Dadi International Group Limited - Proxy Solicitation & Information Statement 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Brilliant Arts Multi-Media Holding Limited (the “ Company ”), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular is for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities mentioned herein.

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(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8130)

MAJOR TRANSACTION AND NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening an extraordinary general meeting (the “ EGM ”) of the Company to be held at 4:30 p.m. on Wednesday, 31 October 2007 at 14th Floor, Printing House, 6 Duddell Street, Central, Hong Kong is set out on pages 87 and 88 of this circular.

Whether or not you are able to attend the EGM, you are advised to read the notice and to complete and return the enclosed form of proxy, in accordance with the instructions printed thereon, to the Hong Kong branch share registrar and transfer office of the Company, Tricor Secretaries Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting. The completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjourned meeting in person if you so wish.

This circular will remain at www.hkgem.com on the “Latest company announcements” page of the GEM website for at least 7 days from the date of its posting.

15 October 2007

CHARACTERISTICS OF GEM

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

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

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

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			Page
Definitions . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			5
Appendix I	–	Financial information on the Group. . . . . . . . . . . . . . . . . . . . . . .	16
Appendix II	–	Valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
Appendix III	–	Accountants’ report on the Target Group . . . . . . . . . . . . . . . . . .	58
Appendix IV	–	Pro forma financial information on the Enlarged Group . . . . . .	74
Appendix V	–	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	79
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			87

– ii –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings when used herein:

“Acquisition” the acquisition of the Sale Share and the Sale Loan by the Company as contemplated under the Sale and Purchase Agreement
“Announcement” the announcement of the Company dated 28 August 2007 in respect of the Acquisition and the Open Offer
“associate” has the meaning ascribed to it under the GEM Listing Rules
“Board” the board of Directors, including all independent non-executive Directors
“Business Day” any day (other than a Saturday, Sunday or public holiday) on which licensed banks are generally open for business in Hong Kong throughout their normal business hours
“CCIF” CCIF CPA Limited, the reporting accountant appointed by the Company in respect of the Acquisition
“China Star” China Star Entertainment Limited, a company incorporated in Bermuda and the issued shares of which are listed on the main board of the Stock Exchange
“Company”
Brilliant Arts Multi-Media Holding Limited, a company incorporated in the Cayman Islands with limited liability and the issued Shares of which are listed on GEM
“Completion” completion of the sale and purchase of the Sale Share and the Sale Loan in accordance with the terms of the Sale and Purchase Agreement
“connected person(s)”
has the meaning ascribed to this term under the GEM Listing Rules
“Conversion Period”
the period commencing from the date of issue of the Convertible Bond up to 4:00 p.m. (Hong Kong time) on the day immediately prior to and exclusive of the maturity date

– 1 –

DEFINITIONS

“Conversion Price” the initial conversion price of HK$0.24 per Conversion Share, subject to adjustments, pursuant to the terms of the Convertible Bond
“Conversion Shares” the Shares to be issued upon the exercise of the conversion rights in respect of the Convertible Bond
“Convertible Bond”
a convertible bond in the principal amount of HK$24,000,000, to be issued by the Company in favour of the Vendor pursuant to the Sale and Purchase Agreement
“CSL” Classical Statue Limited, a company incorporated in the British Virgin Islands, the holder of the outstanding CSL Convertible Bonds and a wholly owned subsidiary of China Star

“CSL Convertible Bonds” the convertible bonds issued by the Company in favour of CSL with an aggregate principal amount of HK$25 million, conferring rights to subscribe for an aggregate of 75,757,575 Shares on the basis of an initial subscription price of HK$0.33 per Share (subject to adjustments) and as at the Latest Practicable Date, HK$1,000,000 of the CSL Convertible Bonds remained outstanding

“Directors” the directors of the Company
“EGM”
an extraordinary general meeting of the Company to be convened and held at 4:30 p.m. on Wednesday, 31 October 2007 at 14th Floor, Printing House, 6 Duddell Street, Central, Hong Kong to consider and, if thought fit, to approve the Sale and Purchase Agreement and the transactions contemplated thereunder
“Enlarged Group” the Group immediately upon Completion
“GEM” the Growth Enterprise Market of the Stock Exchange
“GEM Listing Committee” the listing sub-committee of the board of directors of the Stock Exchange with responsibility for GEM
“GEM Listing Rules” the Rules Governing the Listing of Securities on GEM

“Grand Billion” Grand Billion Investments Limited, a company incorporated in Hong Kong, a wholly-owned subsidiary of the Target

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DEFINITIONS

“Grant Sherman” Grant Sherman Appraisal Limited, a professional firm of valuers appointed by the Company to provide a valuation report on the Property, an Independent Third Party
“Group” the Company and its subsidiaries
“Guarantor” Mr. Leong Chi Meng, the ultimate beneficial owner of the Vendor and acting as the guarantor in the Sale and Purchase Agreement
“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China
“Independent Third Party(ies)” third party(ies) independent of the Company and connected persons of the Company and are not connected persons of the Company
“Instrument” an instrument constituting the Convertible Bond
“Last Trading Day” 28 August 2007, being the date immediately prior to the date of the suspension of trading in the Shares pending the release of the Announcement
“Latest Practicable Date”
12 October 2007, being the latest practicable date, prior to the printing of this circular for ascertaining certain information herein
“Open Offer”
the open offer proposed by the Company, as announced, amongst other things, in the Announcement which has not been completed as at the Latest Practicable Date
“Property”
the property located at Unit 1611, 16th Floor, West Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Hong Kong which is legally and beneficially owned by Grand Billion
“Sale and Purchase Agreement”

the conditional sale and purchase agreement dated 28 August 2007 entered into between the Company, the Vendor and the Guarantor in relation to the sale and purchase of the Sale Share and the Sale Loan at a consideration of HK$24,000,000

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DEFINITIONS

“Sale Loan”	all obligations, liabilities and debts owing or incurred
	by the Target to the Vendor on or at any time prior to
	Completion whether actual, contingent or deferred and
	irrespective of whether the same is due and payable on
	Completion
“Sale Share”	1 ordinary share of US$1 in the issued share capital of
	the Target, representing the entire issued share capital
	of the Target
“SFC”	the Securities and Futures Commission of Hong Kong
“SFO”	the Securities and Futures Ordinance, Chapter 571 of
	the Laws of Hong Kong
“Shareholder(s)”	shareholders of the Company
“Share(s)”	ordinary share(s) of HK$0.10 each in the issued share
	capital of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Target”	Classic Grace Enterprises Limited, a company
	incorporated in the British Virgin Islands and is wholly
	and beneficially owned by the Vendor
“Target Group”	the Target and its subsidiary
“Underwriter”	Kingston Securities Limited, a licensed corporation to
	carry on business in type 1 (dealing in Securities)
	regulated activity under the SFO
“Underwriting Agreement”	the underwriting agreement dated 28 August 2007
	entered into between the Company and the Underwriter
	in relation to the Open Offer

“Vendor”

Billion ERA Group Limited, an Independent Third Party
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“US$”
United States of America dollars, the lawful currency of the United States

“%”

per cent.

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LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8130)

Executive Directors: Mr. Lei Hong Wai (Chairman) Mr. Yip Tai Him

Independent non-executive Directors:

Mr. Lai Hok Lim Mr. Leung Wai Man Mr. Man Kong Yui

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business in Hong Kong: Unit A-C, 11/F Lockhart Centre 301-307 Lockhart Road Wanchai, Hong Kong

15 October 2007

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

INTRODUCTION

The Company announced on 31 August 2007, the Company entered into the Sale and Purchase Agreement with the Vendor pursuant to which the Company has conditionally agreed to purchase and the Vendor has conditionally agreed to sell the Sale Share and the Sale Loan for a total consideration of HK$24,000,000, which shall be satisfied by the Company issuing the Convertible Bond to the Vendor on Completion.

The Acquisition constitutes a major transaction on the part of the Company under the GEM Listing Rules and is subject to the approval of the Shareholders at the EGM. The purpose of this circular is to provide you with further information, among other matters, regarding the Group and the Acquisition, a notice convening the EGM and a form of proxy.

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LETTER FROM THE BOARD

THE SALE AND PURCHASE AGREEMENT

Date : 28 August 2007 Parties : (a) Purchaser : the Company (b) Vendor : Billion ERA Group Limited, an Independent Third Party

(c) Guarantor : Mr. Leong Chi Meng, who guarantees in favour of the Company the due and punctual performance of the Vendor under the Sale and Purchase Agreement

The Vendor is an investment holding company.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendor and its ultimate beneficial owner, Mr. Leong Chi Meng: (i) is an Independent Third Party; (ii) does not hold any Shares; and (iii) is a third party independent of the holder of the CSL Convertible Bonds and its connected persons.

Assets to be acquired

Pursuant to the Sale and Purchase Agreement, the Company has agreed to acquire and the Vendor has agreed to sell: (i) the Sale Share, representing the entire issued share capital of the Target as at the date of the Announcement; and (ii) the Sale Loan, which amounts to approximately HK$23.5 million as at the date of the Sale and Purchase Agreement.

Consideration

The aggregate consideration for the Sale Share and the Sale Loan is HK$24,000,000 and shall be satisfied by the Company issuing the Convertible Bond to the Vendor upon Completion.

The consideration for the Acquisition was determined after arm’s length negotiation with reference to the prevailing market price of commercial premises similar to the Property in proximity. The Directors (including the independent non-executive Directors) therefore consider that the terms and conditions of the Acquisition to be fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Conditions precedent

Completion shall be conditional upon and subject to:

(a) the Company being satisfied with the results of the due diligence review to be conducted under the Sale and Purchase Agreement (including but not limited to the investigation of the title of the Vendor over the Property and the relevant title documents);
(b) all necessary consents and approvals required to be obtained on the part of the Vendor in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder having been obtained;
(c) the passing by the Shareholders at the EGM to be convened and held of an ordinary resolution to approve the Sale and Purchase Agreement and the transactions contemplated hereunder, including but not limited to the issue of the Convertible Bond to the Vendor;
(d) the Company having received from a firm of professional surveyors and valuers chosen by the Company a property valuation report on the Property showing the value of the Property to be not less than HK$24,000,000;
(e) the warranties remaining true and accurate in all respects; and
(f) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Conversion Shares.

Condition (e) is waivable by the Company under the Sale and Purchase Agreement. The Company has no current intention to waive such condition. If the conditions have not been satisfied (or as the case may be, waived by the Company) on or before 30 November 2007, or such later date as the Vendor and the Company may agree, the Sale and Purchase Agreement shall cease and determine and thereafter neither party shall have any obligations and liabilities towards each other thereunder save for any antecedent breaches of the terms thereof.

Completion

Completion shall take place at 4:00 p.m. on the date falling two Business Days after the fulfilment (or waiver) of the conditions or such other date as may be agreed between the Vendor and the Company.

Upon Completion, the Target will become a wholly-owned subsidiary of the Company.

The Vendor has no current intention to nominate any representative to be appointed as a Director or change the existing business of the Group upon Completion.

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LETTER FROM THE BOARD

TERMS OF THE CONVERTIBLE BOND

The terms of the Convertible Bond have been negotiated on an arm’s length basis and the principal terms of which are summarised below:

Issuer

The Company

Principal amount

HK$24,000,000

Interest

The Convertible Bond will carry interest at the rate of 5% per annum, payable semi-annually in arrears.

Maturity

A fixed term of 5 years from the date of issue of the Convertible Bond. Unless previously redeemed, converted or cancelled in accordance with the Instrument, the Company shall redeem the outstanding principal amount of the Convertible Bond on the maturity date.

Conversion

The bondholder may at any time during the Conversion Period convert the whole or part (in multiples of HK$1 million) of the principal amount of the Convertible Bond into new Shares at the Conversion Price.

Subject to the conditions provided in the Instrument, the Company may at any time during the Conversion Period by at least seven days’ prior notice in writing request the bondholder to convert certain amount of the Convertible Bond as specified therein and the bondholder shall convert such amount of the Convertible Bond registered its names into Shares as so requested by the Company.

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LETTER FROM THE BOARD

Conversion Price

The Conversion Price is HK$0.24 per Conversion Share subject to adjustments.

The adjustments for Conversion Price include the followings:

(i) an alteration of the nominal amount of each Share by reason of any consolidation or subdivision;
(ii) an issue (other than in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);
(iii) a capital distribution being made by the Company, whether on a reduction of capital or otherwise, to Shareholders (in their capacity as such) or a grant by the Company to Shareholders (in their capacity as such) of rights to acquire for cash assets of the Company or any of its subsidiaries;
(iv) an offer of new Shares for subscription by way of rights, or a grant of options or warrants to subscribe new Shares being made by the Company to Shareholders (in their capacity as such);
(v) an issue wholly for cash being made by the Company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares and the total effective consideration per Share receivable for such securities is less than 80% of the market price on the date of announcement of the terms of the issue of such securities;
(vi) an issue of Shares wholly for cash at a price per Share which is less than 80% of the market price on the date of announcement of the terms of such issue; and
(vii) an issue of Shares for the acquisition of assets at a total effective consideration per Share which is less than 80% of the market price of the date of the announcement of the terms of such issue.

The Conversion Price represents (i) a premium of approximately 4.35% over the closing price of HK$0.2300 per Share as quoted on the Stock Exchange on the Last Trading Day; (ii) a discount of approximately 1.56% to the average of the closing prices of approximately HK$0.2438 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Day; (iii) a discount of approximately 5.73% to the average of the closing prices of HK$0.2546 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day; and (iv) a premium of approximately 27.66% over the closing price of HK$0.1880 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

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LETTER FROM THE BOARD

Conversion Shares

Assuming exercise in full of the conversion rights attaching to the Convertible Bond at the initial Conversion Price of HK$0.24 per Conversion Share by the bondholder, the Company will allot and issue an aggregate of 100,000,000 new Shares, representing approximately (i) 40.1% of the existing issued share capital of the Company, (ii) 28.6% of the issued share capital of the Company as enlarged by the exercise in full of the conversion rights attaching to the Convertible Bond. The Conversion Shares will be issued pursuant to the specific mandate to be sought at the EGM.

Redemption and early redemption

The Company may at any time before the maturity date, by serving at least seven (7) days’ prior written notice on the bondholder with the total amount proposed to be redeemed from the bondholder specified therein, redeem the Convertible Bond (in whole or in part) at par.

Any amount of the Convertible Bond which remains outstanding on the maturity date shall be redeemed at its then outstanding principal amount, inclusive of interests as accrued under the terms of the Instrument.

Ranking

The Conversion Shares, when allotted and issued, will rank pari passu in all respects with all existing Shares in issue on the date of allotment and issue of such Conversion Shares.

Status of the Convertible Bond

The Convertible Bond constitutes direct, unconditional, unsubordinated and unsecured obligations of the Company and rank pari passu without any preference (with the exception as may be provided by applicable legislation) equally with all other present and/or future unsecured and unsubordinated obligations of the Company.

Transferability

The bondholder may only assign or transfer the Convertible Bond to the transferee subject to the consent of the Company.

