Dadi International Group Limited - Proxy Solicitation & Information Statement 2008

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in the Company, you should at once hand this circular, together with 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 addressed to the shareholders of the Company in connection with extraordinary general meeting of the Company to be held on 14 January 2009. This circular is not and does not constitute an offer of, nor is it intended to invite offers for, shares in or other securities of the Company.

The Stock Exchange and HKSCC take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8130)

(1) OPEN OFFER OF 1,131,207,381 OFFER SHARES ON THE BASIS OF NINE OFFER SHARES FOR EVERY ONE EXISTING SHARE HELD ON THE RECORD DATE;

(2) VERY SUBSTANTIAL ACQUISITION: SUBSCRIPTION OF GC CONVERTIBLE BONDS;

(3) RE-ELECTION OF DIRECTORS;

(4) PROPOSED CHANGE OF BOARD LOT SIZE; AND

(5) NOTICE OF EXTRAORDINARY GENERAL MEETING Underwriter

KINGSTON SECURITIES LIMITED

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders Grand Cathay Securities (Hong Kong) Limited

Terms used in this cover page have the same meanings as defined in this circular.

The letter from the Independent Financial Adviser is set out on pages 45 to 57 of this circular. The letter from the Independent Board Committee is set out on page 44 of this circular. To qualify for the Open Offer, a Shareholder must be registered as a member of the Company on the Record Date, which is currently expected to be Wednesday, 14 January 2009. In order to be registered as a member of the Company on the Record Date, Shareholders must lodge any transfers of Shares (with the relevant Share certificate(s)) with the Registrar by 4:00 p.m. on Thursday, 8 January 2009. The last day of dealings in Shares on a cum-entitlement basis is therefore expected to be Tuesday, 6 January 2009. The Shares will be dealt with on an exentitlement basis from Wednesday, 7 January 2009.

A notice convening the EGM to be held at Unit 1611, 16/F., Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong at 4:30 p.m. on Wednesday, 14 January 2009 is set out on pages 332 to 335 of this circular. If you are unable to attend the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit it with the Registrar at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM if you so wish. The Underwriting Agreement (as supplemented by the Supplemental Agreement) contains provisions granting Kingston Securities, by notice in writing, the right to terminate Kingston Securities’ obligations thereunder on the occurrence of certain events. Kingston Securities may terminate the Underwriting Agreement (as supplemented by the Supplemental Agreement) on or before the Latest Time for Termination if prior to the Latest Time for Termination:

(1) in the absolute opinion of Kingston Securities, the success of the Open Offer would be materially and adversely affected by:
(a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the absolute opinion of Kingston Securities materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Open Offer; or
(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date hereof) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the absolute opinion of Kingston Securities materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or materially and adversely prejudice the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or

(2) any adverse change in market conditions (including without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the absolute opinion of Kingston Securities is likely to materially or adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or

(3) there is any change in the circumstances of the Company or any member of the Group which in the absolute opinion of Kingston Securities will adversely affect the prospects of the Company, including without limiting the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any of member of the Group or the destruction of any material asset of the Group; or
(4) any event of force majeure including, without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic, terrorism, strike or lock-out; or

(5) any other material adverse change in relation to the business or the financial or trading position or prospects of the Group as a whole whether or not ejusdem generis with any of the foregoing; or

(6) any matter which, had it arisen or been discovered immediately before the date of the Prospectus and not having been disclosed in the Prospectus, would have constituted, in the absolute opinion of any of Kingston Securities, a material omission in the context of the Open Offer; or

(7) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than ten consecutive business days, excluding any suspension in connection with the clearance of the Announcement or the Prospectus Documents or other announcements or circulars in connection with the Open Offer, Kingston Securities shall be entitled by notice in writing to the Company, served prior to the Latest Time for Termination, to terminate the Underwriting Agreement (as supplemented by the Supplemental Agreement).

Kingston Securities shall be entitled by notice in writing to rescind the Underwriting Agreement (as supplemented by the Supplemental Agreement) if prior to the Latest Time for Termination:

(1) any material breach of any of the representations, warranties or undertakings contained in the Underwriting Agreement as supplemented by the Supplemental Agreement comes to the knowledge of Kingston Securities; or
(2) any Specified Event comes to the knowledge of Kingston Securities.

Any such notice shall be served by Kingston Securities prior to the Latest Time for Termination and thereupon the obligations of all parties under the Underwriting Agreement (as supplemented by the Supplemental Agreement) shall terminate and no party shall have any claim against any other party for costs, damages, compensation or otherwise save for any antecedent breaches.

