million to approximately HK$213.1 million; (ii) the total liabilities would decrease by approximately 36.6% from approximately HK$943.6 million to approximately HK$598.7 million; (iii) the net liabilities attributable to the Shareholders would decrease by approximately 41.0% from approximately HK$682.7 million to approximately HK$402.5 million; and (iv) the negative working capital (i.e. net current liabilities) would decrease by approximately 41.6% from approximately HK$538.7 million to approximately HK$314.4 million. The decreases in the net liabilities attributable to the Shareholders and negative working capital (i.e. net current liabilities) are mainly due to gains on the Intralot Disposal and the GCH Disposal and the net proceeds raised from the Open Offer. The Remaining Group has bank balances and cash of approximately HK$122.2 million.

Based on the unaudited pro forma consolidated income statement of the Remaining Group as set out in Appendix VI to this circular and assuming completion of the Transactions had taken place on 1 January 2011, as a result of completion of the Transactions, (i) the total revenue would decrease by approximately 26.6% from approximately HK$96.6 million to approximately HK$70.9 million; and (ii) the net loss attributable to the Shareholders of approximately HK$209.2 million would change to a profit of approximately HK$63.9 million. The change of net loss to net profit attributable to the Shareholders is mainly due to the gains on the Intralot Disposal and the GCH Disposal.

Based on the unaudited pro forma consolidated cash flow statement of the Remaining Group as set out in Appendix VI to this circular and assuming completion of the Transactions had taken place on 1 January 2011, as a result of completion of the Transactions, (i) the total cash outflow from operating activities would decrease by approximately 21.4% from approximately HK$21.0 million to approximately HK$16.5 million; (ii) the total cash flow from investing activities would change from an inflow of approximately HK$0.8 million to an outflow of approximately HK$2.2 million; and (iii) the total cash inflow from financing activities would increase by approximately 57.5 times from approximately HK$1.9 million to approximately HK$111.1 million.

Under this scenario, as the number of issued Shares would increase from 502,966,933 Shares to 2,011,867,732 Shares, (i) the net liabilities attributable to the Shareholders per Share would decrease by approximately 85.3% from approximately HK$1.36 to approximately HK$0.20; and (ii) the loss per Share of approximately HK$0.42 would change to the profit per Share of approximately HK$0.03.

LETTER FROM THE BOARD

Scenario II

Based on the unaudited pro forma consolidated balance sheet of the Remaining Group as set out in Appendix VI to this circular and assuming completion of the Transactions had taken place on 31 May 2012, as a result of completion of the Transactions, (i) the total assets would decrease by approximately 62.5% from approximately HK$281.0 million to approximately HK$105.4 million; (ii) the total liabilities would decrease by approximately 41.7% from approximately HK$943.6 million to approximately HK$550.3 million; (iii) the net liabilities attributable to the Shareholders would decrease by approximately 32.4% from approximately HK$682.7 million to approximately HK$461.8 million; and (iv) the negative working capital (i.e. net current liabilities) would decrease by approximately 23.4% from approximately HK$538.7 million to approximately HK$412.8 million. The decreases in the net liabilities attributable to the Shareholders and negative working capital (i.e. net current liabilities) are mainly due to gains on the Intralot Disposal and the GCH Disposal and the net proceeds raised from the Open Offer. The Remaining Group has bank balances and cash of approximately HK$14.5 million.

Based on the unaudited pro forma consolidated income statement of the Remaining Group as set out in Appendix VI to this circular and assuming completion of the Transactions had taken place on 1 January 2011, as a result of completion of the Transactions, (i) the total revenue would decrease by approximately 26.6% from approximately HK$96.6 million to approximately HK$70.9 million; and (ii) the net loss attributable to the Shareholders of approximately HK$209.2 million would change to a profit of approximately HK$62.1 million. The change of net loss to net profit attributable to the Shareholders is mainly due to the gains on the Intralot Disposal and the GCH Disposal.

Based on the unaudited pro forma consolidated cash flow statement of the Remaining Group as set out in Appendix VI to this circular and assuming completion of the Transactions had taken place on 1 January 2011, as a result of completion of the Transactions, (i) the total cash outflow from operating activities would decrease by approximately 21.4% from approximately HK$21.0 million to approximately HK$16.5 million; (ii) the total cash flow from investing activities would change from an inflow of approximately HK$0.8 million to an outflow of approximately HK$2.2 million; and (iii) the total cash inflow from financing activities would increase by approximately 84.2% from approximately HK$1.9 million to approximately HK$3.5 million.

Under this scenario, as the number of issued Shares would increase from 502,966,933 Shares to 1,251,386,139 Shares, (i) the net liabilities attributable to the Shareholders per Share would decrease by approximately 72.8% from approximately HK$1.36 to approximately HK$0.37; and (ii) the loss per Share of approximately HK$0.42 would change to the profit per Share of approximately HK$0.05.

LETTER FROM THE BOARD

(VI) IMPLICATION OF THE GEM LISTING RULES

The Disposal Agreements

As certain of the applicable percentage ratios under the Intralot Agreement as calculated under Rule 19.07 of the GEM Listing Rules exceed 75%, the Intralot Agreement constitutes a very substantial disposal for the Company under the GEM Listing Rules which is subject to the reporting, announcement and Shareholders’ approval requirements.

Intralot, which, together with its associates, is interested in 52,973,779 Shares (representing approximately 10.53% of the issued share capital of the Company) as at the Latest Practicable Date and is a substantial Shareholder. As such, the transactions contemplated under the Intralot Agreement also constitute a connected transaction for the Company under Chapter 20 of the GEM Listing Rules which is subject to the reporting, announcement and independent Shareholders’ approval requirements.

As certain of the applicable percentage ratios under the GCH Agreement as calculated under Rule 19.07 of the GEM Listing Rules exceed 75%, the GCH Agreement constitutes a very substantial disposal for the Company under the GEM Listing Rules which is subject to the reporting, announcement and Shareholders’ approval requirements.

GCH is a connected person of the Company by virtue of its being a substantial shareholder of Oasis Rich, an indirect 60%-owned subsidiary of the Company. As such, the transactions contemplated under the GCH Agreement also constitute a connected transaction for the Company under Chapter 20 of the GEM Listing Rules which is subject to the reporting, announcement and independent Shareholders’ approval requirements.

The Intradak Exclusivity Undertaking

Mr. Ding, together with Mrs. Ding, are controlling shareholders of Beijing Haiyin and substantial shareholders (through Beijing Haiyin) of Beijing Telenet and Mr. Ding is a director of Beijing Telenet and indirectly, through Mrs. Ding, interested in 22,668,000 Shares as at the Latest Practicable Date. Intradak is a connected person of the Company by virtue of it being owned as to 35% and 20% by Beijing Haiyin and Mr. Ding respectively as at the Latest Practicable Date. As such, the entering into of the Intradak Exclusivity Undertaking constitutes a connected transaction of the Company under Chapter 20 of the GEM Listing Rules and will be subject to reporting, announcement and independent Shareholders’ approval requirements under Chapter 20 of the GEM Listing Rules.

The Open Offer

Since the Open Offer will increase the issued share capital of the Company by more than 50% within the twelve-month period immediately preceding the Latest Practicable Date, the Open Offer is conditional on the approval by the GEM LR Transactions Independent Shareholders at the EGM by a resolution on which the controlling Shareholders, if any, are required to abstain from voting in favour of the Open Offer. As at the Latest Practicable Date, the Company is not aware of any Shareholder being a controlling Shareholder. Given the Company has no controlling Shareholder, the Directors (excluding the independent non-executive Directors), who are also Shareholders, and their respective associates will abstain from voting in favour of the Open Offer and the Underwriting Agreement.

LETTER FROM THE BOARD

None of the Directors had material interest in the transactions and therefore were not required to abstain from voting on the Board resolutions to approve the GEM LR Transactions.

(VII) IMPLICATION OF THE TAKEOVERS CODE

Accordingly, such an increase will give rise to a mandatory offer obligation under Rule 26 of the Takeovers Code for the Underwriters and parties acting in concert with any of them to make a mandatory general offer under Rule 26 of the Takeovers Code for all the Shares and other securities issued by the Company not already held or agreed to be acquired by the Underwriters and parties acting in concert with any of them unless the Whitewash Waiver is obtained.

(VIII) IMPLICATION OF THE REPURCHASE CODE

The CB Repurchases will constitute an off-market share repurchase under the Repurchase Code and must be approved by the Executive pursuant to Rule 2 of the Repurchase Code. Such approval, if given, will be conditional upon, amongst others, the approval of the CB Repurchases by at least three-fourths of the votes cast on a poll by the Independent Shareholders in attendance in person or by proxy at the EGM. An application has been made to the Executive for the approval of the CB Repurchases pursuant to Rule 2 of the Repurchase Code.

As required by the Repurchase Code, the Underwriters and parties acting in concert with any of them and the Shareholders who are involved in or interested in the Transactions will abstain from voting on the resolution to approve the CB Repurchases and the Disposal Agreements at the EGM.

Given the Disposal Agreements (including the CB Repurchases), the Open Offer, and the Underwriting Agreement (including the Whitewash Waiver) are inter-conditional of each other, (i) Firich, GCH, Intralot, Melco LV and their respective associates and parties acting in concert with any of them, (ii) Shareholders who are involved in or interested in the Transactions, and (iii) Shareholders who are required to abstain from voting in the EGM to consider and approve the Transactions under the Takeovers Code and the Repurchase Code will be required to abstain from voting in respect of the resolutions approving the Transactions (other than the Proposed Increase in Authorised Capital) at the EGM.

LETTER FROM THE BOARD

The Board wishes to emphasise that the Open Offer is inter-conditional with the Intralot Disposal Completion and the GCH Disposal Completion which in turn are subject to the Independent Shareholders’ approval including, among others, approval of the off-market repurchase of the Intralot 2013 Convertible Bonds and the GCH 2012 Convertible Bonds by at least three-fourths of the votes cast on a poll by Independent Shareholders in attendance in person or by proxy at the EGM. As such, there is no assurance of all the resolutions including but not limited to the above resolutions will be approved by the Independent Shareholders and all the conditions in the Intralot Agreement, the GCH Agreement and the Underwriting Agreement will be fulfilled. If any of the conditions precedent set out in the aforesaid agreements are not satisfied, the Open Offer will not proceed. Shareholders and potential investors are urged to exercise caution when dealing in the securities of the Company.

(IX) EGM

The EGM will be held to consider and, if thought fit, approve the GEM LR Transactions and the Transactions. The notice of the EGM is set out on pages EGM-1 to EGM-5 of this circular.

As at the Latest Practicable Date, (i) the Underwriters and parties acting in concert with them were interested in 145,460,938 Shares, representing approximately 28.92% of the issued share capital of the Company; (ii) Mr. Ding, through Mrs. Ding, was interested in 22,668,000 Shares, representing approximately 4.51% of the issued share capital of the Company; (iii) Mr. Chan Sek Keung, Ringo, being a non-executive Director, was interested in 53,276,000 Shares, representing approximately 10.59% of the issued share capital of the Company; (iv) Mr. Tsoi, David, being an independent non-executive Director, was interested in 976,000 Shares representing approximately 0.19% of the issued share capital of the Company; and (v) Mr. Pang Hing Chung, Alfred, being an independent non-executive Director, was interested in 1,500,000 Shares, representing approximately 0.30% of the issued share capital of the Company. By reason of the requirements of the Takeovers Code and the Repurchase Code, the Underwriters and any parties acting in concert with any of them and the Shareholders who are involved in or interested in the Transactions will abstain from voting on the Transactions (other than the Proposed Increase in Authorised Capital) at the EGM. By reason of the GEM Listing Rules, (i) Melco LV, Intralot, Firich, GCH and their respective associates will abstain from voting on the GEM LR Transactions (other than the Intradak Exclusivity Undertaking and the Proposed Increase in Authorised Capital); (ii) Mrs. Ding and her associates will abstain from voting on the entering into of the Intradak Exclusivity Undertaking; and (iii) the Directors (excluding the independent non-executive Directors), who are also Shareholders, and their respective associates will abstain from voting in favour of the GEM LR Transactions (other than the Proposed Increase in Authorised Capital, the entering into of the Intradak Exclusivity Undertaking and, for the avoidance of doubt, resolutions numbered 7 and 8 in the notice of EGM regarding the CB Repurchases) at the EGM. Save for the aforesaid, no other Shareholder is required to abstain from voting on any resolution approving the Transactions, the GEM LR Transactions and/or the Intradak Exclusivity Undertaking.

A proxy form for use in the EGM is enclosed. Whether or not you propose to attend the meeting, you are requested to complete the enclosed proxy form in accordance with the instructions printed thereon and return the same to the office of the share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

LETTER FROM THE BOARD

(X) RECOMMENDATION

On the basis of the information set out in this circular, the Board (including members of the Independent Board Committee and the GEM LR Independent Board Committee) consider that the Transactions and the GEM LR Transactions are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. As such, the Board (including members of the Independent Board Committee and the GEM LR Independent Board Committee) recommend the Independent Shareholders and the GEM LR Transactions Independent Shareholders to vote in favor of the relevant resolutions as set out in the notice of EGM to approve the Transactions and the GEM LR Transactions respectively.

The Independent Board Committee, comprising all non-executive Directors and independent nonexecutive Directors in compliance with Rule 2.8 of the Takeovers Code, has been established to consider the terms of the Transactions and advise the Independent Shareholders as to whether the terms of the Transactions are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole and its recommendation as to the voting, after taking into account the recommendation of the Independent Financial Adviser. In this connection, the Independent Financial Adviser has been appointed and approved by the Independent Board Committee to advise the Independent Board Committee and the Independent Shareholders in the same regard.

The GEM LR Independent Board Committee, comprising all independent non-executive Directors in compliance with the GEM Listing Rules, has been established to consider the terms of the GEM LR Transactions and advise the GEM LR Transactions Independent Shareholders as to whether the terms of the GEM LR Transactions are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole and its recommendation as to the voting, after taking into account the recommendation of the Independent Financial Adviser. In this connection, the Independent Financial Adviser has been appointed and approved by the GEM LR Independent Board Committee to advise the GEM LR Independent Board Committee and the GEM LR Transactions Independent Shareholders in the same regard.

(XI) ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board MelcoLot Limited Ko Chun Fung, Henry

Executive Director and Chief Executive Officer

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendation from the Independent Board Committee to the Independent Shareholders prepared by inclusion in this circular.

==> picture [52 x 53] intentionally omitted <==

==> picture [63 x 32] intentionally omitted <==

MelcoLot Limited

(incorporated in the Cayman Islands with limited liability) (Stock Code: 8198)

Units 3101-2A, 31st Floor The Centrium 60 Wyndham Street Central, Hong Kong

26 September 2012

To the Independent Shareholders

Dear Sir and Madam,

(I) VERY SUBSTANTIAL DISPOSALS, CB REPURCHASES AND CONNECTED TRANSACTIONS; (II) PROPOSED OPEN OFFER ON THE BASIS OF THREE OFFER SHARES FOR EVERY EXISTING SHARE HELD ON THE RECORD DATE; (III) WHITEWASH WAIVER; AND (IV) PROPOSED INCREASE IN AUTHORISED CAPITAL

We have been appointed as members of the Independent Board Committee to advise you in respect of the terms of the Transactions, details of which are set out in the “Letter from the Board” in the circular dated 26 September 2012 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

We wish to draw your attention to the letter of advice from AIM as set out on pages 68 to 117 of this Circular, which contains its advice and recommendation to us as to whether the terms of the Transactions are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole, as well as the reasons, key assumptions and factors for its advice and recommendation.

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered, amongst other matters, the reasons, key assumptions and factors considered by, and the advice and recommendation of the Independent Financial Adviser, we are of the opinion that the terms of the Transactions are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the relevant resolutions as set out in the notice of EGM to approve the Transactions.

Yours faithfully,

For and on behalf of the Independent Board Committee

Mr. Chan Sek Keung, Ringo Mr. Wang, John Peter Ben

Non-executive Directors

Mr. Tsoi, David Mr. Pang Hing Chung, Alfred Mr. So Lie Mo, Raymond

Independent non-executive Directors

LETTER FROM THE GEM LR INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendation from the GEM LR Transactions Independent Board Committee to the GEM LR Transactions Independent Shareholders prepared by inclusion in this circular.

==> picture [52 x 53] intentionally omitted <==

==> picture [63 x 32] intentionally omitted <==

MelcoLot Limited

(incorporated in the Cayman Islands with limited liability) (Stock Code: 8198)

Units 3101-2A, 31st Floor The Centrium 60 Wyndham Street Central, Hong Kong

26 September 2012

To the GEM LR Transactions Independent Shareholders

Dear Sir and Madam,

(I) VERY SUBSTANTIAL DISPOSALS, CB REPURCHASES AND CONNECTED TRANSACTIONS; (II) INTRADAK EXCLUSIVITY UNDERTAKING AND CONNECTED TRANSACTION; (III) PROPOSED OPEN OFFER ON THE BASIS OF THREE OFFER SHARES FOR EVERY EXISTING SHARE HELD ON THE RECORD DATE; AND (IV) PROPOSED INCREASE IN AUTHORISED CAPITAL

We have been appointed as members of the GEM LR Transactions Independent Board Committee to advise you in respect of the terms of the GEM LR Transactions, details of which are set out in the “Letter from the Board” in the circular dated 26 September 2012 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

We wish to draw your attention to the letter of advice from AIM as set out on pages 68 to 117 of this Circular, which contains its advice and recommendation to us as to whether the terms of the GEM LR Transactions are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole, as well as the reasons, key assumptions and factors for its advice and recommendation.

LETTER FROM THE GEM LR INDEPENDENT BOARD COMMITTEE

Having considered, amongst other matters, the reasons, key assumptions and factors considered by, and the advice and recommendation of the Independent Financial Adviser, we are of the opinion that the terms of the GEM LR Transactions are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. We therefore recommend the GEM LR Transactions Independent Shareholders to vote in favour of the relevant resolutions as set out in the notice of EGM to approve the GEM LR Transactions.

Yours faithfully,

For and on behalf of the GEM LR Transactions Independent Board Committee Mr. Tsoi, David Mr. Pang Hing Chung, Alfred Mr. So Lie Mo, Raymond Independent non-executive Directors

LETTER FROM AIM

Set out below is the text of the letter of advice from AIM to the Independent Board Committee, the GEM LR Independent Board Committee, the Independent Shareholders and the GEM LR Transactions Independent Shareholders prepared for inclusion in this circular.

Asia Investment Management Limited Room 1203, 12[th] Floor, Tower 2 Lippo Centre, Admiralty, Hong Kong

26 September 2012

To the GEM LR Independent Board Committee, the Independent Board Committee, the GEM LR Transactions Independent Shareholders and the Independent Shareholders of MelcoLot Limited

Dear Sirs,

(I) VERY SUBSTANTIAL DISPOSALS, CB REPURCHASES AND CONNECTED TRANSACTIONS; (II) INTRADAK EXCLUSIVITY UNDERTAKING AND CONNECTED TRANSACTION; (III) PROPOSED OPEN OFFER ON THE BASIS OF THREE OFFER SHARES FOR EVERY EXISTING SHARE HELD ON RECORD DATE; (IV) WHITEWASH WAIVER; AND (V) PROPOSED INCREASE IN AUTHORISED CAPITAL

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise (i) the GEM LR Independent Board Committee and the GEM LR Transactions Independent Shareholders in relation to the GEM LR Transactions, and (ii) the Independent Board Committee and the Independent Shareholders in relation to the Transactions as announced on 14 August 2012 (the “ Announcement ”). Details of the GEM LR Transactions and the Transactions were set out in the Announcement and in the letter from the board of directors (the “ Board ”) of the Company (the “ Letter from the Board ”) set out on pages 14 to 63 of the circular of the Company dated 26 September 2012 (the “ Circular ”) to the shareholders (the “ Shareholders ”) of the Company, of which this letter forms part. Terms used in this letter have the same meanings as those defined in the Circular unless the context otherwise requires.

The Board announced, on 14 August 2012, amongst others, the Intralot Disposal and the GCH Disposal (together refer to as the “ Disposals ”) under the Intralot Agreement and the GCH Agreement (together refer to as the “ Disposal Agreements ”) and the CB Repurchases comprising the repurchase of the Intralot 2013 Convertible Bonds and the repurchase of the GCH 2012 Convertible Bonds by the Company. As certain of the applicable percentage ratios as calculated under Rule 19.07 of the GEM Listing Rules exceed 75%, in respect of each of the Intralot Disposal and the GCH Disposal, the Disposals constitute, in each of their respects, very substantial disposals for the Company under the GEM Listing Rules. As at the Latest Practicable Date, Intralot, together with its associates, was interested

LETTER FROM AIM

in 52,973,779 Shares (representing approximately 10.53% of the issued share capital of the Company). Accordingly, Intralot is a substantial Shareholder and hence a connected person of the Company. GCH is a connected person of the Company by virtue of it being a substantial shareholder of Oasis Rich, an indirect 60% owned subsidiary of the Company. The transactions under the Disposals as contemplated under the Disposal Agreements, therefore, constitute connected transactions of the Company under Chapter 20 of the GEM Listing Rules. The Disposals and the CB Repurchases are subject to the reporting, announcement and independent Shareholders’ approval requirements.

Under the Intralot Agreement and the GCH Agreement, the Company has conditionally agreed to repurchase, respectively, the Intralot 2013 Convertible Bonds and the GCH 2012 Convertible Bonds (together, the “ CB Repurchases ”), which, in turn, will constitute an off-market share repurchase under the Repurchase Code and must be approved by the Executive pursuant to Rule 2 of the Repurchase Code. Such approval, if given, will be conditional upon, amongst others, the approval of the CB Repurchases by at least three-fourths of the votes cast on a poll by the Independent Shareholders in attendance in person or by proxy at the EGM. An application has been made to the Executive for the approval of the CB Repurchases pursuant to Rule 2 of the Repurchase Code.

In the Announcement, it was also mentioned that the unconditional Wu Sheng Exclusivity Undertaking and the conditional Intradak Exclusivity Undertaking (together, the “ Exclusivity Undertakings ”) were entered into in order that the supply of the approved lottery vending machines (the “ Approved LVM ”) and the business interest of the Group under Beijing Telenet would be safeguarded and not be jeopardised after completion of the Disposals. The Intradak Exclusivity Undertaking constitutes a connected transaction of the Company under Chapter 20 of the GEM Listing Rules as Intradak is owned as to 35% and 20% by Beijing Haiyin and Mr. Ding respectively. Mr. Ding, together with Mrs. Ding, are controlling shareholders of Beijing Haiyin and substantial shareholders (through Beijing Haiyin) of Beijing Telenet and Mr. Ding is a director of Beijing Telenet and indirectly, through Mrs. Ding, interested in 22,668,000 Shares as at the Latest Practicable Date. Accordingly, the Intradak Exclusivity Undertaking is subject to reporting, announcement and independent Shareholders’ approval requirements under Chapter 20 of the GEM Listing Rules.

As disclosed in the Letter from the Board, the Company proposed to raise not more than approximately HK$133.8 million, before expenses, by issuing not more than 1,716,014,799 Offer Shares (assuming all Shareholders take up their assured entitlements under the Open Offer and full subscription rights attaching to the Share Options (excluding the Excluded Options) have been exercised on or before the Latest Lodging Time and their respective assured entitlements to the Offer Shares have been taken up) by way of the Open Offer at a price of HK$0.078 per Offer Share on the basis of three Offer Shares for every existing Share held by the Qualifying Shareholders on the Record Date. The Open Offer will be available only to the Qualifying Shareholders. Since the Open Offer will increase the issued share capital of the Company by more than 50% within the twelve-month period immediately preceding the Latest Practicable Date, the Open Offer is conditional on the approval by the GEM LR Transactions Independent Shareholders at the EGM by a resolution on which the controlling Shareholders, if any, are required to abstain from voting in favour of the Open Offer. As at the Latest Practicable Date, the Company is not aware of any Shareholder being a controlling Shareholder.

LETTER FROM AIM

On 14 August 2012, the Company has entered into the Underwriting Agreement with Melco LV and Power Way (both acting as the Underwriters), pursuant to which, the Underwriters have agreed to underwrite up to 1,273,566,615 Underwritten Shares in aggregate. The Open Offer will not be fully underwritten but will, subject to fulfillment of certain conditions of the Open Offer and the Underwriting Agreement, proceed regardless of the ultimate subscription level. As at the Latest Practicable Date, none of the substantial Shareholders have undertaken to take up their respective assured entitlements to the Open Offer either in part or in full.

Pursuant to the Open Offer and the Underwriting Agreement and on the assumption that (i) the Underwriters and parties acting in concert with any of them take up, in full, their entitled Offer Shares under the Open Offer; (ii) no other Qualifying Shareholders subscribe for the Offer Shares; (iii) no subscription rights attached to the outstanding Share Options or conversion rights attached to the outstanding convertible bonds of the Company have been exercised; and (iv) the Underwriters subscribe for the Underwritten Shares pursuant to the Underwriting Agreement, the aggregate percentage shareholdings of the Underwriters and parties acting in concert with any of them in the Company would be increased from approximately 28.92% to approximately 78.43%. On such basis, the Underwriters and parties acting in concert with any of them will be obliged to make a mandatory offer under Rule 26 of the Takeovers Code for all the Shares and other securities issued by the Company not already held or agreed to be acquired by the Underwriters and parties acting in concert unless the Whitewash Waiver is granted by the Executive. An application has been made by the Underwriters to the Executive for the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, will be subject to, among other things, the approval of the Independent Shareholders at the EGM by way of poll. It is one of the conditions of the Open Offer and the Underwriting Agreement that the Whitewash Waiver being granted by the Executive and being approved by the Independent Shareholders at the EGM by way of poll. If the Whitewash Waiver is not granted by the Executive and/or not approved by the Independent Shareholders, the Open Offer will not proceed.

As disclosed in the Letter from the Board, as at the Latest Practicable Date, (i) the Underwriters and parties acting in concert with them were interested in 145,460,938 Shares, representing approximately 28.92% of the issued share capital of the Company; (ii) Mr. Ding, through Mrs. Ding, was interested in 22,668,000 Shares, representing approximately 4.51% of the issued share capital of the Company; (iii) Mr. Chan Sek Keung, Ringo, being a non-executive Director, was interested in 53,276,000 Shares, representing approximately 10.59% of the issued share capital of the Company; (iv) Mr. Tsoi, David, being an independent non-executive Director, was interested in 976,000 Shares, representing approximately 0.19% of the issued share capital of the Company; and (v) Mr. Pang Hing Chung, Alfred, being an independent non-executive Director, was interested in 1,500,000 Shares, representing approximately 0.30% of the issued share capital of the Company. By reason of the requirements of the Takeovers Code and the Repurchase Code, the Underwriters and any parties acting in concert with any of them and

LETTER FROM AIM

the Shareholders who are involved in or interested in the Transactions will abstain from voting on the Transactions (other than the Proposed Increase in Authorised Capital) at the EGM. By reason of the GEM Listing Rules, (i) Melco LV, Intralot, Firich, GCH and their respective associates will abstain from voting on the GEM LR Transactions (other than the Intradak Exclusivity Undertaking and the Proposed Increase in Authorised Capital); (ii) Mrs. Ding and her associates will abstain from voting on the entering into of the Intradak Exclusivity Undertaking; and (iii) the Directors (excluding the independent non-executive Directors), who are also Shareholders, and their respective associates will abstain from voting in favour of the GEM LR Transactions (other than the Proposed Increase in Authorised Capital, the entering into of the Intradak Exclusivity Undertaking and, for the avoidance of doubt, resolutions numbered 7 and 8 in the notice of EGM regarding the CB Repurchases) at the EGM. Save for the aforesaid, no other Shareholder is required to abstain from voting on any resolution approving the Transactions, the GEM LR Transactions and/or the Intradak Exclusivity Undertaking. In regard to the details of voting arrangement at the EGM, Shareholders are advised to make reference to the Letter from the Board.

The GEM LR Independent Board Committee has been established to advise the GEM LR Transactions Independent Shareholders on (i) the fairness and reasonableness of the GEM LR Transactions; (ii) whether or not the GEM LR Transactions are in the interests of the Company and the Shareholders as a whole; and (iii) whether or not to vote for the resolutions to be proposed in relation to the GEM LR Transactions at the EGM. We have enquired and were informed that the GEM LR Independent Board Committee comprises, Mr. Tsoi, David, Mr. Pang Hing Chung, Alfred and Mr. So Lie Mo, Raymond, all of them being the independent non-executive Directors who, in compliance with Rule 17.47(6)(a) of the GEM Listing Rules, have no direct or indirect interest in the GEM LR Transactions.

The Independent Board Committee has been established to advise the Independent Shareholders on (i) as to whether the Transactions are, or are not, fair and reasonable; and (ii) as to the voting for the resolutions to be proposed in relation to the Transactions at the EGM. We have enquired and were informed that the Independent Board Committee comprises, Mr. Chan Sek Keung, Ringo, Mr. Wang, John Peter Ben, Mr. Tsoi, David, Mr. Pang Hing Chung, Alfred and Mr. So Lie Mo, Raymond, all the nonexecutive Directors and independent non-executive Directors who, in compliance with Rule 2.8 of the Takeovers Code, have no direct or indirect interest in the Transactions.

Apart from normal professional fees for our services to the Company in connection with the engagement described above, no arrangement exists whereby we will receive any fees and/or benefits from the Group, the connected parties to the GEM LR Transactions and the Transactions, and/or any of their respective associates. We are independent from, and not connected with, the Group, the connected parties to the GEM LR Transactions and the Transactions, or any of their respective substantial shareholders, directors or chief executives, or any of their respective associates pursuant to Rule 17.96 of the GEM Listing Rules, and are accordingly qualified to give independent advice to (i) the GEM LR Independent Board Committee and the GEM LR Transactions Independent Shareholders regarding the GEM LR Transactions, and (ii) the Independent Board Committee and the Independent Shareholders regarding the Transactions.

LETTER FROM AIM

BASIS OF OUR OPINION

In formulating our opinion and recommendations, we have reviewed the relevant agreements executed under the GEM LR Transactions and the Transactions, the relevant announcements and circulars of the Company since 2007, the interim reports and annual reports of the Company and information provided by the Company, the accountants’ reports of Precious Success, Gain Advance, Oasis Rich and the Group reported by Deloitte Touche Tohmatsu as contained in Appendices I to IV to the Circular, the unaudited pro forma financial information of the Remaining Group prepared by the Company and reviewed by Deloitte Touche Tohmatsu as contained in Appendix VI to the Circular. We have also reviewed certain information and facts provided by the management of the Company (the “ Management ”) relating to the operations, financial condition and prospects of the Group. We have reviewed the opinion and information provided by the reporting accountants, including reviewing the terms of engagement (having particular regard to the scope of work, whether the scope of work is appropriate to the opinion required to be given and any limitations on the scope of work which might adversely impact on the degree of assurance given by the accountants’ report, opinion or statement). Based on the foregoing, we consider that we have taken all the reasonable steps as referred to and required under Rule 17.92(2)(b) of the GEM Listing Rules in forming our opinion. We have (i) considered such other information, analyses and market data as we deemed relevant; and (ii) conducted discussions with the Management regarding the terms of the Disposal Agreements and the CB Repurchases, the bases for determination of the considerations of the Disposals, the terms of the Intradak Exclusivity Undertaking, the reasons for the Open Offer, the bases for determination of the terms of the Open Offer (including the absence of excess application arrangement under the Open Offer), the terms of the Underwriting Agreement, the Whitewash Waiver, the businesses and the future outlook of the Group.

We consider that we have reviewed all currently available information and documents which are provided to us under present circumstances to enable us to reach an informed view regarding the terms of, and the reasons for, the GEM LR Transactions and the Transactions and we have relied on the information, facts and representations contained or referred to in the Circular and the information, facts and representations provided by, and the opinions expressed by the Directors, the Company and the Management so as to provide a reasonable basis of our opinion. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the businesses or affairs or future prospects of the Group. We have not conducted any physical site visit to the companies which are the subject within the context of the GEM LR Transactions and the Transactions. We have relied solely on the representation made by the Management and the Board as to the business outlook and performance of the Group. Subsequent to the dispatch date of the Circular, the Company will notify the Shareholders of any material changes in the Circular, if any, as soon as possible. Our opinion is necessarily based on financial, economic, market and other conditions in effect, and the information made available to us, at the date of the Circular.

We are not responsible for the negotiation of the terms of the Disposal Agreements and all other agreements under the GEM LR Transactions and the Transactions, and the outcomes resulting from the completion or non-completion and compliance or non-compliance of the relevant agreements. This letter is issued to provide the information solely for the GEM LR Independent Board Committee, the Independent Board Committee, the GEM LR Transactions Independent Shareholders and the Independent

LETTER FROM AIM

Shareholders in connection with their consideration of the GEM LR Transactions and the Transactions contemplated under the agreements as disclosed in the Circular, and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

We have not considered the tax consequences on the Qualifying Shareholders arising from the Open Offer since these are particular to their individual circumstances. In particular, the Qualifying Shareholders who are resident outside Hong Kong or subject to overseas taxes or Hong Kong taxation on securities dealings should consider their tax positions with regard to the Open Offer and, if in any doubt, should consult their own professional advisers.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion regarding the Disposals, the CB Repurchases, the Intradak Exclusivity Undertaking, the Open Offer, the Underwriting Agreement and the Whitewash Waiver, we have taken into consideration the following principal factors and reasons:

I. Background

The Company is primarily an investment holding company and its subsidiaries are principally engaged in lottery business in the PRC.

1. History and development of the lottery business

The Company has been pursuing lottery business since 2007 after a series of acquisitions of various lottery related businesses and assets. In 2007, the Group completed a very substantial acquisition to acquire certain entities from Power Way comprising, mainly, Wu Sheng (by way of acquiring 60% of the entire issued share capital of Oasis Rich), Beijing Telenet and the PAL Beijing Group which are respectively engaging in manufacturing of lottery vending machines, trading of lottery vending machines and provision of management services for distribution of lottery products in the PRC (the “ 2007 VSA ”). The consideration for the 2007 VSA was HK$668 million, out of which, HK$606.8 million was satisfied by way of issue of the 2012 Convertible Bonds to Power Way and the balance was settled by issuing consideration shares. Details of the 2007 VSA were disclosed in the circular of the Company dated 19 November 2007. The 2007 VAS was approved at the extraordinary general meeting of the Company held on 5 December 2007. As disclosed in the 2011 annual report of the Company, Power Way had subsequently distributed the 2012 Convertible Bonds to its shareholders, including but not limited to, GCH as to the principal amount of HK$175,188,566 (i.e. the GCH 2012 Convertible Bonds).

In March 2008, the Group expanded its lottery business to South Korea by investing in 14% equity interest in Nanum Lotto Inc. (“ Nanum ”) through the acquisition of 100% equity interest in KTeMS Co., Ltd. (“ KTeMS ”) at a consideration of US$12 million (equivalent to approximately HK$93.6 million) (the “ 2008 Nanum Acquisition ”). The 2008 Nanum Acquisition was mainly financed by the then shareholder’s loan of HK$80 million from Power Way (the “ Power Way Loan ”). Details of the 2008 Nanum Acquisition were disclosed in the circular of the Company dated 27 March 2008. The 2008 Nanum Acquisition was approved at the extraordinary general meeting of the Company held on 15 April 2008.

LETTER FROM AIM

In September 2008, the Group acquired from Intralot intangible assets comprising (i) (a) the exclusive license right to use and sublicense the most current version of certain computer software programs and the documentations for projects related to the CSLA for an initial period of 3-years commencing from the completion of the Asset Transfer Agreement, which was lapsed on 9 December 2011; and thereafter (b) the perpetual non-exclusive license right to use and sublicence the most current version of certain computer software programs and the documentations for projects related to the CSLA; and (ii) the perpetual non-exclusive licence right to use and sublicence the most current version of certain computer software programs and the documentations for projects related to the CWL (the “ 2008 Licence Acquisition ”). The software is a system platform to support and upgrade the lottery products and gaming operations. The consideration for the 2008 Licence Acquisition was approximately HK$305.1 million, out of which, approximately HK$277.2 million was satisfied by way of issue of the Intralot 2013 Convertible Bonds and the balance was settled by issuing approximately 28.2 million Shares at the issue price of HK$0.991 per Share. Details of the 2008 Licence Acquisition were disclosed in the circular of the Company dated 11 November 2008. The 2008 Licence Acquisition was approved at the extraordinary general meeting of the Company held on 4 December 2008.

The Group became a diversified software and hardware lottery terminal manufacturer and service solution provider upon completion of the 2007 VSA, the 2008 Nanum Acquisition and the 2008 Licence Acquisition. By the end of 2009, the Group disposed of its non-core businesses involving network system integration and provision of network infrastructure solutions.

2. Financial highlights of the Group

The Group established its lottery business through acquisitions of related business and assets, which was mainly financed by way of issue of consideration shares, issue of convertible bonds and borrowing from Power Way. However, the performance of the lottery business was not as promising as expected and kept deteriorating in the last few years. The Group remained in a loss position for the past three years as a result of the heavy financing cost resulted from the convertible bonds and the Power Way Loan and the impairment loss on goodwill. Set out below is the extract of the financial performance and position of the Group for the three years ended 31 December 2009, 2010 and 2011 (respectively referred to as “ FY2009 ”, “ FY2010 ” and “ FY2011 ”) and the five months ended 31 May 2011 and 2012 (respectively referred to as “ PE2011 05 ” and “ PE2012 05 ”). For the full financial information of the Group please refer to Appendix IV to the Circular.

LETTER FROM AIM

Table 1: Financial highlights of the Group

		FY2009	FY2010	FY2011	PE2011 05	PE2012 05
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(audited)	(audited)	(audited)	(unaudited)	(audited)
Revenue		86,110	80,608	96,622	29,344	15,883
(Loss) attributable to
the Shareholders		(388,019)	(160,908)	(209,219)	(85,931)	(75,209)
		As at	As at	As at		As at
	31/12/2009		31/12/2010	31/12/2011		31/05/2012
		HK$’ 000	HK$’ 000	HK$’ 000		HK$’ 000
		(audited)	(audited)	(audited)		(audited)
Total assets		508,769	442,281	304,521		280,993
Total (liabilities)		(709,951)	(807,562)	(895,026)		(943,619)
Net current assets/(liabilities)		114,308	1,105	(571,342)		(538,656)
Net (liabilities) attributable
to the Shareholders		(220,065)	(375,134)	(615,405)		(682,685)

Source: the financial information and accountants’ report of the Group as set out in Appendix IV to the Circular

2.1 FY2010 versus FY2009

The revenue in FY2010 slightly decreased by approximately 6.4% to approximately HK$80.6 million as compared with that of approximately HK$86.1 million as recorded in FY2009. Such decrease in revenue was mainly due to the deferred orders of lottery terminals from CSLA, which is the exclusive sports lottery operator in the PRC. Loss attributable to the Shareholders in FY2010 was considerably reduced to approximately HK$160.9 million from approximately HK$388.0 million in FY2009 as the impairment loss on goodwill of approximately HK$38.8 million recognized in FY2010 was substantially lower than that of approximately HK$216.9 million in FY2009. Such impairment loss on goodwill was recognized with reference to the valuation carried out by an independent qualified professional valuer in respect of goodwill arising from acquisitions of subsidiaries by the Group in prior years. Loss attributable to the Shareholders in FY2010 comprised mainly non-cash charges for impairment loss on goodwill, imputed interest on the convertible bonds, and depreciation and amortization expenses of approximately HK$136.4 million.

As at 31 December 2010, the total liabilities and net liabilities attributable to the Shareholders amounted to approximately HK$807.6 million and approximately HK$375.1 million, respectively. The net liabilities attributable to the Shareholders was mainly attributable to the liability component of the convertible bonds of HK$640.4 million and the accumulated losses generated by non-cash accounting charges.

LETTER FROM AIM

2.2 FY2011 versus FY2010

The revenue in FY2011 increased from approximately HK$80.6 million to approximately HK$96.6 million, representing a year-on-year growth of approximately 19.9%. The significant increase in revenue was mainly due to the consolidation of the revenue of Beijing Telenet into the Group as a non wholly-owned subsidiary of the Company since July 2011. Loss attributable to the Shareholders in FY2011 amounted to approximately HK$209.2 million, representing an increase of approximately 30.0% as compared to that of approximately HK$160.9 million in FY2010. Such increase was mainly due to (i) the oneoff impairment loss of approximately HK$75.0 million on intangible assets in relation to the expiry of the exclusivity period for the lottery software licenses in December 2011; and (ii) the impairment loss on trade and other receivables of approximately HK$11.7 million as the chance of collection of the outstanding amounts being remote, and partially offset by the recognition of the net foreign exchange gain of approximately HK$36.3 million mostly arising from the translation of convertible bonds. Loss attributable to the Shareholders in FY2011 comprised primarily non-cash charges such as impairment losses on intangible assets and goodwill, depreciation and amortization expenses and imputed interest on convertible bonds.

As at 31 December 2011, the total liabilities and net liabilities attributable to the Shareholders were approximately HK$895.0 million and approximately HK$615.4 million, respectively. Outstanding convertible bonds of approximately HK$727.8 million accounted for approximately 81.3% of the total liabilities.

2.3 PE2012 05 versus PE2011 05

The total revenue in PE2012 05 amounted to approximately HK$15.9 million, representing a decrease of approximately 45.9% as compared to approximately HK$29.3 million in PE2011 05. The decrease was mainly due to the reduced revenue from the sales of lottery terminals. Loss attributable to the Shareholders in PE2012 05 decreased by approximately 12.5% to approximately HK$75.2 million, as compared to that as recorded in PE2011 05.

The total liabilities and net liabilities attributable to the Shareholders as at 31 May 2012 were approximately HK$943.6 million and approximately HK$682.7 million, respectively. The outstanding convertible bonds amounted to approximately HK$768.8 million, representing approximately 81.5% of the total liabilities.

For further detailed discussion of the financial performance and position of the Group in FY2009, FY2010 and FY2011, please refer to the published annual reports of the Company.

LETTER FROM AIM

3. Reorganisation

In mid-2011, the Board proposed a series of ways to reorganize its lottery business in order to turn around its prolonged unsatisfactory operating results, improve its net liabilities position and find a means to reduce and to repay its debts under the 2012 Convertible Bonds, the Intralot 2013 Convertible Bonds and the Power Way Loan. In July 2011, the board of directors of Beijing Telenet resolved to amend the articles of association of Beijing Telenet and, as a result, the accounts of Beijing Telenet have been consolidated to the accounts of the Group. In September 2011, the Group, through Precious Success, acquired the remaining 20% equity interest of PAL and subsequently PAL became an indirect wholly-owned subsidiary of the Company. We enquired and were informed by the Management that it undertook a series of discussion and negotiation with each of the bondholders in respect of the possible sale of certain businesses of the Group and the possible means of settlement for retiring the 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds. Since (i) Intralot is currently a licence service provider of the Group and its parent company, Intralot S.A., is an investor holding 15% equity interest in Nanum; (ii) GCH is currently a shareholder of Oasis Rich with 32.86% equity interest; (iii) both Intralot and GCH are the bondholders of the Company, the Management considered that Intralot and GCH would inevitably be involved as a part of the reorganisation plan of the Group for the possible ways to reorganize the Group, including but not limited to, the possible disposal of certain assets and subsidiaries of the Group to them and the repurchases of the convertible bonds held by them. On 26 June 2012, the Company entered into the Intralot Agreement and the GCH Agreement with Intralot and GCH respectively. To allow the Group to repay the Power Way Loan and have sufficient working capital for sustaining its business, the Company announced, on 14 August 2012, the Open Offer and the Underwriting Agreement (including the Set Off). Details of the aforesaid group reorganisation and the agreements contemplated thereunder were set out in the announcements of the Company dated 27 July 2011, 19 September 2011 and 14 August 2012, respectively.

We have discussed with the Management the general outlook of the existing business of the Group and the recent development and performance of the lottery business in the PRC. We have researched information on the public domain and analysed the published financial statements of companies which are in similar business to the Group. We have also reviewed (i) the audited financial statements for the three years ended 31 December 2009, 2010 and 2011 and the five months ended 31 May 2011 and 2012 of Precious Success, Gain Advance and Oasis Rich as set out in Appendices I, II and III to this Circular, all being entities to be disposed, in whole or in part, by the Group under the Disposals; and (ii) the unaudited pro-forma financial information of the Remaining Group prepared by the Company and reviewed by Deloitte Touche Tohmatsu. We are of the view that the lottery business in the PRC is, and will continue to be, under strict control by the relevant governing authorities and remains as a challenging business in certain aspects. The success of the business of the Group lies upon, among others, its ability to successfully bid for the projects from CSLA and CWL and to renew its licence as qualified vendors or distributors, which the Group has endeavored to do so from time to time. The re-financing of the significant amount of convertible bonds due to bondholders and the outstanding loan due to Power Way is a threat to going concern of the Company. The diminishing cash position to a historical low level of approximately HK$15.0 million as at 31 May 2012 and the negative operating cashflow from the ongoing operation in the lottery business are another contributing factors for a compelling reason to the Disposals, the CB Repurchases, the Open Offer, the Underwriting Agreement and the Whitewash Waiver.

LETTER FROM AIM

We have reviewed the financial information and accountants’ report of the Group as set out in Appendix IV to the Circular. There were certain factors, including (i) the Group recorded recurring losses in FY2009, FY2010, FY2011 and PE2012 05; (ii) the Group incurred a loss of approximately HK$79.9 million in PE2012 05; and (iii) the Group’s current liabilities exceeded its current assets and total assets by approximately HK$538.7 million and HK$391.0 million as at 31 May 2012, that indicated the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. We also noted that the Board has considered a number of factors (“ Going Concern Factors ”) for the preparation of the financial statements of the Group on a going concern basis, which include amongst others, (i) the agreement by the bondholders not to request cash redemption of the convertible bonds on or before the maturity dates unless the Group has the necessary financial resources available for cash redemption to occur; (ii) the likelihood of concluding the Disposals and the CB Repurchases; and (iii) the possibility of the Open Offer. Shareholders can refer to note 2 of section A (pages IV-15 and IV-16) of Appendix IV to the Circular.

Given that (i) the Disposals provide an opportunity for the Group to withdraw from the noncore investment in South Korea and the capital intensive manufacturing business in Wu Sheng, and to refocus its area of operation and investment and re-align its management and financial resources in investments in order to consolidate its businesses; (ii) the CB Repurchases offer an opportunity to the Company to reduce its debts and exposure to bondholders under the convertible bonds; (iii) the entering into of the Wu Sheng Exclusivity Undertaking and the Intradak Exclusivity Undertaking provides protection to Beijing Telenet in its commercial dealings in respect of procurement from Wu Sheng and sale to Intradak of the Approved LVM; and (iv) the Open Offer, as discussed in paragraph headed “ IV. Proposed Open Offer, Underwriting Agreement and Whitewash Waiver – 2. Alternative to the Open Offer ”, is the best means currently available to provide the Group with cash resources to reduce its debt level and sustain its ongoing operation, we consider that it is fair and reasonable for the Board to make reference to the Going Concern Factors as the bases to prepare the financial statements of the Group on a going concern basis.

Having considered the current liquidity and financial position of the Group and, in particular, that (i) the GCH 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds with carrying values of HK$166.6 million and HK$191.7 million, respectively, (represented, in aggregate, approximately 38.0% of the total liabilities as at 31 May 2012) will fall due on 13 December 2012 and 9 December 2013, respectively; (ii) the net liabilities attributable to the Shareholders as at 31 May 2012 amounted to approximately HK$682.7 million; and (iii) the existence of a material uncertainty concerning the Group’s ability to continue as a going concern, we are of the view that the reorganisation is the only way forward if the Company wishes to remain sustainable in the near to medium term and is, therefore, in the interest of the Company and the Shareholders as a whole. Further discussion on the financial effects of the reorganisation and others are set out hereunder.

LETTER FROM AIM

II. The Disposals, the CB Repurchases and the Remaining Group

1. The Intralot Disposal

On 26 June 2012, the Company, Rising Move and Intralot entered into the Intralot Agreement in relation to:

a. the disposal of the GA Sale Shares and the PS Sale Shares by Rising Move, for a consideration of HK$277,175,310; and
b. the repurchase of the Intralot 2013 Convertible Bonds by the Company for a consideration of HK$277,175,310.

The consideration payable by Intralot for the purchase of the GA Sale Shares and the PS Sale Shares (the “ Intralot Consideration ”) and the consideration payable by the Company for the repurchase of the Intralot 2013 Convertible Bonds (the “ Intralot 2013 Convertible Bonds Consideration ”) shall be set off against each other at Intralot Disposal Completion.

1.1 Gain Advance, KTeMS, Nanum and the GA Sale Shares

Gain Advance , an investment holding company incorporated in Gain Advance the British Virgin Islands, is an indirect wholly-owned subsidiary of the 100% Company. Its principal asset, through its 100% equity interest in KTeMS KTeMs Co., Co., Ltd. (“ KTeMS ”), is 14% indirect equity interest in Nanum Lotto Inc. Ltd. (“ Nanum ”). 14% KTeMS is an investment holding company incorporated in South Nanum Lotto Korea and is wholly owned by Gain Advance. On 28 February 2008, Inc. Gain Advance entered into an acquisition agreement with nine individuals (including eight independent third parties and one then connected party) for the acquisition of the entire issued share capital of KTeMS at a consideration of US$12 million (equivalent to approximately HK$93.6 million) (the “ 2008 Nanum Acquisition ”). Since completion of the 2008 Nanum Acquisition, KTeMS has been holding the 14% equity interest in Nanum, which is the sole investment of KTeMS. According to the 2008 interim report of the Company, the 2008 Nanum Acquisition was financed by the then shareholder’s loan of HK$80 million from Power Way (the “ Power Way Loan ”).

Nanum is a limited liability company incorporated in South Korea and is owned as to 14% equity interest by KTeMS. Nanum possesses an exclusive lottery license granted by the Lottery Commission of the Ministry of Strategy and Finance of South Korea to operate national online lotto games in South Korea for an initial term of five years up to 2012. As advised by the Management, such exclusive license has been extended for one year to December 2013. According to Nanum’s official website ( http://www.nanumlotto.co.kr) , Nanum lotto is drawn every Saturday night and approximately 40% of the total lotto sales is being utilized as the lottery fund for various welfare business in South Korea. Shareholders

LETTER FROM AIM

of Nanum include, among others, Intralot S.A. (holding 15% equity interest) and KTeMS (holding 14% equity interest). According to the audited financial statements of Nanum provided by the Management, the financial results and positions of Nanum in FY2010 and FY2011 are as follow:

Table 2: Financial highlights of Nanum

	FY2010	FY2011	FY2010	FY2011
	KRW’ 000	KRW’ 000	equivalent to	equivalent to
			HK$’000	HK$’000
	(audited)	(audited)	(Note)	(Note)
Sales	47,743,004	47,655,026	329,585	321,163
Net income attributable
to the shareholders	5,446,159	4,386,625	37,597	29,563
	As at	As at	As at	As at
	31/12/2010	31/12/2011	31/12/2010	31/12/2011
	KRW’ 000	KRW’ 000	equivalent to	equivalent to
			HK$’000	HK$’000
	(audited)	(audited)	(Note)	(Note)
Non-current assets	46,242,520	8,555,983	319,226	57,662
Current assets	6,594,205	47,843,793	45,522	322,435
Current (liabilities)	(5,000,099)	(5,003,156)	(34,517)	(33,718)
Net assets attributable
to the shareholders	47,464,551	51,291,093	327,662	345,668

Source: information provided by the Management

Note: for illustrative purpose, amounts in KRW are converted to HK$ at the conversion rates of

(i) HK$1.00 = KRW144.8581 for FY2010 and as at 31 December 2010; and

(ii) HK$1.00 = KRW148.3827 for FY2011 and as at 31 December 2011

which are both quoted from Bloomberg

LETTER FROM AIM

The GA Sale Shares represent the entire issued share capital of Gain Advance. The following table, which is extracted from the accountants’ report of Gain Advance as set out in Appendix II to the Circular, shows the key financial results and positions of Gain Advance and its subsidiaries (together referred to as the “ Gain Advance Group ”):

Table 3: Financial highlights of the Gain Advance Group

	FY2009	FY2010	FY2011	PE2011 05	PE2012 05
	HK$	HK$	HK$	HK$	HK$
	(audited)	(audited)	(audited)	(unaudited)	(audited)
Bank interest income	13	25	34	–	–
Net (loss) attributable
to the shareholders	(278,769)	(98,402)	(124,339)	(50,531)	(48,670)
	As at	As at	As at		As at
	31/12/2009	31/12/2010	31/12/2011		31/05/2012
	HK$’ 000	HK$’ 000	HK$’ 000		HK$’ 000
	(audited)	(audited)	(audited)		(audited)
Non-current assets	138,102	138,802	138,102		137,402
Current assets	29	38	43		47
Current (liabilities)	(136,572)	(136,686)	(136,800)		(161)
Net assets attributable
to the shareholders	1,559	2,154	1,346		137,289

Source: the accountants’ report of Gain Advance as set out in Appendix II to the Circular

In FY2009, FY2010, FY2011 and PE2012 05, the Gain Advance Group only recorded bank interest income as revenue. According to the Management, as Gain Advance only holds 14% equity interest of Nanum, the only source of revenue which can be accountable and recognized by the GA Advance Group is dividend income from Nanum. However, Nanum has never declared nor distributed any dividend since Gain Advance’s indirect investment in Nanum. The non-current assets of the Gain Advance Group of approximately HK$137.4 million as at 31 May 2012 represents the investment in 14% equity interest of Nanum, which was measured at cost less impairment as at 31 May 2012.

LETTER FROM AIM

1.2 Precious Success, PAL, PAL Beijing, Beijing Huaying, Shandong Kai Chuan Ji Yuan and the PS Sale Shares

Precious Success is an investment holding company incorporated in the British Virgin Islands. In 2007, the Group conducted a very substantial acquisition to acquire the lottery business and related assets from Power Way at a consideration of HK$668 million, among which, HK$606.8 million was satisfied by way of issue of the 2012 Convertible Bonds (the “ 2007 VSA ”). Upon completion of the 2007 VSA, Precious Success became an indirect wholly-owned subsidiary of the Company and held 80% equity interest in PAL, which in turn, controlled (i) 100% of the PAL Beijing Group; (ii) 52.5% of Beijing Telenet; and (iii) 60% of PALTECH Company Limited. In September 2011, Precious Success acquired the remaining 20% equity interest of PAL from LottVision Investments at a consideration of HK$250,000. As at the Latest Practicable Date, Precious Success was interested in the entire equity interest of PAL, which, through its subsidiaries, is engaged in the lottery business in the PRC including the provision of management services for distribution of lottery products.

PAL is an investment holding company incorporated in Hong Kong and is wholly owned by Precious Success.

Precious Success 100% PAL 100% PAL Beijing 100% Beijing Huaying 65% Shandong Kai Chuan Ji Yuan

PAL Beijing , a company established in the PRC and wholly owned by PAL, represents substantially all of the business operation of PAL and is principally engaged in the provision of management services for distribution of lottery products. PAL Beijing is running 4 shops and 77 lottery vending terminals for the distribution of CSLA lottery products on behalf of Zhonghuicai, which engaged PAL Beijing to provide management services for its entire lottery business. As at the Latest Practicable Date, the PAL Beijing Group had 29 employees, including 6 employees in the provision of technical support, 9 employees in sales and 14 employees in administrative and finance functions.

Beijing Huaying , a company established in the PRC and wholly owned by PAL Beijing, (i) through its Tianjin branch, is engaged in the sale of scratch cards in bulk and distribution of scratch cards to sales agents in Tianjin; and (ii) through its Chongqing branch, is a system provider and the owner of a high frequency lottery game system in Chongqing and is also engaged in system and set-top boxes maintenance and upgrade.

Shandong Kai Chuan Ji Yuan , a company established in the PRC and owned as to 65% equity interest by Beijing Huaying, is engaged in the design and development of the telebetting system as well as the sale of paperless lottery tickets through the telebetting system to its members in Shandong.

LETTER FROM AIM

The PS Sale Shares represent 49% of the entire issued share capital of Precious Success. The following table, which is extracted from the accountants’ report of Precious Success as set out in Appendix I to the Circular, shows the key financial positions and results of Precious Success and its subsidiaries (together referred to as the “ Precious Success Group ”):

Table 4: Financial highlights of the Precious Success Group

	FY2009	FY2010	FY2011	PE2011 05	PE2012 05
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(audited)	(unaudited)	(audited)
Revenue derived
from provision of
services and solutions
for distribution of
lottery products	11,101	12,168	13,240	6,292	2,982
Revenue derived from
sales of lottery
terminals	–	–	12,459	–	–
Net (loss) before tax	(44,630)	(24,926)	(29,152)	(23,454)	(11,524)
Net (loss) attributable
to the shareholders	(35,198)	(19,576)	(26,632)	(18,597)	(10,863)
	As at	As at	As at		As at
	31/12/2009	31/12/2010	31/12/2011		31/05/2012
	HK$’ 000	HK$’ 000	HK$’ 000		HK$’ 000
	(audited)	(audited)	(audited)		(audited)
Non-current assets	24,963	21,031	10,189		6,368
Current assets	102,797	75,660	58,436		14,856
Current (liabilities)	(125,886)	(138,401)	(132,500)		(11,893)
Net assets/(liabilities)
attributable to the
shareholders	(22,797)	(35,767)	(62,936)		10,962

Source: the accountants’ report of Precious Success as set out in Appendix I to the Circular

Revenue of the Precious Success Group was mainly derived from the provision of services and solutions for distribution of lottery products. Throughout FY2009 to FY2011, revenue derived from this segment maintained a stable annual growth of nearly 10% from approximately HK$11.1 million to approximately HK$13.2 million.

LETTER FROM AIM

For the period from 27 July 2011 to 30 September 2011, Beijing Telenet was accounted for as a subsidiary of Precious Success and, therefore, the Precious Success Group recognized revenue of approximately HK$12.5 million from sales of lottery terminals in FY2011. Before July 2011, Beijing Telenet was a jointly controlled entity under the Precious Success Group and the financial results and assets and liabilities of Beijing Telenet were incorporated in the accounts of the Precious Success Group using the equity accounting method. In July 2011, the board of directors of Beijing Telenet resolved to amend the articles of association of Beijing Telenet and, as a result, the accounts of Beijing Telenet were consolidated to the accounts of the Precious Success Group. In September 2011, Beijing Telenet was disposed of by Precious Success to Rising Move, a subsidiary of the Company, and therefore the financial results and assets and liabilities of Beijing Telenet were no longer incorporated in the accounts of the Precious Success Group after September 2011.

Revenue derived in PE2012 05 was substantially lower as compared to PE2011 05 as a result of the closure of some underperformed shops, which formed part of the cost-cutting measures implemented by the Precious Success Group.

While the total revenue increased by approximately 111.2% in FY2011 as compared to that of FY2010, the net loss attributable to the shareholders also increased by approximately 36.0% in FY2011 as a result of the recognition of impairment loss on trade and other receivables of approximately HK$11.0 million. The net loss attributable to the shareholders in PE2012 05 amounted to approximately HK$10.9 million, representing a substantial decrease as compared to PE2011 05 as a result of the decrease in impairment loss on trade and other receivables of approximately HK$8.0 million.

The non-current assets of the Precious Success Group as at 31 December 2011 decreased substantially as compared with that as at 31 December 2010 as a result of the disposal by the Precious Success Group of its indirect interest in Beijng Telenet to Rising Move in September 2011. As at 31 May 2012, the Precious Success Group turned its net liabilities position to net assets position mainly as a result of the capitalization of loan from the Company (which is the ultimate holding company of Precious Success) through issue of new shares of Precious Success.

1.3 Rising Move

Rising Move is an investment holding company and a direct wholly-owned subsidiary of the Company and is the beneficial owner of the 100% issued share capital of Gain Advance and Precious Success as at the Latest Practicable Date.

LETTER FROM AIM

1.4 Intralot

Intralot is an investment holding company and a wholly-owned subsidiary of Intralot S.A.. As at the Latest Practicable Date, Intralot is interested in 52,973,779 Shares (representing approximately 10.53% of the issued share capital of the Company). Accordingly, Intralot is a substantial Shareholder and hence a connected person of the Company. Intralot is also the holder of the Intralot 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds. According to the Letter from the Board, Intralot S.A. holds 15% equity interest of Nanum.

According to the official website of Intralot S.A. (http://www.intralot.com) , Intralot S.A. is the leading supplier of integrated gaming and transaction processing systems, innovative game content, sports betting management and interactive gaming services to state-licensed gaming organizations worldwide. It is an international protagonist in the lottery sector, with more than 5,500 employees and a presence in more than 53 countries on all 5 continents.

In September 2008, the Group acquired from Intralot intangible assets comprising (i) (a) the exclusive license right to use and sublicense the most current version of certain computer software programs and the documentations for projects related to the CSLA for an initial period of 3-years commencing from the completion of the Asset Transfer Agreement, which was lapsed on 9 December 2011; and thereafter (b) the perpetual non-exclusive license right to use and sublicence the most current version of certain computer software programs and the documentations for projects related to the CSLA; and (ii) the perpetual nonexclusive licence right to use and sublicence the most current version of certain computer software programs and the documentations for projects related to the CWL (the “ 2008 Licence Acquisition ”). The software is a system platform to support and upgrade the lottery products and gaming operations. The consideration for the 2008 Licence Acquisition was HK$305,130,368, among which, HK$277,175,310 was satisfied by way of issue of Intralot 2013 Convertible Bonds and the balance of HK$27,955,058 was satisfied by the allotment and issue of consideration shares.

According to the announcement of the Company dated 15 July 2010, Intralot S.A. entered into a supply agreement with the Company. Pursuant to which, Intralot S.A. agreed to advise the Company on the supply, delivery and installation of computerized lottery systems for the creation, delivery, display and management of rich multimedia content at multiple, geographically dispersed lottery venues in the municipality of Chongqing, the PRC until 30 June 2012. According to the Management, the system and service procured from Intralot S.A. under the said supply agreement are applied to the operation of the highfrequency lottery game system which is managed by the Chongqing branch of Beijing Huaying (the “ High Frequency Game Project ”). Due to the prolonged delay of the High Frequency Game Project arising from technical issues and, therefore, the subsequent delay in official acceptance by the Chongqing Welfare Lottery authority in respect of the installation of the new hardware and software systems, Intralot S.A. is still helping on the upgrade of the High Frequency Game Project in view of the strategic relationship with the Company. The Company has not fully paid Intralot S.A. in accordance with the supply agreement despite of its expiry on 30 June 2012. As advised by the Management, the aforementioned supply agreement has not been renewed after its expiry.

LETTER FROM AIM

1.5 The Intralot 2013 Convertible Bonds

The Intralot 2013 Convertible Bonds has a principal of HK$277,175,310. The key features of the Intralot 2013 Convertible Bonds include, among others, (i) bearing 0.1% p.a. interest payable semi-annually in arrears; (ii) due on 9 December 2013; (iii) a conversion price of HK$0.991 per Conversion Share, (iv) a total of 279,692,542 Conversion Shares to be issued to Intralot upon the exercise of the conversion rights attached thereto in full; and (v) transferrable. As at the Latest Practicable Date, Intralot has not exercised any conversion rights attached to the Intralot 2013 Convertible Bonds.

As mentioned in the paragraph 1.4 above, the Intralot 2013 Convertible Bonds was issued as a part of the consideration for the 2008 Licence Acquisition. As at 31 May 2012, the carrying value of the Intralot 2013 Convertible Bonds was approximately HK$191.7 million. In FY2011, the effective interest expense on the Intralot 2013 Convertible Bonds amounted to approximately HK$37.6 million.

1.6 Reasons for and benefit of the Intralot Disposal and the repurchase of the Intralot 2013 Convertible Bonds

We have examined the audited financial statements of the Gain Advance Group and the Precious Success Group, and discussed with the Management the performance and contribution of profit of the Gain Advance Group and the Precious Success Group. We noted that the historical operating results of both of these groups were unsatisfactory. We also noted that the convertible bonds issued as a result of the 2007 VSA and the 2008 Licence Acquisition have created a tremendous stress on the balance sheet of the Group, with a principal amount of HK$606,800,000 to be due on 13 December 2012 and a principal amount of HK$277,175,310 to be due on 9 December 2013. The repurchase of the Intralot 2013 Convertible Bonds as a consideration for the Intralot Disposal is an efficient means of repayment of the outstanding convertible bonds without incurring any cashflow of the Group.

Given that (i) Intralot S.A., the parent company of Intralot, is currently holding 15% equity interest in Nanum and will become the second largest shareholder holding an aggregate of 29% equity interest of Nanum upon the Intralot Disposal Completion; (ii) Intralot is the owner and solution provider of certain lottery related licences which are currently used by the Precious Success Group, (iii) Intralot is unlikely to exercise the conversion right attaching to the Intralot 2013 Convertible Bonds since the embedded call option is deeply out of the money, it is of sound commercial endeavour that the Company negotiated the Intralot Disposal with Intralot in an attempt to reduce the heavy debt burden in the balance sheet of the Group.

We have reviewed (i) the Second Supplemental Agreement; (ii) the Supplemental SLA; (iii) the Deed of Assignment and Novation; (iv) the Deed of Assignment and Novation of Supply Agreement; and (v) the Precious Success Shareholders Agreement to be entered upon the Intralot Disposal Completion and confirmed that all the material terms were set out explicitly for information in the Announcement and the Circular. We consider that these

LETTER FROM AIM

agreements are sufficient generally to (i) release the obligations imposed on the Company under the Intralot 2013 Convertible Bonds and (ii) re-instate the cooperation, rights and obligations between the Company and Intralot from the Company level to mainly the PAL level. The Second Supplemental Agreement will release the obligations of the Company, which has allowed Intralot to participate in the management of the Company and has compromised to give the performance related incentive to Intralot. The Supplemental SLA will release the non-competition obligations of the Company. The Deed of Assignment and Novation and the Deed of Assignment and Novation of Supply Agreement will transfer all rights and obligations under the Licence Agreement and the Supply Agreement, respectively, from the Company to PAL so that Intralot and the Company will continue their co-operation in the level of PAL. The Precious Success Shareholders Agreement will record the respective rights and obligations in the new venture. Further details of these agreements are set out in the Letter from the Board.

We have discussed with the Management the performance of Nanum. The minority stake in Nanum has not contributed any positive investment return to the Group as the Group has no management control over Nanum. Nanum has not declared or paid any dividend since Gain Advance became its shareholder. The equity interest of Gain Advance in Nanum has been recorded as an available-for-sale investment in the books of Gain Advance and the results of Nanum would not be recorded in the income statement of Gain Advance except under circumstances including, amongst others, (i) Nanum declares a dividend; (ii) Gain Advance divests its equity interest in Nanum; (iii) there is any change in the percentage shareholding in Nanum; (iv) Gain Advance recognizes any impairment loss on its availablefor-sale financial assets. In view of the above, there is a good reason for the disposal of the GA Sale Shares.