Notwithstanding that, the bondholder shall be permitted at any time to transfer the Convertible Bond to a transferee who is a wholly-owned subsidiary of the bondholder or a holding company of the bondholder who owns the entire issued share capital of the bondholder provided that the Convertible Bond will be re-transferred to the bondholder immediately upon the transferee ceasing to be a wholly-owned subsidiary of the bondholder or a holding company of the bondholder who owns the entire issued share capital of the bondholder.

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LETTER FROM THE BOARD

Voting rights

The Convertible Bond does not confer any voting rights at any meetings of the Company.

Application for listing

No application will be made by the Company for the listing of the Convertible Bond. Application has been made by the Company to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares.

ADJUSTMENT IN RELATION TO THE CONVERTIBLE BOND

The Open Offer may cause adjustments to the conversion prices and the number of conversion shares to be issued under the Convertible Bond. Such adjustments will be reviewed and certified by auditors or an approved merchant bank to be appointed by the Company pursuant to the terms of the instruments of the Convertible Bond. The Company will inform the holder(s) of the Convertible Bond of the relevant adjustments accordingly.

INFORMATION ON THE TARGET

The Target was incorporated in the British Virgin Islands on 8 May 2007. The Target Group has not commenced business, other than holding the Property, since its incorporation.

The Property, which is legally and beneficially owned by Grand Billion, a wholly-owned subsidiary of the Target, is located at Unit no. 1611, 16th Floor, West Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Hong Kong, which is a premises for commercial use. The Property has been leased to the Company since 22 August 2007 for a period of one year at a rent of HK$100,000 per month exclusive of Government rent (if any), rates, management fees and all other outgoings payable.

The Property is the sole assets of significance of the Target Group. The valuation report on the Property prepared by the Grant Sherman is set out in Appendix II to this circular.

REASONS FOR THE PROPOSED ACQUISITION

The principal activities of the Company is investment holding. The Group is principally engaged in the provision of film production services, production of television movies, investment in film productions and worldwide film distribution.

It is currently intended that the Property will be utilised for office use by the Group.

The Board is of the view that the terms and conditions of the Acquisition are fair and reasonable and the Acquisition is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

EFFECT ON SHAREHOLDING STRUCTURE UPON CONVERSION OF THE CONVERTIBLE BOND, CSL CONVERTIBLE BONDS AND THE COMPLETION OF THE OPEN OFFER

CSL (Note 1) Right Opportune Limited (Note 2) The Vendor The Underwriter Public Total	As at the Practicabl Number of Shares 72,727,272 37,376,000 − − 139,224,000 249,327,272	Latest e Date Approx. % 29.17 14.99 − − 55.84 100	Assuming full conversion of the CSL Convertible Bonds and before the conversion of any of the Convertible Bond (Note 3) Number of Shares Approx. % 75,757,575 30.02 37,376,000 14.81 − − − − 139,224,000 55.17 252,357,575 100	Assuming full conversion of the CSL Convertible Bonds and the Convertible Bond Number of Shares Approx. % 75,757,575 21.50 37,376,000 10.61 100,000,000 28.38 − − 139,224,000 39.51 352,357,575 100	Assuming full conversion the CSL Convertible Bonds and the Convertible Bond and after completion of the Open Offer (assuming all Qualifying Shareholders take up their entitlements under the Open Offer) (Note 4) Number of Shares Approx. % 112,121,211 23.50 56,064,000 11.75 100,000,000 20.96 – – 208,836,000 43.79 477,021,211 100	Assuming full conversion of the CSL Convertible Bonds and the Convertible Bond and after completion of the Open Offer (assuming no Qualifying Shareholders take up their entitlement, except that CSL take up all of its entitlement under the Open Offer) (Note 4) Number of Shares Approx. % 112,121,211 23.50 37,376,000 7.84 100,000,000 20.96 88,300,000 18.51 139,224,000 29.19 477,021,211 100	Assuming full conversion of the CSL Convertible Bonds and the Convertible Bond and after completion of the Open Offer (assuming no Qualifying Shareholders take up their entitlement, except that CSL take up all of its entitlement under the Open Offer) (Note 4) Number of Shares Approx. % 112,121,211 23.50 37,376,000 7.84 100,000,000 20.96 88,300,000 18.51 139,224,000 29.19 477,021,211 100
							100

Notes:

(1) The entire issued share capital of CSL is beneficially owned by China Star.
(2) The entire issued share capital of Right Opportune Limited is beneficially owned by Mr Law Sau Yiu, Dennis.
(3) This is for illustration purpose only. The conversion of the CSL Convertible Bonds is subject to the restriction that any conversion of the CSL Convertible Bonds cannot trigger off a mandatory offer under Rule 26 of the Hong Kong Code on Takeovers and Mergers on the part of the holder of the CSL Convertible Bonds.
(4) As at the Latest Practicable Date, the Open Offer has not been completed.

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LETTER FROM THE BOARD

FINANCIAL EFFECT OF THE ACQUISITION ON THE GROUP

The audited consolidated total assets and total liabilities of the Group as at 31 March 2007 were approximately HK$90.8 million and HK$108.9 million respectively. As set out in Appendix IV to this circular, the unaudited pro forma consolidated total assets and total liabilities of the Enlarged Group will be approximately HK$114.9 million and HK$128.8 million respectively.

The audited consolidated net liabilities of the Company as at 31 March 2007 were approximately HK$18.1 million. As set out in Appendix IV to this circular, the unaudited pro forma consolidated net liabilities of the Enlarged Group would be approximately HK$13.9 million.

The Acquisition would have no material immediate effect on the earnings of the Enlarged Group.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Group is principally engaged in the provision of film production services, production of television movies, investment in film productions and worldwide film distribution. The Acquisition would have no immediate material effect on the financial and trading prospects of the Enlarged Group.

The Group recorded a net loss of approximately HK$16.2 million for the financial year 31 March 2007. The Board considers that one of the major underlying reasons for the discouraging results was mainly due to the high level of overall overhead of the Group and this has been causing concern to the management of the Company. With an aim to improve cost effectiveness, the Group disposed of its interest in its two wholly-owned subsidiaries with consistently high level of overhead, namely Milkyway Image (Hong Kong) Limited and Luminous Star Limited in June 2007. The Group believes that the overall overhead in future can be significantly reduced and it will be in the best interests of the Group and the Shareholders as a whole.

Following the conversions of nearly all the CSL Convertible Bonds, the capital base of the Group has strengthened and the gearing ratio further reduced. As a consequence, the Group can be more responsive to any emerging business opportunities. The Board will invite talents to join the management of the Group in order to bring new thoughts and expertise to the Group. Meanwhile, the name of the Company has been changed from “Milkyway Image Holdings Limited” to “Brilliant Arts Multi-Media Holding Limited”. The Group considers the new name indicates multi-media which including various kinds of media, other than media of films, and is to reflect the nature of the business of the Group in future. Furthermore, the Board intends to apply the net proceeds from the Open Offer, which has not been completed as at the Latest Practicable Date, for potential investments which may or may not be in the principal line of business of the Group, such as property investments, as and when opportunities arise.

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LETTER FROM THE BOARD

IMPLICATIONS UNDER THE GEM LISTING RULES AND THE EGM

The Acquisition constitutes a major transaction on the part of the Company under the GEM Listing Rules and is subject to the approval of the Shareholders at the EGM. Pursuant to the GEM Listing Rules, any Shareholder and his associates must abstain from voting if such Shareholder has a material interest in the Acquisition. The Directors confirm that, to the best of their knowledge, information and belief having made all reasonable enquiry, no Shareholder and their respective associates have any material interest in the Acquisition which is different from other Shareholders, and therefore no Shareholder is required to abstain from voting to approve the Sale and Purchase Agreement and the transactions contemplated thereunder at the EGM.

A notice convening the EGM at which an ordinary resolution will be proposed to the Shareholders to consider and, if thought fit, to approve the Sale and Purchase Agreement and the transactions contemplated thereunder is set out on pages 87 and 88 of this circular. A form of proxy for use at the EGM is also enclosed with this circular.

In order to be valid, the enclosed form of proxy, together with any power of attorney or other authority under which it is signed must be completed in accordance with the instructions printed thereon and delivered to the Hong Kong branch share registrar and transfer office of the Company, Tricor Secretaries Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting. The completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjourned meeting in person if you so wish.

PROCEDURES FOR DEMANDING A POLL

Articles 66 and 67 of the articles of association of the Company set out the procedures under which a poll may be demanded. At any general meeting, a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; or
(b) by at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or
(c) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or

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LETTER FROM THE BOARD

(d) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

A demand by a person as proxy for a Shareholder or in the case of a Shareholder being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a Shareholder.

Notwithstanding any other provisions of these articles, (a) if the aggregate proxies held by the chairman of a particular meeting and the Directors account for 5 per cent or more of the total voting rights at that meeting, and (b) if on a show of hands in respect of any resolution the Shareholders at the meeting vote in the opposite manner to that instructed in the proxies referred to in (a) above, then the chairman of the meeting and/or any Director holding the proxies referred to above shall demand a poll. However, if it is apparent from the total proxies held by the persons referred to in (a) above that a vote taken on a poll will not reverse the vote taken on a show of hands, then no poll shall be required.

Unless a poll is so required under the rules of the designated stock exchange or duly demanded and, in the latter case, the demand is not withdrawn, a declaration by the chairman that a resolution has been carried, or carried unanimously, or by a particular majority, or not carried by a particular majority, or lost, and an entry to that effect made in the minute book of the Company, shall be conclusive evidence of the facts without proof of the number or proportion of the votes recorded for or against the resolution.

RECOMMENDATION

The Directors consider the Sale and Purchase Agreement and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Sale and Purchase Agreement and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

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

Yours faithfully

For and on behalf of the Board

Brilliant Arts Multi-Media Holding Limited

Lei Hong Wai Executive Director

– 15 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

THREE YEARS FINANCIAL SUMMARY

The following table summarises the results and financial position of the Group for the last three financial years ended 31 March 2007 as extracted from the relevant published financial statements of the Group.

RESULTS

Turnover Loss from operations Finance costs Loss before taxation Income tax Loss attributable to shareholders	Year 2005 HK$’000 36,836 (8,329) (36)	ended 31 March 2006 2007 HK$’000 HK$’000 17,258 62,288 (17,505) (14,333 (680) (1,821	ended 31 March 2006 2007 HK$’000 HK$’000 17,258 62,288 (17,505) (14,333 (680) (1,821
	(8,365) –	(18,185) –	(16,154 –
	(8,365)	(18,185)	(16,154

ASSETS AND LIABILITIES

	As	at 31 March
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Non-current assets	15,050	11,975	9,952
Current assets	21,085	32,800	80,834
Current liabilities	28,931	54,557	94,845
Non-current liabilities	2	171	14,085

– 16 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE FINANCIAL YEAR ENDED 31 MARCH 2007

The following information is extracted from the audited consolidated financial statements of the Group as set out in the annual report of the Company for the year ended 31 March 2007:

Consolidated Income Statement

For the year ended 31 March 2007

Notes Turnover 7 Cost of sales Gross profit Other revenue 7 Other operating expenses Provisions 28 Loss from operations 9 Finance costs 10 Loss before taxation Income tax 13 Loss for the year attributable to equity holders of the Company Loss per share 15 −Basic −Diluted	2007 HK$’000 62,288 (49,004)	2006 HK$’000 17,258 (13,438) 3,820 529 (21,854) – (17,505) (680) (18,185) – (18,185) (HK22.6 cents) N/A
	13,284 813 (24,430) (4,000) (14,333) (1,821) (16,154) –	3,820 529 (21,854 –
		(17,505 (680
		(18,185 –
	(16,154) (HK18.9 cents) N/A

– 17 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 March 2007

Notes Non-current assets Film rights 16 Property, plant and equipment 17 Current assets Film rights, current portion 16 Films in progress 16 Production in progress Trade debtors 19 Deposits, prepayments and other debtors Bank balances and cash Current liabilities Trade creditors 20 Other creditors and accruals Receipt in advance Amounts due to directors 21 Amounts due to related companies 31(b) Provisions 28 Obligations under finance leases −due within one year 22 Bank loan 23 Net current liabilities Total assets less current liabilities Capital and reserves Share capital 24 Reserves 25 Total equity Non-current liabilities Convertible bonds 26 Obligations under finance leases −due after one year 22	2007 HK$’000 – 9,952	2006 HK$’000 277 11,698 11,975 4,982 6,483 12,364 417 4,944 3,610 32,800 2,459 905 31,813 1,242 15,097 – 41 3,000 54,557 (21,757) (9,782) 8,050 (18,003) (9,953) – 171 171 (9,782)
	9,952 2,397 9,110 25,522 13,812 6,116 23,877 80,834 2,762 1,117 46,347 2,484 37,755 4,000 380 – 94,845 (14,011)	11,975
		4,982 6,483 12,364 417 4,944 3,610
		32,800
		2,459 905 31,813 1,242 15,097 – 41 3,000
		54,557
		(21,757
	(4,059)
	10,620 (28,764) (18,144) 13,841 244 14,085	8,050 (18,003
		(9,953
		– 171
		171
	(4,059)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance Sheet

As at 31 March 2007

Notes Non-current assets Interests in subsidiaries 18 Current assets Deposits, prepayments and other debtors Amounts due from subsidiaries 18 Bank balances and cash Current liabilities Other creditors and accruals Amounts due to directors 21 Amounts due to related companies 31(b) Net current assets/(liabilities) Total assets less current liabilities Capital and reserves Share capital 24 Reserves 25 Total equity Non-current liabilities Convertible bonds 26	2007 HK$’000 468	2006 HK$’000 516 516 112 – 22 134 184 1,242 – 1,426 (1,292) (776) 8,050 (8,826) (776) – (776)
	468 300 16,070 17,813 34,183 642 2,484 15,129 18,255 15,928	516
		112 – 22
		134
		184 1,242 –
		1,426
		(1,292
	16,396
	10,620 (8,065) 2,555 13,841	8,050 (8,826
		(776 –
	16,396

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2007

	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company
Share capital HK$’000 8,050 – – 8,050 – 1,610 – – 960 10,620	Share premium HK$’000 15,050 – – 15,050 – 1,932 (159) – 1,251 18,074	Contributed surplus Share-based compensation reserves HK$’000 HK$’000 10 – – – – 1,030 10 1,030 – – – – – – – – – – 10 1,030	Convertible bond reserves Accumulated losses HK$’000 HK$’000 – (15,908) – (18,185) – – – (34,093) – (16,154) – – – – 2,692 – (323) – 2,369 (50,247)	Total HK$’000 7,202 (18,185) 1,030
				(9,953) (16,154) 3,542 (159) 2,692 1,888
				(18,144)

– 20 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2007

OPERATING ACTIVITIES Loss before taxation Adjustments for: Interest income Gain on disposal of property, plant and equipment Depreciation Amortisation of film rights Finance charges on finance leases Impairment loss of films in progress Interest expenses Provisions Share-based payment Operating cash flows before movements in working capital (Increase)/decrease in films in progress Increase in production in progress Increase in trade debtors (Increase)/decrease in deposits, prepayments and other debtors Increase in trade creditors Increase in other creditors and accruals Increase in receipt in advance Increase/(decrease) in amounts due to directors Cash generated from operations Interest paid NET CASH GENERATED FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Interest received Additions of film rights Purchase of property, plant and equipment NET CASH USED IN INVESTING ACTIVITIES	2007 HK$’000 (16,154) (183) – 3,941 30,058 45 1,600 1,776 4,000 –	2006 HK$’000 (18,185) (29) (53) 3,752 7,172 13 – 667 – 1,030 (5,633) 3,121 (10,288) (358) 1,575 1,738 131 15,707 (1,096) 4,897 (580) 4,317 29 (12,431) (117) (12,519)
	25,083 (4,227) (13,158) (13,395) (1,172) 303 212 14,534 1,242 9,422 (1,397) 8,025 183 (27,196) (1,365) (28,378)	(5,633 3,121 (10,288 (358 1,575 1,738 131 15,707 (1,096
		4,897 (580
		4,317
		29 (12,431 (117
		(12,519

– 21 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

FINANCING ACTIVITIES Finance charges on finance leases paid Repayment of bank loan Loans from related companies Proceeds from issue of shares Proceeds from issue of convertible bonds Repayment of obligations under finance leases Share issue expenses NET CASH GENERATED FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR CASH AND CASH EQUIVALENTS ANALYSIS Bank balances and cash	2007 HK$’000 (45) (3,000) 22,500 3,542 18,200 (418) (159) 40,620 20,267 3,610 23,877 23,877	2006 HK$’000 (13) (2,000) 11,000 – – (28) – 8,959 757 2,853 3,610 3,610

– 22 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the Financial Statements

31 March 2007

1. GENERAL

The Company was incorporated in the Cayman Islands on 9 November 2001 under the Companies Law of Cayman Islands as an exempted company with limited liability and its shares are being listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The addresses of the registered office and principal place of business of the Company are disclosed in the “Corporate Information” section of the annual report.

The principal activities of the Group are the provision of film production services, production of television movies, investment in film productions and worldwide film distribution.

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

2. BASIS OF PREPARATION

In preparing the consolidated financial statements, the directors of the Company have given consideration to the future liquidity of the Group in light of its deficit in equity of approximately HK$18,144,000 as at 31 March 2007 (2006: approximately HK$9,953,000) and the loss attributable to the equity holders of the Company of approximately HK$16,154,000 for the year ended 31 March 2007 (2006: approximately HK$18,185,000). The directors have taken the measures subsequent to the year ended 31 March 2007, which included (i) the placing of convertible bonds with a principal amount of HK$25 million in May 2007; and (ii) the proposed disposal of two subsidiaries with a total consideration of HK$26 million, as further detailed in the Note 33(a) and (b), to improve the liquidity position of the Group. In the opinion of the directors, the Group will be able to meet its liabilities in full as they fall due in the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

If these measures were not successful or insufficient, or if the going concern basis was not appropriate, adjustments would have to be made to the financial statements to reduce the value of the Group’s assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities.

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The Group has applied, for the first time, a number of new standards, amendments and interpretations (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) that are effective for accounting periods either beginning on or after 1 December 2005, 1 January 2006 or 1 March 2006. The adoption of the new HKFRSs has had no material effect on how the results for the current or prior accounting years are prepared and presented. Accordingly, no prior year adjustment is required.

– 23 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Group has not early applied the following new standards, amendment and interpretations that have been issued but are not yet effective. The Group anticipates that the application of new standards, amendment and interpretations will have no material impact on the consolidated financial statements of the Group.

HKAS 1 (Amendment) Capital disclosures (effective for annual periods beginning on or after 1 January 2007) HKFRS 7 Financial Instruments: Disclosures (effective for annual periods beginning on or after 1 January 2007) HKFRS 8 Operating segments (effective for annual periods beginning on or after 1 January 2009) HK(IFRIC) −Int 8 Scope of HKFRS 2 (effective for annual periods beginning on or after 1 May 2006) HK(IFRIC) −Int 9 Reassessment of embedded derivatives (effective for annual periods beginning on or after 1 June 2006) HK(IFRIC) −Int 10 Interim financial reporting and impairment (effective for annual periods beginning on or after 1 November 2006) HK(IFRIC) −Int 11 HKFRS 2: Group and treasury share transactions (effective for annual periods beginning on or after 1 March 2007) HK(IFRIC) −Int 12 Service Concession Arrangements (effective for annual periods beginning on or after 1 January 2008)

4. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA and the applicable disclosures required by the Rules Governing the Listing of Securities on the GEM of the Stock Exchange and by the Hong Kong Companies Ordinance. The consolidated financial statements are prepared under the historical cost convention except for financial instruments, which are stated at fair value. A summary of the significant accounting policies adopted by the Group is set out below.

a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries.

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

All significant inter-company transactions, balances and unrealised gains on transactions within the Group are eliminated on consolidation.

b) Revenue recognition

Income from the production of films and television movies is recognised when the production is completed, which is usually upon delivery of the film negatives to the customers.

Income from the distribution of films is recognised when the master materials have been delivered to customers.

Interest income is accrued on a time proportion basis, by reference to the principal outstanding and at the interest rate applicable.

c) Impairment

At each balance sheet date, 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 the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the

– 24 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

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

d) 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. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items of income or expense that are never taxable and deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised 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 negative 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 arising on investments in subsidiaries, 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.

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

Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity in which case the deferred tax is also dealt with in equity.

e) Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account their estimated residual values, using the straight-line method, at the following rates per annum:

Leasehold improvements 20% Furniture and fixtures 20% Machinery and equipment 10%-20% Motor vehicles 20% Office equipment 20%

– 25 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated income statement in the year in which the item is derecognised.

Property, plant and equipment held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the terms of the relevant leases.

f) Subsidiaries

A subsidiary is a company controlled by the Company. A subsidiary is considered to be controlled if the Company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from its activities.

Investments in subsidiaries are included in the Company’s balance sheet at cost less provision for impairment loss, if necessary. The results of subsidiaries are accounted for by the Company to the extent of dividends received and receivable during the year.

g) Film rights

Film rights represent film produced or acquired by the Group and are stated at cost less accumulated amortisation and any identified impairment losses.

The cost of film rights is amortised in the proportion of actual income earned during the year to the total estimated income after taking into account their estimated residual value. Where there is an impairment in value, the unamortised balance is written down to its estimated recoverable amount. The estimated residual value is recognised as a non-current asset.

The portion of film rights expect to be amortised within twelve months from the balance sheet date is reported as current asset. The portion of films rights expected not to amortise within twelve months from the balance sheet date is recognised as a non-current asset.

h) Production in progress

Production in progress represents films and television series under production and is stated at production costs incurred to date, less foreseeable losses. Such production costs are carried forward as production in progress in the balance sheet and are transferred to film production costs in the income statement upon completion.

i) Films in progress

Films in progress represents films and television series under production and is stated at production costs incurred to date, less any identified impairment loss. Such production costs are transferred to film rights upon completion of production.

j) Leased assets

i) Finance leases

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are capitalised at their fair values at the date of acquisition. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease obligation.

Payments to the lessor are treated as consisting of capital and interest elements. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the term of the relevant lease so as to produce an approximately periodic rate of charge on the remaining balance of the obligations for each accounting period.

– 26 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

ii) Operating leases

All other leases are classified as operating leases and the annual rentals are charged to income statement on a straight-line basis over the relevant lease terms.

k) Receipt in advance

Receipt in advance represents deposits received from film companies before the completion of production of films and television movies pursuant to the production agreements and will be recognised as income when the production has been completed.

l) 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 each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the year in which they arise, except for exchange differences arising on a monetary item that forms part of the Company’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financial statements.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the year, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the year in which the foreign operation is disposed of.

m) Related party

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or entities and include entities which are controlled or under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

n) Provision and contingencies

A provision is recognised when there is a present obligation, legal or constructive, as a result of past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed regularly and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable.

– 27 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

o) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

p) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are charged to the income statement in the year in which they are incurred.

q) Employee benefits

i) Bonuses

The Group recognises a liability for bonuses when there is a contractual obligation and the amount can be estimated reliably.

ii) Retirement benefit obligations

The Group operates a Mandatory Provident Fund Scheme (the “MPF Scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for those employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF Scheme is a defined contribution scheme, the assets of which are held in separate trustee-administered funds.

Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$20,000. The Group’s contributions to the scheme are expensed as incurred and vested in accordance with the scheme’s vesting scales. Where employees leave the scheme prior to the full vesting of the employer’s contributions, the amount of forfeited contributions is used to reduce the contributions payable by the Group.

iii) Share-based payment expenses

The fair value of the employee services received in exchange for the grant of the share options is recognised as an expense in the income statement on a straight-line basis over the vesting period, with a corresponding increase in equity (Share-based compensation reserve).

The total amount to be expensed over the vesting period is determined with reference to the fair value of the share options granted. At each balance sheet date, the Company revises its estimates of the number of share options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity (Share-based compensation reserve) in the balance sheet will be made over the remaining vesting periods.

The proceeds received, net of any directly attributable transaction cost, are credited to share capital and share premium accounts when the share options are exercised. When the share options are still not exercised at the expiry date, the amount previously recognised in share-based compensation reserve will be transferred to retained profits.

– 28 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

r) Financial instruments

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

Financial assets

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

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading and those designated at fair value through profit or loss on initial recognition.

A financial asset other than a financial asset held for trading may be designated as at fair value through profit or loss upon initial recognition if:

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

At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the year in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and bills receivables, prepayments, deposits and other receivables) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent year when an increase in the assets’ recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

– 29 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. At each balance sheet date subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed on initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as any of the other categories (set out above). At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss. Any impairment losses on available-for-sale financial assets are recognised in profit or loss. Impairment losses on available-for-sale equity investments will not reverse in subsequent year. For available-for-sale debt investments, impairment losses are subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent year.

Financial liabilities and equity instruments

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Other financial liabilities

Other financial liabilities including trade and bills payables, other payables and accruals, bank borrowings and obligations under finance leases are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

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

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

For financial liabilities, they are removed from the Group’s balance sheet (i.e. when the obligation specified in the relevant contract is discharged, cancelled or expired). The difference between the carrying amount of the financial liability derecognised and the consideration received or receivable is recognised in profit or loss.

s) 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. Conversion option 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 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 proceeds 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 bond reserve).

In subsequent year, the liability component of the convertible bonds is carried at amortised cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of the Company, will remain in convertible bond reserve until the conversion option is exercised (in which case the balance stated in convertible bond reserve will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in convertible bond reserve will be released to the retained profits. 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 proceeds. 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 component and amortised over the year of the convertible bonds using the effective interest method.

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. FINANCIAL INSTRUMENTS

a) Financial risk management objectives and policies

The Group’s major financial instruments include debtors, bank balances and cash, creditors, amounts due to related parties, bank borrowings and convertible bonds. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented in a timely and an effective manner.

i) Credit risk

The Group’s credit risk is primarily attributable to trade or other receivables. The Group’s sales are made to several major customers. To minimise the concentration of credit risk, it has policies in place to ensure that films are only licensed or distributed to reputable and creditworthy customers. Deposits are received in advance from most of the customers. The exposure to these credit risks are also monitored on an ongoing basis.

ii) Liquidity risk

The Group manages its liquidity risk by regularly monitoring current and expected liquidity requirements and ensuring sufficient liquid cash and adequate committed lines of funding from major financial institutions and related companies to meet the Group’s liquidity requirements in the short and long term.

iii) Interest rate risk

The Group’s exposure to changes in interest rate relates primarily to the Group’s cash and cash equivalents, bank deposits, the borrowings from banks and related companies and convertible bonds. The Group does not use financial derivatives to hedge against the interest rate risk. The Group monitors the interest rate risk exposure on a continuous basis and adjust the portfolio of borrowings where necessary.

iv) Foreign exchange risk

The Group mainly operates in Hong Kong with most of the transactions settled in Hong Kong dollars or United States dollars. The Group did not have significant exposure to foreign exchange risk.

b) Fair value

The fair value of financial assets and financial liabilities are determined as follows:

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices; and
the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.

Except as indicated in the financial statements, the directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate to their fair values.

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

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

a) Impairment of film rights

The Group performs annual tests on whether there has been impairment of film rights in accordance with the accounting policy stated in note 4(g). The recoverable amounts of cash-generating units are determined based on value-in-use calculations. These calculations require the use of estimates and assumptions made by management on the future operation of the business, pre-tax discount rates and other assumptions underlying the value-in-use calculations.

b) Trade debtors

The aged debt profile of trade debtors is reviewed on a regular basis to ensure that the trade debtor balances are collectible and follow up actions are promptly carried out if the agreed credit periods have been exceeded. However, from time to time, the Group may experience delays in collection. Where recoverability of trade debtor balances are called into doubts, specific provisions for bad and doubtful debts are made based on credit status of the customers, the aged analysis of the trade receivable balances and write-off history. Certain receivables may be initially identified as collectible, yet subsequently become uncollectible and result in a subsequent write-off of the related receivable to the income statement. Changes in the collectibility of trade receivables for which provisions are not made could affect the Group’s results of operations.

c) Useful lives of property, plant and equipment

In accordance with HKAS 16, the Group estimates the useful lives of property, plant and equipment in order to determine the amount of depreciation expenses to be recorded. The useful lives are estimated at the time the asset is acquired based on historical experience, the expected usage, wear and tear of the assets, as well as technical obsolescence arising from changes in the market demands or service output of the assets. The Group also performs annual reviews on whether the assumptions made on useful lives continue to be valid.

d) Impairment of films in progress

The management of the Group reviews an ageing analysis at each balance sheet date, and identify the slow-moving films in progress that are no longer suitable for use in production. The management estimates the net realisable value for such finished goods of the films in progress based on value-in-use calculations. In addition, the Group carries out review on each film at each balance sheet date and makes allowance for any films in progress that production no longer proceed.

– 33 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. TURNOVER AND OTHER REVENUE

Turnover Film production Film distribution Other revenue Gain on disposal of property, plant and equipment Bank interest income Sundry income Total income	2007 HK$’000 22,030 40,258 62,288	2006 HK$’000 7,930 9,328
		17,258

	– 183 630 813	53 29 447
		529
	63,101	17,787

8. BUSINESS AND GEOGRAPHICAL SEGMENTS

a) Business segments

For management purposes, the Group is currently organised into three operating divisions, namely, film production, film distribution and television movies production. These divisions are the basis on which the Group reports its primary segment information.