The disposal of the 49% equity interest in Precious Success to Intralot has the advantages of (i) retaining management control on the Precious Success Group; (ii) syndicating financial exposures and commitments of Intralot; and (iii) continuing with the exclusives rights to use and sublicense the licence under the Licence Agreement with Intralot. As advised by the Management, the lottery market in the PRC is still under strict government and authoritative controls. It is regulated extensively and lottery distribution is subject to various PRC laws, rules and regulations. It is possible that the central government in the PRC may tighten the lottery market by enforcing restrictive laws or may lower the revenue-sharing rate of the distributors. As represented by the Management, the success of the business of the Group lies upon, among others, its ability to successfully bid for the projects from CSLA and CWL and to renew its licence as qualified vendors or distributors, which the Group endeavors to do so from time to time. In consideration of the above and the increased participation of Intralot, being an international leading provider of integrated gaming systems with a readily available and extensive game library allowing instant offer of new lottery games to the market, we are of the same view as the Management that the new partnership in the Precious Success Group resulting from the Intralot Disposal is another step forward in the chosen direction to deploy and access more beneficial opportunities in the lottery business in the PRC, especially when the Group is increasing its focus on new media technologies and sales platforms in the PRC lottery market.

LETTER FROM AIM

Having considered the above, we agree with the Board that the Intralot Disposal is of a justifiable commercial reasoning. We see the commercial rationale for proposing the Intralot Disposal and the repurchase of the Intralot 2013 Convertible Bonds to the Independent Shareholders for consideration.

1.7 Basis of the consideration for the Intralot Disposal

The disposals of the GA Sale Shares and the PS Sale Shares and the repurchase of the Intralot 2013 Convertible Bonds are part and parcel of the Intralot Agreement. Under the Intralot Agreement, the Intralot Consideration shall be set off against the Intralot 2013 Convertible Bonds Consideration at Intralot Disposal Completion. As disclosed in the Letter from the Board, the Intralot Consideration and the Intralot 2013 Convertible Bonds Consideration were determined after arm’s length negotiations between Intralot and the Company with reference to primarily the principal amount of the Intralot 2013 Convertible Bonds and, among other things, the net assets of Gain Advance attributable to the GA Sale Shares, the net assets of Precious Success attributable to the PS Sale Shares, and the historical operating results of Gain Advance and Precious Success. To enable the Shareholders to form their views on the Intralot Disposal (including the repurchase of the Intralot 2013 Convertible Bonds), we shall discuss in the following the Intralot 2013 Convertible Bonds Consideration and the Intralot Consideration separately.

1.7.1 Intralot 2013 Convertible Bonds Consideration

The Intralot 2013 Convertible Bonds Consideration represents its principal amount of HK$277,175,310 due on 9 December 2013. As at 31 May 2012, the carrying value of the Intralot 2013 Convertible Bonds was approximately HK$191.7 million.

We have reviewed the terms of the Intralot 2013 Convertible Bonds and noted that the conversion price of HK$0.991 per Conversion Share is substantially higher than (i) the closing price of HK$0.099 per Share as at the Last Trading Date; and (ii) the highest closing price of HK$0.215 during the period from 27 June 2011 up to and including the Latest Practicable Date, which implies that the embedded call option of the Intralot 2013 Convertible Bonds is deeply out of the money. Under the circumstances, there is little likelihood that the bondholders will convert the Intralot 2013 Convertible Bonds into Shares by exercising the conversion rights attached thereto.

As the repurchase of the Intralot 2013 Convertible Bonds and the disposals of the GA Sale Shares and the PS Sale Shares are part and parcel of the Intralot Agreement, we consider that the Intralot 2013 Convertible Bonds Consideration is fair and reasonable after taking into account (i) the repurchase of the Intralot 2013 Convertible Bonds is, in essence, an early repayment of debt which saves future interest expense and reduces the loan outstanding due from the Group; and (ii) the repurchase of the Intralot 2013 Convertible Bonds requires no cash payment.

LETTER FROM AIM

1.7.2 Intralot Consideration

The Intralot Consideration of HK$277,175,310 represents a premium of approximately 94.3% over the total net assets attributable to the GA Sale Shares and the PS Sale Shares as at 31 May 2012 which amounted to approximately HK$142.7 million (being the sum of 100% of the net assets attributable to shareholders of Gain Advance Group and 49% of the net assets attributable to shareholders of the Precious Success Group).

According to the Letter from the Board, the Intralot Disposal is expected to result in an estimated gain of approximately HK$30.3 million, which has been calculated with reference to the excess of the carrying value of the Intralot 2013 Convertible Bonds of approximately HK$191.7 million over the fair value of net assets of approximately HK$142.7 million attributable to the GA Sale Shares and PS Sale Shares as at 31 May 2012 and less the PRC capital gain taxes of approximately HK$18.7 million. However, Shareholders are reminded that the financial effect of the Intralot Disposal is yet to be determined based on the carrying amount of the Intralot 2013 Convertible Bonds, the carrying value and fair value of the net assets of the Gain Advance Group and the Precious Success Group at the completion date and is therefore subject to change upon the Intralot Disposal Completion.

Having considered the above and taking into account (i) the disposals of the GA Sale Shares and the PS Sale Shares and the repurchase of the Intralot 2013 Convertible Bonds are part and parcel of the Intralot Agreement; (ii) the Intralot Consideration is to be set off against the Intralot 2013 Convertible Bonds Consideration which will eventually reduce the overall debt level of the Group; and (iii) the justifiable commercial reasoning of the Intralot Disposal as set out in section 1.6 above, we consider that the Intralot Consideration is fair and reasonable.

Having considered that (i) the Intralot Disposal is of a justifiable commercial reasoning; (ii) the considerations for both the Intralot Disposal and the repurchase of the Intralot 2013 Convertible Bonds were determined after arm’s length negotiation between the Company and Intralot with reference to primarily the principal amount of the Intralot 2013 Convertible Bonds and, among other things, the net assets of Gain Advance attributable to the GA Sale Shares, the net assets of Precious Success attributable to the PS Sale Shares, and the historical operating results of Gain Advance and Precious Success; (iii) the overall terms of the Intralot Agreement are basically normal commercial terms; and (iv) the existence of a material uncertainty concerning the Group’s ability to continue as a going concern, we concur with the Directors’ view that the Intralot Agreement is on normal commercial terms and the terms are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

LETTER FROM AIM

2. The GCH Disposal

On 26 June 2012, the Company and GCH entered into the GCH Agreement in relation to:

a. the disposal of the OR Sale Shares by the Company for a consideration of HK$175,188,566; and
b. the repurchase of the GCH 2012 Convertible Bonds by the Company for a consideration of HK$175,188,566.

The consideration payable by GCH for the purchase of the OR Sale Shares (the “ GCH Consideration ”) and the consideration payable by the Company for the repurchase of the GCH 2012 Convertible Bonds (the “ GCH 2012 Convertible Bonds Consideration ”) shall be set off against each other at GCH Disposal Completion.

2.1 Oasis Rich, Wu Sheng and the OR Sale Shares

Oasis Rich is an investment holding company incorporated in the Oasis Rich Republic of Mauritius. Through the 2007 VSA, the Group acquired from 100% Power Way, among others, 60% equity interest of Oasis Rich, which in turn held the entre issued share capital of Wu Sheng. Upon completion of Wu Sheng the 2007 VSA, Oasis Rich became an indirect 60% owned subsidiary of the Company.

Wu Sheng , a wholly-owned foreign enterprise established in Shanghai by Oasis Rich, is principally engaged in the manufacturing and sale of lottery terminals for the CSLA. As at the Latest Practicable Date, Wu Sheng employed 31 staff members and operated two production lines in Shanghai with an aggregate daily production capacity of 50 units of lottery terminals. Commencing from 2006, Wu Sheng has been supplying the Approved LVM to Beijing Telenet, an indirect non wholly-owned subsidiary of the Company. On 13 August 2012, Wu Sheng and Beijing Telenet entered into the unconditional Wu Sheng Exclusivity Undertaking, pursuant to which, Wu Sheng has agreed to grant an exclusive right to Beijing Telenet for procuring the Approved LVM mutually specified by Wu Sheng and Beijing Telenet for a term of one year to 12 August 2013. In addition, Firich, a Shareholder holding approximately 2.58% of the issued share capital of the Company as at the Latest Practicable Date, is also one of the customers of Wu Sheng.

The OR Sale Shares represent 60% of the entire issued share capital of Oasis Rich. The following table, which is extracted from the accountants’ report of Oasis Rich as set out in Appendix III to the Circular, shows the key financial positions and results of Oasis Rich and Wu Sheng (together referred to as the “ Oasis Rich Group ”):

LETTER FROM AIM

Table 5: Financial highlights of the Oasis Rich Group

	FY2009	FY2010	FY2011	PE2011 05	PE2012 05
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(audited)	(unaudited)	(audited)
Revenue	75,009	68,432	78,314	23,051	11,719
Net profit/(loss)
before tax	4,913	(748)	(11,636)	(6,331)	(7,696)
Net profit/(loss)
attributable to the
shareholders	3,685	(748)	(11,636)	(6,331)	(7,696)
	As at	As at	As at		As at
	31/12/2009	31/12/2010	31/12/2011		31/05/2012
	HK$’000	HK$’000	HK$’000		HK$’000
	(audited)	(audited)	(audited)		(audited)
Non-current assets	3,109	2,620	1,781		1,430
Current assets	84,649	101,951	79,325		82,225
Current (liabilities)	(47,229)	(65,080)	(51,791)		(62,325)
Net assets attributable
to the shareholders	40,529	39,491	29,315		21,330

Source: the accountants’ report of Oasis Rich as set out in Appendix III to the Circular

The revenue recorded by the Oasis Rich Group was mainly derived from the sale of point-of-sale machines and lottery terminals in the PRC. The Oasis Rich Group had ceased the manufacturing and sale of point-of-sale machines after 2010. Beijing Telenet, being the major customer of Wu Sheng, contributed approximately 60.6%, 97.9%, 98.8% and 97.8% of the total revenue of the Oasis Rich Group in FY2009, FY2010, FY2011 and PE2012 05. The profit and loss attributable to shareholders turned from net profit in FY2009 to net loss in FY2010 as a result of the increase in cost of raw materials and the allowance for inventory in the amount of approximately HK$2.1 million. The net loss attributable to shareholders further increased in FY2011 as a result of the increase in the allowance for inventory in the amount of approximately HK$8.1 million and the payment of consultancy fee of approximately HK$8.0 million to PAL Beijing for marketing information and advice of lottery industry.

The non-current assets of the Oasis Rich Group mainly comprised of machinery and equipment, furniture, fixture and equipment and motor vehicles. The decrease in the noncurrent assets since FY2009 was mainly a result of the depreciation charge and the decrease in net assets since FY2009 was mainly due to the allowance for inventory.

LETTER FROM AIM

2.2 Rising Move

Rising Move is an investment holding company and a direct wholly-owned subsidiary of the Company and is the beneficial owner of 60% of the entire issued share capital of Oasis Rich as at the Latest Practicable Date.

2.3 GCH

GCH is a wholly-owned subsidiary of Universal Rich (which is, in turn, fully controlled by Mr. Chang, a former employee of Firich) incorporated in the Independent State of Samoa. As at the Latest Practicable Date, GCH was interested in approximately 4.13% of the issued share capital of the Company and was entitled to subscribe for 206,104,195 Conversion Shares under the GCH 2012 Convertible Bonds. In addition, GCH held approximately 32.86% of the entire issued share capital of Oasis Rich, a non whollyowned subsidiary of the Company, as at the Latest Practicable Date. Upon the GCH Disposal Completion, GCH will hold approximately 92.86% equity interest of Oasis Rich.

2.4 The GCH 2012 Convertible Bonds

The GCH 2012 Convertible Bonds has a principal amount of HK$175,188,566. The key features of the GCH 2012 Convertible Bonds include, among others, (i) bearing 0.1% p.a. interest payable semi-annually in arrears; (ii) due on 13 December 2012; (iii) a conversion price of HK$0.85 per Conversion Share, and (iv) a total of 206,104,195 Conversion Shares to be issued to GCH upon the exercise of the conversion rights attached thereto in full. As at the Latest Practicable Date, GCH has not exercised any conversion rights attached to the GCH 2012 Convertible Bonds.

The GCH 2012 Convertible Bonds, as part of the 2012 Convertible Bonds, was issued on 13 December 2007 as part of the consideration for the 2007 VSA. As at 31 May 2012, the carrying value of the GCH 2012 Convertible Bonds was approximately HK$166.6 million. In FY2011, the effective interest expense on the GCH 2012 Convertible Bonds amounted to approximately HK$14.6 million.

2.5 Reasons for and benefit of the GCH Disposal and the repurchase of the GCH 2012 Convertible Bonds

We have examined the audited financial statements of the Oasis Rich Group, and discussed with the Management the performance and contribution of profit of the Oasis Rich Group. We noted that the historical operating results of the Oasis Rich Group were unsatisfactory. Such unsatisfactory performance were due to (i) the prolonged delay in the new equipment procurement cycle of the CSLA in the recent years, which, in turn, resulted in reduced orders from potential buyers to Wu Sheng; and (ii) the increasing factory labour costs and overheads in manufacturing business in the PRC. Given the uncertain prospect of the lottery terminal manufacturing business and the potential needs of significant working capital injection, there is a good commercial rationale in respect of the GCH Disposal.

LETTER FROM AIM

We also noted that the convertible bonds issued as a result of the 2007 VSA and the 2008 Licence Acquisition have created a tremendous stress on the balance sheet of the Group, with a principal amount of HK$606,800,000 to be due on 13 December 2012 and a principal amount of HK$277,175,310 to be due on 9 December 2013. The repurchase of the GCH 2012 Convertible Bonds as a consideration for the GCH Disposal is an efficient means of repayment of the outstanding convertible bonds without incurring any cashflow of the Group.

Having considered that GCH (i) will increase its equity interest in Oasis Rich from 32.86% to 92.86% upon the GCH Disposal Completion; (ii) the ultimate shareholder of GCH, Mr. Chang, is a former employee of Firich, and is expected to have well knowledge in the business of Wu Sheng given Firich and Wu Sheng has been in business since April 2007, (iii) is unlikely to exercise the conversion right attaching to the GCH 2012 Convertible Bonds since the embedded call option is deeply out of the money, it is of sound commercial endeavour that the Company negotiated the GCH Disposal with GCH in an attempt to reduce the heavy debt burden in the balance sheet of the Group.

As set out in the paragraph 2.1, Wu Sheng is a wholly-owned subsidiary of Oasis Rich. The financial highlights of Oasis Rich are set out in Table 5. We discussed the financials of Wu Sheng with the Management and noted that the ongoing operation of Wu Sheng may require additional capital investment. Having considered that (i) Wu Sheng was running in a loss-making position since FY2010; (ii) Wu Sheng was in a current liabilities position as at 31 December 2009, 2010 and 2011 and 31 May 2012, which indicates that Wu Sheng was lack of working capital for its operation; and (iii) the Group has difficulty to further commit on Wu Sheng by capital injection, we are of the opinion that the business prospect of Wu Sheng is no longer attractive to the Company. In order to protect the interest of Beijing Telenet (being an indirect subsidiary of the Remaining Group) in respect of the continual and stable supply of the Approved LVMs by Wu Sheng after the GCH Disposal, Wu Sheng and Beijing Telenet entered into the Wu Sheng Exclusivity Undertaking in relation to the continual exclusive supply of the Approved LVMs by Wu Sheng to Beijing Telenet till August 2013. We agree with the Board that the GCH Disposal is of a justifiable commercial reasoning and consideration. Under the currently critical financial position of the Group, we see the commercial rationale for proposing the GCH Disposal and the repurchase of the GCH 2012 Convertible Bonds to the Independent Shareholders for consideration.

2.6 Basis of the consideration for the GCH Disposal

The disposal of the OR Sale Shares and the repurchase of the GCH 2012 Convertible Bonds are part and parcel of the GCH Agreement. Under the GCH Agreement, the GCH Consideration shall be set off against the GCH 2012 Convertible Bonds Consideration. As disclosed in the Letter from the Board, the GCH Consideration and GCH 2012 Convertible Bonds Consideration were determined after arm’s length negotiations between GCH and the Company with reference to primarily the principal amount of the GCH 2012 Convertible Bonds and, among other things, the net assets of the Oasis Rich Group attributable to the OR Sale Shares, and the historical operating results of Oasis Rich. To enable the Shareholders to form their views on the GCH Disposal (including the repurchase of the GCH 2012 Convertible Bonds), we shall discuss in the following the GCH 2012 Convertible Bonds Consideration and the GCH Consideration separately.

LETTER FROM AIM

2.6.1 GCH 2012 Convertible Bonds Consideration

The GCH 2012 Convertible Bonds Consideration represents its principal amount of HK$175,188,566 due on 13 December 2012. As at 31 May 2012, the carrying value of the GCH 2012 Convertible Bonds was approximately HK$166.6 million.

We have reviewed the terms of the GCH 2012 Convertible Bonds and noted that the conversion price of HK$0.85 per Conversion Share is substantially higher than (i) the closing price of HK$0.099 per Share as at the Last Trading Date; and (ii) the highest closing price of HK$0.215 during the period from 27 June 2011 up to and including the Latest Practicable date, which implies that the embedded call option of the GCH 2012 Convertible Bonds is deeply out of the money. Under the circumstances, there is little likelihood that the bondholders will convert the GCH 2012 Convertible Bonds into Shares by exercising the conversion rights attached thereto.

As the repurchase of the GCH 2012 Convertible Bonds and the disposal of the OR Sale Shares are part and parcel of the GCH Disposal, we consider that the GCH 2012 Convertible Bonds Consideration is fair and reasonable after taking into account (i) the repurchase of the GCH 2012 Convertible Bonds is, in essence, an early repayment of debt which saves future interest expense and reduces the loan outstanding due from the Group; and (ii) the repurchase of the GCH 2012 Convertible Bonds requires no cash payment.

2.6.2 GCH Consideration

The GCH Consideration of HK$175,188,566 represents a premium of approximately 1,268.9% over the net assets attributable to the OR Sale Shares as at 31 May 2012 which amounted to approximately HK$12.8 million (being 60% of the net assets attributable to shareholders of the Oasis Rich Group).

According to the Letter from the Board, the GCH Disposal is expected to result in an estimated gain of approximately HK$136.7 million, which has been calculated with reference to the excess of the carrying value of the GCH 2012 Convertible Bonds of approximately HK$166.6 million over the fair value of net assets of approximately HK$12.8 million attributable to the OR Sale Shares as at 31 May 2012 and less the PRC capital gain taxes of approximately HK$17.1 million. However, Shareholders are reminded that the financial effect of the GCH Disposal is yet to be determined based on the carrying amount of the GCH 2012 Convertible Bonds and the carrying value and fair value of the net assets of the Oasis Rich Group at the completion date and is therefore subject to change upon the GCH Disposal Completion.

Having considered the above and taking into account (i) the disposal of the OR Sale Shares and the repurchase of the GCH 2012 Convertible Bonds are part and parcel of the GCH Agreement; (ii) the GCH Consideration is to be set off against the GCH 2012 Convertible Bonds Consideration which will eventually reduce the overall debt level of the Group; and (iii) the justifiable commercial reasoning of the GCH Disposal as set out in section 2.5 above, we consider that the GCH Consideration is fair and reasonable.

LETTER FROM AIM

Having considered that (i) the GCH Disposal is of a justifiable commercial reasoning; (ii) the considerations for both the GCH Disposal and the repurchase of the GCH 2012 Convertible Bonds were determined after arm’s length negotiation between the Company and GCH with reference to primarily the principal amount of the GCH 2012 Convertible Bonds and, among other things, the net assets of Oasis Rich attributable to the OR Sale Shares and the historical operating results of Oasis Rich; and (iii) the overall terms of the GCH Agreement are basically normal commercial terms; and (iv) the existence of a material uncertainty concerning the Group’s ability to continue as a going concern, we concur with the Directors’ view that the GCH Agreement is on normal commercial terms and the terms are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

3. CB Repurchase

Under the Intralot Agreement, the Company has conditionally agreed to (i) dispose of the GA Sale Shares and the PS Sale Shares; and (ii) repurchase the Intralot 2013 Convertible Bonds. Under the GCH Agreement, the Company has conditionally agreed to (i) dispose of the GCH Sale Shares; and (ii) repurchase the GCH 2012 Convertible Bonds. We noted that the CB Repurchases (including the repurchase of the Intralot 2012 Convertible Bonds and the repurchase of the GCH 2013 Convertible Bonds) will constitute an off-market share repurchase under the Repurchase Code and must be approved by the Executive pursuant to Rule 2 of the Repurchase Code. Such approval, if given, will be conditional upon, amongst others, the approval of the CB Repurchases by at least three-fourths of the votes cast on a poll by the Independent Shareholders in attendance in person or by proxy at the EGM. An application has been made to the Executive for the approval of the CB Repurchases pursuant to Rule 2 of the Repurchase Code.

By way of the Disposals, the Group can (i) settle the GCH 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds, which are respectively due on 13 December 2012 and 9 December 2013, without incurring cashflow; (ii) reduce its debt burden by approximately 41.7% from approximately HK$943.6 million to approximately HK$550.3 million as at 31 May 2012 according to Scenario II of the unaudited pro forma financial information of the Remaining Group as set out in Appendix VI to the Circular; and (iii) alleviate the doubt of its ability to continue as a going concern as disclosed in note 2 to section A of the financial information and accountants’ report of the Group as out in Appendix IV to the Circular. Having considered the above, we are of the view that the Disposals and the CB Repurchases are vital to the reorganization of the Company and the Group’s ability to continue as a going concern, which is the only way forward if the Company wishes to remain sustainable in the near to medium term.

The CB Repurchases is subject to approval by (i) the Executive; and (ii) at least three-fourths of the votes cast on a poll by the Independent Shareholders in attendance in person or by proxy at the EGM. If the CB Repurchases is not approved, the Disposals, the Open Offer and the Underwriting Agreement (including the Whitewash Waiver) will not become unconditional and none of the CB Repurchases, the Disposals, the Open Offer and the Underwriting Agreement (including the Whitewash waiver) will proceed. In that case, the Company will have to formulate a new reorganization plan, which is expected to be time consuming and may not be of better terms and conditions comparing with the current reorganization plan, to re-finance the significant amount of convertible bonds due to bondholders and the outstanding loan due to Power Way.

LETTER FROM AIM

Accordingly, we consider that for the purpose of implementing the Intralot Disposal and the GCH Disposal, which represent part of the reorganisation plan of the Group, the approval of the CB Repurchases by at least three-fourths of the votes cast on a poll by the Independent Shareholders in attendance in person or by proxy at the EGM is in the interest of the Company and the Shareholders as the whole. We advise the Independent Board Committee to recommend the Independent Shareholders to vote for the resolution to be proposed regarding the CB Repurchases at the EGM by way of poll.

4. Corporate structure before and after the Disposals

4.1 Corporate structure before the Disposals

Before the Disposals, the Group is principally engaged in (i) the provision of management services for the distribution of lottery products; and (ii) the manufacturing and sales of lottery terminals in the PRC. In addition, the Group is investing in a welfare lottery operator in South Korea, namely Nanum. Shareholders should refer to the Letter from the Board for further details. Below sets out the corporate structure of the Group as at the Latest Practicable Date:

LETTER FROM AIM

==> picture [454 x 509] intentionally omitted <==

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

Mr. Chang
100%
Universal Rich Melco Intralot S.A.
100% 100% 100%
GCH [(Note)] Melco LV [(Note)] Firich [(Note)] Intralot [(Note)]
4.13% 11.67% 2.58% 10.53%
Company
100%
Rising Move
32.86% 60% 52.5% 100% 100%
40% ChariLot
Oasis Rich Beijing Telenet Precious Success Gain Advance
Company Ltd.
100% 100% 100% 15%
Wu Sheng 35% China Excellent PAL KTeMS Co., Ltd.
Net Technology
Investment Ltd.
100% 14%
100%
PAL Beijing Nanum Lotto Inc.
Jingli Fengcai Net
Technology (Shanghai)
Investment Ltd. [#] 100%
(精利風彩網絡科技
（上海）有限公司)
Beijing Huaying
65%
60% PALTECH
Shandong Kai
Company Limited Chuan Ji Yuan
Manufacture of Investment in Distribution and Operation of Provision of national
lottery terminals for paperless lottery maintainance of lottery vending online lottery business
CSLA business lottery terminals terminals/wholesale in Korea
of scratch cards/
provision of
high frequency
lottery game system/
development of
tele-betting system
----- End of picture text -----*

Indirect shareholding controlled by the Company
For identification purpose only

Note: Regarding the further information of GCH, Melco LV, Firich and Intralot, please refer to pages 25 to 27 of the Letter from the Board.

Source: the Letter from the Board and the information provided by the Company

LETTER FROM AIM

4.2 Corporate structure after the Disposals

As a result of the Disposals, the Company will no longer be interested in the Gain Advance Group and the Oasis Rich Group and its shareholding in Precious Success Group will reduce from 100% to 51%. As such, the Gain Advance Group and the Oasis Rich Group will no longer be included in the corporate structure of the Group and Precious Success will become a non wholly-owned subsidiary of the Company. Pursuant to the relevant Hong Kong accounting standards, the accounts of the Precious Success Group will continue to be consolidated into that of the Group.

LETTER FROM AIM

Below is the corporate structure of the Group immediately upon completion of the Disposals and a brief description of the subsidiaries of the Company and their activities thereunder:

==> picture [454 x 509] intentionally omitted <==

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

Mr. Chang
100%
Universal Rich Melco Intralot S.A.
100% 100% 100%
GCH [(Note)] Melco LV [(Note)] Firich [(Note)] Intralot [(Note)]
4.13% 11.67% 2.58% 10.53%
Company
100%
Rising Move
92.86% 52.5% 51% 49% 100%
40% ChariLot
Oasis Rich Beijing Telenet Precious Success Gain Advance
Company Ltd.
100% 100% 100% 15%
Wu Sheng 35% China Excellent PAL KTeMS Co., Ltd.
Net Technology
Investment Ltd.
100% 14%
100%
PAL Beijing Nanum Lotto Inc.
Jingli Fengcai Net
Technology (Shanghai)
Investment Ltd. [#] 100%
(精利風彩網絡科技
（上海）有限公司)
Beijing Huaying
65%
60% PALTECH
Shandong Kai
Company Limited Chuan Ji Yuan
Investment in Distribution and Operation of
paperless lottery maintainance of lottery vending
business lottery terminals terminals/wholesale
of scratch cards/
provision of
high frequency
lottery game system/
development of
tele-betting system
----- End of picture text -----*

Indirect shareholding controlled by the Company
For identification purpose only

Note: Regarding the further information of GCH, Melco LV, Firich and Intralot, please refer to pages 25 to 27 of the Letter from the Board.

Source: the Letter from the Board and the information provided by the Company

LETTER FROM AIM

Upon completion of the Disposals, the Remaining Group will focus on its lottery business in the PRC and will continue to be engaged in the distribution of lottery terminals in the PRC through Beijing Telenet and the provision of management services for the distribution of lottery products via the Precious Success Group. The Group will also tap into the paperless lottery business by participating as a minority shareholder in Charilot and China Excellent.

4.2.1 Beijing Telenet

As set out in the Letter from the Board, Beijing Telenet is principally engaged in the distribution of lottery terminals in the PRC and is one of the largest authorized terminal distributors approved by the CSLA. Its principal office is located in Beijing and it also has supporting teams located in 12 provinces in the PRC. As at the Latest Practicable Date, Beijing Telenet had 42 employees, including 26 employees in the provision of technical support, 6 employees in sales and 10 employees in administrative and finance functions.

Based on the financial information of Beijing Telenet as set out in the Letter from the Board, we summarized the financial performance of Beijing Telenet in FY2010 and FY2011 in the following table:

Table 6: Financial highlights of Beijing Telenet

	FY2010	FY2011
	HK$’000	HK$’000
	(audited)	(audited)
Revenue	98,000	103,300
Net profit before taxation	1,200	1,800
Net profit after taxation	1,000	1,300
		As at
		31 May 2012
		HK$’000
		(Unaudited)
Net assets		28,900

Source: the financial information of Beijing Telenet as set out in the Letter from the Board

As mentioned in the Letter from the Board, Beijing Telenet has been working closely with Wu Sheng (as its supplier) and Intradak (as its customer) pursuant to the following CSLA Supply Chain since its incorporation in 2006 and the Management believed that such business model will continue to be adopted by the relevant parties after completion of the Disposals.

100

LETTER FROM AIM

Wu Sheng Manufacturing of the Approved LVM		Beijing Telenet Sourcing, distribution and maintenance of the Approved LVM		Intradak Bidding for the CSLA projects

Wu Sheng is principally engaged in the manufacturing and sale of lottery terminals for the CSLA. Regarding further information about Wu Sheng, please refer to the sub-section headed “2.1 Oasis Rich, Wu Sheng and OR Sale Shares” above. Wu Sheng is the sole supplier to Beijing Telenet and has started supplying the Approved LVM to Beijing Telenet since 2006.

Intradak, a limited liability company incorporated in the PRC in 1998, is one of the seven authorized distributors of the Approved LVM in the PRC entitling to bid for the CSLA projects. According to the Intradak’s official website (www.intradak.cn), Intradak has been continuously providing over 60,000 lottery terminals to the China sports lottery administration centres located in 25 provinces/cities/municipalities in the PRC. Intradak and Beijing Telenet are closely dependent on each other where Intradak is the sole customer of Beijing Telenet and, vice versa, and Beijing Telenet is the only supplier of Intradak in respect of the Approved LVM. In addition, Beijing Telenet will provide Indradak, among other things, (i) free warranty service for a period of 3 years; (ii) timely replacement for faulty parts of the Approved LVM during the warranty period; and (iii) guarantee of the average monthly faulty rate of the Approved LVM to be less than 1% of the total procurement volume during the warranty period.

Although Beijing Telenet is also entitled to bid for the CSLA projects, the Directors intend to position Beijing Telenet as an intermediate party between Wu Sheng and Intradak so that Beijing Telenet will continue to be engaged in the trading and distribution of the Approved LVM and the provision of maintenance services. The advantage is to segregate the activities of Beijing Telenet to the manufacturing activities in Wu Sheng and the activities of Intradak in the bidding for the CSLA projects in the lottery related business in the PRC.

To secure the supply and procurement of the Approved LVM respectively from Wu Sheng and Intradak, Beijing Telenet has, therefore, entered into the Wu Sheng Exclusivity Undertaking with Wu Sheng and the Intradak Exclusivity Undertaking with Intradak, respectively, on 13 August 2012. Pursuant to the exclusivity undertakings, Wu Sheng and Intradak respectively granted exclusive rights to Beijing Telenet for supplying and procuring the mutually specified Approved LVM for a term of one year. With regard to the details, please make reference to the Announcement or the Letter from the Board.

101

LETTER FROM AIM

4.2.2 Precious Success Group

Regarding the principal business activities and recent financial performance of the Precious Success Group, please refer to the sub-section headed “II. The Disposals, the CB Repurchases and the Remaining Group – 1.2 Precious Success, PAL, PAL Beijing, Beijing Huaying, Shandong Kai Chuan Ji Yuan, and the PS Sale Shares” above.

4.2.3 ChariLot, China Excellent and PALTECH

ChariLot, a joint venture company incorporated in Hong Kong, is principally engaged in supplying terminals and providing technical support and consultancy services in connection with the lottery business in the PRC.

China Excellent, a company incorporated in Hong Kong, is principally engaged in the provision of lottery related technology solutions and management services for mobile lottery businesses in the PRC.

PALTECH was 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 and is currently inactive as per the Management’s information.

The management advised us that the results and assets and liabilities of these three companies are incorporated into the Group’s consolidated financial statements using the equity method of accounting.

III. The Intradak Exclusivity Undertaking

As discussed in the above, Beijing Telenet is principally engaged in the distribution of lottery terminals in the PRC. In performing its ordinary course of businesses, Beijing Telenet, being an intermediate party in the CSLA Supply Chain, heavily relies on the supply of the Approved LVM from Wu Sheng and, on the other hand, the purchase orders of the Approved LVM placed by Intradak. As noted from the Letter from the Board, Intradak has been the sole customer of Beijing Telenet and, vice versa, Beijing Telenet has been the sole supplier to Intradak since the establishment of Beijing Telenet in 2006.

According to the audited financial statements of Beijing Telenet provided by the Management, Beijing Telenet recorded audited revenue and net profit after taxation of approximately HK$103.3 million and approximately HK$1.3 million in FY2011. In view of long term cooperation between Wu Sheng, Beijing Telenet and Intradak under the CSLA Supply Chain, the Management, as well as Wu Sheng and Intradak, consider that the CSLA Supply Chain is beneficial to all parties notwithstanding that there will be changes in the holdings of the companies subsequent to completion of the Transactions.

102

LETTER FROM AIM

In order to secure and strengthen the business relationship with Intradak, on 13 August 2012, Beijing Telenet entered into the Intradak Exclusivity Undertaking with Intradak, pursuant to which, Intradak granted an exclusive right to Beijing Telenet for supplying the Approved LVM mutually specified by Intradak and Beijing Telenet for a term of one year upon obtaining the approval from the GEM LR Transactions Independent Shareholders at the EGM.

Having considered that (i) Beijing Telenet is one of the core operating subsidiaries of the Company, contributing approximately 59.7% of the Group’s total revenue in 2011; (ii) Intradak plays an indispensable role of CSLA project bidder in the CSLA Supply Chain and is the only customer of Beijing Telenet since 2006; and (iii) Intradak is one of the seven authorized distributors of lottery terminals by the CSLA, we concur with the Directors’ view that the entering into of the Intradak Exclusivity Undertaking can eliminate competition from other distributors of lottery terminals to Beijing Telenet and is in the interests of the Company and the Shareholders as a whole.

We have reviewed the terms of the Intradak Exclusivity Undertaking and noted that during the term of the agreement, Intradak shall solely procure the Approved LVM mutually specified by Intradak and Beijing Telenet from Beijing Telenet and shall not directly or indirectly, without the written consent of Beijing Telenet, procure the Approved LVM from any other third party enterprises, corporations or individuals other than Beijing Telenet. We consider that such term can effectively eliminate competition from other distributors of lottery terminals to Beijing Telenet and, therefore, strengthen the competitiveness of Beijing Telenet and we are of the view that the terms of the Intradak Exclusivity Undertaking are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

IV. Proposed Open Offer, Underwriting Agreement and Whitewash Waiver

1. Reasons for the Open Offer and use of proceeds

As referred to in the financial highlights summarized in the paragraph headed “ I. Background – 2. Financial highlights of the Group ”, the Group remained in its loss-making position throughout the years, audited loss attributable to the Shareholders were approximately HK$388.0 million, approximately HK$160.9 million and approximately HK$209.2 million in FY2009, FY2010 and FY2011, respectively. The losses comprised primarily non-cash charges such as impairment losses on intangible assets and goodwill, depreciation and amortization expenses and imputed interest on convertible bonds.

The total liabilities and net liabilities attributable to the Shareholders as at 31 May 2012 were approximately HK$943.6 million and approximately HK$682.7 million, respectively. Total liabilities of the Group as at 31 May 2012 were mainly attributable to (i) the 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds; and (ii) the Power Way Loan with the principal amount of HK$80 million bearing interest at the rate of 5% per annum for the period from 14 July 2008 to 13 July 2010 and at the rate of 1% per annum for the period from 14 July 2010 to 14 July 2013 pursuant to the loan agreement entered into between the Company and Power Way on 14 July 2008 and supplemented by supplemental agreements dated 1 December 2009, 21 March 2011 and 24 February 2012 (the “ Power Way Loan Agreement ”).

103

LETTER FROM AIM

Pursuant to the Power Way Loan Agreement, the Power Way Loan will be due on 14 July 2013 and the Company has to repay Power Way the principal loan amount of HK$80 million together with the interests accrued upon maturity. As at 31 May 2012, the Power Way Loan, aggregating the principal amount of such loan and the interest accrued thereon, amounted to approximately HK$89,338,196. Notwithstanding that the Directors considered the Group might have the possible financial ability to meet the interest payments on the Power Way Loan as they fall due in July 2013, they are mindful of the significant deterioration in economic and credit conditions that have been affecting the world economies in recent months. Given the uncertain economic outlook in the near to medium term, the Company might encounter difficulties to obtain the necessary funding, either through debt or equity financing or both, to re-finance or to repay the Power Way Loan as and when it falls due.

In view of the forgoing, the Company proposed to raise not more than approximately HK$133.8 million, before expenses, by issuing not more than 1,716,014,799 Offer Shares (assuming all Shareholders take up their assured entitlements under the Open Offer and full subscription rights attaching to the Share Options (excluding the Excluded Options) have been exercised on or before the Latest Lodging Time and their respective assured entitlements to the Offer Shares have been taken up) by way of the Open Offer at the Subscription Price of HK$0.078 per Offer Share on the basis of three Offer Shares for every existing Share held by the Qualifying Shareholders on the Record Date. The Company has entered into the Underwriting Agreement with Melco LV and Power Way on 14 August 2012, pursuant to which, the Underwriters have agreed to underwrite, in aggregate, up to 1,273,566,615 Underwritten Shares. The Company intends to use the net proceeds from the Open Offer to repay the Power Way Loan (up to the amount of approximately HK$89,338,196, being the Power Way Loan as at 31 May 2012), and use the remaining, if any, as additional working capital to strengthen the Company’s financial position and to develop its lottery business, including but not limited to, system upgrade for a high-frequency lottery game system in Chongqing, the development of its paperless lottery sales channels, such as mobile network and/or internet, and the balance for upgrading tele-betting system in Shandong and marketing expenses. Details of use of proceeds and the Open Offer were set out in the Letter from the Board.

Having considered that (i) the unsatisfactory financial performance and position of the Group in the recent years; (ii) the mitigation of short-term financial obligation of the Group, including the outstanding Power Way Loan due in July 2013 in the event that no refinancing is available; (iii) the settlement of the Power Way Loan under the Underwriting Agreement through the Set Off enabling the Group to repay a substantial part of the liabilities of the Company under the Power Way Loan without cash outflow; (iv) the proceeds from the Open Offer for strengthening the Group’s capital base and improving its gearing ratio; (v) all Qualifying Shareholders are offered an equal opportunity to participate in the Open Offer and to take up their assured entitlement in full at the same Subscription Price to maintain their respective shareholdings in the Company, we consider that the Open Offer is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

104

LETTER FROM AIM

2. Alternative to the Open Offer

We enquired and were informed by the Management that except for the Open Offer, the Management endeavoured to explore other financing methods through discussions and enquiries with certain financial institutions and security placing agents on the possibility of debt financing and equity issuances, including but not limited to, share placement and rights issue of Shares.

The net liabilities attributable to the Shareholders amounted to approximately HK$682.7 million as at 31 May 2012. The Management encountered great difficulties in obtaining further debt financing from banks and/or other financial institutions at reasonable costs to meet its shortterm financial obligations. Moreover, the Management considered that further debt financing would result in the Company being subject to additional interest costs and further increase its gearing ratio and jeopardize the financial position of the Company.

We discussed the option of financing by way of share placement with the Board and we agree with its view that, contrary to the Open Offer which provided equal opportunities to all Qualifying Shareholders to participate in the Group’s future development on the same basis, share placement would only be available to certain placees and might, in turn, cause dilution effect to the existing Shareholders. In addition, the Directors were of the view that it was hard to identify and attract sufficient placees who would be willing to take up a sizable issue of new Shares given the current unsatisfactory financial position and performance of the Group. As such, the Directors did not consider share placement as a desirable alternative to the Open Offer.

Fund raising by way of rights issue involved the trading arrangement of the nil-paid rights, which would inevitably incur additional administrative costs and expenses of the Company. Since rights issue imposes a higher cost to complete as compared to the Open Offer, the Directors considered that it was less suitable and beneficial to the Group under the current financial position.

Having taken into account the above, we agree with the Directors’ view that the Open Offer is the most feasible and beneficial way for the Group to raise long-term equity capital, as compared to the aforementioned alternative means of financing.

3. Principal terms of the Open Offer

3.1 Basis

As mentioned in the Letter from the Board, the Company proposed to raise not less than approximately HK$58.4 million and not more than approximately HK$133.8 million, before expenses, by way of the Open Offer of not less than 748,419,206 Offer Shares and not more than 1,716,014,799 Offer Shares at the Subscription Price of HK$0.078 per Offer Share on the basis of three Offer Shares for every existing Share held by the Qualifying Shareholders on the Record Date.

The Management estimated that the expenses in connection with the Open Offer will be approximately HK$1.5 million and will be payable by the Company.

105

LETTER FROM AIM

3.2 The Subscription Price

The Subscription Price is HK$0.078 per Offer Share and represents:

(i) a discount of approximately 21.2% to the closing price of HK$0.099 per Share quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 23.5% to the average of the closing prices of approximately HK0.102 per Share for the last five full trading days up to and including the Last Trading Day;
(iii) a discount of approximately 28.4% to the average of the closing prices of approximately HK$0.109 per Share for the last ten full trading days up to and including the Last Trading Day;
(iv) a discount of approximately 6.0% to the theoretical ex-entitlement price of approximately HK$0.083 per Share (assuming that all Shareholders take up their respective assured entitlements to the Offer Shares) based on the closing price of HK$0.099 per Share quoted on the Stock Exchange on the Last Trading Day;
(v) a discount of approximately 9.3% to the theoretical ex-entitlement price of approximately HK$0.086 (assuming that no Shareholders take up their respective assured entitlements to the Offer Shares and the Underwriters are called upon to subscribe for the Underwritten Shares subject to the terms and conditions under the Underwriting Agreement) based on the closing price of HK$0.099 per Share quoted on the Stock Exchange on the Last Trading Day; and
(vi) a discount of approximately 40.9% to the closing price of HK$0.132 per Share quoted on the Stock Exchange on the Latest Practicable Date.

As stated in the Letter from the Board, the Subscription Price was arrived at after arm’s length negotiation among the Company and the Underwriters with reference to, among other things, the then market environment, the prevailing market price of the Shares, the financial position of the Group and the funding requirements for repaying the Power Way Loan and exploring potential investment opportunities. It was the Directors’ view that the Subscription Price was fairly and reasonably determined.

106

LETTER FROM AIM

In assessing the Subscription Price, we have taken into consideration the following factors:

(i) Share price performance

The chart below demonstrates the daily closing price of the Shares versus the Subscription Price for the period commencing from 27 June 2011, being the 12-month period prior to the Last Trading Date, up to and including the Latest Practicable Date (the “ Review Period ”):

Chart 1: Share Price Performance

Source: The website of the Stock Exchange (www.hkex.com.hk)

Note: Trading in the Shares was suspended from 23 December 2011 to 3 February 2012 and from 27 June 2012 to 14 August 2012

During the Review Period, the highest closing price and the lowest closing price of the Shares were HK$0.215 on 16 February 2012 and HK$0.077 on 21 November 2011, respectively. We noted that the Shares were traded above the Subscription Price throughout the entire Review Period, except on 21 November 2011.

107

LETTER FROM AIM

(ii) Historical trading volume of the Shares

The following table shows the historical monthly trading volume of the Shares during the Review Period:

Table 7: Historical monthly trading volume of the Shares

					Total	Average
	Total		Average		no. of Shares	daily trading
	no. of	No. of	daily	No. of	traded over	volume over
	Shares	trading	trading	outstanding	outstanding	outstanding
Month	traded	days	volume	Shares	Shares	Shares
					(%)	(%)
Jun-11 (from
27 June 2011 to
30 June 2011)	5,064,000	4	1,266,000	502,966,933	1.01	0.252
Jul-11	7,160,000	20	358,000	502,966,933	1.42	0.071
Aug-11	7,980,000	23	346,957	502,966,933	1.59	0.069
Sep-11	4,208,000	20	210,400	502,966,933	0.84	0.042
Oct-11	4,244,000	20	212,200	502,966,933	0.84	0.042
Nov-11	1,676,000	22	76,182	502,966,933	0.33	0.015
Dec-11	9,887,500	16	617,969	502,966,933	1.97	0.123
Jan-12	0	0	0	502,966,933	0.00	0.000
Feb-12	9,176,000	18	509,778	502,966,933	1.82	0.101
Mar-12	4,292,000	22	195,091	502,966,933	0.85	0.039
Apr-12	1,880,979	18	104,499	502,966,933	0.37	0.021
May-12	760,000	22	34,545	502,966,933	0.15	0.007
Jun-12	1,264,000	18	70,222	502,966,933	0.25	0.014
Jul-12	0	0	0	502,966,933	0.00	0.000
Aug-12	1,760,000	13	135,385	502,966,933	0.35	0.027
Sep-12 (up to the
Latest Practicable
Date)	3,092,000	15	206,133	502,966,933	0.61	0.041

Source: The website of the Stock Exchange (www.hkex.com.hk)

Note: Trading in the Shares was suspended from 23 December 2011 to 3 February 2012 and from 27 June 2012 to 14 August 2012

As illustrated in Table 7 above, we noted that the monthly trading volume of the Shares accounted for an insignificant portion of the outstanding Shares subsisted in the market during the Review Period, all falling below 2% of the outstanding Shares. During the Review Period (except for January 2012 and July 2012, where trading of the Shares was suspended in these two months), the average daily trading volume fell within the range between approximately 34,545 Shares and approximately

108

LETTER FROM AIM

1,266,000 Shares, representing approximately 0.007% and 0.252% of the Shares in issue. In view of the low liquidity of the Shares, we concur with the Directors’ view that the setting of the Subscription Price at a discount to the prevailing market prices was reasonable and that the Subscription Price could entice the Qualifying Shareholders to subscribe for the Offer Shares and might enhance trading liquidity of the Shares.

(iii) Comparison of the Subscription Price

For the same reason as discussed in the above regarding the low liquidity of the Shares, we agree that pricing the Subscription Price at a discount to the prevailing market prices in order to provide incentives to the Qualifying Shareholders as well as the Underwriters to participate in the Open Offer was reasonable under the circumstances and current market condition. The Subscription Price was lower than the closing prices of the Shares during the Review Period (except on 21 November 2011) and represented a discount of approximately 21.2% to the closing price of HK$0.099 per Share quoted on the Stock Exchange on the Last Trading Day.

The Subscription Price was also lower than the closing price of the Shares as at the Latest Practicable Date of HK$0.132 per Share and represented a discount of approximately 40.9% thereon. We have enquired the Management and the Management confirmed to us that apart from the Transactions and the proposed reorganization, there are no other matters which are being currently contemplated that may need to be brought to the attention of the Shareholders pursuant to the GEM Listing Rules, which is or may be of a price-sensitive nature.

In view of the unsatisfactory financial performance and position of the Group in the recent years, we agree with the Management that setting the Subscription Price at a discount to the prevailing market prices could attract more Qualifying Shareholders to take up their assured entitlements under the Open Offer. Given that (i) the Subscription Price was determined after arm’s length negotiation between the Company and the Underwriters with reference to, among other things, the then market environment, the prevailing market price of the Shares, the financial position of the Group and the funding requirements for repaying the Power Way Loan and exploring potential investment opportunities; (ii) all Qualifying Shareholders are given an equivalent opportunity to subscribe for the Offer Shares; and (iii) the setting of the Subscription Price at a discount to the prevailing market prices of the Shares will enhance the attractiveness of the Open Offer, we concur with the Directors’ view that the Subscription Price is fair and reasonable as far as the GEM LR Transactions Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

3.3 Absence of excess application for Offer Shares

As set out in the Letter from the Board, the invitation to subscribe for Offer Shares to be made to the Qualifying Shareholders will not be transferable. The Open Offer stipulated that the Qualifying Shareholders will not be entitled to subscribe for any Offer Share in excess of their respective assured entitlements.

109

LETTER FROM AIM

Taking into consideration the facts that (i) the structure of the Open Offer was arrived at after arm’s length negotiation between the Underwriters and the Company; (ii) those Qualifying Shareholders who choose to accept their respective assured entitlements under the Open Offer in full can maintain their respective existing shareholdings in the Company after the Open Offer; and (iii) the Open Offer already assures the Qualifying Shareholders who are optimistic about the future development of the Company to entitle to the Offer Shares in proportion to their shareholding, we agreed with the Directors that the absence of excess application arrangement is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

In view of the facts (i) the structure of the Open Offer already enables the Qualifying Shareholders to secure their shareholdings in the Company by taking up their respective assured entitlements in full; and (ii) implementing excess application would incur extra arrangement and procedures for the share registrar and thus bring on additional costs to the Open Offer, we are of the view that the absence of the excess application arrangement is acceptable.

4. Underwriting Agreement

The Open Offer is partially, not in full, underwritten by Melco LV and Power Way and is subject to the terms and conditions of the Underwriting Agreement. Pursuant to the Underwriting Agreement, Melco LV and Power Way have agreed to underwrite not more than 128,205,128 Underwritten Shares in the first place and not more than 1,145,361,487 Underwritten Shares in the second place, respectively, provided that immediately upon completion of the Open Offer, the Underwritten Shares to be subscribed by Power Way together with the Shares held or to be held by Melco LV and other non public Shareholders shall not be more than 75% of the total shareholdings of the Company as enlarged by the Offer Shares. No commission will be paid by the Company to the Underwriters in connection with the underwriting obligation regulated by the Underwriting Agreement.

We understand from the Management that the Company has explored and held discussions with several potential commercial investors in relation to the possibility of provision of financing to the Company, including placing of new Shares and underwriting the Open Offer. However, the Company was not able to procure such commercial investors acceptable to the Company. The Company resorted to Melco LV and Power Way which were willing to underwrite, in aggregate, up to 1,273,566,615 Underwritten Shares under the Open Offer and to take part in the implementation of the reorganisation, including but not limited to the Intralot Disposal, the GCH Disposal and the CB Repurchases.

Considering that (i) Melco LV was a substantial Shareholder, holding approximately 11.67% of the issued share capital of the Company as at the Latest Practicable Date; (ii) Power Way was indirectly owned by Melco LV as to 58.70% as at the Latest Practicable Date; (iii) there is a possibility that, upon completion of the Open Offer, the Underwriters and parties acting in concert with any of them will hold more than 50% of the voting rights in the Company; (iv) the Subscription Price required to be paid by Power Way under the Underwriting Agreement will be settled by way of set off against the Power Way Loan, in whole or in part; and (v) no commission

110

LETTER FROM AIM

will be paid by the Company to the Underwriters in connection with the underwriting obligation governed by the Underwriting Agreement, we consider that the terms regarding the underwriting arrangement under the Underwriting Agreement is fair and reasonable and is in the interest of the Company and the Shareholders as a whole.

We have also reviewed other principal terms of the Underwriting Agreement, including without limitation, the payment terms and the terms of termination, and we consider that the terms of the Underwriting Agreement are on normal commercial terms and in line with the prevailing market practices. Accordingly, we expressed our view that the terms as stipulated in the Underwriting Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

5. Potential dilution effect to the Shareholders

Since all Qualifying Shareholders are entitled to subscribe for the Offer Shares on the same basis, the Qualifying Shareholders will be able to maintain their proportional interests in the Company if they take up their assured entitlement under the Open Offer in full. Any Qualifying Shareholders who choose not to take up their assured entitlements under the Open Offer in full will have their shareholdings in the Company diluted by up to a maximum of approximately 75.0% from their shareholding interest upon completion of the Open Offer. Please refer to the paragraph headed “ 7. UNDERWRITING ARRANGEMENTS – Effect on shareholding structures of the Company as a result of the Open Offer ” in the Letter from the Board discussing the various shareholdings by Shareholders in the various scenarios where the subscription rights under the Open Offer and the underwriting commitment are differently exercised and fulfilled.

In all cases of open offers, the dilution on the shareholdings of those qualifying shareholders who do not take up in full their assured entitlements under the open offers is inevitable. Indeed, the dilution magnitude of open offer substantially depends on the extent of the basis of entitlement under such exercise.

Taking into consideration of (i) the Open Offer can strengthen the capital base of the Group and improve the Group’s financial position and gearing ratio; (ii) the funding raised by the Open Offer can be used by the Group for repaying, in whole or in part, the outstanding loan amounts under the Power Way Loan and, in turn, reduce the future interest costs and expenses in connection with the Power Way Loan; (iii) the Company has not conducted any fund raising activities in the past 12 months immediately preceding the Latest Practicable Date; (iv) the Open Offer can provide an equitable means for the Qualifying Shareholders to participate in the future development of the Group; and (v) the inherent dilutive nature of open offer in general, we consider that the potential dilution effect on the shareholding is justifiable.

111

LETTER FROM AIM

6. Whitewash Waiver

As at the latest Practicable Date, the Underwriters and parties acting in concert with any of them were interested in 145,460,938 Shares in aggregate, representing approximately 28.92% of the issued share capital of the Company. In case (i) the Underwriters and parties acting in concert with any of them take up, in full, their entitled Offer Shares under the Open Offer; (ii) no other Qualifying Shareholders subscribe for the Offer Shares; (iii) no subscription rights attached to the outstanding Share Options or conversion rights attached to the outstanding convertible bonds of the Company has been exercise; and (iv) the Underwriters subscribe for the Underwritten Shares pursuant to the Underwriting Agreement, the shareholding of the Underwriters and parties acting in concert with any of them in the Company will increase from approximately 28.92% to approximately 78.43%. Accordingly, it will trigger a mandatory offer obligation on the part of the Underwriters and parties acting in concert with any of them under Rule 26 of the Takeovers Code for all the Shares and other securities issued by the Company not already held or agreed to be acquired by the Underwriters and parties acting in concert with any of them unless the Whitewash Waiver is obtained.

An application has been made by the Underwriters to the Executive for the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, will be subject, among other things, to the approval of the Independent Shareholders at the EGM by way of poll. The Underwriters and parties acting in concert with any of them and Shareholders who are involved in or interested in the Transactions will abstain from voting on the resolution to approve the Whitewash Waiver at the EGM.

The Whitewash Waiver, if granted, will enable Melco LV, Power Way and parties acting in concert with them to hold a majority controlling interest in the Company. We have examined the shareholding structure of the Company and noted that currently, there is no controlling Shareholder in the Company. We have enquired with the Underwriters as to their intention of acquiring an increased stake in the Company. The Underwriters expressed their view that they are aware of the prolonged unsatisfactory performance of the Group due to various underperforming assets and the Share prices have been performing unsatisfactorily and the liquidity of the Shares has always remained at a low level. The Underwriters considered that they have to demonstrate their commitment in, and support to, the Company by increasing their stake in the Company. We agree that the Whitewash Waiver provides the Underwriters a chance to show their commitment in the Company by increasing their shareholding in the Company. The Disposals, the CB Repurchases, the Open Offer, the Underwriting Agreement and the Whitewash Waiver are inter-conditional to each other and are strong advocates of commitment of support by the Underwriters to the Company. Under the currently very volatile market when credit is tight and the business environment where the Company operates is competitive and challenging, we concur with the Directors’ view that the Whitewash Waiver is in the interest of the Company and the Shareholders as a whole.

112

LETTER FROM AIM

It is a term of the Underwriting Agreement that if the Whitewash Waiver is not obtained from the Executive or not approved by the Independent Shareholders at the EGM, the Underwriting Agreement will not become unconditional. As such, the Disposals, the CB Repurchases, the Open Offer and the Underwriting Agreement will not proceed, and there would be negative implication on the Group’s ability to operate as a going concern. The Company will lose all the benefits which are expected to be brought by the Open Offer, including but not limited to the funding for repaying the outstanding Power Way Loan. Based on our analysis of the terms of the Open Offer as described above, we are of the view that the Open Offer and the Whitewash Waiver are fair and reasonable and in the interest of the Company and the Shareholders as the whole. Accordingly, we consider that for the purpose of implementing the Open Offer, the approval of the Whitewash Waiver by the Independent Shareholders at the EGM is in the interest of the Company and the Shareholders as the whole. We advise the Independent Board Committee to recommend the Independent Shareholders to vote for the resolutions to be proposed regarding the Whitewash Waiver at the EGM by way of poll.

IV. Financial Effects

Upon the Intralot Disposal Completion, Precious Success will become an indirect 51% subsidiary of the Company and the financial results and position of Precious Success will continue to be consolidated into the financial statements of the Group.

Upon the Intralot Disposal Completion and the GCH Disposal Completion, both Gain Advance and Oasis Rich will cease to be subsidiaries of the Company and the financial results and position of both Gain Advance and Oasis Rich will discontinue to be consolidated into the financial statements of the Group.

Based on the pro forma financial information as set out in Appendix VI to this Circular, we assessed the financial effects of completion of the Transactions to the Company based on the following two scenarios, being:

(i) assuming that (a) all Shareholders take up their respective assured entitlements to the Offer Shares; and (b) no subscription rights attached to the outstanding Share Options have been exercised (the “ Scenario I ”); and
(ii) assuming that (a) no Shareholders take up their respective assured entitlements to the Offer Shares; and (b) no subscription rights attached to the outstanding Share Options have been exercised (the “ Scenario II ”).

113

LETTER FROM AIM

Scenario I

Table 8: Pro forma financial position of the Remaining Group under Scenario I

		Unaudited
		pro forma
	Audited	consolidated
consolidated		statement
	statement	of financial
of financial		position of the
position of the		Remaining
Group as at		Group as at	Percentage
31	May 2012	31 May 2012	change
HK$ million		HK$ million
Total assets	281.0	213.1	↓24.2%
Total (liabilities)	(943.6)	(598.7)	↓36.6%
Net (liabilities) attributable to the Shareholders	(682.7)	(402.5)	↓41.0%
(Negative) working capital (i.e. net current (liabilities))	(538.7)	(314.4)	↓41.6%
Deposit, cash and bank balances	15.0	122.2	↑714.7%
Gearing ratio (i.e. total debt/total assets)	3.36	2.81	↓16.4%

Under Scenario I, the total assets, total liabilities and net liabilities attributable to the Shareholders would decrease while the negative working capital, liquidity and gearing ratio would improve. The decreases in the net liabilities attributable to the Shareholders and negative working capital (i.e. net current liabilities) are mainly due to gain on the Intralot Disposal and the GCH Disposal and the net proceeds raised from the Open Offer.

114

LETTER FROM AIM

Table 9: Pro forma financial performance of the Remaining Group under Scenario I

			Unaudited
			pro forma
		Audited	consolidated
		consolidated	statement of
		statement of	comprehensive
	comprehensive		income of the
		income of the	Remaining
		Group for	Group for	Percentage
		FY2011	FY2011	change
		HK$ million	HK$ million
Total revenue		96.6	70.9	↓26.6%
Net profit/(loss) attributable to the Shareholders		(209.2)	63.9	N/A
Total cash (outflow) from operating activities		(21.0)	(16.5)	↓21.4%
Total cash inflow/(outflow) from investing activities		0.8	(2.2)	N/A
Total cash inflow from financing activities		1.9	111.1	↑5,747.4%

Under Scenario I, the total revenue would decrease while the profit and loss attributable to the Shareholders would turn around from net loss to net profit. The turnaround in the profit and loss position is mainly due to the gain on the Intralot Disposal and the GCH Disposal. The total cash outflow from operating activities would decrease while the total cash inflow from financing activities would substantially increase. The total cash from investing activities would change from an inflow to an outflow.

Scenario II

Table 10: Pro forma financial position of the Remaining Group under Scenario II

		Unaudited
		pro forma
	Audited	consolidated
consolidated		statement
	statement	of financial
of financial		position of the
position of the		Remaining
Group as at		Group as at	Percentage
31	May 2012	31 May 2012	change
HK$ million		HK$ million
Total assets	281.0	105.4	↓62.5%
Total (liabilities)	(943.6)	(550.3)	↓41.7%
Net (liabilities) attributable to the Shareholders	(682.7)	(461.8)	↓32.4%
(Negative) working capital (i.e. net current (liabilities))	(538.7)	(412.8)	↓23.4%
Deposit, cash and bank balances	15.0	14.5	↓3.3%
Gearing ratio (i.e. total debt/total assets)	3.36	5.22	↑55.4%

115

LETTER FROM AIM

Under Scenario II, the total assets, liquidity and gearing ratio would be worsened despite all of the total liabilities, net liabilities attributable to the Shareholders and negative working capital would improve. Since the Open Offer is not fully underwritten, the Offer Shares to be issued under Scenario II and therefore the net proceeds raised under the Open Offer would be lower than that under Scenario I, which imply that the reduction in total assets as a result of the Disposals (i.e. reduction in assets) and the Open Offer (i.e. increase in assets) would be higher than that under Scenario I and therefore worsen the gearing ratio.

The decreases in the net liabilities attributable to the Shareholders and negative working capital (i.e. net current liabilities) are mainly due to gain on the Intralot Disposal and the GCH Disposal and the net proceeds raised from the Open Offer.

Table 11: Pro forma financial performance of the Remaining Group under Scenario II

			Unaudited
			pro forma
		Audited	consolidated
		consolidated	statement of
		statement of	comprehensive
	comprehensive		income of the
		income of the	Remaining
		Group for	Group for	Percentage
		FY2011	FY2011	change
		HK$ million	HK$ million
Total revenue		96.6	70.9	↓26.6%
Net profit/(loss) attributable to the Shareholders		(209.2)	62.1	N/A
Total cash (outflow) from operating activities		(21.0)	(16.5)	↓21.4%
Total cash inflow/(outflow) from investing activities		0.8	(2.2)	N/A
Total cash inflow from financing activities		1.9	3.5	↑84.2%

Under Scenario II, the total revenue would decrease while the profit and loss attributable to the Shareholders would turn around from net loss to net profit. The turnaround in the profit and loss position is mainly due to the gain on the Intralot Disposal and the GCH Disposal. The total cash outflow from operating activities would decrease while the cash inflow from financing activities would increase. The total cash from investing activities would change from an inflow to an outflow.

For details of the financial effects of the Transactions, please refer to the Letter from the Board and Appendix VI to the Circular.

116

LETTER FROM AIM

OPINION

In arriving at our opinion, we have considered the principal factors and reasons discussed above, in particular,

(i) the reasons for, and benefits of, the GEM LR Transactions and the Transactions;
(ii) the terms of the Disposal Agreements, the CB Repurchases, the Intradak Exclusivity Undertaking, the Open Offer, the Underwriting Agreement and the Whitewash Waiver; and
(iii) the expected financial impact on the Group as a result of the GEM LR Transactions and the Transactions.

Having considered the above principal factors and based on the information provided and the representation made to us by the Management, we are of the opinion that (i) the Disposal Agreements, the Intradak Exclusivity Undertaking, the Open Offer and the Underwriting Agreement are on normal commercial terms; (ii) the transaction contemplated under the Intradak Exclusivity Undertaking is in the ordinary and usual course of business of the Group; (iii) the GEM LR Transactions are fair and reasonable so far as the GEM LR Transactions Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole; and (iv) the Transactions are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, we advise (i) the GEM LR Independent Board Committee to recommend the GEM LR Transactions Independent Shareholders; and (ii) the Independent Board Committee to recommend the Independent Shareholders to vote in favor of the relevant resolutions to be proposed at EGM to approve the GEM LR Transactions and the Transactions, respectively.

Yours faithfully, For and on behalf of

Asia Investment Management Limited

Alice Kan

Managing Director

117

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

The following is the text of a report on Precious Success received from the Company’s reporting accountant, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

==> picture [120 x 57] intentionally omitted <==

26 September 2012

The Directors MelcoLot Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) relating to Precious Success Holdings Limited (“Precious Success”) and its subsidiaries (collectively referred to as the “Precious Success Group”) for each of the years ended 31 December 2009, 2010 and 2011 and the five months ended 31 May 2012 (the “Relevant Periods”) for inclusion in the circular issued by MelcoLot Limited (the “Company”) in connection with the proposed disposal of 49% equity interests of Precious Success as set out in the circular (the “Circular”).

Precious Success is a private limited company incorporated in the British Virgin Islands on 10 July 2007 and is an investment holding company. The Precious Success Group is principally engaged in the provision of services and solutions for distribution of lottery products as well as sales of lottery terminals.

As at the date of this report, except for PAL Development Limited, a directly held subsidiary, Precious Success has the following indirectly held subsidiaries and jointly controlled entities which are all companies with limited liabilities.

				Proportion of
	Place of	Issued and		nominal value of
	incorporation or	fully paid		issued share capital/
	establishment	share capital/		registered capital held
Name of company	and operations	registered capital		by Precious Success				Principal activity
			31 December	31 December	31	May	Date of
			2009 and 2010	2011		2012	this report
Subsidiaries
Global Score Asia Limited	British Virgin	Ordinary shares	100%	–		–	–	Investment holding
(“Global Score”)	Islands (“BVI”)	US$20,000
	18 April 2005
	(Note a)
Trade Express Services Inc.	BVI	Ordinary shares	80%	–		–	–	Investment holding
(“Trade Express”)	3 November 2003	US$20,000
	(Note a)

I-1

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

				Proportion of
	Place of	Issued and		nominal value of
	incorporation or	fully paid		issued share capital/
	establishment	share capital/		registered capital held
Name of company	and operations	registered capital		by Precious Success			Principal activity
			31 December	31 December	31 May	Date of
			2009 and 2010	2011	2012	this report
PAL Development Limited	Hong Kong	Ordinary shares	80%	100%	100%	100%	Investment holding
(“PAL Development”)	17 August 2006	HK$250,000,000
寶加發展有限公司
PAL (Beijing) Information	People’s	Registered capital	100%	100%	100%	100%	Provision of management
Technology Ltd. #(“PAL BJ”)	Republic of	HK$150,000,000					services for distribution
寶加（北京）信息技術	China (the “PRC”)						of lottery products
有限公司	13 December 2006
	(Note b)
Beijing Hua Ying Feng Cai	PRC	Registered capital	100%	100%	100%	100%	Provision of management
Technology Ltd. #	13 March 2007	RMB18,000,000					services for distribution
(“Hua Ying Feng Cai”)	(Note c)						of lottery products
北京華盈風彩科技有限公司
Shandong Kai Chuan Ji Yuan	PRC	Registered capital	60%	65%	65%	65%	Provision of management
Electronic and Information	20 December 2000	RMB10,000,000					services for distribution
Technology Ltd. #	(Note c)						of lottery products
(“Kai Chuan Ji Yuan”)
山東省開創紀元電子商務
信息有限公司
Shanghai Zhi Jue Information	PRC	Registered capital	87.5%	87.5%	87.5%	87.5%	Provision of management
Technology Ltd. #	19 December 2005	RMB4,000,000					services for distribution
(“SH Zhi Jue”)	(Note c)						of lottery products
上海智珏網絡科技有限公司
Jointly controlled entities:
PALTECH Company	Hong Kong	Ordinary shares	60%	60%	–	–	Inactive
Limited (“PALTECH”)	5 June 2006	HK$10,000
寶加科技有限公司	(Note d)
Beijing Telenet Technology	PRC	Registered capital	52.5%	–	–	–	Distribution of lottery
Information Ltd.	10 August 2006	RMB10,000,000					terminals
(“Beijing Telenet”)	(Notes b, e)
北京電信達信息技術有限公司

English name is for identification purpose only

I-2

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

Notes:

(a) These companies have been disposed of during the year ended 31 December 2011.
(b) This company is a wholly foreign owned enterprise established in the PRC.
(c) These companies are private limited companies established in the PRC.
(d) This company was a jointly controlled entity of the Precious Success Group. In January 2012, the company had been disposed of to immediate holding company.
(e) This company was a jointly controlled entity of the Precious Success Group and became a subsidiary upon acquiring control in July 2011. In September 2011, the company had been disposed of to immediate holding company.

No audited financial statements have been prepared by Precious Success, Global Score and Trade Express since their respective dates of incorporation as they were incorporated in country where there is no statutory requirement of preparing audited financial statements. For the purpose of this report, we have reviewed the relevant transactions of these companies during the Relevant Periods.

We have acted as the statutory auditors of PAL Development and have audited the consolidated financial statements of PAL Development and its subsidiaries for the years ended 31 December 2009, 2010 and 2011. We have also acted as the statutory auditors of PALTECH during the Relevant Periods and have audited the statutory financial statements of that company for the years ended 31 December 2009, 2010 and 2011.

The statutory financial statements of the following subsidiaries and jointly controlled entity established in the PRC were audited by certified public accountants registered in the PRC, as follows:

Name of subsidiaries	Auditors	Financial year end
PAL BJ	Beiing Hua Tong Jian Certified Public Accountants Co. Ltd.#	Years ended 31 December 2009, 2010 and 2011
	北京華通鑒會計師事務所有限責任公司
Hua Ying Feng Cai	Beijing An Du Cheng Certified Tax Agents Co. Ltd.#	Years ended 31 December 2009, 2010 and 2011
	北京安都成稅務師事務所有限公司
Kai Chuan Ji Yuan	Xin Lianyi Certified Public Accountants Co. Ltd.#	Years ended 31 December 2009, 2010 and 2011
	新聯誼會計師事務所有限公司
SH Zhi Jue	Shanghai Junkai Certified Public Accountants of China Co. Ltd.#	Years ended 31 December 2009 and 2010 (note)
	上海君開會計師事務所有限公司
Beijing Telenet	Beijing An Pu De Ming Certified Public Accountants Co. Ltd.#	Years ended 31 December 2009, 2010 and 2011
	北京安普德明會計師事務所有限公司

English name is for identification purpose only

Note: The company is under voluntary liquidation during the year ended 31 December 2011 and no statutory financial statements for the year ended 31 December 2011 has been prepared and audited.

I-3

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

For the purpose of this report, the directors of Precious Success have prepared the consolidated financial statements of the Precious Success Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). We have carried out an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information of the Precious Success Group for the Relevant Periods as set out in this report has been prepared from the Underlying Financial Statements. No adjustments are considered necessary to the Underlying Financial Statements in the preparation of this report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Precious Success who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Precious Success Group as at 31 December 2009, 2010, 2011 and 31 May 2012 and of the results and cash flows of the Precious Success Group for the Relevant Periods.

Without qualifying our opinion, we draw attention to note 2 of Section A to the Financial Information which indicates that the Precious Success Group recorded recurring losses and negative operating cash flows during the Relevant Periods. As described in note 2 of Section A to the Financial Information, the Company has agreed to provide financial support to enable the Precious Success Group to meet in full their financial obligations as they fall due for the foreseeable future. Note 2 of Section A to the Accountants’ Report of the Company and its subsidiaries (the “Group”) dated 26 September 2012 further describes the financing and liquidity issues the Group is currently facing and measures being taken or contemplated to deal with them which include, among others, proposed very substantial disposals and repurchases of certain convertible bonds issued by the Company to certain substantial shareholders, and a proposed open offer of new shares of the Company. The eventual success of these measures cannot be presently determined in light of the fact that the completion of these transactions is subject to independent shareholders’ approval at an extraordinary general meeting to be held by the Company and accordingly, these conditions indicate the existence of a material uncertainty which may cast significant doubt about the Precious Success Group’s ability to continue as a going concern.

The comparative consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity of the Precious Success Group for the five months ended 31 May 2011 together with the notes thereon have been extracted from the Precious Success Group’s unaudited consolidated financial information for the same period (the “May 2011 Financial Information”) which was prepared by the directors of Precious Success solely for the purpose of this report. We have reviewed the May 2011 Financial Information in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review of the May 2011 Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion on the May 2011 Financial Information. Based on our review, nothing has come to our attention that causes us to believe that the May 2011 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

I-4

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

A. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year 2009 Notes HK$’000 Revenue 6 11,101 Purchase of inventories – Other income, gains and losses 8 (12,925) Employee benefits costs (7,196) Depreciation and amortisation (8,714) Impairment loss on property, plant and equipment – Impairment loss on trade and other receivables – Loss on disposal of subsidiaries 25 – Share of results of jointly controlled entities 116 Other expenses (21,528) Interest on loans from ultimate holding company wholly repayable within five years 20 (5,484) Loss before tax 9 (44,630) Taxation 10 – Loss for the year/period (44,630) Other comprehensive income (expense) Exchange differences arising on translation 105 Total comprehensive expense for the year/period (44,525) Loss for the year/period attributable to: Owners of Precious Success (35,198) Non-controlling interests (9,432) (44,630) Total comprehensive expense for the year/period attributable to: Owners of Precious Success (35,093) Non-controlling interests (9,432) (44,525)	ended 31 December 2010 2011 HK$’000 HK$’000 12,168 25,699 – (11,448) (1,079) 7,613 (4,852) (3,902) (5,236) (4,865) – – – (11,016) – (458) 263 (480) (20,350) (24,455) (5,840) (5,840) (24,926) (29,152) – (62) (24,926) (29,214) 1,342 5,297 (23,584) (23,917) (19,576) (26,632) (5,350) (2,582) (24,926) (29,214) (12,970) (21,768) (10,614) (2,149) (23,584) (23,917)	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) 6,292 2,982 – – (418) (11) (1,411) (1,302) (2,205) (1,259) – (2,740) (10,260) (2,252) – – (190) – (12,829) (6,942) (2,433) – (23,454) (11,524) – – (23,454) (11,524) – (84) (23,454) (11,608) (18,597) (10,863) (4,857) (661) (23,454) (11,524) (18,597) (10,916) (4,857) (692) (23,454) (11,608)

I-5

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Property, plant and equipment 13 Intangible assets 14 Interests in jointly controlled entities 15 CURRENT ASSETS Trade and other receivables 16 Amount due from ultimate holding company 17 Amount due from immediate holding company 17 Amounts due from fellow subsidiaries 17 Amount due from a related company 17 Bank balances and cash 18 CURRENT LIABILITIES Other payables and accruals 19 Loans from ultimate holding company 20 Amount due to ultimate holding company 17 Amount due to immediate holding company 17 Amount due to a fellow subsidiary 17 Amount due to a shareholder of a jointly controlled entity 17 NET CURRENT (LIABILITIES) ASSETS CAPITAL AND RESERVES Share capital 21 Reserves (Deficiency of) equity attributable to owners of Precious Success Non-controlling interests NON-CURRENT LIABILITY Loan from ultimate holding company 20	As 2009 HK$’000 8,599 4,731 11,633 24,963 28,733 – 756 40,735 148 32,425 102,797 4,184 96,800 9,620 9 12,939 2,334 125,886 (23,089) 1,874 1 (22,798) (22,797) 4,671 (18,126) 20,000 1,874	at 31 December As at 31 May 2010 2011 2012 HK$’000 HK$’000 HK$’000 6,893 10,189 6,368 2,242 – – 11,896 – – 21,031 10,189 6,368 28,028 15,627 12,258 35,781 20,273 – – – – – 14,524 – – – – 11,851 8,012 2,598 75,660 58,436 14,856 3,555 4,791 3,872 116,800 116,800 – 204 204 3 14 269 – 15,494 8,102 8,018 2,334 2,334 – 138,401 132,500 11,893 (62,741) (74,064) 2,963 (41,710) (63,875) 9,331 1 1 2 (35,768) (62,937) 10,960 (35,767) (62,936) 10,962 (5,943) (939) (1,631) (41,710) (63,875) 9,331 – – – (41,710) (63,875) 9,331

I-6

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Attributable to owners of Precious Success	Attributable to owners of Precious Success	Attributable to owners of Precious Success	Attributable to owners of Precious Success	Attributable to owners of Precious Success		Total HK$’000 26,399
Share premium HK$’000 – – – – – – – – – – – – – – – – –	Capital reserve HK$’000 200,000 – – – 200,000 – – – 200,000 – – – – – – – –	Exchange reserve HK$’000 4,158 – 105 105 4,263 – 6,606 6,606 10,869 – 4,864 4,864 – (3,464) – – (479)	Other reserve HK$’000 (Note b) – – – – – – – – – – – – – – (4,922) – –	Accumulated losses HK$’000 (191,863) (35,198) – (35,198) (227,061) (19,576) – (19,576) (246,637) (26,632) – (26,632) – 3,464 – – –	Sub-total HK$’000 12,296 (35,198) 105 (35,093) (22,797) (19,576) 6,606 (12,970) (35,767) (26,632) 4,864 (21,768) – – (4,922) – (479)
						(44,630) 105
						(44,525)
						(18,126)
						(24,926) 1,342
						(23,584)
						(41,710)
						(29,214) 5,297
						(23,917)
						3,003 – (250) 13,463 (14,464)

I-7

APPENDIX I

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

Attributable to owners of Precious Success	Attributable to owners of Precious Success	Attributable to owners of Precious Success	Attributable to owners of Precious Success	Attributable to owners of Precious Success		Total HK$’000 (63,875)
Share premium HK$’000 – – – – 84,813 84,813 – – – – –	Capital reserve HK$’000 200,000 – – – – 200,000 200,000 – – – 200,000	Exchange reserve HK$’000 11,790 – (53) (53) – 11,737 10,869 – – – 10,869	Other reserve HK$’000 (Note b) (4,922) – – – – (4,922) – – – (154) (154)	Accumulated losses HK$’000 (269,805) (10,863) – (10,863) – (280,668) (246,637) (18,597) – – (265,234)	Sub-total HK$’000 (62,936) (10,863) (53) (10,916) 84,814 10,962 (35,767) (18,597) – (154) (54,518)
						(11,524) (84)
						(11,608)
						84,814
						9,331

						(41,710)
						(23,454)
						3,003 –
						(62,161)

I-8

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

Notes:

(a) The increase in share premium represents the difference between the carrying value of amount due to immediate holding company and the nominal value of new shares subscribed by immediate holding company which were settled through the amount due to it on 4 January 2012. Details are set out in note 21.
(b) On 18 January 2011, the Precious Success Group entered into a supplemental agreement with Shandong Zhenglu Industrial Company Limited (“Shandong Zhenglu”), a non-controlling shareholder of Kai Chuan Ji Yuan, a 60% owned subsidiary of Precious Success immediately before the transaction. Pursuant to the agreement, the registered capital of Kai Chuan Ji Yuan was increased from RMB2,667,000 to RMB10,000,000 of which RMB4,900,000 (equivalent to HK$6,047,000) and RMB2,433,000 (equivalent to HK$3,003,000) were contributed by the Precious Success Group and Shandong Zhenglu, respectively. Upon completion of the capital injection, the Precious Success Group’s equity interest in Kai Chuan Ji Yuan was increased from 60% to 65%. The difference between the adjustment to non-controlling interests and the consideration paid, amounting to HK$154,000, was recognised as an equity transaction in other reserve.

On 19 September 2011, the Precious Success Group entered into a sale and purchase agreement with LottVision Investments Holdings Limited (“LottVision”), the non-controlling shareholder of PAL Development, a 80% owned subsidiary of Precious Success immediately before the transaction. Pursuant to the agreement, the Precious Success Group agreed to purchase and LottVision agreed to sell its 20% equity interests in PAL Development, at a consideration of HK$250,000. Upon completion of the acquisition, PAL Development became a whollyowned subsidiary of Precious Success. The difference between the adjustment to non-controlling interests and the consideration paid, amounting to HK$4,768,000, was recognised as an equity transaction in other reserve.

I-9

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year 2009 Notes HK$’000 OPERATING ACTIVITIES Loss before tax (44,630) Adjustments for: Amortisation of intangible assets 2,565 Depreciation of property, plant and equipment 6,149 Impairment loss on property, plant and equipment – Impairment loss on trade and other receivables – Write-off of other receivables 522 Impairment loss on loan receivables 3,890 Interest on loan from ultimate holding company 5,484 Interest income (35) Loss on disposal of/write-off of property, plant and equipment 8,496 Loss on disposal of subsidiaries – Share of (profits) losses of jointly controlled entities (116) Operating cash flows before movements in working capital (17,675) Increase in inventories – Decrease (increase) in trade and other receivables 3,661 Increase in amount due to immediate holding company – Decrease in amount due to a fellow subsidiary – (Decrease) increase in other payables and accruals (1,810) NET CASH USED IN OPERATING ACTIVITIES (15,824)	ended 31 December 2010 2011 HK$’000 HK$’000 (24,926) (29,152) 2,565 2,266 2,671 2,599 – – – 11,016 546 – – – 5,840 5,840 (59) (24) 596 461 – 458 (263) 480 (13,030) (6,056) – (22) 1,103 (13,303) 5 255 – (7,858) (740) 15,223 (12,662) (11,761)	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) (23,454) (11,524) 1,102 – 1,103 1,259 – 2,740 10,260 2,252 – – – – 2,433 – (10) (6) 428 1 – – 190 – (7,948) (5,278) – – (2,098) 955 – – – – 368 (869) (9,678) (5,192)

I-10

APPENDIX I

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

Year 2009 Notes HK$’000 INVESTING ACTIVITIES Acquisition of a subsidiary (net of cash and cash equivalents acquired) 24 – Disposal of subsidiaries (net of cash and cash equivalents disposed of) 25 – Purchase of property, plant and equipment (1,964) Repayment from a related company – Proceeds from disposal of property, plant and equipment – Interest received 35 Repayment from immediate holding company 633 NET CASH (USED IN) FROM INVESTING ACTIVITIES (1,296) FINANCING ACTIVITIES Advance from ultimate holding company 19,984 Advance from a fellow subsidiary 12,939 Repayment to ultimate holding company – Repayment to related companies (621) Capital contributed by non-controlling interest – NET CASH FROM (USED IN) FINANCING ACTIVITIES 32,302 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,182 EFFECT OF FOREIGN EXCHANGE RATE CHANGES 105 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD 17,138 CASH AND CASH EQUIVALENTS AT END THE YEAR/PERIOD, represented by bank balances and cash 32,425	ended 31 December 2010 2011 HK$’000 HK$’000 – 1,535 – (661) (1,458) (429) 148 – 62 538 59 24 – – (1,189) 1,007 – 3,516 2,030 – (9,477) – – – – 3,003 (7,447) 6,519 (21,298) (4,235) 724 396 32,425 11,851 11,851 8,012	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) – – – – (314) (217) – – – – 10 6 – – (304) (211) – 3 – – – – – – 3,003 – 3,003 3 (6,979) (5,400) – (14) 11,851 8,012 4,872 2,598

I-11

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

Precious Success is a private limited company incorporated in the British Virgin Islands. Its immediate holding company is Rising Move International Limited (“Rising Move”), a private limited company incorporated in the British Virgin Islands and its ultimate holding company is MelcoLot Limited, a public limited company incorporated in the Cayman Islands with its shares listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (“Stock Exchange”). The addresses of the registered office and principal place of business of Precious Success are 4th Floor, Scotia Centre, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands and Units 3101-2A, 31st Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong, respectively.

The directors are of the opinion that the functional currency of Precious Success is Renminbi (“RMB”), after taking into consideration that the primary economic environment in which Precious Success’s subsidiaries operate is the PRC. The Financial Information is presented in Hong Kong dollars (“HK$”) for the convenience of the consolidation of its ultimate holding company which is listed in Hong Kong with the financial information presented in HK$.

Precious Success is an investment holding company.

2. BASIS OF PREPARATION OF FINANCIAL INFORMATION

In preparing the Underlying Financial Statements, the directors of Precious Success have taken into consideration that the Precious Success Group recorded recurring losses and negative operating cash flows during the Relevant Periods.

The directors of Precious Success have prepared the Underlying Financial Statements on a going concern basis as the Company agreed to provide financial support to enable the Precious Success Group to meet in full its financial obligations as they fall due for the foreseeable future and accordingly, the Financial Information has been prepared on a going concern basis. Note 2 of Section A to the Accountants’ Report of the Group dated 26 September 2012 further describes the financial and liquidity issues the Group is currently facing and measures being taken or contemplated to deal with them which include, among others, proposed very substantial disposals and repurchases of certain convertible bonds issued by the Company to certain substantial shareholders, and a proposed open offer of new shares of the Company. The eventual success of these measures cannot be presently determined in light of the fact that the completion of these transactions is subject to independent shareholders’ approval at an extraordinary general meeting to be held by the Company. These factors indicate the existence of a material uncertainty which may cast significant doubt about the Precious Success Group’s ability to continue as a going concern.

3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

The Precious Success Group has adopted all the new and revised HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA"), which are effective for the Precious Success Group's financial periods beginning on 1 January 2012 in the preparation of its Financial Information throughout the Relevant Periods, except for the HKAS 27 (Revised) Consolidated and Separate Financial Statements has been applied for financial period beginning on or after 1 January 2010.

I-12

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

The Precious Success Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective.

Amendments to HKFRSs Annual Improvements to HKFRSs 2009-2011 Cycle[1] Amendments to HKFRS 1 Government Loans[1] Amendments to HKFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities[1] HKFRS 9 Financial Instruments[2] Amendments to HKFRS 9 Mandatory Effective Date of HKFRS 9 and Transition Disclosures[2] and HKFRS 7 Amendments to HKFRS 10, Consolidated Financial Statements, Joint Arrangements and Disclosure HKFRS 11 and HKFRS 12 of Interests in Other Entities: Transition Guidance[1] HKFRS 10 Consolidated Financial Statements[1] HKFRS 11 Joint Arrangements[1] HKFRS 12 Disclosure of Interests in Other Entities[1] HKFRS 13 Fair Value Measurement[1] Amendments to HKAS 1 Presentation of Items of Other Comprehensive Income[3] HKAS 19 (as revised in 2011) Employee Benefits[1] HKAS 27 (as revised in 2011) Separate Financial Statements[1] HKAS 28 (as revised in 2011) Investments in Associates and Joint Ventures[1] Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities[4] HK(IFRIC) – Int 20 Stripping Costs in the Production Phase of a Surface Mine[1]

1 Effective for annual periods beginning on or after 1 January 2013 2 Effective for annual periods beginning on or after 1 January 2015 3 Effective for annual periods beginning on or after 1 July 2012 4 Effective for annual periods beginning on or after 1 January 2014

New and revised Standards on consolidation, joint arrangements, associates and disclosures

In June 2011, a package of five standards on consolidation, joint arrangements, associates and disclosures was issued, including HKFRS 10, HKFRS 11, HKFRS 12, HKAS 27 (as revised in 2011) and HKAS 28 (as revised in 2011). Key requirements of these five standards are described below.

HKFRS 10 replaces the parts of HKAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements and HK (SIC) – Int 12 Consolidation – Special Purpose Entities . HKFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor’s returns. Extensive guidance has been added in HKFRS 10 to deal with complex scenarios.

HKFRS 11 replaces HKAS 31 Interests in Joint Ventures and HK (SIC) – Int 13 Jointly Controlled Entities – NonMonetary Contributions by Venturers . HKFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified.

Under HKFRS 11, joint arrangements are classified as joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangements. In contrast, under HKAS 31, there are three types of joint arrangements: jointly controlled entities, jointly controlled assets and jointly controlled operations.

In addition, joint ventures under HKFRS 11 are required to be accounted for using the equity method of accounting, whereas jointly controlled entities under HKAS 31 can be accounted for using the equity method of accounting or proportionate accounting.

HKFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates or unconsolidated structured entities. In general, the disclosure requirements in HKFRS 12 are more extensive than those in the current standards.

These five standards are effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted provided that all of these five standards are applied early at the same time.

I-13

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

The directors anticipate that these five standards will be adopted by the Precious Success Group for the annual period beginning 1 January 2013 and, based on the existing group structure, the application of these five standards will have no significant impact on the results and financial position of the Precious Success Group.

The directors of Precious Success anticipate that the application of the other new and revised HKFRSs will have no material impact on the Financial Information.

4. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared in accordance with the following accounting policies which conform to HKFRSs issued by the HKICPA and includes applicable disclosures required by the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange and the Hong Kong Companies Ordinance.

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Basis of consolidation

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

The results of subsidiaries acquired or disposed of during the year/period are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of the subsidiaries to bring their accounting policies into line with those used by other members of the Precious Success Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in subsidiaries are presented separately from the Precious Success Group’s equity therein.

Allocation of total comprehensive income to non-controlling interests

Total comprehensive income and expense of a subsidiary is attributed to the owners of Precious Success and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Prior to 1 January 2010, losses applicable to the non-controlling interests in excess of the non-controlling interests in the subsidiary’s equity were allocated against the interests of the Precious Success Group except to the extent that the non-controlling interests had a binding obligation and were able to make an additional investment to cover the losses.

Changes in the Precious Success Group’s ownership interests in existing subsidiaries

Changes in the Precious Success Group’s ownership interests in subsidiaries that do not result in the Precious Success Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Precious Success Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity (other reserve) and attributed to owners of Precious Success.

When the Precious Success Group loses control of a subsidiary, it (i) derecognises the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost; (ii) derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them); and (iii) recognises the aggregate

I-14

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

of the fair value of the consideration received and the fair value of any retained interest, with any resulting difference being recognise as a gain or loss in profit or loss attributable to the Precious Success Group. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Precious Success Group had directly disposed of the related assets (i.e. reclassified to profit or loss or transferred directly to accumulated losses as specified by applicable HKFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39 “Financial Instruments: Recognition and Measurement” or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Precious Success Group, liabilities incurred by the Precious Success Group to the former owners of the acquiree and the equity interests issued by the Precious Success Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 Income Taxes and HKAS 19 Employee Benefits respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or sharebased payment arrangements of the Precious Success Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with HKFRS 2 Share-based Payment at the acquisition date (see the accounting policy below); and
assets (or disposal groups) that are classified as held-for-sale in accordance with HKFRS 5 Non-current Assets held-for-sale and Discontinued Operations are measured in accordance with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the noncontrolling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at their fair value or, when applicable, on the basis specified in another Standard.

Jointly controlled entities

Joint venture arrangements that involve the establishment of a separate entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entities.

The results and assets and liabilities of jointly controlled entities are incorporated in the Financial Information using the equity method of accounting. Under the equity method, investments in jointly controlled entities are initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Precious Success Group’s share of the profit or loss and other comprehensive income of the jointly controlled entities. When the Precious Success Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the

I-15

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

Precious Success Group’s net investment in the jointly controlled entity), the Precious Success Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Precious Success Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity.

Any excess of the cost of acquisition over the Precious Success Group’s share of the net fair value of the identifiable assets and liabilities of a jointly controlled entity recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment.

Any excess of the Precious Success Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Precious Success Group’s investment in a jointly controlled entity. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases.

When a group entity transacts with its jointly controlled entity, profits and losses resulting from the transactions with the jointly controlled entity are recognised in the Financial Information only to the extent of interests in the jointly controlled entity that are not related to the Precious Success Group.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of discounts and sales related taxes.

Revenue from provision of services and solutions for distribution of lottery products is recognised when the service or solution is rendered and when the right to receive the income, which is calculated on a commission basis, has been established.

Revenue from sales of lottery terminals are recognised when the goods are delivered and title has passed.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Precious Success Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.

Depreciation is recognised so as to write off the cost of items of property, plant and equipment less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of the reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

I-16

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

Leasing

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

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis.

Foreign currencies

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

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss in the period in which they arise.

For the purposes of presenting the Financial Information, the assets and liabilities of the Precious Success Group are translated into the presentation currency of Hong Kong dollars at the rate of exchange prevailing at the end of the reporting period. Income and expenses are translated at the average exchange rates for the year/period, unless exchange rates fluctuate significantly during the year/period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of exchange reserve (attributed to non-controlling interests as appropriate).

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefit costs

Payments to state-managed retirement benefit schemes are recognised as expenses when employees have rendered service entitling them to the contributions.

Taxation

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

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Precious Success Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of reporting period.

I-17

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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

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

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Precious Success Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax is recognised in profit or loss.

Intangible assets

Intangible assets acquired separately

Intangible assets acquired separately and with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of the reporting period, with the effect of any changes in estimate being accounted for on a prospective basis (see the accounting policy in respect of impairment losses on tangible and intangible assets below).

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

Impairment losses on tangible and intangible assets

At the end of the reporting period, the Precious Success Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Precious Success Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

I-18

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

The Precious Success Group’s financial assets are classified into loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

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

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. subsequent to initial recognition, loans and receivables (including trade and other receivables, amounts due from ultimate holding company/immediate holding company/fellow subsidiaries/a related company and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on financial assets below).

Impairment of financial assets

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

Objective evidence of impairment could include:

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

I-19

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

For certain categories of financial asset, such as trade receivables, that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Precious Success Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period of 30 to 90 days, observable changes in national or local economic conditions that correlate with default on receivables.

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

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

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

Financial liabilities and equity instruments

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

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Precious Success Group after deducting all of its liabilities. Equity instruments issued by Precious Success are recorded at the proceeds received, net of direct issue costs.

Effective interest method

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

Interest expense is recognised on an effective interest basis.

Financial liabilities

Financial liabilities including other payables, loans from ultimate holding company, amount due to ultimate holding company/immediate holding company/a fellow subsidiary/a shareholder of a jointly controlled entity are subsequently measured at amortised cost, using the effective interest method.

Derecognition

The Precious Success Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

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

I-20

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

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

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Precious Success Group’s accounting policies, which are described in note 4, the directors of Precious Success are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Estimated impairment of property, plant and equipment

If there is any indication of impairment, determining the extent to which property, plant and equipment are impaired requires an estimation of the value in use of the cash-generating units to which they have been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value.

As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of property, plant and equipment is HK$8,599,000, HK$6,893,000, HK$10,189,000 and HK$6,368,000, respectively (net of accumulated impairment losses of nil, nil, nil and HK$2,740,000, respectively).

Estimated impairment of trade and other receivables

When there is objective evidence of impairment loss, the Precious Success Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of trade receivables is HK$3,756,000, HK$6,415,000, HK$6,657,000 and HK$6,987,000, respectively (net of allowance for doubtful debts of nil, nil, HK$548,000 and HK$554,000, respectively). As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of other receivables is HK$24,977,000, HK$21,613,000, HK$8,970,000 and HK$5,271,000, respectively (net of allowance for doubtful debts of nil, nil, HK$10,468,000 and HK$12,415,000, respectively).

6. REVENUE

Provision of services and solutions for distribution of lottery products Sales of lottery terminals	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 11,101 12,168 13,240 6,292 2,982 – – 12,459 – – 11,101 12,168 25,699 6,292 2,982	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 11,101 12,168 13,240 6,292 2,982 – – 12,459 – – 11,101 12,168 25,699 6,292 2,982
		2,982

I-21

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

7. SEGMENT INFORMATION

HKFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Precious Success Group that are regularly reviewed by the chief operating decision maker, the directors of Precious Success, for the purpose of allocating resources and assessing performance. During the Relevant Periods, the Precious Success Group is engaged in the provision of management services for distribution of lottery products and the sales of lottery terminals. The chief operating decision maker reviews the management accounts of the Precious Success Group as a whole, prepared in accordance with the significant accounting policies detailed in note 4, for the purpose of resources allocation and performance assessment. Accordingly, the operation of the Precious Success Group is regarded as a single operating segment. No segment analysis is presented other than entity-wide disclosures.

The revenue of product and service is set out in note 6.

Geographical information

The Precious Success Group’s operations are carried out in the PRC and revenue from external customers based on the location of goods delivered and services rendered is derived in the PRC.

Information about the Precious Success Group’s non-current assets is presented based on the geographical location of the assets:

Non-current assets The PRC Hong Kong	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 24,875 21,031 10,189 88 – – 24,963 21,031 10,189	As at 31 May 2012 HK$’000 6,368 –
		6,368

Information about major customers

Revenue from customers of the Relevant Periods individually contributing over 10% of the total sales of the Precious Success Group are as follows:

				Five months	Five months
	Year	ended 31 December		ended 31 May
	2009	2010	2011	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Customer A	4,100	4,446	2,916	856	820
Customer B	3,046	3,078	3,048	1,880	603
Customer C	–	–	12,459	–	–

I-22

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

8. OTHER INCOME, GAINS AND LOSSES

Bank interest income Net foreign exchange (loss) gain Consultancy services income_(note a) Impairment loss on loan receivables(note b)_ Write-off of other receivables Loss on disposal of/write-off of property, plant and equipment	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 35 59 24 10 6 (52) 4 1 – (16) – – 8,049 – – (3,890) – – – – (522) (546) – – – (8,496) (596) (461) (428) (1) (12,925) (1,079) 7,613 (418) (11)	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 35 59 24 10 6 (52) 4 1 – (16) – – 8,049 – – (3,890) – – – – (522) (546) – – – (8,496) (596) (461) (428) (1) (12,925) (1,079) 7,613 (418) (11)
		(11)

Notes:

(a) During the year ended 31 December 2011, the Precious Success Group earned a consultancy fee of HK$8,049,000 from a fellow subsidiary for providing consultancy services on the development of lottery terminals business of the fellow subsidiary.
(b) During the year ended 31 December 2009, a loan of HK$3,890,000 advanced to a subsidiary of a shareholder of a jointly controlled entity was considered unlikely to be recovered by the directors and an impairment loss was recognised accordingly.

9. LOSS BEFORE TAX

Loss before tax for the year/period 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 Total employee benefit expenses Auditors’ remuneration Donation Management fee paid to lottery operator (included in other expenses) Operating lease rentals in respect of land and buildings	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 2,565 2,565 2,266 1,102 – 6,149 2,671 2,599 1,103 1,259 8,714 5,236 4,865 2,205 1,259 – – – – – 6,030 3,977 3,096 1,108 1,032 1,166 875 806 303 270 7,196 4,852 3,902 1,411 1,302 481 555 528 286 287 – 2,280 2,360 2,360 2,467 12,278 9,514 6,205 2,684 1,111 2,234 1,162 1,348 521 384	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 2,565 2,565 2,266 1,102 – 6,149 2,671 2,599 1,103 1,259 8,714 5,236 4,865 2,205 1,259 – – – – – 6,030 3,977 3,096 1,108 1,032 1,166 875 806 303 270 7,196 4,852 3,902 1,411 1,302 481 555 528 286 287 – 2,280 2,360 2,360 2,467 12,278 9,514 6,205 2,684 1,111 2,234 1,162 1,348 521 384
		1,259
		– 1,032 270
		1,302
		287 2,467 1,111 384

I-23

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

10. TAXATION

				Five months	Five months
	Year	ended 31 December		ended 31 May
	2009	2010	2011	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
PRC Enterprise Income Tax – current year/period	–	–	62	–	–

Under the Law of the PRC on Enterprise Income Tax (the “EIT Law”) and Implementation Regulations of the EIT Law, the tax rate of the PRC subsidiaries is 25% from 1 January 2008 onwards.

A PRC subsidiary of the Precious Success Group was approved as enterprise that satisfied the condition as advanced-technology development enterprise in 2007 by the relevant PRC tax authority, pursuant to which that subsidiary was granted an exemption from PRC Enterprise Income Tax for three years which commenced from the year of grant, followed by 50% reduction on tax rate relief for the next three years, under the condition that the subsidiary able to renew the qualification by each year. The first year of tax exemption granted to that subsidiary was year 2007 and the subsidiary continued to enjoy the tax ememption until 2009. During the years ended 31 December 2010 and 2011 and the five months ended 31 May 2011 and 2012, the subsidiary was unable to renew the qualification and therefore subjected to the domestic income tax rate of 25%.

The taxation for the Relevant Periods can be reconciled to the loss before tax per the consolidated statement of comprehensive income as follows:

Loss before tax Tax at the domestic income tax rate of 25% Tax effect of expenses not deductible for tax purpose Tax effect of tax losses not recognised Utilisation of tax losses previously not recognised Tax effect of share of results of jointly controlled entities Income tax expense for the year/period	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (44,630) (24,926) (29,152) (23,454) (11,524) (11,158) (6,232) (7,288) (5,864) (2,881) 2,167 1,036 5,852 4,623 1,271 9,020 5,262 1,621 1,193 1,610 – – (243) – – (29) (66) 120 48 – – – 62 – –	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (44,630) (24,926) (29,152) (23,454) (11,524) (11,158) (6,232) (7,288) (5,864) (2,881) 2,167 1,036 5,852 4,623 1,271 9,020 5,262 1,621 1,193 1,610 – – (243) – – (29) (66) 120 48 – – – 62 – –

		(2,881) 1,271 1,610 – –
		–

At 31 December 2009, 2010, 2011 and 31 May 2012, the Precious Success Group had unused tax losses of approximately HK$71,396,000, HK$78,201,000, HK$83,714,000 and HK$90,154,000, respectively available to offset against future profits. No deferred tax asset has been recognised in respect of unused tax losses due to the unpredictability of future profit streams. Included in unrecognised tax losses are losses as at 31 December 2009, 2010, 2011 and 31 May 2012 are losses of nil, HK$57,671,000, HK$62,744,000 and HK$68,417,000, respectively that are allowed to be carried forward and utilised against the income of subsequent years, provided the loss carry forward period shall not exceed 5 years. Other losses may be carried forward indefinitely.

I-24

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

11. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

During the Relevant Periods, no fees and other emoluments are paid or payable by the Precious Success Group to Mr. Ko Chun Fung, Henry and Ms. Wong Pui San, Stephanie, directors of Precious Success.

No directors’ emolument was recognised as an expense in the consolidated statement of comprehensive income. The amount of emoluments paid by the ultimate holding company to these directors which is attributable to their services rendered to the Precious Success Group is considered insignificant during the Relevant Periods.

(b) Employees’ emoluments

The emoluments of the five individuals with the highest emoluments, all being employees of the Precious Success Group, are as follows:

Salaries and other benefits Contributions to retirement benefit schemes	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,214 888 971 398 342 189 213 245 101 90 1,403 1,101 1,216 499 432	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,214 888 971 398 342 189 213 245 101 90 1,403 1,101 1,216 499 432
		432

All of their emoluments are within the Nil to HK$1,000,000 band.

12. LOSS PER SHARE

No loss per share information is presented as its inclusion, for the purpose of this report, is not considered meaningful.

I-25

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

13. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2009 Additions Write-off At 31 December 2009 Additions Disposals Transfer to ultimate holding company Exchange realignment At 31 December 2010 Additions Disposals Transfer from ultimate holding company Acquisition of a subsidiary Disposal of subsidiaries Exchange realignment At 31 December 2011 Additions Write-off Exchange realignment At 31 May 2012 DEPRECIATION AND IMPAIRMENT At 1 January 2009 Provided for the year Write-off At 31 December 2009 Provided for the year Disposals Transfer Exchange realignment At 31 December 2010 Provided for the year Disposals Eliminated on disposal of subsidiaries Exchange realignment At 31 December 2011 Provided for the period Write-off Impairment loss recognised Exchange realignment At 31 May 2012 CARRYING VALUES At 31 December 2009 At 31 December 2010 At 31 December 2011 At 31 May 2012	Lottery terminals HK$’000 15,921 – (10,314) 5,607 – (518) – 179 5,268 – (1,111) – – – 208 4,365 – – (45) 4,320 3,538 2,307 (3,250) 2,595 1,039 (297) – 121 3,458 998 (920) – 159 3,695 344 – 321 (40) 4,320 3,012 1,810 670 –	Machinery and equipment HK$’000 2,994 1,735 (824) 3,905 1,021 (441) (230) 314 4,569 429 (2,221) 6,221 608 (638) 389 9,357 194 (11) (84) 9,456 1,185 1,655 (311) 2,529 1,192 (239) (168) 181 3,495 1,184 (1,772) (22) 228 3,113 754 (10) 143 (56) 3,944 1,376 1,074 6,244 5,512	Furniture, fixture and Leasehold equipment improvement HK$’000 HK$’000 13,111 1,174 123 106 (7,915) (1,047) 5,319 233 – 437 (341) (53) (19) – 67 14 5,026 631 – – (1,498) (106) – – 7 184 (8) (189) 46 29 3,573 549 – 23 – – (4) (4) 3,569 568 2,998 209 1,934 253 (3,793) (260) 1,139 202 371 69 (159) – (13) – 37 2 1,375 273 318 99 (1,139) (106) (1) (15) 29 14 582 265 123 38 – – 2,009 267 (1) (2) 2,713 568 4,180 31 3,651 358 2,991 284 856 –	Total HK$’000 33,200 1,964 (20,100) 15,064 1,458 (1,353) (249) 574 15,494 429 (4,936) 6,221 799 (835) 672 17,844 217 (11) (137) 17,913 7,930 6,149 (7,614) 6,465 2,671 (695) (181) 341 8,601 2,599 (3,937) (38) 430 7,655 1,259 (10) 2,740 (99) 11,545 8,599 6,893 10,189 6,368

I-26

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

The above items of property, plant and equipment are depreciated on a straight-line basis after taking into account of their estimated residual values, if any, at the rate of 20% per annum.

During the year ended 31 December 2009, the Precious Success Group had closed down some of the unprofitable shops in the PRC engaging in the distribution of lottery products. As a result, the related property, plant and equipment had been written off.

During the five months ended 31 May 2012, the directors of the Precious Success Group determined that there would be an expected decrease in revenue from provision of services and solutions for distribution of lottery products in some cities in the PRC due to keen market competition, which was an indicator of the impairment of the related property, plant and equipment. Accordingly, a full impairment loss of HK$2,740,000 was recognised in profit or loss.

14. INTANGIBLE ASSETS

COST At 1 January 2009 and 31 December 2009 Exchange realignment At 31 December 2010 Exchange realignment At 31 December 2011 Exchange realignment At 31 May 2012 AMORTISATION AND IMPAIRMENT At 1 January 2009 Provided for the year At 31 December 2009 Provided for the year Exchange realignment At 31 December 2010 Provided for the year Exchange realignment At 31 December 2011 Exchange realignment At 31 May 2012 CARRYING VALUES At 31 December 2009 At 31 December 2010 At 31 December 2011 and 31 May 2012	License rights HK$’000 (note a) 40,260 961 41,221 514 41,735 (122) 41,613 32,964 2,565 35,529 2,565 885 38,979 2,266 490 41,735 (122) 41,613 4,731 2,242 –	Technology know-how HK$’000 (note b) 20,000 – 20,000 – 20,000 – 20,000 20,000 – 20,000 – – 20,000 – – 20,000 – 20,000 – – –	Total HK$’000 60,260 961 61,221 514 61,735 (122) 61,613 52,964 2,565 55,529 2,565 885 58,979 2,266 490 61,735 (122) 61,613 4,731 2,242 –

I-27

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

Notes:

(a) The Precious Success Group’s license rights included certain rights of operating lottery games and sales of gaming products in the PRC. The license rights are amortised on a straight-line basis over their estimated useful life of 5 years. The carrying amount of the license rights, net of accumulated impairment, had been fully amortised during the year ended 31 December 2011. The amortisation charge for the years is included in the consolidated statement of comprehensive income.
(b) The Precious Success Group’s technology know-how represents on-line betting technology to be used for lottery business. A full impairment loss for the carrying amount of the technology know-how was recognised in previous years.

15. INTERESTS IN JOINTLY CONTROLLED ENTITIES

Cost of unlisted investment in jointly controlled entities Impairment loss recognised Shares of post-acquisition loss	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 95,485 95,485 15,560 (70,414) (70,414) – (13,438) (13,175) (15,560) 11,633 11,896 –	As at 31 May 2012 HK$’000 – – –
		–

As at 31 December 2009, 2010, 2011 and 31 May 2012, the Precious Success Group had interest in the following jointly controlled entities:

			Proportion of
			nominal value
	Place of		of issued capital/
	incorporation/	Class of	registered capital	Proportion
Name of jointly	establishment/	shares/	held by the Precious	of voting
controlled entity	operations	capital held	Success Group	power held	Principal activity
PALTECH	Hong Kong	Ordinary	31.12.2009,	31.12.2009,	Inactive
			31.12.2010 &	31.12.2010 &
			31.12.2011: 60%	31.12.2011: 60%
			31.5.2012: –	31.5.2012: –
			(note a)
Beijing Telenet	PRC, wholly	Registered	31.12.2009 &	31.12.2009 &	Distribution of lottery
	foreign owned		31.12.2010: 52.5%	31.12.2010: 52.5%	terminals
	enterprise for		31.12.2011 &	31.12.2011 &
	a term of 30 years		31.5.2012: –	31.5.2012: –
	commencing		(note b)
	10 August 2006

Notes:

(a) As at 31 December 2009, 2010 and 2011, the Precious Success Group indirectly owned a 60% equity interest in PALTECH. Pursuant to certain terms and conditions given in the shareholders’ agreement, the financial and operating policies of PALTECH require approval from 75% of the equity holders. PALTECH is jointly controlled by the Precious Success Group and the other shareholder, as such, it was accounted for as a jointly controlled entity of the Precious Success Group. The Precious Success Group has discontinued the recognition of its share of losses of this jointly controlled entity since 2008.

I-28

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

On 11 January 2012, the Precious Success Group disposed of its 60% equity interest in PALTECH to Rising Move, the immediate holding company, at the consideration of HK$1. The gain on disposal of PALTECH was insignificant.

(b) As at 31 December 2009 and 2010, the Precious Success Group indirectly owned a 52.5% equity interest in Beijing Telenet. Pursuant to the original shareholders’ agreement, the financial and operating policies of Beijing Telenet require approval from two-third of the directors, while the Precious Success Group had the right to appoint only four out of seven directors. Beijing Telenet was jointly controlled by the Precious Success Group and other significant shareholders, therefore, Beijing Telenet was classified as a jointly controlled entity of the Precious Success Group as at 31 December 2009 and 2010.

On 27 July 2011, Beijing Telenet passed a board resolution to amend its Articles of Association so that resolutions for its financial and operating policies can be passed by simple majority votes (the “Articles Amendments”). Upon the implementation of the Articles Amendments, the Precious Success Group has the rights to govern the financial and operating policies of Beijing Telenet, which requires simple majority votes of the board of Beijing Telenet. Accordingly, Beijing Telenet became an indirect non-wholly-owned subsidiary of Precious Success from the date of the Articles Amendments. Details of the acquisition are set out in note 24.

On 19 September 2011, Beijing Telenet was disposed of by the Precious Success Group along with the disposal of Global Score and Trade Express as set out in note 25.

The summarised financial information in respect of the Precious Success Group’s interests in the jointly controlled entities attributable to the Precious Success Group’s interest which are accounted for using the equity method is set out below:

Current assets Non-current assets Current liabilities Group’s share of net assets of jointly controlled entities Revenue recognised in profit or loss Expenses recognised in profit or loss Group’s share of profits (losses) of jointly controlled entities for the year/period	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 43,279 36,427 – 538 431 – 30,375 22,636 – 11,633 11,896 – 53,638 44,069 14,686 53,522 43,806 15,166 116 263 (480)	As at 31 May 2012 HK$’000 –

		–

		–

		–

		–

		–

		–

I-29

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

The Precious Success Group has discontinued the recognition of its share of losses of a jointly controlled entity. The amount of unrecognised share of losses of this jointly controlled entity both for the year/period and cumulatively, are as follows:

Unrecognised share of losses of a jointly controlled entity for the year/period Accumulated unrecognised share of losses of a jointly controlled entity	For the five months For the year ended 31 December ended 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 43 2 1 – 190 192 194 –	For the five months For the year ended 31 December ended 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 43 2 1 – 190 192 194 –

		–

16. TRADE AND OTHER RECEIVABLES

Trade receivables Less: allowance for doubtful debts Other receivables, prepayments and deposits Less: allowance for doubtful debts	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 3,756 6,415 7,205 – – (548) 3,756 6,415 6,657 24,977 21,613 19,438 – – (10,468) 24,977 21,613 8,970 28,733 28,028 15,627	As at 31 May 2012 HK$’000 7,541 (554)
		6,987
		17,686 (12,415)
		5,271
		12,258

The Precious Success Group allows credit periods ranging from 30 to 90 days to its trade customers. The following is an aged analysis of trade receivables net of allowance for doubtful debts presented based on the invoice date at the end of the reporting period.

Within 30 days 31 – 90 days 91 – 180 days 181 – 365 days Over 365 days	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 3,697 3,659 3,244 3 371 178 5 612 171 51 407 849 – 1,366 2,215 3,756 6,415 6,657	As at 31 May 2012 HK$’000 3,559 262 341 231 2,594
		6,987

Included in the Precious Success Group’s trade receivable balance are debtors with aggregate carrying amount of HK$105,000, HK$2,385,000, HK$3,235,000 and HK$3,166,000 which are past due at 31 December 2009, 2010, 2011 and 31 May 2012, respectively for which the Precious Success Group has not provided for impairment loss. Majority of the trade receivables that were neither past due nor impaired have no default repayment history.

I-30

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

Aging of trade receivables which are past due but not impaired

91 – 180 days 181 – 365 days Over 365 days	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 5 612 171 51 407 849 – 1,366 2,215 56 2,385 3,235	As at 31 May 2012 HK$’000 341 231 2,594
		3,166

The directors of Precious Success consider no deterioration in credit qualities of the trade debtors and the settlement pattern after the end of the reporting period from these trade debtors are satisfactory. Accordingly, the directors consider that no provision for impairment loss is required. The Precious Success Group does not hold any collateral over these balances.

Movement in the allowance for trade receivables

Balance at beginning of the year/period Impairment losses recognised Amount written off as uncollectible Exchange realignment Balance at end of the year/period	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 156 – – – – 548 (156) – – – – – – – 548	As at 31 May 2012 HK$’000 548 – – 6
		554

Included in trade receivables as at 31 December 2009, 2010, 2011 and 31 May 2012 is amount of individually receivable amounting to nil, nil, HK$548,000 and HK$554,000, respectively. The directors of Precious Success take into consideration about the current financial position of the counterparty and its repayment history and consider that the chances of collection of the outstanding amounts are remote.

Movement in the allowance for other receivables

Balance at beginning of the year/period Impairment losses recognised Exchange realignment Balance at end of the year/period	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 – – – – – 10,468 – – – – – 10,468	As at 31 May 2012 HK$’000 10,468 2,252 (305)
		12,415

Included in other receivables as at 31 December 2009, 2010, 2011 and 31 May 2012 are amounts of individually impaired receivables amounting to nil, nil, HK$10,468,000 and HK$12,415,000, respectively. The amount represents the advances granted to an operator in respect of the lottery retail outlets in which some of them had been closed down during 2011 and 2012. The directors of Precious Success considered that advances to the same operator of HK$19,738,000, HK$18,032,000, HK$4,549,000, HK$1,272,000 as at 31 December 2009, 2010, 2011 and 31 May 2012, respectively in respect of the remaining lottery retail outlets are still recoverable after considering that the lottery retail outlets are still operating in the PRC with gross margin.

I-31

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

17. AMOUNTS DUE FROM (TO) ULTIMATE HOLDING COMPANY/IMMEDIATE HOLDING COMPANY/ FELLOW SUBSIDIARIES/A SHAREHOLDER OF A JOINTLY CONTROLLED ENTITY/A RELATED COMPANY

The amounts are of non-trade nature and are unsecured, interest-free and repayable on demand.

During the five months ended 31 May 2012, amount due from ultimate holding company of HK$20,273,000, amounts due from fellow subsidiaries of HK$14,524,000, amount due to ultimate holding company of HK$208,000 and amount due to a shareholder of a jointly controlled entity of HK$2,334,000 have been assigned to the immediate holding company, and subsequently they were settled as part of the consideration for the subscription of new shares of Precious Success by the immediate holding company (see note 21).

18. BANK BALANCES AND CASH

Bank balances and cash comprised of bank deposits with maturity of less than three months and cash on hand. Bank balances carry interest at prevailing market rates of 0.02%, 0.36%, 0.47% and 0.5% as at 31 December 2009, 2010, 2011 and 31 May 2012, respectively.

19. OTHER PAYABLES AND ACCRUALS

Other payables Accruals	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 4,007 3,359 4,020 177 196 771 4,184 3,555 4,791	As at 31 May 2012 HK$’000 3,309 563
		3,872

20. LOANS FROM ULTIMATE HOLDING COMPANY

The loans were non-trade nature and were unsecured and interest bearing at 5% per annum. The loans comprised amounts of HK$96,800,000 and HK$20,000,000 which was originally repayable on 12 March 2010 and 28 July 2011, respectively and both of them became repayable on demand upon expiry. Therefore the whole amount of loans as at 31 December 2010 and 2011 was presented as current liabilities in the consolidated statement of financial position.

During the five months ended 31 May 2012, the loans were assigned to the immediate holding company and subsequently they were settled as part of the consideration for the subscription of new shares of Precious Success by the immediate holding company (see note 21).

21. SHARE CAPITAL

Number of ordinary shares Ordinary shares of US$1 each Authorised: At 1 January 2009, 31 December 2009, 31 December 2010, 31 December 2011 and 31 May 2012 50,000 Issued and fully paid: At 1 January 2009, 31 December 2009, 31 December 2010 and 31 December 2011 100 Issue of new shares_(Note)_ 100 At 31 May 2012 200	Amount HK$’000 6,427

	1 1
	2

Note: During the five months ended 31 May 2012, Precious Success issued 100 new shares of US$1 each to its immediate holding company at a consideration of HK$84,814,000 which was settled through the amount due to it. These shares rank pari passu in all respects with other shares in issue.

I-32

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

22. CAPITAL RISK MANAGEMENT

The Precious Success Group manages its capital to ensure that entities in the Precious Success Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Precious Success Group’s overall strategy remained unchanged during the Relevant Periods.

The capital structure of the Precious Success Group consists of loans from ultimate holding company which were capitalized during the five months ended 31 May 2012 as disclosed in note 20, net of cash and cash equivalents and equity attributable to owners of Precious Success, comprising issued share capital and reserves.

The directors of Precious Success review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Precious Success Group will balance its overall capital structure through the new share issues as well as the issue of new debt or the redemption of existing debt.

23. FINANCIAL INSTRUMENTS

23a. Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 102,460 75,474 58,168 145,709 138,205 131,729	As at 31 May 2012 HK$’000 14,677

		11,330

23b. Financial risk management objectives and policies

The Precious Success Group’s major financial instruments include trade and other receivables, loans from ultimate holding company, amounts due from (to) ultimate holding company/immediate holding company/ fellow subsidiaries/a related company/a shareholder of a jointly controlled entity, bank balances and cash and other payables. Details of these financial instruments are disclosed in respective notes. The risk associated with these financial instruments include: market risk (interest rate risk and foreign currency risk), credit risk and liquidity risk.

There has been no significant change to the Precious Success Group’s exposure to financial risks or the manner in which it manages and measures the risk.

The directors review and agree policies for managing each of these risks and are summarised below.

Market risk

Interest rate risk

The Precious Success Group is exposed to fair value interest rate risk in relation to fixed-rate loan from ultimate holding company (see note 20 for details). The Precious Success Group is also exposed to cash flow interest rate risk in relation to variable-rate bank balances (see note 18 for details). The directors of Precious Success consider the Precious Success Group’s exposure to cash flow interest rate risk is not significant as interest bearing bank balances are within short periods.

I-33

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

The Precious Success Group currently does not have any interest rate hedging policy in relation to fair value and cash flow interest rate risk. However, management monitors interest rate exposure on ongoing basis and will consider hedging significant interest rate change should the need arise.

No sensitivity analysis is presented as the level of exposure to cash flow interest rate risk is not significant.

Foreign currency risk

The Precious Success Group’s exposure to foreign currency risk related primarily to cash and cash equivalents that are denominated in currencies other than the functional currency of the relevant group entities.

The carrying amounts of the Precious Success Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:

Assets HK$ United States dollars (“USD”) Liabilities HK$	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 10,318 110 2,137 20 – 23 403 – –	As at 31 May 2012 HK$’000 377 26

		3

Sensitivity analysis

No sensitivity analysis is presented for USD assets and liabilities as the directors considered that the effect is insignificant.

The following table details the sensitivity to a 5% increase and decrease in RMB against HK$. A negative number below indicates an increase in loss for the year/period where RMB had strengthened by 5% against HK$. For a 5% weakening of RMB against HK$, there would be an equal and opposite impact on the loss for the year/period.

	Increase in loss for the year/period	Increase in loss for the year/period	Increase in loss for the year/period
				As at
	As at	31 December		31 May
	2009	2010	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000
HK$	(496)	(6)	(107)	(19)

Credit risk

At the end of each reporting period, the Precious Success Group’s maximum exposure to credit risk which will cause a financial loss to the Precious Success Group due to failure to discharge obligations by the counterparties or debtors is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position.

I-34

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

In order to minimise the credit risk, management of the Precious Success Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Precious Success Group reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of Precious Success consider that the Precious Success Group’s credit risk is significantly reduced. The Precious Success Group has concentration of credit risk as 93%, 99%, 99%, 100% of the Precious Success Group’s trade receivables as at 31 December 2009, 2010, 2011 and 31 May 2012 which mainly accounts for the Precious Success Group’s two largest customers.

The credit risk on bank balances is limited because the counterparties are reputable banks in the PRC.

Other than concentration of credit risk on liquid funds which are deposits with several banks with good reputation, trade and other receivables in respect of an operator of lottery retail outlets (see note 16), and amounts from ultimate holding company and fellow subsidiaries, the Precious Success Group does not have any other significant concentration of credit risk.

Liquidity risk

In the management of the liquidity risk, the Precious Success Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Precious Success Group’s operations and mitigate the effects of fluctuations in cash flows.

I-35

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

Liquidity and interest risk tables

The following tables detail the Precious Success Group’s remaining contractual maturity for its nonderivative financial liabilities as at 31 December 2009, 2010, 2011 and 31 May 2012 based on the agreed repayment terms. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest dates on which the Precious Success Group can be required to pay. The table includes both interest and principal cash flows.

Weighted average interest rate % As at 31 December 2009 Non-derivative financial liabilities Other payables – Amount due to a fellow subsidiary – Amount due to immediate holding company – Amount due to ultimate holding company – Amount due to a shareholder of a jointly controlled entity – Loan from ultimate holding company 5.00 As at 31 December 2010 Non-derivative financial liabilities Other payables – Amount due to ultimate holding company – Amount due to immediate holding company – Amount due to a fellow subsidiary – Amount due to a shareholder of a jointly controlled entity – Loan from ultimate holding company 5.00 As at 31 December 2011 Non-derivative financial liabilities Other payables – Amount due to ultimate holding company – Amount due to a fellow subsidiary – Amount due to immediate holding company – Amount due to a shareholder of a jointly controlled entity – Loan from ultimate holding company 5.00 As at 31 May 2012 Non-derivative financial liabilities Other payables – Amount due to ultimate holding company – Amounts due to a fellow subsidiary –	On demand or less than 3 months HK$’000 4,007 12,939 9 9,620 2,334 97,607 126,516 3,359 204 14 15,494 2,334 96,800 118,205 4,020 204 8,102 269 2,334 116,800 131,729 3,309 3 8,018 11,330	3 months to 1 year HK$’000 – – – – – – – – – – – – 20,583 20,583 – – – – – – – – – – –	Total undiscounted 1 to cash 5 years flows HK$’000 HK$’000 – 4,007 – 12,939 – 9 – 9,620 – 2,334 21,573 119,180 21,573 148,089 – 3,359 – 204 – 14 – 15,494 – 2,334 – 117,383 – 138,788 – 4,020 – 204 – 8,102 – 269 – 2,334 – 116,800 – 131,729 – 3,309 – 3 – 8,018 – 11,330	Carrying amount HK$’000 4,007 12,939 9 9,620 2,334 116,800
				145,709

				3,359 204 14 15,494 2,334 116,800
				138,205

				4,020 204 8,102 269 2,334 116,800
				131,729

				3,309 3 8,018
				11,330

I-36

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

23c. Fair value

The fair value of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The directors consider that the carrying amounts of the financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values.

24. ACQUISITION OF A SUBSIDIARY

As detailed in note 15, Beijing Telenet passed a board resolution for Articles Amendments on 27 July 2011. Prior to this Articles Amendments, the Precious Success Group, through two indirectly non-wholly owned subsidiaries, owned 52.5% equity interests in Beijing Telenet, which was jointly controlled with other significant shareholders. Upon the implementation of the Articles Amendments, the Precious Success Group is able to control and govern the financial and operating policies of Beijing Telenet and Beijing Telenet became a subsidiary of Precious Success. However, the Precious Success Group’s equity interest in Beijing Telenet remains to be 52.5%. In the opinion of the directors, the carrying amount of the net assets of Beijing Telenet on the date of acquisition approximated the fair values of the respective assets and liabilities and accordingly, no re-measurement of fair value was performed on the acquisition date. In addition carrying value of 52.5% of Beijing Telenet as a jointly controlled entity of the Precious Success Group at the date of obtaining control amounted to HK$14,882,000, which approximated the fair value of the 52.5% equity interest of Beijing Telenet as at the date.

Beijing Telenet is principally engaged in sales of lottery terminals.

Asset acquired and liabilities recognised at the date of acquisition are as follows:

Property, plant and equipment Inventories Bank balances and cash Trade and other receivables Trade and other payables Interest in a jointly controlled entity – previously held interest before acquisition Non-controlling interests	HK$’000 799 320 1,535 52,706 (27,017) 28,343 HK$’000 14,880 13,463 28,343

Note: The fair value of trade and other receivables at the date of acquisition amounted to HK$52,708,000 which approximated the gross contractual amounts of these trade and other receivable acquired. None of the contractual cash flows of the above amount was estimated to be uncollectible.

Non-controlling interest

The non-controlling interest in Beijing Telenet recognised at the acquisition date were measured by reference to the non-controlling interest’s proportionate share of the recognised amount of the net assets of Beijing Telenet and amounted to HK$13,463,000.

Cash inflow arising on acquisition of Beijing Telenet

HK$’000

Bank balance and cash acquired 1,535

I-37

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

25. DISPOSAL OF SUBSIDIARIES

On 19 September 2011, the Precious Success Group disposed of its entire interest in Global Score, a wholly owned subsidiary and Trade Express, an 80% owned subsidiary, to Rising Move, the immediate holding company, at a consideration of HK$2. Global Score and Trade Express own a 45% and 7.5% equity interest in Beijing Telenet respectively.

The aggregate amounts of the assets and liabilities attributable to these subsidiaries on the date of disposal were as follows:

NET ASSETS DISPOSED OF: Property, plant and equipment Inventories Trade and other receivables Bank balances and cash Other payables and accruals Taxation payable Amounts due to group companies Non-controlling interests Exchange reserve reclassified to profit or loss Loss on disposal of subsidiaries Total consideration satisfied by cash Net cash outflow arising on disposal: Cash received Bank balances and cash disposed of	HK$’000 797 330 68,977 661 (17,381) (62) (38,400)
	14,922 (13,985) (479) (458)
	–

	– (661)
	(661)

26. RETIREMENT BENEFIT PLANS

The Precious Success Group contributes to a local municipal government retirement scheme for all qualifying employees in the PRC. The employers and its employees are each required to make contributions to the scheme at the rates specified in the scheme’s rules. The only obligation of the Precious Success Group with respect to the retirement scheme is to make the required contributions under the scheme.

The contributions paid and payable to the above scheme by the Precious Success Group and the total cost charged to the profit or loss during the Relevant Periods are as follows:

				Five months	Five months
	Year	ended 31 December		ended 31 May
	2009	2010	2011	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Charged to profit or loss	1,166	875	806	303	270

I-38

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

27. OPERATING LEASES

The Precious Success Group as lessee

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

Within one year In the second to fifth year inclusive	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 1,080 1,254 895 127 1,636 320 1,207 2,890 1,215	As at 31 May 2012 HK$’000 824 –
		824

The lease payments represent rentals payable by the Precious Success Group for its office properties. The lease terms are various from one year to five years. Rentals are fixed over the relevant lease terms.

28. MAJOR NON-CASH TRANSACTIONS

For the year ended 31 December 2009

The following major non-cash transactions had taken place during 2009:

(a) Interest on loans from ultimate holding company of HK$5,484,000 was settled through the current account with ultimate holding company.
(b) Other payables of HK$3,990,000 were settled by transferring certain property, plant and equipment with carrying amount of HK$3,990,000 to its vendors.

For the year ended 31 December 2010

The following major non-cash transactions had taken place during 2010:

(a) Amounts due from immediate holding company and a fellow subsidiary of HK$756,000 and HK$40,735,000, respectively were settled through the current account with ultimate holding company.
(b) Interest on loans from ultimate holding company of HK$5,840,000 was settled through the current account with ultimate holding company.
(c) Disposal of property, plant and equipment to the ultimate holding company amounting to HK$68,000 was settled through the current account with ultimate holding company.

For the year ended 31 December 2011

The following major non-cash transactions had taken place during 2011:

(a) Interest on loans from ultimate holding company of HK$5,840,000 was settled through the current account with ultimate holding company.
(b) Consultancy fee income of HK$8,049,000 earned from a fellow subsidiary was settled through the current account with the fellow subsidiary.
(c) Acquisition of property, plant and equipment from the ultimate holding company amounting to HK$6,221,000 was settled through the current account with ultimate holding company.

I-39

ACCOUNTANTS’ REPORT OF PRECIOUS SUCCESS

APPENDIX I

For the five months ended 31 May 2012

In 2012, loans from ultimate holding company, amount due from (to) ultimate holding company, amounts due from fellow subsidiaries and amount due to a shareholder of a jointly controlled entity in a net aggregate amount of HK$84,545,000 were assigned to the immediate holding company and subsequently together with the amount due to immediate holding company of HK$269,000, was settled as part of the consideration for the subscription of 100 new shares of Precious Success by the immediate holding company.

29. RELATED PARTY TRANSACTIONS

a. During the Relevant Periods, in addition to the transactions disclosed in other notes to the Financial Information, the Precious Success Group entered into the following significant transactions with related parties:

					Five months ended	Five months ended
Class of related parties	Nature of transactions	Year	ended 31 December		31 May
		2009	2010	2011	2011	2012
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
Ultimate	(Disposal) acquisition	–	(68)	6,221	–	–
holding company	of property, plant and
	equipment
Ultimate	Interest expenses	5,484	5,840	5,840	2,433	–
holding company
Subsidiary of a	Service fee expense	820	264	553	35	6
substantial shareholder
of the ultimate holding
company
Fellow subsidiary	Consultancy services
	income	–	–	8,049	–	–

b. The Precious Success Group’s outstanding balances with related parties are set out in the consolidated statement of financial position and in notes 17 and 20.
c. The remuneration of the directors and other members of key management during the Relevant Periods was borne by the ultimate holding company.

B. SUBSEQUENT EVENTS

No significant events occurred after the end of the reporting period.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Precious Success Group or any of the companies comprising the Precious Success Group in respect of any period subsequent to 31 May 2012.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

I-40

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

The following is the text of a report on Gain Advance received from the Company’s reporting accountant, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

==> picture [120 x 57] intentionally omitted <==

26 September 2012

The Directors MelcoLot Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) relating to Gain Advance Group Limited (“Gain Advance”) and its subsidiary (collectively referred to as the “Gain Advance Group”) for each of the years ended 31 December 2009, 2010 and 2011 and the five months ended 31 May 2012 (the “Relevant Periods”) for inclusion in the circular issued by MelcoLot Limited (the “Company”) in connection with the proposed disposal of entire equity interest of Gain Advance as set out in the circular (the “Circular”).

Gain Advance is a private limited company incorporated in the British Virgin Islands on 13 September 2007. At the end of each reporting period and at the date of report, its wholly-owned subsidiary, KTeMS Co. Limited (“KTeMS”), a private limited company established in South Korea on 6 April 2005 with registered capital of KRW50,000,000, is engaged in investment holding.

No audited financial statements have been prepared by Gain Advance since its date of incorporation as it was incorporated in the country where there is no statutory requirement of preparing audited financial statements, and no audited financial statements have been prepared by KTeMS since its date of establishment as it has not carried on business.

For the purpose of this report, the directors of Gain Advance have prepared the consolidated financial statements of the Gain Advance Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). We have carried out an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

II-1

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

The Financial Information of the Gain Advance Group for the Relevant Periods as set out in this report has been prepared from the Underlying Financial Statements. No adjustments are considered necessary to the Underlying Financial Statements in the preparation of this report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Gain Advance who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Gain Advance Group as at 31 December 2009, 2010, 2011 and 31 May 2012 and of the results and cash flows of the Gain Advance Group for the Relevant Periods.

The comparative consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity of the Gain Advance Group for the five months ended 31 May 2011 together with the notes thereon have been extracted from the Gain Advance Group’s unaudited consolidated financial information for the same period (the “May 2011 Financial Information”) which was prepared by the directors of Gain Advance solely for the purpose of this report. We have reviewed the May 2011 Financial Information in accordance with the Hong Kong Standards on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review of the May 2011 Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion on the May 2011 Financial Information. Based on our review, nothing has come to our attention that causes us to believe that the May 2011 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

II-2

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

A. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Notes Bank interest income Administrative expenses Loss for the year/period 7 Other comprehensive income (expense) Exchange differences arising on translation to presentation currency Total comprehensive income (expense) for the year/period	Year ended 31 December 2009 2010 2011 HK$ HK$ HK$ 13 25 34 (278,782) (98,427) (124,373) (278,769) (98,402) (124,339) 6,835,713 693,537 (684,554) 6,556,944 595,135 (808,893)	Five months ended 31 May 2011 2012 HK$ HK$ (unaudited) – – (50,531) (48,670) (50,531) (48,670) – (688,464) (50,531) (737,134)

II-3

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSET Available-for-sale investment 11 CURRENT ASSETS Deposits and prepayments Bank balances and cash 12 CURRENT LIABILITIES Accruals Amount due to ultimate holding company 13 Amount due to immediate holding company 13 Amount due to a fellow subsidiary 13 NET CURRENT LIABILITIES CAPITAL AND RESERVES Share capital 14 Reserves	As at 31 December 2009 2010 2011 HK$ HK$ HK$ 138,102,002 138,802,002 138,102,002 12,272 8,436 5,304 16,960 29,987 38,060 29,232 38,423 43,364 147,734 121,171 119,389 31,365,728 72,100,748 72,100,748 64,323,487 64,464,106 64,579,722 40,735,020 – – 136,571,969 136,686,025 136,799,859 (136,542,737) (136,647,602) (136,756,495) 1,559,265 2,154,400 1,345,507 8 8 8 1,559,257 2,154,392 1,345,499 1,559,265 2,154,400 1,345,507	As at 31 May 2012 HK$ 137,402,002 4,655 42,717 47,372 160,531 – – – 160,531 (113,159) 137,288,843 16 137,288,827 137,288,843

II-4

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

At 1 January 2009 Exchange difference arising on translation Loss for the year Total comprehensive income (expense) for the year At 31 December 2009 Exchange difference arising on translation Loss for the year Total comprehensive income (expense) for the year At 31 December 2010 Exchange difference arising on translation Loss for the year Total comprehensive expense for the year At 31 December 2011 Exchange difference arising on translation Loss for the period Total comprehensive expense for the period Issue of new shares_(note 14)_ At 31 May 2012 At 1 January 2011 Loss and total comprehensive expense for the period (unaudited) At 31 May 2011 (unaudited)	Share capital HK$ 8 – – – 8 – – – 8 – – – 8 – – – 8 16 8 – 8	Share premium HK$ (Note) – – – – – – – – – – – – – – – – 136,680,462 136,680,462 – – –	Exchange Accumulated reserve losses HK$ HK$ (4,059,042) (938,645) 6,835,713 – – (278,769) 6,835,713 (278,769) 2,776,671 (1,217,414) 693,537 – – (98,402) 693,537 (98,402) 3,470,208 (1,315,816) (684,554) – – (124,339) (684,554) (124,339) 2,785,654 (1,440,155) (688,464) – – (48,670) (688,464) (48,670) – – 2,097,190 (1,488,825) 3,470,208 (1,315,816) – (50,531) 3,470,208 (1,366,347)	Total HK$ (4,997,679) 6,835,713 (278,769) 6,556,944 1,559,265 693,537 (98,402) 595,135 2,154,400 (684,554) (124,339) (808,893) 1,345,507 (688,464) (48,670) (737,134) 136,680,470 137,288,843 2,154,400 (50,531) 2,103,869

Note: Share premium represents the difference between the carrying value of amounts due to ultimate holding company and immediate holding company and nominal value of new share issued to settle these amounts (see note 14).