Income statement

Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 22,030 7,930 40,258 9,328 – – 62,288 17,258 Segment profit/(loss) 4,684 1,664 4,654 (320) – – 9,338 1,344 Unallocated corporate income 813 529 Unallocated corporate expenses (24,484) (19,378 Loss from operations (14,333) (17,505 Finance costs (1,821) (680 Loss before taxation (16,154) (18,185 Income tax – – Loss for the year attributable to equity holders of the Company (16,154) (18,185	Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 22,030 7,930 40,258 9,328 – – 62,288 17,258 Segment profit/(loss) 4,684 1,664 4,654 (320) – – 9,338 1,344 Unallocated corporate income 813 529 Unallocated corporate expenses (24,484) (19,378 Loss from operations (14,333) (17,505 Finance costs (1,821) (680 Loss before taxation (16,154) (18,185 Income tax – – Loss for the year attributable to equity holders of the Company (16,154) (18,185	Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 22,030 7,930 40,258 9,328 – – 62,288 17,258 Segment profit/(loss) 4,684 1,664 4,654 (320) – – 9,338 1,344 Unallocated corporate income 813 529 Unallocated corporate expenses (24,484) (19,378 Loss from operations (14,333) (17,505 Finance costs (1,821) (680 Loss before taxation (16,154) (18,185 Income tax – – Loss for the year attributable to equity holders of the Company (16,154) (18,185	Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 22,030 7,930 40,258 9,328 – – 62,288 17,258 Segment profit/(loss) 4,684 1,664 4,654 (320) – – 9,338 1,344 Unallocated corporate income 813 529 Unallocated corporate expenses (24,484) (19,378 Loss from operations (14,333) (17,505 Finance costs (1,821) (680 Loss before taxation (16,154) (18,185 Income tax – – Loss for the year attributable to equity holders of the Company (16,154) (18,185

			1,344
		813 (24,484) (14,333) (1,821) (16,154) –	529 (19,378
			(17,505 (680
			(18,185 –
		(16,154)	(18,185

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance sheet

Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 29,547 16,297 25,239 11,849 500 500 55,286 28,646 Unallocated corporate assets 35,500 16,129 Consolidated total assets 90,786 44,775 Segment liabilities (43,028) (28,466) (6,081) (5,806) – – (49,109) (34,272 Unallocated corporate liabilities (59,821) (20,456 Consolidated total liabilities (108,930) (54,728	Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 29,547 16,297 25,239 11,849 500 500 55,286 28,646 Unallocated corporate assets 35,500 16,129 Consolidated total assets 90,786 44,775 Segment liabilities (43,028) (28,466) (6,081) (5,806) – – (49,109) (34,272 Unallocated corporate liabilities (59,821) (20,456 Consolidated total liabilities (108,930) (54,728	Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 29,547 16,297 25,239 11,849 500 500 55,286 28,646 Unallocated corporate assets 35,500 16,129 Consolidated total assets 90,786 44,775 Segment liabilities (43,028) (28,466) (6,081) (5,806) – – (49,109) (34,272 Unallocated corporate liabilities (59,821) (20,456 Consolidated total liabilities (108,930) (54,728
	35,500	16,129
–	90,786 (49,109)	44,775

		(34,272
	(59,821)	(20,456
(108,930)		(54,728

Other information

					Television movies	Television movies
	Film production		Film distribution		production		Unallocated		Consolidated
	2007	2006	2007	2006	2007	2006	2007	2006	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Additions of property,
plant and equipment	–	–	–	–	–	–	2,195	585	2,195	585
Depreciation	–	–	–	–	–	–	3,941	3,752	3,941	3,752
Additions of film rights	–	–	27,196	12,431	–	–	–	–	27,196	12,431
Amortisation of film
rights	–	–	30,058	7,172	–	–	–	–	30,058	7,172
Impairment loss of films
in progress	–	–	1,600	–	–	–	–	–	1,600	–
Gain on disposal of
property, plant and
equipment	–	–	–	–	–	–	–	53	–	53

b) Geographical segments

The Group’s revenue are derived from Hong Kong and overseas distribution. The following table provides an analysis of the group’s sales revenue by geographical market:

Hong Kong Overseas	2007 HK$’000 36,656 25,632 62,288	2006 HK$’000 14,283 2,975
		17,258

All of the Group’s assets are located in Hong Kong during the year.

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. LOSS FROM OPERATIONS

Loss from operations has been arrived at after charging/(crediting):

	2007	2006
	HK$’000	HK$’000
Auditors’ remuneration	220	220
Contributions to retirement benefits scheme (included in staff costs)	167	175
Amortisation of film rights (included in cost of sales)	30,058	7,172
Impairment loss of films in progress (included in cost of sales)	1,600	–
Production costs (included in cost of sales)	17,346	6,266
Depreciation of property, plant and equipment	3,941	3,752
Operating lease rental in respect of land and buildings	1,866	1,800
Share-based payment	–	1,030
Staff costs including directors’ emoluments	10,654	10,058
Bank interest income	(183)	(29)
Gain on disposal of property, plant and equipment	–	(53)

10. FINANCE COSTS

Interests on: Bank loans wholly repayable within five years Amounts due to related companies (Note 31(b)) Interest on convertible bonds wholly repayable within five years (Note 26) Finance charges on finance leases	2007 HK$’000 10 1,545 221 45 1,821	2006 HK$’000 202 465 – 13
		680

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. DIRECTORS’ EMOLUMENTS

The remuneration of every director of the Company for the year is analysed as follows:

For the year ended 31 March 2007

Executive directors Mr. Law Sau Yiu, Dennis Ms. Teng Chia Lin, Chialina Ms. Chan Dao Ho Independent non-executive directors Mr. Lung Hak Kau Ms. Wai Lai Yung Ms. Tsang Kei Ling	Directors’ fee HK$’000 – – – 96 96 60 252	Salaries and other allowances HK$’000 1,800 456 757 – – – 3,013	Share-based payment HK$’000 – – – – – – –	Retirement benefits scheme contribution HK$’000 12 12 12 – – – 36	Total HK$’000 1,812 468 769 96 96 60
					3,301

For the year ended 31 March 2006

Executive directors Mr. Law Sau Yiu, Dennis Ms. Teng Chia Lin, Chialina Ms. Chan Dao Ho (Note i) Mr. To Kei Fung (Note ii) Independent non-executive directors Mr. Lung Hak Kau Ms. Wai Lai Yung Ms. Tsang Kei Ling	Directors’ fee HK$’000 – – – – 96 96 60 252	Salaries and other allowances HK$’000 1,800 456 450 1,040 – – – 3,746	Share-based payment HK$’000 – – – – – – – –	Retirement benefits scheme contribution HK$’000 12 12 7 4 – – – 35	Total HK$’000 1,812 468 457 1,044 96 96 60
					4,033

Notes:

i) Ms. Chan Dao Ho was appointed on 16 August 2005.
ii) Mr. To Kei Fung resigned the executive director on 1 August 2005 and remained as the chief executive officer of the Company.

– 37 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

During the years ended 31 March 2007 and 2006, no emoluments or incentive payments 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 years ended 31 March 2007 and 2006.

All the executive directors, except Ms. Chan Dao Ho, entered into a service contract shall continue thereafter until terminated by giving to the other party not less than six months’ notice in writing.

12. EMPLOYEES’ EMOLUMENTS

The five highest paid individuals of the Group for the year include:

Number of directors Number of other individuals	2007 3 2 5	2006 2 3
		5

The emoluments of the directors of the Group are disclosed in note 11. Details of the emoluments of the remaining individuals are as follows:

Salaries and other allowances Retirement benefits scheme contributions Share-based payment	2007 HK$’000 4,500 24 – 4,524	2006 HK$’000 3,350 25 1,030
		4,405

The emoluments of the remaining individuals fell within the following bands:

Emoluments bands Nil – HK$1,000,000 HK$3,500,001 – HK$4,000,000 HK$4,000,001 – HK$4,500,000	Number of individuals 2007 2006 1 2 – 1 1 – 2 3	Number of individuals 2007 2006 1 2 – 1 1 – 2 3
		3

During the years ended 31 March 2007 and 2006, no emoluments or incentive payments were paid or payable to the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

13. INCOME TAX

No provision for Hong Kong profits tax has been made in the financial statements as the Company and its subsidiaries have no assessable profits for the years ended 31 March 2007 and 2006.

– 38 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Income tax for the year can be reconciled to the loss before taxation per the consolidated income statement as follows:

Loss before taxation Tax at the Hong Kong profits tax rate of 17.5% (2006: 17.5%) Tax effect of unrecognised tax losses Tax effect of non-taxable incomes Tax effect of non-deductible expenses Tax effect of tax losses utilised Tax effect of unrecognised temporary differences Income tax for the year	2007 HK$’000 (16,154)	2006 HK$’000 (18,185) (3,182) 3,151 (15) 46 – – –
	(2,827) 1,955 (32) 739 (238) 403	(3,182 3,151 (15 46 – –
	–

14. LOSS FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The consolidated loss attributable to equity holders of the Company is dealt with in the financial statements of the Company to the extent of loss of approximately HK$4,632,000 for the year ended 31 March 2007 (2006: approximately HK$9,006,000).

15. LOSS PER SHARE

The calculation of basic and diluted loss per share is based on the following data:

Net loss attributable to equity holders of the Company Weighted average number of shares for basic loss per share (thousand) Loss per share – Basic – Diluted Notes:	2007 HK$’000 (16,154) 85,600 (HK18.9 cents) N/A	2006 HK$’000 (18,185) (Restated) (note (i)) 80,500 (Restated) (HK22.6 cents) N/A

(i) The weighted average number of ordinary shares for the year ended 31 March 2006 for the purposes of basic loss per share has been adjusted for the share consolidation completed during the year.
(ii) No diluted loss per share has been presented for the years ended 31 March 2007 and 2006 as the conversion of all potential ordinary shares arising from share options granted by the Company and convertible bonds would have an anti-dilutive effect on the loss per share for the years ended 31 March 2007 and 2006.

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. FILM RIGHTS AND FILMS IN PROGRESS

The Group

Films in HK$’000 – – 12,431	Film rights progress HK$’000 9,604 9,310 (12,431)	Total HK$’000 9,604 9,310 –
12,431 12,431 – 27,196 39,627 – 7,172 7,172 7,172 30,058 – 37,230	6,483 6,483 31,423 (27,196) 10,710 – – – – – 1,600 1,600	18,914
		18,914 31,423 –
		50,337
		– 7,172
		7,172
		7,172 30,058 1,600
		38,830
2,397 5,259	9,110 6,483	11,507

		11,742

– 2,397	– 9,110	– 11,507
2,397	9,110	11,507

277 4,982	– 6,483	277 11,465
5,259	6,483	11,742

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

During the year, the Group assessed the recoverable amounts of film rights and films in progress and determined that the films in progress associated with the Group’s film distribution operations was impaired by HK$1,600,000 (2006: HK$Nil). The recoverable amounts of film rights and films in progress were assessed by the directors of the Company with reference to the value-in-use calculations of film rights and films in progress as at the balance sheet date.

17. PROPERTY, PLANT AND EQUIPMENT

The Group

Leasehold improvements HK$’000 Cost At 1 April 2005 4,023 Additions – Disposal – At 31 March 2006 4,023 At 1 April 2006 4,023 Additions 222 At 31 March 2007 4,245 Accumulated depreciation At 1 April 2005 1,670 Charge for the year 805 Eliminated on disposal – At 31 March 2006 2,475 At 1 April 2006 2,475 Charge for the year 815 At 31 March 2007 3,290 Net book value At 31 March 2007 955 At 31 March 2006 1,548	Furniture and fixtures HK$’000 716 9 –	Machinery and equipment HK$’000 16,645 21 –	Motor vehicles HK$’000 459 468 (459)	Office equipment HK$’000 1,710 87 (4)	Total HK$’000 23,553 585 (463) 23,675 23,675 2,195 25,870 8,503 3,752 (278) 11,977 11,977 3,941 15,918 9,952 11,698
4,023 4,023 222 4,245 1,670 805 – 2,475 2,475 815 3,290	725 725 53 778 319 143 – 462 462 149 611	16,666 16,666 1,067 17,733 5,375 2,418 – 7,793 7,793 2,523 10,316	468 468 308 776 253 78 (275) 56 56 114 170	1,793 1,793 545 2,338 886 308 (3) 1,191 1,191 340 1,531	23,675
					23,675 2,195
					25,870
					8,503 3,752 (278
					11,977
					11,977 3,941
					15,918
955 1,548	167 263	7,417 8,873	606 412	807 602

At 31 March 2007, the net book value of certain motor vehicles and office equipment of the Group of approximately HK$1,068,000 (2006: HK$412,000) were held under finance leases.

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Non-current portion Amounts due from subsidiaries (Notes (i) and (iii)) Allowance for amounts due from subsidiaries Current portion Amount due from subsidiaries (Notes (ii) and (iii)) Allowance for amounts due from subsidiaries	The Company 2007 2006 HK$’000 HK$’000 78 78 5,990 22,638 (5,600) (22,200) 390 438 468 516 37,170 – (21,100) – 16,070 –	The Company 2007 2006 HK$’000 HK$’000 78 78 5,990 22,638 (5,600) (22,200) 390 438 468 516 37,170 – (21,100) – 16,070 –
	5,990 (5,600) 390	22,638 (22,200
		438
	468
	37,170 (21,100)	– –
	16,070

Notes:

i) The amounts due from subsidiaries are unsecured, non-interest bearing and have no fixed repayment terms. In the opinion of the Company directors, the amount will not be repayable in the next twelve months after the balance sheet date.

The Company has undertaken to provide necessary financial resources to support the future operations of the subsidiaries.

ii) The amounts due from subsidiaries are unsecured and non-interest bearing, except for an amount of HK$15,000,000 (2006: HK$Nil) which bear interest at the rate of three-month HIBOR plus 0.85%. Included in amounts due from subsidiaries of approximately HK$37,170,000 are the amounts due from two subsidiaries, Milkyway Image (Hong Kong) Limited and Luminous Star Limited (the “Disposal Subsidiaries”), of approximately HK$35,345,000 (2006: HK$13,765,000 included in non-current portion) and HK$1,825,000 (2006: HK$216,000 included in non-current portion), in the opinion of the Company’s directors, the amounts due from the Disposal Subsidiaries will be reassigned to the Purchaser after the completion of the sale of the Disposal Subsidiaries, as further detailed in Note 33(b). Therefore, the amounts due from the Disposal Subsidiaries as at 31 March 2007 are classified as current asset.
iii) The Company’s directors consider that in light of the recurring operating losses of certain subsidiaries, the recoverable amounts of these subsidiaries have been reduced to the estimated net realisable value of their identifiable net assets. Accordingly, the impairment losses of amounts due from subsidiaries of approximately HK$5,600,000 included in non-current portion (2006: approximately HK$22,200,000) and HK$21,100,000 included in current portion (2006: HK$Nil) were recognised in the Company’s financial statements for the year ended 31 March 2007.

The impairment losses associated with the Group’s film production and film distribution operations were approximately HK$25,611,000 for the year ended 31 March 2007 (2006: approximately HK$21,111,000), while the remaining amounts are associated with the unallocated corporate unit.

The Company’s directors consider that the carrying amounts of amounts due from subsidiaries approximate their fair value.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

iv) The details of the subsidiaries of the Company as at 31 March 2007 are as follows:

	Country/	Issued and
	place of	fully paid	Interest
Name of subsidiary	incorporation	share capital	held	Principal activities
Galaxy Image (BVI)	British Virgin	US$10,000	100%	Investment holding
Limited	Islands
Inspire Film Distribution	Hong Kong	HK$2	100%	Provision of film
Limited				distribution
Luminous Star Limited	Hong Kong	HK$2	100%	Assets holding and
				provision of film
				production facilities
Point of View Movie	Hong Kong	HK$2	100%	Provision of film
Production Company				production and film
Limited				distribution
Milkyway Image (Hong	Hong Kong	HK$10,000	100%	Provision of film
Kong) Limited				production, film
(“MIHK”)				distribution and
				television movies
				production
Milkyway Image Limited	Hong Kong	HK$2	100%	Holding of film rights

Galaxy Image (BVI) Limited is directly held by the Company. All the other subsidiaries are indirectly held by the Company.