II-5

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

CONSOLIDATED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES Loss for the year/period Adjustment for bank interest income Operating cash flows before movements in working capital Decrease (increase) in deposits and prepayments (Decrease) increase in accruals NET CASH (USED IN) FROM OPERATING ACTIVITIES CASH FROM INVESTING ACTIVITY Interest received CASH FROM FINANCING ACTIVITY Advance from immediate holding company NET INCREASE IN CASH AND CASH EQUIVALENTS EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD, represented by bank balances and cash	Year ended 31 December 2009 2010 2011 HK$ HK$ HK$ (278,769) (98,402) (124,339) (13) (25) (34) (278,782) (98,427) (124,373) 17,514 3,836 3,132 (39,017) (33,374) 14,168 (300,285) (127,965) (107,073) 13 25 34 314,578 140,619 115,616 14,306 12,679 8,577 1,171 348 (504) 1,483 16,960 29,987 16,960 29,987 38,060	Five months ended 31 May 2011 2012 HK$ HK$ (unaudited) (50,531) (48,670) – – (50,531) (48,670) (1,375) 649 (26,070) 53,285 (77,976) 5,264 – – 81,759 – 3,783 5,264 1,875 (607) 29,987 38,060 35,645 42,717

II-6

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

Gain Advance is a private limited company incorporated in the British Virgin Islands. Its immediate holding company is Rising Move International Limited, a private limited company incorporated in the British Virgin Islands and its ultimate holding company is MelcoLot Limited, a public limited company incorporated in the Cayman Islands with its shares listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (“Stock Exchange”). The addresses of the registered office and principal place of business of Gain Advance are 4th Floor, Scotia Centre, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands and Units 3101-2A, 31st Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong, respectively.

The directors are of the opinion that the functional currency of both Gain Advance and its subsidiary is Renminbi (“RMB”) as they are an extension of the Company for holding an available-for-sale investment. The Financial Information is presented in Hong Kong dollars (“HK$”) for the convenience of the consolidation of the Company which is listed in Hong Kong with the financial information presented in HK$.

2. BASIS OF PREPARATION OF FINANCIAL INFORMATION

In preparing the Underlying Financial Statements, the directors of Gain Advance have taken into consideration that the Gain Advance Group had net current liabilities position of HK$113,159 as at 31 May 2012.

The Underlying Financial Statements have been prepared on a going concern basis as the Company has agreed to provide financial support to enable the Gain Advance Group to meet in full its financial obligations as they fall due for the foreseeable future. The Company is currently facing financial and liquidity issues and has taken or contemplated certain measures to deal with them, details of which are set out in note 2 of Section A to the Accountants’ Report of the Group dated 26 September 2012. However, should the Company be unable to provide the financial support, the directors of Gain Advance believe that the Company would be able to realise the availablefor-sale investment and continue to discharge the liabilities of the Gain Advance Group in the normal course of business. Accordingly, the Financial Information has been prepared on a going concern basis.

3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

The Gain Advance Group has consistently adopted all the new and revised HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), which are effective for the Gain Advance Group’s financial periods beginning on 1 January 2012 in the preparation of its Financial Information throughout the Relevant Periods.

II-7

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

The Gain Advance Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective.

Amendments to HKFRSs Annual Improvements to HKFRSs 2009-2011 Cycle[1] Amendments to HKFRS 1 Government Loans[1] Amendments to HKFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities[1] HKFRS 9 Financial Instruments[2] Amendments to HKFRS 9 and HKFRS 7 Mandatory Effective Date of HKFRS 9 and Transition Disclosures[2] Amendments to HKFRS 10, Consolidated Financial Statements, Joint Arrangements and HKFRS 11 and HKFRS 12 Disclosure of Interests in Other Entities: Transition Guidance[1] HKFRS 10 Consolidated Financial Statements[1] HKFRS 11 Joint Arrangements[1] HKFRS 12 Disclosure of Interests in Other Entities[1] HKFRS 13 Fair Value Measurement[1] Amendments to HKAS 1 Presentation of Items of Other Comprehensive Income[3] HKAS 19 (as revised in 2011) Employee Benefits[1] HKAS 27 (as revised in 2011) Separate Financial Statements[1] HKAS 28 (as revised in 2011) Investments in Associates and Joint Ventures[1] Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities[4] HK(IFRIC) – Int 20 Stripping Costs in the Production Phase of a Surface Mine[1]

1 Effective for annual periods beginning on or after 1 January 2013

2 Effective for annual periods beginning on or after 1 January 2015

3 Effective for annual periods beginning on or after 1 July 2012

4 Effective for annual periods beginning on or after 1 January 2014

HKFRS 9 Financial Instruments

HKFRS 9 issued in 2009 introduces new requirements for the classification and measurement of financial assets. HKFRS 9 amended in 2010 includes the requirements for the classification and measurement of financial liabilities and for derecognition.

HKFRS 9 is effective for annual periods beginning on or after 1 January 2015, with earlier application permitted.

HKFRS 9 requires all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent reporting periods. In addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

The most significant effect of HKFRS 9 regarding the classification and measurement of financial liabilities relates to the presentation of changes in the fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. There will be no impact to the Gain Advance Group as there are no such financial liabilities.

The directors anticipate that the adoption of HKFRS 9 in the future might have significant impact on amounts reported in respect of the Gain Advance Group’s available-for-sale investment, which is measured at cost less impairment at the end of the reporting period before the application of the new standard.

The directors of Gain Advance anticipate that the application of the other new and revised HKFRSs will have no material impact on the Financial Information.

II-8

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

4. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Basis of consolidation

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

Where necessary, adjustments are made to the financial statements of the subsidiary to bring their accounting policies into line with those used by other members of the Gain Advance Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Revenue recognition

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Gain Advance Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Foreign currencies

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss in the period in which they arise.

For the purposes of presenting the Financial Information, the assets and liabilities of the Gain Advance Group are translated into the presentation currency Hong Kong dollars at the rate of exchange prevailing at the end of the reporting period. Income and expenses are translated at the average exchange rates for the year/period, unless exchange rates fluctuate significantly during the year/period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of exchange reserve.

Taxation

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

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Gain Advance Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of reporting period.

II-9

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

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

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Gain Advance Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax is recognised in profit or loss.

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets

The Gain Advance Group’s financial assets are classified into loans and receivables and available-for-sale financial assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

II-10

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. subsequent to initial recognition, loans and receivables (including bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on financial assets below).

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as fair value through profit or loss, loans and receivables or held-to-maturity investments.

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

Impairment of financial assets

For an available-for sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.

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

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

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

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

Financial liabilities and equity instruments

II-11

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

Equity instrument

An equity instrument is any contract that evidences a residual interest in the assets of the Gain Advance Group after deducting all of its liabilities. Equity instruments issued by Gain Advance are recorded at the proceeds received, net of direct issue costs.

Effective interest method

Interest expense is recognised on an effective interest basis.

Financial liabilities

Financial liabilities including amounts due to ultimate holding company, immediate holding company and a fellow subsidiary are subsequently measured at amortised cost, using the effective interest method.

Derecognition

The Gain Advance Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

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

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Gain Advance Group’s accounting policies, which are described in note 4, the directors of Gain Advance are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Estimated impairment of available-for-sale investment

When there is objective evidence of impairment loss, the Gain Advance Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at a suitable interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise.

II-12

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of available-for-sale investment is HK$138,102,000, HK$138,802,000, HK$138,102,000 and HK$137,402,000, respectively.

6. SEGMENT INFORMATION

HKFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Gain Advance Group that are regularly reviewed by the chief operating decision maker, the directors of Gain Advance, for the purpose of allocating resources and assessing performance. During the Relevant Periods, the Gain Advance Group is engaged in investment holding and indirectly holding an available-for-sale investment (note 11). The chief operating decision maker reviews the management accounts of the Gain Advance Group as a whole, prepared in accordance with the significant accounting policies detailed in note 4, for the purpose of resources allocation and performance assessment. Accordingly, the operation of the Gain Advance Group is regarded as a single operating segment. No segment analysis is presented other than entity-wide disclosures.

7. LOSS FOR THE YEAR/PERIOD

				Five months
	Year ended 31 December			ended 31 May
	2009	2010	2011	2011	2012
	HK$	HK$	HK$	HK$	HK$
				(unaudited)
Loss for the year/period has been arrived
at after charging:
Director emoluments	–	–	–	–	–
Auditors’ remuneration	–	–	–	–	–

8. TAXATION

No Hong Kong Profits Tax or Korean income tax was provided for since the Gain Advance Group had incurred losses from operations for the Relevant Periods.

The taxation for the Relevant Periods can be reconciled to the loss before taxation per the consolidated statement of comprehensive income as follows:

Loss before taxation Tax at the Korean income tax rate of 24.2% Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Income tax expense for the year/period	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$ HK$ HK$ HK$ HK$ (unaudited) (278,769) (98,402) (124,339) (50,531) (48,670) (67,462) (23,813) (30,090) (12,229) (11,778) 67,464 23,819 30,098 12,229 11,778 (2) (6) (8) – – – – – – –	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$ HK$ HK$ HK$ HK$ (unaudited) (278,769) (98,402) (124,339) (50,531) (48,670) (67,462) (23,813) (30,090) (12,229) (11,778) 67,464 23,819 30,098 12,229 11,778 (2) (6) (8) – – – – – – –

		(11,778) 11,778 –
		–

There is no significant unprovided deferred taxation at the end of each reporting period or during the Relevant Periods.

II-13

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

9. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

During the Relevant Periods, no fees and other emoluments are paid or payable by the Gain Advance Group to Mr. Ko Chun Fung, Henry and Mr. Yip Ho Chi, directors of Gain Advance.

No directors’ emolument was recognised as an expense in the consolidated statement of comprehensive income. The amount of emoluments paid by the ultimate holding company to these directors with is attributable to their services rendered to the Gain Advance Group is considered insignificant during the Relevant Periods.

(b) Employees’ emoluments

No five highest paid individuals emoluments are presented as no employees are employed by the Gain Advance Group during the Relevant Periods.

10. LOSS PER SHARE

No loss per share information is presented as its inclusion, for the purpose of this report, is not considered meaningful.

11. AVAILABLE-FOR-SALE INVESTMENT

The available-for-sale investment represents a 14% equity interest in Nanum Lotto. Inc., a limited liability company established in South Korea and engaged in the operation of national online lotto games in South Korea with an exclusive lottery license. It is measured at cost less impairment at the end of the reporting period because the range of reasonable fair value estimates is so significant that the directors of Gain Advance are of the opinion that their fair value cannot be measured reliably.

12. BANK BALANCES AND CASH

Bank balances and cash comprised of bank deposits with maturity of less than three months and cash on hand. Bank balances carry interest at prevailing market rates of 0.02%, 0.02%, 0.43% and 0.02% per annum at 31 December 2009, 2010, 2011 and 31 May 2012, respectively.

13. AMOUNT DUE TO ULTIMATE HOLDING COMPANY/IMMEDIATE HOLDING COMPANY/A FELLOW SUBSIDIARY

The amounts are unsecured, interest-free and repayable on demand.

During the year ended 31 December 2010, the amount due to a fellow subsidiary of HK$40,735,020 was settled through the current account with ultimate holding company.

During the five months ended 31 May 2012, the amount due to ultimate holding company of HK$72,100,748 was assigned to the immediate holding company and subsequently the amount due to immediate holding company in aggregate of HK$136,680,470 was settled as the consideration for the subscription of new share of Gain Advance by the immediate holding company (see note 14).

II-14

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

14. SHARE CAPITAL

==> picture [399 x 191] intentionally omitted <==

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

Number of
ordinary shares Amount
HK$
Ordinary shares of US$1 each
Authorised:
At 1 January 2009, 31 December 2009,
31 December 2010, 31 December 2011 and
31 May 2012 50,000 389
Issued and fully paid:
At 1 January 2009, 31 December 2009,
31 December 2010 and 31 December 2011 1 8
Issue of new shares (note) 1 8
At 31 May 2012 2 16
----- End of picture text -----

Note: During the five-month ended 31 May 2012, Gain Advance issued 1 new share of US$1 each to its immediate holding company at the consideration of HK$136,680,470 which was settled through the amount due to it.

15. CAPITAL RISK MANAGEMENT

The Gain Advance Group manages its capital to ensure that entities in the Gain Advance Group will be able to continue as a going concern while maximising return to shareholders through the optimisation of the debt and equity balance. The Gain Advance Group’s overall strategy remained unchanged during the Relevant Periods.

The capital structure of the Gain Advance Group consists of amount due to ultimate holding company and amount due to immediate holding company, net of cash and cash equivalents and equity attributable to owners of Gain Advance, comprising issued share capital and reserves.

The directors of Gain Advance review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Gain Advance Group will balance its overall capital structure through the new share issues as well as the issue of new debt or the redemption of existing debt.

16. FINANCIAL INSTRUMENTS

16a. Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Available-for-sale investment Financial liabilities Amortised cost	As at 31 December 2009 2010 2011 HK$ HK$ HK$ 16,960 29,987 38,060 138,102,002 138,802,002 138,102,002 136,424,235 136,564,854 136,680,470	As at 31 May 2012 HK$ 42,717 137,402,002

		–

II-15

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

16b. Financial risk management objectives and policies

The Gain Advance Group’s major financial instruments include available-for-sale investment, amounts due to ultimate holding company/immediate holding company/a fellow subsidiary, and bank balances and cash. Details of these financial instruments are disclosed in respective notes. The risk associated with these financial instruments include market risks (other price risk), credit risk and liquidity risk.

There has been no significant change to the Gain Advance Group’s exposure to financial risks or the manner in which it manages and measures the risk.

The directors review and agree policies for managing each of these risks and are summarised below.

Market risk

Other price risk

The Gain Advance Group’s available-for-sale investment carried at cost is exposed to other price risk. The management manages this exposure by reviewing the operation and financial performance of the investment.

Credit risk

At the end of each reporting period, the Gain Advance Group’s maximum exposure to credit risk which will cause a financial loss to the Gain Advance Group due to failure to discharge obligations by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position.

The credit risk on bank balances is limited because the counterparties are reputable banks in South Korea.

Other than the concentration of credit risk on liquid funds which are deposits with a bank in South Korea with good reputation, the Gain Advance Group does not have other significant concentration of credit risk.

Liquidity risk

The Gain Advance Group is exposed to liquidity risk of being unable to finance its future working capital and financial requirements when they fall due. The net liabilities of the Gain Advance Group as at 31 May 2012 were HK$113,159. In view of this, the directors of Gain Advance has given careful consideration to the future liquidity of the Gain Advance Group and details of which are set out in note 2.

II-16

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

Liquidity and interest risk tables

The following tables detail the Gain Advance Group’s remaining contractual maturity for its non-derivative financial liabilities based on the agreed repayment terms. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest dates on which the Gain Advance Group can be required to pay.

Weighted average interest rate % At 31 December 2009 Amount due to ultimate holding company – Amount due to immediate holding company – Amount due to a fellow subsidiary – At 31 December 2010 Amount due to ultimate holding company – Amount due to immediate holding company – At 31 December 2011 Amount due to ultimate holding company – Amount due to immediate holding company –	Total undiscounted cash On demand flows HK$ HK$ 31,365,728 31,365,728 64,323,487 64,323,487 40,735,020 40,735,020 136,424,235 136,424,235 72,100,748 72,100,748 64,464,106 64,464,106 136,564,854 136,564,854 72,100,748 72,100,748 64,579,722 64,579,722 136,680,470 136,680,470	Carrying amount HK$ 31,365,728 64,323,487 40,735,020
		136,424,235

		72,100,748 64,464,106
		136,564,854

		72,100,748 64,579,722
		136,680,470

The Gain Advance Group had no financial liabilities as at 31 May 2012. Accordingly no liquidity risk analysis is presented.

16c. Fair value

The fair value of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The directors consider that the carrying amounts of the financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values.

17. PLEDGE OF ASSETS

As at 31 December 2009, 2010, 2011 and 31 May 2012, the Company pledged 50% of its investment in KTeMS against the convertible bonds issued by the Company to its substantial shareholder.

18. NON-CASH TRANSACTION

Other than as disclosed in notes 13 and 14, the Gain Advance Group had no material non-cash transactions during the Relevant Periods.

II-17

ACCOUNTANTS’ REPORT OF GAIN ADVANCE

APPENDIX II

19. RELATED PARTY TRANSACTIONS

During the Relevant Periods, the Gain Advance Group did not have significant transactions with related parties.

The remuneration of the directors and other members of key management for the Relevant Periods was borne by the ultimate holding company.

B. SUBSEQUENT EVENTS

No significant events occurred after the end of the reporting period.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Gain Advance Group or any of the companies comprising the Gain Advance Group in respect of any period subsequent to 31 May 2012.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

II-18

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

The following is the text of a report on Oasis Rich received from the Company’s reporting accountant, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

==> picture [120 x 57] intentionally omitted <==

26 September 2012

The Directors MelcoLot Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) relating to Oasis Rich International Ltd. (the “Oasis Rich”) and its subsidiary (collectively referred to as the “Oasis Rich Group”) for each of the years ended 31 December 2009, 2010 and 2011 and the five months ended 31 May 2012 (the “Relevant Periods”) for inclusion in the circular issued by MelcoLot Limited (the “Company”) in connection with the proposed disposal of entire equity interest of Oasis Rich as set out in the circular (the “Circular”).

Oasis Rich is a private limited company incorporated in the Republic of Mauritius on 15 May 2006. Oasis Rich is an investment holding company. At the end of each reporting period and at the date of this report, its wholly owned subsidiary, Wu Sheng Computer Technology (Shanghai) Co., Ltd.[#] 伍盛計算機（科技）上海有限公司 (“Wu Sheng”), a wholly foreign-owned enterprise established in the People’s Republic of China (the “PRC”) on 17 April 2007 with registered capital of US$700,000, is principally engaged in the manufacture and sale of lottery terminals.

We have acted as the auditors of Oasis Rich for the Relevant Periods and we have audited the consolidated financial statements of the Oasis Rich Group for the years ended 31 December 2009, 2010 and 2011.

The statutory financial statements of Wu Sheng for each of the years ended 31 December 2009, 2010 and 2011 were audited by Shanghai Fu Lan De Lin Certified Public Accountants Co. Ltd.[# ] 上海富蘭德林會計師事務所有限公司, certified public accountants registered in the PRC.

For the purpose of this report, the directors of Oasis Rich have prepared the consolidated financial statements of the Oasis Rich Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). We have carried out an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

English name is for identification purpose only

III-1

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

The Financial Information of the Oasis Rich Group for the Relevant Periods as set out in this report has been prepared from the Underlying Financial Statements. No adjustments are considered necessary to the Underlying Financial Statements in the preparation of this report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Oasis Rich who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Oasis Rich Group as at 31 December 2009, 2010, 2011 and 31 May 2012 and of the results and cash flows of the Oasis Rich Group for the Relevant Periods.

The comparative consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity of the Oasis Rich Group for the five months ended 31 May 2011 together with the notes thereon have been extracted from the Oasis Rich Group’s unaudited consolidated financial information for the same period (the “May 2011 Financial Information”) which was prepared by the directors of the Company solely for the purpose of this report. We have reviewed the May 2011 Financial Information in accordance with the Hong Kong Standards on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review of the May 2011 Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion on the May 2011 Financial Information. Based on our review, nothing has come to our attention that causes us to believe that the May 2011 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

III-2

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

A. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

2009 Notes HK$’000 Revenue 5 75,009 Changes in inventories of finished goods and work-in-progress (22,219) Purchase of inventories and raw materials consumed (42,233) Other income and gains 1,782 Employee benefits costs (1,525) Depreciation of property, plant and equipment (799) Impairment loss (recognised) reversed on trade receivables – Other expenses (5,102) Profit (loss) before tax 4,913 Taxation 6 (1,228) Profit (loss) for the year/period 7 3,685 Other comprehensive income (expense) Exchange differences arising on translation – Total comprehensive income (expense) for the year/period 3,685	Year ended 31 December 2010 2011 HK$’000 HK$’000 68,432 78,314 15,845 (12,824) (76,831) (58,685) 16 70 (1,760) (1,826) (877) (975) – (728) (5,573) (14,982) (748) (11,636) – – (748) (11,636) 1,344 1,460 596 (10,176)	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) 23,051 11,719 (11,340) 1,046 (14,125) (16,660) 3 2 (1,122) (1,018) (341) (342) (435) 94 (2,022) (2,537) (6,331) (7,696) – – (6,331) (7,696) – (289) (6,331) (7,985)

III-3

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSET Property, plant and equipment 11 CURRENT ASSETS Inventories 12 Trade and other receivables 13 Amounts due from fellow subsidiaries 14 Amount due from a jointly controlled entity of ultimate holding company 14 Bank balances and cash 15 CURRENT LIABILITIES Trade and other payables 16 Amount due to immediate holding company 17 Tax payable NET CURRENT ASSETS CAPITAL AND RESERVES Share capital 18 Reserves EQUITY ATTRIBUTABLE TO THE COMPANY	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 3,109 2,620 1,781 18,779 41,219 29,221 10,227 9,242 7,305 12,939 15,495 41,164 34,474 33,267 – 8,230 2,728 1,635 84,649 101,951 79,325 36,844 62,759 49,236 – – 221 10,385 2,321 2,334 47,229 65,080 51,791 37,420 36,871 27,534 40,529 39,491 29,315 5,460 5,460 5,460 35,069 34,031 23,855 40,529 39,491 29,315	As at 31 May 2012 HK$’000 1,430
		30,866 5,726 40,979 – 4,654
		82,225
		59,669 341 2,315
		62,325
		19,900
		21,330

		5,460 15,870
		21,330

III-4

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

At 1 January 2009 Profit and total comprehensive income for the year At 31 December 2009 Exchange difference arising on translation Loss for the year Total comprehensive income (expense) for the year Dividend recognised as distribution_(note 9)_ At 31 December 2010 Exchange difference arising on translation Loss for the year Total comprehensive income (expense) for the year At 31 December 2011 Exchange difference arising on translation Loss for the period Total comprehensive expense for the period At 31 May 2012 At 1 January 2011 Loss and total comprehensive expense for the period (unaudited) At 31 May 2011 (unaudited)	Share capital HK$’000 5,460 – 5,460 – – – – 5,460 – – – 5,460 – – – 5,460 5,460 – 5,460	PRC statutory reserve HK$’000 (Note) 3,543 – 3,543 – – – – 3,543 – – – 3,543 – – – 3,543 3,543 – 3,543	Exchange Accumulated reserve profits HK$’000 HK$’000 792 27,049 – 3,685 792 30,734 1,344 – – (748) 1,344 (748) – (1,634) 2,136 28,352 1,460 – – (11,636) 1,460 (11,636) 3,596 16,716 (289) – – (7,696) (289) (7,696) 3,307 9,020 2,136 28,352 – (6,331) 2,136 22,021	Total HK$’000 36,844 3,685 40,529 1,344 (748) 596 (1,634) 39,491 1,460 (11,636) (10,176) 29,315 (289) (7,696) (7,985) 21,330 39,491 (6,331) 33,160

Note:

For the Oasis Rich Group’s subsidiary established in the People’s Republic of China (the “PRC”), statutory reserves represent the appropriation of 10% of profit after taxation determined based on the PRC GAAP. The appropriation may cease to apply if the balance of the PRC statutory reserves has reached 50% of the registered capital of the PRC subsidiary.

III-5

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

CONSOLIDATED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES Profit (loss) before tax Adjustments for: Allowance for inventories Depreciation of property, plant and equipment Write-off of property, plant and equipment Impairment loss recognised (reversed) on trade receivables Interest income Operating cash flows before movements in working capital Decrease (increase) in inventories Decrease in trade and other receivables (Increase) decrease in amount due from a fellow subsidiary Decrease in amount due from a jointly controlled entity of ultimate holding company (Decrease) increase in trade and other payables Cash generated from (used in) operations Income taxes paid NET CASH FROM (USED IN) OPERATING ACTIVITIES	Year 2009 HK$’000 4,913 – 799 – – (9) 5,703 20,458 30,133 – 9,984 (42,395) 23,883 (2,637) 21,246	ended 31 December 2010 2011 HK$’000 HK$’000 (748) (11,636) 2,106 8,101 877 975 – – – 728 (16) (8) 2,219 (1,840) (23,149) 5,287 1,298 1,549 – (14,362) 2,334 16,482 23,788 (15,810) 6,490 (8,694) (8,123) (65) (1,633) (8,759)	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) (6,331) (7,696) 6,745 4,872 341 342 – 31 435 (94) (3) (2) 1,187 (2,547) 2,719 (6,680) 893 1,605 – 186 8,899 – (15,430) 10,440 (1,732) 3,004 (65) – (1,797) 3,004

III-6

APPENDIX III

ACCOUNTANTS’ REPORT OF OASIS RICH

INVESTING ACTIVITIES Interest received Purchase of property, plant and equipment (Repayment from) advance to a fellow subsidiary NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Dividend paid Advances from immediate holding company NET CASH (USED IN) FROM FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD, represented by bank balances and cash	Year 2009 HK$’000 9 (450) (12,939) (13,380) – – – 7,866 – 364 8,230	ended 31 December 2010 2011 HK$’000 HK$’000 16 8 (299) (43) (2,031) 7,392 (2,314) 7,357 (1,634) – – 221 (1,634) 221 (5,581) (1,181) 79 88 8,230 2,728 2,728 1,635	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) 3 2 – (39) – – 3 (37) – – – 120 – 120 (1,794) 3,087 131 (68) 2,728 1,635 1,065 4,654

III-7

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

Oasis Rich is a private limited company incorporated in the Republic of Mauritius. Its immediate holding company is Rising Move International Limited, a private limited company incorporated in the British Virgin Islands and its ultimate holding company is MelcoLot Limited, a public limited company incorporated in the Cayman Islands with its shares listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (“Stock Exchange”). The address of the registered office is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands and the address of the principal place of business is Room B, 4th Floor, No. 1143 Jinhu Road, Jinqiao Export Assembling Center, Pudong Xin Qu, Shanghai, PRC.

The directors are of the opinion that the functional currency of Oasis Rich is Renminbi (“RMB”), after taking into consideration that the primary economic environment in which the Company’s subsidiary operate is the PRC. The Financial Information is presented in Hong Kong dollars (“HK$”) for the convenience of the consolidation of the Company which is listed in Hong Kong with the financial information presented in HK$.

Oasis Rich is an investment holding company.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

The Oasis Rich Group has consistently adopted all the new and revised HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), which are effective for the Oasis Rich Group’s financial periods beginning on 1 January 2012 in the preparation of its Financial Information throughout the Relevant Periods.

The Oasis Rich Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective.

Amendments to HKFRSs	Annual Improvements to HKFRSs 2009-2011 Cycle1
Amendments to HKFRS 1	Government Loans1
Amendments to HKFRS 7	Disclosures – Offsetting Financial Assets and Financial Liabilities1
HKFRS 9	Financial Instruments2
Amendments to HKFRS 9 and HKFRS 7	Mandatory Effective Date of HKFRS 9 and Transition Disclosures2
Amendments to HKFRS 10,	Consolidated Financial Statements, Joint Arrangements and
HKFRS 11 and HKFRS 12	Disclosure of Interests in Other Entities: Transition Guidance1
HKFRS 10	Consolidated Financial Statements1
HKFRS 11	Joint Arrangements1
HKFRS 12	Disclosure of Interests in Other Entities1
HKFRS 13	Fair Value Measurement1
Amendments to HKAS 1	Presentation of Items of Other Comprehensive Income3
HKAS 19 (as revised in 2011)	Employee Benefits1
HKAS 27 (as revised in 2011)	Separate Financial Statements1
HKAS 28 (as revised in 2011)	Investments in Associates and Joint Ventures1
Amendments to HKAS 32	Offsetting Financial Assets and Financial Liabilities4
HK(IFRIC) – Int 20	Stripping Costs in the Production Phase of a Surface Mine1

1 Effective for annual periods beginning on or after 1 January 2013

2 Effective for annual periods beginning on or after 1 January 2015

3 Effective for annual periods beginning on or after 1 July 2012

4 Effective for annual periods beginning on or after 1 January 2014

The directors of Oasis Rich anticipate that the application of the new and revised HKFRSs will have no material impact on the Financial Information.

III-8

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Basis of consolidation

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

Where necessary, adjustments are made to the financial statements of the subsidiary to bring their accounting policies into line with those used by other members of the Oasis Rich Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business, net of discounts and sales related taxes.

Revenue from sales of lottery terminals and point of sales machines are recognised when the goods are delivered and title has passed.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Oasis Rich Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.

Leasing

III-9

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

Foreign currencies

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss in the period in which they arise.

For the purposes of presenting the Financial Information, the assets and liabilities of the Oasis Rich Group are translated into the presentation currency of Hong Kong dollars at the rate of exchange prevailing at the end of the reporting period. Income and expenses are translated at the average exchange rates for the year/period, unless exchange rates fluctuate significantly during the year/period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of exchange reserve.

Retirement benefit costs

Payments to state-managed retirement benefit schemes are recognised as expenses when employees have rendered service entitling them to the contributions.

Taxation

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

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Oasis Rich Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of reporting period.

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

III-10

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Oasis Rich Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax is recognised in profit or loss.

Impairment losses on tangible assets

At the end of the reporting period, the Oasis Rich Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Oasis Rich Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Inventories

Inventories are stated at the lower of cost, determined using the weighted average cost method, and net realisable value. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and cost necessary to make the sale.

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets

The Oasis Rich Group’s financial assets are classified into loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

III-11

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. subsequent to initial recognition, loans and receivables (including trade and other receivables, amounts due from fellow subsidiaries, amount due from a jointly controlled entity of ultimate holding company and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).

Impairment of financial assets

Objective evidence of impairment could include:

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

For certain categories of financial asset, such as trade receivables, that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Oasis Rich Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period of 30 to 90 days, observable changes in national or local economic conditions that correlate with default on receivables.

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

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

III-12

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

Financial liabilities and equity instruments

Equity instrument

An equity instrument is any contract that evidences a residual interest in the assets of the Oasis Rich Group after deducting all of its liabilities. Equity instruments issued by Oasis Rich are recorded at the proceeds received, net of direct issue costs.

Effective interest method

Interest expense is recognised on an effective interest basis.

Financial liabilities

Financial liabilities including trade and other payables and amount due to immediate holding company are subsequently measured at amortised cost, using the effective interest method.

Derecognition

The Oasis Rich Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

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

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Oasis Rich Group’s accounting policies, which are described in note 3, the directors of Oasis Rich are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

III-13

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

Allowance for inventories

Inventories represent lottery terminals which are stated at the lower of cost and net realisable value using the weighted average cost method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. These estimates are based on the current market condition and the historical experience of selling products of similar nature. It could change significantly as a result of change in customer taste and competitor actions in response to a severe industry cycle. If the market price of inventories of the Oasis Rich Group subsequently becomes lower than its carrying amount, an additional allowance may be required. The Oasis Rich Group reassesses these estimates at the end of the reporting period.

Where the Oasis Rich Group identifies items of inventories which have a market price that is lower than its carrying amount, the Oasis Rich Group accounts for the inventory loss in the profit or loss as allowance for inventories. Included in loss for the years ended 31 December 2009, 2010, 2011 and the five months ended 31 May 2011 (unaudited) and 2012 is an amount of nil, HK$2,106,000, HK$8,101,000, HK$ 6,745,000 (unaudited) and HK$4,872,000, respectively in respect of write-down of inventories to estimated net realisable values. As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of inventories is HK$18,779,000, HK$41,219,000, HK$29,221,000 and HK$30,866,000, respectively.

Estimated impairment of trade receivables

When there is objective evidence of impairment loss, the Oasis Rich Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of trade receivables is HK$9,824,000, HK$6,850,000, HK$6,096,000 and nil, respectively (net of allowance for doubtful debts of nil, nil, HK$761,000 and HK$659,000, respectively).

5. REVENUE AND SEGMENT INFORMATION

The Oasis Rich Group’s revenue for the Relevant Periods arises from the manufacturing and sales of lottery terminals and point of sales machines. The Oasis Rich Group had ceased the manufacturing and sales of point of sales machines after 2010.

HKFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Oasis Rich Group that are regularly reviewed by the chief operating decision maker, the directors of Oasis Rich, for the purpose of allocating resources and assessing performance. The chief operating decision maker reviews the management accounts of the Oasis Rich Group as a whole, prepared in accordance with the significant accounting policies detailed in note 3, for the purpose of resources allocation and performance assessment. Accordingly, the operation of the Oasis Rich Group is regarded as a single operating segment. No segment analysis is presented other than entity-wide disclosures.

Geographical information

The Oasis Rich Group’s operations are carried out in the PRC and revenue from external customers based on the location of goods delivered is derived in the PRC.

As at 31 December 2009, 2010, 2011 and 31 May 2012, non-current assets of HK$3,109,000, HK$2,620,000, HK$1,781,000 and HK$1,430,000, respectively, were located in the PRC based on the location of the assets.

III-14

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

Information about major customers

Revenue from customers of the Relevant Periods individually contributing over 10% of the total sales of the Oasis Rich Group are as follows:

				Five months	Five months
	Year	ended 31 December		ended 31 May
	2009	2010	2011	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Customer A	45,462	67,009	77,395	22,983	11,460
Customer B	22,200	–	–	–	–

Majority of the Oasis Rich Group’s revenue for the Relevant Periods came from Customer A, Beijing Telenet Information Technology Ltd. (“Beijing Telenet”). During 2011, a fellow subsidiary of Oasis Rich acquire control of Beijing Telenet, formerly a jointly controlled entity of the Company, which then became a fellow subsidiary of the Oasis Rich Group.

6. TAXATION

				Five months	Five months
	Year	ended 31 December		ended 31 May
	2009	2010	2011	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
PRC Enterprise Income Tax – current year/period	1,228	–	–	–	–

Under the Law of the PRC on Enterprise Income Tax (the “EIT Law”) and Implementation Regulations of the EIT Law, the tax rate of the Oasis Rich Group’s PRC subsidiary is 25% from 1 January 2008 onwards.

The taxation for the Relevant Periods can be reconciled to the profit (loss) before taxation per the consolidated statement of comprehensive income as follows:

Profit (loss) before taxation Tax at the domestic income tax rate of 25% Tax effect of expenses not deductible for tax purpose Tax effect of tax losses not recognised Income tax expense for the year/period	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 4,913 (748) (11,636) (6,331) (7,696) 1,228 (187) (2,909) (1,583) (1,924) – 46 56 19 21 – 141 2,853 1,564 1,903 1,228 – – – –	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 4,913 (748) (11,636) (6,331) (7,696) 1,228 (187) (2,909) (1,583) (1,924) – 46 56 19 21 – 141 2,853 1,564 1,903 1,228 – – – –

		(1,924) 21 1,903
		–

At 31 December 2009, 2010, 2011 and 31 May 2012, the Oasis Rich Group had unused tax losses of approximately nil, HK$565,000, HK$11,978,000 and HK$19,591,000, respectively available to offset against future profits. No deferred tax asset has been recognised in respect of unused tax losses due to the unpredictability of future profit streams. The loss carryforward period shall not exceed five years from date of initiation.

III-15

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

7. PROFIT (LOSS) FOR THE YEAR/PERIOD

Profit (loss) for the year/period has been arrived at after charging: Depreciation of property, plant and equipment Director emoluments Other staff costs: Salaries and other benefits Retirement benefit scheme contributions Total employee benefit expenses Auditors’ remuneration Allowance for inventories (included in purchase of inventories and raw materials consumed) Impairment loss on trade receivables Consultancy fee to a fellow subsidiary (included in other expenses)(Note) Write-off of property, plant and equipment Operating lease rentals in respect of land and buildings and after crediting: Net foreign exchange gain Bank interest income Reversal of impairment loss on trade receivables	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 799 877 974 341 342 – – – – – 1,265 1,546 1,490 1,004 872 260 214 336 118 146 1,525 1,760 1,826 1,122 1,018 182 180 230 105 83 – 2,106 8,101 6,745 4,872 – – 728 435 – – – 8,049 – – – – – – 31 1,913 1,775 1,737 713 739 504 – – – – 9 16 8 3 2 – – – – 94	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 799 877 974 341 342 – – – – – 1,265 1,546 1,490 1,004 872 260 214 336 118 146 1,525 1,760 1,826 1,122 1,018 182 180 230 105 83 – 2,106 8,101 6,745 4,872 – – 728 435 – – – 8,049 – – – – – – 31 1,913 1,775 1,737 713 739 504 – – – – 9 16 8 3 2 – – – – 94
		1,018
		83 4,872 – – 31 739 – 2 94

Note: During the year ended 31 December 2011, the Oasis Rich Group incurred a consultancy fee of HK$8,049,000 to a fellow subsidiary for development of lottery terminals business.

8. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

During the Relevant Periods, no fees and other emoluments were paid or payable by the Oasis Rich Group to Mr. Ko Chun Fung, Henry, Mr. Yip Ho Chi, Ms. Chow Chiu Man, Mandy, Mr. Hsu Ming Jer and Mr Lai Yin-Fu, directors of Oasis Rich.

No directors’ emolument was recognised as an expense in the consolidated statement of comprehensive income. The amount of emoluments paid by the ultimate holding company to these directors which is attributable to their services rendered to the Oasis Rich Group is considered insignificant during the Relevant Periods.

III-16

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

(b) Employees’ emoluments

The emoluments of the five individuals with the highest emoluments, all being employees of the Oasis Rich Group, are as follows:

Salaries and other benefits Bonuses Contributions to retirement benefit schemes	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 226 329 365 149 128 19 27 30 30 26 45 66 73 30 26 290 422 468 209 180	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 226 329 365 149 128 19 27 30 30 26 45 66 73 30 26 290 422 468 209 180
		180

All of their emoluments are within the Nil to HK$1,000,000 band.

9. DIVIDENDS

				Five months	Five months
	Year	ended 31 December		ended 31 May
	2009	2010	2011	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Dividend recognised as distribution during
the year/period:
2010 interim dividend of United States dollars
(“USD”) 0.3 (equivalent to HK$2.334) per share	–	1,634	–	–	–

Except as disclosed above, no dividend was declared or proposed during the Relevant Periods, nor has any dividend been proposed subsequent to 31 May 2012.

10. EARNINGS (LOSS) PER SHARE

No earnings (loss) per share information is presented as its inclusion, for the purpose of this report, is not considered meaningful.

III-17

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

11. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2009 Additions At 31 December 2009 Additions Exchange realignment At 31 December 2010 Additions Exchange realignment At 31 December 2011 Additions Write-off Exchange realignment At 31 May 2012 DEPRECIATION At 1 January 2009 Provided for the year At 31 December 2009 Provided for the year Exchange realignment At 31 December 2010 Provided for the year Exchange realignment At 31 December 2011 Provided for the period Eliminated on write-off Exchange realignment At 31 May 2012 CARRYING VALUES At 31 December 2009 At 31 December 2010 At 31 December 2011 At 31 May 2012	Machinery and equipment HK$’000 2,016 307 2,323 – 81 2,404 37 111 2,552 28 – (27) 2,553 416 295 711 360 38 1,109 374 53 1,536 162 – (17) 1,681 1,612 1,295 1,016 872	Furniture, fixture and equipment HK$’000 2,267 143 2,410 18 85 2,513 6 115 2,634 11 (1,498) (19) 1,128 409 504 913 508 50 1,471 547 92 2,110 157 (1,467) (14) 786 1,497 1,042 524 342	Motor vehicles HK$’000 – – – 281 11 292 – 13 305 – – (3) 302 – – – 9 – 9 54 1 64 23 – (1) 86 – 283 241 216	Total HK$’000 4,283 450 4,733 299 177 5,209 43 239 5,491 39 (1,498) (49) 3,983 825 799 1,624 877 88 2,589 975 146 3,710 342 (1,467) (32) 2,553 3,109 2,620 1,781 1,430

The above items of property, plant and equipment are depreciated on a straight-line basis after taking into account of their estimated residual values, if any, at the rate of 20% per annum.

III-18

APPENDIX III

ACCOUNTANTS’ REPORT OF OASIS RICH

12. INVENTORIES

Raw materials Work in progress Finished goods	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 3,898 9,414 10,240 10,839 6,133 15,818 11,605 9,247 8,748 15,987 7,376 10,780 18,779 41,219 29,221 30,866	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 3,898 9,414 10,240 10,839 6,133 15,818 11,605 9,247 8,748 15,987 7,376 10,780 18,779 41,219 29,221 30,866
		30,866

13. TRADE AND OTHER RECEIVABLES

Trade receivables Less: allowance for doubtful debts Other receivables, prepayments and deposits	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 9,824 6,850 6,857 659 – – (761) (659) 9,824 6,850 6,096 – 403 2,392 1,209 5,726 10,227 9,242 7,305 5,726	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 9,824 6,850 6,857 659 – – (761) (659) 9,824 6,850 6,096 – 403 2,392 1,209 5,726 10,227 9,242 7,305 5,726
		– 5,726
		5,726

Included in the Oasis Rich Group’s trade receivables at 31 December 2009, 2010, 2011 and 31 May 2012 is a balance with a subsidiary of a substantial shareholder of the ultimate holding company of HK$9,257,000, HK$5,960,000, HK$5,617,000 and nil, respectively. The amounts are unsecured, interest-free and repayable according to credit terms granted to the subsidiary.

The Oasis Rich Group allows credit periods normally ranging from 30 to 90 days to its other trade customers.

Before accepting any new customer, the Oasis Rich Group assesses the potential customer’s credit quality by respective sales team and defines credit limit by customer. Limits attributed to customers are reviewed once a year. The Oasis Rich Group maintains a defined credit policy to assess the credit quality of the trade customers. The collection is closely monitored to minimise any credit risk associated with these trade debtors.

The following is an aged analysis of trade receivables net of allowance for doubtful debts presented based on the invoice date at the end of the reporting period.

Within 30 days 1 to 2 years	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 5,150 2,172 1,590 – 4,674 4,678 4,506 – 9,824 6,850 6,096 –	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 5,150 2,172 1,590 – 4,674 4,678 4,506 – 9,824 6,850 6,096 –
		–

Included in the Oasis Rich Group’s trade receivable balance are amount due from a subsidiary of a substantial shareholder of the ultimate holding company with aggregate carrying amount of HK$4,674,000, HK$4,678,000, HK$4,506,000 and nil which are past due over 365 days as at 31 December 2009, 2010, 2011 and 31 May 2012, respectively for which the Oasis Rich Group has not provided for impairment loss as the amount was allowed to overdue over 365 days. Majority of the trade receivables that were neither past due nor impaired had no default repayment history. The Oasis Rich Group does not hold any collateral over these balances.

III-19

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

Movement in the allowance for doubtful debts

Balance at beginning of the year/period Impairment losses recognised Impairment losses reversed Exchange realignment Balance at end of the year/period	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 – – – 761 – – 728 – – – – (94) – – 33 (8) – – 761 659	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 – – – 761 – – 728 – – – – (94) – – 33 (8) – – 761 659
		659

Included in the allowance for doubtful debts are individually impaired trade receivables with an aggregate balance of approximately nil, nil, HK$761,000 and HK$659,000 as at 31 December 2009, 2010, 2011 and 31 May 2012 respectively, that are considered irrecoverable by the management after consideration of the credit quality of those individual customers based on the amounts subsequently settled after year end, the ongoing relationship with the Oasis Rich Group and the aging of these receivables. The Oasis Rich Group does not hold any collateral over these balances.

14. AMOUNTS DUE FROM FELLOW SUBSIDIARIES/A JOINTLY CONTROLLED ENTITY OF ULTIMATE HOLDING COMPANY

Trade nature_(Note) Non-trade nature Represented by: Amounts due from fellow subsidiaries Amount due from a jointly controlled entity of ultimate holding company(Note)_	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 34,474 33,267 33,063 32,961 12,939 15,495 8,101 8,018 47,413 48,762 41,164 40,979 12,939 15,495 41,164 40,979 34,474 33,267 – – 47,413 48,762 41,164 40,979	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 34,474 33,267 33,063 32,961 12,939 15,495 8,101 8,018 47,413 48,762 41,164 40,979 12,939 15,495 41,164 40,979 34,474 33,267 – – 47,413 48,762 41,164 40,979
		40,979

		40,979 –
		40,979

Note: The amount represents trade receivables due from Beijing Telenet. During 2011, Beijing Telenet became a fellow subsidiary of the Oasis Rich Group and therefore the amount due from Beijing Telenet was included in amount due from a jointly controlled entity of ultimate holding company as at 31 December 2009 and 2010 and included in amounts due from fellow subsidiaries as at 31 December 2011 and 31 May 2012.

The amount due from Beijing Telenet of trade nature is unsecured, interest-free and the Oasis Rich Group allows a credit period of 90 days.

III-20

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

The following is an aged analysis of the amount due from Beijing Telenet of trade nature presented based on the invoice date at the end of the reporting period.

Within 30 days 31 – 90 days Over 90 days	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 16,635 22,056 33,063 32,961 7,103 11,211 – – 10,736 – – – 34,474 33,267 33,063 32,961	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 16,635 22,056 33,063 32,961 7,103 11,211 – – 10,736 – – – 34,474 33,267 33,063 32,961
		32,961

Included in the trade receivable balance due from Beijing Telenet is aggregate carrying amount of HK$10,736,000, nil, nil and nil which are past due at 31 December 2009, 2010, 2011 and 31 May 2012, respectively for which the Oasis Rich Group has not provided for impairment loss as the directors of Oasis Rich consider that there has not been a significant change in credit quality of the trade balance and there is no recent history of default. The balance has been subsequently settled and therefore no impairment loss has been recognised. The Oasis Rich Group does not hold any collateral over these balances.

Aging of trade receivables which are past due but not impaired

				31 December		As at 31 May
			2009	2010	2011	2012
			HK$’000	HK$’000	HK$’000	HK$’000
Over	90	days	10,736	–	–	–

The amounts due from fellow subsidiaries of non-trade nature are unsecured, interest free and repayable on demand.

15. BANK BALANCES AND CASH

Bank balances and cash comprised of bank deposits with maturity of less than three months and cash on hand. Bank balances carry interest at prevailing market rates of 0.02%, 0.02%, 0.02% and 0.02% as at 31 December 2009, 2010, 2011 and 31 May 2012, respectively.

The amount of bank balances and cash denominated in a currency other than the functional currency of the relevant group entities are set out below:

USD 16. TRADE AND OTHER PAYABLES Trade payables Other payables Accruals	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 2,285 648 626 626 As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 31,311 62,220 48,631 59,174 4 14 67 65 5,529 525 538 430 36,844 62,759 49,236 59,669	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 2,285 648 626 626 As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 31,311 62,220 48,631 59,174 4 14 67 65 5,529 525 538 430 36,844 62,759 49,236 59,669
		59,669

III-21

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

Included in trade payables as at 31 December 2009, 2010, 2011 and 31 May 2012 were amounts of HK$21,636,000, HK$62,128,000, HK$48,494,000 and HK$54,919,000, respectively due to a subsidiary of a substantial shareholder of the ultimate holding company and amounts of HK$9,629,000, nil, nil and HK$4,139,000, respectively due to a substantial shareholder of the ultimate holding company. The amounts were unsecured, interest free and repayable according to credit terms granted by the subsidiary of the substantial shareholder of the ultimate holding company and the substantial shareholder of the ultimate holding company, respectively.

The trade payables presented based on the invoice date are aged within 30 days at the end of each reporting period.

17. AMOUNT DUE TO IMMEDIATE HOLDING COMPANY

The amount is unsecured, interest-free and repayable on demand.

18. SHARE CAPITAL

Number of ordinary shares Ordinary shares of US$1 each Authorised, issued and fully paid: At 1 January 2009, 31 December 2009, 31 December 2010, 31 December 2011 and 31 May 2012 700,000 Shown in the Financial Information as	Amount US$ 700,000

	HK$5,460,000

19. CAPITAL RISK MANAGEMENT

The Oasis Rich Group manages its capital to ensure that entities in the Oasis Rich Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Oasis Rich Group’s overall strategy remained unchanged during the Relevant Periods.

The capital structure of the Oasis Rich Group consists of net debt, which includes amount due to immediate holding company, and equity attributable to owners of Oasis Rich, comprising issued share capital and reserves.

The directors of Oasis Rich review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Oasis Rich Group will balance its overall capital structure through the new share issues as well as the issue of new debt or the redemption of existing debt.

20. FINANCIAL INSTRUMENTS

20a. Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 65,575 58,658 49,131 45,842 31,315 62,234 48,919 59,580	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 65,575 58,658 49,131 45,842 31,315 62,234 48,919 59,580

		59,580

III-22

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

20b. Financial risk management objectives and policies

The Oasis Rich Group’s major financial instruments include trade and other receivables, amounts due from fellow subsidiaries/a jointly controlled entity of ultimate holding company, bank balances and cash, trade and other payables and amount due to immediate holding company. Details of these financial instruments are disclosed in respective notes. The risk associated with these financial instruments include: market risk (interest rate risk and foreign currency risk), credit risk and liquidity risk.

There has been no significant change to the Oasis Rich Group’s exposure to financial risks or the manner in which it manages and measures the risk.

The directors review and agree policies for managing each of these risks and are summarised below.

Market risk

Interest rate risk

The Oasis Rich Group is exposed to cash flow interest rate risk in relation to variable-rate bank balances (see note 15 for details). The directors of Oasis Rich consider the Oasis Rich Group’s exposure to cash flow interest rate risk from bank balances is not significant as interest bearing bank balances are within short periods, and therefore no sensitivity analysis is presented.

Foreign currency risk

The Oasis Rich Group’s exposure to foreign currency risk related primarily to cash and cash equivalents and trade payables that are denominated in currencies other than the functional currency of the relevant group entities.

The Oasis Rich Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure by closely monitoring the movement of foreign currency rate.

The carrying amounts of the Oasis Rich Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:

Assets USD Liabilities USD HK$	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 2,285 648 626 626 6,386 – – 4,139 – – 221 341	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 2,285 648 626 626 6,386 – – 4,139 – – 221 341

		4,139 341

Sensitivity analysis

Management of the Oasis Rich Group is of the opinion that the Oasis Rich Group’s foreign currency risk exposure on the exchange rate fluctuation of RMB against HK$ is insignificant and therefore no sensitivity analysis is presented.

III-23

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

The following table details the sensitivity to a 5% increase and decrease in RMB against USD. Where RMB had strengthened by 5% against USD, a positive number below indicates an increase in profit for the year ended 31 December 2009 and a decrease in loss for the five months ended 31 May 2012, while a negative number below indicates an increase in loss for the years ended 31 December 2010 and 2011. For a 5% weakening of RMB against USD, there would be an equal and opposite impact on the profit or loss for the year/period.

			Year ended		Five months
		at	31 December		ended 31 May
	2009		2010	2011	2012
	HK$’000		HK$’000	HK$’000	HK$’000
USD	365		(35)	(31)	176

Credit risk

At the end of each reporting period, the Oasis Rich Group’s maximum exposure to credit risk which will cause a financial loss to the Oasis Rich Group due to failure to discharge obligations by the counterparties or debtors is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position.

In order to minimise the credit risk, management of the Oasis Rich Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Oasis Rich Group reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Oasis Rich Group’s credit risk is significantly reduced. As at 31 December 2009, 2010, 2011 and 31 May 2012, the Oasis Rich Group had concentration of credit risk as 99%, 99%, 98% and 99% of the Oasis Rich Group’s trade receivables are due from the Oasis Rich Group’s largest customer, respectively.

The credit risk on bank balances is limited because the counterparties are reputable banks in the PRC.

Other than the concentration of credit risk on liquid funds which are deposits with a bank in the PRC with good reputation, amounts due from fellow subsidiaries/a jointly controlled entity of ultimate holding company (see Note 14) with continuing trade and settlement, the Oasis Rich Group does not have other significant concentration of credit risk.

Liquidity risk

In the management of the liquidity risk, the Oasis Rich Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Oasis Rich Group’s operations and mitigate the effects of fluctuations in cash flows.

Liquidity and interest risk tables

The following tables detail the Oasis Rich Group’s remaining contractual maturity for its non-derivative financial liabilities as at 31 December 2009, 2010, 2011 and 31 May 2012 based on the agreed repayment terms. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest dates on which the Oasis Rich Group can be required to pay.

III-24

APPENDIX III

ACCOUNTANTS’ REPORT OF OASIS RICH

Weighted average interest rate % At 31 December 2009 Trade and other payables – At 31 December 2010 Trade and other payables – At 31 December 2011 Trade and other payables – Amount due to immediate holding company – At 31 May 2012 Trade and other payables – Amount due to immediate holding company –	On demand Total or less undiscounted than cash 3 months flows HK$’000 HK$’000 31,315 31,315 62,234 62,234 48,698 48,698 221 221 48,919 48,919 59,239 59,239 341 341 59,580 59,580	Carrying amount HK$’000 31,315

		62,234

		48,698 221
		48,919

		59,239 341
		59,580

20c. Fair value

The fair value of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The directors consider that the carrying amounts of the financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values.

21. RETIREMENT BENEFIT PLANS

The Oasis Rich Group contributes to a local municipal government retirement scheme for all qualifying employees in the PRC. The employers and its employees are each required to make contributions to the scheme at the rates specified in the scheme’s rules. The only obligation of the Oasis Rich Group with respect to the retirement scheme is to make the required contributions under the scheme.

The contributions paid and payable to the above scheme by the Oasis Rich Group and the total cost charged to the profit or loss during the Relevant Periods are as follows:

				Five months	Five months
	Year	ended 31 December		ended 31 May
	2009	2010	2011	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Charged to profit or loss	260	214	336	118	146

At the end of each reporting period, all contributions in respect of the Relevant Periods had been paid to the above scheme.

III-25

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

22. OPERATING LEASES

The Oasis Rich Group as lessee

At the end of the reporting period, the Oasis Rich Group had commitments for future minimum lease payments under non-cancellable operating lease in respect of rented premises which fall due as follows:

Within one year In the second to fifth year inclusive More than five years	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 1,682 1,646 1,730 1,743 6,485 4,904 3,423 2,775 67 – – – 8,234 6,550 5,153 4,518	As at 31 December As at 31 May 2009 2010 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 1,682 1,646 1,730 1,743 6,485 4,904 3,423 2,775 67 – – – 8,234 6,550 5,153 4,518
		4,518

Operating lease payments represent rentals payable by the Oasis Rich Group for its factory and office premises. Leases are negotiated for terms ranged from two to five years and rentals are fixed over the relevant lease terms.

23. RELATED PARTY TRANSACTIONS

During the Relevant Periods, the Oasis Rich Group entered into the following significant transactions with related parties:

					Five months	Five months
		Year	ended 31	December	ended 31 May
Class of related parties	Nature of transactions	2009	2010	2011	2011	2012
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
A fellow subsidiary	Consultancy expense	–	–	8,049	–	–
	Sales of goods	–	–	51,748	–	11,460
Jointly controlled entity	Sales of goods	45,462	67,009	25,647	22,983	–
of ultimate holding
company
Substantial shareholder	Sales of goods	22,200	9	–	–	–
of the ultimate holding	Purchase of materials	12,060	–	–	–	4,139
company	Service income	1,268	–	–	–	–
Subsidiaries of a substantial
shareholder of the ultimate	Sales of goods	3,917	992	101	–	208
holding company	Purchase of materials	29,528	82,142	58,946	16,171	11,815

Details of the Oasis Rich Group’s outstanding balances with related parties, fellow subsidiaries, a jointly controlled entity of ultimate holding company and immediate holding company are set out in the consolidated statement of financial position and in notes 13, 14, 16 and 17.

The remuneration of the directors and other members of key management for the Relevant Periods was borne by the ultimate holding company.

III-26

ACCOUNTANTS’ REPORT OF OASIS RICH

APPENDIX III

B. SUBSEQUENT EVENTS

No significant events occurred after the end of the reporting period.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Oasis Rich Group or any of the companies comprising the Oasis Rich Group in respect of any period subsequent to 31 May 2012.

Yours faithfully,

Deloitte Touche Tohmatsu Certified Public Accountants

Hong Kong

III-27

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

1. FINANCIAL INFORMATION OF THE GROUP

Audited consolidated financial information of the Group for three years ended 31 December 2011 and five months ended 31 May 2012 are set out below in this Appendix IV to this circular.

Items which are exceptional because of size, nature or incidence mainly represent impairment losses which have been disclosed in the consolidated statement of comprehensive income in the accountants’ reports on page IV-7 of this circular. No amount is absorbed by dividends as no dividends had been declared by the Company during the last three years ended 31 December 2011 and no dividends per share is presented in the audited consolidated financial statements of the Group for three years ended 31 December 2011 and five months ended 31 May 2012 in this Appendix IV as there were no dividends declared by the Company during the last three years ended 31 December 2011. No qualified opinion has been issued by the Company’s auditors, Deloitte Touche Tohmatsu, in respect of the financial statements for each of the three years ended 31 December 2011 and five months ended 31 May 2012. An emphasis of matter paragraph in connection with the financing and liquidity issues the Group is currently facing has been added by the Company's auditors in respect of the financial statements for the year ended 31 December 2011 and the five months ended 31 May 2012 without qualifying the audit opinion. Details of the emphasis of matter paragraph for the year ended 31 December 2011 are set out in page 36 of the 2011 annual report of the Company, and those for the five months ended 31 May 2012 are included in the Accountants' Report of the Group dated 26 September 2012 as set out in page IV-6 of the Circular.

2. AUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP

The following is the text of a report on the Group received from the Company’s reporting accountant, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

==> picture [120 x 58] intentionally omitted <==

26 September 2012

The Directors MelcoLot Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) relating to MelcoLot Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) for the years ended 31 December 2009, 2010 and 2011 and the five months ended 31 May 2012 (the “Relevant Periods”) for inclusion in the circular issued by the Company in connection with the proposed disposals of entire equity interest of Gain Advance Group Limited (“Gain Advance”), entire 60% equity interest of Oasis Rich International Ltd. (“Oasis Rich”) and 49% equity interest of Precious Success Holdings Limited (“Precious Success”) as set out in the circular (the “Circular”).

IV-1

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

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 Group is principally engaged in lottery business in the People’s Republic of China (the “PRC”).

As at the date of this report, except for Rising Move International Limited, a directly held subsidiary, the Company has the following indirectly held subsidiaries, associates and jointly controlled entity which are all companies with limited liabilities.

	Place of	Issued and
	incorporation or	fully paid		Proportion of
	establishment	share capital/	nominal value of issued share capital/
Name of company	and operations	registered capital	registered capital held by the Company				Principal activity
					31 December
			31 December	31 December	2011 and 31	Date of
			2009	2010	May 2012	this report
Subsidiaries:
Rising Move International	British Virgin	Ordinary shares	100%	100%	100%	100%	Investment holding
Limited (“Rising Move”)	Islands (“BVI”)	US$100
	25 July 2007
Precious Success	BVI	Ordinary shares	100%	100%	100%	100%	Investment holding
	10 July 2007	US$200
PAL Development Limited	Hong Kong	Ordinary shares	80%	80%	100%	100%	Investment holding
(“PAL Development”)	17 August 2006	HK$250,000,000
寶加發展有限公司
Global Score Asia Limited	BVI	Ordinary shares	100%	100%	100%	100%	Investment holding
(“Global Score”)	18 April 2005	US$20,000
Trade Express Services Inc.	BVI	Ordinary shares	80%	80%	80%	80%	Investment holding
(“Trade Express”)	3 November 2003	US$20,000
PAL (Beijing) Information	PRC	Registered capital	100%	100%	100%	100%	Provision of
Technology Ltd.#	13 December 2006	HK$150,000,000					management services
(“PAL BJ”)	(Note a)						for distribution of
寶加（北京）信息技術						lottery products
有限公司
Beijing Hua Ying Feng Cai	PRC	Registered capital	100%	100%	100%	100%	Provision of
Technology Ltd.#	13 March 2007	RMB18,000,000					management services
(“Hua Ying Feng Cai”)	(Note b)	for distribution of
北京華盈風彩科技						lottery products
有限公司

IV-2

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

	Place of	Issued and
	incorporation or	fully paid		Proportion	of
	establishment	share capital/	nominal	value of issued share capital/
Name of company	and operations	registered capital	registered capital held by the Company				Principal activity
					31 December
			31 December	31 December	2011 and 31	Date of
			2009	2010	May 2012	this report
Shandong Kai Chuan	PRC	Registered capital	60%	60%	65%	65%	Provision of
Ji Yuan Electronic	20 December 2000	RMB10,000,000					management services
and Information	(Note b)						for distribution
Technology Ltd.#							of lottery products
(“Kai Chuan Ji Yuan”)
山東省開創紀元電子
商務信息有限公司
Shanghai Zhi Jue	PRC	Registered capital	87.5%	87.5%	87.5%	87.5%	Provision of
Information Technology	19 December 2005	RMB4,000,000				management services
Ltd.#(“SH Zhi Jue”)	(Note b)					for distribution
上海智珏網絡科技							of lottery products
有限公司
Oasis Rich	Republic of	Ordinary shares	60%	60%	60%	60%	Investment holding
	Mauritius	US$700,000
	15 May 2006
Wu Sheng Computer	PRC	Registered capital	100%	100%	100%	100%	Manufacturing and
Technology (Shanghai)	17 April 2007	US$700,000					sales of
Co., Ltd.#(“Wu Sheng”)	(Note a)						lottery terminals
伍盛計算機科技（上海）							and point-of-sale
有限公司							machines
Gain Advance	BVI	Ordinary shares	100%	100%	100%	100%	Investment holding
	13 September 2007	US$2
KTeMS Co., Ltd.	South Korea	Registered capital	100%	100%	100%	100%	Management of
(“KTeMS”)	6 April 2005	KRW50,000,000					lottery business
Beijing Telenet Information	PRC	Registered capital	52.5%	52.5%	52.5%	52.5%	Distribution of
Technology Ltd.	10 August 2006	RMB10,000,000					lottery terminals
(“Beijing Telenet”)	(Notes a, c)
北京電信達信息技術
有限公司

IV-3

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Place of Issued and incorporation or fully paid Proportion of establishment share capital/ nominal value of issued share capital/ Name of company and operations registered capital registered capital held by the Company Principal activity 31 December 31 December 31 December 2011 and 31 Date of 2009 2010 May 2012 this report Associates: ChariLot Company Hong Kong Ordinary shares – 40% 40% 40% Provision of services Limited (“ChariLot”) 8 February 2010 HK$10,000,000 for distribution of 喜彩股份有限公司 (Note d) lottery products China Excellent Technology Hong Kong Ordinary shares – 35% 35% 35% Provision of services Investment Limited 2 July 2009 HK$15,384 for distribution of (“China Excellent”) (Note d) mobile lottery 中國精彩網絡科技投資 products 有限公司 Jointly controlled entity: PALTECH Company Hong Kong Ordinary shares 60% 60% 60% 60% Inactive Limited (“PALTECH”) 5 June 2006 HK$10,000 寶加科技有限公司

English name is for identification purpose only

Notes:

(a) These are wholly foreign owned enterprises established in the PRC.
(b) These are private limited liability companies established in the PRC.
(c) During 2011, the Group obtained control of Beijing Telenet, previously a 52.5% jointly controlled entity and became a non-wholly-owned subsidiary of the Group.
(d) These associates were acquired by the Group during the year ended 31 December 2010.

IV-4

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

No audited financial statements have been prepared by Rising Move, Precious Success, Global Score, Trade Express and Gain Advance since their respective dates of incorporation as they were incorporated in the country where there is no statutory requirement of preparing audited financial statements. No audited financial statements have been prepared by KTeMS since its date of establishment as it has not carried on business. For the purpose of this report, we have reviewed the relevant transactions of these companies during the Relevant Periods.

We have acted as the statutory auditors of PAL Development, Oasis Rich and PALTECH during the Relevant Periods and have audited the statutory financial statements of these companies for the years ended 31 December 2009, 2010 and 2011. We have acted as the statutory auditors of ChariLot and China Excellent and have audited the financial statements of ChariLot from its date of incorporation to 31 December 2010 and the year ended 31 December 2011 and the financial statements of China Excellent from its date of incorporation to 31 December 2009 and the two years ended 31 December 2011. We have acted as the auditors of the Company and have audited the consolidated financial statements of the Group for the years ended 31 December 2009, 2010 and 2011.

The statutory financial statements of the following subsidiaries established in the PRC were audited by certified public accountants registered in the PRC, as follows:

Name of subsidiaries	Auditors	Financial year end
PAL BJ	Beiing Hua Tong Jian Certified Public Accountants Co. Ltd.#	Years ended 31 December 2009, 2010 and 2011
	北京華通鑒會計師事務所有限責任公司
Hua Ying Feng Cai	Beijing An Du Cheng Certified Tax Agents Co. Ltd.#	Years ended 31 December 2009, 2010 and 2011
	北京安都成稅務師事務所有限公司
Kai Chuan Ji Yuan	Xin Lianyi Certified Public Accountants Co. Ltd.#	Years ended 31 December 2009, 2010 and 2011
	新聯誼會計師事務所有限公司
SH Zhi Jue	Shanghai Junkai Certified Public Accountants of China Co. Ltd.#	Years ended 31 December 2009 and 2010_(note)_
	上海君開會計師事務所有限公司
Wu Sheng	Shanghai Fu Lan De Lin Certified Public Accountants Co. Ltd.#	Years ended 31 December 2009, 2010 and 2011
	上海富蘭德林會計師事務所有限公司
Beijing Telenet	Beijing An Pu De Ming Certified Public Accountants Co. Ltd.#	Years ended 31 December 2009, 2010 and 2011
	北京安普德明會計師事務所有限公司

English name is for identification purpose only

Note: The company is under voluntary liquidation during the year ended 31 December 2011 and no statutory financial statements for the year ended 31 December 2011 has been prepared and audited.

For the purpose of this report, the directors of the Company have prepared the consolidated financial statements of the Group for the five months ended 31 May 2012 (which together with the consolidated financial statements of the Group for the years ended 31 December 2009, 2010 and 2011 are hereinafter referred to as the “Underlying Financial Statements”). The Underlying Financial Statements

IV-5

APPENDIX IV FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have carried out an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information of the Group for the Relevant Periods as set out in this report has been prepared from the Underlying Financial Statements. No adjustments are considered necessary to the Underlying Financial Statements in the preparation of this report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of the Company who approved their issue. The directors of the Company are also responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Group as at 31 December 2009, 2010, 2011 and 31 May 2012 and of the results and cash flows of the Group for the Relevant Periods.

Without qualifying our opinion, we draw attention to note 2 of Section A to the Financial Information which indicates that the Group recorded recurring losses during the Relevant Periods. In particular, the Group incurred a loss of approximately HK$79,873,000 during the five months ended 31 May 2012 and, as of that date, the Group’s current liabilities exceeded its current assets and total assets by approximately HK$538,656,000 and HK$390,967,000, respectively. Note 2 of Section A to the Financial Information further describes the financing and liquidity issues the Group is currently facing and measures being taken or contemplated to deal with them which include, among others, proposed very substantial disposals and repurchases of certain convertible bonds issued by the Company to certain substantial shareholders, and a proposed open offer of new shares of the Company. The eventual success of these measures cannot presently be determined in light of the fact that the completion of these transactions are subject to independent shareholders’ approval at an extraordinary general meeting to be held by the Company and accordingly, these conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.

The comparative consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity of the Group for the five months ended 31 May 2011 together with the notes thereon have been extracted from the Group’s unaudited consolidated financial information for the same period (the “May 2011 Financial Information”) which was prepared by the directors of the Company solely for the purpose of this report. We have reviewed the May 2011 Financial Information in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review of the May 2011 Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion on the May 2011 Financial Information. Based on our review, nothing has come to our attention that causes us to believe that the May 2011 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

IV-6

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

A. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Notes Continuing operations Revenue 6 Changes in inventories of finished goods and work-in-progress Purchase of inventories and raw materials consumed Other income, gains and losses Employee benefits costs Depreciation and amortisation Impairment losses on: – property, plant and equipment – intangible assets – trade and other receivables, net – amount due from an associate – interest in an associate – goodwill – loan receivable Share of results of associates Share of results of jointly controlled entities Other expenses Finance costs 8 Loss before tax 11 Taxation 9 Loss for the year/period from continuing operations Discontinued operations Loss for the year/period from discontinued operations 10 Loss for the year/period	Year ended 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 86,110 80,608 96,622 (22,276) 16,924 (12,494) (45,564) (85,591) (71,131) (7,153) (141) 36,664 (22,939) (19,273) (18,852) (26,115) (22,009) (6,732) – – – – – (75,035) – – (11,744) – – (2,436) – – (1,393) (216,938) (38,791) (27,903) (3,890) – – – (4,743) (3,976) 116 263 (480) (31,475) (24,316) (27,831) (69,147) (78,155) (89,098) (359,271) (175,224) (215,819) 3,368 3,939 (113) (355,903) (171,285) (215,932) (41,457) – – (397,360) (171,285) (215,932)	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) 29,344 15,883 (11,340) 716 (16,946) (18,504) 11,373 (8,519) (10,139) (7,879) (2,605) (1,734) – (2,740) – – (10,690) (2,158) (2,436) – – – (27,903) – – – (2,095) (1,224) (191) – (14,467) (12,348) (35,226) (41,329) (93,321) (79,836) – (37) (93,321) (79,873) – – (93,321) (79,873)

IV-7

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Notes Other comprehensive income (expense) Exchange differences arising on translation Release on disposal of subsidiaries Total comprehensive expense for the year/period Loss for the year/period attributable to: Owners of the Company Non-controlling interests Total comprehensive expense for the year/period attributable to: Owners of the Company Non-controlling interests Loss per share 14 From continuing and discontinued operations Basic and diluted (HK cents) From continuing operations Basic and diluted (HK cents)	Year ended 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 6,681 3,382 (29,834) (6,457) – – (397,136) (167,903) (245,766) (388,019) (160,908) (209,219) (9,341) (10,377) (6,713) (397,360) (171,285) (215,932) (387,795) (157,526) (239,675) (9,341) (10,377) (6,091) (397,136) (167,903) (245,766) (77.53) (32.03) (41.60) (69.24) (32.03) (41.60)	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) (11,116) 7,379 – – (104,437) (72,494) (85,931) (75,209) (7,390) (4,664) (93,321) (79,873) (96,917) (67,653) (7,520) (4,841) (104,437) (72,494) (17.09) (14.95) (17.09) (14.95)

IV-8

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Property, plant and equipment 15 Goodwill 16 Intangible assets 17 Interests in associates 18 Interests in jointly controlled entities 19 Available-for-sale investment 20 Amount due from a related company – due after one year 21 CURRENT ASSETS Inventories 22 Trade and other receivables 23 Amounts due from jointly controlled entities 24 Amounts due from a related company 21 Amount due from an associate 27 Bank balances and cash 25 CURRENT LIABILITIES Trade and other payables 26 Amounts due to related companies 21 Amount due to an associate 27 Tax payable Loan from a related company 28 Convertible bonds 29 NET CURRENT ASSETS (LIABILITIES)	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 12,088 9,831 12,901 66,694 27,903 – 95,524 77,277 – – 8,257 2,888 11,635 11,898 – 138,102 138,802 138,102 10,000 – – 334,043 273,968 153,891 18,779 41,219 29,551 39,762 38,251 94,403 34,477 33,362 – 20,153 10,503 – – 1,000 – 61,555 43,978 26,676 174,726 168,313 150,630 42,004 68,208 71,109 8,029 10,540 11,340 – 6,139 3,074 10,385 2,321 1,735 – 80,000 80,000 – – 554,714 60,418 167,208 721,972 114,308 1,105 (571,342) 448,351 275,073 (417,451)	As at 31 May 2012 HK$’000 8,623 – – 1,664 – 137,402 – 147,689 30,866 87,422 – – – 15,016 133,304 80,442 11,678 420 2,315 – 577,105 671,960 (538,656) (390,967)

IV-9

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Notes CAPITAL AND RESERVES Share capital 31 Reserves Deficiency of equity attributable to owners of the Company Non-controlling interests TOTAL CAPITAL DEFICIENCY NON-CURRENT LIABILITIES Loan from a related company 28 Convertible bonds 29 Deferred taxation 30	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 5,008 5,026 5,030 (227,073) (380,160) (620,435) (220,065) (375,134) (615,405) 20,883 9,853 24,900 (201,182) (365,281) (590,505) 80,000 – – 565,594 640,354 173,054 3,939 – – 649,533 640,354 173,054 448,351 275,073 (417,451)	As at 31 May 2012 HK$’000 5,030 (687,715) 682,685 20,059 (662,626) 80,000 191,659 – 271,659 (390,967)

IV-10

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Attributable to owners of the Company	Attributable to owners of the Company		Total HK$’000 189,739
Share-based Share payment premium reserve HK$’000 HK$’000 368,540 16,244 – – – – – – – – – 6,103 155 (57) – – 368,695 22,290 – – – – – – – 4,300 228 (89) – – 368,923 26,501 – – – – – – – 4,299 40 (17) – – – – – – – – 368,963 30,783	PRC statutory reserves HK$’000 (Note i) 5,589 – – – – – – (2,046) 3,543 – – – – – – 3,543 – – – – – – – – – 3,543	Convertible Other bonds equity reserve reserve HK$’000 HK$’000 (Note ii) – 645,492 – – – – – – – – – – – – – – – 645,492 – – – – – – – – – – – – – 645,492 – – – – – – – – – – – – – – (4,922) – – – (4,922) 645,492	Exchange Accumulated reserve losses HK$’000 HK$’000 37,184 (918,528) – (388,019) 6,681 – (6,457) – 224 (388,019) – – – – – 2,046 37,408 (1,304,501) – (160,908) 3,382 – 3,382 (160,908) – – – – – – 40,790 (1,465,409) – (209,219) (30,456) – (30,456) (209,219) – – – – (3,464) 3,464 – – – – – – 6,870 (1,671,164)
				(397,360) 6,681 (6,457)
				(397,136)
				6,103 112 –
				(201,182)
				(171,285) 3,382
				(167,903)
				4,300 157 (653)
				(365,281)
				(215,932) (29,834)
				(245,766)
				4,299 27 – 13,463 (250) 3,003
				(590,505)

IV-11

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

		Attributable to owners of the Company	Attributable to owners of the Company		Total HK$’000 (79,873) 7,379
Share capital HK$’000 – – – – 5,030 5,026 – – – – – 4 – 5,030	Share-based Share payment premium reserve HK$’000 HK$’000 – – – – – – – 373 368,963 31,156 368,923 26,501 – – – – – – – – – 2,786 40 (17) – – 368,963 29,270	PRC statutory reserves HK$’000 (Note i) – – – – 3,543 3,543 – – – – – – – 3,543	Convertible Other bonds equity reserve reserve HK$’000 HK$’000 (Note ii) – – – – – – – – (4,922) 645,492 – 645,492 – – – – – – (154) – – – – – – – (154) 645,492	Exchange Accumulated reserve losses HK$’000 HK$’000 – (75,209) 7,556 – 7,556 (75,209) – – 14,426 (1,746,373) 40,790 (1,465,409) – (85,931) (10,986) – (10,986) (85,931) – – – – – – – – 29,804 (1,551,340)
					(72,494)
					373
					(662,626)

					(365,281)
					(93,321) (11,116)
					(104,437)
					– 2,786 27 3,003
					(463,902)

Notes:

(i) For subsidiaries established in the People’s Republic of China, other than Hong Kong, (the “PRC”) statutory reserves represent the appropriation of 10% of profit after taxation determined based on the PRC GAAP. The appropriation may cease to apply if the balance of the PRC statutory reserves has reached 50% of the registered capital of the respective PRC subsidiaries.
(ii) On 18 January 2011, the Group entered into a supplemental agreement with Shandong Zhenglu Industrial Company Limited (“Shandong Zhenglu”), a non-controlling shareholder of Kai Chuan Ji Yuan, a 60% owned subsidiary of the Company immediately before the transaction. Pursuant to the agreement, the registered capital of Kai Chuan Ji Yuan was increased from RMB2,667,000 to RMB10,000,000 of which RMB4,900,000 (equivalent to HK$6,047,000) and RMB2,433,300 (equivalent to HK$3,003,000) were contributed by the Group and Shandong Zhenglu, respectively. Upon completion of the capital injection, the Group’s equity interest in Kai Chuan Ji Yuan was increased from 60% to 65%. The difference between the adjustment to non-controlling interests and the consideration paid, amounting to HK$154,000, was recognised as an equity transaction in other reserve.

On 19 September 2011, the Group entered into a sale and purchase agreement with LottVision Investments Holdings Limited (“LottVision”), the non-controlling shareholder of PAL Development, a 80% owned subsidiary of the Company immediately before the transaction. Pursuant to the agreement, the Group agreed to purchase and LottVision agreed to sell its 20% equity interests in PAL Development, at a consideration of HK$250,000. Upon completion of the acquisition, PAL Development became a wholly-owned subsidiary of the Company. The difference between the adjustment to non-controlling interests and the consideration paid, amounting to HK$4,768,000, was recognised as an equity transaction in other reserve.

IV-12

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF CASH FLOWS

Notes OPERATING ACTIVITIES Loss for the year/period Adjustments for: Allowance for inventories Depreciation and amortisation Equity-settled share-based payments (Reversal of) provision for impairment losses on: – property, plant and equipment – intangible assets – trade and other receivables – amount due from an associate – interest in an associate – goodwill – loan receivable Income tax (credit) expense recognised in profit or loss Interest expenses Interest income Loss on disposal of subsidiaries Write-off of/loss on disposal of property, plant and equipment Net foreign exchange (gain) loss Write-off of other receivables Share of losses of associates Share of (profits) losses of jointly controlled entities Operating cash flows before movements in working capital Decrease (increase) in inventories Decrease (increase) in trade and other receivables Decrease in amounts due from jointly controlled entities (Increase) decrease in amounts due from related companies (Decrease) increase in trade and other payables Cash used in operations Income taxes (paid) refunded NET CASH USED IN OPERATING ACTIVITIES	Year ended 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 (397,360) (171,285) (215,932) 1,036 2,106 8,101 28,761 22,009 6,732 6,103 4,300 4,299 – – – 8,412 – 75,035 (2,342) – 11,744 – – 2,436 – – 1,393 216,938 38,791 27,903 3,890 – – (1,368) (3,939) 113 72,066 78,155 89,098 (440) (701) (166) 14,637 – – 8,498 596 462 – – (36,301) 522 545 – – 4,743 3,976 (116) (263) 480 (40,763) (24,943) (20,627) 42,920 (23,149) 5,353 42,976 2,220 (11,421) 9,981 2,243 16,903 (5) 148 – (111,991) 23,960 (10,557) (56,882) (19,521) (20,349) (5,400) (8,123) (699) (62,282) (27,644) (21,048)	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) (93,321) (79,873) 6,745 5,199 2,605 1,734 2,786 373 – 2,740 – – 10,690 2,158 2,436 – – – 27,903 – – – – 37 35,226 41,329 (138) (10) – – – 31 (10,985) 8,748 – – 2,095 1,224 191 – (13,767) (16,310) 2,792 (6,514) (1,921) 4,708 8,899 – – – (15,357) 9,340 (19,354) (8,776) (65) 543 (19,419) (8,233)

IV-13

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Notes INVESTING ACTIVITIES Disposal of subsidiaries (net of cash and cash equivalents disposed of) 36 Acquisition of a subsidiary (net of cash and cash equivalents acquired) 35 Interest received Proceeds from disposal of property, plant and equipment Investment in associates Purchase of property, plant and equipment Advance to an associate Capital expenditure on intangible assets Release of pledged bank deposits NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Interest paid Payment of dividend to non-controlling shareholders of a subsidiary Proceeds from exercise of share options Repayments of bank and other borrowings Bank and other borrowings raised Acquisition of additional interest in a subsidiary Capital contribution by non-controlling interest Advances from related companies NET CASH (USED IN) FROM FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD, represented by bank balances and cash	Year ended 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 (34,970) 20,000 10,503 – – 1,535 440 203 166 16 63 536 – (6,861) (3,065) (4,621) (1,766) (7,394) – (1,000) (1,436) (3,161) – – 13,876 – – (28,420) 10,639 845 (3,803) (884) (884) – (653) – 112 157 27 (65,439) – – 62,103 – – – – (250) – – 3,003 1,236 – – (5,791) (1,380) 1,896 (96,493) (18,385) (18,307) 1,081 808 1,005 156,967 61,555 43,978 61,555 43,978 26,676	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) 10,503 – – – 138 10 – – (3,065) (2,654) (318) (284) (1,436) – – – – – 5,822 (2,928) – – – – 27 – – – – – – – 3,003 – – – 3,030 – (10,567) (11,161) (80) (499) 43,978 26,676 33,331 15,016

IV-14

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

NOTES TO THE FINANCIAL INFORMATION

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 (“Stock Exchange”) since 17 May 2002. The addresses of the registered office and principal place of business of the Company are 4th Floor, Scotia Centre, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands and Units 3101-2A, 31st Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong, respectively.

The functional currency of the Company was originally Hong Kong dollars (“HK$”). On 30 December 2009, the Company disposed of Wafer Systems Limited and its subsidiaries (“Wafer Group”), all of which have HK$ as their functional currency. The directors are of the opinion that after the disposal of Wafer Group, the primary economic environment in which the Company operates is the PRC, taking into consideration that the primary economic environment in which the Company’s subsidiaries operate is the PRC. The directors have therefore determined that the functional currency of the Company has been changed to Renminbi (“RMB”) after disposal of Wafer Group. The Financial Information is presented in Hong Kong dollars (“HK$”) for the convenience of the shareholders, as the Company is listed in Hong Kong.

The Company acts as an investment holding company. Its subsidiaries are principally engaged in lottery business in the PRC.

2. BASIS OF PREPARATION OF FINANCIAL INFORMATION

In preparing the Underlying Financial Statements, the directors of the Company have taken into consideration that the Group recorded recurring losses during the Relevant Periods. In particular, the Group incurred a loss of approximately HK$79,873,000 during the five months ended 31 May 2012 and, as of that date, the Group’s current liabilities exceeded its current assets and total assets by approximately HK$538,656,000 and HK$390,967,000, respectively.

In reviewing the Group’s current and future financial position, the directors of the Company have considered the following factors:

The agreement by the bondholders not to request cash redemption of the convertible bonds on or before the maturity dates unless the Group has the necessary financial resources available for cash redemption to occur;
The likelihood of concluding the very substantial disposals and repurchases of certain convertible bonds;
The possibility of making an open offer;
The potential for restructuring or capitalising of the loan from a related company beneficially owned by certain substantial shareholders of the Company defined under the Securities and Futures Ordinance (the “Substantial Shareholders”) to equity, the repayment date of which has been further extended one year to 14 July 2013 during the five months ended 31 May 2012;
The possibility of new business opportunities described above.

The directors of the Company have prepared the Underlying Financial Statements on a going concern basis and accordingly, the Financial Information has been prepared on a going concern basis because the Company has obtained assurances from its Substantial Shareholders that it is their intention to provide support and assistance as may be required to enable the Group to maintain capital and liquidity levels sufficient to meet its obligations. Furthermore, the holders of the Company’s convertible bonds have agreed not to request cash redemption of those bonds on or before the maturity dates unless the Group has the necessary financial resources available for cash redemption to occur.

IV-15

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

To further deal with the financing and liquidity issues, the Company intended to carry out a reorganisation of the Group’s lottery business, which involved obtaining control of an entity over which the Group previously had joint control, as disclosed in note 35 of Section A to the Financial information, in addition to making equity investments in certain subsidiaries during the year ended 31 December 2011. On 26 June 2012, the Company entered into agreements with a number of parties, together with all Substantial Shareholders, in relation to its ongoing group reorganisation, which included among other matters, (i) very substantial disposals and repurchases of certain convertible bonds issued by the Company to certain Substantial Shareholders, each of the repurchases may constitute a share repurchase under the Hong Kong Code on Share Repurchases, (ii) an open offer, (iii) a whitewash waiver under the Hong Kong Code on Takeovers and Mergers, and (iv) the proposed increase in the authorised share capital of the Company. The completion of these transactions is subject to independent shareholders’ approval at an extraordinary general meeting to be held by the Company. These factors indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.

3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

The Group has adopted all the new and revised HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), which are effective for the Group’s financial periods beginning on 1 January 2012 in the preparation of its Financial Information throughout the Relevant Periods, except for the HKAS 27 (Revised) Consolidated and Separate Financial Statements has been applied for financial period beginning on or after 1 January 2010.

The Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective.

Amendments to HKFRSs	Annual Improvements to HKFRSs 2009-2011 Cycle1
Amendments to HKFRS 1	Government Loans1
Amendments to HKFRS 7	Disclosures – Offsetting Financial Assets and Financial Liabilities1
HKFRS 9	Financial Instruments2
Amendments to HKFRS 9 and HKFRS 7	Mandatory Effective Date of HKFRS 9 and Transition Disclosures2
Amendments to HKFRS 10,	Consolidated Financial Statements, Joint Arrangements and
HKFRS 11 and HKFRS 12	Disclosure of Interests in Other Entities: Transition Guidance1
HKFRS 10	Consolidated Financial Statements1
HKFRS 11	Joint Arrangements1
HKFRS 12	Disclosure of Interests in Other Entities1
HKFRS 13	Fair Value Measurement1
Amendments to HKAS 1	Presentation of Items of Other Comprehensive Income3
HKAS 19 (as revised in 2011)	Employee Benefits1
HKAS 27 (as revised in 2011)	Separate Financial Statements1
HKAS 28 (as revised in 2011)	Investments in Associates and Joint Ventures1
Amendments to HKAS 32	Offsetting Financial Assets and Financial Liabilities4
HK(IFRIC) – Int 20	Stripping Costs in the Production Phase of a Surface Mine1

1 Effective for annual periods beginning on or after 1 January 2013

2 Effective for annual periods beginning on or after 1 January 2015

3 Effective for annual periods beginning on or after 1 July 2012

4 Effective for annual periods beginning on or after 1 January 2014

HKFRS 9 Financial Instruments

HKFRS 9 is effective for annual periods beginning on or after 1 January 2015, with earlier application permitted.

IV-16

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

The directors anticipate that the adoption of HKFRS 9 in the future might have significant impact on amounts reported in respect of the Group’s available-for-sale investment, which is measured at cost less impairment at the end of the reporting period before the application of the new standard.

New and revised Standards on consolidation, joint arrangements, associates and disclosures

Key requirements of these five standards are described below.

HKFRS 10 replaces the parts of HKAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements and HK (SIC)-Int 12 Consolidation – Special Purpose Entities . HKFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor’s returns. Extensive guidance has been added in HKFRS 10 to deal with complex scenarios.

HKFRS 11 replaces HKAS 31 Interests in Joint Ventures and HK (SIC)-Int 13 Jointly Controlled Entities – NonMonetary Contributions by Venturers . HKFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified.

IV-17

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

The directors anticipate that these five standards will be adopted by the Group for the annual period beginning 1 January 2013 and, based on the existing group structure, the application of these five standards will have no significant impact on the results and financial position of the Group.

The directors of the Company anticipate that the application of the other new and revised HKFRSs will have no material impact on the Financial Information.

4. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared in accordance with the following accounting policies which conform to HKFRSs issued by the HKICPA. In addition, the Financial Information includes 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.

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

The principal accounting policies are set out below.

Basis of consolidation

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

Where necessary, adjustments are made to the financial statements of the subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in subsidiaries are presented separately from the Group’s equity therein.

Allocation of total comprehensive income to non-controlling interests

Total comprehensive income and expense of a subsidiary is attributed to the owners of the Company and to the noncontrolling interests even if this results in the non-controlling interests having a deficit balance. Prior to 1 January 2010, losses applicable to the non-controlling interests in excess of the non-controlling interests in the subsidiary’s equity were allocated against the interests of the Precious Success Group except to the extent that the noncontrolling interests had a binding obligation and were able to make an additional investment to cover the losses.

Changes in the Group’s ownership interests in existing subsidiaries

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity (other reserve) and attributed to owners of the Company.

IV-18

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

When the Group loses control of a subsidiary, it (i) derecognises the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost; (ii) derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them); and (iii) recognises the aggregate of the fair value of the consideration received and the fair value of any retained interest, with any resulting difference being recognise as a gain or loss in profit or loss attributable to the Group. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Group had directly disposed of the related assets (i.e. reclassified to profit or loss or transferred directly to accumulated losses as specified by applicable HKFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 Income Taxes and HKAS 19 Employee Benefits respectively ;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or sharebased payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with HKFRS 2 Share-based Payment at the acquisition date (see the accounting policy below); and
assets (or disposal groups) that are classified as held-for-sale in accordance with HKFRS 5 Non-current Assets held-for-sale and Discontinued Operations are measured in accordance with that Standard.

Goodwill

Goodwill arising on an acquisition of a business is carried at cost less accumulated impairment losses, if any, and is presented separately in the consolidated statement of financial position.

For the purposes of impairment testing, goodwill is allocated to each of the cash-generating units (or groups of cashgenerating units) that is expected to benefit from the synergies of the combination.

IV-19

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

A cash-generating unit to which goodwill has been allocated is tested for impairment annually or more frequently whenever there is indication that the unit may be impaired. For goodwill arising on an acquisition in a reporting period, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that reporting period. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the amount of profit or loss on disposal.

Investments in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in the Financial Information using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and other comprehensive income of the associates. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities of an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment.

Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s interest in associates. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases.

Upon disposal of an associate that results in the Group losing significant influence over that associate, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset in accordance with HKAS 39. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses significant influence over that associate.

When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Financial Information only to the extent of interests in the associate that are not related to the Group.

IV-20

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Jointly controlled entities

The results and assets and liabilities of jointly controlled entities are incorporated in the Financial Information using the equity method of accounting. Under the equity method, investments in jointly controlled entities are initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the jointly controlled entities. When the Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the Group’s net investment in the jointly controlled entity), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities of a jointly controlled entity recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment.

Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in a jointly controlled entity. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases.

Revenue recognition

Revenue from provision of services and solutions for distribution of lottery products is recognized when the service or solution is rendered and when the right to receive the income, which is calculated on a commission basis, has been established.

Revenue from sales of goods is recognised when goods, including lottery terminals and point of sales machines are delivered and title has passed.

Revenue from the network infrastructure solutions is recognised when the integration works have been completed and the customers have accepted the solutions.

Revenue from the provision of network professional services are recognised when the services are provided.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

IV-21

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Property, plant and equipment

Property, plant and equipment are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.

Leasing

Foreign currencies

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

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss in the period in which they arise.

For the purposes of presenting the Financial Information, the assets and liabilities of the group entities are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the end of the reporting period. Income and expenses are translated at the average exchange rates for the year/period, unless exchange rates fluctuate significantly during the year/period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of exchange reserve (attributed to non-controlling interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss. In addition, in relation to a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to noncontrolling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates that do not result in the Group losing significant influence), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

IV-22

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and retranslated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in equity under the heading of exchange reserve.

Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefit costs

Payments to defined contribution retirement benefit schemes, including Mandatory Provident Fund Scheme (“MPF Scheme”) and state-managed retirement benefit schemes, are recognised as expenses when employees have rendered service entitling them to the contributions.

Taxation

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

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

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

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

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

IV-23

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Current and deferred tax is recognised in profit or loss. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Intangible assets

Intangible assets acquired separately

Intangible assets acquired separately and with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of the reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less any subsequent accumulated impairment losses (see the accounting policy in respect of impairment losses on tangible and intangible assets below).

Research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:

the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible asset is measured at cost less accumulated amortisation and accumulated impairment losses (if any), on the same basis as intangible assets acquired separately.

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are recognised separately from goodwill and are initially recognised at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives.

Gains or losses arising from derecognition of an intangible asset acquired in a business combination are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss in the period when the asset is derecognised.

IV-24

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Impairment losses on tangible and intangible assets other than goodwill (see the accounting policy in respect of goodwill above)

At the end of the reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGU for which a reasonable and consistent allocation basis can be identified.

In addition, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that they may be impaired.

If the recoverable amount of an asset (or a CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or a CGU) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a CGU) in prior years. A reversal of an impairment loss is recognised as income immediately.

Inventories

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets

The Group’s financial assets are classified into loans and receivables and available-for-sale financial assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

IV-25

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. subsequent to initial recognition, loans and receivables (including trade and other receivables, amounts due from jointly controlled entities/related companies/an associate, and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on financial assets below).

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as fair value through profit or loss, loans and receivables or held-to-maturity investments.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at each reporting period (see accounting policy on impairment loss on financial assets below).

Impairment of financial assets

For an available-for sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.

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

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

For certain categories of financial asset, such as trade receivables, that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period of 30 to 90 days, observable changes in national or local economic conditions that correlate with default on receivables.

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

IV-26

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

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

Financial liabilities and equity instruments

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Effective interest method

Interest expense is recognised on an effective interest basis.

Convertible bonds

Convertible bonds issued by the Company that contain both the liability and conversion option components are classified separately into respective items on initial recognition in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is classified as an equity instrument.

On initial recognition, the fair value of the liability component is determined using the prevailing market interest rate of similar non-convertible debts. The difference between the gross proceeds or fair value, where convertible bonds are issued as consideration in a business combination, of the issue of the convertible bonds and the fair value assigned to the liability component, representing the conversion option for the holder to convert the bonds into equity, is included in equity (convertible bonds equity reserve).

In subsequent periods, the liability component of the convertible bonds is carried at amortised cost using the effective interest method. The equity component, representing the option to convert the liability component into ordinary shares of the Company, will remain in convertible bonds equity reserve until the embedded option is exercised (in which case the balance stated in convertible bonds equity reserve will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in convertible bonds equity reserve will be released to the accumulated losses. No gain or loss is recognised in profit or loss upon conversion or expiration of the option.

Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and equity components in proportion to the allocation of the gross proceeds or their relative fair values, where applicable. Transaction costs relating to the equity component are charged directly to equity. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the relevant period of the convertible bonds using the effective interest method.

IV-27

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Other financial liabilities

Other financial liabilities including trade and other payable, amounts due to related companies/an associate, and loan from a related company are subsequently measured at amortised cost, using the effective interest method.

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

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

Share-based payment transactions

Share options granted on or before 7 November 2002, or granted after 7 November 2002 and vested before 1 January 2005

The financial impact of share options granted is not recorded in the Financial Information until such time as the options are exercised, and no charge is recognised in profit or loss in respect of the value of options granted. Upon the exercise of the share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company as share premium. Options which lapse or are cancelled prior to their exercise date are deleted from the register of outstanding options.

Share options granted to directors, employees, substantial shareholder and advisors after 7 November 2002 and vested on or after 1 January 2005

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period, with a corresponding increase in equity (sharebased payment reserve).

At the end of the reporting period, the Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the original estimates during the vesting period, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to share-based payment reserve.

At the time when the share options are exercised, the amount previously recognised in share-based payment reserve will be transferred to share premium. When the share options are forfeited after vesting date or are still not exercised at the expiry date, the amount previously recognised in share-based payment reserve will be transferred to accumulated losses.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 4, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

IV-28

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Estimated impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the CGU to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of goodwill is HK$66,694,000, HK$27,903,000, nil and nil, respectively (net of accumulated impairment loss of HK$984,021,000, HK$1,022,812,000, HK$1,050,715,000 and HK$ HK$1,050,715,000, respectively). Details of the recoverable amount calculation are disclosed in note 16.

Allowance for inventories

Inventories represent lottery terminals which are stated at the lower of cost and net realisable value using the weighted average cost method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. These estimates are based on the current market condition and the historical experience of selling products of similar nature. It could change significantly as a result of change in customer taste and competitor actions in response to a severe industry cycle. If the market price of inventories of the Group subsequently becomes lower than its carrying amount, an additional allowance may be required. The Group reassesses these estimates at the end of the reporting period.

Where the Group identifies items of inventories which have a market price that is lower than its carrying amount, the Group accounts for the inventory loss in the profit or loss as allowance for inventories. Included in loss for the years ended 31 December 2009, 2010, 2011 and the five months ended 31 May 2011 (unaudited) and 2012 is an amount of nil, HK$2,106,000, HK$8,101,000, HK$6,745,000 (unaudited) and HK$5,199,000, respectively in respect of write-down of inventories to estimated net realisable values. As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of inventories is HK$18,779,000, HK$41,219,000, HK$29,551,000 and HK$30,866,000, respectively.

Estimated impairment of intangible assets

Determining whether intangible assets are impaired requires an estimation of the future cash flows expected to arise from the lottery business and a suitable discount rate in order to calculate the present values. Where the actual future cash flows are less than expected, a material impairment loss may arise. During the Relevant Periods, the management performed an impairment assessment on intangible assets relating to software product development costs and lottery software licences. Details of the impairment are disclosed in note 17.

As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of intangible assets related to lottery business is HK$95,524,000, HK$77,277,000, nil and nil, respectively.

Estimated impairment of property, plant and equipment

If there is any indication of impairment, determining the extent to which property, plant and equipment are impaired requires an estimation of the value in use of the CGUs to which they have been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value.

As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of property, plant and equipment is HK$12,088,000, HK$9,831,000, HK$12,901,000 and HK$8,623,000, respectively (net of accumulated impairment losses of nil, nil, nil and HK$2,740,000, respectively).

Estimated impairment of available-for-sale investment

IV-29

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of available-for-sale investment is HK$138,102,000, HK$138,802,000, HK$138,102,000 and HK$137,402,000, respectively.

Estimated impairment of trade and other receivables

When there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of trade receivables is HK$13,580,000, HK$13,260,000, HK$82,858,000 and HK$74,337,000, respectively (net of allowance for doubtful debts of nil, nil, HK$1,276,000 and HK$1,213,000, respectively). As at 31 December 2009, 2010, 2011 and 31 May 2012, the carrying amount of other receivables is HK$24,748,000, HK$23,631,000, HK$9,491,000 and HK$11,020,000, respectively (net of allowance for doubtful debts of nil, nil, HK$10,468,000 and HK$12,415,000, respectively).

6. REVENUE

An analysis of the Group’s revenue for the Relevant Periods from continuing operations is as follows:

Lottery business: Provision of services and solutions for distribution of lottery products Manufacturing and sales of lottery terminals and point of sales (“POS”) machines	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 11,101 12,169 13,241 6,291 2,983 75,009 68,439 83,381 23,053 12,900 86,110 80,608 96,622 29,344 15,883	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 11,101 12,169 13,241 6,291 2,983 75,009 68,439 83,381 23,053 12,900 86,110 80,608 96,622 29,344 15,883
		15,883

7. SEGMENT INFORMATION

The Group’s revenue and contribution to loss were solely derived from lottery business which comprises provision of services and solutions for distribution of lottery products and manufacturing and sales of lottery terminals and POS machines. The chief operating decision maker, the Chief Executive Officer, reviews the internally reported information for the lottery business as a whole and reviews the consolidated financial information of the Group for purposes of resource allocation and performance assessment. Accordingly, the Group has only one operating segment, which is the lottery business. No segment analysis is presented other than entity-wide disclosures.

The revenue of product and service is set out in note 6.

Geographical information

The Group’s operations are carried out in the PRC and revenue from external customers based on the location of goods delivered is derived in the PRC.

IV-30

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

The following is an analysis of the non-current assets (other than financial instruments), analysed by the geographical area in which the assets are located:

Non-current assets The PRC Hong Kong	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 185,941 134,848 15,594 – 318 195 185,941 135,166 15,789	As at 31 May 2012 HK$’000 10,134 153
		10,287

Information about major customers

Revenue from customers of the Relevant Periods individually contributing over 10% of the total sales of the Group are as follows:

				Five months	Five months
	Year	ended 31 December		ended 31 May
	2009	2010	2011	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Customer A	–	–	57,682	–	12,615
Customer B	45,462	67,009	25,648	22,983	–
Customer C	22,200	–	–	–	–

Over 53% and 83% of the Group’s revenue in 2009 and 2010, respectively came from Customer B, Beijing Telenet, a jointly controlled entity of the Group. Beijing Telenet became a subsidiary of the Group on 27 July 2011 as detailed in note 35.

Immediately after the acquisition of Beijing Telenet, sales of Beijing Telenet to Customer A thereafter account for the largest revenue for the Group in 2011 and for the five months ended 31 May 2012.

8. FINANCE COSTS

Continuing operations: Interest on: Loan from a related company wholly repayable within five years Effective interest expense on convertible bonds	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 4,000 2,511 800 333 333 65,147 75,644 88,298 34,893 40,996 69,147 78,155 89,098 35,226 41,329	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 4,000 2,511 800 333 333 65,147 75,644 88,298 34,893 40,996 69,147 78,155 89,098 35,226 41,329
		41,329

IV-31

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

9. TAXATION

Continuing operations: PRC Enterprise Income Tax – current year Deferred tax_(Note 30)_	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,228 – 113 – 37 (4,596) (3,939) – – – (3,368) (3,939) 113 – 37	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,228 – 113 – 37 (4,596) (3,939) – – – (3,368) (3,939) 113 – 37
		37

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for the Relevant Periods. No Hong Kong Profits Tax was provided since the Hong Kong subsidiaries have incurred losses from operations for the Relevant Periods.

Under the Law of the PRC on Enterprise Income Tax (the “EIT Law”) and Implementation Regulations of the EIT Law, the tax rate of the PRC subsidiaries is 25% from 1 January 2008 onwards.

A PRC subsidiary of the Group was approved as an advanced-technology development enterprise in 2007 by the relevant PRC tax authority, pursuant to which that subsidiary was granted an exemption from PRC Enterprise Income Tax for three years which commenced from the year of grant, followed by 50% reduction of tax rate for the next three years, under the condition that the subsidiary able to renew the qualification by each year. The first year of tax exemption granted to that subsidiary was year 2007 and the subsidiary continued to enjoy the tax exemption until 2009. During the years ended 31 December 2010 and 2011 and the five months ended 31 May 2011 and 2012, the subsidiary was unable to renew the qualification and was therefore subject to the domestic income tax rate of 25%.

The taxation for the Relevant Periods can be reconciled to the loss before tax per the consolidated statement of comprehensive income as follows:

Loss before tax Tax at the domestic income tax rate of 25% (Note) Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect on tax loss not recognised Utilisation of tax loss not previously not recognised Tax effect of different tax rates of subsidiaries operating in other jurisdictions Tax effect of share of results of jointly controlled entities Tax effect of share of results of associates Income tax (credit) expense for the year/period	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (359,271) (175,224) (215,819) (93,321) (79,836) (89,818) (43,806) (53,955) (23,330) (19,959) 78,245 33,233 56,823 22,810 16,240 (140) (230) (9,256) (2,809) (63) 7,536 5,744 5,630 2,757 3,513 – – (243) – – 838 – – – – (29) (66) 120 48 – – 1,186 994 524 306 (3,368) (3,939) 113 – 37	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (359,271) (175,224) (215,819) (93,321) (79,836) (89,818) (43,806) (53,955) (23,330) (19,959) 78,245 33,233 56,823 22,810 16,240 (140) (230) (9,256) (2,809) (63) 7,536 5,744 5,630 2,757 3,513 – – (243) – – 838 – – – – (29) (66) 120 48 – – 1,186 994 524 306 (3,368) (3,939) 113 – 37

		(19,959) 16,240 (63) 3,513 – – – 306
		37

IV-32

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Note: The domestic income tax rate in the jurisdiction where the operation of the Group is substantially based is used.

10. DISCONTINUED OPERATIONS

On 5 November 2009, the Group entered into a sale and purchase agreement with a related company, in which a director who is also a substantial shareholder of the Company has beneficial interest, to dispose of a subsidiary, Wafer Group, which carried out all of the Group’s network system integration operations. The disposal was effected in order to generate cash flows for the expansion of the Group’s lottery business. The disposal was completed on 30 December 2009, on which date control of the Wafer Group passed to the acquirer.

The loss from the discontinued operations is analysed as follows:

Loss of network system integration operations Loss on disposal of network system integration operations_(see note 36)_	1.1.2009 to 30.12.2009 HK$’000 (26,820) (14,637) (41,457)

The results of the network system integration operations for the period from 1 January 2009 to 30 December 2009 were as follows:

Revenue Changes in inventories of finished goods and work-in-progress Purchases of inventories and raw materials consumed Other income and gains Employee benefits costs Depreciation and amortisation Impairment loss on intangible assets Other expenses Finance costs Loss before taxation Taxation Loss for the period	1.1.2009 to 30.12.2009 HK$’000 240,319 (23,497) (174,534) 1,142 (29,276) (2,646) (8,412) (24,997) (2,919) (24,820) (2,000) (26,820)

IV-33

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Loss for the period from discontinued operations included the following:

Amortisation of intangible assets Depreciation of property, plant and equipment Total depreciation and amortisation Directors’ emoluments, including retirement benefit scheme contributions Other staff costs: Salaries and other benefits Retirement benefit scheme contributions Total employee benefit expenses Auditor’s remuneration Allowance for inventories Impairment loss on intangible assets Research and development costs recognised as an expense Operating lease rentals in respect of office properties Net foreign exchange loss and after crediting: Bank interest income Reversal of impairment loss on trade receivables	1.1.2009 to 30.12.2009 HK$’000 1,223 1,423
	2,646
	1,542 23,782 3,952
	29,276
	460 1,036 8,412 452 3,867 77 310 2,342

During the year ended 31 December 2009, Wafer Group experienced a cash outflow of HK$46,115,000 to the Group’s net operating cash flows, received HK$9,261,000 in respect of investing activities and paid HK$6,255,000 in respect of financing activities.

The carrying amounts of the assets and liabilities of Wafer Group at the date of disposal are disclosed in note 36.

IV-34

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

11. LOSS FOR THE YEAR/PERIOD

Loss for the year/period from continuing operations 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 Auditors’ remuneration Allowance for inventories (included in purchase of inventories and raw materials consumed) Write-off of other receivables (included in other income, gains and losses) Impairment loss on loan receivable_(Note)_ Write-off of/loss on disposal of property, plant and equipment (included in other income, gains and losses) Operating lease rentals in respect of land and buildings Charity donation Management fee paid to lottery operator (included in other expenses) Net foreign exchange loss and after crediting: Net foreign exchange gain Bank interest income Other interest income	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 19,123 18,323 2,265 1,105 – 6,992 3,686 4,467 1,500 1,734 26,115 22,009 6,732 2,605 1,734 4,490 4,028 4,298 2,213 1,443 12,951 11,215 10,280 5,019 5,488 1,430 1,190 1,535 1,094 708 4,068 2,840 2,739 1,813 240 22,939 19,273 18,852 10,139 7,879 1,040 1,170 1,220 508 574 – 2,106 8,101 6,745 5,199 522 545 – – – 3,890 – – – – 8,498 596 462 – 31 5,013 4,134 4,476 1,624 1,801 – 2,280 2,360 2,360 2,467 12,278 9,514 6,205 2,684 1,111 – 166 – – 8,748 449 – 36,301 10,985 – 119 78 44 16 10 5 623 122 122 –	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 19,123 18,323 2,265 1,105 – 6,992 3,686 4,467 1,500 1,734 26,115 22,009 6,732 2,605 1,734 4,490 4,028 4,298 2,213 1,443 12,951 11,215 10,280 5,019 5,488 1,430 1,190 1,535 1,094 708 4,068 2,840 2,739 1,813 240 22,939 19,273 18,852 10,139 7,879 1,040 1,170 1,220 508 574 – 2,106 8,101 6,745 5,199 522 545 – – – 3,890 – – – – 8,498 596 462 – 31 5,013 4,134 4,476 1,624 1,801 – 2,280 2,360 2,360 2,467 12,278 9,514 6,205 2,684 1,111 – 166 – – 8,748 449 – 36,301 10,985 – 119 78 44 16 10 5 623 122 122 –
		1,734
		1,443 5,488 708 240
		7,879
		574 5,199 – – 31 1,801 2,467 1,111 8,748 – 10 –

Note: During the year ended 31 December 2009, a loan of HK$3,890,000 advanced to a subsidiary of a shareholder of a jointly controlled entity was considered unlikely to be recovered by the directors and an impairment loss was recognised accordingly.

IV-35

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

12. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

The emoluments paid or payable to the directors of the Company were as follows:

Year ended 31 December 2009 Fees Other emoluments: Salaries and other benefits Contributions to retirement benefit schemes Share-based payment Total emoluments Year ended 31 December 2010 Fees Other emoluments: Salaries and other benefits Contributions to retirement benefit schemes Share-based payment Total emoluments Year ended 31 December 2011 Fees Other emoluments: Salaries and other benefits Bonuses_(note e) Contributions to retirement benefit schemes Share-based payment Total emoluments Five months ended 31 May 2011 (unaudited) Fees Other emoluments: Salaries and other benefits Bonuses(note e) Contributions to retirement benefit schemes Share-based payment Total emoluments Five months ended 31 May 2012 Fees Other emoluments: Salaries and other benefits Bonuses(note e)_ Contributions to retirement benefit schemes Share-based payment Total emoluments	Chan Sek Keung, Ringo HK$’000 – 1,530 12 164 1,706 – – – 290 290 – – – – 265 265 – – – – 164 164 50 – – – 29 79	Ko Chun Fung, Henry HK$’000 – 2,040 12 481 2,533 – 2,040 12 424 2,476 – 2,040 170 12 522 2,744 – 850 170 5 330 1,355 – 870 170 5 39 1,084	Moumouris, Derempeoglous, Christos Georgios HK$’000 HK$’000 (note a) (note b) – – – – – – 338 213 338 213 – – – – – – 358 – 358 – – – – – – – – – 228 – 228 – – – – – – – – – 133 – 133 – – – – – – – – – 30 – 30 –	Wang, John Peter Ben HK$’000 (note c) 15 – – 421 436 120 – – 330 450 120 – – – 479 599 50 – – – 306 356 50 – – – 29 79	Chrysafidis, Evangelos HK$’000 (note d) – – – – – – – – – – – – – – – – – – – – – – – – – – – –	Tsoi, David HK$’000 144 – – 78 222 144 – – 19 163 144 – – – 20 164 60 – – – 12 72 50 – – – 2 52	Pang Hing Chung, Alfred HK$’000 120 – – 78 198 120 – – 19 139 120 – – – 23 143 50 – – – 14 64 60 – – – 2 62	So Lie Mo, Raymond HK$’000 124 – – 262 386 132 – – 20 152 132 – – – 23 155 55 – – – 14 69 55 – – – 2 57	Total HK$’000 403 3,570 24 2,035
									6,032

									516 2,040 12 1,460
									4,028

									516 2,040 170 12 1,560
									4,298

									215 850 170 5 973
									2,213

									265 870 170 5 133
									1,443

IV-36

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Notes:

(a) Moumouris, Christos was appointed as a director of the Company on 30 January 2009 and resigned on 23 April 2012.
(b) Derempeogious, Georgios was appointed as a director of the Company on 16 November 2009 and resigned on 1 February 2010.
(c) Wang, John Peter Ben was appointed as a director of the Company on 16 November 2009.
(d) Chrysafidis, Evangelos was appointed as a director of the Company on 23 April 2012.
(e) Bonus is recommended by the Remuneration Committee and is approved by the board of directors, having regard to the individual’s contribution to the Group.

Of the five individuals with the highest emoluments in the Group, 2, 1, 1, 1 (unaudited) and 1 were directors of the Company whose emoluments are included in the disclosures as above during the years ended 31 December 2009, 2010, 2011 and the five months ended 31 May 2011 (unaudited) and 2012, respectively. The emoluments of the remaining 3, 4, 4, 4 (unaudited) and 4 individuals are as follows:

Salaries and other benefits Bonuses Contributions to retirement benefit schemes Share-based payments	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 2,563 3,314 3,587 1,409 1,215 – – 170 451 334 36 48 48 20 18 243 399 200 224 37 2,842 3,761 4,005 2,104 1,604	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 2,563 3,314 3,587 1,409 1,215 – – 170 451 334 36 48 48 20 18 243 399 200 224 37 2,842 3,761 4,005 2,104 1,604
		1,604

Their emoluments are within the following bands:

				Five months	Five months
	Year	ended 31 December		ended	31 May
	2009	2010	2011	2011	2012
	Number of	Number of	Number of	Number of	Number of
	employees	employees	employees	employees	employees
				(unaudited)
Nil to HK$1,000,000	2	2	2	4	4
HK$1,000,001 to HK$1,500,000	1	2	2	–	–

During the Relevant Periods, no emoluments were paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors has waived any emoluments during the Relevant Periods.

13. DIVIDENDS

No dividend was declared or proposed during the Relevant Periods, nor has any dividend been proposed since the end of the reporting period.

IV-37

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

14. LOSS PER SHARE

For continuing and discontinued operations

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

Earnings Loss attributable to the owners of the Company for the purposes of basic and diluted loss per share Number of shares Weighted average number of ordinary shares for the purposes of basic and diluted loss per share	Year ended 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 (388,019) (160,908) (209,219) 500,495,926 502,394,034 502,936,686	Five months ended 31 May 2011 2012 HK$’000 HK$’000 (unaudited) (85,931) (75,209) 502,893,820 502,966,933

The computation of diluted loss per share does not include the Company’s outstanding convertible bonds and share options since their assumed conversion and exercise would result in a decrease in loss per share.

For continuing operations

The calculation of the basic and diluted loss per share from continuing operations attributable to the owners of the Company in 2009 is based on the following data:

Loss per share are calculated as follows:

Loss for the year attributable to owners of the Company Less: Loss for the year from discontinued operations Loss for the purposes of basic and diluted loss per share from continuing operations	2009 HK$’000 (388,019) 41,457 (346,562)

The denominators used are the same as those detailed above for basic and diluted loss per share.

The calculation of the basic and diluted loss per share from continuing operations attributable to the owners of the Company for the years ended 31 December 2010 and 2011 and the five months ended 31 May 2011 and 2012 was the same as the basic and diluted loss per share from continuing and discontinued operations shown above.

For discontinued operations in 2009

The basic and diluted loss per share for the discontinued operations for the year ended 31 December 2009 is HK8.28 cents per share, based on the loss for the year from discontinued operations of HK$41,457,000 and the denominators detailed above for basic and diluted loss per share.

IV-38

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

15. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2009 Additions Write-off Disposals Disposal of subsidiaries At 31 December 2009 Additions Disposals Exchange realignment At 31 December 2010 Additions Acquired on acquisition of a subsidiary Disposals Exchange realignment At 31 December 2011 Additions Write-off Exchange realignment At 31 May 2012	Lottery terminals HK$’000 14,806 – (10,314) – – 4,492 – (519) 179 4,152 – – (1,111) 209 3,250 – – (45) 3,205	Machinery Furniture, and fixtures and equipment equipment HK$’000 HK$’000 14,701 18,242 2,245 887 (896) (9,031) – – (9,987) (3,168) 6,063 6,930 1,029 455 (441) (281) 366 191 7,017 7,295 7,384 10 608 191 (2,221) (1,604) 464 227 13,252 6,119 222 62 (11) (1,497) (111) (28) 13,352 4,656	Motor vehicles HK$’000 1,261 61 – – (1,092) 230 282 (113) 14 413 – – – 19 432 – – (3) 429	Tools HK$’000 8,072 1,428 – (22) (9,478) – – – – – – – – – – – – – –	Total HK$’000 57,082 4,621 (20,241) (22) (23,725) 17,715 1,766 (1,354) 750 18,877 7,394 799 (4,936) 919 23,053 284 (1,508) (187) 21,642

IV-39

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

DEPRECIATION AND IMPAIRMENT At 1 January 2009 Provided for the year Eliminated on write-off Eliminated on disposals Disposal of subsidiaries At 31 December 2009 Provided for the year Eliminated on disposals Exchange realignment At 31 December 2010 Provided for the year Eliminated on disposals Exchange realignment At 31 December 2011 Provided for the period Eliminated on write-off Impairment loss recognised Exchange realignment At 31 May 2012 CARRYING VALUES At 31 December 2009 At 31 December 2010 At 31 December 2011 At 31 May 2012	Lottery terminals HK$’000 2,490 2,307 (3,250) – – 1,547 1,039 (297) 120 2,409 998 (921) 160 2,646 344 – 255 (40) 3,205 2,945 1,743 604 –	Machinery Furniture, and fixtures and equipment equipment HK$’000 HK$’000 10,952 4,749 2,116 3,200 (381) (4,122) – – (9,651) (2,853) 3,036 974 1,434 1,171 (239) (115) 200 106 4,431 2,136 2,164 1,229 (1,772) (1,245) 257 154 5,080 2,274 917 450 (10) (1,467) 143 2,342 (72) (17) 6,058 3,582 3,027 5,956 2,586 5,159 8,172 3,845 7,294 1,074	Motor vehicles HK$’000 1,061 101 – – (1,092) 70 42 (44) 2 70 76 – 6 152 23 – – (1) 174 160 343 280 255	Tools HK$’000 7,021 691 – (6) (7,706) – – – – – – – – – – – – – – – – – –	Total HK$’000 26,273 8,415 (7,753) (6) (21,302) 5,627 3,686 (695) 428 9,046 4,467 (3,938) 577 10,152 1,734 (1,477) 2,740 (130) 13,019 12,088 9,831 12,901 8,623

The above items of property, plant and equipment are depreciated on a straight-line basis after taking into account of their estimated residual values, if any, at the following rates per annum:

Lottery terminals	20%
Machinery and equipment	20% – 331/3%
Furniture, fixtures and equipment	20% – 331/3%
Motor vehicles	20% – 331/3%
Tools	331/3%

During the five months ended 31 May 2012, the directors of the Group determined there would be an expected decrease in revenue from provision of services and solutions for distribution of lottery products in some cities in the PRC due to keen market competition, which was an indicator of the impairment of the related property, plant and equipment. Accordingly, a full impairment loss of HK$2,740,000 was recognised in profit or loss.

IV-40

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

16. GOODWILL

COST Balance at beginning and end of the year/period IMPAIRMENT Balance at beginning of the year/period Impairment loss recognised in the year/period Balance at end of the year/period CARRYING AMOUNTS AT THE END OF THE YEAR/PERIOD	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 1,050,715 1,050,715 1,050,715 767,083 984,021 1,022,812 216,938 38,791 27,903 984,021 1,022,812 1,050,715 66,694 27,903 –	As at 31 May 2012 HK$’000 1,050,715
		1,050,715 –
		1,050,715
		–

For the purpose of impairment testing, goodwill with indefinite useful lives has been allocated to a group of CGUs comprising the lottery business.

The directors of the Company performed an impairment review for goodwill with reference to the valuation carried out by Vigers Appraisal & Consulting Limited (“Vigers”), independent qualified professional valuers not connected with the Group. The impairment review takes into account the operating results of subsidiaries of the Group, which are wholly attributable to the operation of manufacturing and sales of lottery terminals. The valuation is based on value-in-use calculations. During the years ended 31 December 2009, 2010 and 2011, these calculations used cash flow projections based on most recent financial budgets approved by management of the Group for the coming year and extrapolates the cash flows projection for the following 9, 8 and 7 years, respectively with 5% growth rate and discount rate of 13%, 11.8% and 12.5%, respectively. The cash flows beyond 9, 8 and 7 years were extrapolated using a steady growth rate of 3%.

In 2009, the cash flow projection for the year of 2010 was prepared on the key assumption made by the management of the Company that there would be a recovery in 2010 from the poor economic conditions faced by the Group in 2009, and hence the lottery business was expected to receive a boost and there would be a turnaround on the operating cash flows generated. The growth rate did not exceed the long-term average growth rate for the business in which the CGU operates. However, the recoverable amount of the CGU based on value-in-use calculation was less than its carrying amount, accordingly, an impairment loss of HK$216,938,000 was recognised during the year. The reduction in the recoverable amount of the lottery business was driven by decrease in profit margin than was expected for 2009.

In 2010, the cash flow projection for 2011 was prepared on the key assumption made by the management of the Company that there would be an increase in demand on the new model of lottery terminals to be launched by the Group during 2011, and hence there would be an increase in operating cash flows to be generated by the lottery business in the coming years. The growth rate did not exceed the long-term average growth rate for the business in which the CGU operates. However, the recoverable amount of the CGU based on value-in-use calculation was less than its carrying amount, accordingly, impairment loss of HK$38,791,000 was recognised in 2010. The reduction in the recoverable amount of the lottery business was driven by decrease in profit margin than was expected for 2010.

In 2011, the management of the Group determined the budgeted gross margin based on past performance. The weighted average growth rate used was consistent with the forecasts in the relevant industry. The discount rate used reflected specific risks relating to the relevant segment. However, in view of the delay and uncertainty in the launching of new models of lottery terminals subsequent to the year end and continuing net operating cash outflow was incurred during the year, the recoverable amount of the CGU was significantly lower than its carrying amount, and accordingly, full impairment loss of HK$27,903,000 was recognised during the year.

IV-41

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

17. INTANGIBLE ASSETS

COST At 1 January 2009 Additions Disposal of subsidiaries At 31 December 2009 Exchange realignment At 31 December 2010 Exchange realignment At 31 December 2011 Exchange realignment At 31 May 2012 AMORTISATION AND IMPAIRMENT At 1 January 2009 Provided for the year Impairment loss recognised Disposal of subsidiaries At 31 December 2009 Provided for the year Exchange realignment At 31 December 2010 Provided for the year Impairment loss recognised Exchange realignment At 31 December 2011 Exchange realignment At 31 May 2012 CARRYING VALUES At 31 December 2009 At 31 December 2010 At 31 December 2011 and 31 May 2012	Software product development costs HK$’000 (note a) 27,098 3,161 (30,259) – – – – – – – 20,624 1,223 8,412 (30,259) – – – – – – – – – – – – –	Lottery software licences HK$’000 (note b) 75,035 – – 75,035 – 75,035 – 75,035 – 75,035 – – – – – – – – – 75,035 – 75,035 – 75,035 75,035 75,035 –	License rights HK$’000 (note c) 161,586 – – 161,586 961 162,547 513 163,060 (122) 162,938 121,974 19,123 – – 141,097 18,323 885 160,305 2,265 – 490 163,060 (122) 162,938 20,489 2,242 –	Technology know-how HK$’000 (note d) 25,252 – – 25,252 – 25,252 – 25,252 – 25,252 25,252 – – – 25,252 – – 25,252 – – – 25,252 – 25,252 – – –	Total HK$’000 288,971 3,161 (30,259) 261,873 961 262,834 513 263,347 (122) 263,225 167,850 20,346 8,412 (30,259) 166,349 18,323 885 185,557 2,265 75,035 490 263,347 (122) 263,225 95,524 77,277 –

IV-42

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Notes:

(a) The Group’s software product development costs were internally generated and amortised on a straightline basis over the estimated useful life of 3 years. In 2009, the software product development costs were disposed of upon disposal of subsidiaries.
(b) In September 2008, the Group acquired, inter alia, a perpetual license right, with 3-year exclusivity, to use and sublicense the software in connection with projects of China Sports Lottery Administration Centre (“CSLA”) and a perpetual, non-exclusive license right to use and sublicense the software in connection with projects of China Welfare Lottery Issuing Centre (“CWLI”). The lottery software (the “Software”) was a system platform to support and upgrade the lottery products and gaming operations. In 2010, the Group was in the process of negotiating with CSLA and CWLI on providing services for system support and upgrade of their games by using the Software. The license right in connection with CSLA projects was operated under the exclusivity period and the Group expected to obtain the projects from CSLA and CWLI successfully. Accordingly, no impairment loss on intangible assets had been recognised in the Financial Information as at 31 December 2010.

During the year ended 31 December 2011, the conditions for extension of the license’s exclusive right in connection with projects of CSLA had not been achieved and the related license right expired in December 2011 and became non-exclusive. Upon the expiration of the license right, the Group had no concrete projects that had been agreed with CSLA or CWLI to use the Software. Accordingly, the Group carried out a review of the recoverable amount of the business on distribution of lottery products and gaming products by using the Software. The recoverable amount in the review was significantly lower than its carrying amount, the decrease in the recoverable amount was attributable to lower than anticipated usage of the Software and profits expected to be generated in the coming years. Therefore, an impairment loss of HK$75,035,000 was recognised in relation to the Software during the year ended 31 December 2011. The amount of impairment loss had been charged to the consolidated statement of comprehensive income.

(c) The Group’s license rights included certain rights of operating lottery games, sales of gaming products and the right to manufacture lottery machines in the PRC. The license rights were amortised on a straight-line basis over their estimated useful life of 5 years. The carrying amount of the license rights, net of accumulated impairment, had been fully amortised during the year ended 31 December 2011. The amortisation charge for the Relevant Periods is included in depreciation and amortisation in the consolidated statement of comprehensive income.
(d) The Group’s technology know-how represents online betting technology to be used for lottery business. A full impairment loss for the carrying amount of the technology know-how was recognised in previous years.

18. INTERESTS IN ASSOCIATES

Cost of unlisted investments in associates Share of post-acquisition losses Impairment loss recognised_(note b)_	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 – 13,000 13,000 – (4,743) (8,719) – – (1,393) – 8,257 2,888	As at 31 May 2012 HK$’000 13,000 (9,943) (1,393) 1,664

IV-43

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

As at 31 December 2009, 2010, 2011 and 31 May 2012, the Group had interests in the following associates:

			Proportion of	Proportion of
		Principal	nominal	value of
Name of	Place of	place of	issued share	capital held
associate	incorporation	operations	indirectly by the Group		Principal activity
				31.12.2010
				31.12.2011
				and
			31.12.2009	31.5.2012
ChariLot	Hong Kong	Hong Kong	–	40%	Provision of services
for distribution of
					lottery products
China Excellent	Hong Kong	Hong Kong	–	35%	Provision of services
for distribution of
mobile lottery
					products

Notes:

(a) On 21 June 2010, Rising Move, a wholly-owned subsidiary of the Company, entered into an agreement with an independent third party, Calo Investments Limited (“Calo”), for the formation of ChariLot. ChariLot is set up primarily to be a vehicle for the investment in and provision of services for distribution of lottery products in the PRC. ChariLot is beneficially owned as to 60% by Calo and 40% by Rising Move. The capital injection by Rising Move for the 40% shareholding in ChariLot was HK$10,000,000, all of which were shares issued to Rising Move in 2010. An amount of HK$3,861,000, HK$3,065,000 and HK$2,654,000 had been paid during the year ended 31 December 2010 and 2011 and the five months ended 31 May 2012, respectively. The unpaid amount of HK$420,000 represents the amount due to an associate.
(b) On 24 February 2010, Rising Move entered into an agreement with an independent third party (“Partner”) in relation to an acquisition of 35% equity interests in China Excellent at a consideration for HK$7,000,000. The principal activity of China Excellent is proposed to be a vehicle for investment in and provision of services for distribution of mobile lottery products in the PRC.

The Group had paid HK$3,000,000 for the consideration in 2010. The remaining HK$4,000,000 will be paid subject to conditions, including to obtain a license (the “Mobile Lottery License”) for the welfare mobile lottery business in the PRC from Shanghai Welfare Lottery Issuing Centre (the “Shanghai WLIC”). As at 31 May 2012, the Group has not paid for the remaining consideration as the conditions have not been satisfied.

In 2010, in view that the Partner was actively negotiating with the Shanghai WLIC in obtaining the license, directors of the Company expected China Excellent to obtain the license in 2011. Accordingly, no impairment was recognised in 2010. However, China Excellent was unable to obtain the Mobile Lottery License in 2011 and net liabilities were noted at end of the reporting period. The directors of the Company expected minimal cash flows would be generated from the investment. Therefore, the Group had recognised an impairment loss of HK$1,393,000 in the profit or loss in respect of the investment in China Excellent.

IV-44

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

The summarised financial information in respect of the Group’s associates is set out below:

As at 31 December
2009
2010
2011
HK$’000
HK$’000
HK$’000
Total assets
–
10,671
4,075
Total liabilities
–
(1,103)
(2,793)
Net assets
–
9,568
1,282
Revenue
–
–
64
Loss for the year/period
–
6,434
5,269
INTERESTS IN JOINTLY CONTROLLED ENTITIES
As at 31 December
2009
2010
2011
HK$’000
HK$’000
HK$’000
Cost of unlisted investments in
jointly controlled entities
26,529
26,529
15,560
Share of post-acquisition losses
(14,894)
(14,631)
(15,560)
11,635
11,898
–

As at
31 May
2012
HK$’000
4,154
(4,244)
(90)
–
1,386
As at
31 May
2012
HK$’000
15,560
(15,560)
–

19. INTERESTS IN JOINTLY CONTROLLED ENTITIES

As at 31 December 2009, 2010, 2011 and 31 May 2012, the Group had interests in the following associates:

			Proportion
			of nominal
	Place of		value of issued
Name of	incorporation/	Class of	capital/registered	Proportion
jointly	establishment/	shares/	capital held	of voting
controlled entity	operations	capital held	by the Group	power held	Principal activity
PALTECH Company	Hong Kong	Ordinary	60%	60%	Inactive
Limited (“PALTECH”)			(note a)
Beijing Telenet	PRC, wholly	Registered	31.12.2009 &	31.12.2009 &	Distribution of lottery
	foreign owned		31.12.2010: 52.5%	31.12.2010: 52.5%	terminals
	enterprise for		31.12.2011 &	31.12.2011 &
	a term of 30 years		31.5.2012: –	31.5.2012: –
	commencing		(note b)
	10 August 2006

Notes:

(a) The Group indirectly owns a 60% equity interest in PALTECH. Pursuant to certain terms and conditions given in the shareholders’ agreement, the financial and operating policies of PALTECH require approval from 75% of the equity holders. PALTECH is jointly controlled by the Group and the other shareholder, as such, it is accounted for as a jointly controlled entity of the Group. The Group has discontinued the recognition of its share of losses of this jointly controlled entity.

IV-45

APPENDIX IV FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

(b) At the end of each reporting period, the Group indirectly owns a 52.5% equity interest in Beijing Telenet. Pursuant to the original shareholders’ agreement, the financial and operating policies of Beijing Telenet required approval from two-third of the directors, while the Group had the right to appoint only four out of seven directors. Beijing Telenet was jointly controlled by the Group and other significant shareholders, therefore, Beijing Telenet was classified as a jointly controlled entity of the Group as at 31 December 2009 and 2010.
On 27 July 2011, Beijing Telenet passed a board resolution to amend its Articles of Association so that resolutions for its financial and operating policies can be passed by simple majority votes (the “Articles Amendments”). Upon the implementation of the Articles Amendments, the Group has the rights to govern the financial and operating policies of Beijing Telenet, which requires simple majority votes of the Beijing Telenet board. Accordingly, Beijing Telenet became an indirectly non wholly-owned subsidiary of the Company from the date of the Articles Amendments. Details of the acquisition are set out in note 35.

The summarised financial information in respect of the Group’s interests in the jointly controlled entities attributable to the Group’s interest which are accounted for using the equity method is set out below:

Current assets Non-current assets Current liabilities Revenue recognised in profit or loss Expenses recognised in profit or loss	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 43,279 36,427 – 538 432 – 30,375 22,636 – 53,638 44,069 14,686 53,522 43,806 15,166	As at 31 May 2012 HK$’000 –

		–

		–

		–

		–

The Group has discontinued the recognition of its share of losses of a jointly controlled entity. The amount of unrecognised share of losses of this jointly controlled entity both for the year/period and cumulatively, are as follows:

Unrecognised share of losses of a jointly controlled entity for the year/period Accumulated unrecognised share of losses of a jointly controlled entity	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 43 3 1 190 193 194	As at 31 May 2012 HK$’000 –

		194

IV-46

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

20. AVAILABLE-FOR-SALE INVESTMENT

The available-for-sale investment represents a 14% equity interest in Nanum Lotto. Inc., a limited liability company incorporated in South Korea and engaged in the operation of national online lotto games in South Korea with an exclusive lottery license to operate national online lotto games in South Korea. It is measured at cost less impairment at the end of each reporting period because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that their fair value cannot be measured reliably.