The principal place of operation of all the subsidiaries is in Hong Kong.

None of the subsidiaries had any debt securities outstanding at the end of the year or at any time during the years ended 31 March 2007 and 2006.

19. TRADE DEBTORS

Credit periods given to customers or dealers ranged from 30 to 180 days. The aged analysis of the trade debtors is as follows:

Within 30 days 31 – 90 days 91 – 180 days 181 – 365 days Over 365 days	The Group 2007 2006 HK$’000 HK$’000 3,506 125 91 182 7,280 1 2,902 109 33 – 13,812 417	The Group 2007 2006 HK$’000 HK$’000 3,506 125 91 182 7,280 1 2,902 109 33 – 13,812 417
		417

The Company’s directors consider that the carrying amount of trade debtors approximates their fair value.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. TRADE CREDITORS

The aged analysis of the trade creditors is as follows:

Within 6 months Over 1 year	The Group 2007 2006 HK$’000 HK$’000 2,693 2,459 69 – 2,762 2,459	The Group 2007 2006 HK$’000 HK$’000 2,693 2,459 69 – 2,762 2,459
		2,459

The Company’s directors consider that the carrying amount of trade creditors approximates their fair value.

21. AMOUNTS DUE TO DIRECTORS

The Group and the Company

The amounts represent accrued salaries to directors during the years ended 31 March 2007 and 2006, which are unsecured, non-interest bearing and have no fixed repayment terms.

22. OBLIGATIONS UNDER FINANCE LEASES

At the balance sheet date, the Group had obligations under finance leases repayable as follows:

Amounts payable under finance leases: Within one year More than one year but within two years More than two years but within five years Less: Future finance charges Present value of lease obligations Less: Amounts due for payment within one year	The Group Minimum leases payments Present value of minimum leases payments 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 414 59 380 41 175 56 244 44 85 140 – 127 674 255 624 212 (50) (43) 624 212 (380) (41) 244 171	The Group Minimum leases payments Present value of minimum leases payments 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 414 59 380 41 175 56 244 44 85 140 – 127 674 255 624 212 (50) (43) 624 212 (380) (41) 244 171	The Group Minimum leases payments Present value of minimum leases payments 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 414 59 380 41 175 56 244 44 85 140 – 127 674 255 624 212 (50) (43) 624 212 (380) (41) 244 171	The Group Minimum leases payments Present value of minimum leases payments 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 414 59 380 41 175 56 244 44 85 140 – 127 674 255 624 212 (50) (43) 624 212 (380) (41) 244 171
				212
			(380)	(41)
			244	171

The lease term ranges from four to five years and the average effective borrowing rate is 8.3% during the years ended 31 March 2007 and 2006. Interest rates are fixed at the contract date, and thus expose the Group to fair value interest rate risk. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The Company directors consider that the fair value of the Group’s lease obligations approximates their carrying amount at each balance sheet date.

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Group’s obligations under finance leases are secured by the lessors’ title to the leased assets.

23. BANK LOAN

						The	Group
						2007	2006
						HK$’000	HK$’000
Bank	loan	repayable	within	one	year	–	3,000

The bank loan of approximately HK$3,000,000 as at 31 March 2006 was charged at the interest rate of three-month HIBOR plus 0.85%. The bank loan was secured by the listed securities and personal guarantee given by a director of the Company (Note 31(a)).

24. SHARE CAPITAL

Authorised: At 1 April 2005 and 31 March 2006, ordinary shares of HK$0.01 each Consolidation of shares (Note (ii)) At 31 March 2007, ordinary shares of HK$0.1 each Issued and fully paid: At 1 April 2005 and 31 March 2006 ordinary shares of HK$0.01 each Issue of shares (Note (i)) Consolidation of shares (Note (ii)) Ordinary shares of HK$0.1 each Conversion into shares from convertible bonds At 31 March 2007, ordinary shares of HK$0.1 each	Number of shares 10,000,000,000 (9,000,000,000) 1,000,000,000	Amount HK$’000 100,000 –
		100,000

	805,000,000 161,000,000 966,000,000 (869,400,000) 96,600,000 9,600,000	8,050 1,610
		9,660 –
		9,660 960
	106,200,000	10,620

Notes:

i) On 28 November 2006, the Company entered into a placing agreement with Kingston Securities Limited, an independent third party, for placing of 161,000,000 ordinary shares of the Company of HK$0.01 at HK$0.022 per each to independent investors. On 14 December 2006, the Company issued and allotted 161,000,000 shares with the gross proceeds of approximately HK$3,542,000 before expenses. The details of the share placing are set out in the Company’s announcement dated 28 November 2006.
ii) By an ordinary resolution passed by the shareholders of the Company on 10 January 2007, every 10 of the ordinary shares of the Company (both issued and unissued) of HK$0.01 each were consolidated into one new share (“New Share”) of HK$0.1 each (the “Share Consolidation”). The Share Consolidation became effective on 11 January 2007. The details of the Share Consolidation are set out in the Company’s announcement dated 10 January 2007.

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. RESERVES

Attributable to equity holders of the Company Share Premium Contributed surplus Share-based compensation reserves Convertible bond reserves Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 – – (15,908) – – – – (18,185) – – 1,030 – –	Attributable to equity holders of the Company Share Premium Contributed surplus Share-based compensation reserves Convertible bond reserves Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 – – (15,908) – – – – (18,185) – – 1,030 – –	Attributable to equity holders of the Company Share Premium Contributed surplus Share-based compensation reserves Convertible bond reserves Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 – – (15,908) – – – – (18,185) – – 1,030 – –	Attributable to equity holders of the Company Share Premium Contributed surplus Share-based compensation reserves Convertible bond reserves Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 – – (15,908) – – – – (18,185) – – 1,030 – –	Attributable to equity holders of the Company Share Premium Contributed surplus Share-based compensation reserves Convertible bond reserves Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 – – (15,908) – – – – (18,185) – – 1,030 – –	Total HK$’000 (848 (18,185 1,030
15,050 – 1,932 (159) – 1,251	10 – – – – –	1,030 – – – – –	– – – – 2,692 (323)	(34,093) (16,154) – – – –	(18,003 (16,154 1,932 (159 2,692 928
18,074	10	1,030	2,369	(50,247)	(28,764

15,050 – – 15,050 – 1,932 (159) – 1,251	78 – – 78 – – – – –	– – 1,030 1,030 – – – – –	– – – – – – – 2,692 (323)	(15,978) (9,006) – (24,984) (4,632) – – – –	(850 (9,006 1,030
					(8,826 (4,632 1,932 (159 2,692 928
18,074	78	1,030	2,369	(29,616)	(8,065

The contributed surplus of the Group represents the difference between the nominal value of the shares of the subsidiaries acquired and the nominal value of the shares of the Company issued for the acquisition at the time of the reorganisation of the Group.

In accordance with the laws of the Cayman Islands, the Company’s share premium and contributed surplus are distributable to the shareholders of the Company subject to the Company’s articles of association and provided that immediately following the distribution of dividends, the Company will be in a position to pay off its debts as and when they fall due in the ordinary course of business.

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

26. CONVERTIBLE BONDS

On 30 January 2007, the Company issued two tranches of convertible bonds (the “Bonds”) with total nominal value of HK$20,000,000 at the price of HK$18,200,000. The Bonds are non-interest bearing and will be redeemed within three years (“Conversion Period”) from the date of issue at the Bonds’ nominal value.

The Bonds can be converted into ordinary shares of the Company of HK$0.1 each at any time during the Conversion Period at fixed conversion price being HK$0.25. The Company may redeem any bond during the Conversion Period at the price of 105% of the Bonds’ nominal value.

The fair values of the liability component and the equity conversion component were determined at issuance of the Bonds. The fair value of the liability component, included in long-term borrowings, was calculated at effective interest rate of 8.51% per annum. The residual amount, representing the value of the equity conversion component, is included in equity.

During the year ended 31 March 2007, the Bonds with the nominal value HK$2,400,000 were converted into 9,600,000 New Shares of the Company of HK$0.1 each at a conversion price of HK$0.25 per share.

The convertible bonds recognised in the balance sheet are calculated as follows:

Proceeds from convertible bonds issued on 30 January 2007 Equity component (Note 25) Liability component on initial recognition at 30 January 2007 Accrued interest capitalised (Note 10) Conversion into shares Liability component at 31 March 2007	The Group and the Company 2007 2006 HK$’000 HK$’000 18,200 – (2,692) –	The Group and the Company 2007 2006 HK$’000 HK$’000 18,200 – (2,692) –
	15,508 221 (1,888)	– – –
	13,841	–

27. DEFERRED TAXATION

The Group

The followings are the deferred tax liabilities and assets recognised by the Group and movements thereon:

At 1 April 2005 Charge/(credit) to income statement At 31 March 2006 and 1 April 2006 Charge/(credit) to income statement At 31 March 2007	Accelerated tax depreciation HK$’000 2,059 (420)	Estimated taxlosses HK$’000 (2,059) 420	Total HK$’000 – –
	1,639 (575)	(1,639) 575	– –
	1,064	(1,064)	–

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

At 31 March 2007, the Group did not recognise deferred tax assets in respect of the tax losses of approximately HK$44,559,000 (2006: HK$24,105,000). As it is not probable that taxable profits will be available against which the unused tax losses of the Group can be utilised, deferred tax assets have not been recognised in respect of the unused tax losses. Tax losses are available indefinitely for offsetting future taxable profits of the companies in which the losses arose.

28. PROVISIONS

			The	Group
			2007	2006
			HK$’000	HK$’000
Provision	for	litigation	4,000	–

During the year, an individual engaged by the Company’s subsidiary MIHK in 2003, lodged a statement of claim in the High Court in Hong Kong against MIHK in respect of a personal injury purported to have been suffered during his engagement with MIHK in 2003. If MIHK is found to be liable, the total expected monetary compensation may amount to approximately HK$4,000,000. The provision for litigation of HK$4,000,000 is made in the consolidated financial statements for the year ended 31 March 2007.

29. COMMITMENTS

a) Operating lease commitments

At 31 March 2007, the Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of rented premises which fall due as follows:

Within one year In the second to fifth year inclusive	The Group 2007 2006 HK$’000 HK$’000 1,124 1,800 249 750 1,373 2,550	The Group 2007 2006 HK$’000 HK$’000 1,124 1,800 249 750 1,373 2,550
		2,550

Operating lease payments represent rentals payable by the Group for its office premises. Leases are negotiated for a term ranging from 2 years to 3 years and rentals were fixed for the year.

The Company had no significant lease commitments at the balance sheet date.

b) Other commitments

Contracted but not provided for in the financial statements in respect of: – film production costs	The Group 2007 2006 HK$’000 HK$’000 14,011 18,480

The Company had no other commitments at the balance sheet date.

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. CONTINGENT LIABILITIES

The Group and the Company have no contingent liabilities at the balance sheet date.

31. RELATED PARTY TRANSACTIONS

a) During the year ended 31 March 2006, the Company director Mr. Law Sau Yiu, Dennis (“Mr. Law”) provided personal guarantee to a bank to secure facilities granted to the Group. The banking facilities were secured by listed securities, other than that of the Company, owned by Mr. Law having discounted market value not less than the amount of banking facility utilised by the Group from time to time. No fee in respect of the provision of personal guarantee was paid to him by the Group. The Group obtained bank loans of approximately HK$3,000,000 for the year ended 31 March 2006. The Group repaid all bank loans in April 2006 and has not obtained any further facilities provided by Mr. Law.
b) During the years ended 31 March 2007 and 2006, certain related companies provided the loan facilities to the Group as follows:
(i) Hang Hing Limited, Suki Investment Limited and Tosco Limited, which were incorporated in Hong Kong and controlled by the Company’s directors, Mr. Law Sau Yiu, Dennis and Ms. Teng Chia Lin, Chialina, granted certain loan facilities to the Group totalling approximately HK$49,000,000 for the year ended 31 March 2007 (2006: approximately HK$15,000,000). The Group drew the loan approximately HK$40,500,000 during the year (2006: approximately HK$15,000,000). The loans are unsecured, interest charged at the rate of three-month HIBOR plus 0.85% and repayable within one year.
(ii) Keep Beat Enterprises Limited, which was incorporated in British Virgin Islands and controlled by the Chief Executive Officer of the Company, Mr. To Kei Fung, granted a loan to the Group of approximately HK$3,000,000 (2006: HK$Nil). The Group drew the loan approximately HK$3,000,000 (2006: HK$Nil) during the year. The loan is unsecured, interest charged at the rate of three-month HIBOR plus 0.85% and repayable on 28 July 2007.

The details of the interest expenses charged during the year are disclosed in Note 10.

(iii) The balances due to the related companies at balance sheet date are as follows:

The Group Balances at balance sheet date Hang Hing Limited Suki Investment Limited Keep Beat Enterprises Limited Tosco Limited Outstanding interest Total per consolidated balance sheet The Company Balances at balance sheet date Hang Hing Limited Suki Investment Limited Outstanding interest Total per balance sheet	2007 HK$’000 12,000 20,500 3,000 2,000 255 37,755	2006 HK$’000 10,000 5,000 – – 97
		15,097

	12,000 3,000 129	– – –
	15,129	–

– 49 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

c) Compensation for key management personnel, including amount paid to the Company’s directors and certain of the highest paid employee, as disclosed in Notes 11 and 12 is as follows:

Salaries and other short-term benefits Retirement benefits scheme contribution Share-based payment	2007 HK$’000 7,345 48 – 7,393	2006 HK$’000 6,988 48 1,030
		8,066

32. SHARE OPTION SCHEMES

Pursuant to the written resolutions of the shareholders of the Company dated 2 August 2002, a share option scheme (“Share Option Scheme”) was approved and adopted.

Share Option Scheme

The major terms of the Share Option Scheme are summarised as follows:

a) The purpose of the Share Option Scheme is to enable the Group to grant share options to selected participants as incentives or rewards for their contribution to the Group.
b) The participants include:
i) (1) any employee or proposed employee of the Company, any of its subsidiaries or any entity (“Invested Entity”) in which the Group holds an equity interest, including any executive director of the Company, any of such subsidiaries or any Invested Entity;
- (2) any non-executive director (including independent non-executive directors) of the Company, any of its subsidiaries or any Invested Entity;
- (3) any supplier of goods or services to any member of the Group or any Invested Entity;
- (4) any customer of the Group or any Invested Entity;
- (5) any person or entity that provides research, development or other technological support to the Group or any Invested Entity;
- (6) any shareholder of any member of the Group or any Invested Entity or any holder or any securities issued by any member of the Group or any Invested Entity; and
- (7) any joint venture partner or counter-party to business transactions of the Group.
ii) any company wholly owned by one or more persons belonging to any of the above classes of participants.
c) The exercise price of a share option shall be a price determined by the directors and shall at least be the higher of:
i) the closing price of a share of the Company as stated in the Stock Exchange’s daily quotations sheet on the date of grant, which must be a business day; and
ii) the average closing price of a share of the Company as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant.