The available-for-sale investment is indirectly held by Gain Advance and the Group has signed an agreement subsequent to 31 May 2012 to dispose of its entire interest of Gain Advance as set out in Section B of this report.

21. AMOUNTS DUE FROM (TO) RELATED COMPANIES

Notes Non-current Amount due from a company in which a director of the Company has controlling interest (i) Current Amount due from a company controlled by a substantial shareholder of the Company (ii) Amount due from a company in which a director of the Company has controlling interest (i)	2009 HK$’000 10,000 148 20,005 20,153	2010 HK$’000 – – 10,503 10,503	Maximum balance outstanding during the year ended 31 December 2009 2010 HK$’000 HK$’000 10,000 10,000 148 148 20,005 20,623	Maximum balance outstanding during the year ended 31 December 2009 2010 HK$’000 HK$’000 10,000 10,000 148 148 20,005 20,623

				148 20,623

Notes:

(i) The amount represents the deferred consideration receivable on disposal of subsidiaries in December 2009. The amount was guaranteed by a director of the Company and bore interest rate of 5% per annum. The amount was denominated in currency other than the functional currency of the relevant group entity. The entire amount had been settled during the year ended 31 December 2011.

(ii) The amount was unsecured, interest-free and fully settled during the year ended 31 December 2010.

The amounts due to related companies represent balances due to companies beneficially owned by certain substantial shareholders, which are unsecured, interest-free and repayable on demand. The amounts are denominated in currency other than the functional currency of the relevant group entity.

IV-47

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

22. INVENTORIES

Raw materials Work in progress Finished goods	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 3,898 9,414 10,240 6,133 15,818 11,605 8,748 15,987 7,706 18,779 41,219 29,551	As at 31 May 2012 HK$’000 10,839 9,247 10,780
		30,866

23. TRADE AND OTHER RECEIVABLES

Trade receivables Less: allowance for doubtful debts Other receivables Less: allowance for doubtful debts Prepayments and deposits	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 13,580 13,260 84,134 – – (1,276) 13,580 13,260 82,858 24,748 23,631 19,959 – – (10,468) 24,748 23,631 9,491 1,434 1,360 2,054 39,762 38,251 94,403	As at 31 May 2012 HK$’000 75,550 (1,213)
		74,337
		23,435 (12,415)
		11,020
		2,065
		87,422

The Group allows credit periods ranging from 30 to 90 days to its trade customers. The following is an aged analysis of trade receivables net of allowance for doubtful debts presented based on the invoice date at the end of the reporting period.

Within 30 days 31 – 90 days 91 – 180 days 181 – 365 days Over 365 days	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 8,847 5,831 24,752 3 371 33,515 5 612 14,927 51 407 2,944 4,674 6,039 6,720 13,580 13,260 82,858	As at 31 May 2012 HK$’000 8,450 5,965 8,811 48,934 2,177
		74,337

IV-48

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Before accepting any new customer, the Group assesses the potential customer’s credit quality by respective sales team and defines credit limit by customer. Limits attributed to customers are reviewed once a year. The Group maintains a defined credit policy to assess the credit quality of the trade customers. The collection is closely monitored to minimise any credit risk associated with these trade debtors.

Included in the Group’s trade receivable balance are debtors with aggregate carrying amount of HK$4,730,000, HK$7,058,000, HK$24,591,000 and HK$59,922,000 which are past due at 31 December 2009, 2010, 2011 and 31 May 2012, respectively for which the Group has not provided for impairment loss as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances.

Aging of trade receivables which are past due but not impaired

91 – 180 days 181 – 365 days Over 365 days	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 5 612 14,927 51 407 2,944 4,674 6,039 6,720 4,730 7,058 24,591	As at 31 May 2012 HK$’000 8,811 48,934 2,177
		59,922

Included in the trade receivables due over 365 days but not impaired as at 31 December 2009, 2010, 2011 and 31 May 2012 are amounts of HK$4,674,000, HK$4,602,000, HK$4,813,000 and nil, respectively due from a subsidiary of a substantial shareholder of the Company. The directors of the Company consider no deterioration in credit qualities of the trade debtors and the settlement pattern after the end of the reporting period from these trade debtors are satisfactory, the directors consider that no provision for impairment loss is required. The Group does not hold any collateral over these balances.

Movement in the allowance for trade receivables

Balance at beginning of the year/period Impairment losses recognised Impairment losses reversed Amounts written off during the year/period Disposal of subsidiaries Exchange realignment Balance at end of the year/period	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 18,895 – – – – 1,276 – – – (156) – – (18,739) – – – – – – – 1,276	As at 31 May 2012 HK$’000 1,276 – (94) – – 31
		1,213

Included in trade receivables are amounts net of individually impaired receivables amounting to nil, nil, HK$1,276,000 and HK$1,213,000 as at 31 December 2009, 2010, 2011 and 31 May 2012, respectively. The directors of the Company take into consideration about the current financial position of the counterparties and their repayment history and consider that the chances of collection of the outstanding amounts are remote.

IV-49

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Movement in the allowance for other receivables

Balance at beginning of the year/period Impairment losses recognised Exchange realignment Balance at end of the year/period	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 – – – – – 10,468 – – – – – 10,468	As at 31 May 2012 HK$’000 10,468 2,252 (305)
		12,415

Included in other receivables are amounts of individually impaired receivables amounting to nil, nil, HK$10,468,000 and HK$12,415,000 as at 31 December 2009, 2010, 2011 and 31 May 2012, respectively. The amount represents the advances granted to an operator in respect of the lottery retail outlets in which some of them had been closed down during 2011 and 2012. As at 31 May 2012, the directors of the Company considered that advances to the same operator of HK$19,738,000, HK$18,032,000, HK$4,549,000, HK$1,272,000 as at 31 December 2009, 2010, 2011 and 31 May 2012, respectively in respect of the remaining lottery retail outlets are still recoverable after considering that the lottery retail outlets are still operating in the PRC with gross margin.

24. AMOUNTS DUE FROM JOINTLY CONTROLLED ENTITIES

Amounts due from jointly controlled entities Less: allowance for doubtful debts	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 36,265 35,150 – (1,788) (1,788) – 34,477 33,362 –	As at 31 May 2012 HK$’000 – –
		–

The amounts are unsecured and interest-free and of trade nature with a credit period of 90 days.

The aging analysis of amounts due from jointly controlled entities of trade nature based on the invoice date at the end of each reporting period is as follows:

Within 30 days 31 – 90 days Over 90 days	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 16,638 22,151 – 7,103 11,211 – 10,736 – – 34,477 33,362 –	As at 31 May 2012 HK$’000 – – –
		–

The Group reviews the credit quality and defines credit limits to these jointly controlled entities. Limits attributed to these jointly controlled entities are reviewed once a year. The Group maintains a defined credit policy to assess the credit quality of these jointly controlled entities. The collection is closely monitored to minimise any credit risk associated with these jointly controlled entities.

The directors of the Company consider that there has not been a significant change in credit quality of the jointly controlled entities and there is no recent history of default, therefore no further impairment is necessary to provide. The Group does not hold any collateral over these balances.

As detailed in note 19, Beijing Telenet became a non-wholly-owned subsidiary of the Group during the year ended 31 December 2011.

IV-50

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

25. BANK BALANCES AND CASH

Bank balances and cash comprised of bank deposits with maturity of less than three months and cash on hand. Bank balances carry interest at prevailing market rates of 0.02%, 0.02%, 0.43% and 0.43% as at 31 December 2009, 2010, 2011 and 31 May 2012, respectively.

As at 31 December 2009, 2010, 2011 and 31 May 2012, an amount of HK$36,936,000, HK$30,128,000, HK$18,660,000 and HK$8,289,000, respectively was denominated in currency other than the functional currency of the relevant group entity.

26. TRADE AND OTHER PAYABLES

Trade payables Other payables Accruals	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 31,311 62,220 56,241 4,702 4,963 10,575 5,991 1,025 4,293 42,004 68,208 71,109	As at 31 May 2012 HK$’000 66,760 11,663 2,019
		80,442

Note: Included in trade payables as at 31 December 2009, 2010, 2011 and 31 May 2012 were amounts of HK$21,636,000, HK$62,128,000, HK$45,903,000 and HK$54,919,000, respectively due to a subsidiary of a substantial shareholder of the Company and amounts of HK$9,629,000, nil, nil and HK$4,139,000, respectively due to a substantial shareholder of the Company. The amounts are unsecured, interest free and repayable according to credit terms granted by the subsidiary of the substantial shareholder.

The trade payables presented based on the invoice date at the end of each reporting period are aged within 30 days for the Relevant Periods.

As at 31 December 2009, 2010, 2011 and 31 May 2012, an amount of nil, nil, HK$5,944,000 and HK$10,244,000 respectively included in other payables, is denominated in currency other than the functional currency of the relevant group entity.

27. AMOUNT DUE FROM (TO) AN ASSOCIATE

The amounts are unsecured, interest-free and repayable on demand. They are denominated in the currency other than the functional currency of the relevant group entity.

As at 31 December 2011, the directors of the Company take into consideration of the net liabilities position of China Excellent and consider that the chance of collection of the outstanding amount due from China Excellent is remote. Accordingly, an impairment loss of HK$2,436,000 was recognised during the year ended 31 December 2011 on the entire outstanding balance due from that associate.

28. LOAN FROM A RELATED COMPANY

As at 31 December 2009 and 2010, the loan from a related company which was beneficially owned by substantial shareholders, unsecured, carried interest at 5% from drawdown date of 14 July 2008 up to 14 July 2010 and changed to 1% when extended the repayment date from 14 July 2010 up to 14 July 2011 and was repayable on 14 July 2011 together with all interests accrued. The entire amount of loan was therefore presented as current liabilities at 31 December 2010.

During 2011, the loan has been further extended one year to 14 July 2012 with other terms remain unchanged. As a result, the entire amount of loan was therefore presented as current liabilities at 31 December 2011.

IV-51

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

During 2012, the loan has been further extended one year to 14 July 2013 with other terms remain unchanged. As a result, the entire amount of loan was therefore presented as non-current liabilities at 31 May 2012.

Relevant accrued interest of HK$5,695,000, HK$8,205,000, HK$9,005,000 and HK$9,338,000 as at 31 December 2009, 2010, 2011 and 31 May 2012, respectively had been included in amounts due to related companies.

This loan is denominated in HK$, a currency other than the functional currency of the relevant group entity.

29. CONVERTIBLE BONDS

On 13 December 2007, the Company issued convertible bonds (the “Convertible Bonds I”) with principal amount of HK$606,800,000 as part of the consideration for the acquisition of subsidiaries. The Convertible Bonds I are recognised in these Financial Information at fair value of HK$989,794,000 at the date of completion of the acquisition of subsidiaries in accordance with HKFRS 3 “Business Combinations”. The Convertible Bonds I are denominated in Hong Kong dollars and entitle the holders to convert them into ordinary shares of the Company within 5 years from the date of issue of the Convertible Bonds I at a conversion price of HK$0.85 per share subject to anti-dilutive adjustments in accordance with the agreement. The Convertible Bonds I bore interest at 0.1% per annum payable semi-annually in arrears. If the Convertible Bonds I have not been converted, they will be redeemed on maturity date of 13 December 2012 at par plus accrued interest. The Convertible Bonds I contains two components, liability and equity elements. The equity element is presented in equity heading “convertible bonds equity reserve”. The effective interest rate of the liability component of the Convertible Bonds I is 10.06% per annum.

On 9 December 2008, the Company issued convertible bonds (the “Convertible Bonds II”) with principal amount of HK$277,175,310 as part of the consideration for the acquisition of intangible assets. The Convertible Bonds II are denominated in Hong Kong dollars and entitle the holders to convert them into ordinary shares of the Company within 5 years from the date of issue of the Convertible Bonds II at a conversion price of HK$0.991 per share subject to anti-dilutive adjustments in accordance with the agreement. The Convertible Bonds II bore interest at 0.1% per annum payable semi-annually in arrears. If the Convertible Bonds II have not been converted, they will be redeemed on maturity date of 9 December 2013 at par plus accrued interest. The Convertible Bonds II contains two components, liability and equity elements. The equity element is presented in equity heading “convertible bonds equity reserve”. The effective interest rate of the liability component of the Convertible Bonds II is 26% per annum.

The Convertible Bonds I and the Convertible Bonds II are secured by the shares of certain subsidiaries of the Company.

The movement of the liability component of the convertible bonds for the year/period is set out below:

Carrying amount at the beginning of the year/period Interest charged Interest paid Carrying amount at the end of the year/period Analysed for reporting purposes as: Current Non-current	As at 31 December 2009 2010 2011 HK$’000 HK$’000 HK$’000 501,331 565,594 640,354 65,147 75,644 88,298 (884) (884) (884) 565,594 640,354 727,768 – – 554,714 565,594 640,354 173,054 565,594 640,354 727,768	As at 31 May 2012 HK$’000 727,768 40,996 –
		768,764

		577,105 191,659
		768,764

IV-52

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

30. DEFERRED TAXATION

The following are the deferred tax liabilities recognised and movements thereon during the Relevant Periods:

	Fair value adjustments
	of intangible assets on
	business combinations
	HK$’000
At 1 January 2009	8,535
Credit to profit or loss_(Note 9)_	(4,596)
At 31 December 2009	3,939
Credit to profit or loss_(Note 9)_	(3,939)
At 31 December 2010, 31 December 2011 and 31 May 2012	–

At 31 December 2009, 2010, 2011 and 31 May 2012, the Group had unused tax losses of HK$72,118,000, HK$95,093,000, HK$116,641,000 and HK$130,693,000, respectively available to offset against future profits. No deferred tax asset has been recognised in respect of unused tax losses due to the unpredictability of future profit streams.

Included in unrecognised tax losses as at 31 December 2009, 2010, 2011 and 31 May 2012 are losses of HK$61,649,000, HK$57,671,000, HK$62,744,000 and HK$76,029,000, respectively that are allowed to be carried forward and utilised against the income of subsequent years. The loss carry forward period shall not exceed 5 years. Other losses may be carried forward indefinitely.

Under the EIT Law of PRC, withholding tax is imposed on dividends declared in respect of profits earned by PRC subsidiaries from 1 January 2008 onwards. Deferred taxation has not been provided for in the Financial Information in respect of temporary differences attributable to accumulated profits of the PRC subsidiaries amounting to HK$33,980,000, HK$37,257,000, HK$47,624,000 and HK$41,965,000 as at 31 December 2009, 2010, 2011 and 31 May 2012, respectively as the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

31. SHARE CAPITAL

Number of ordinary shares Ordinary shares of HK$0.01 each Authorised: At 1 January 2009, 31 December 2009, 31 December 2010, 31 December 2011 and 31 May 2012 2,000,000,000 Issued and fully paid: At 1 January 2009 499,430,433 Exercise of share options 1,383,000 At 31 December 2009 500,813,433 Exercise of share options 1,808,500 At 31 December 2010 502,621,933 Exercise of share options 345,000 At 31 December 2011 and 31 May 2012 502,966,933	Amount HK$’000 20,000

	4,994 14
	5,008 18
	5,026 4
	5,030

IV-53

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

32. SHARE-BASED PAYMENT TRANSACTIONS

Details of the equity-settled share option schemes adopted by the Group are as follows:

(a) Pre-Initial Public Offering (“IPO”) Share Option Scheme

Pursuant to the pre-IPO share option scheme adopted by the Company on 20 April 2002, the Company may grant options to any director, employee, advisor or business consultant of the Company or its subsidiaries, for the primary purpose of providing incentives to them, to subscribe for shares in the Company with the payment of HK$1 per offer. Options granted are exercisable for a period not more than 10 years from the date of grant of the relevant options. Options granted are exercisable as to (i) a maximum of 25% of the total number of options granted six 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 granted on or after the third anniversary of the Listing Date until the end of the option period or lapse of an option.

Details of the movements in the number of share options during the Relevant Periods under the Company’s pre-IPO share option scheme were as follows:

Exercise Date of Exercisable price Type of participant grant period per share HK$ Directors 30.4.2002 17.11.2002 to (note) 29.4.2012 0.55 Exercisable at the end of the year/period	Number of options
	Outstanding at 1.1.2009 31.12.2009, Lapsed 31.12.2010 and during 31.12.2011 the period 3,000,000 (3,000,000) 3,000,000	Outstanding at 31.5.2012 –

		–

Note: The Group had not applied HKFRS 2 “Share-based Payment” to share options granted on or before 7 November 2002 and share options that were granted after 7 November 2002 and had vested before 1 January 2005 in accordance with the relevant transitional provisions.

(b) Post-IPO Share Option Scheme

Pursuant to the post-IPO share option scheme adopted by the Company on 20 April 2002 and expired on 20 April 2012, the Company may grant options to any director, employee, advisor or business consultant of the Company or its subsidiaries (“Participants”), for the primary purpose of providing incentives to them, to subscribe for shares in the Company with the payment of HK$1 per offer. The exercise price of the share option will be determined at the highest of: (i) the average of the closing prices of the Company’s shares quoted on the Stock Exchange on the five trading days immediately preceding the date of grant of the options; (ii) the closing price of the shares on the Stock Exchange on the date of grant; and (iii) the nominal value of the shares of the Company.

The total number of shares which may be issued upon exercise of all options to be granted under this scheme and any other share option schemes of the Company shall not in aggregate exceed 10% of the total number of shares in issue unless the Company obtains a fresh approval from its shareholders. Options lapsed in accordance with the terms of this scheme will not be counted for the purpose of calculating such 10% limit.

IV-54

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

The Company may seek approval of its shareholders in general meeting for refreshing the 10% limit such that the total number of shares in respect of which options may be granted under this scheme and any other share option schemes of the Company (including the Pre-IPO Share Option Scheme) shall not exceed 10% of the total number of shares in issue as at the date of approval of refresh such limit.

The Company may seek separate approval by its shareholders in general meeting for granting options beyond the 10% limit provided the options in excess of such limit are granted only to Participants specifically identified by the Company before such approval is sought.

Notwithstanding, the maximum number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under this scheme and any other share option schemes of the Company (including the Pre-IPO Share Option Scheme) shall not exceed 30% of the total number of shares in issue from time to time.

No Participant shall be granted an option which, if exercised in full, would result in such Participant becoming entitled to subscribe for such number of shares as, when aggregated with the total number of shares already issued pursuant to all the options previously granted to him which have been exercised, and, issuable pursuant to all the outstanding options previously granted to him which are for the time being subsisting and unexercised, would exceed 1% of the total number of shares in issue in any 12-month period up to the date of grant of the option (the “Individual Limit”).

Any further grant of options in excess of the Individual Limit shall be subject to approval by the shareholders of the Company with such Participant and his associates abstaining from voting. In such a case, a circular must be sent to the shareholders of the Company disclosing, amongst other terms, the identified Participant(s), the number and terms of options granted or to be granted. The number and terms of the options to be granted to such Participant shall be fixed before the approval and the date of Board meeting for proposing such further grant should be taken as the date of grant for the purpose of calculating the subscription price.

Details of the movements in the number of share options during the Relevant Periods under the Company’s post-IPO share option scheme were as follows:

Exercise Type of Date of Exercisable price participant grant period per share HK$ Directors 20.2.2003 20.2.2004 to 0.138 (note 3) 19.2.2013 31.3.2008 1.10.2008 to 0.890 (note 5) 31.3.2018 16.2.2009 16.2.2010 to 0.300 (note 6) 15.2.2019 10.7.2009 10.7.2010 to 0.367 (note 6) 9.7.2019 18.11.2010 18.5.2011 to 0.152 (note 5) 17.11.2020	Number of share options
	Outstanding Reclassified Forfeited Outstanding at during during at 1.1.2012 the period the period 31.5.2012 1,200,000 – – 1,200,000 8,200,000 – – 8,200,000 2,120,000 (2,120,000) – – 13,100,000 (2,500,000) – 10,600,000 13,600,000 – – 13,600,000

IV-55

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Number of share options	Number of share options
Reclassified during the period – – – – – – – – – 2,120,000 2,500,000 – –	Forfeited during the period – – – (423,000) – (220,000) (70,000) – – – – – (713,000)	Outstanding at 31.5.2012 4,354,000 4,000,000 5,000,000 6,539,000 3,200,000 8,778,000 13,250,000 1,275,000 6,606,000 8,300,000 9,130,000 7,200,000
		111,232,000

		100,179,280

IV-56

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Exercise
Type of
Date of
Exercisable
price
participant
grant
period
per share
HK$
Directors
20.2.2003
20.2.2004 to
0.138
(note 3)
19.2.2013
12.1.2007
12.1.2008 to
0.088
(note 3)
11.1.2017
31.3.2008
1.10.2008 to
0.890
(note 5)
31.3.2018
16.2.2009
16.2.2010 to
0.300
(note 6)
15.2.2019
10.7.2009
10.7.2010 to
0.367
(note 6)
9.7.2019
18.11.2010
18.5.2011 to
0.152
(note 5)
17.11.2020
Substantial shareholder
31.3.2008
1.10.2008 to
0.890
(note 5)
31.3.2018
10.7.2009
10.7.2010 to
0.367
(note 6)
9.7.2019
18.11.2010
18.5.2011 to
0.152
(note 5)
17.11.2020
Employees
12.1.2007
12.1.2008 to
0.088
(note 3)
11.1.2017
31.3.2008
1.10.2008 to
0.890
(note 5)
31.3.2018
16.2.2009
16.2.2010 to
0.300
(note 6)
15.2.2019
10.7.2009
10.7.2010 to
0.367
(note 6)
9.7.2019
18.11.2010
18.5.2011 to
0.152
(note 5)
17.11.2020

Number of share options

Outstanding
Exercised
Forfeited
Outstanding
at
during
during
at
1.1.2011
the period
the period
31.12.2011
1,200,000
–
–
1,200,000
187,500
(187,500)
–
–
8,200,000
–
–
8,200,000
2,120,000
–
–
2,120,000
13,100,000
–
–
13,100,000
13,600,000
–
–
13,600,000
4,354,000
–
–
4,354,000
4,000,000
–
–
4,000,000
5,000,000
–
–
5,000,000
45,000
(45,000)
–
–
7,214,000
–
(252,000)
6,962,000
3,200,000
–
–
3,200,000
9,128,000
–
(130,000)
8,998,000
13,390,000
–
(70,000)
13,320,000

IV-57

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Number of share options	Number of share options
Exercised during the period (112,500) – – – – (345,000)	Forfeited during the period – – – – – (452,000)	Outstanding at 31.12.2011 1,275,000 6,606,000 6,180,000 6,630,000 7,200,000
		111,945,000

		96,907,480

IV-58

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Exercise
Type of
Date of
Exercisable
price
participant
grant
period
per share
HK$
Directors
20.2.2003
20.2.2004 to
0.138
(note 3)
19.2.2013
12.1.2007
12.1.2008 to
0.088
(note 3)
11.1.2017
31.3.2008
1.10.2008 to
0.890
(note 5)
31.3.2018
16.2.2009
16.2.2010 to
0.300
(note 6)
15.2.2019
10.7.2009
10.7.2010 to
0.367
(note 6)
9.7.2019
18.11.2010
18.5.2011 to
0.152
(note 5)
17.11.2020
Substantial
31.3.2008
1.10.2008 to
0.890
shareholder
(note 5)
31.3.2018
10.7.2009
10.7.2010 to
0.367
(note 6)
9.7.2019
18.11.2010
18.5.2011 to
0.152
(note 5)
17.11.2020
Employees
23.2.2004
23.2.2005 to
0.165
(note 3)
22.2.2014
11.10.2004
11.10.2005 to
0.124
(note 3)
10.10.2014
12.1.2007
12.1.2008 to
0.088
(note 3)
11.1.2017
31.3.2008
1.10.2008 to
0.890
(note 5)
31.3.2018
16.2.2009
16.2.2010 to
0.300
(note 6)
15.2.2019
10.7.2009
10.7.2010 to
0.367
(note 6)
9.7.2019
18.11.2010
18.5.2011 to
0.152
(note 5)
17.11.2020

Number of share options

Outstanding
Granted
Reclassified
Exercised
Forfeited
Outstanding
at
during
during
during
during
at
1.1.2010
the year
the year
the year
the year
31.12.2010
1,200,000
–
–
–
–
1,200,000
375,000
–
–
(187,500)
–
187,500
8,200,000
–
–
–
–
8,200,000
3,620,000
–
–
–
(1,500,000)
2,120,000
14,600,000
–
–
–
(1,500,000)
13,100,000
–
13,600,000
–
–
–
13,600,000
4,354,000
–
–
–
–
4,354,000
4,000,000
–
–
–
–
4,000,000
–
5,000,000
–
–
–
5,000,000
42,500
–
–
(30,000)
(12,500)
–
57,500
–
–
(57,500)
–
–
215,000
–
(125,000)
(45,000)
–
45,000
9,373,000
–
(700,000)
–
(1,459,000)
7,214,000
3,200,000
–
–
–
–
3,200,000
9,478,000
–
250,000
–
(600,000)
9,128,000
–
13,390,000
–
–
–
13,390,000

IV-59

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

		Number of share options	Number of share options
Outstanding at 1.1.2010 24,000 7,000 2,720,000 5,906,000 6,180,000 6,880,000 – 80,432,000 29,359,000	Granted during the year – – – – – – 7,200,000 39,190,000	Reclassified during the year – – 125,000 700,000 – (250,000) – –	Exercised during the year (24,000) (7,000) (1,457,500) – – – – (1,808,500)	Forfeited during the year – – – – – – – (5,071,500)	Outstanding at 31.12.2010 – – 1,387,500 6,606,000 6,180,000 6,630,000 7,200,000
					112,742,000

					42,274,640

IV-60

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Exercise
Type of
Date of
Exercisable
price
participant
grant
period
per share
HK$
Directors
20.2.2003
20.2.2004 to
0.138
(note 3)
19.2.2013
12.1.2007
12.1.2008 to
0.088
(note 3)
11.1.2017
7.12.2007
7.6.2008 to
2.720
(note 4)
6.12.2009
31.3.2008
1.10.2008 to
0.890
(note 5)
31.3.2018
16.2.2009
16.2.2010 to
0.300
(note 6)
15.2.2019
10.7.2009
10.7.2010 to
0.367
(note 6)
9.7.2019
Substantial shareholder
31.3.2008
1.10.2008 to
0.890
(note 5)
31.3.2018
10.7.2009
10.7.2010 to
0.367
(note 6)
9.7.2019
Employees
23.2.2004
23.2.2005 to
0.165
(note 3)
22.2.2014
11.10.2004
11.10.2005 to
0.124
(note 3)
10.10.2014
12.1.2007
12.1.2008 to
0.088
(note 3)
11.1.2017
7.12.2007
7.6.2008 to
2.720
(note 4)
6.12.2009
31.3.2008
1.10.2008 to
0.890
(note 5)
31.3.2018
16.2.2009
16.2.2010 to
0.300
(note 6)
15.2.2019
10.7.2009
10.7.2010 to
0.367
(note 6)
9.7.2019

Number of options

Outstanding
Granted
Exercised
Forfeited
Outstanding
at
during
during
during
at
1.1.2009
the year
the year
the year
31.12.2009
1,200,000
–
–
–
1,200,000
562,500
–
(187,500)
–
375,000
1,150,000
–
–
(1,150,000)
–
8,200,000
–
–
–
8,200,000
–
3,620,000
–
–
3,620,000
–
14,600,000
–
–
14,600,000
4,354,000
–
–
–
4,354,000
–
4,000,000
–
–
4,000,000
57,500
–
(10,000)
(5,000)
42,500
65,000
–
–
(7,500)
57,500
322,500
–
(107,500)
–
215,000
1,616,000
–
–
(1,616,000)
–
10,840,000
–
–
(1,467,000)
9,373,000
–
3,200,000
–
–
3,200,000
–
9,488,000
–
(10,000)
9,478,000

IV-61

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

	Number of options	Number of options
Outstanding at 1.1.2009 24,000 17,000 3,788,000 1,744,000 6,606,000 – – 40,546,500 23,874,000	Granted during the year – – – – – 6,180,000 6,880,000 47,968,000	Exercised during the year – (10,000) (1,068,000) – – – – (1,383,000)	Forfeited Outstanding during at the year 31.12.2009 – 24,000 – 7,000 – 2,720,000 (1,744,000) – (700,000) 5,906,000 – 6,180,000 – 6,880,000 (6,699,500) 80,432,000 29,359,000
				80,432,000

				29,359,000

Notes:

(1) The Group had not applied HKFRS 2 “Share-based Payment” to share options that were granted after 7 November 2002 and had vested before 1 January 2005 in accordance with the relevant transitional provisions.
(2) These are granted to individuals who rendered consultancy services in respect of the business development to the Group without receiving any compensation. The Group granted share options to them for recognising their services similar to those rendered by other employees.
(3) These grants under the post-IPO share option scheme are exercisable for a period not later than 10 years from the date of grant, within which there is a total vesting period of four years, starting from the first anniversary of the grant date at stepped annual increments of 25% of the total options granted.
(4) These grants under the post-IPO share option scheme are exercisable for a period not later than 2 years from the date of grant, within which there is a total vesting period of one year, starting from six months of the grant date at stepped six months increment of 50% of the total options granted.
(5) These grants under the post-IPO share option scheme are exercisable for a period not later than 10 years from the date of grant, within which there is a total vesting period of one year, starting from six months of the grant date at stepped six months increment of 50% of the total options granted.

IV-62

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

(6) These grants under the post-IPO share option scheme are exercisable for a period not later than 10 years from the date of grant, within which there is a total vesting period of three years, starting from the first anniversary of the date of grant at stepped annual increment of 33% of the total options granted.

In respect of the share options exercised during the year ended 31 December 2009, 2010 and 2011, the weighted average share price at the date(s) of exercise is HK$0.26, HK$0.29 and HK$0.14 respectively, and the weighted average closing price at the date(s) immediately before exercise is HK$0.27, HK$0.29 and HK$0.15 respectively. No share options were exercised during the five months ended 31 May 2012.

No share options were granted during the year ended 31 December 2011 and the five months ended 31 May 2012.

The fair value of share options granted during the Relevant Periods were calculated using the binomial pricing model. The inputs into the model were as follows:

	16/2/2009	10/7/2009	18/11/2010
Number of options granted	13,000,000	34,968,000	39,190,000
Closing share price immediately
before date of grant	HK$0.300	HK$0.360	HK$0.154
Exercise price	HK$0.300	HK$0.367	HK$0.152
Exercise multiplier	2.2 – 2.8	2.2 – 2.75	2.2 – 2.8
Expected volatility	79%	83%	80.51%
Option life	10 years	10 years	10 years
Risk-free interest rate	1.65%	2.4%	2.45%
Expected dividend yield	N/A	N/A	N/A
Fair value of an option	HK$0.1786	HK$0.1905	HK$0.0802

The model is one of the commonly used models to estimate the fair value of the share options which involves assumptions and variables based on the management’s best estimates. Such fair value varies when different assumptions, which are necessarily subjective, and variables are used.

Exercise multiplier was determined by the Company’s share options exercise history.

Expected volatility was determined by using the annualised historical volatility of the Company’s share price over past years up to valuation date.

The Group recognised total expense of HK$6,103,000, HK$4,300,000, HK$4,299,000, HK$2,786,000 (unaudited) and HK$373,000 for the years ended 31 December 2009, 2010, 2011 and the five months ended 31 May 2011 (unaudited) and 2012, respectively, in relation to share options granted by the Company.

(c) 2012 Share Option Scheme

Pursuant to the share option scheme adopted by the Company on 18 May 2012 (the “2012 Share Option Scheme”), the Company may grant share options to any directors, employee, advisor or business consultant of the Company or its subsidiaries to subscribe for the Company’s shares, for the primary purpose of providing incentives to them, to subscribe for shares in the Company with the payment of HK$1 per offer. The exercise price of the share option will be determined at the highest of: (i) the average of the closing prices of the Company’s shares quoted on the Stock Exchange on the five trading days immediately preceding the date of grant of the options; (ii) the closing price of the shares on the Stock Exchange on the date of grant; and (iii) the nominal value of the shares of the Company.

No share options were granted by the Company under the 2012 Share Option Scheme during the five months ended 31 May 2012.

IV-63

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

33. CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remained unchanged during the Relevant Periods.

The capital structure of the Group consists of loan from a related company disclosed in note 28, convertible bonds disclosed in note 29, net of cash and cash equivalents and equity attributable to owners of the Company, comprising issued share capital and reserves.

The directors of the Company review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Group will balance its overall capital structure through the new share issues as well as the issue of new debt or the redemption of existing debt.

34. FINANCIAL INSTRUMENTS

34a. Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Available-for-sale investment Financial liabilities Amortised cost	2009 HK$’000 164,513 138,102 689,636	As at 31 December As at 31 May 2010 2011 2012 HK$’000 HK$’000 HK$’000 125,734 114,476 94,454 138,802 138,102 137,402 804,216 888,998 939,285	As at 31 December As at 31 May 2010 2011 2012 HK$’000 HK$’000 HK$’000 125,734 114,476 94,454 138,802 138,102 137,402 804,216 888,998 939,285

			939,285

34b. Financial risk management objectives and policies

The Group’s major financial instruments include trade and other receivables, amounts due from jointly controlled entities, amounts due from (to) related companies, amount due from (to) an associate, availablefor-sale investment, bank balances and cash, trade and other payables, loan from a related company and convertible bonds. Details of these financial instruments are disclosed in respective notes. The risk associated with these financial instruments include: market risk (including interest rate risk, foreign currency risk and other price risk), credit risk and liquidity risk.

There has been no significant change to the Group’s exposure to financial risks or the manner in which it manages and measures the risk.

The directors review and agree policies for managing each of these risks and are summarised below.

Market risk

Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed-rate consideration receivable from a related company (see note 21(i) for details), loan from a related company (see note 28 for details) and convertible bonds issued by the Company (see note 29 for details). The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank balances (see note 25 for details). The directors of the Company consider the Group’s bank balances to cash flow interest rate risk is not significant as interest bearing bank balances are within short periods.

IV-64

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

The Group currently does not have any interest rate hedging policy in relation to fair value and cash flow interest rate risk. However, management monitors interest rate exposure on ongoing basis and will consider hedging significant interest rate change should the need arise.

No sensitivity analysis is presented as the level of exposure to cash flow interest rate risk is not significant.

Foreign currency risk

The Group’s exposure to foreign currency risk related primarily to cash and cash equivalents, amount due from (to) related companies, amount due from (to) associates, other payables, convertible bonds and loan from a related company that are denominated in currencies other than the functional currency of the relevant group entities.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:

Assets HK$ USD Liabilities HK$ USD	2009 HK$’000 64,767 2,322 651,289 9,629	As at 31 December As at 31 May 2010 2011 2012 HK$’000 HK$’000 HK$’000 40,940 18,026 7,615 691 634 631 738,030 822,182 860,862 – 5,944 4,139	As at 31 December As at 31 May 2010 2011 2012 HK$’000 HK$’000 HK$’000 40,940 18,026 7,615 691 634 631 738,030 822,182 860,862 – 5,944 4,139

			860,862 4,139

Sensitivity analysis

The following table details the sensitivity to a 5% increase and decrease in RMB against the relevant foreign currencies. A positive/negative number below indicates a decrease/increase in loss for the year/ period where RMB had strengthened by 5% against the foreign currencies. For a 5% weakening of RMB against the relevant foreign currency, there would be an equal and opposite impact on the loss for the year/ period.

	Decrease (increase) in loss	Decrease (increase) in loss	for the year/period	for the year/period
		As at 31 December		As at 31	May
	2009	2010	2011		2012
	HK$’000	HK$’000	HK$’000	HK$’000
HK$	29,326	34,855	40,203	42,662
USD	365	(35)	266		175

Other price risk

The Group’s available-for-sale investment carried at cost is exposed to other price risk. The management manages this exposure by reviewing the operation and financial performance of the investee.

Credit risk

At 31 May 2012, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to perform an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position.

IV-65

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

In order to minimise the credit risk, management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced. The Group has concentration of credit risk as 97%, 94%, 93% and 99% of the Group’s trade receivables at 31 December 2009, 2010, 2011 and 31 May 2012, respectively, are due from the Group’s five largest customers which operate in the PRC. The principal activities of which are mainly trading of lottery terminals and distribution of lottery products. In respect of one of these customers, the Group has recognised an allowance against the other receivables from it during the Relevant Periods (see note 23). In respect of the other five largest customers, given the close business relationship between the Group and these customers and their good repayment history, the directors consider that the credit risk associated with the balances of the customers are low.

The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

Other than concentration of credit risk on liquid funds which are deposits with several banks with good reputation, amount due from a jointly controlled entity of HK$34,477,000 and HK$33,362,000 as at 31 December 2009 and 2010 respectively which were mainly due from one party only, and the amount due from a related company of HK$30,005,000 and HK$10,503,000 as at 31 December 2009 and 2010 respectively, the Group does not have any other significant concentration of credit risk.

Liquidity risk

The Group is exposed to liquidity risk of being unable to finance its future working capital and financial requirements when they fall due. The net liabilities and net current liabilities of the Group as at 31 May 2012 were HK$662,626,000 and HK$538,656,000, respectively. In view of this, the directors of the Company has given careful consideration to the future liquidity of the Group and have been taking steps to improve the liquidity of the Group and details of which are set out in note 2.

Liquidity and interest risk tables

The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities as at 31 December 2009, 2010, 2011 and 31 May 2012 based on the agreed repayment terms. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest dates on which the Group can be required to pay. The table includes both interest and principal cash flows.

Weighted average interest rate % As at 31 December 2009 Non-derivative financial liabilities Trade and other payables – Amounts due to related companies – Convertible bonds 0.10 Loan from a related company 2.37	On demand or less than 3 months HK$’000 36,013 8,029 – – 44,042	3 months to 1 year HK$’000 – – 884 – 884	1 to 5 years HK$’000 – – 886,020 83,133 969,153	Total undiscounted cash flows HK$’000 36,013 8,029 886,904 83,133 1,014,079	Carrying amount HK$’000 36,013 8,029 565,594 80,000
					689,636

IV-66

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

Weighted average interest rate % As at 31 December 2010 Non-derivative financial liabilities Trade and other payables – Amounts due to related companies – Amount due to an associate – Convertible bonds 0.10 Loan from a related company 2.37 As at 31 December 2011 Non-derivative financial liabilities Trade and other payables – Amounts due to related companies – Amount due to an associate – Convertible bonds 0.10 Loan from a related company 1.00 As at 31 May 2012 Non-derivative financial liabilities Trade and other payables – Amounts due to related companies – Amount due to an associate – Convertible bonds 0.10 Loan from a related company 1.00	On demand or less than 3 months HK$’000 67,183 10,540 6,139 – – 83,862 66,816 11,340 3,074 – – 81,230 78,423 11,678 420 442 – 90,963	3 months to 1 year HK$’000 – – – 884 80,400 81,284 – – – 607,380 80,400 687,780 – – – 606,938 – 606,938	1 to 5 years HK$’000 – – – 884,834 – 884,834 – – – 277,452 – 277,452 – – – 277,452 80,900 358,352	Total undiscounted cash flows HK$’000 67,183 10,540 6,139 885,718 80,400 1,049,980 66,816 11,340 3,074 884,832 80,400 1,046,462 78,423 11,678 420 884,832 80,900 1,056,253	Carrying amount HK$’000 67,183 10,540 6,139 640,354 80,000
					804,216

					66,816 11,340 3,074 727,768 80,000
					888,998

					78,423 11,678 420 768,764 80,000
					939,285

34c. Fair value

The fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values.

IV-67

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

35. ACQUISITION OF A SUBSIDIAIRY

As detailed in note 19, Beijing Telenet passed a board resolution for Articles Amendments on 27 July 2011. Prior to this Articles Amendments, the Group, through two indirectly non-wholly owned subsidiaries, owned 52.5% equity interests in Beijing Telenet, which was jointly controlled with other significant shareholders. Upon the implementation of the Articles Amendments, the Group is able to control and govern the financial and operating policies of Beijing Telenet and Beijing Telenet became a subsidiary of the Company. However, the Group’s equity interest in Beijing Telenet remains to be 52.5%. In the opinion of the directors, the carrying amount of the net assets of Beijing Telenet on the date of acquisition approximated the fair values of the respective assets and liabilities and accordingly, no re-measurement of fair value was performed on the acquisition date. In addition, carrying value of 52.5% of Beijing Telenet as a jointly controlled entity of the Group at the date of obtaining control amounted to HK$14,882,000, which approximated the fair value of the 52.5% equity interest of Beijing Telenet as at the date. Beijing Telenet is principally engaged in distribution of lottery terminals.

Asset acquired and liabilities recognised at the date of acquisition are as follows:

Property, plant and equipment Bank balances and cash Inventories Trade and other receivables Trade and other payables Interest in a jointly controlled entity – previously held interest before acquisition Non-controlling interests	HK$’000 799 1,535 320 52,708 (27,017)
	28,345

	14,882 13,463
	28,345

Note: The fair value of trade and other receivables at the date of acquisition amounted to HK$52,708,000 which is the same as the gross contractual amounts of these trade and other receivable acquired. None of the contractual cash flows of the above amount is estimated to be uncollectible.

Non-controlling interest

Cash inflow arising on acquisition of Beijing Telenet

	HK$’000
Bank balance and cash acquired	1,535

IV-68

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

36. DISPOSAL OF A SUBSIDIRY

As referred to in note 10, on 30 December 2009, the Group discontinued its network system integration operations at the time of disposal of the Wafer Group. The net assets of the Wafer Group at the date of disposal were as follows:

NET ASSETS DISPOSED OF: Property, plant and equipment Inventories Trade and other receivables Pledged bank deposits Bank balances and cash Trade and other payables Tax payable Bank and other borrowings Exchange gain realised Loss on disposal Total consideration Satisfied by: Deferred consideration_(Note)_ Net cash outflow arising on disposal: Bank balances and cash disposed of	2009 HK$’000 2,423 8,143 93,673 1,434 34,970 (55,493) (1,984) (32,072) 51,094 (6,457) (14,637) 30,000 30,000 (34,970)

Note: As detailed in note 21, the deferred consideration of HK$20,000,000 had been settled by cash during the year ended 31 December 2010 and the remaining HK$10,000,000 was settled during the year ended 31 December 2011.

The impact of the Wafer Group on the Group’s results and cash flows in in 2009 is disclosed in note 10.

37. RETIREMENT BENEFIT PLANS

The Group contributes to a local municipal government retirement scheme for all qualifying employees in the PRC. The employers and its employees are each required to make contributions to the scheme at the rates specified in the scheme’s rules. The only obligation of the Group with respect to the retirement scheme is to make the required contributions under the scheme.

In addition, the Group operates a MPF Scheme for its qualifying employees in Hong Kong. The assets of the MPF Scheme are held separately from those of the Group, in funds under the control of trustees. The Group contributes at the lower of HK$1,000 or 5% of relevant payroll costs monthly to the MPF Scheme, which contribution is matched by employees.

IV-69

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

The contributions paid and payable to the above scheme by the Group and the total cost charged to the profit or loss during the Relevant Periods are as follows:

				Five months	Five months
	Year	ended 31 December		ended 31 May
	2009	2010	2011	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Charged to profit or loss	5,406	1,202	1,547	1,099	713

At the end of each reporting period, all contributions in respect of the Relevant Periods had been paid to the above scheme.

38. PLEDGE OF ASSETS

The Company had pledged some of the shares of its subsidiaries to secure the convertible bonds issued by the Company.

39. OPERATING LEASES

The Group as lessee

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

Within one year In the second to fifth year inclusive More than five years	2009 HK$’000 4,219 7,159 66 11,444	As at 31 December As at 31 May 2010 2011 2012 HK$’000 HK$’000 HK$’000 3,202 3,822 3,123 6,689 4,191 2,825 – – – 9,891 8,013 5,948	As at 31 December As at 31 May 2010 2011 2012 HK$’000 HK$’000 HK$’000 3,202 3,822 3,123 6,689 4,191 2,825 – – – 9,891 8,013 5,948
			5,948

The lease payments represent rentals payable by the Group for its factory and office properties. The lease terms are various from one year to five years. Rentals are fixed over the relevant lease terms.

40. MAJOR NON-CASH TRANSACTIONS

During the year ended 31 December 2009, the Group settled its other payables of HK$3,990,000 by transferring certain property, plant and equipment with carrying amount of HK$3,990,000 to its vendors.

IV-70

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

41. RELATED PARTY TRANSACTIONS

(a) During the Relevant Periods, the Group had the following significant transactions with related parties:

					Five months	Five months
Class of related parties	Nature of transactions		Year ended 31 December		ended 31 May
		2009	2010	2011	2011	2012
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
Substantial shareholders	Purchase of property,	–	–	6,912	–	–
of the Company	plant and equipment
	Interest expense paid	884	884	884	–	–
	for convertible bonds
Jointly controlled entity	Sales of lottery terminals	45,462	67,009	25,648	22,983	–
(Note)
Associate	Consultancy fee income	–	300	600	250	250
Non-controlling	Service fee expense	–	–	3,003	3,003	–
shareholder of a group
entity
Subsidiary of a 35%	Sales of lottery terminals	–	–	57,682	–	12,615
non-controlling
shareholder of a group
company_(Note)_
Subsidiaries of	Service fee expense	886	345	607	35	6
substantial shareholders	Sales of lottery terminals	26,117	992	102	13	210
of the Company	Purchases of inventories	41,589	82,142	59,295	17,414	18,553
A company beneficially	Interest expense	4,000	2,511	800	333	333
owned by substantial
shareholders
A company in which a	Interest income	5	623	122	122	–
director of the Company
has controlling interest

Notes: Sales to the jointly controlled entity, represented sales to Beijing Telenet, accounted for 53% and 83% of the Group’s revenue in 2009 and 2010, respectively. Upon obtaining the control of Beijing Telenet during the year as disclosed in note 35, Beijing Telenet became a subsidiary of the Group and accordingly, the revenue of the Group after obtaining the control was generated from Beijing Telenet’s sole customer, which is a subsidiary of a 35% shareholder of Beijing Telenet.

IV-71

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

(b) Compensation of Key Management Personnel

The remuneration of directors and other members of key management during the Relevant Periods is as follows:

Short-term benefits Post-employment benefits Share-based payments	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 7,628 6,420 6,483 3,095 2,854 79 63 60 25 23 2,724 1,957 1,760 1,197 170 10,431 8,440 8,303 4,317 3,047	Five months Year ended 31 December ended 31 May 2009 2010 2011 2011 2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 7,628 6,420 6,483 3,095 2,854 79 63 60 25 23 2,724 1,957 1,760 1,197 170 10,431 8,440 8,303 4,317 3,047
		3,047

The emoluments of directors and key executives are determined by the remuneration committee and management respectively having regard to the performance of the individuals and market trends.

(d) The Group’s outstanding balances with related parties are set out in the consolidated statement of financial position and in notes 21, 23, 24, 26, 27, 28 and 29.

B. SUBSEQUENT EVENTS

On 26 June 2012, the Company entered into an agreement with Intralot International Limited (“Intralot”), a substantial shareholder of the Company, in relation to the sale of the Group’s entire 100% equity interest of Gain Advance (“GA Sale Shares”) and 49% equity interest of Precious Success (“PS Sale Shares”), and the repurchase of Intralot’s portion of Convertible Bonds II due in 2013 (“Intralot 2013 Convertible Bonds”) with outstanding principal of HK$277,175,310 by the Company. Gain Advance and its subsidiary (the “Gain Advance Group”) is principally engaged in investment holding of an available-for-sale investment and Precious Success and its subsidiaries (the “Precious Success Group”) is principally engaged in the provision of services and solutions for distribution of lottery products. The consideration payable by Intralot for the purchase of the GA Sale Shares and the PS Sale Shares and the consideration payable by the Company for the repurchase of the Intralot 2013 Convertible Bonds shall be set off against each other at the completion date of disposal.

On 26 June 2012, the Company entered into an agreement with Global Crossing Holdings Limited (“GCH”), a 32.86% non-controlling shareholder of Oasis Rich, in relation to the sale of the Group’s entire 60% equity interest of Oasis Rich (“OR Sale Shares”), and the repurchase of GCH’s portion of Convertible Bonds I due in 2012 (“GCH 2012 Convertible Bonds”) with outstanding principal of HK$175,189,000 by the Company. Oasis Rich and its subsidiary (the “Oasis Rich Group”) is principally engaged in the manufacturing and sales of lottery terminals. The consideration payable by GCH for the purchase of the OR Sale Shares and the consideration payable by the Company for the repurchase of the GCH 2012 Convertible Bonds shall be set off against each other at the completion date of disposal.

IV-72

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

On 14 August 2012, the Company proposes an open offer of new shares at a price of HK$0.078 per share on the basis of three new offer shares for every one existing share, to raise capital of not more than approximately HK$134.9 million, before share issue expenses. The Company intends to use the net proceeds to repay the loan outstanding to a related company plus accrued interest together amounting to approximately HK$89.3 million as at 31 May 2012. The remaining amount of the net proceeds (if any) will be used as additional working capital to strengthen the Company’s financial position and to develop its lottery business.

Details of these proposed transactions are set out in the Company’s announcement dated 14 August 2012.

The completion of these proposed transactions are conditional upon, amongst other things, approval by independent shareholders of the Company at an extraordinary general meeting which has not been held as of the date of this report.

The table below provides certain financial information about the Group and those of the Gain Advance Group and the Oasis Rich Group. The Group still maintains a 51% equity interest in the Precious Success Group after the disposals.

For the year ended 31 December 2009 Revenue (Loss) profit for the year At 31 December 2009 Total assets Total liabilities Net (liabilities) assets For the year ended 31 December 2010 Revenue Loss for the year	Group HK$’000 86,110 (397,360) 508,769 709,951 (201,182) 80,608 (171,285)	Gain Advance Group HK$’000 – (279) 138,131 136,572 1,559 – (98)	Oasis Rich Group Adjustments HK$’000 HK$’000 (note) 75,009 – 3,685 – 87,758 149,363 47,229 149,363 40,529 – 68,432 – (748) –	Remaining group entities HK$’000 11,101 (400,766) 432,243 675,513 (243,270) 12,176 (170,439)

IV-73

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

At 31 December 2010 Total assets Total liabilities Net (liabilities) assets For the year ended 31 December 2011 Revenue Loss for the year At 31 December 2011 Total assets Total liabilities Net (liabilities) assets	Group HK$’000 442,281 807,562 (365,281) 96,622 (215,932) 304,521 895,026 (590,505)	Gain Advance Group HK$’000 138,840 136,686 2,154 – (124) 138,146 136,800 1,346	Oasis Rich Group Adjustments HK$’000 HK$’000 (note) 104,571 152,060 65,080 152,060 39,491 – 78,314 52,615 (11,636) – 81,106 178,066 51,791 178,066 29,315 –	Remaining group entities HK$’000 350,930 757,856 (406,926) 70,923 (204,172) 263,335 884,501 (621,166)

IV-74

FINANCIAL INFORMATION AND ACCOUNTANTS’ REPORT OF THE GROUP

APPENDIX IV

For the period ended 31 May 2012 Revenue Loss for the period At 31 May 2012 Total assets Total liabilities Net (liabilities) assets	Group HK$’000 15,883 (79,873) 280,993 943,619 (662,626)	Gain Advance Group HK$’000 – (49) 137,450 161 137,288	Oasis Rich Group Adjustments HK$’000 HK$’000 (note) 11,719 11,433 (7,696) – 83,655 41,320 62,325 41,320 21,330 –	Remaining group entities HK$’000 15,597 (72,128) 101,208 922,453 (821,245)

Notes:

(i) The adjustments for revenue represent sales of lottery terminals from Oasis Rich Group to remaining Group entities with an amount of nil, nil, HK$52,615,000 and HK$11,433,000 for the years ended 31 December 2009, 2010, 2011 and the five months ended 31 May 2012, respectively.
(ii) The adjustments for total assets and total liabilities represent reinstatement of intercompany balances with Gain Advance Group and Oasis Rich Group in an aggregate amount of HK$149,363,000, HK$152,060,000, HK$178,066,000 and HK$41,320,000, for the years ended 31 December 2009, 2010, 2011 and the five months ended 31 May 2012, respectively.

The actual historical financial information is for illustrative purposes only and does not purport to indicate the revenue, results of operations and financial positions of the Group that would have been achieved had the disposals of the Gain Advance Group and the Oasis Rich Group been completed on 31 December 2009, 2010, 2011 and 31 May 2012, respectively, nor is it intended to be a projection of future results.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Group or any of the companies comprising the Group in respect of any period subsequent to 31 May 2012.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

IV-75

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP

Set out below are the latest published unaudited consolidated financial statements of the Group for the six months ended 30 June 2012 and 2011 respectively extracted from the interim report of the Company for the six months ended 30 June 2012 published on 10 August 2012.

V-1

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2012

Notes
Revenue
3
Changes in inventories of finished goods
and work-in-progress
Purchases of inventories and raw materials
consumed
Other income and gains
Employee benefits costs
Depreciation and amortization
Share of results of associates
Share of results of jointly controlled entities
Other expenses
Finance costs
5
Loss before taxation
Taxation
6
Loss for the period
8
Other comprehensive income (expense)
Exchange differences arising on translation
Total comprehensive expense for the period
Loss for the period attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive expense attributable to:
Owners of the Company
Non-controlling interests
Loss per share
9
– Basic and diluted

Three months ended
Six months ended
30 June
30 June
2012
2011
2012
2011
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
HK$’000
HK$’000
HK$’000
HK$’000
9,927
19,083
19,918
33,093
6,177
(9,905)
7,544
(9,566)
(18,325)
(7,307)
(28,802)
(18,375)
159
170
317
448
(4,404)
(4,833)
(8,882)
(10,685)
(655)
(1,541)
(1,701)
(3,092)
(715)
(1,498)
(1,447)
(2,402)
–
104
–
(215)
(17,437)
(11,105)
(24,219)
(18,545)
(25,549)
(21,686)
(50,066)
(42,505)
(50,822)
(38,518)
(87,338)
(71,844)
(37)
225
(37)
–
(50,859)
(38,293)
(87,375)
(71,844)
6,932
1,384
8,667
3,460
(43,927)
(36,909)
(78,708)
(68,384)
(47,071)
(34,819)
(82,235)
(67,026)
(3,788)
(3,474)
(5,140)
(4,818)
(50,859)
(38,293)
(87,375)
(71,844)
(39,971)
(33,435)
(73,394)
(63,566)
(3,956)
(3,474)
(5,314)
(4,818)
(43,927)
(36,909)
(78,708)
(68,384)
(HK9.36 cents)
(HK6.92 cents)
(HK16.35 cents)
(HK13.32 cents)

V-2

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2012

Notes Non-current assets Property, plant and equipment 10 Interests in associates Available-for-sale investment Current assets Inventories Trade and other receivables 11 Bank balances and cash Current liabilities Trade and other payables 12 Amounts due to related companies Amount due to an associate Tax payable Loan from a related company 13 Convertible bonds 14 Net current liabilities Capital and Reserves Share capital 15 Reserves Equity attributable to owners of the Company Non-controlling interests Total capital deficiency Non current liabilities Loan from a related company 13 Convertible bonds 14	As at 30 June 2012 (Unaudited) HK$’000 8,460 1,442 138,802 148,704 40,855 78,851 13,150 132,856 80,339 11,738 490 557 – 581,791 674,915 (542,059) (393,355) 5,030 (693,390) (688,360) 19,586 (668,774) 80,000 195,419 275,419 (393,355)	As at 31 December 2011 (Audited) HK$’000 12,901 2,888 138,102 153,891 29,551 94,403 26,676 150,630 71,109 11,340 3,074 1,735 80,000 554,714 721,972 (571,342) (417,451) 5,030 (620,435) (615,405) 24,900 (590,505) – 173,054 173,054 (417,451)

V-3

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2012

		Attributable to own	Attributable to own	ers of the Company	ers of the Company			Sub-total HK$’000 (375,134)	Non- controlling interests HK$’000 9,853	Total HK$’000 (365,281)
Share capital HK$’000 5,026	Share premium HK$’000 368,923	Share- based payment reserve HK$’000 26,501	PRC statutory reserves HK$’000 3,543	Other reserve HK$’000 –	Convertible bonds equity reserve HK$’000 645,492	Exchange reserve HK$’000 40,790	Accumulated losses HK$’000 (1,465,409)
– –	– –	– –	– –	– –	– –	3,460 –	– (67,026)	3,460 (67,026)	– (4,818)	3,460 (71,844)
– – 4	– – 40	– 3,100 (17)	– – –	– – –	– – –	3,460 – –	(67,026) – –	(63,566) 3,100 27	(4,818) – –	(68,384) 3,100 27
5,030	368,963	29,584	3,543	–	645,492	44,250	(1,532,435)	(435,573)	5,035	(430,538)

5,030	368,963	30,783	3,543	(4,922)	645,492	6,870	(1,671,164)	(615,405)	24,900	(590,505)
– –	– –	– –	– –	– –	– –	8,841 –	– (82,235)	8,841 (82,235)	(174) (5,140)	8,667 (87,375)
– –	– –	– 439	– –	– –	– –	8,841 –	(82,235) –	(73,394) 439	(5,314) –	(78,708) 439
5,030	368,963	31,222	3,543	(4,922)	645,492	15,711	(1,753,399)	(688,360)	19,586	(668,774)

V-4

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2012

Net cash used in operating activities
Investing activities
Deferred proceeds from disposal of subsidiaries
Interest received
Purchase of property, plant and equipment
Investment in an associate
Advance to an associate
Net cash used in investing activities
Financing activities
Interest paid
Proceeds from exercise of share options
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of the period,
represented by bank balances and cash

Six months ended
30 June
2012
2011
(Unaudited)
(Unaudited)
HK$’000
HK$’000
(10,326)
(10,724)
–
10,503
17
26
–
(7,286)
(2,584)
(3,065)
–
(1,434)
(2,567)
(1,256)
–
(443)
–
27
–
(416)
(12,893)
(12,396)
26,676
43,978
(633)
(40)
13,150
31,542

V-5

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

NOTES:

(1) BASIS OF PRESENTATION

The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of the GEM Listing Rules and with Hong Kong Accounting Standard 34, Interim Financial Reporting .

The Group incurred a loss of approximately HK$87,375,000 for the six months ended 30 June 2012 and, as of that date, the Group’s current liabilities exceed its current assets and total assets by approximately HK$542,059,000 and HK$393,355,000, respectively. To deal with these financing and liquidity issues, the Company intends to carry out a group reorganization as disclosed in the holding announcement dated 23 July 2012.

The Company has obtained assurances from its substantial shareholders that it is their policy to provide support and assistance as may be required to enable the Group to maintain capital and liquidity levels sufficient to meet its obligations. Furthermore, the holders of the Company’s convertible bonds have agreed not to request cash redemption of those bonds on or before the maturity dates unless the Group has the necessary financial resources available for cash redemption to occur. In reviewing the Group’s current and future financial position, the Directors have considered the following factors:

the agreement by the bondholders not to request cash redemption of the convertible bonds on or before the maturity dates unless the Group has the necessary financial resources available for cash redemption to occur;
the likelihood of concluding the very substantial disposals and repurchases of certain convertible bonds;
the possibility of making an open offer;
the potential for restructuring or capitalizing of the loan from a related company beneficially owned by certain substantial shareholders to equity; and
the possibility of new business opportunities.

In light of the matters set out in the preceding paragraphs, the Directors have prepared the condensed consolidated financial statements on a going concern basis.

(2) SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared under the historical cost convention. The same accounting policies, presentation and methods of computation have been followed in these condensed consolidated financial statements as were applied in the preparation of the Group’s financial statements for the year ended 31 December 2011, except for the adoption of all the new and revised Hong Kong Financial Reporting Standards, amendments and interpretations (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants that are relevant to its operations and effective for its accounting year beginning on 1 January 2012. The adoption of these new and revised HKFRSs did not result in substantial changes to the Group’s accounting policies and amounts reported for the current period and prior years.

The Group has not applied the new HKFRSs that have been issued but are not yet effective. The Directors of the Company anticipate that the application of the other new or revised standards, amendments or interpretations will have no material impact on the unaudited consolidated financial statements.

V-6

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(3) REVENUE

An analysis of the Group’s revenue for the three months and the six months ended 30 June 2012 is as follows:

Provision of services and solutions for distribution of lottery products Manufacturing and sales of lottery terminals	Three months ended 30 June 2012 2011 *HK$’000* *HK$’000* 1,171 3,829 8,756 15,254 9,927 19,083	Six months ended 30 June 2012 2011 *HK$’000* *HK$’000* 3,242 7,447 16,676 25,646 19,918 33,093	Six months ended 30 June 2012 2011 *HK$’000* *HK$’000* 3,242 7,447 16,676 25,646 19,918 33,093
			33,093

(4) SEGMENT INFORMATION

The Group’s revenue and contribution to loss were solely derived from lottery business which comprises provision of services and solutions for distribution of lottery products and manufacturing and sales of lottery terminals. The chief operating decision maker, the Chief Executive Officer, reviews the internally reported information for lottery business as a whole and review the consolidated financial information of the Group and for purposes of resource allocation and performance assessment. Accordingly, the Group has only one operating segment, which is the lottery business. No segment analysis is presented other than entity-wide disclosures.

The revenue of product and service is set out in note 3.

(5) FINANCE COSTS

Interest on: Effective interest expenses on convertible bonds Loan from a related company wholly repayable within five years	Three months ended 30 June 2012 2011 HK$’000 HK$’000 25,123 21,486 200 200 25,323 21,686	Six months ended 30 June 2012 2011 HK$’000 HK$’000 49,441 42,108 399 397 49,840 42,505	Six months ended 30 June 2012 2011 HK$’000 HK$’000 49,441 42,108 399 397 49,840 42,505
			42,505

(6) TAXATION

Enterprise Income Tax of the PRC – current period Tax charge/(credit)	Three months ended 30 June 2012 2011 HK$’000 HK$’000 37 (225) 37 (225)	Six months ended 30 June 2012 2011 HK$’000 HK$’000 37 – 37 –	Six months ended 30 June 2012 2011 HK$’000 HK$’000 37 – 37 –
			–

No provision for Hong Kong Profits Tax has been made as the Group had no assessable profit for the six months ended 30 June 2012 and its corresponding period in 2011.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

V-7

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(7)

DIVIDEND

No interim dividends had been paid or declared by the Company during the six months ended 30 June 2012 (2011: Nil).

(8) LOSS FOR THE PERIOD

Three months ended 30 June 2012 2011 HK$’000 HK$’000 Loss for the period has been arrived at after charging: Amortization of intangible assets – 663 Depreciation of property, plant and equipment 881 878 Total depreciation and amortization 881 1,541 Allowance for inventories (included in purchases of inventories and raw materials consumed) 5,262 5,477 and after crediting: Bank interest income 9 20 Other interest income – –	Six months ended 30 June 2012 2011 HK$’000 HK$’000 – 1,327 1,927 1,765 1,927 3,092 5,262 5,477 17 26 – 122	Six months ended 30 June 2012 2011 HK$’000 HK$’000 – 1,327 1,927 1,765 1,927 3,092 5,262 5,477 17 26 – 122
		3,092
		5,477 26 122

(9) LOSS PER SHARE

The calculation of the basic and diluted loss per share for the three months and six months ended 30 June 2012 is based on the loss attributable to owners of the Company of approximately HK$47,071,000 and HK$82,235,000 (2011: HK$34,819,000 and HK$67,026,000) and on the weighted average number of approximately 502,966,933 (2011: 502,966,933 and 503,193,100) ordinary shares in issue during the periods.

The computation of the diluted loss per share does not include the Company’s outstanding convertible bonds and share options since their assumed conversion and exercise would result in a decrease in loss per share.

(10) PROPERTY, PLANT AND EQUIPMENT

During the six months ended 30 June 2012, the Group wrote off property, plant and equipment with a carrying amount of HK$2,740,000 (2011: HK$524,000).

V-8

APPENDIX V

OTHER FINANCIAL INFORMATION OF THE GROUP

(11)

TRADE AND OTHER RECEIVABLES

Trade receivables Within 30 days 31-90 days 91-180 days 181-365 days Over 365 days Other receivables	As at 30 June 2012 HK$’000 4,494 8,365 9,638 40,229 2,722 65,448 13,403 78,851	As at 31 December 2011 HK$’000 24,752 33,515 14,927 2,944 6,720
		82,858 11,545
		94,403

Included in the Group’s trade receivables were debtors with aggregate carrying amount of HK$52,589,000 (31 December 2011: HK$24,591,000) which were past due at the end of the reporting period but not considered as impaired. Majority of the trade receivables that were neither past due nor impaired had no default repayment history. There has not been a significant change in credit quality and the amounts are still considered recoverable. Included in trade receivables as at 31 December 2011 were amounts of HK$5,617,000 (30 June 2012: Nil) due from a subsidiary of a substantial shareholder of the Company and as at 30 June 2012 were amounts of HK$58,380,000 (31 December 2011: HK$70,108,000) due from a related company of an non-controlling shareholder of a group entity. The amounts are unsecured, interest-free and repayable according to credit terms granted.

(12) TRADE AND OTHER PAYABLES

The following is an aged analysis of trade payables at the reporting date:

Trade payables Within 30 days 31 – 90 days 181 – 365 days Other payables	As at 30 June 2012 HK$’000 45,281 12,362 11,270 68,913 11,426 80,339	As at 31 December 2011 HK$’000 56,241 – –
		56,241 14,868
		71,109

Included in trade payables are amounts of HK$58,761,000 (31 December 2011: HK$45,903,000) due to a subsidiary of a substantial shareholder of the Company. The amounts are unsecured, interest-free and repayable according to credit terms granted.

V-9

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(13) LOAN FROM A RELATED COMPANY

The loan from a related company which is beneficially owned by substantial shareholders of the Company, is unsecured, bearing interest at 5% from the drawdown date on 14 July 2008 up to 14 July 2010 and changed to 1% when the maturity date extended from 14 July 2010 up to 14 July 2012, and repayable upon maturity together with all interests accrued. The entire amount of the loan was presented as current liabilities at 31 December 2011. On 24 February 2012, the loan has been further extended one year to 14 July 2013 with other terms remain unchanged, which is therefore presented as non-current liabilities at 30 June 2012.

(14)

CONVERTIBLE BONDS

On 13 December 2007, the Company issued convertible bonds (the “ Convertible Bonds I ”) with principal amount of HK$606,800,000 as part of the consideration for the acquisition of subsidiaries. The Convertible Bonds I are recognized in these condensed consolidated financial statements at fair value of HK$989,794,000 at the date of completion of the acquisition of subsidiaries in accordance with HKFRS 3 “Business Combinations”. The Convertible Bonds I are denominated in Hong Kong dollars and entitle the holders to convert them into ordinary shares of the Company within 5 years from the date of issue of the Convertible Bonds I at a conversion price of HK$0.85 per share subject to anti-dilutive adjustments in accordance with the agreement. The Convertible Bonds I bear interest at 0.1% per annum payable semi-annually in arrears. If the Convertible Bonds I have not been converted, they will be redeemed on maturity date of 13 December 2012 at par plus accrued interest. The Convertible Bonds I contains two components, liability and equity elements. The equity element is presented in equity heading “convertible bonds equity reserve”. The effective interest rate of the liability component of the Convertible Bonds I is 10.06% per annum.

On 9 December 2008, the Company issued convertible bonds (the “ Convertible Bonds II ”) with principal amount of HK$277,175,310 as part of the consideration for the acquisition of intangible assets. The Convertible Bonds II are denominated in Hong Kong dollars and entitle the holders to convert them into ordinary shares of the Company within 5 years from the date of issue of the Convertible Bonds II at a conversion price of HK$0.991 per share subject to anti-dilutive adjustments in accordance with the agreement. The Convertible Bonds II bear interest at 0.1% per annum payable semi-annually in arrears. If the Convertible Bonds II have not been converted, they will be redeemed on maturity date of 9 December 2013 at par plus accrued interest. The Convertible Bonds II contains two components, liability and equity elements. The equity element is presented in equity heading “convertible bonds equity reserve”. The effective interest rate of the liability component of the Convertible Bonds II is 26% per annum.

The Convertible Bonds I and the Convertible Bonds II are held by substantial shareholders of the Company and secured by the shares of certain subsidiaries of the Company.

(15) SHARE CAPITAL

Ordinary shares of HK$0.01 each: Authorized: At 30 June 2011 and 30 June 2012 Issued and fully paid: At 1 January 2011 Exercise of share options At 30 June 2011 and 30 June 2012	Number of shares 2,000,000,000 502,621,933 345,000 502,966,933	Amount HK$’000 20,000

		5,026 4
		5,030

V-10

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(16) OPERATING LEASE COMMITMENTS

As at 30 June 2012, the Group had operating lease commitments of approximately HK$6,793,000 (31 December 2011: HK$8,013,000), out of which approximately HK$3,044,000 were payable within one year (31 December 2011: HK$3,822,000).

(17) RELATED PARTY TRANSACTIONS

a. During the period, the Group has the following transactions with related parties:

		Six months ended	Six months ended
Class of related parties	Nature of transactions	30 June
		2012	2011
		HK$’000	HK$’000
A company in which a	Sales of lottery terminals	16,358	–
non-controlling shareholder
of a group company has
controlling interest
Substantial shareholders	Purchase of inventories	29,724	20,922
of the Company	Sales of lottery terminals	318	13
	Service fee expense	115	430
	Interest expense payable for
	convertible bonds	443	443
	Purchase of property,
	plant and equipment	–	6,912
Jointly controlled entity	Sales of lottery terminals	–	25,633
Associate	Consultancy fee	300	300
A company beneficially owned	Interest expense	399	397
by substantial shareholders
of the Company
A company in which a director	Interest income	–	122
of the Company has
controlling interest

b. Compensation of key management personnel

The remuneration of Directors and other members of key management during the period is as follows:

Short-term benefits Post-employment benefits Share-based payments	Six months ended 30 June 2012 2011 HK$’000 HK$’000 3,008 4,339 27 30 208 1,536 3,243 5,905	Six months ended 30 June 2012 2011 HK$’000 HK$’000 3,008 4,339 27 30 208 1,536 3,243 5,905
		5,905

c. The Group’s outstanding balances with related parties are set out in the condensed consolidated statement of financial position and in notes 11, 12, 13 and 14.

V-11

APPENDIX V

OTHER FINANCIAL INFORMATION OF THE GROUP

(18) EVENTS AFTER THE END OF THE REPORTING PERIOD

Trading in the shares of the Company on the GEM has been suspended with effect from 27 June 2012 pending the release of an announcement in relation to a group reorganization, among other things, very substantial disposals and connected transactions (the “ Disposals ”) and a proposed open offer (the “ Open Offer ”). The Company had entered into the relevant agreements in respect of the Disposals on 26 June 2012, which involve disposals of certain assets of the Company to certain shareholders of the Company and repurchases of certain convertible bonds issued by the Company (the “ CB Repurchases ”). Completions of the Disposals, the CB Repurchases and the Open Offer will be conditional on each other. On 23 July 2012, the Company further issued a holding announcement to inform the shareholders of the Company. An announcement relating to the Disposals together with the Open Offer will be published by the Company as soon as practicable.

V-12

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

2. INDEBTEDNESS

At the close of business on 31 August 2012, being the latest practicable date for the purpose of the statement of indebtedness prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$884.6 million, comprising an unsecured loan with principal and interest of HK$80.0 million and HK$9.5 million respectively from Power Way and unlisted secured convertible bonds with a carrying amount of the debt component of approximately HK$795.1 million. The principal amount of the convertible bonds was approximately HK$884.0 million and the Group had pledged (i) 90 issued shares of Precious Success, representing approximately 45% of the existing issued share capital of Precious Success to secure 2012 Convertible Bonds; (ii) 378,000 issued shares of Oasis Rich, representing approximately 54% of the existing issued share capital of Oasis Rich to secure 2012 Convertible Bonds; and (iii) 5,000 issued shares of KTeMS Co., Ltd., representing approximately 50% of the existing issued share capital of KTeMS Co., Ltd to secure Intralot 2013 Convertible Bonds.

Save as disclosed in this section headed “2. Indebtedness”, the Group did not have other outstanding mortgages, charges, debentures or other loan capital, bank overdrafts or loans, other similar indebtedness, finance lease or hire purchase commitments, liabilities under acceptance or acceptance credits, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

Taking into account the assumed successful completion of the Transactions and after taking into account the financial resources available to the Group including its internally generated funds and the Financial Support, the Directors are of the opinion that the Group has sufficient working capital to satisfy its requirements for at least the next 12 months from the date of this circular.

4. MATERIAL CHANGE

Based on the interim results of the Company for the six months ended 30 June 2012 as set out in Appendix V to this circular, during the six months ended 30 June 2012, the Group recorded sales revenue of approximately HK$19.9 million. Such revenue is significantly lower than that of approximately HK$33.1 million for the corresponding period in 2011 and also considerably below that of approximately HK$96.6 million for the year ended 31 December 2011 on an annualised basis. The decrease in revenue was mainly due to (i) the reduced sales of lottery terminals since the Group adopted a short-term, low pricing strategy in order to maintain market share as the new equipment procurement cycle of CSLA had not yet been finalised; (ii) the reduced revenue from the provision of management services for distribution of lottery products as a result of the decrease in number of retail outlets in PRC during the period. The Directors considered that the sales performance of the principal activities of the Group during the period was below their expectation. Nevertheless, the financial effect of the drop in sales has been compensated by the decrease in the costs of sales.

In addition, the Group recorded non-cash unrealised net foreign exchange gain of approximately HK$36.3 million for the year ended 31 December 2011, which was mostly arising on translation of convertible bonds resulting from the appreciation of RMB during the year. For the six months ended 30 June 2012, due to the depreciation of RMB during the period, the Group recorded non-cash unrealised net foreign exchange loss of approximately HK$8.6 million, which was also mostly arising on translation of convertible bonds.

V-13

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Furthermore, for the year ended 31 December 2011, the Group incurred one-off impairment loss on intangible assets in relation to the expiry of the exclusivity period for the lottery software licenses of HK$75.0 million. During the six months ended 30 June 2012, there was no impairment loss on intangible assets recorded by the Group.

Save as discussed above and the entering into of the Transactions and the Exclusivity Undertakings, the Directors confirm that there has been no material change in the financial or trading position or outlook of the Group since 31 December 2011, being the date to which the latest published audited consolidated financial statements of the Group were made up.

5. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS OF THE REMAINING GROUP

Set out below is the management discussion and analysis of the Remaining Group for the three years ended 31 December 2011 and five months ended 31 May 2012.

Business review for the year ended 31 December 2009

Operating results

For the year ended 31 December 2009, the Remaining Group recorded revenue of approximately HK$11.1 million from the continuing operations – lottery business. Loss for the year for the Remaining Group of approximately HK$400.8 million mainly included the non-cash items: impairment loss on goodwill of approximately HK$216.9 million, imputed interest on convertible bonds of approximately HK$65.1 million, and depreciation and amortization expenses of approximately HK$25.3 million. The impairment loss was recognized with reference to the valuation carried out by an independent qualified professional valuer for goodwill arising from acquisitions of subsidiaries of the Remaining Group in prior years.

Significant investments, material acquisitions and disposals

Prior to 2009, the Remaining Group was also engaged in the business of network system integration, which was discontinued on 30 December 2009. The Remaining Group recorded a loss of approximately HK$41.5 million from discontinued operations for the year ended 31 December 2009.

For the year ended 31 December 2009, share of profits of jointly controlled entities amounted to approximately HK$116,000, principally contributed by Beijing Telenet, which was indirectly owned as to 52.5% by the Remaining Group. Beijing Telenet, being one of the largest authorized lottery terminal distributors approved by the CSLA, was engaged in the distribution of lottery terminals in the PRC.

During the year ended 31 December 2009, the Remaining Group did not make any material acquisitions.

V-14

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Liquidity, financial resources and capital structure

For the year ended 31 December 2009, the Remaining Group did not maintain any bank borrowings and generally financed its operations and serviced its debts, comprised a loan from a related company and convertible bonds, with its internal resources. Surplus funds were placed on interest-bearing deposits with banks. As at 31 December 2009, bank balances and cash denominated principally in Hong Kong dollars and Renminbi amounted to HK$53.3 million. The debt ratio, being total debts divided by total assets, was 1.6 as at 31 December 2009.

As at 31 December 2009, the Remaining Group had net liabilities of HK$243.3 million as at 31 December 2009, mainly due to a loan of HK$80 million from a related company beneficially owned by shareholders of the Company, Melco and Firich, due on 14 July 2011, and the liability component of the convertible bonds amounting to HK$565.6 million. The convertible bonds are denominated in Hong Kong dollars, bear interest at 0.1% per annum and entitle the holders to convert them into ordinary shares of the Company within five years from the date of issue, subject to the terms and conditions of the instruments. If the convertible bonds have not been converted, they will become due for redemption on maturity dates of 13 December 2012 and 9 December 2013 for the principal amounts of HK$606.8 million and HK$277.2 million, respectively.

Charges on assets

The convertible bonds of the Company were secured by the shares of certain subsidiaries of the Remaining Group at 31 December 2009.

Foreign exchange exposure

As at 31 December 2009, all assets and liabilities of the Remaining Group were denominated in United States dollars, Hong Kong dollars, and Renminbi. During the year ended 31 December 2009, the business activities of the Remaining Group were mainly denominated in Hong Kong dollars and Renminbi. Since the impact of foreign exchange exposure has been insignificant, no hedging or other alternatives have been implemented.

Staff and remuneration policy

As at 31 December 2009, the Remaining Group had a total of 78 full-time employees. For the year ended 31 December 2009, the Directors received emoluments of approximately HK$4.5 million and other staff cost of the Remaining Group was approximately HK$16.9 million from the continuing operations. The Remaining Group continues to provide remuneration package to employees in line with market practices and past performance. The Remaining Group also provides employees with other benefits such as a mandatory provident fund, medical insurance scheme, share option schemes and staff training program.

Capital commitment and contingent liabilities

At 31 December 2009, the Remaining Group had no significant capital commitments contracted but not provided for in the consolidated financial statements and did not have any significant contingent liabilities.

V-15

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Future plans for material investments and acquisition of capital assets

There was no specific plan for material investments and acquisition of material capital assets as at 31 December 2009.

Business review for the year ended 31 December 2010

Operating results

For the year ended 31 December 2010, the Remaining Group recorded revenue of approximately HK$12.2 million. Loss for the year for the Remaining Group of approximately HK$170.4 million mainly included the non-cash items: impairment loss on goodwill of approximately HK$38.8 million, imputed interest on convertible bonds of approximately HK$75.6 million, and depreciation and amortization expenses of approximately HK$21.1 million. The impairment loss was recognized with reference to the valuation carried out by an independent qualified professional valuer for goodwill arising from acquisitions of subsidiaries of the Remaining Group in prior years. For the year ended 31 December 2010, share of losses of associates amounted to HK$4.7 million, arising from two newly acquired associates, China Excellent Net Technology Investment Limited (“ China Excellent ”) and ChariLot Limited (“ ChariLot ”), which were mostly for the business development expenditure.

Significant investments, material acquisitions and disposals

On 5 March 2010, the Remaining Group acquired a 35% equity interest in China Excellent, a company incorporated in Hong Kong and engaged in the provision of lottery related technology solutions and management services for mobile lottery businesses in the PRC, at a consideration of HK$7.0 million.

On 2 July 2010, the Remaining Group completed the acquisition of a 40% equity interest in ChariLot, a company incorporated in Hong Kong, pursuant to a joint venture agreement entered into between the Remaining Group and an independent third party, Calo Investments Limited, at a cash consideration of HK$10.0 million. ChariLot acts as a vehicle for the new investment in the lottery business and provides technical support and consultancy services in connection with the lottery business in the PRC.

On 15 July 2010, the Remaining Group signed a supply agreement with Intralot S.A., in which Intralot S.A. agreed to advise on the supply, delivery and installation of a multimedia content delivery system for the high frequency game “Shi Shi Cai” in the municipality of Chongqing, the PRC, for US$1.0 million (equivalent to approximately HK$7.9 million).

For the year ended 31 December 2010, share of profits of jointly controlled entities amounted to approximately HK$263,000, contributed primarily by Beijing Telenet, which was indirectly owned as 52.5% by the Remaining Group. Beijing Telenet, one of the largest authorised lottery terminal distributors approved by the CSLA, was engaged in the distribution of lottery terminals in the PRC.

V-16

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Liquidity, financial resources and capital structure

For the year ended 31 December 2010, the Remaining Group did not maintain any bank borrowings and generally financed its operations and serviced its debts, comprised a loan from a related company and convertible bonds, with its internal resources. Surplus funds were placed on interest-bearing deposits with banks. As at 31 December 2010, bank balances and cash denominated principally in Hong Kong dollars and Renminbi amounted to HK$41.2 million. The debt ratio, being total debts divided by total assets, was 2.2 as at 31 December 2010.

As at 31 December 2010, the Remaining Group had net liabilities of HK$406.9 million, mainly due to the loan from Power Way of HK$80 million repayable on 14 July 2011, bearing interest at 1% per annum and the liability component of the convertible bonds amounting to HK$640.4 million. The convertible bonds are denominated in Hong Kong dollars, bear interest at 0.1% per annum and entitle the holders to convert them into ordinary shares of the Company within five years from the date of issue, subject to the terms and conditions of the instruments. If the convertible bonds have not been converted, they will become due for redemption on maturity dates of 13 December 2012 and 9 December 2013 for the principal amounts of HK$606.8 million and HK$277.2 million, respectively.

Charges on assets

The convertible bonds of the Company were secured by the shares of certain subsidiaries of the Remaining Group at 31 December 2010.

Foreign exchange exposure

As at 31 December 2010, all assets and liabilities of the Remaining Group were denominated in United States dollars, Hong Kong dollars, and Renminbi. During the year ended 31 December 2010, the business activities of the Remaining Group were mainly denominated in Hong Kong dollars and Renminbi. Since the impact of foreign exchange exposure has been insignificant, no hedging or other alternatives have been implemented.

Staff and remuneration policy

As at 31 December 2010, the Remaining Group had a total of 57 full-time employees. For the year ended 31 December 2010, the Directors received emoluments of approximately HK$4.0 million and other staff cost of the Remaining Group was approximately HK$13.5 million. The Remaining Group continues to provide remuneration package to employees in line with market practices and past performance. The Remaining Group also provides employees with other benefits such as a mandatory provident fund, medical insurance scheme, share option schemes and staff training program.

Capital commitment and contingent liabilities

At 31 December 2010, the Remaining Group had capital commitments of HK$11.9 million contracted but not provided for, in the consolidated financial statements.

At 31 December 2010, the Remaining Group did not have any significant contingent liabilities.

V-17

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Future plans for material investments and acquisition of capital assets

There was no specific plan for material investments and acquisition of material capital assets as at 31 December 2010.

Business review for the year ended 31 December 2011

Operating results

For the year ended 31 December 2011, the Remaining Group recorded revenue of approximately HK$70.9 million. A significant increase in revenue for the Remaining Group was due to the consolidation of revenue of Beijing Telenet into the Remaining Group given that it became a non wholly-owned subsidiary since July 2011. Loss for the year for the Remaining Group of approximately HK$204.2 million mainly included the non-cash items: one-off impairment loss on intangible assets in relation to the expiry of the exclusivity period for the lottery software licenses in December 2011 amounting to approximately HK$75.0 million, impairment loss on goodwill of approximately HK$27.9 million with reference to the valuation carried out by an independent qualified professional valuer, impairment loss on trade and other receivables of approximately HK$11.7 million as the chances of collection of the outstanding amounts being remote, imputed interest on convertible bonds of approximately HK$88.3 million, and depreciation and amortization expenses of approximately HK$5.8 million. For the year ended 31 December 2011, share of losses of associates amounted to HK$4.0 million. The Remaining Group also recognized net foreign exchange gain of HK$36.3 million mostly arising on translation of convertible bonds.

Significant investments, material acquisitions and disposals

On 18 January 2011, the Remaining Group entered into a supplemental agreement with Shandong Zhenglu Industrial Company Limited (“ Shandong Zhenglu ”), the non-controlling shareholder of the Company’s subsidiary, Shandong Kai Chuan Ji Yuan Electronic and Information Technology Ltd. (“ Shandong Kai Chuan ”), established in the PRC, following which the registered capital of Shandong Kai Chuan was increased from RMB2,666,700 to RMB10,000,000. The Remaining Group and Shandong Zhenglu contributed RMB4,900,000 and RMB2,433,300 respectively for the additional capital. The Remaining Group had also agreed to pay the sum of RMB2,433,300 to Shandong Zhenglu for its services rendered for Shandong Kai Chuan to obtain the telephone lottery license in Shandong Province, the PRC. Upon completion of the supplemental agreement, the Remaining Group holds 65% equity interests in Shandong Kai Chuan, which continues to be treated as an indirect, non wholly-owned subsidiary of the Company.

As announced on 27 July 2011 by the Company, the board of directors of Beijing Telenet, formerly a jointly controlled entity of the Remaining Group established in the PRC and principally engaged in the distribution of lottery terminals in the PRC, passed a board resolution to amend its articles of association so that certain board resolutions relating to the financial and operating policies of Beijing Telenet could be passed by simple majority votes. Following the amendments, the Remaining Group has the voting rights to effectively control the board of Beijing Telenet. As such, Beijing Telenet became an indirect 52.5% owned subsidiary of the Company and its financial information has been consolidated into the financial statements of the Remaining Group since then.

V-18

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Pursuant to a sale and purchase agreement dated 19 September 2011, the Remaining Group acquired 20% interest in PAL, a Hong Kong incorporated company principally engaged in the lottery business in the PRC through its subsidiaries, from LottVision Investments, a wholly-owned subsidiary of Singapore-listed LottVision, for a consideration of HK$250,000. Upon completion of the acquisition, PAL became an indirect wholly-owned subsidiary of the Company.

Liquidity, financial resources and capital structure

For the year ended 31 December 2011, the Remaining Group did not maintain any bank borrowings and generally financed its operations and serviced its debts, comprised a loan from a related company and convertible bonds, with its internal resources. Surplus funds were placed on interest-bearing deposits with banks. As at 31 December 2011, bank balances and cash denominated principally in Hong Kong dollars and Renminbi amounted to HK$25.0 million. The debt ratio, being total debts divided by total assets, was 3.4 as at 31 December 2011.

As at 31 December 2011, the Remaining Group had net liabilities of HK$621.2 million, mainly due to the loan from Power Way of HK$80 million repayable on 14 July 2012, bearing interest at 1% per annum and the liability component of the convertible bonds amounting to HK$727.8 million. The convertible bonds are denominated in Hong Kong dollars, bear interest at 0.1% per annum and entitle the holders to convert them into ordinary shares of the Company within five years from the date of issue, subject to the terms and conditions of the instruments. If the convertible bonds have not been converted, they will become due for redemption on maturity date of 13 December 2012 and 9 December 2013 for the principal amounts of HK$606.8 million and HK$277.2 million, respectively.

Charges on assets

The convertible bonds of the Company were secured by the shares of certain subsidiaries of the Remaining Group at 31 December 2011.

Foreign exchange exposure

As at 31 December 2011, all assets and liabilities of the Remaining Group were denominated in United States dollars, Hong Kong dollars and Renminbi. During the year ended 31 December 2011, the business activities of the Remaining Group were mainly denominated in Hong Kong dollars and Renminbi. Since the impact of foreign exchange exposure has been insignificant, no hedging or other alternatives have been implemented.

Staff and remuneration policy

As at 31 December 2011, the Remaining Group had a total of 110 full-time employees. For the year ended 31 December 2011, the Directors received emoluments of approximately HK$4.3 million and other staff cost of the Remaining Group was approximately HK$12.7 million. The Remaining Group continues to provide remuneration package to employees in line with market practices and past performance. The Remaining Group also provides employees with other benefits such as a mandatory provident fund, medical insurance scheme, share option schemes and staff training program.

V-19

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Capital commitment and contingent liabilities

At 31 December 2011, the Remaining Group had no significant capital commitments contracted but not provided for in the consolidated financial statements and did not have any significant contingent liabilities.

Future plans for material investments and acquisition of capital assets

There was no specific plan for material investments and acquisition of material capital assets as at 31 December 2011.

Business review for the five months ended 31 May 2012

Operating results

For the five months ended 31 May 2012, the Remaining Group recorded revenue of approximately HK$15.6 million. A significant increase in revenue for the Remaining Group was due to the consolidation of revenue of Beijing Telenet into the Remaining Group given that it became a non wholly-owned subsidiary since July 2011. Loss for the period for the Remaining Group of approximately HK$72.1 million mainly included the non-cash items: impairment loss on property, plant and equipment, and trade and other receivables of approximately HK$4.8 million, imputed interest on convertible bonds of approximately HK$41.0 million, and depreciation and amortization expenses of approximately HK$1.4 million. Loss for the period for the five months ended 31 May 2012 decreased compared with the same period last year, mainly because impairment loss on trade and other receivables was lower. For the five months ended 31 May 2012, share of losses of associates amounted to HK$1.2 million. The Remaining Group also recorded net foreign exchange loss of HK$8.7 million mostly arising on translation of convertible bonds.

Significant investments, material acquisitions and disposals

During the five months ended 31 May 2012, the Remaining Group did not make any significant investments, material acquisitions or disposals.

Liquidity, financial resources and capital structure

For the five months ended 31 May 2012, the Remaining Group did not maintain any bank borrowings and generally financed its operations and serviced its debts, comprised a loan from a related company and convertible bonds, with its internal resources. Surplus funds were placed on interest-bearing deposits with banks. As at 31 May 2012, bank balances and cash denominated principally in Hong Kong dollars and Renminbi amounted to HK$10.3 million. The debt ratio, being total debts divided by total assets, was 9.1 as at 31 May 2012.

V-20

APPENDIX V

OTHER FINANCIAL INFORMATION OF THE GROUP

As at 31 May 2012, the Remaining Group had net liabilities of HK$821.2 million, mainly due to the loan from Power Way of HK$80 million repayable on 14 July 2013, bearing interest at 1% per annum and the liability component of the convertible bonds amounting to HK$768.8 million. The convertible bonds are denominated in Hong Kong dollars, bear interest at 0.1% per annum and entitle the holders to convert them into ordinary shares of the Company within five years from the date of issue, subject to the terms and conditions of the instruments. If the convertible bonds have not been converted, they will become due for redemption on maturity date of 13 December 2012 and 9 December 2013 for the principal amounts of HK$606.8 million and HK$277.2 million, respectively.

Charges on assets

The convertible bonds of the Company were secured by the shares of certain subsidiaries of the Remaining Group at 31 May 2012.

Foreign exchange exposure

As at 31 May 2012, all assets and liabilities of the Remaining Group were denominated in United States dollars, Hong Kong dollars and Renminbi. During the year ended 31 May 2012, the business activities of the Remaining Group were mainly denominated in Hong Kong dollars and Renminbi. Since the impact of foreign exchange exposure has been insignificant, no hedging or other alternatives have been implemented.

Staff and remuneration policy

As at 31 May 2012, the Remaining Group had a total of 100 full-time employees. For the five months ended 31 May 2012, the Directors received emoluments of approximately HK$1.4 million and other staff cost of the Remaining Group was approximately HK$5.4 million. The Remaining Group continues to provide remuneration package to employees in line with market practices and past performance. The Remaining Group also provides employees with other benefits such as a mandatory provident fund, medical insurance scheme, share option schemes and staff training program.

Capital commitment and contingent liabilities

At 31 May 2012, the Remaining Group had no significant capital commitments contracted but not provided for in the consolidated financial statements and did not have any significant contingent liabilities.

Future plans for material investments and acquisition of capital assets

There was no specific plan for material investments and acquisition of material capital assets as at 31 May 2012.

V-21

OTHER FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

6. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Pursuant to the regulations on lottery management recently issued by China’s Ministry of Finance and Ministry of Civil Affairs, all lottery sales by unlicensed organisations are designated as illegal and consequently several websites selling CWL lottery tickets and CSLA lottery tickets have suspended operations in the PRC. The implementation of standardised formal approval and operating requirements should aid the planned development of the industry as a whole and paperless channels in particular. This presents an opportunity to the Group as the environment is now more supportive of participants determined to comply with government policies and frameworks. The overall China lottery market continues to grow and paperless distribution channels are envisaged to be a key growth engine given their ability to effectively penetrate wide geographic areas and reach untapped market segments. The Company will seek to leverage its access to advanced lottery industry knowhow and global best practices to capitalise on these opportunities.

Although the exercise to evaluate and approve lottery terminals for the new procurement has not been concluded by the CSLA, the Group has already strengthened its position in the terminal distribution business through the added participation in Beijing Telenet. Further efforts are ongoing to enhance the operating structure and strengthen the financial position of the Group. Subsequent to these strategic changes the Company will be better positioned to exploit opportunities in the dynamic China lottery market, with a particular focus on paperless channels.

V-22

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

On 26 June 2012, the Company entered into an agreement with Intralot International Limited (“Intralot”), a substantial shareholder of the Company, in relation to the sale of the Group’s entire 100% equity interest of Gain Advance (“GA Sale Shares”) and 49% equity interest of Precious Success (“PS Sale Shares”), and the repurchase of Intralot’s portion of convertible bonds due in 2013 (“Intralot 2013 Convertible Bonds”) with outstanding principal of HK$277,175,310 by the Company (collectively the “Intralot Disposal”). The consideration payable by Intralot for the purchase of the GA Sale Shares and the PS Sale Shares and the consideration payable by the Company for the repurchase of the Intralot 2013 Convertible Bonds shall be set off against each other at the completion date of the Intralot Disposal.

On 26 June 2012, the Company entered into an agreement with Global Crossing Holdings Limited (“GCH”), a 32.86% non-controlling shareholder of Oasis Rich, in relation to the sale of the Group’s entire 60% equity interest of Oasis Rich (“OR Sale Shares”), and the repurchase of GCH’s portion of convertible bonds due in 2012 (“GCH 2012 Convertible Bonds”) with outstanding principal of HK$175,188,566 by the Company (collectively the “GCH Disposal”). The consideration payable by GCH for the purchase of the OR Sale Shares and the consideration payable by the Company for the repurchase of the GCH 2012 Convertible Bonds shall be set off against each other at the completion date of the GCH Disposal.

On 14 August 2012, the Company proposes an open offer (the “Open Offer”) of not more than 1,729,046,799 new ordinary shares of the Company of HK$0.01 each (the “Offer Shares”) at a price of HK$0.078 per share on the basis of three new Offer Shares for every one existing share, to raise capital of not more than approximately HK$134.9 million, before share issue expenses. As set out in the Circular, the maximum number of Offer Shares and maximum amount of capital to be raised were subsequently reduced to 1,716,014,799 and approximately HK$133.8 million (before share issue expenses) respectively, as a result of 4,344,000 share options of the Company were lapsed during the period from 14 August 2012 up to the latest practicable date of the circular of the Company dated 26 September 2012 (the “Circular”). In addition, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Melco LottVentures Holdings Limited (“Melco LV”), a substantial shareholder of the Company, and Power Way Group Limited (“Power Way”), a related company and the lender of HK$80 million loan owed by the Company (the “Power Way Loan”), in relation to the Open Offer. Melco LV has agreed to underwrite not more than 128,205,128 underwritten shares in the first place provided that the total subscription price for the Offer Shares to be taken up by Melco LV shall not exceed HK$10 million and Power Way has agreed to underwrite not more than 1,145,361,487 underwritten shares in the second place provided that immediately upon completion of the Open Offer, the underwritten shares to be subscribed by Power Way together with the shares of the Company held or to be held by Melco LV and other non-public shareholders shall not be more than 75% of the total shareholdings of the Company as enlarged by the Offer Shares. The aggregate subscription price required to be paid by Power Way under the Underwriting Agreement will be settled by way of set off against the outstanding principal and accrued interest of the Power Way Loan.

The completion of the GCH Disposal, the Intralot Disposal and the Open Offer are conditional on each other as set out in the Circular. The completion of the GCH Disposal, the Intralot Disposal and the Open Offer are also conditional on, among other things, the approval of the off-market repurchase of the Intralot 2013 Convertible Bonds and the GCH 2012 Convertible Bonds by at least three-fourths of the votes cast on a poll by the Independent Shareholders (as defined in the Circular) of the Company under the Hong Kong Code on Share Repurchases.

VI-1

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

The pro forma financial information is prepared solely for the purpose to illustrate (a) the financial position of the Group excluding Gain Advance and its subsidiary (“Gain Advance Group”) and Oasis Rich and its subsidiary (“Oasis Rich Group”) (collectively referred to as the “Remaining Group”) as if the Intralot Disposal, including the repurchase of the Intralot 2013 Convertible Bonds, and the GCH Disposal, including the repurchase of the GCH 2012 Convertible Bonds (collectively referred to as the “Disposals”), and the Open Offer had been completed on 31 May 2012 and (b) the financial results and cash flows of the Remaining Group for the year ended 31 December 2011 as if the Disposals and the Open Offer had been completed on 1 January 2011. The Remaining Group still includes the assets and liabilities and the financial results and cash flows of Precious Success and its subsidiaries (the “Precious Success Group”), assuming that Precious Success will become an indirect 51% subsidiary of the Company upon completion of the Intralot Disposal.

The following two scenarios of pro forma financial information have been prepared based on different assumed subscription result under the Open Offer immediately after completion of the Disposals and the Open Offer:

(1) It is assumed that all shareholders take up their respective assured entitlements to the Offer Shares, without taking into account of any share which may be issued upon exercise of the outstanding share options or conversion rights attached to all outstanding convertible bonds of the Company.
(2) It is assumed that (a) no shareholders take up their respective entitlements to the Offer Shares; (b) no subscription rights attached to the outstanding share options or conversion rights attached to all outstanding convertible bonds of the Company has been exercised; and (c) Melco LV and Power Way will take up their respective obligations to subscribe for the underwritten shares in accordance with the Underwriting Agreement.

Basis of preparation of the unaudited pro forma financial information of the Remaining Group

The unaudited pro forma financial information of the Remaining Group is prepared in accordance with paragraph 31 of Chapter 7 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Rules”) to illustrate the effect of the Disposals and the Open Offer.

The unaudited pro forma consolidated statement of financial position and the unaudited pro forma statement of adjusted consolidated net tangible liabilities of the Remaining Group are prepared based on the audited consolidated statements of financial position of the Group, the Oasis Rich Group and the Gain Advance Group as at 31 May 2012 as set out in Appendix IV, III and II, respectively, after making pro forma adjustments relating to the Disposals and the Open Offer, as if the Disposals and the Open Offer had been completed on 31 May 2012.

VI-2

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

The unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Remaining Group are prepared based on the audited consolidated statements of comprehensive income and the audited consolidated statements of cash flows of the Group, the Oasis Rich Group and the Gain Advance Group for the year ended 31 December 2011 as set out in Appendix IV, III and II, respectively, after making pro forma adjustments relating to the Disposals and the Open Offer, as if the Disposals and the Open Offer had been completed on 1 January 2011.

The unaudited pro forma financial information is based on the aforesaid historical data after giving effect to the pro forma adjustments described in the accompanying notes. Narrative description of the pro forma adjustments that are (i) directly attributable to the transactions and (ii) factually supportable is summarised in the accompanying notes.

This unaudited pro forma financial information has been prepared by the directors of the Company for illustrative purposes only and is based on a number of assumptions, estimates, uncertainties and currently available information. Because of its hypothetical nature, the unaudited pro forma financial information does not purport to predict the results, cash flows, or financial position of the Remaining Group upon the completion of the Disposals and the Open Offer or for any future period or any future date.

VI-3

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Scenario I

Assuming that all shareholders take up their respective assured entitlements to the Offer Shares, without taking into account of any share which may be issued upon exercise of the outstanding share options or conversion rights attached to all outstanding convertible bonds of the Company, the following is the unaudited pro forma consolidated financial information of the Remaining Group upon completion of the Disposals and the Open Offer:

Unaudited Pro Forma Consolidated Statement of Financial Position

					Pro forma
	Consolidated				Consolidated
	Statement of				Statement of
	Financial				Financial
	Position				Position of the
	of the Group				Remaining Group
	as at 31 May 2012		Pro forma adjustments		as at 31 May 2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)	(Note 4)
Non-current assets
Property, plant and equipment	8,623	(1,430)			7,193
Interests in associates	1,664				1,664
Available-for-sale investment	137,402		(137,402)		–
	147,689				8,857
Current assets
Inventories	30,866	(30,866)			–
Trade and other receivables	87,422	(5,726)	(5)		81,691
Amount due from Oasis Rich Group	–	341			341
Bank balances and cash	15,016	(4,654)	(43)	111,905	122,224
	133,304				204,256
Current liabilities
Trade and other payables	80,442	(59,669)	(161)	(1,300)	19,312
Amount due to Oasis Rich Group	–	40,979			40,979
Amount due to related companies	11,678				11,678
Amount due to an associate	420				420
Tax payable	2,315	14,785	18,700		35,800
Convertible bonds	577,105	(166,615)			410,490
	671,960				518,679

VI-4

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Unaudited Pro Forma Consolidated Statement of Financial Position (Continued)

					Pro forma
	Consolidated				Consolidated
	Statement of				Statement of
	Financial				Financial
	Position				Position of the
	of the Group				Remaining Group
	as at 31 May 2012		Pro forma adjustments		as at 31 May 2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1) (Note 2)		(Note 3)	(Note 4)
Net current liabilities	(538,656)				(314,423)
Total assets less current liabilities	(390,967)				(305,566)
Capital and reserves
Share capital	5,030			15,089	20,119
Reserves	(687,715) 136,717		30,299	98,116	(422,583)
Deficiency of equity attributable to
owners of the Company	(682,685)				(402,464)
Non-controlling interests	20,059	(8,532)	5,371		16,898
Total capital deficiency	(662,626)				(385,566)
Non-current liabilities
Loan from a related company
– due after one year	80,000				80,000
Convertible bonds	191,659		(191,659)		–
	271,659				80,000
	(390,967)				(305,566)

VI-5

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Statement of Adjusted Consolidated Net Tangible Liabilities

Net tangible liabilities
attributable to the
shareholders of the Company
Number of shares issued (’000)
Unaudited pro forma adjusted
consolidated net tangible liabilities
per share prior to completion
of the Disposals and the
Open Offer (Note 5)
Unaudited pro forma adjusted
consolidated net tangible
liabilities per share after
completion of the Disposals
and the Open Offer_(Note 6)_

Unaudited
pro forma
Consolidated
adjusted
net tangible
consolidated
liabilities of
net tangible
the Group
liabilities of
as at 31
the Remaining
May 2012
Pro forma adjustments
Group
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Note 1)
(Note 2)
(Note 3)
(Note 4)
(682,685)
136,717
30,299
113,205
(402,464)
502,967
2,011,868
HK$(1.36)
HK$(0.20)

Notes:

(1) Extracted from the consolidated statement of financial position of the Group as at 31 May 2012 set out in Appendix IV.
(2) The adjustments reflect (a) the de-consolidation of the assets and liabilities of Oasis Rich as at 31 May 2012, (b) the recognition of amount due from/to Oasis Rich Group, and (c) the pro forma gain arising from the GCH Disposal, assuming that the GCH Disposal had taken place on 31 May 2012. Financial information of Oasis Rich Group is set out in Appendix III.

Carrying value of the GCH 2012 Convertible Bonds Carrying value of net assets of Oasis Rich Group attributable to the Group’s 60% equity interest therein Pro forma gain on GCH Disposal recognised in profit or loss	HK$’000 166,615 (12,798) 153,817

VI-6

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

For the purpose of determining the pro forma gain on the GCH Disposal, it is assumed that no consideration is allocated to repurchase the conversion option component of the GCH 2012 Convertible Bonds due to the GCH 2012 Convertible Bonds were close to maturity and the conversion options were deeply out of the money, and hence the entire consideration paid by the Group for the repurchase of the GCH 2012 Convertible Bonds is allocated to the liability component of the GCH 2012 Convertible Bonds.

For the purpose of pro forma financial information, the Group has estimated the capital gain taxes in the People’s Republic of China (the “PRC”) of approximately HK$17,100,000 arising from the GCH Disposal based on 10% capital gain tax rate of the relevant outstanding principal of GCH 2012 Convertible Bonds minus 60% share of registered share capital of the PRC subsidiary of Oasis Rich to be disposed of. The amount of the capital gain taxes are subject to change upon completion.

(3) The adjustments reflect (a) the de-consolidation of the assets and liabilities of Gain Advance, (b) the recognition of non-controlling interests representing 49% equity interest in Precious Success as at 31 May 2012, calculated based on 49% of the carrying amounts of the net assets of Precious Success, and (c) the pro forma gain arising from the Intralot Disposal, assuming that the Intralot Disposal had taken place on 31 May 2012. Financial information of Gain Advance Group and Precious Success Group are set out in Appendices II and I, respectively.

Carrying value of the Intralot 2013 Convertible Bonds Assumed fair value of Gain Advance Group Assumed fair value of the Group’s 49% equity interest in Precious Success Group Pro forma gain on Intralot Disposal recognised in profit or loss	HK$’000 191,659 (137,289) (5,371) 48,999

For the purpose of determining the pro forma gain on the Intralot Disposal, the directors of the Company assumed that the fair value of Gain Advance Group and 49% equity interest in Precious Success Group approximated the carrying values as at 31 May 2012 of the net assets of Gain Advance Group and of the net assets of Precious Success Group attributable to the Group’s 49% equity interest therein, respectively. Furthermore, it is assumed that no consideration is allocated to repurchase the conversion option component of the Intralot 2013 Convertible Bonds due to the assumed aggregated fair value of Gain Advance Group and the Group’s 49% equity interest in Precious Success Group was lower than thee assumed fair value of the liability component of the Intralot 2013 Convertible Bonds as at 31 May 2012, and hence the entire consideration paid by the Group for the repurchase of the Intralot 2013 Convertible Bonds is allocated to the liability component of the Intralot 2013 Convertible Bonds.

For the purpose of pro forma financial information, the Group has estimated the capital gain taxes in the PRC of approximately HK$18,700,000 arising from the Intralot Disposal based on 10% capital gain tax rate of the relevant outstanding principal of Intralot 2013 Convertible Bonds minus 49% share of registered share capital of the PRC subsidiaries of Precious Success to be disposed of. The amount of the capital gain taxes are subject to change upon completion.

The financial impact of the Intralot Disposal is to be determined based on the carrying amount of the Intralot 2013 Convertible Bonds, the carrying value and fair value of the net assets value of Gain Advance Group and Precious Success Group at the completion date and is therefore subject to change upon completion of the Intralot Disposal.

(4) The adjustments reflect (a) the estimated proceeds received by the Group arising from the Open Offer when all shareholders take up their respective entitlements to the Offer Shares on the basis of three Offer Shares for every one existing share of the Company held as at 31 May 2012 for a total of 1,508,900,799 Offer Shares of HK$0.078 each in the aggregate amount of HK$117,694,000, (b) the payment of share issue expense amounting to HK$1,500,000 directly attributable to the Open Offer, and (c) the payment of legal and professional fee of HK$4,289,000 in relation to the Disposals in which HK$1,300,000 has been provided for in other payables and accruals as at 31 May 2012, assuming that the Disposals and the Open Offer had taken place on 31 May 2012.
(5) The calculation of the unaudited pro forma adjusted consolidated net tangible liabilities per share prior to completion of the Disposals and the Open Offer is based on 502,966,933 shares in issue as at 31 May 2012.
(6) The calculation of the unaudited pro forma adjusted consolidated net tangible liabilities per share after completion of the Disposals and the Open Offer is based on 2,011,867,732 shares comprising 502,966,933 shares in issue as at 31 May 2012 and 1,508,900,799 Offer Shares to be issued.

VI-7

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Unaudited Pro Forma Consolidated Statement of Comprehensive Income

Revenue Changes in inventories of finished goods and work-in-progress Purchases of inventories and raw materials consumed Other income, gains and losses Employee benefits costs Depreciation and amortization Gain on disposal of subsidiaries Impairment loss on: – intangible assets – trade and other receivables – amount due from an associate – interest in an associate – goodwill Share of results of an associate Share of results of jointly controlled entities Other expenses Finance costs (Loss) profit before taxation Income tax expense	Consolidated Statement of Comprehensive Income of the Group for the year ended 31 December 2011 Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 7) (Note 8) (Note 9) (Note 10) (Note 11) 96,622 (25,699) (12,494) 12,824 (71,131) 6,070 36,664 (70) 8,049 (14,804) (18,852) 1,826 (6,732) 975 – 227,690 (75,035) (11,744) 728 (2,436) (1,393) (27,903) 27,903 (3,976) (480) (27,831) 14,982 124 (8,049) (4,289) (89,098) 52,215 (215,819) (113) (35,800)	Pro Forma Consolidated Statement of Comprehensive Income of the Remaining Group for the year ended 31 December 2011 HK$’000 70,923 330 (65,061) 29,839 (17,026) (5,757) 227,690 (75,035) (11,016) (2,436) (1,393) – (3,976) (480) (25,063) (36,883) 84,656 (35,913)

VI-8

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Unaudited Pro Forma Consolidated Statement of Comprehensive Income (Continued)

(Loss) profit for the year Other comprehensive expense Exchange difference arising on translation Total comprehensive (expense) income for the year (Loss) profit for the year attributable to: Owners of the Company Non-controlling interests Total comprehensive (expense) income attributable to: Owners of the Company Non-controlling interests	Consolidated Statement of Comprehensive Income of the Group for the year ended 31 December 2011 Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 7) (Note 8) (Note 9) (Note 10) (Note 11) (215,932) (29,834) (1,460) 685 14,804 (245,766) (209,219) 6,982 13,174 252,915 (6,713) 4,654 (13,050) (215,932) (239,675) 6,106 11,475 267,719 (6,091) 4,070 (10,666) (245,766)	Pro Forma Consolidated Statement of Comprehensive Income of the Remaining Group for the year ended 31 December 2011 HK$’000 48,743 (15,805) 32,938 63,852 (15,109) 48,743 45,625 (12,687) 32,938

Notes:

(7) Extracted from the consolidated statement of comprehensive income of the Group for the year ended 31 December 2011 set out in Appendix IV.
(8) The adjustment reflects the exclusion of the results of Oasis Rich Group for the year ended 31 December 2011, assuming that the GCH Disposal had taken place on 1 January 2011. The revenue of Oasis Rich Group for the year ended 31 December 2011 was HK$78,314,000, in which HK$25,699,000 was external sales and HK$6,070,000 was the relevant purchases. Financial information of Oasis Rich Group is set out in Appendix III.

VI-9

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

(9) The adjustments reflect (a) the exclusion of the results of Gain Advance Group and (b) the allocation of 49% share of results of Precious Success Group attributable to non-controlling interests for the year ended 31 December 2011, assuming that the Intralot Disposal had taken place on 1 January 2011. Financial information of Gain Advance Group and Precious Success Group are set out in Appendices II and I, respectively.
(10) The adjustments reflects the reinstatement of consultancy fee income amounting to HK$8,049,000 charged from the Remaining Group to Oasis Rich Group.
(11) The adjustments reflect (a) the exclusion of interest expense relating to the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds, (b) the exclusion of exchange gain on translation of the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds, (c) the recognition of legal and professional fee of HK$4,289,000 in relation to the Disposals, (d) the exclusion of impairment loss on goodwill amounting to HK$27,903,000 and (e) the pro forma gain arising from the Disposals, assuming that the Disposals had taken place on 1 January 2011:

Carrying value of the GCH 2012 Convertible Bonds
Carrying value of net assets of Oasis Rich Group attributable
to the Group’s 60% equity interest therein
Goodwill
Pro forma gain on GCH Disposal recognised in profit or loss
Carrying value of the Intralot 2013 Convertible Bonds
Assumed fair value of Gain Advance Group
Assumed fair value of the Group’s 49% equity interest in Precious Success Group
Pro forma gain on Intralot Disposal recognised in profit or loss
Assumed fair value of the Group’s 49% equity interest in Precious Success Group
Carrying value of net liabilities of Precious Success Group
attributable to the Group’s 49% equity interest therein
Pro forma gain on Intralot Disposal recognised in reserve

HK$’000
145,680
(23,695)
(27,903)
94,082
HK$’000
135,762
(2,154)
–
133,608
HK$’000
–
17,526
17,526

For the purpose of determining the pro forma gain on the Disposals, the directors of the Company assumed that the fair value of Gain Advance Group approximated its carrying value and the fair value of 49% equity interest in Precious Success Group is zero as at 1 January 2011. Furthermore, it is assumed that no consideration is allocated to repurchase the conversion option component of the GCH 2012 Convertible Bonds due to the GCH 2012 Convertible Bonds were close to the maturity date and the conversion options were deeply out of the money, and no consideration is allocated to repurchase the conversion option component of the Intralot 2013 Convertible Bonds due to the assumed aggregated fair value of Gain Advance Group and the Group’s 49% equity interest in Precious Success Group was lower than the assumed fair value of the liability component of the Intralot 2013 Convertible Bonds as at 1 January 2011, and hence the entire consideration paid by the Group for the repurchase of the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds is allocated to the liability component of the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds, respectively.

For the purpose of pro forma financial information, the Group has estimated the capital gain taxes in the PRC of approximately HK$35,800,000 comprising (i) HK$17,100,000 arising from the GCH Disposal based on 10% capital gain tax rate of the relevant outstanding principal of GCH 2012 Convertible Bonds minus 60% share of registered share capital of the PRC subsidiary of Oasis Rich to be disposed of, and (ii) HK$18,700,000 arising from the Intralot Disposal based on 10% capital gain tax rate of the relevant outstanding principal of Intralot 2013 Convertible Bonds minus 49% share of registered share capital of the PRC subsidiaries of Precious Success to be disposed of. The amount of the capital gain taxes are subject to change upon completion.

The financial impact of the Intralot Disposals is to be determined based on the carrying amount of the Intralot 2013 Convertible Bonds and the carrying value and fair value of the net assets of the Gain Advance Group and Precious Success Group at the completion date and is therefore subject to change upon completion of the Intralot Disposal.

VI-10

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Unaudited Pro Forma Consolidated Statement of Cash Flows

OPERATING ACTIVITIES (Loss) profit before taxation Adjustments for: Allowance for inventories Depreciation and amortisation Equity-settled share-based payments Impairment losses on: – intangible assets – trade and other receivables – amount due from an associate – interest in an associate – goodwill Interest expenses Interest income Loss on disposal of property, plant and equipment Net foreign exchange gain Share of results of associates Share of results of jointly controlled entities Gain arising from the Disposals Operating cash flows before movements in working capital Decrease in inventories Increase in trade and other receivables Increase in amount due from a fellow subsidiary Decrease in amounts due from jointly controlled entities (Decrease) increase in trade and other payables Cash used in operations Income taxes paid NET CASH USED IN OPERATING ACTIVITIES	VI-11 Pro Forma Consolidated Consolidated Statement of Statement Cash Flows of Cash of the Group Flows of the for the year Remaining Group ended 31 for the year ended December 2011 Pro forma adjustments 31 December 2011 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 12) (Note 13) (Note 14) (Note 15) (Note 16) (215,819) 11,636 124 288,715 84,656 8,101 (8,101) – 6,732 (975) 5,757 4,299 4,299 75,035 75,035 11,744 (728) 11,016 2,436 2,436 1,393 1,393 27,903 (27,903) 89,098 (52,215) 36,883 (166) 8 (158) 462 462 (36,301) 14,804 (21,497) 3,976 3,976 480 480 – (227,690) (227,690) (20,627) (22,952) 5,353 (5,287) 66 (11,421) (1,549) (3) (12,973) – 14,362 14,362 16,903 (16,482) 421 (10,557) 15,810 (14) 5,239 (20,349) (15,837) (699) 65 (634) (21,048) (16,471)	VI-11 Pro Forma Consolidated Consolidated Statement of Statement Cash Flows of Cash of the Group Flows of the for the year Remaining Group ended 31 for the year ended December 2011 Pro forma adjustments 31 December 2011 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 12) (Note 13) (Note 14) (Note 15) (Note 16) (215,819) 11,636 124 288,715 84,656 8,101 (8,101) – 6,732 (975) 5,757 4,299 4,299 75,035 75,035 11,744 (728) 11,016 2,436 2,436 1,393 1,393 27,903 (27,903) 89,098 (52,215) 36,883 (166) 8 (158) 462 462 (36,301) 14,804 (21,497) 3,976 3,976 480 480 – (227,690) (227,690) (20,627) (22,952) 5,353 (5,287) 66 (11,421) (1,549) (3) (12,973) – 14,362 14,362 16,903 (16,482) 421 (10,557) 15,810 (14) 5,239 (20,349) (15,837) (699) 65 (634) (21,048) (16,471)
		(22,952) 66 (12,973) 14,362 421 5,239
		(15,837) (634)
		(16,471)

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Consolidated Statement of Cash Flows (Continued)

INVESTING ACTIVITIES Disposal of subsidiaries (net of cash and cash equivalent disposed of) Interest received Acquisition of a subsidiary (net of cash and cash equivalents acquired) Proceeds from disposal of property, plant and equipment Purchase of property, plant and equipment Investment in associates Advance to Oasis Rich Group and Gain Advance Group Advance to an associate NET CASH FROM (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Interest paid Repayment to Oasis Rich Group Capital contribution by non- controlling interest Acquisition of additional interest in a subsidiary Proceeds from exercise of share options Proceeds from issue of new shares Share issue expense	Pro Forma Consolidated Consolidated Statement of Statement Cash Flows of Cash of the Group Flows of the for the year Remaining Group ended 31 for the year ended December 2011 Pro forma adjustments 31 December 2011 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 12) (Note 13) (Note 14) (Note 15) (Note 16) 10,503 (2,728) (30) 7,745 166 (8) 158 1,535 1,535 536 536 (7,394) 43 (7,351) (3,065) (3,065) – (221) (116) (337) (1,436) (1,436) 845 (2,215) (884) 452 (432) – (7,392) (7,392) 3,003 3,003 (250) (250) 27 27 – 117,614 117,614 – (1,500) (1,500)	Pro Forma Consolidated Consolidated Statement of Statement Cash Flows of Cash of the Group Flows of the for the year Remaining Group ended 31 for the year ended December 2011 Pro forma adjustments 31 December 2011 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 12) (Note 13) (Note 14) (Note 15) (Note 16) 10,503 (2,728) (30) 7,745 166 (8) 158 1,535 1,535 536 536 (7,394) 43 (7,351) (3,065) (3,065) – (221) (116) (337) (1,436) (1,436) 845 (2,215) (884) 452 (432) – (7,392) (7,392) 3,003 3,003 (250) (250) 27 27 – 117,614 117,614 – (1,500) (1,500)
		(2,215)
		(432) (7,392) 3,003 (250) 27 117,614 (1,500)

VI-12

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Consolidated Statement of Cash Flows (Continued)

NET CASH FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENT AT BEGINNING OF YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENT AT END OF YEAR, represented by bank balances and cash	Pro Forma Consolidated Consolidated Statement of Statement Cash Flows of Cash of the Group Flows of the for the year Remaining Group ended 31 for the year ended December 2011 Pro forma adjustments 31 December 2011 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 12) (Note 13) (Note 14) (Note 15) (Note 16) 1,896 111,070 (18,307) (1,547) (39) 452 111,825 92,384 43,978 43,978 1,005 917 26,676 137,279	Pro Forma Consolidated Consolidated Statement of Statement Cash Flows of Cash of the Group Flows of the for the year Remaining Group ended 31 for the year ended December 2011 Pro forma adjustments 31 December 2011 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 12) (Note 13) (Note 14) (Note 15) (Note 16) 1,896 111,070 (18,307) (1,547) (39) 452 111,825 92,384 43,978 43,978 1,005 917 26,676 137,279
		92,384 43,978 917
		137,279

VI-13

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Notes:

(12) Extracted from the consolidated statement of cash flows of the Group for the year ended 31 December 2011 set out in Appendix IV.
(13) The adjustments reflect (a) the exclusion of the cash flows of Oasis Rich Group for the year ended 31 December 2011, (b) the reinstatement of the advance to Oasis Rich Group of HK$221,000 and the repayment from the Remaining Group of HK$7,392,000 for the year ended 31 December 2011, and (c) the cash outflow of HK$2,728,000 being the cash and cash equivalents disposed of arising from the GCH Disposal, assuming the GCH Disposal had taken place on 1 January 2011. Financial information of Oasis Rich Group is set out in Appendix III.
(14) The adjustments reflect (a) the exclusion of the cash flows of Gain Advance Group for the year ended 31 December 2011, (b) the reinstatement of the advance to Gain Advance Group of HK$116,000 for the year ended 31 December, 2011, and (c) the cash outflow of HK$30,000 being the cash and cash equivalents disposed of arising from the Intralot Disposal, assuming the Intralot Disposal had taken place on 1 January 2011. Financial information of Gain Advance Group is set out in Appendix II.
(15) The adjustment reflects the exclusion of interest paid on the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds for the year ended 31 December 2011, assuming that the Disposals had taken place on 1 January 2011.
(16) The adjustments reflect (a) the adjustments of transactions of a non-cash nature representing the pro forma gain arising from the Disposals, the interest expense and exchange gain on translation of the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds, and exclusion of impairment loss on goodwill, (b) the cash inflow of approximately HK$117,614,000 arising from the issuance of 1,507,865,799 Offer Shares on the basis of three Offer Shares for every one existing share of the Company held under the Open Offer on the basis of 502,621,933 shares in issue as at 1 January 2011 when all shareholders take up their respective entitlements to the Offer Shares, (c) the cash outflow arising from share issue expense of approximately HK$1,500,000 directly attributable to the Open Offer, and (d) the cash outflow of HK$4,289,000 arising from the payment of legal and professional fee in relation to the Disposals, assuming that the Disposals and the Open Offer had taken place on 1 January 2011.

VI-14

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Scenario II

Assuming that (a) no shareholders take up their respective entitlements to the Offer Shares; and (b) no subscription rights attached to the outstanding share options or conversion rights attached to the outstanding convertible bonds of the Company has been exercised; and (c) Melco LV and Power Way will take up their respective obligations to subscribe for the underwritten shares in accordance with the Underwriting Agreement, the following is the unaudited pro forma consolidated financial information of the Remaining Group upon completion of the Disposals and the Open Offer:

Unaudited Pro Forma Consolidated Statement of Financial Position

a Non-current assets Property, plant and equipment Interests in associates Available-for-sale investment Current assets Inventories Trade and other receivables Amount due from Oasis Rich Group Bank balances and cash Current liabilities Trade and other payables Amount due to Oasis Rich Group Amounts due to related companies Amount due to an associate Tax payable Convertible bonds Net current liabilities Total assets less current liabilities	Consolidated Statement of Financial Position of the Group s at 31 May 2012 Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) (Note 3) (Note 4) (Note 5) 8,623 (1,430) 1,664 137,402 (137,402) 147,689 30,866 (30,866) 87,422 (5,726) (5) – 341 15,016 (4,654) (43) 4,211 133,304 80,442 (59,669) (161) (1,300) – 40,979 11,678 (9,338) 420 2,315 14,785 18,700 577,105 (166,615) 671,960 (538,656) (390,967)	Pro forma Consolidated Statement of Financial Position of the Remaining Group as at 31 May 2012 HK$’000 7,193 1,664 –
		8,857
		– 81,691 341 14,530
		96,562
		19,312 40,979 2,340 420 35,800 410,490
		509,341
		(412,779)
		(403,922)

VI-15

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Consolidated Statement of Financial Position (Continued)

a Capital and reserves Share capital Reserves Deficiency of equity attributable to owners of the Company Non-controlling interests Total capital deficiency Non-current liabilities Loan from a related company – due after one year Convertible bonds	Consolidated Statement of Financial Position of the Group s at 31 May 2012 Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) (Note 3) (Note 4) (Note 5) 5,030 1,282 6,202 (687,715) 136,717 30,299 4,229 42,175 (682,685) 20,059 (8,532) 5,371 (662,626) 80,000 (39,039) 191,659 (191,659) 271,659 (390,967)	Pro forma Consolidated Statement of Financial Position of the Remaining Group as at 31 May 2012 HK$’000 12,514 (474,295)
		(461,781) 16,898
		(444,883)
		40,961 –
		40,961
		(403,922)

VI-16

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Unaudited Pro Forma Statement of Adjusted Consolidated Net Tangible Liabilities

						Unaudited
						pro forma
						net adjusted
	Consolidated					consolidated
	net tangible					tangible
	liabilities of the				liabilities of the
	Group as at 31					Remaining
	May 2012		Pro forma	adjustments		Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1) (Note 2)		(Note 3)	(Note 4)	(Note 5)
Net tangible liabilities
attributable to the
shareholders of the Company	(682,685) 136,717		30,299	5,511	48,377	(461,781)

Number of shares issued (’000)	502,967					1,251,386

Unaudited pro forma adjusted
consolidated net tangible
liabilities per share prior
to completion of the Disposals
and the Open Offer_(Note 6)_	HK$(1.36)
Unaudited pro forma adjusted
consolidated net tangible
liabilities per share after
completion of the Disposals
and the Open Offer_(Note 7)_						HK$(0.37)

Notes:

(1) Extracted from the consolidated statement of financial position of the Group as at 31 May 2012 set out in Appendix IV.
(2) The adjustments reflect (a) the de-consolidation of the assets and liabilities of Oasis Rich as at 31 May 2012, (b) the recognition of amount due from/to Oasis Rich Group, and (c) the pro forma gain arising from the GCH Disposal, assuming that the GCH Disposal had taken place on 31 May 2012. Financial information of Oasis Rich Group is set out in Appendix III.

Carrying value of the GCH 2012 Convertible Bonds Carrying value of net assets of Oasis Rich Group attributable to the Group’s 60% equity interest therein Pro forma gain on GCH Disposal recognised in profit or loss	HK$’000 166,615 (12,798)
	153,817

VI-17

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

For the purpose of the pro forma financial information, the Group has estimated the capital gain taxes of approximately HK$17,100,000 arising from the GCH Disposal based on 10% capital gain tax rate of the relevant outstanding principal of GCH 2012 Convertible Bonds minus 60% share of registered share capital of the PRC subsidiary of Oasis Rich to be disposed of. The amount of the capital gain taxes are subject to change upon completion.

(3) The adjustments reflect (a) the de-consolidation of the assets and liabilities of Gain Advance, (b) the recognition of non-controlling interests representing 49% equity interest in Precious Success as at 31 May 2012, calculated based on 49% of the carrying amounts of the net assets of Precious Success, and (c) the pro forma gain arising from the Intralot Disposal, assuming that the Intralot Disposal had taken place on 31 May 2012. Financial information of Gain Advance Group and Precious Success Group are set out in Appendices II and I, respectively.

Carrying value of the Intralot 2013 Convertible Bonds Assumed fair value of Gain Advance Group Assumed fair value of the Group’s 49% equity interest in Precious Success Group Pro forma gain on Intralot Disposal recognised in profit or loss	HK$’000 191,659 (137,289) (5,371) 48,999

For the purpose of determining the Intralot Disposal, the directors of the Company assumed that the fair value of Gain Advance Group and 49% equity interest in Precious Success Group approximated the carrying values as at 31 May 2012 of the net assets of Gain Advance Group and of the net assets of Precious Success Group attributable to the Group’s 49% equity interest therein, respectively. Furthermore, it is assumed that no consideration is allocated to repurchase the conversion option component of the Intralot 2013 Convertible Bonds due to the assumed aggregated fair value of Gain Advance Group and the Group’s 49% equity interest in Precious Success Group was lower than the assumed fair value of the liability component of the Intralot 2013 Convertible Bonds as at 31 May 2012, and hence the entire consideration paid by the Group for the repurchase of the Intralot 2013 Convertible Bonds is allocated to the liability component of the Intralot 2013 Convertible Bonds.

For the purpose of the pro forma financial information, the Group has estimated the capital gain taxes in the PRC of approximately HK$18,700,000 arising from the Intralot Disposal based on 10% capital gain tax rate of the relevant outstanding principal of Intralot 2013 Convertible Bonds minus 49% share of registered share capital of the PRC subsidiaries of Precious Success to be disposed of. The amount of the capital gain taxes are subject to change upon completion.

The financial impact of the Intralot Disposal is to be determined based on the carrying amount of the Intralot 2013 Convertible Bonds and the carrying value and fair value of the net assets of Gain Advance Group and Precious Success Group at the completion date and is therefore subject to change upon completion of the Intralot Disposal.

(4) The adjustments reflect (a) the estimated proceeds of HK$10,000,000 to be received by the Group arising from the issuance of 128,205,128 Offer Shares of the Company underwritten by Melco LV as set out in the Underwriting Agreement when no shareholders take up their respective entitlements to the Offer Shares, (b) the payment of legal and professional fee of HK$4,289,000 in relation to the Disposals in which HK$1,300,000 has been provided for in other payables and accruals as at 31 May 2012, and (c) the payment of share issue expense amounting to HK$1,500,000 directly attributable to the Open Offer, assuming that the Open Offer had taken place on 31 May 2012.
(5) The adjustments reflect (a) the estimated increase in share capital and reserves of the Group arising from the issuance of 620,214,078 Offer Shares underwritten by Power Way as set out in page 47 of the Circular when no shareholders take up their respective entitlements to the Offer Shares to the extent that the public float will decrease from 58% to 25%, and (b) the settlement of the portion of Power Way Loan and accrued interest in aggregate amounting to HK$48,377,000 by way of set off of the underwriting and payment obligations of Power Way, assuming that the Open Offer had taken place on 31 May 2012.
(6) The calculation of the unaudited pro forma adjusted consolidated net tangible liabilities per share prior to completion of the Disposals and the Open Offer is based on 502,966,933 shares in issue as at 31 May 2012.
(7) The calculation of the unaudited pro forma adjusted consolidated net tangible liabilities per share after completion of the Disposals and the Open Offer is based on 1,251,386,139 shares comprising 502,966,933 shares in issue as at 31 May 2012 and 748,419,206 Offer Shares underwritten by Melco LV and Power Way to be issued.

VI-18

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Unaudited Pro Forma Consolidated Statement of Comprehensive Income

	Consolidated						Pro Forma
	Statement of						Consolidated
Comprehensive							Statement of
	Income of						Comprehensive
	the Group						Income of the
	for the						Remaining Group
	year ended						for the year
	31 December						ended 31
	2011			Pro forma adjustments			December 2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 8)	(Note 9)	(Note 10)	(Note 11)	(Note 12)	(Note 13)
Revenue	96,622	(25,699)					70,923
Changes in inventories of
finished goods and
work-in-progress	(12,494)	12,824					330
Purchases of inventories
and raw materials
consumed	(71,131)	6,070					(65,061)
Other income, gains and losses	36,664	(70)		8,049	(14,804)	(2,148)	27,691
Employee benefits costs	(18,852)	1,826					(17,026)
Depreciation and
amortization	(6,732)	975					(5,757)
Gain arising from the
Disposals	–				227,690		227,690
Impairment loss on:
– intangible assets	(75,035)						(75,035)
– trade and other
receivables	(11,744)	728					(11,016)
– amount due from an
associate	(2,436)						(2,436)
– interest in an associate	(1,393)						(1,393)
– goodwill	(27,903)				27,903		–
Share of results of an
associate	(3,976)						(3,976)
Share of results of jointly
controlled entities	(480)						(480)
Other expenses	(27,831)	14,982	124	(8,049)	(4,289)		(25,063)
Finance costs	(89,098)				52,215	401	(36,482)
(Loss) profit before
taxation	(215,819)						82,909
Income tax expense	(113)				(35,800)		(35,913)

VI-19

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Consolidated Statement of Comprehensive Income (Continued)

	Consolidated						Pro Forma
	Statement of						Consolidated
	Comprehensive						Statement of
	Income of						Comprehensive
	the Group						Income of the
	for the						Remaining Group
	year ended						for the year
	31 December						ended 31
	2011			Pro forma adjustments			December 2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 8)	(Note 9)	(Note 10)	(Note 11)	(Note 12)	(Note 13)
(Loss) profit for the year	(215,932)						46,996
Other comprehensive
expense
Exchange difference
arising on translation	(29,834)	(1,460)	685		14,804	2,148	(13,657)
Total comprehensive
(expense) income for
the year	(245,766)						33,339

(Loss) profit for the year
attributable to:
Owners of the Company	(209,219)	6,982	13,174		252,915	(1,747)	62,105
Non-controlling interests	(6,713)	4,654	(13,050)				(15,109)
	(215,932)						46,996

Total comprehensive
(expense) income
attributable to:
Owners of the Company	(239,675)	6,106	11,475		267,719	401	46,026
Non-controlling interests	(6,091)	4,070	(10,666)				(12,687)
	(245,766)						33,339

Notes:

(8) Extracted from the consolidated statement of comprehensive income of the Group for the year ended 31 December 2011 set out in Appendix IV.
(9) The adjustment reflects the exclusion of the results of Oasis Rich Group for the year ended 31 December 2011, assuming that the GCH Disposal had taken place on 1 January 2011. The revenue of Oasis Rich Group for the year ended 31 December 2011 was HK$78,314,000, in which HK$25,699,000 was external sales and HK$6,070,000 was the relevant purchases. Financial information of Oasis Rich Group is set out in Appendix III.