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

d) Maximum number of shares:
i) The total number of shares which may be issued upon exercise of all outstanding share options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of the Company must not exceed 30% of the shares in issue from time to time; and
ii) The total number of shares which may be issued upon exercise of all share options to be granted under the Share Option Scheme and any other schemes must not in aggregate, exceed 10% of the shares in issue at any time of the Share Option Scheme (the “Limit”) provided that share options lapsed in accordance with the terms of the Share Option Scheme will not be counted for the purpose of calculating the Limit.
e) The total number of shares issued and to be issued upon the exercise of share options granted and to be granted to each participant (including both exercised and outstanding options) in any 12-month period up to and including the date of grant must not exceed 1% of the shares in issue.
f) The exercisable period should be determined by the board of directors upon grant of the share option but in any event should not exceed 10 years from the date of grant of the share option.

Details of share options outstanding under the Company’s Share Option Scheme and movements during the year were as follows:

								2007	2007		2006
		At beginning of the year						64,400,000			–
		Issued during the year							–	64,400,000
		Adjustments during the year _(Note _			a)			(57,960,000)			–
		At the end of year						6,440,000		64,400,000

		Options vested during the year							–	64,400,000

Chief		Outstanding		Outstanding	Adjustments	Outstanding	Exercisable
executive	Date of	at	Granted	at	during the	at	at 31/03/	Vesting		Exercise	Exercise
officer	grant	01/04/2005	during year	31/03/2006	year	31/03/2007	2007	period		period	price
					(Note a)						(Note a)
Mr. To Kei	16/09/2005	–	64,400,000	64,400,000	(57,960,000)	6,440,000	6,440,000	N/A	20/09/2005		HK$0.4
Fung						(note b)				to
									19/09/2015

Notes:

a) The exercise prices and numbers of options which remained outstanding during the year have been adjusted due to the completion of share consolidation during the year.
b) At 31 March 2007, the 6,440,000 outstanding shares (2006: 64,400,000 outstanding shares) represented approximately 6% (2006: approximately 8%) of the total issued share capital of the Company.
c) The exercise price represented the higher of the closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheet on 16 September 2005, date of proposed grant (i.e., HK$0.4, after adjusting the share consolidation of the Company) and a price being the average closing prices of the Company’s shares as stated in the Stock Exchange’s daily quotations sheets for the 5 Business Days immediately preceding 16 September 2005.

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The options outstanding at the end of the year have a remaining contractual life of 8.5 years (2006: 9.5 years).

During the year ended 31 March 2006, 64,000,000 options were issued and their estimate fair value were calculated using The Black-Scholes pricing model. Exceptions of early exercise are incorporated into the model. The inputs into the model were as follows:

	2006
Share price	HK$0.04
Exercise price	HK$0.04
Expected volatility	17%
Expected life	10 years
Risk fee rate (based on Exchange Fund Notes)	4.4%
Expected dividend yield	Nil

Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous 3 years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations. Changes in the subjective input assumptions could materially affect the fair value estimate.

Share options were granted under a service condition. This condition has not been taken into account in the grant date fair value measurement of the services received. There were no market conditions associated with the share option grants.

The Group recognised total expenses related to equity-settled share-based payment transactions during the year ended 31 March 2006 of approximately HK$1,030,000.

33. POST BALANCE SHEET EVENTS

a) On 12 March 2007, the Company entered into a subscription agreement with a wholly owned subsidiary of China Star Entertainment Limited (the “Subscriber”), a company listed on the Stock Exchange and not connected with the Group, pursuant to which the Subscriber has agreed to subscribe for the convertible bonds (the “Convertible Bonds”) in a principal amount of HK$25 million to be issued by the Company at the price of HK$22.5 million. The Convertible Bonds bear no interest and will be due in 2012. The holders of the Convertible Bonds shall have the right at any time after the date of issue of the Convertible Bonds to convert any outstanding amounts of the Convertible Bonds into the Company’s New Share of HK$0.1 each at the conversion price which is initially HK$0.33 per New Share, subject to adjustments for, among other matters, subdivision or consolidation of the Company’s shares, rights issue, extraordinary stock or cash distribution, and other dilutive events. The placing of the Convertible Bonds was approved by the Company’s shareholders at the extraordinary general meeting on 18 April 2007, and the transaction was completed on 25 May 2007. The above transaction is detailed in the Company’s circular on 2 April 2007.
b) On 23 April 2007, the Group through its wholly owned subsidiary, Galaxy Image (BVI) Limited (the “Vendor”), entered into an agreement with Keep Beat Enterprises Limited (the “Purchaser”), a company was incorporated in British Virgin Islands and wholly owned by the chief executive officer of the Company, Mr. To Kei Fung, pursuant to which the Vendor will dispose of its entire interest in the Disposal Subsidiaries to the Purchaser for a total consideration of HK$26 million (the “Disposal”). The Disposal was approved by the Company’s shareholders at the extraordinary general meeting on 21 June 2007, but the Disposal has not completed at the date of this report. The above transaction is detailed in the Company’s announcement on 23 May 2007.

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

STATEMENT OF INDEBTEDNESS

Borrowings

As at the close of business on 31 August 2007, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Enlarged Group had total outstanding borrowings of approximately HK$19,229,000, comprising (i) the unsecured loans due to related parties of approximately HK$18,575,000; and (ii) the convertible bonds of approximately HK$654,000, which bear no interest and will be due for repayment by May 2012.

Debt securities

As at the close of business on 31 August 2007, the Enlarged Group did not have debt securities.

Contingent Liabilities

As at the close of business on 31 August 2007, the Enlarged Group did not have any material contingent liabilities.

Disclaimer

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, as at the close of business on 31 August 2007, the Enlarged Group did not have any loan capital issued and outstanding or agreed to be issued, bank overdraft, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, finance lease commitments, guarantees or other material contingent liabilities.

Foreign currency amounts have been translated into Hong Kong dollars at the approximately exchange rates prevailing at the close of business on 31 August 2007.

Save as disclosed above, the Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Enlarged Group since 31 August 2007.

WORKING CAPITAL

Taking into account financial resources available to the Enlarged Group, the Directors are of the opinion that the Enlarged Group will have sufficient working capital for its present requirements, that is for at least the next twelve months from the date of this circular.

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

MATERIAL ADVERSE CHANGE

The Directors confirm that there has been no material adverse change in the financial or trading position of the Group since 31 March 2007, being the date to which the latest published audited accounts of the Company have been made up, up to the Latest Practicable Date.

MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TARGET GROUP

The Target Group has not commenced business, other than holding the Property, since its incorporation on 8 May 2007. The Property is the sole assets of significance of the Target Group. Based on the unaudited accounts of the Target Group for the period from its incorporation on 8 May 2007 to 31 August 2007, the net profit before taxation were approximately HK$594,000 and the net profit after taxation were HK$488,000. The Target Group recorded net assets of approximately HK$594,000 as at 31 August 2007. As at 31 August 2007, the Target Group had total assets of approximately HK$24,100,000, being Property, and total liabilities of approximately HK$23,612,000, comprising shareholder’s loan of approximately HK$23,506,000 and deferred tax liabilities of HK$106,000. As at 31 August 2007, the Target Group had no contingent liabilities or charge on group assets. The Target Group had no employees as at 31 August 2007.

– 54 –

VALUATION REPORT

APPENDIX II

The following is the text of the letter and valuation report received from the Valuer and addressed to the Company in connection with its valuation as at 31 August 2007 on the Property, which has been prepared for the purpose of incorporation in this circular.

==> picture [226 x 45] intentionally omitted <==

Room 904 9th Floor, Harbour Centre 25 Harbour Road Wanchai Hong Kong 15 October 2007

Brilliant Arts Multi-Media Holding Limited Units A-C, 11/F Lockhart Centre 301-307 Lockhart Road Wanchai Hong Kong

Dear Sir,

In accordance with your instructions to value the property interests to be acquired by Brilliant Arts Multi-Media Holding Limited, (“the Company”) or its subsidiaries (together referred as “the Group”) in Hong Kong, we confirm that we have made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the capital value of such property interests as at August 31, 2007.

Our valuation is our opinion of market value which we would define as intended to mean the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

We have valued the property by comparison approach assuming sale in their existing state by making reference to comparable sales evidences as available in the relevant market.

In valuing the property interests, we have complied with all the requirements contained in Chapter 8 of the Rules Governing the Listing of Securities on the Growth Enterprise Market and The HKIS Valuation Standards on Properties (1st Edition 2005) published by The Hong Kong Institute of Surveyors.

We have caused searches to be made at the Land Registry. However, we have not examined the original documents to verify ownership or to ascertain the existence of any amendments. We have relied on a considerable extent on information provided by the Company on such matters as statutory notices, easements, tenure, particulars of occupancy, identification of the properties, floor areas and all other relevant matters. All documents and leases have been used as reference only. All dimensions, measurements and areas are approximations. We have not carried out on-site measurements to verify the site areas of the properties and we have assumed that the site area shown on the copies of the documents

– 55 –

APPENDIX II

VALUATION REPORT

handed to us are correct. We have had no reason to doubt the truth and accuracy of the information provided to us by the Company which is material to the valuations. We were also advised by the Company that no material facts have been omitted from the information supplied.

We have inspected the exteriors and where possible, the interiors of the properties. However, no structural survey has been carried out and it was not possible to inspect the wood work and other parts of the structure which were covered, unexposed or inaccessible. We are therefore, unable to report that the properties are free of rot, infestation or any structural defects. No tests have been carried out on any of the building services.

No allowance has been made in our report for any charges, mortgages or amounts owing on the properties nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

We enclose herewith the valuation certificate.

Yours faithfully, For and on behalf of GRANT SHERMAN APPRAISAL LIMITED Peggy Y. Y. Lai MRICS MHKIS RPS Associate Director Real Estate Group

Note: Ms. Peggy Y.Y. Lai is a member of the Royal Institution of Chartered Surveyors, a member of the Hong Kong Institute of Surveyors and Register Professional Surveyors in the General Practice Section, who has over 5 years experience in the valuation of properties in Hong Kong, the PRC and the Asian Region.

– 56 –

VALUATION REPORT

APPENDIX II

VALUATION CERTIFICATE

Property interests to be acquired and used by the Company

Property Unit No. 1611 on 16/F of West Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Hong Kong 44/33888th parts or shares of Inland Lot No. 8517

Capital value in existing state as at Description and tenure 31 August 2007 The property comprises a unit of a commercial HK$24,100,000 building completed in about 1985, which has a gross floor area of about 2,559 sq.ft.

The property is held for a term of 75 years and renewable for further 75 years commencing from 31 December 1980.

The property was leased to the Company for a period of 1 year commencing from 22 August 2007 at a monthly rental of HK$100,000 exclusive of Government rent (if any), rates, management charges and all other outgoings.

The Government rent payable for Inland Lot No. 8517 is $1,000 per annum.

As at the valuation date, the property is under internal decoration.

Note:

(i) The registered owner of the property is Grand Billion Investments Limited, a wholly-owned subsidiary of Classic Grace Enterprises Limited, vide Memorial No. 07082102720039 dated 31 July 2007.
(ii) The property is subject to nil material encumbrances.
(iii) For reference purpose, the value for land portion of the property is HK$21,120,000 and the value for building portion of the property is HK$2,980,000.

– 57 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The following is the text of a report, prepared for inclusion in this circular, from the reporting accountants of the Company, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

==> picture [92 x 62] intentionally omitted <==

The Directors Brilliant Arts Multi-Media Holding Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) relating to Classic Grace Enterprises Limited (the “Target”) and its subsidiary (hereinafter collectively referred to as the “Target Group”) for the period from 8 May 2007 (date of incorporation of the Target) to 31 August 2007 (the “Relevant Period”) for inclusion in the circular of Brilliant Arts Multi-Media Holding Limited dated 15 October 2007 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of the Target and its subsidiary.

The Target was incorporated and registered in the British Virgin Islands on 8 May 2007 with limited liability and acts as an investment holding company. As at the date of this report, the Target holds the entire shareholding of its subsidiary namely Grand Billion Investments Limited (“Grand Billion”). The details of its subsidiary are set out in Note 11 of Section I in this report.

No audited financial statements have been prepared for the Target since its date of incorporation as there is no statutory requirement to do so. Up to the date of this report, no audited financial statements of Grand Billion for the period from 18 May 2007 (date of its incorporation) to 31 August 2007 have been prepared.

For the purpose of the report, the sole director of the Target has prepared the consolidated financial statements of the Target Group for the Relevant Period or since its subsidiary’s date of incorporation to 31 August 2007, whichever period is shorter, in accordance with the Hong Kong Financial Reporting Standards (“HKFRSs”). We have carried out independent audit procedures on the consolidated financial statements for the Relevant Period (the “Underlying Financial Statement”), in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

– 58 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

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

The Financial Information of the Target Group for the Relevant Period set out in this report has been prepared based on the Underlying Financial Statements.

The preparation of the Underlying Financial Statements are the responsibility of the sole director of the Target. The Company’s directors 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 together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of the Target Group and the Target as at 31 August 2007 and of the consolidated results and cash flows of the Target Group for the Relevant Period.

– 59 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

I. FINANCIAL INFORMATION

Consolidated income statement

		Period from
		8 May 2007
		(date of
		incorporation)
		to 31 August
		2007
	Notes	HK$’000
Turnover	6	–
Other revenue	6	604
Other operating expenses		(10)
Profit before taxation	7	594
Income tax	9	(106)
Profit for the period attributable to equity holders of the Target		488

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APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Consolidated balance sheet

Notes Non-current asset Investment property 10 Current liability Amount due to ultimate holding company 12 Net assets Capital and reserves Share capital 13 Reserves Total equity Non-current liabilities Deferred tax liabilities 14	At 31 August 2007 HK$’000 24,100 (23,506) 594 – 488 488 106 594

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APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Balance sheet

Notes Non-current asset Interest in a subsidiary 11 Current liability Amount due to ultimate holding company 12 Net liabilities Capital and reserves Share capital 13 Reserves Total equity	At 31 August 2007 HK$’000 – (5) (5) – (5) (5)

Total equity

– 62 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Consolidated statement of changes in equity

At 8 May 2007, date of incorporation Profit for the period At 31 August 2007	Attributable to equity holders of the Target Share capital Retained profits HK$’000 HK$’000 – – – 488 – 488	Total HK$’000 – 488
		488

– 63 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Consolidated cash flow statement

OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Fair value gain on investment property
Operating cash flows before movements in working capital
Increase in amount due to ultimate holding company
NET CASH GENERATED FROM OPERATING ACTIVITIES
INVESTING ACTIVITIES
Purchase of investment property
NET CASH USED IN INVESTING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT THE END OF THE
RELEVANT PERIOD

Period from
8 May 2007
to 31 August
2007
HK$’000
594
(604)
(10)
23,506
23,496
(23,496)
(23,496)
–
–

– 64 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Notes to the Financial Information

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The Target is a limited liability company incorporated in the British Virgin Islands and acts as an investment holding company. The addresses of its registered office and principal place of business are P. O. Box 3444, Road Town, Tortola, British Virgin Islands.

The sole director considers the ultimate holding company of the Target Group to be Billion ERA Group Limited, a company incorporated in the British Virgin Islands, as at 31 August 2007.

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

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

The HKICPA issued a number of new standards, amendments and interpretations (“new HKFRSs) that are effective for accounting periods either beginning on or after 1 December 2005, 1 January 2006 or 1 January 2007. For the purposes of preparing and presenting financial information of the Relevant Period, the Target Group has adopted all the new HKFRSs.

The Target Group has not early applied the following new HKFRSs that have been issued but are not yet effective. The Target Group anticipates that the application of new HKFRSs will have no material impact on the financial information of the Target Group.

HK(IFRIC) – Int 12 Service Concession Arrangements (effective for annual periods beginning on or after 1 January 2008) HKFRS 8 Operating segments (effective for annual periods beginning on or after 1 January 2009) HKAS 23 (Revised) Borrowing costs (effective for annual periods beginning on or after 1 January 2009)

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with new HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance. The consolidated financial statements are prepared under the historical cost convention, except for investment property and certain financial instruments, which are measured at fair value. A summary of the significant accounting policies adopted by the Target Group is set out below.

a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Target and its subsidiary.

The results of subsidiary acquired or disposed of during the Relevant Period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant inter-company transactions, balances and unrealised gains on transactions within the Target Group are eliminated on consolidation.

b) Impairment

At each balance sheet date, the Target 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 the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying

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APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

c) 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. Taxable profit differs from net profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items of income or expense that are never taxable and deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised 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 negative 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 arising on investment in subsidiary, except where the Target 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.

d) Investment property

On initial recognition, investment property is measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment property is measured using the fair value model. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year in which the item is derecognised.

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APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

e) Subsidiary

A subsidiary is a company controlled by the Target. A subsidiary is considered to be controlled if the Target has the power directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from its activities.

Investment in subsidiary is included in the Target’s balance sheet at cost less impairment loss, if any. The results of subsidiary are accounted for by the Target to the extent of dividends received and receivable during the Relevant Period.

f) Leased assets

i) Finance leases

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Target Group. Assets held under finance leases are capitalised at their fair values at the date of acquisition. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease obligation.

Payments to the lessor are treated as consisting of capital and interest elements. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the consolidated income statement over the term of the relevant lease so as to produce an approximately periodic rate of charge on the remaining balance of the obligations for each accounting period.

ii) Operating leases

All other leases are classified as operating leases and the annual rentals are charged to the consolidated income statement on a straight-line basis over the relevant lease terms.

g) Related party

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or entities and include entities which are controlled or under the significant influence of related parties of the Target Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Target Group or of any entity that is a related party of the Target Group.

h) Provision and contingencies

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.

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APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

i) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Target Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

j) Financial instruments

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

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and bills receivables, prepayments, deposits and other receivables) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the assets’ recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

An equity instrument is any contract that evidences a residual interest in the assets of the Target Group after deducting all of its liabilities. The Target Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. A financial guarantee contract issued by the Target Group and not designed as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Target Group measure the financial guarantee contact at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue.

– 68 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Target Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

For financial liabilities, they are removed from the Target Group’s consolidated balance sheet (i.e. when the obligation specified in the relevant contract is discharged, cancelled or expired). The difference between the carrying amount of the financial liability derecognised and the consideration received or receivable is recognised in profit or loss.

4. FINANCIAL INSTRUMENTS

a) Financial risk management objectives and policies

The Target Group’s financial instrument include amount due to ultimate holding company. Details of this financial instrument are disclosed in note 12. The risks associated with this financial instrument and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented in a timely and an effective manner.

i) Liquidity risk

The Target Group manages its liquidity risk by regularly monitoring current and expected liquidity requirements and ensuring sufficient liquid cash and adequate funding from ultimate holding company to meet the Target Group’s liquidity requirements in the short and long term.

ii) Foreign exchange risk

The Target Group operates in Hong Kong with most of the transactions settled in Hong Kong dollars. The Target Group did not have significant exposure to foreign exchange risk.

iii) Credit and interest rate risks

The Target Group has no significant credit and interest rate risks.

b) Fair value

The fair value of financial assets and financial liabilities are determined as follows:

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices; and
the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.

Except as indicated in the consolidated financial statement, the directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate to their fair values.

– 69 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

Investment property

Investment property is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount of investment property has been determined based on value-in-use calculations, taking into account the latest market information and past experience. The calculation and valuations require the use of judgement and estimates.

6. TURNOVER AND OTHER REVENUE

Turnover Other revenue Fair value gain on investment property Total revenue	Period from 8 May 2007 (date of incorporation) to 31 August 2007 HK$’000 – 604
	604

7. PROFIT BEFORE TAXATION

Auditors’ remuneration Incorporation fee	Period from 8 May 2007 (date of incorporation) to 31 August 2007 HK$’000 – 7

8. DIRECTORS’ REMUNERATION

No directors’ remuneration have been paid or payable by the Target Group during the Relevant Period.

– 70 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

9. INCOME TAX

Hong Kong profits tax Deferred tax (Note 14)	Period from 8 May 2007 (date of incorporation) to 31 August 2007 HK$’000 – 106
	106

No provision for Hong Kong profits tax has been made in the consolidated financial statements as the Target Group had no assessable profits for the Relevant Period.

The income tax for the year can be reconciled to the profit before taxation per the consolidated income statement as follows:

Profit before taxation Tax at the Hong Kong profits tax rate of 17.5% Tax effect of non-deductible expenses Income tax for the Relevant Period INVESTMENT PROPERTY Addition during the Relevant Period Fair value gain credited to the consolidated income statement At 31 August 2007	Period from 8 May 2007 (date of incorporation) to 31 August 2007 HK$’000 594

	104 2
	106

	HK$’000 23,496 604
	24,100

10. INVESTMENT PROPERTY

a) The investment property is situated in Hong Kong and held under medium term lease.
b) The investment property was revalued as at 31 August 2007 on an open market basis by Grant Sherman Appraisal Limited, independent qualified professional valuers not connected with the Target Group and have appropriate qualifications and recent experience in the valuation of similar properties in the relevant locations. The valuation was arrived at by reference to market evidence of transaction prices for similar properties.
c) The Target Group’s property interests held under operating leases to earn rentals are measured using the fair value model and are classified and accounted for as investment property.

– 71 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

11. INTEREST IN A SUBSIDIARY

At 31 August 2007 HK$’000

Unlisted shares, at cost –

The details of the subsidiary as at 31 August 2007 are as follows:

	Place of	Issued and	Direct
	incorporation/	fully paid	interest
Name of subsidiary	operation	share capital	held	Principal activity
Grand Billion Investments	Hong Kong	1 ordinary share	100%	Property
Limited		of HK$1		investment

12. AMOUNT DUE TO ULTIMATE HOLDING COMPANY

The amount is unsecured, interest free and repayable on demand.

13. SHARE CAPITAL

Authorised: 50,000 ordinary shares of US$1 each Equivalent to Issued and fully paid: 1 ordinary share of US$1 each Equivalent to	At 31 August 2007 US$50,000

	HK$390,000

	US$1

	HK$8

14. DEFERRED TAX LIABILITIES

The movements in deferred tax liabilities recognised during the Relevant Period are as follows:

	At 31 August
	2007
	HK$’000
Revaluation of investment property
Charged to the consolidated income statement (Note 9)	106

– 72 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

15. OPERATING LEASE COMMITMENTS

The Target Group entered into a tenancy agreement with Brilliant Arts Multi-Media Holding Limited for one year commencing from 22 August 2007 with a rent-free period from 22 August 2007 to 31 October 2007.

At the balance sheet date, the Target Group had contracted with Brilliant Arts Multi-Media Holding Limited for the following future minimum lease payments:

			31 August
			2007
			HK$’000
Within	one	year	968

II. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Target Group have been prepared in respect of any period subsequent to 31 August 2007.

Yours faithfully, CCIF CPA Limited

Certified public Accountants Hong Kong, 15 October 2007

Yau Hok Hung Practising Certificate Number P04911

– 73 –

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The unaudited pro forma statement of assets and liabilities of the Enlarged Group is prepared based on the audited consolidated balance sheet extracted from the annual report of the Group as at 31 March 2007 after making pro forma adjustments that are necessary. The pro forma adjustments have not taken into account of the Company’s transactions made subsequent to 31 March 2007, which included (i) the issue of the Company’s convertible bonds in a principal amount of HK$25 million; (ii) the disposal of the Group’s subsidiaries, Milkyway Image (Hong Kong) Limited and Luminous Star Limited, for a total consideration of HK$26 million; and (iii) the open offer of 124,663,636 offer shares of the Company. The details of the above transactions are set out in the Company’s circulars dated 2 April 2007, 23 May 2007 and 24 September 2007 respectively.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group has been prepared to provide the unaudited pro forma financial information of the Enlarged Group as if the proposed acquisition of the Target Group had been completed on 31 March 2007. As it has been prepared for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group as at 31 March 2007 and at any future date.

– 74 –

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

Unaudited Pro Forma Statement of Assets and Liabilities of the Enlarged Group

ASSETS AND LIABILITIES Non-current assets Fixed assets (including property, plant and equipment, investment property and prepaid lease payment) Goodwill Current assets Films rights, current portion Film in progress Production in progress Trade debtors Deposits, prepayments and other debtors Bank and cash balances Current liabilities Trade creditors Other creditors and accruals Receipt in advance Amounts due to directors Amounts due to related companies Amount due to ultimate holding company Provisions Obligations under finance leases – due within one year Net current liabilities Total assets less current liabilities	The Group as at 31 March 2007 Target Group as at 31 August 2007 Pro forma adjustments HK$’000 HK$’000 HK$’000 (Audited) (Note a) (Note b) 9,952 24,100 – 6	Pro Forma Enlarged Group HK$’000 (Unaudited) 34,052 6 34,058 2,397 9,110 25,522 13,812 6,116 23,877 80,834 2,762 1,117 46,347 2,484 37,755 – 4,000 380 94,845 (14,011) 20,047
	9,952 2,397 9,110 25,522 13,812 6,116 23,877 80,834 2,762 1,117 46,347 2,484 37,755 – 23,506 (23,506) 4,000 380 94,845 (14,011)	34,058
		2,397 9,110 25,522 13,812 6,116 23,877
		80,834
		2,762 1,117 46,347 2,484 37,755 – 4,000 380
		94,845
		(14,011
	(4,059)

– 75 –

APPENDIX IV

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

Capital and reserves Share capital Reserves Total equity Non-current liabilities Convertible bonds Obligations under finance leases – due after one year Deferred tax liabilities	The Group as at 31 March 2007 Target Group as at 31 August 2007 Pro forma adjustments HK$’000 HK$’000 HK$’000 (Audited) (Note a) (Note b) 10,620 (28,764) 488 3,786	Pro Forma Enlarged Group HK$’000 (Unaudited) 10,620 (24,490) (13,870) 33,567 244 106 33,917 20,047
	(18,144) 13,841 19,726 244 – 106 14,085	(13,870
		33,567 244 106
		33,917
	(4,059)

Notes:

a) This represents the inclusion of the assets and liabilities of the Target Group as at 31 August 2007 set out in the Appendix III to this circular.
b) The adjustments reflect the acquisition of the Target Group for a consideration of HK$24,000,000, which shall be satisfied by the issue of the Company’s Convertible Bond with a face value of HK$24,000,000 to the Vendor. The Company’s directors have considered a valuation performed by Grant Sherman Appraisal Limited, independent professional valuers, and are of the opinion that at 31 August 2007, the fair value and the equity reserve of the Convertible Bond in compliance with Hong Kong Accounting Standards 32 and 39 issued by the Hong Kong Institute of Certified Public Accountants were approximately HK$19,726,000 and HK$4,274,000 respectively.

The final fair value of the Convertible Bond, which may be different to that presented above, to be recorded by the Group on completion will be determined with reference to the valuation performed by Grant Sherman Appraisal Limited, independent professional valuers, at the date of completion of the Convertible Bond.

The acquisition of the Target Group was assumed to be completed on 31 March 2007 and with reference to the identifiable net assets of the Target Group as at 31 August 2007, the Group recognised a goodwill of approximately HK$6,000 (the consideration of HK$24,000,000 less the identifiable net assets of the Target Group of approximately HK$488,000 and the amounts due to ultimate holding company of approximately HK$23,506,000) from the acquisition of the Target Group. Since the carrying amounts of the identifiable assets and liabilities of the Target Group at the date of completion may be different from their carrying amounts as at 31 August 2007, the actual goodwill arising from the acquisition may be different from that presented above.

– 76 –

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

2. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report received from CCIF CPA Limited, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

==> picture [92 x 61] intentionally omitted <==

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF BRILLIANT ARTS MULTI-MEDIA HOLDING LIMITED

We report on the unaudited pro forma financial information of Brilliant Arts Multi-Media Holding 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 acquisition of the entire issued share capital of Classic Grace Enterprises Limited (the “Target”) and its subsidiary (hereinafter collectively referred to as the “Target Group”) (together with the Group referred to as the “Enlarged Group”), might have affected the financial information presented for inclusion in section 1 of Appendix IV to the circular issued by the Company dated 15 October 2007 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out on section 1 of Appendix IV 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 financial information in accordance with rule 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

It is our responsibility to form an opinion, as required by rule 7.31(7) of the GEM Listing Rules, on the unaudited pro forma 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 financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 77 –

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

Basis of opinion

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

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma 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 purposes of the unaudited pro forma financial information as disclosed pursuant to rule 7.31(1) of the GEM Listing Rules.

The unaudited pro forma financial information is for illustrative purpose only, based on the judgments 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 the future and may not be indicative of the financial position of the Enlarged Group as at 31 March 2007 or any future date.

Opinion

In our opinion:

(a) the unaudited pro forma 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 financial information as disclosed pursuant to the rule 7.31(1) of the GEM Listing Rules.

CCIF CPA Limited

Certified public Accountants Hong Kong, 15 October 2007

Yau Hok Hung

Practising Certificate Number P04911

– 78 –

GENERAL INFORMATION

APPENDIX V

RESPONSIBILITY STATEMENT

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 Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:

(1) the information contained in this circular is accurate and complete in all material respects and not misleading;
(2) there are no other matters the omission of which would make any statement in this circular misleading; and
(3) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date are as follows:

Authorised 1,000,000,000 Shares	HK$ 100,000,000.00

Issued, fully paid or credited as fully paid 249,327,272 Shares in issue as at the Latest Practicable Date 100,000,000 Shares to be alloted and issued upon exercise of the conversion rights attaching to the Convertible Bond	24,932,272.20 10,000,000.00
349,327,272 Shares	34,932,272.20

All the Shares currently in issue rank pari passu in all respects with each other, including in particular, as to dividends, voting rights and capital. No part of the share capital of the Company is listed or dealt in on any stock exchange other than the Stock Exchange.

Save for the outstanding CSL Convertible Bonds, the Company has no derivatives, options, warrants and conversion rights or other similar rights which are convertible or exchangeable into Shares as at the Latest Practicable Date.

– 79 –

GENERAL INFORMATION

APPENDIX V

On 31 August 2007, the Company announced, amongst other things, the Open Offer of 124,663,636 new Shares and the entering into of the Underwriting Agreement dated 28 August 2007. As at the Latest Practicable Date, the Open Offer has not been completed.