VI-20

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

(10) The adjustments reflect (a) the exclusion of the results of Gain Advance Group and (b) the allocation of 49% share of results of Precious Success Group attributable to non-controlling interests for the year ended 31 December 2011, assuming that the Intralot Disposal had taken place on 1 January 2011. Financial information of Gain Advance Group and Precious Success Group are set out in Appendices II and I, respectively.
(11) The adjustment reflects the reinstatement of consultancy fee income amounting to HK$8,049,000 charged from the Remaining Group to Oasis Rich Group.
(12) The adjustments reflect (a) the exclusion of interest expense relating to the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds, (b) the exclusion of exchange gain on translation of the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds, (c) the recognition of legal and professional fee of HK$4,289,000 in relation to the Disposals, (d) the exclusion of impairment loss on goodwill amounting to HK$27,903,000, and (e) the pro forma gain arising from the Disposals, assuming that the Disposals had taken place on 1 January 2011:

Carrying value of the GCH 2012 Convertible Bonds
Carrying value of net assets of Oasis Rich Group attributable to the Group's
60% equity interest therein
Goodwill
Pro forma gain on GCH Disposal recognised in profit or loss
Carrying value of the Intralot 2013 Convertible Bonds
Assumed fair value of Gain Advance Group
Assumed fair value of the Group’s 49% equity interest in Precious Success Group
Pro forma gain on Intralot Disposal recognised in profit or loss
Assumed fair value of the Group’s 49% equity interest in Precious Success Group
Carrying value of net liabilities of Precious Success Group attributable to
the Group's 49% equity interest therein
Pro forma gain on Intralot Disposal recognised in reserve

HK$’000
145,680
(23,695)
(27,903)
94,082
HK$’000
135,762
(2,154)
–
133,608
HK$’000
–
17,526
17,526

For the purpose of determining the pro forma gain on the Disposals, the directors of the Company assumed that the fair value of Gain Advance Group approximated its carrying value and the fair value of the Group’s 49% equity interest in Precious Success Group is zero as at 1 January 2011. Furthermore, it is assumed that no consideration is allocated to repurchase the conversion option component of the GCH 2012 Convertible Bonds due to the GCH 2012 Convertible Bonds were close to the maturity date and the conversion options were deeply out of the money and no consideration is allocated to repurchase the conversion option component of the Intralot 2013 Convertible Bonds due to the assumed aggregated fair value of Gain Advance Group and the Group’s 49% equity interest in Precious Success Group was lower than the assumed fair value of the liability component of the Intralot 2013 Convertible Bonds as at 1 January 2011, and hence the entire consideration paid by the Group for the repurchase of the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds is allocated to the liability component of the GCH 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds, respectively.

For the purpose of the pro forma financial information, the Group has estimated the capital gain taxes in the PRC of approximately HK$35,800,000 comprising (i) HK$17,100,000 arising from the GCH Disposal based on 10% capital gain tax rate of the relevant outstanding principal of GCH 2012 Convertible Bonds minus 60% share of registered share capital of the PRC subsidiary of Oasis Rich to be disposed of, and (ii) HK$18,700,000 arising from the Intralot Disposal based on 10% capital gain tax rate of the relevant outstanding principal of Intralot 2013 Convertible Bonds minus 49% share of registered share capital of the PRC subsidiaries of Precious Success to be disposed of. The amount of the capital gain taxes are subject to change upon completion.

The financial impact of the Intralot Disposal is to be determined based on the carrying amount of the Intralot 2013 Convertible Bonds and the carrying value and fair value of the net assets of the Gain Advance Group and Precious Success Group at the completion date and is therefore subject to change upon completion of the Intralot Disposal.

(13) The adjustments reflect (a) the exclusion of interest expense relating to the portion of Power Way Loan to be set off, and (b) the exclusion of exchange gain arising from translation of the portion of Power Way Loan to be set off, assuming that the Open Offer had taken place on 1 January 2011 and the portion of Power Way Loan and accrued interest amounting to HK$48,354,000 had been set off with the payment obligations for the issuance of 619,929,080 Offer Shares underwritten by Power Way as set out in page 47 of this Circular.

VI-21

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Unaudited Pro Forma Consolidated Statement of Cash Flows

							Pro Forma
	Consolidated						Consolidated
	Statement						Statement
	of Cash Flows					of	Cash Flows of
	of the Group					the Remaining Group
	for the year ended					for the year ended
	31 December 2011		Pro	forma adjustments		31 December 2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 14)	(Note 15)	(Note 16)	(Note 17)	(Note 18)	(Note 19)
OPERATING ACTIVITIES
(Loss) profit before taxation	(215,819)	11,636	124		288,715	(1,747)	82,909
Adjustments for:
Allowance for inventories	8,101	(8,101)					–
Depreciation and amortisation	6,732	(975)					5,757
Equity-settled share-based
payments	4,299						4,299
Impairment losses on:
– intangible assets	75,035						75,035
– trade and other receivables	11,744	(728)					11,016
– amount due from an associate	2,436						2,436
– interest in an associate	1,393						1,393
– goodwill	27,903				(27,903)		–
Interest expenses	89,098				(52,215)	(401)	36,482
Interest income	(166)	8					(158)
Loss on disposal of property,
plant and equipment	462						462
Net foreign exchange gain	(36,301)				14,804	2,148	(19,349)
Share of results of associates	3,976						3,976
Share of results of jointly
controlled entities	480						480
Gain arising from the Disposals	–				(227,690)		(227,690)
Operating cash flows before
movements in working capital	(20,627)						(22,952)
Decrease in inventories	5,353	(5,287)					66
Increase in trade and other
receivables	(11,421)	(1,549)	(3)				(12,973)
Increase in amount due from a
fellow subsidiary	–	14,362					14,362
Decrease in amounts due from
jointly controlled entities	16,903	(16,482)					421
(Decrease) increase in trade
and other payables	(10,557)	15,810	(14)				5,239
Cash used in operations	(20,349)						(15,837)
Income taxes paid	(699)	65					(634)

VI-22

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Consolidated Statement of Cash Flows (Continued)

							Pro Forma
	Consolidated						Consolidated
	Statement						Statement
	of Cash Flows					of	Cash Flows of
	of the Group					the Remaining Group
	for the year ended					for the year ended
	31 December 2011		Pro	forma adjustments		31 December 2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 14)	(Note 15)	(Note 16)	(Note 17)	(Note 18)	(Note 19)
NET CASH USED IN
OPERATING ACTIVITIES	(21,048)						(16,471)
INVESTING ACTIVITIES
Disposal of subsidiaries
(net of cash and cash
equivalents disposed of)	10,503	(2,728)	(30)				7,745
Interest received	166	(8)					158
Acquisition of a subsidiary
(net of cash and cash
equivalents acquired)	1,535						1,535
Proceeds from disposal of
property, plant and
equipment	536						536
Purchase of property, plant
and equipment	(7,394)	43					(7,351)
Investment in associates	(3,065)						(3,065)
Advance to Oasis Rich Group
and Gain Advance Group	–	(221)	(116)				(337)
Advance to an associate	(1,436)						(1,436)
NET CASH FROM
(USED IN) INVESTING
ACTIVITIES	845						(2,215)
FINANCING ACTIVITIES
Interest paid	(884)			452			(432)
Repayment to Oasis Rich Group	–	(7,392)					(7,392)
Capital contribution by
non-controlling interest	3,003						3,003
Acquisition of additional
interest in a subsidiary	(250)						(250)
Proceeds from exercise of
share options	27						27
Proceeds from issue of
new shares	–				10,000		10,000
Share issue expense	–				(1,500)		(1,500)

VI-23

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Consolidated Statement of Cash Flows (Continued)

							Pro Forma
	Consolidated						Consolidated
	Statement						Statement
	of Cash Flows					of	Cash Flows of
	of the Group					the Remaining Group
	for the year ended					for the year ended
	31 December 2011		Pro	forma adjustments		31 December 2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 14)	(Note 15)	(Note 16)	(Note 17)	(Note 18)	(Note 19)
NET CASH FROM
FINANCING ACTIVITIES	1,896						3,456
NET DECREASE IN
CASH AND CASH
EQUIVALENTS	(18,307)	(1,547)	(39)	452	4,211		(15,230)
CASH AND CASH
EQUIVALENT AT
BEGINNING OF YEAR	43,978						43,978
EFFECT OF FOREIGN
EXCHANGE RATE
CHANGES	1,005						917
CASH AND CASH
EQUIVALENT AT END
OF YEAR, represented by
bank balances and cash	26,676						29,665

VI-24

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

Notes:

(14) Extracted from the consolidated statement of cash flows of the Group for the year ended 31 December 2011 set out in Appendix IV.
(15) The adjustments reflect (a) the exclusion of the cash flows of Oasis Rich Group for the year ended 31 December 2011, (b) the reinstatement of the advance to Oasis Rich Group of HK$221,000 and the repayment from the Remaining Group of HK$7,392,000 for the year ended 31 December 2011, and (c) the cash outflow of HK$2,728,000 being the cash and cash equivalents disposed of arising from the GCH Disposal, assuming the GCH Disposal had taken place on 1 January 2011. Financial information of Oasis Rich Group is set out in Appendix III.
(16) The adjustments reflect (a) the exclusion of the cash flows of Gain Advance Group for the year ended 31 December 2011, (b) the reinstatement of the advance to Gain Advance Group for the year ended 31 December 2011, and (c) the cash outflow of HK$30,000 being the cash and cash equivalents disposed of arising from the Intralot Disposal, assuming the Intralot Disposal had taken place on 1 January 2011. Financial information of Gain Advance Group is set out in Appendix II.
(17) The adjustment reflects the exclusion of interest paid on the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds for the year ended 31 December 2011, assuming that the Disposals had taken place on 1 January 2011.
(18) The adjustments reflect (a) the adjustments of transactions of a non-cash nature representing the pro forma gain arising from the Disposals, the interest expense and exchange gain on translation of the GCH 2012 Convertible Bonds and Intralot 2013 Convertible Bonds, and exclusion of impairment loss on goodwill, (b) the cash inflow of HK$10,000,000 received by the Group arising from the issuance of 128,205,128 Offer Shares underwritten by Melco LV when no shareholders take up their respective entitlements to the Offer Shares, (c) the cash outflow arising from share issue expense of approximately HK$1,500,000 directly attributable to the Open Offer, and (d) the cash outflow of HK$4,289,000 arising from the payment of legal and professional fee in relation to the Disposals, assuming that the Disposals and the Open Offer had taken place on 1 January 2011.
(19) The adjustment reflects the adjustments of transactions of a non-cash nature representing the interest expense and exchange gain arising from translation of the portion of Power Way Loan to be set off, assuming that the Open Offer had taken place on 1 January 2011.

VI-25

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX VI

The following is the text of a report, prepared for the purpose of incorporation in this circular, received from the Company’s reporting accountant, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

B. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

==> picture [120 x 58] intentionally omitted <==

TO THE DIRECTORS OF MELCOLOT LIMITED

We report on the unaudited pro forma consolidated financial information of MelcoLot Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed disposals of the entire equity interest of Gain Advance Group Limited, entire 60% equity interest of Oasis Rich International Ltd. and 49% equity interest of Precious Success Holdings Limited, and the proposed open offer of new shares of the Company might have affected the financial information presented, for inclusion in Appendix VI of the circular issued by the Company dated 26 September 2012 (the “Circular”). The basis of preparation of the unaudited pro forma consolidated financial information is set out in Part A of Appendix VI to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma consolidated financial information in accordance with paragraph 31 of Chapter 7 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 31(7) of Chapter 7 of the GEM Rules, on the unaudited pro forma consolidated financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma consolidated financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

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

VI-26

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma consolidated financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the unaudited pro forma consolidated financial information as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Rules.

The unaudited pro forma consolidated financial information is for illustrative purpose only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of:

the financial position of the Group as at 31 May 2012 or any future date; or
the results and cash flows of the Group for the year ended 31 December 2011 or any future period.

Opinion

In our opinion:

a) the unaudited pro forma consolidated financial information has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Group; and
c) the adjustments are appropriate for the purposes of the unaudited pro forma consolidated financial information as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong 26 September 2012

VI-27

GENERAL INFORMATION

APPENDIX VII

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the GEM Listing Rules, the Takeovers Code and the Repurchase Code for the purpose of giving information with regard to the Group.

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

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in this circular, have been arrived at after due and careful consideration, and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

VII-1

GENERAL INFORMATION

APPENDIX VII

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date and immediately after completion of the Transactions, will be as follows:

Authorised: 2,000,000,000 Shares as at the Latest Practicable Date 3,500,000,000 New unissued shares created pursuant to the Proposed Increase in Authorised Capital 5,500,000,000 Shares upon completion of the Transactions	HK$ 20,000,000.00 35,000,000.00
	55,000,000.00

Issued and fully paid or credited as fully paid assuming that (a) all Shareholders take up their respective assured entitlements to the Offer Shares; and (b) all subscription rights attached to the outstanding Share Options (excluding the Excluded Options) have been exercised before the Latest Lodging Time and their respective assured entitlements to the Offer Shares have been taken up:

Issued and fully paid: 502,966,933 Shares as at the Latest Practicable Date 1,785,052,799 New Shares to be issued upon completion of the Transactions 2,288,019,732 Shares upon completion of the Transactions	HK$ 5,029,669.33 17,850,527.99
	22,880,197.32

Issued and fully paid or credited as fully paid assuming (a) no Shareholders take up their respective assured entitlements to the Offer Shares; and (b) no subscription rights attached to the outstanding Share Options have been exercised:

Issued and fully paid: 502,966,933 Shares as at the Latest Practicable Date 748,419,206 New Shares to be issued upon completion of the Transactions 1,251,386,139 Shares upon completion of the Transactions	HK$ 5,029,669.33 7,484,192.06
	12,513,861.39

All of the issued Shares rank pari passu with each other in all respects including the rights as to voting, dividends, distributions and return of capital.

VII-2

APPENDIX VII

GENERAL INFORMATION

When allotted, issued and fully-paid, the Offer Shares will rank pari passu in all respects with the existing Shares then in issue. Holders of fully-paid Offer Shares will be entitled to receive all dividends and distributions which are declared, made or paid after the date of allotment and issue of the fully-paid Offer Shares. The Shares in issue are listed on GEM. No part of the securities, including debt securities, of the Company is listed on, dealt in, nor is listing or permission to deal in the securities of the Company being or proposed to be sought, on any other stock exchange.

Since 31 December 2011, being the date of the end of the last financial year of the Company, and up to the Latest Practicable Date, save for the CB Repurchases and the issue of 345,000 Shares on 1 February 2011 as a result of the exercises of the Share Options, the Company has not issued or repurchased any Shares. Save as disclosed, the Company had not repurchased any Share during the 12-month period immediately preceding the Latest Practicable Date.

There was no re-organisation of capital of the Company during the two financial years preceding the Offer Period.

Save for the issue of 345,000 Shares on 1 February 2011 as a result of the exercises of the Share Options, the Company has not issued any Share during the two-year period immediately preceding 14 August 2012, being the commencement date of the Offer Period. The issue price was HK$0.088 per Share and the aggregate proceeds received by the Company from the issue was HK$30,360.

The Company has not paid any dividend during the two-year period immediately preceding the Latest Practicable Date. The Company has no available reserve for distribution of dividend and no plan or intention to declare a dividend or alter the dividend policy. There is no arrangement under which future dividends are/will be waived or agreed to be waived.

Particulars of the Share Options are set out below:

The share option scheme (the “ Old Share Option Scheme ”) adopted at the general meeting of the Company on 20 April 2002 has expired on 20 April 2012. The Share Options granted thereunder prior to the Old Share Option Scheme’s expiry date will continue to be valid and exercisable in accordance with the terms of the Old Share Option Scheme.

At the annual general meeting of the Company held on 18 May 2012, the Shareholders approved the adoption of a new share option scheme (the “ 2012 Share Option Scheme ”) under which the Directors may grant share options to eligible persons to subscribe for Shares, subject to the terms and conditions as stipulated therein. Unless otherwise cancelled or amended, the 2012 Share Option Scheme will remain valid for a period of 10 years from the date of its adoption. No outstanding share options had been granted under the 2012 Share Option Scheme as at the Latest Practicable Date.

VII-3

GENERAL INFORMATION

APPENDIX VII

The outstanding number of Share Options as at the Latest Practicable Date are as follows:

Type of participant Directors: Mr. Ko Chun Fung, Henry Mr. Chrysafidis, Evangelos Mr. Chan Sek Keung, Ringo Mr. Wang, John Peter Ben Mr. Tsoi, David	Date of grant 31.3.2008 (Note 1) 10.7.2009 (Note 2) 18.11.2010 (Note 1) 18.11.2010 (Note 1) 20.2.2003 (Note 3) 10.7.2009 (Note 2) 18.11.2010 (Note 1) 31.3.2008 (Note 1) 10.7.2009 (Note 2) 18.11.2010 (Note 1) 10.7.2009 (Note 2) 18.11.2010 (Note 1)	Exercisable period 1.10.2008 to 31.3.2018 10.7.2010 to 9.7.2019 18.5.2011 to 17.11.2020 18.5.2011 to 17.11.2020 20.2.2004 to 19.2.2013 10.7.2010 to 9.7.2019 18.5.2011 to 17.11.2020 1.10.2008 to 31.3.2018 10.7.2010 to 9.7.2019 18.5.2011 to 17.11.2020 10.7.2010 to 9.7.2019 18.5.2011 to 17.11.2020	Number of Share Options outstanding Exercise at the Latest price Practicable per Share Date HK$ 0.890 4,354,000 0.367 4,000,000 0.152 5,000,000 0.152 1,000,000 0.138 1,200,000 0.367 3,000,000 0.152 2,000,000 0.890 3,846,000 0.367 3,000,000 0.152 5,000,000 0.367 200,000 0.152 200,000	Number of Share Options outstanding Exercise at the Latest price Practicable per Share Date HK$ 0.890 4,354,000 0.367 4,000,000 0.152 5,000,000 0.152 1,000,000 0.138 1,200,000 0.367 3,000,000 0.152 2,000,000 0.890 3,846,000 0.367 3,000,000 0.152 5,000,000 0.367 200,000 0.152 200,000
				4,354,000 4,000,000 5,000,000 1,000,000 1,200,000 3,000,000 2,000,000 3,846,000 3,000,000 5,000,000 200,000 200,000

VII-4

APPENDIX VII

GENERAL INFORMATION

Type of participant Mr. Pang Hing Chung, Alfred Mr. So Lie Mo, Raymond Substantial shareholder: Employees:	Date of grant 10.7.2009 (Note 2) 18.11.2010 (Note 1) 10.7.2009 (Note 2) 18.11.2010 (Note 1) 31.3.2008 (Note 1) 10.7.2009 (Note 2) 18.11.2010 (Note 1) 31.3.2008 (Note 1) 16.2.2009 (Note 2) 10.7.2009 (Note 2) 18.11.2010 (Note 1)	Exercisable period 10.7.2010 to 9.7.2019 18.5.2011 to 17.11.2020 10.7.2010 to 9.7.2019 18.5.2011 to 17.11.2020 1.10.2008 to 31.3.2018 10.7.2010 to 9.7.2019 18.5.2011 to 17.11.2020 1.10.2008 to 31.3.2018 16.2.2010 to 15.2.2019 10.7.2010 to 9.7.2019 18.5.2011 to 17.11.2020	Exercise price per Share HK$ 0.367 0.152 0.367 0.152 0.890 0.367 0.152 0.890 0.300 0.367 0.152	Number of Share Options outstanding at the Latest Practicable Date 200,000 200,000 200,000 200,000	Number of Share Options outstanding at the Latest Practicable Date 200,000 200,000 200,000 200,000
					200,000 200,000 200,000 200,000
					33,600,000
					4,354,000 4,000,000 5,000,000
					13,354,000
					6,373,000 3,200,000 6,278,000 11,500,000
					27,351,000

VII-5

APPENDIX VII

GENERAL INFORMATION

Type of participant Advisers: (Note 4)	Date of grant 12.1.2007 (Note 3) 31.3.2008 (Note 1) 16.2.2009 (Note 2) 10.7.2009 (Note 2) 18.11.2010 (Note 1)	Exercisable period 12.1.2008 to 11.1.2017 1.10.2008 to 31.3.2018 16.2.2010 to 15.2.2019 10.7.2010 to 9.7.2019 18.5.2011 to 17.11.2020	Exercise price per Share HK$ 0.088 0.890 0.300 0.367 0.152	Number of Share Options outstanding at the Latest Practicable Date 1,275,000 6,606,000 8,300,000 9,130,000 7,200,000	Number of Share Options outstanding at the Latest Practicable Date 1,275,000 6,606,000 8,300,000 9,130,000 7,200,000
					1,275,000 6,606,000 8,300,000 9,130,000 7,200,000
					32,511,000
					106,816,000

Notes:

(1) These grants under the Old Share Option Scheme are exercisable for a period not later than 10 years from the date of grant, within which there is a total vesting period of one year, starting from six months of the grant date at stepped six months increments of 50% of the total Share Options granted.
(2) These grants under the Old Share Option Scheme are exercisable for a period not later than 10 years from the date of grant, within which there is a total vesting period of three years, starting from the first anniversary of the grant date at stepped annual increments of 33% of the total Share Options granted.
(3) These grants under the Old Share Option Scheme are exercisable for a period not later than 10 years from the date of grant, within which there is a total vesting period of four years, starting from the first anniversary of the grant date at stepped annual increments of 25% of the total Share Options granted.
(4) Advisers are individuals who rendered consultancy services in respect of the business development to the Group without receiving any compensation. The Group granted Share Options to them for recognising their services similar to those rendered by other employees.

As at the Latest Practicable Date, save for (i) 106,816,000 Share Options (including the Excluded Options); (ii) the 2012 Convertible Bonds in the principal amount of HK$606,800,000 conferring rights entitling the holders of which to subscribe for 713,882,352 Conversion Shares; and (iii) the Intralot 2013 Convertible Bonds in the principal amount of HK$277,175,310 conferring rights entitling the holders of which to subscribe for 279,692,542 Conversion Shares, the Company has no other outstanding warrants, options or other convertible securities. The details of the 2012 Convertible Bonds and the Intralot 2013 Convertible Bonds are respectively set out in notes (8) and (9) under sub-section “(ii)(b) Substantial shareholders’ interests” in this appendix below.

As at the Latest Practicable Date, no share or loan capital of the Company or any members of the Group has been put under option or agreed conditionally or unconditionally to be put under option and no warrant or conversion right affecting the Shares has been issued or granted or agreed to be issued or granted, except for the Share Options, the 2012 Convertible Bonds, the Intralot 2013 Convertible Bonds and the Offer Shares.

VII-6

GENERAL INFORMATION

APPENDIX VII

3. MARKET PRICES

The table below shows the closing price of the Shares on the Stock Exchange on (i) the last trading day of the Stock Exchange for each calendar month during the Relevant Period before the Latest Practicable Date; (ii) the Last Trading Day; and (iii) the Latest Practicable Date:

		Closing price
Date		per Share
		HK$
29 February 2012		0.165
30 March 2012		0.165
30 April 2012		0.141
31 May 2012		0.106
26 June 2012 (Last Trading Day)		0.099
29 June 2012	Not applicable (trading in the Shares suspended)
31 July 2012	Not applicable (trading in the Shares suspended)
31 August 2012		0.087
21 September 2012 (Latest Practicable Date)		0.132

The highest and lowest closing prices per Share recorded on the Stock Exchange during the Relevant Period were HK$0.215 on 16 February 2012 and HK$0.085 on 11 September 2012 and 12 September 2012 respectively.

VII-7

GENERAL INFORMATION

APPENDIX VII

4. DISCLOSURE OF INTERESTS

(i) Directors’ and chief executive’s interests

As at the Latest Practicable Date, the interests or short positions of each Director and chief executive of the Company in the shares, debentures or underlying shares of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he or she was taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules were as follows:

(a) Long positions in the Shares

Number of Shares

Name of Director Mr. Chan Sek Keung, Ringo Mr. Tsoi, David Mr. Pang Hing Chung, Alfred	Beneficial owner 18,876,000 976,000 1,500,000	Held by controlled corporation(s) 34,400,000 (Note 2) – –	Total number of Shares 53,276,000 976,000 1,500,000	Approximate percentage of the issued share capital of the Company
				(Note 1) 10.59% 0.19% 0.30%

Notes:

(1) As at the Latest Practicable Date, the total issued Shares was 502,966,933.

(2) Mr. Chan Sek Keung, Ringo is deemed to be interested in 34,400,000 Shares beneficially held by Woodstock Management Limited, a company wholly owned by him.

VII-8

GENERAL INFORMATION

APPENDIX VII

(b) Long positions in the Share Options

Name of Director (Note 2) Mr. Ko Chun Fung, Henry Mr. Chrysafidis, Evangelos Mr. Chan Sek Keung, Ringo Mr. Wang, John Peter Ben Mr. Tsoi, David Mr. Pang Hing Chung, Alfred Mr. So Lie Mo, Raymond	Number of Share Options held 13,354,000 1,000,000 6,200,000 11,846,000 400,000 400,000 400,000	Number of underlying Shares 13,354,000 1,000,000 6,200,000 11,846,000 400,000 400,000 400,000	Approximate percentage of the issued share capital of the Company
			(Note 1) 2.66% 0.20% 1.23% 2.36% 0.08% 0.08% 0.08%

Notes:

(1) As at the Latest Practicable Date, the total issued Shares was 502,966,933.
(2) Each of the above Directors is the beneficial owner of the Share Options granted to him.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company or their respective associates (within the meaning of the GEM Listing Rules) had any interests and short positions in the shares, debentures or underlying shares of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he or she was taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange.

(ii) Substantial shareholders’ interests

So far as is known to any Director or chief executive of the Company, as at the Latest Practicable Date, the following persons (not being Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the shares, debentures or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO and section 336 of the SFO or, who were or were expected, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Company were as follows:

VII-9

GENERAL INFORMATION

APPENDIX VII

(a) Long positions in the Shares

Number of Shares

Name of Shareholder Melco Mr. Ho, Lawrence Yau Lung Intralot S.A. Mr. Chang Firich	Beneficial owner – – – – 2,097,498	Held by controlled corporation(s) 58,674,619 (Note 2) 58,674,619 (Note 3) 52,973,779 (Note 4) 20,787,042 (Note 5) 10,880,000 (Note 6)	Total number of Shares 58,674,619 58,674,619 52,973,779 20,787,042 12,977,498	Approximate percentage of the issued share capital of the Company (Note 1) 11.67% 11.67% 10.53% 4.13% 2.58%

(b) Long positions in the underlying Shares

Number of underlying Shares

Name of Shareholder Melco Mr. Ho, Lawrence Yau Lung Intralot S.A. Mr. Chang Firich	Beneficial owner – 13,354,000 (Note 7) – – 20,796,766	Held by controlled corporation(s) 470,006,742 (Note 2) 470,006,742 (Note 3) 366,376,270 (Note 4) 206,104,195 (Note 5) –	Total number of underlying Shares 470,006,742 483,360,742 366,376,270 206,104,195 20,796,766	Approximate percentage of the issued share capital of the Company (Note 1) 93.45% 96.10% 72.84% 40.98% 4.13%

VII-10

GENERAL INFORMATION

APPENDIX VII

Notes:

(1) As at the Latest Practicable Date, the total issued Shares was 502,966,933.
(2) Melco is deemed by the SFO to be interested in 58,674,619 Shares and 470,006,742 underlying Shares from convertible bonds in the Company as described in (8) below by virtue of its indirect holding of its wholly owned subsidiaries, Melco Leisure and Entertainment Group Limited and Melco LV.
(3) Mr. Ho, Lawrence Yau Lung is deemed by the SFO to be interested in 58,674,619 Shares and 470,006,742 underlying Shares from convertible bonds in the Company as described in (8) below by virtue of his controlling interests in Melco, which is held by his controlled corporations, and his indirect holding of Melco Leisure and Entertainment Group Limited and Melco LV.
(4) Intralot S.A. is deemed by the SFO to be interested in 52,973,779 Shares and 366,376,270 underlying Shares from convertible bonds in the Company as described in (8) and (9) below by virtue of its indirect holding of its wholly owned subsidiaries, Intralot Holdings International Limited and Intralot.
(5) Mr. Chang is deemed by the SFO to be interested in 20,787,042 Shares and 206,104,195 underlying Shares from convertible bonds in the Company as described in (8) below by virtue of his direct holding in the entire share capital of Universal Rich and its wholly owned subsidiary, GCH. Pursuant to a sale and purchase agreement dated 15 December 2011, Universal Rich acquired the entire share capital of GCH from Firich.
(6) Firich is deemed by the SFO to be interested in 10,880,000 Shares by virtue of its direct holding of its wholly owned subsidiary, Toprich Company Limited.
(7) Mr. Ho, Lawrence Yau Lung renders consultancy services in respect of the business development of the Group without receiving any compensation. The Company granted the Share Options to him for recognising his services similar to those rendered by other employees.
(8) On 13 December 2007, the Company issued the 2012 Convertible Bonds with principal amount of HK$606,800,000 to Power Way as part of the consideration for the acquisition of subsidiaries, which entitle the holder to convert them into 713,882,352 Shares within 5 years from the date of issue at a conversion price of HK$0.85 per Share subject to anti-dilutive adjustments. If the 2012 Convertible Bonds have not been converted, they will be redeemed on maturity date of 13 December 2012. Power Way had subsequently distributed all 2012 Convertible Bonds to its shareholders, and as to principal amount of HK$399,505,732 by Melco LV, HK$175,188,566 by GCH, HK$17,677,251 by Firich and the balance of HK$14,428,451 by Intralot, after several transfers, as at the Latest Practicable Date.
(9) Pursuant to an agreement dated 7 September 2008 (as amended by a supplemental agreement dated 26 September 2008) entered into between the Company and Intralot, the Company issued the Intralot 2013 Convertible Bonds with principal amount of HK$277,175,310 to Intralot, as part of the consideration for the acquisition of intangible assets on 9 December 2008, which entitle the holder to convert them into 279,692,542 Shares within 5 years from the date of issue at a conversion price of HK$0.991 per Share subject to anti-dilutive adjustments. If the Intralot 2013 Convertible Bonds have not been converted, they will be redeemed on maturity date of 9 December 2013. In addition, upon obtaining two agreements in connection with the recognised projects in China, the Company shall pay the success payment, satisfied by convertible bonds, to Intralot, which are convertible into 69,709,080 Shares at a conversion price of HK$1.0759 per share.
(iii) Interests of connected company (where the Director is a director or employee of such company)

Save as disclosed above in this section and save for Mr. Chrysafidis, Evangelos is an employee of Intralot S.A., none the Directors or proposed Directors were a director or employee of a company which has an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

VII-11

GENERAL INFORMATION

APPENDIX VII

Save as disclosed above, as at the Latest Practicable Date, the Directors and the chief executive of the Company were not aware of any other person (other than the Directors and the chief executive of the Company) who had, or was deemed to have, interests or short positions in the shares, debentures or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO and section 336 of the SFO, or who was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Company or had any options in respect of such shares.

5. LITIGATIONS

As at the Latest Practicable Date, neither the Company or any of its subsidiaries is involved or may become a party in any material litigation and not aware of any potential claims against the Company or any of its subsidiaries that would affect the Group’s financial and operational positions.

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing service contract or proposed service contract with the Company or any of its subsidiaries or associated companies in force, which was entered into or amended within 6 months prior to the commencement of the Offer Period, is a continuous contract with a notice period of 12 months or more, or is a fixed term contract with more than 12 months to run irrespective of the notice period (excluding contracts expiring or determinable by the employer within one year without payment of compensation, other than statutory compensation).

7. MATERIAL CONTRACTS

The following contracts have been entered into by the Group (not being contracts entered into in the ordinary course of business carried on or intended to be carried on by the Company or any of its subsidiaries) within the two years immediately preceding the Offer Period and are or may be material:

(i) a supplemental agreement dated 18 January 2011 in supplement to the an agreement dated 28 December 2006 and both entered into among Shandong Kai Chuan Ji Yuan, Shandong Zhenglu Industrial Company Limited (山東正魯實業有限責任公司#) and Beijing Huaying in respect of the proposed increase of the registered capital of Shandong Kai Chuan Ji Yuan from RMB2,666,700 to RMB10,000,000;
(ii) the Intralot Agreement;
(iii) the GCH Agreement;
(iv) the Wu Sheng Exclusivity Undertaking;
(v) the Intradak Exclusivity Undertaking;
(vi) the Outsource Agreement;

VII-12

GENERAL INFORMATION

APPENDIX VII

(vii) a deed of termination dated 13 August 2012 and entered into between PAL Beijing and Beijing Yobit Games Limited, a company established in the PRC with limited liability and wholly owned by Beijing Haiyin, in relation to the termination of the Outsource Agreement in accordance with its terms and no consideration is payable thereunder; and
(viii) the Underwriting Agreement.

8. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

(a) As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 31 May 2012, the date to which the latest audited consolidated financial statements of the Group were made up.
(b) As at the Latest Practicable Date, none of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group since 31 May 2012, being the date to which the latest audited consolidated financial statements of the Group were made up, and which was significant in relation to the business of the Group.

9. ADDITIONAL DISCLOSURE OF INTERESTS

(a) As at the Latest Practicable Date, save for the 2012 Convertible Bonds, the Intralot 2013 Convertible Bonds and 37,778,000 Share Options owned by the Underwriters and parties acting in concert with any of them, there were no outstanding derivatives in respect of securities in the Company entered into by the Underwriters or parties acting in concert with any of them.
(b) As at the Latest Practicable Date, save for the Disposal Agreements and the Underwriting Agreement, there was no other agreement or arrangement to which or the Underwriters or parties acting in concert with any of them is a party which relates to the circumstances in which it may or may not invoke or seek to invoke a pre-condition or a condition to the Transactions.
(c) As at the Latest Practicable Date, there was no agreement, arrangement or understanding between the Underwriters and parties acting in concert with any of them and other persons in relation to any transfer, charge or pledge of the securities of the Company pursuant to the Transactions.
(d) Save as disclosed in the shareholding table in the “Letter from the Board” on page 47 of this circular and the sections headed “Disclosure of interests” above in this appendix, the Underwriters or parties acting in concert with any of them, the directors of the Underwriters, the Directors and any person acting in concert with the Directors and the substantial shareholders of the Company did not own or control any Shares, convertible securities, warrants, options or other derivatives of the Company as at the Latest Practicable Date and none of the Underwriters or parties acting in concert with any of them, the directors

VII-13

GENERAL INFORMATION

APPENDIX VII

of the Underwriters, the Directors and any person acting in concert with the Directors and the substantial shareholders of the Company had dealt for value in any Shares, convertible securities, warrants, options or other derivatives of the Company during the Relevant Period.

(e) As at the Latest Practicable Date and during the Relevant Period, no persons had irrevocably committed themselves to vote for or against the resolutions to be proposed in relation to the Transactions at the EGM.
(f) As at the Latest Practicable Date, save for the CB Undertakings and the Excluded Options Undertakings, the shareholding of the parties who have given the CB Undertaking, being Melco LV, GCH, Firich and Intralot, has been disclosed in the shareholding table in the “Letter from the Board” on page 47 of this circular and the sections headed “Disclosure of interests” above in this appendix, the Underwriters or parties acting in concert with any of them did not have any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with any person and no person with the arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code nor had dealt for value in any shares, convertible securities, warrants, options or other derivatives of the Company during the Relevant Period.
(g) The Company did not hold, as at the Latest Practicable Date, nor had dealt for value in, during the Relevant Period, any shares, convertible securities, warrants, options or derivatives of the Underwriters.
(h) Save for as disclosed in the shareholding table in the “Letter from the Board” on page 47 of this circular and the “Directors’ interests” in this appendix, the Directors did not hold, as at the Latest Practicable Date, nor had dealt for value in, during the Relevant Period, any shares, convertible securities, warrants, options or derivatives of the Company and the Underwriters.
(i) As at the Latest Practicable Date and during the Relevant Period, none of (i) the subsidiaries of the Company; (ii) a pension fund of the Company or of a subsidiary of the Company; and (iii) any advisers to the Company (as specified in class (2) of the definition of “associate” under the Takeovers Code) owned or controlled any interest in the Shares, convertible securities, warrants, options or derivatives of the Company.
(j) As at the Latest Practicable Date, save for the CB Undertakings and the Excluded Options Undertakings, the shareholding of the parties who have given the CB Undertaking, being Melco LV, GCH, Firich and Intralot, has been disclosed in the shareholding table in the “Letter from the Board” on page 47 of this circular and the sections headed “Disclosure of interests” above in this appendix, no person who owned or controlled in the shares, convertible securities, warrant, options or derivatives of the Company had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of “associate” under the Takeovers Code.

VII-14

GENERAL INFORMATION

APPENDIX VII

(k) As at the Latest Practicable Date and during the Relevant Period, there were no Shares, convertible securities, warrants, options or derivatives in the Company which are managed on a discretionary basis by fund managers connected with the Company.
(l) As at the Latest Practicable Date and during the Relevant Period, the Directors who were also Independent Shareholders expressed their intentions, in respect of their own beneficial shareholdings in the Company, to vote for the resolutions (to the extent that they are not required to abstain from voting in favour under the GEM Listing Rules) to be proposed in relation to the Transactions at the EGM.
(m) As at the Latest Practicable Date and during the Relevant Period, there were no Shares, convertible securities, warrants, options or derivatives of the Company which the Company, any Directors or any person acting in concert with the Directors, the Underwriters and parties acting in concert with any of them had borrowed or lent.
(n) No benefits will be given to any Directors as compensation for loss of office in any members of the Group or otherwise in connection with the Transactions.
(o) As at the Latest Practicable Date, save for the Power Way Agreement, there was no agreement or arrangement between any Directors and any other person which is conditional on or dependent upon the outcome of the Transactions or otherwise connected with the Transactions.
(p) As at the Latest Practicable Date, there was no material contract entered into by any of the Underwriters or parties acting in concert with any of them in which any Director had a material personal interest.
(q) As at the Latest Practicable Date, Power Way is owned as to 58.70%, 28.87% and 12.43% by Melco LV, GCH and LottVision Investments, respectively. Pursuant to the Power Way Agreement, LottVision Investments has conditionally agreed to sell and Melco LV and GCH have conditionally agreed to purchase the 12.43% equity interest in Power Way held by LottVision Investments, completion of which is subject to completion of the Open Offer. Save for the aforesaid Power Way Agreement, there was no agreement, arrangement or understanding (including any compensation arrangement) existed between any of the Underwriters or parties acting in concert with any of them and any of the Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Transactions.

As at the Latest Practicable Date, there was no restriction affecting the remittance of profits or repatriation of capital of the Company into Hong Kong from outside of Hong Kong.

Save and except for RMB, the Group has no exposure to foreign exchange liabilities. The Group will have sufficient foreign exchange, generated from the operation of the PRC subsidiaries to pay forecasted or planned dividends and to meet its foreign exchange liabilities as they become due. The Company will pay its dividends, if any, in HK$.

VII-15

GENERAL INFORMATION

APPENDIX VII

10. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and proposed Directors and their respective associates were considered to have an interest in a business which competes or is likely to complete or have any other conflict of interest, either directly or indirectly, with the business of the Group.

11. EXPERTS AND CONSENTS

The following are the experts (the “ Experts ”), including their respective qualification, who have given opinions or advice, which are contained in this circular.

Name	Qualifications
AIM	a licensed corporation to carry out type 4
	(advising on securities), type 6 (advising
	on corporate finance) and type 9 (asset
	management) regulated activities under the
	SFO
Deloitte Touche Tohmatsu (“Deloitte”)	Certified Public Accountants

Each of AIM and Deloitte had given and had not withdrawn its consent to the issue of this circular with the inclusion of its report or letter, as the case may be, and reference to its names in the form and context in which they respectively appear.

As at the Latest Practicable Date, each of AIM and Deloitte did not have any shareholding, directly or indirectly, in any member of the Group, nor did they have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group nor did they have any interest, either direct or indirect, in any assets which had been since 31 May 2012 (being the date to which the latest audited consolidated financial statements of the Group were made up) acquired or disposed of by or leased to or were proposed to be acquired or disposed of by or leased to any member of the Group.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours from 10:00 a.m. to 1:00 p.m. and from 2:00 p.m. to 5:30 p.m. (Saturdays, Sundays and public holidays excepted) at the head office and principal place of business in Hong Kong of the Company at Units 31012A, 31st Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong from the date of this circular up to and including the date of the EGM, and are displayed on the websites of the SFC (www.sfc.hk) and on the Company’s website (www.melcolot.com):

(i) memorandum and articles of association of the Company;
(ii) memorandum and articles of association of Melco LV;
(iii) memorandum and articles of association of Power Way;
(iv) the annual reports of the Company for the two years ended 31 December 2010 and 2011;

VII-16

GENERAL INFORMATION

APPENDIX VII

(v) the interim report of the Company for the six months ended 30 June 2012;
(vi) the “Letter from the Board” as set out in this circular;
(vii) the “Letter from the Independent Board Committee” as set out in this circular;
(viii) the “Letter from the GEM LR Independent Board Committee” as set out in this circular;
(ix) the “Letter from AIM” as set out in this circular;
(x) the accountants’ reports of Precious Success, Gain Advance, Oasis Rich and the Group, the text of which appended to this circular as appendices I, II, III and IV;
(xi) the reports from Deloitte on the unaudited pro forma financial information of the Remaining Group dated 26 September 2012, the text of which are appended to this circular as appendix VI;
(xii) the written consents referred to in the paragraph headed “Experts and consents” in this appendix;
(xiii) all material contracts referred to in the paragraph headed “Material contracts” in this appendix; and
(xiv) a copy of each circular issued pursuant to the requirements set out in Chapter 19 and/or 20 of the GEM Listing Rules which has been issued since 31 May 2012, being the date to which the latest audited consolidated financial statements of the Group were made up.

13. GENERAL

(i) If there is any inconsistency or ambiguity between the English version and the Chinese version of this circular, the English version shall prevail.
(ii) The principal share and convertible bond registrar and transfer office of the Company is Butterfield Fulcrum Group (Cayman) Limited at Butterfield House, 68 Fort Street, P.O. Box 609, Grand Cayman, Cayman Islands.
(iii) The branch share registrar and transfer office of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(iv) The registered address of Somerley Limited, the financial adviser to the Company, is 20th Floor, Aon China Building, 29 Queen’s Road Central, Hong Kong.
(v) The principal bankers of the Group are China Construction Bank (Asia) Corporation Limited and Bank of China (Hong Kong) Limited and their registered addresses are 17th Floor, Devon House, 979 King’s Road, Quarry Bay, Hong Kong and 1 Garden Road, Central, Hong Kong respectively.

VII-17

GENERAL INFORMATION

APPENDIX VII

(vi) The auditor of the Company is Deloitte, its registered address is at 35th Floor, One Pacific Place, 88 Queensway, Hong Kong.
(vii) The registered address of AIM is 1203, Tower II, Lippo Centre, 89 Queensway, Admiralty, Hong Kong.
(viii) The legal adviser to the Company as to Hong Kong laws is Michael Li & Co. Its registered address is at 19th Floor, Prosperity Tower, No. 39 Queen’s Road Central, Central, Hong Kong.
(ix) The legal adviser to the Company as to Cayman Island laws is Conyers Dill & Pearman. Its registered address is at 2901, One Exchange Square, 8 Connaught Place, Central, Hong Kong.
(x) The registered office of Melco LV is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands and its correspondence address in Hong Kong is at 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong. The directors of Melco LV are Mr. Ho, Lawrence Yau Lung, Mr. Tsui Che Yin, Frank, Mr. Chung Yuk Man, Clarence, Mr. Tsang Yuen Wai, Samuel and Mr. Tam Chi Wai. The ultimate controlling shareholder of Melco LV is Melco and its registered address is at 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.
(xi) The registered office of Power Way is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands and its correspondence address in Hong Kong is at 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong. The directors of Power Way are Mr. Tsui Che Yin, Frank, Mr. Ko Chun Fung, Henry, Ms. Wong Pui San, Stephanie, Mr. Tam Chi Wai, Mr. Hsu Ming Jer, Mr. Lai Yin-Fu, and Mr. Li Kin Keung, Dennis. The ultimate controlling shareholder of Power Way is Melco.
(xii) The directors of Melco are Mr. Ho, Lawrence Yau Lung, Mr. Tsui Che Yin, Frank, Mr. Chung Yuk Man, Clarence, Mr. Ng Ching Wo, Sir Roger Lobo, Mr. Sham Sui Leung, Daniel and Dr. Tyen Kan Hee, Anthony.
(xiii) The authorised representatives of the Company are Mr. Ko Chun Fung, Henry and Mr. Yip Ho Chi.
(xiv) As at the Latest Practicable Date, the Audit Committee of the Board comprises three members, including Mr. Tsoi, David, Mr. Pang Hing Chung, Alfred and Mr. So Lie Mo, Raymond, all are independent non-executive Directors. Mr. Tsoi, David has the appropriate financial and accounting experience required by the GEM Listing Rules. The primary duties of the Audit Committee of the Board is to communicate with the management of the Group from time to time, including but not limited to review the accounting principles and practices adopted by the Company, the effectiveness of its internal control systems, the interim and annual results of the Company. The biographical details of the members of the Audit Committee of the Board are set out in paragraph (xv) below.
(xv) The brief biographical details of Directors and members of the senior management of the Company are set out below:

VII-18

GENERAL INFORMATION

APPENDIX VII

Directors

Executive Directors

Mr. Ko Chun Fung, Henry , aged 52, is an executive Director and Chief Executive Officer (“ CEO ”) of the Company and the Group and a member of the Nomination Committee of the Board. Mr. Ko is also the compliance officer and an authorised representative of the Company to the Stock Exchange. He was appointed to the Board in January 2008.

Mr. Ko is a seasoned professional with a strong track record of successful senior positions in Asia. He has led various high profile ventures in the telecom industry. Prior to entering the lottery industry, he was a founder of iAsia Online Systems Limited, and in his capacity as CEO and executive director, nurtured its growth into a leading financial trading solutions vendor in Hong Kong and the PRC. Mr. Ko then went on the setting up of the lottery business which was subsequently acquired by the Group in late 2007, in his capacity as CEO and executive director of PAL. Upon the acquisition of the lottery business, Mr. Ko was appointed to the Board and as CEO of the Company and continues to lead the lottery business of the Group.

Mr. Ko obtained a Bachelor of Engineering degree (first class honours) in 1982. In 1990 he received an Australian Postgraduate Course Award to study at the Australian Graduate School of Management, where he obtained his Master of Business Administration (“ MBA ”) degree.

Save as disclosed above, Mr. Ko did not have any relationships with any Directors, senior management, management shareholders, substantial or controlling shareholders of the Company as at the Latest Practicable Date and did not hold any directorship in other public listed company in the past three years.

Mr. Chrysafidis, Evangelos , aged 40, is an executive Director. He was appointed as an executive Director in April 2012.

Mr. Chrysafidis holds an MSc in finance from the University of Lancaster in the United Kingdom and a business administration and finance degree from the Athens University of Economics and Finance. He is also a graduate of the financial management program of General Electric Company. He held a series of senior positions in the software, semiconductor and medical systems industries, having worked with Microsoft Corporation, Intel Corporation and General Electric Company in the finance discipline, as well as in business development and marketing areas.

Mr. Chrysafidis is currently a managing director of Intralot Asia Pacific which is a subsidiary of Intralot S.A., a substantial shareholder of the Company, which is engaged in operation of lottery business in China, Taiwan, Korea, Philippines, Malaysia, Australia and New Zealand.

VII-19

GENERAL INFORMATION

APPENDIX VII

Save as disclosed above, Mr. Chrysafidis did not have any relationships with any Directors, senior management, management shareholders, substantial or controlling shareholders of the Company as at the Latest Practicable Date and did not hold any directorship in other public listed company in the past three years.

Non-executive Directors

Mr. Chan Sek Keung, Ringo , aged 53, is the founder and re-elected as Nonexecutive Chairman of the Company on 5 March 2010. He is also a member of the Remuneration Committee of the Board. Mr. Chan was first appointed to the Board in November 1998 and was executive Director and Chairman of the Board between 24 September 2001 and 30 December 2009. He was redesignated as Non-executive Director on 30 December 2009.

Mr. Chan holds a Bachelor of Science degree in Electrical Engineering from the University of Hong Kong. He is a deputy of the Chinese People’s Political Consultative Conference (CPPCC) for city of Chengdu, Sichuan Province, China.

Save as disclosed above, Mr. Chan did not have any relationships with any Directors, senior management, management shareholders, substantial or controlling shareholders of the Company as at the Latest Practicable Date and did not hold any directorship in other public listed company in the past three years.

Mr. Wang, John Peter Ben , aged 52, is a Non-executive Director of the Company. He is currently Chairman and executive director of Summit Ascent Holdings Limited, and holds non-executive directorships in Melco Crown Entertainment Limited and China Precious Metal Resources Holdings Co Ltd, all of which are companies listed on the Main Board of the Stock Exchange. Between August 2009 and March 2012, Mr. Wang was a non-executive director of Carnival Group International Holdings Limited (formerly known as “Oriental Ginza Holdings Limited”), a company listed on the Main Board of the Stock Exchange. Between 2005 and 2009, Mr. Wang was the chief financial officer of Melco International Development Limited, a substantial shareholder of the Company. He has over 20 years of experience in the financial and investment banking industry and had previously worked for Deutsche Bank (HK), CLSA Asia-Pacific Markets (HK), Bear Stearns Asia Limited (HK), Barclays Capital (Singapore), S.G. Warburgs & Co. (London), Salomon Brothers (London), the London Stock Exchange, and Deloitte Haskins & Sells (London). Mr. Wang qualified as a chartered accountant with the Institute of Chartered Accountants of England and Wales in 1985.

Save as disclosed above, Mr. Wang did not have any relationships with any Directors, senior management, management shareholders, substantial or controlling shareholders of the Company as at the Latest Practicable Date and did not hold any directorship in other public listed company in the past three years.

VII-20

GENERAL INFORMATION

APPENDIX VII

Independent non-executive Directors

Mr. Tsoi, David , aged 65, is an independent non-executive Director and Chairman of both the Audit Committee and Remuneration Committee and a member of the Nomination Committee of the Board. Mr. Tsoi was appointed as an independent non-executive Director of the Company in October 2001.

A Certified Public Accountant by profession, Mr. Tsoi currently practises as managing director of Alliott, Tsoi CPA Limited. He is a fellow member of the Association of Chartered Certified Accountants, Hong Kong Institute of Certified Public Accountants and an associate member of the Association of Certified General Accountants of Canada and Institute of Chartered Accountants of England & Wales. He is also a fellow member of the Hong Kong Institute of Directors and a member of CPA Australia. Mr. Tsoi holds a Master’s degree in Business Administration from the University of East Asia, Macau.

Mr. Tsoi is currently also an independent non-executive director of CSR Corporation Limited and Enviro Energy International Holdings Limited, both listed on the Main Board of the Stock Exchange.

Save as disclosed above, Mr. Tsoi did not have any relationships with any Directors, senior management, management shareholders, substantial or controlling shareholders of the Company as at the Latest Practicable Date and did not hold any directorship in other public listed company in the past three years.

Mr. Pang Hing Chung, Alfred , aged 50, is an independent non-executive Director and a member of both the Audit Committee and Nomination Committee of the Board. Mr. Pang was appointed as an independent non-executive Director of the Company in March 1999.

Mr. Pang is currently vice chairman, Investment Banking, Asia of Standard Bank Plc, Hong Kong Branch and a director of Standard Bank Asia Limited (“ Standard Bank ”) (also a member of Standard Bank’s Asia Executive Committee) and an independent nonexecutive director of Summit Ascent Holdings Limited, a company listed on the Main Board of the Stock Exchange. Mr. Pang has over 25 years of financial, management and investment banking experience in China, Asia and the United States of America. Before joining Standard Bank, Mr. Pang was managing director and vice chairman, Investment Banking Division, at BOC International Holdings Ltd. (“ BOCI ”) where he was also chairman of BOCI’s Commitment Committee. Prior to joining BOCI, he was managing director and president, Asia at Donaldson Lufkin & Jenrette, a United States of America investment banking firm.

Mr. Pang holds dual Bachelor of Arts (in Economics) & Bachelor of Science (in Electrical Engineering) Degrees from Cornell University, and MBA Degree from Stanford University Graduate School of Business in the United States of America.

VII-21

GENERAL INFORMATION

APPENDIX VII

Save as disclosed above, Mr. Pang did not have any relationships with any Directors, senior management, management shareholders, substantial or controlling shareholders of the Company as at the Latest Practicable Date and did not hold any directorship in other public listed company in the past three years.

Mr. So Lie Mo, Raymond, aged 63, is an independent non-executive Director, Chairman of the Nomination Committee and a member of both the Audit Committee and Remuneration Committee of the Board. Mr. So was appointed as an independent nonexecutive Director of the Company in September 2007. Mr. So is an all-round businessman with a wealth of experience and connections in the information technology industry in Asia, and particularly in the greater China region. He has a long and successful track record especially in the information technology services industry. Mr. So has over 30 years of experience in the information technology industry and served in senior executive positions in Asia at various multinational corporations. Mr. So holds a Bachelor of Business Administration degree from The Chinese University of Hong Kong.

Save as disclosed above, Mr. So did not have any relationships with any Directors, senior management, management shareholders, substantial or controlling shareholders of the Company as at the Latest Practicable Date and did not hold any directorship in other public listed company in the past three years.

Senior Management

Mr. Yip Ho Chi , aged 42, is Chief Financial Officer and Company Secretary of the Company. Mr. Yip was appointed as Chief Financial Officer of the Company in June 2009. Prior to joining the Company, Mr. Yip had worked over 9 years with Sandmartin International Holdings Limited which is listed on the Main Board of the Stock Exchange and had been serving as its executive director, finance director and company secretary for the last 4 years. Mr. Yip was also an audit manager of Deloitte Touche Tohmatsu with whom he worked for over 7 years.

Mr. Yip holds a Bachelor of Business Administration degree from the University of Hong Kong. He is a fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.

Save as disclosed above, Mr. Yip did not have any relationships with any Directors, senior management, management shareholders, substantial or controlling shareholders of the Company as at the Latest Practicable Date and did not hold any directorship in other public listed company in the past three years.

Ms. Chan Lai Shan, Camily , aged 41, first joined the Group in November 2006. She is currently the Director – Corporate Development of the Group. Ms. Chan possesses a wealth of experience in financial and project management gained from listed conglomerates. She is responsible for strategic and business planning, business development and operations control of the Group. A qualified accountant by profession, she is a member of both the Hong Kong Institute of Certified Accountants and a certified practicing accountant of CPA Australia. She also holds an MBA degree from the Hong Kong University of Science and Technology.

VII-22

GENERAL INFORMATION

APPENDIX VII

Save as disclosed above, Ms. Chan did not have any relationships with any Directors, senior management, management shareholders, substantial or controlling shareholders of the Company as at the Latest Practicable Date and did not hold any directorship in other public listed company in the past three years.

The business address of the above Directors and senior management of the Group is Units 3101-2A, 31st Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.

VII-23

NOTICE OF EGM

==> picture [52 x 53] intentionally omitted <==

==> picture [63 x 32] intentionally omitted <==

MelcoLot Limited

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8198)

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting (the “ Meeting ”) of the shareholders (the “ Shareholders ”) of MelcoLot Limited (the “ Company ”) will be held at Units 31012A, 31st Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong on Monday, 15 October 2012 at 11:30 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT
(a) subject to the fulfillment of the conditions therein, the conditional sale and purchase agreement (the “ Intralot Agreement ”) dated 26 June 2012 and entered into among the Company, Rising Move International Limited (“ Rising Move ”) and Intralot International Limited (“ Intralot ”) in relation to (i) the disposal of the entire issued share capital of Gain Advance Group Limited by Rising Move to Intralot; (ii) the disposal of 49% of the entire issued share capital of Precious Success Holdings Limited by Rising Move to Intralot, at a total consideration of HK$277,175,310; and (iii) the repurchase by the Company of the 0.1% secured convertible bonds due 2013 in the outstanding principal amount of HK$277,175,310 issued by the Company (the “ Intralot 2013 Convertible Bonds ”) from Intralot at the consideration of HK$277,175,310 (a copy of which has been produced to the Meeting marked “ A ” and initialed by the chairman of the Meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) any one or more directors (the “ Directors ”) of the Company be and is/are hereby authorised to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient to give effect to the Intralot Agreement and the transactions contemplated thereunder, including but not limited to the entering into of the second supplemental agreement, the supplemental software licence agreement, the deed of assignment and novation and the deed of assignment and novation of supply agreement.”

EGM-1

NOTICE OF EGM

“ THAT
(a) subject to the fulfillment of the conditions therein, the conditional sale and purchase agreement (the “ GCH Agreement ”) dated 26 June 2012 and entered into between the Company and Global Crossing Holdings Ltd. (“ GCH ”) in relation to (i) the disposal of 60% of the entire issued share capital of Oasis Rich International Ltd. by the Company to GCH at the consideration of HK$175,188,566; and (ii) the repurchase by the Company of the convertible bonds in the principal amount of HK$175,188,566 due 2012 issued by the Company (the “ GCH 2012 Convertible Bonds ”) from GCH at the consideration of HK$175,188,566 (a copy of which has been produced to the Meeting marked “ B ” and initialed by the chairman of the Meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) any one or more Directors be and is/are hereby authorised to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient to give effect to the GCH Agreement and the transactions contemplated thereunder.”
“ THAT subject to the fulfillment of the conditions, including the Listing Committee of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting or agreeing to grant (subject to allotment) and not having revoked the listing of and permission to deal in the Offer Shares (as defined below) in their fully paid forms to be allotted and issued to the Shareholders pursuant to the terms and conditions of the Open Offer (as defined below), as set out in the underwriting agreement (the “ Underwriting Agreement ” including, if any, all supplemental agreements relating thereto, a copy of which has been produced to the Meeting marked “ C ” and initialed by the chairman of the Meeting for the purpose of identification) dated 14 August 2012 and entered into between the Company as issuer on one part and Melco LottVentures Holdings Limited and Power Way Group Limited (“ Power Way ”) as underwriters (collectively, the “ Underwriter s”) on the other part and the Underwriting Agreement not being terminated in accordance with the terms thereof prior to 6:00 p.m. on the third business day after the last day for acceptance of Offer Shares (as defined below),
(a) the issue by way of open offer (the “ Open Offer ”) of not less than 1,508,900,799 new shares of HK$0.01 each of the Company (the “ Shares ”) and not more 1,716,014,799 new Shares (the “ Offer Shares ”) to the Shareholders whose names appear on the register of members of the Company on the record date of the Open Offer as announced by the Company from time to time (excluding those Shareholders (the “ Non-Qualifying Shareholders ”) with registered addresses as shown in the register of members of the Company on that date are outside Hong Kong whom the board of Directors consider it necessary or expedient to exclude after making the relevant enquiries regarding the legal restrictions under the laws of the relevant place and the requirements of the relevant regulatory body or stock exchange in the place where those Non-Qualifying Shareholders reside) on the basis of three Offer Shares for every existing Share held and otherwise pursuant to and in accordance with the terms and conditions set out in the circular dated 26 September 2012, a copy of which has been

EGM-2

NOTICE OF EGM

produced to the Meeting marked “ D ” and signed by the chairman of the Meeting for the purpose of identification) despatched by the Company to the Shareholders be and is hereby approved;

(b) the Directors be and are hereby authorised to allot and issue the Offer Shares pursuant to or in connection with the Open Offer notwithstanding that the same may be offered, allotted or issued otherwise than pro rata to the existing Shareholders and, in particular, the Directors be and are hereby authorised to make such exclusions or other arrangements in relation to the Non-Qualifying Shareholders as they deem necessary or expedient having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong applicable to the Company;
(c) the Underwriting Agreement and the transactions contemplated thereunder (including but not limited to the arrangements for taking up of the unsubscribed Offer Shares, if any, by the Underwriters) and the set off between the loan (together with the interest accrued thereon of approximately HK$89,338,196 due from the Company to Power Way as at 31 May 2012 against the payment obligation of Power Way under the Underwriting Agreement on dollar to dollar basis) be and are hereby approved, confirmed and ratified;
(d) the absence of arrangements for application for the Offer Shares by the Shareholders in excess of their assured entitlements under the Open Offer as referred to in Rule 10.42(1) of the Rules (the “ GEM Listing Rules ”) Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange be and is hereby approved, confirmed and ratified;
(e) any one or more Directors be and is/are hereby authorised to sign and execute such documents and do all such acts and things incidental to the Open Offer or as they consider necessary, desirable or expedient in connection with the implementation of or giving effect to the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder, including but not limited to the allotment and issue of the Offer Shares to the Qualifying Shareholders and/or the Underwriters (as the case maybe).”
“ THAT subject to the passing of the ordinary resolution numbered 3 set out above,
(a) the terms of the application for a waiver granted or to be granted by the Securities and Futures Commission of Hong Kong to the Underwriters together with parties acting in concert with any of them pursuant to Note 1 of the Notes on Dispensation from Rule 26 of the Takeovers Code in respect of the waiver of the obligation of the Underwriters and parties acting in concert with any of them to make a mandatory offer for all the Shares not already owned or agreed to be acquired by them (the “ Whitewash Waiver ”) be and is hereby approved, and

EGM-3

NOTICE OF EGM

(b) any one or more of the Directors be and is/are hereby authorised to do all things and acts and sign all documents which they consider desirable or expedient to implement and/or give effect to any matters relating to or in connection with the Whitewash Waiver.”
“ THAT the authorised share capital of the Company be increased from HK$20,000,000 divided into 2,000,000,000 Shares to HK$55,000,000 divided into 5,500,000,000 Shares by creating an additional 3,500,000,000 unissued Shares (the “ Proposed Increase in Authorised Share Capital ”); and any one or more of the Directors be and is/are hereby authorised for and on behalf of the Company to execute all such documents, instruments and agreements and to do all such acts or things deemed by him/them to be incidental to, ancillary to or in connection with the matters contemplated in and for completion of the Proposed Increase in Authorised Share Capital.”
“ THAT the exclusivity undertaking dated 13 August 2012 (the “ Intradak Exclusivity Undertaking ”) and entered into between Beijing Telenet Information Technology Ltd. (“ Beijing Telenet ”) and Beijing Intradak System Technology Co., Ltd. (“ Intradak ”) in relation to the grant of an exclusive right by Intradak to Beijing Telenet to supply the Approved LVM mutually specified by Beijing Telenet and Intradak from time to time to Intradak for a term of one year effective from 1 July 2012 (a copy of which has been produced to the Meeting marked “ E ” and initialed by the chairman of the Meeting for the purpose of identification) is hereby approved, confirmed and ratified; and any one or more Directors be and is/are hereby authorised to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient to give effect to the Intradak Exclusivity Undertaking.”

To consider and if thought fit, passing, with or without amendments, the following resolutions as ordinary resolutions of the Company and to be approved by at least three-fourths of the vote cast on a poll by the disinterested Shareholders:

“ THAT the repurchase of the Intralot 2013 Convertible Bonds by the Company from Intralot at the consideration of HK$277,175,310 pursuant to the terms and conditions of the Intralot Agreement be and is hereby approved; and any one or more of the Directors be and is/are hereby authorised for and on behalf of the Company to execute all such documents, instruments and agreements and to do all such acts or things deemed by him/ them to be incidental to, ancillary to or in connection with the repurchase of the Intralot 2013 Convertible Bonds.”

EGM-4

NOTICE OF EGM

“ THAT the repurchase of the GCH 2012 Convertible Bonds by the Company from GCH at the consideration of HK$175,188,566 pursuant to the terms and conditions of the GCH Agreement be and is hereby approved; and any one or more of the Directors be and is/ are hereby authorised for and on behalf of the Company to execute all such documents, instruments and agreements and to do all such acts or things deemed by him/them to be incidental to, ancillary to or in connection with the repurchase of the GCH 2012 Convertible Bonds.”

By order of the Board MelcoLot Limited Ko Chun Fung, Henry

Executive Director and Chief Executive Officer

Hong Kong, 26 September 2012

Registered Office: Head Office and Principal Place of Business in Hong Kong: 4th Floor, Scotia Centre Units 3101-2A, 31st Floor P.O. Box 2804 The Centrium George Town 60 Wyndham Street Grand Cayman Central, Hong Kong Cayman Islands

Notes:

(i) A member entitled to attend and vote at the above Meeting is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company.
(ii) Where there are joint holders of any share of the Company, any one of such joint holders may vote at the Meeting, either personally or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holders be present at the Meeting personally or by proxy, that one of the said persons so present whose name stands first on the Register of Members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
(iii) The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power of attorney or authority, must be lodged with the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration not less than 48 hours before the time appointed for holding the Meeting.
(iv) Completion and return of the form of proxy will not preclude a member from attending the Meeting and voting in person at the Meeting or any adjournment thereof if he so desires. If a member attends the Meeting after having deposited the form of proxy, his form of proxy will be deemed to have been revoked.

EGM-5

AI assistant

Crypto Flow Technology Limited — Proxy Solicitation & Information Statement 2012

51323_rns_2012-09-25_618a639c-f925-4163-b72d-97f633c4a558.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

MelcoLot Limited

Independent Financial Adviser to

CHARACTERISTICS OF GEM

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

MelcoLot Limited

(I) INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Consideration payable under the Intralot Agreement

Conditions precedent of the Intralot Agreement

Completion

Information on Gain Advance

LETTER FROM THE BOARD

Information on Precious Success

Information on the Intralot 2013 Convertible Bonds

LETTER FROM THE BOARD

The Intralot Supplemental Agreements

The Second Supplemental Agreement

The Supplemental SLA

LETTER FROM THE BOARD

The Deed of Assignment and Novation of Supply Agreement

The Precious Success Shareholders Agreement

2. THE GCH AGREEMENT

LETTER FROM THE BOARD

Subject matters of the GCH Agreement

Consideration payable under the GCH Agreement

LETTER FROM THE BOARD

Conditions precedent of the GCH Agreement

LETTER FROM THE BOARD

Completion

Information on Oasis Rich

Information on the GCH 2012 Convertible Bonds

3. CORPORATE STRUCTURE

As at the Latest Practicable Date

LETTER FROM THE BOARD

4. REASONS FOR ENTERING INTO THE DISPOSAL AGREEMENTS

LETTER FROM THE BOARD

The Disposal Agreements

a) The Intralot Agreement

b) The GCH Agreement

LETTER FROM THE BOARD

The Remaining Group

a) Beijing Telenet

LETTER FROM THE BOARD

b) PAL

LETTER FROM THE BOARD

LETTER FROM THE BOARD

5. THE EXCLUSIVITY UNDERTAKINGS

LETTER FROM THE BOARD

(III) PROPOSED OPEN OFFER ON THE BASIS OF THREE OFFER SHARES FOR EVERY EXISTING SHARE HELD ON THE RECORD DATE

1. THE OPEN OFFER

LETTER FROM THE BOARD

The undertakings

LETTER FROM THE BOARD

Qualifying Shareholders

Closure of register of members

Terms of the Open Offer

Subscription Price

LETTER FROM THE BOARD

Three Offer Shares for every existing Share held by a Qualifying Shareholder on the Record Date will be offered to the Qualifying Shareholders.

Fractions of the Offer Shares

LETTER FROM THE BOARD

Crypto Flow Technology Limited Proxy Solicitation & Information Statement 2012