DISCLOSURE OF INTERESTS

(a) Director’s and chief executive’s interests in the Company

As at the Latest Practicable Date, none of the Directors and chief executives of the Company had any interests and short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (i) 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 they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by directors to be notified to the Company and the Stock Exchange.

(b) Substantial shareholders of any member of the Enlarged Group

Save as disclosed below, so far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, no person (other than Directors or chief executive of the Company) had, or was deemed to have, interests or short positions in the shares 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, or, is, 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 Enlarged Group:

Long positions in the Shares and underlying Shares

		Number or	Approximate
		attributable	percentage
		number of	of the
		Shares or	Company’s
		underlying	issued share
Name	Capacity	Shares held	capital
			(%)
China Star	Interest of controlled	112,121,211	29.97
	corporation (Note 1)
China Star Entertainment	Interest of controlled	112,121,211	29.97
(BVI) Limited	corporation (Note 1)
CSL	Beneficial owner	112,121,211	29.97
	(Note 1)
Law Sau Yiu, Dennis	Interest of controlled	37,376,000	14.99
	Corporation (Note 2)

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GENERAL INFORMATION

APPENDIX V

		Number or	Approximate
		attributable	percentage
		number of	of the
		Shares or	Company’s
		underlying	issued share
Name	Capacity	Shares held	capital
			(%)
Teng Chia Lin, Chialina	Interest of spouse	37,376,000	14.99
	(Note 2)
Right Opportune Limited	Beneficial owner	37,376,000	14.99
	(Note 2)
Chu Yuet Wah	Interest of controlled	88,300,000	23.61
	corporation (Note 3)
Ma Siu Fong	Interest of controlled	88,300,000	23.61
	corporation (Note 3)
Kingston Securities	Beneficial owner	88,300,000	23.61
Limited	(Note 3)
Leong Chi Meng	Interest of controlled	100,000,000	40.11
	corporation (Note 4)
Ung Siu Han	Interest of spouse	100,000,000	40.11
	(Note 4)
Billion ERA Group	Beneficial owner	100,000,000	40.11
Limited	(Note 4)

Notes:

CSL is a company wholly owned by China Star Entertainment (BVI) Limited, which in turn is a wholly owned subsidiary of China Star. CSL was interested in 72,727,272 Shares, and was deemed to be interested in 3,030,303 Shares which would fall to be issued upon conversion of the outstanding CSL Convertible Bonds and 36,363,636 Shares pursuant to the undertaking given by CSL to subscribe for 36,363,636 new Shares to which CSL is entitled under the Open Offer.
These shares are beneficially owned by Right Opportune Limited, the entire issued share capital of which is wholly and beneficially owned by Mr. Law Sau Yiu, Dennis. Ms. Teng Chia Lin, Chialina is the spouse of Mr. Law Sau Yiu, Dennis, accordingly, she is deemed to be interested in the 37,376,000 Shares held by Right Opportune Limited.
Kingston Securities Limited was deemed to be interested in 88,300,000 Shares pursuant to the Underwriting Agreement. Ms. Chu Yuet Wah and Ms. Ma Siu Fong owns 51% and 49% interest in Kingston Securities Limited respectively.
Billion ERA Group Limited was deemed to be interested in 100,000,000 Shares in relation to the Convertible Bond to be issued pursuant to the Sale and Purchase Agreement. Billion ERA Group Limited is wholly and beneficially owned by Mr. Leong Chi Meng. Ms. Ung Siu Han is the spouse of Mr. Leung Chi Meng, and is thus deemed to be interested in the Shares held by Billion ERA Group Limited.

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GENERAL INFORMATION

APPENDIX V

QUALIFICATION AND CONSENT OF EXPERTS

The following is the qualification of the experts who have given opinion or advice which is contained in this circular:

Name Qualification Grant Sherman Independent valuer CCIF Certified Public Accountants

Each of Grant Sherman and CCIF has given and has not withdrawn its written consent to the issue of this circular with the expert’s statement included in the form and context in which it is included and the references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, each of Grant Sherman and CCIF does not have any shareholding, direct or indirect, in any member of the Enlarged Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group. As at the Latest Practicable Date, each of Grant Sherman and CCIF did not has any interest, either direct or indirect, in any assets which have been, since 31 March 2007, being the date to which the latest published audited accounts of the Company were made up acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group is engaged in any litigation or arbitration of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Enlarged Group.

AUDIT COMMITTEE

The audit committee of the Company comprises Mr. Leung Wai Man, Mr. Lai Hok Lim and Mr. Man Kong Yui (all being independent non-executive Directors). The audit committee of the Company is mainly responsible for supervising the Company’s internal control system and its execution, evaluating financial information and related disclosure, reviewing the internal control system, auditing major connected transactions and also communicating, supervising and investigating the Company’s internal and external audits.

Mr. Lai Hok Lim

Mr. Lai Hok Lim, aged 48, is an independent non-executive Director. He is a practicing solicitor in Hong Kong since 1989. He graduated from the University of Hong Kong with a Bachelor of Arts Degree and holds a Bachelor of Arts (Law) Degree from the University of Sussex in the United Kingdom and a Bachelor of Law Degree from Beijing University in the People’s Republic of China. Mr. Lai joined the Company on 10 July 2007. Mr. Lai was

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GENERAL INFORMATION

APPENDIX V

appointed as an independent non-executive director of Riche Multi-Media Holdings Limited, a company listed on the main board of the Stock Exchange, during the period from 19 November 1999 to 12 April 2005.

Mr. Leung Wai Man

Mr. Leung Wai Man, aged 37, is an independent non-executive Director. He has over seven years of experience in company secretary, accounting and financial management. He is an associate member of the Association of Chartered Certified Accountants in the United Kingdom. Mr. Leung joined the Company on 10 July 2007.

Mr. Man Kong Yui

Mr. Man, aged 47, has been involved in the financial and securities industries for over 25 years and has extensive experience in bullion, securities, futures and foreign exchange business. He has held various senior positions with prominent banks and international financial institutions. Mr. Man holds a Bachelor’s degree in Business Administration from Chinese University of Hong Kong. Mr. Man is currently an independent non-executive director of GreaterChina Technology Group Limited, a company whose shares are listed on GEM and an independent non-executive director of Get Nice Holdings Limited, a company whose shares are listed on the main board of the Stock Exchange.

COMPETING BUSINESS

As at the Latest Practicable Date, so far as the Directors are aware of, none of the Directors and employees of the Group or their respective associates had any interests in a business which competes or may compete with the business of the Group or any other conflicts of interests with the Group.

DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any existing or proposed service contracts with the Company or any member of the Group which is not determinable by the Group within one year without payment of compensation, other than the statutory compensation.

DIRECTORS’ INTEREST IN ASSETS

The Directors confirm that none of the Directors has any interest, direct or indirect, in any assets which had been, since 31 March 2007, being the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

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GENERAL INFORMATION

APPENDIX V

DIRECTORS’ INTEREST IN CONTRACTS

The Directors confirm that there is no contract or arrangement subsisting at the Latest Practicable Date in which a Director was materially interested and which was significant in relation to the business of the Enlarged Group.

MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business of the Enlarged Group) have been entered into by any member of the Enlarged Group within two years immediately preceding the Latest Practicable Date which are or may be material:

the new share placement agreement dated 28 November 2006 entered into between the Company and Kingston Securities Limited, the placing agent, in respect of the placing of 161,000,000 new Shares at the placing price of 0.022 per Share;
the bond placement agreement dated 5 December 2006 entered into between the Company and Kingston Securities Limited, the placing agent, in respect of the placing of the convertible bonds in an aggregate principal amount of HK$20 million;
the subscription agreement dated 12 March 2007 and entered into between the Company and CSL in relation to the subscription and issue of the zero coupon convertible bonds in principal amount of HK$25 million due 2012;
the agreement dated 23 April 2007 entered into between the Group and Keep Beat Enterprises Limited in relation to the disposal by the Group of the entire issued capital of Luminous Star Limited and Milkyway Image (Hong Kong) Limited and the related shareholders’ loan at an aggregate consideration of HK$26 million;
the agreement dated 28 June 2007 entered into between Grand Billion and an independent third party in relation to sale and purchase of the Property at an aggregate consideration of HK$22.52 million;
the Sale and Purchase Agreement; and
the Underwriting Agreement.

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GENERAL INFORMATION

APPENDIX V

CORPORATE INFORMATION

(a) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681 Grand Cayman KY1-1111, Cayman Islands.
(b) The head office and principal place of business in Hong Kong is located at Unit A-C, 11/F, Lockhart Centre, 301-307 Lockhart Road, Wanchai, Hong Kong.
(c) The principal share registrar and transfer office of the Company is Bank of Bermuda (Cayman) Limited at P.O. Box 513GT Strathvale House, North Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies.
(d) The branch share registrar and transfer office of the Company is Tricor Secretaries Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(e) The secretary and qualified accountant of the Company is Mr. Lee Chan Wah FCCA, HKICPA.
(f) The compliance officer of the Company is Mr. Yip Tai Him appointed pursuant to Rule 5.19 of the GEM Listing Rules.

GENERAL

The English text of this circular shall prevail over the Chinese text for the purpose of interpretation.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company in Hong Kong at the office of the legal advisers of the Company, Michael Li & Co., 14th Floor, Printing House, 6 Duddell Street, Central, Hong Kong, during 10:00 a.m. to 4:00 p.m. on any Business Day, from the date of this circular up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the valuation report on the Property prepared by Grant Sherman, the text of which is set out in Appendix II to this circular;
(c) the accountants’ report on the Target Group prepared by CCIF, the text of which is set out in Appendix III to this circular;
(d) the letter from CCIF in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix IV to this circular;
(e) the annual reports of the Group for the two financial years ended 31 March 2007;

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GENERAL INFORMATION

APPENDIX V

(f) the consent letters from Grant Sherman and CCIF referred to in the paragraph headed “Qualification and consent of experts” in this appendix;
(g) the material contracts referred to under the section headed “Material contracts” in this appendix;
(h) the circular of the Company dated 23 May 2007 in relation to a very substantial disposal and connected transaction of the Company; and
(i) this circular.

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NOTICE OF EGM

==> picture [305 x 50] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8130)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “EGM”) of the shareholders of Brilliant Arts Multi-Media Holding Limited (the “Company”) will be held at 4:30 p.m. on Wednesday, 31 October 2007 at 14th Floor, Printing House, 6 Duddell Street, Central, Hong Kong for the purpose of considering and, if thought fit, passing with or without amendments, the following resolution of the Company:

ORDINARY RESOLUTION

“THAT

(a) the conditional sale and purchase agreement (the “Agreement”) (a copy of which has been produced to the EGM marked “A” and signed by the chairman of the EGM for the purpose of identification) dated 28 August 2007 and entered into between the Company, as purchaser, Billion ERA Group Limited (the “Vendor”) as vendor and Mr. Leong Chi Meng as guarantor in relation to the sale and purchase of one ordinary share of US$1.00 in the issued share capital of Classic Grace Enterprises Limited (the “Target”) and the shareholder’s loan owing by the Target to the Vendor at a total consideration of HK$24,000,000 and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified;
(b) any one or more of the 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/she/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Agreement and the transactions contemplated thereunder;
(c) the issue of the convertible bond (the “Convertible Bond”) in the principal amount of HK$24,000,000 to be issued by the Company in accordance with the terms and conditions of the Agreement and the transactions contemplated therein be and are hereby approved; and
(d) 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/she/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the issue of the Convertible Bond including but not limited to the allotment and issue of ordinary shares of HK$0.10

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NOTICE OF EGM

each in share capital of the Company of which may fall to be issued upon the exercise of the conversion rights attached to the Convertible Bond.”

By order of the Board Brilliant Arts Multi-Media Holding Limited Lei Hong Wai Executive Director

Hong Kong, 15 October 2007 Registered office: Head office and principal place of Cricket Square business in Hong Kong: Hutchins Drive Unit A-C, 11/F P.O. Box 2681 Lockhart Centre Grand Cayman KY1-1111 301-307 Lockhart Road Cayman Islands Wanchai, Hong Kong

Notes:

A member entitled to attend and vote at the EGM is entitled to appoint one or more than one proxy to attend and, subject to the provisions of the articles of association of the Company, to vote on his behalf. A proxy need not be a member of the Company but must be present in person at the EGM to represent the member. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.
A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend the EGM in person, you are encouraged to complete and return the enclosed form of proxy in accordance with the instructions printed thereon. Completion and return of a form of proxy will not preclude a member from attending in person and voting at the EGM or any adjournment thereof, should he so wish.
In order to be valid, the form of proxy, together with a power of attorney or other authority, if any, under which it is signed, or a certified copy of such power or authority must be deposited at Hong Kong branch share registrar and transfer office of the Company, Tricor Secretaries Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof.
In the case of joint holders of shares, any one of such holders may vote at the EGM, 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 holder are present at the EGM 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 shares shall alone be entitled to vote in respect thereof.

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AI assistant

Dadi International Group Limited — Proxy Solicitation & Information Statement 2007

51285_rns_2007-10-15_8182c4f5-d17c-47cf-b70c-aa0ecd1822a9.pdf

MAJOR TRANSACTION AND NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Independent non-executive Directors:

MAJOR TRANSACTION

INTRODUCTION

THE SALE AND PURCHASE AGREEMENT

Assets to be acquired

Consideration

Conditions precedent

Completion

TERMS OF THE CONVERTIBLE BOND

Issuer

Principal amount

Interest

Maturity

Conversion

Conversion Price

Conversion Shares

Redemption and early redemption

Ranking

Status of the Convertible Bond

Transferability

Voting rights

Application for listing

ADJUSTMENT IN RELATION TO THE CONVERTIBLE BOND

INFORMATION ON THE TARGET

REASONS FOR THE PROPOSED ACQUISITION

LETTER FROM THE BOARD

EFFECT ON SHAREHOLDING STRUCTURE UPON CONVERSION OF THE CONVERTIBLE BOND, CSL CONVERTIBLE BONDS AND THE COMPLETION OF THE OPEN OFFER

FINANCIAL EFFECT OF THE ACQUISITION ON THE GROUP

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

IMPLICATIONS UNDER THE GEM LISTING RULES AND THE EGM

PROCEDURES FOR DEMANDING A POLL

RECOMMENDATION

ADDITIONAL INFORMATION

THREE YEARS FINANCIAL SUMMARY

RESULTS

ASSETS AND LIABILITIES

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE FINANCIAL YEAR ENDED 31 MARCH 2007

Consolidated Income Statement

Consolidated Balance Sheet

Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

APPENDIX I

Notes to the Financial Statements

1. GENERAL

2. BASIS OF PREPARATION

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES

a) Basis of consolidation

b) Revenue recognition

c) Impairment

d) Taxation

e) Property, plant and equipment

f) Subsidiaries

g) Film rights

h) Production in progress

i) Films in progress

j) Leased assets

k) Receipt in advance

l) Foreign currencies

m) Related party

n) Provision and contingencies

o) Cash and cash equivalents

p) Borrowing costs

q) Employee benefits

r) Financial instruments

Financial assets

Financial assets at fair value through profit or loss

Loans and receivables

APPENDIX I

Dadi International Group Limited Proxy Solicitation & Information Statement 2007