If the Underwriting Agreement (as supplemented by the Supplemental Agreement) is terminated by Kingston Securities on or before the aforesaid deadline or does not become unconditional, the Open Offer will not proceed.

The Shares will be dealt in on an ex-entitlement basis from Wednesday, 7 January 2009 and the Open Offer is conditional. If the conditions of the Open Offer are not satisfied by the relevant date(s) or, if no such date is specified, the Latest Time for Termination or such later date or dates as Kingston Securities may agree with the Company in writing, or the Underwriting Agreement (as supplemented by the Supplemental Agreement) is terminated by Kingston Securities, the Open Offer will not proceed and will lapse. Any persons contemplating buying or selling Shares from the date of the Announcement up to the date on which all the conditions of the Open Offer are satisfied bear the risk that the Open Offer may not become unconditional or may not proceed. Any Shareholders or other persons contemplating dealing in the Shares are recommended to consult their own professional advisers.

29 December 2008

CHARACTERISTICS OF GEM

GEM has been positioned as a market designed to accommodate companies to which a high investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors. Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

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	Page
Characteristics of GEM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	i
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
Appendix I — Financial information on the Group. . . . . . . . . . . . . . . . . . . . . . .	58
Appendix II — Financial information on the GC Group. . . . . . . . . . . . . . . . . . . .	150
Appendix III — Unaudited pro forma financial information
of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	302
Appendix IV — General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	319
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	332

— ii —

DEFINITIONS

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

“acting in concert”	has the meaning ascribed to this term under the Codes
“Announcement”	the announcement of the Company dated 4 December 2008
	relating to, among other things, the Open Offer and the
	Subscription
“Application Form(s)”	the application form(s) for use by the Qualifying Shareholders
	to apply for the Offer Shares
“Articles”	the articles of association adopted by the Company, and
	“Article” shall mean a article of the Articles
“associates”	has the meaning ascribed to this term under the GEM Listing
	Rules
“Board”	the board of Directors
“Business Day”	a day (other than a Saturday, Sunday or public holiday or
	days on which) on which licensed banks are generally open
	for business in Hong Kong throughout their normal business
	hours
“Business Power”	Business Power Holdings Limited, a company incorporated in
	the British Virgin Islands with limited liability and its entire
	issued share capital is owned as to 50% by Mr. Lei and as to
	50% by Ms. Lok Hoi Yan (the spouse of Mr. Lei)
“CCASS”	the Central Clearing and Settlement System established and
	operated by HKSCC
“Circular”	the circular to Shareholders, which will have annexed thereto
	the notice convening the EGM
“Circular Documents”	the Circular, the notice convening the EGM and the proxy
	form for use at the EGM
“Codes”	The Codes on Takeovers and Mergers and Share Repurchases
“Companies Ordinance”	the Companies Ordinance, Chapter 32 of the Laws of Hong
	Kong

— 1 —

	DEFINITIONS
“Company”	Brilliant Arts Multi-Media Holding Limited, a company
	incorporated in the Cayman Islands with limited liability and
	the Shares are listed on GEM
“connected person(s)”	has the meaning ascribed to this term under the GEM Listing
	Rules
“CS Consideration Shares”	the new GC Shares to be alloted and issued pursuant to the
	conditional sale and purchase agreement dated 26 November
	2008 entered into by Golife, as announced by Golife on 8
	December 2008
“CS Convertible Bond”	the convertible bond in the principal amount of HK$100
	million to be issued by Golife pursuant to the conditional sale
	and purchase agreement date 26 November 2008 entered into
	by Golife, as announced by Golife on 8 December 2008
“CSE Convertible Bond”	the convertible bond in the principal amount of HK$60 million
	to be issued by Golife pursuant to the subscription agreement
	dated 26 November 2008 entered into by Golife with China
	Star Entertainment Limited, as announced by Golife on 8
	December 2008
“CSL”	Classical Statute Limited, a company incorporated in the
	British Virgin Islands with limited liability, the entire issued
	share capital of which is wholly and beneficially owned by
	Glenstone Investments Limited, which is in turn owned as to
	60% by Porterstone and as to 40% by Mr. Heung Wah Keung
“CSL Convertible Bond”	the zero coupon convertible bond in the outstanding principal
	amount of HK$1.0 million due 2012 issued by the Company
	to CSL pursuant to a subscription agreement entered into
	between the Company and CSL dated 12 March 2007
“CSL Undertaking”	an irrevocable undertaking dated 27 November 2008 given
	by CSL in favour of the Company and Kingston Securities,
	further details of which are set out in the paragraph
	headed “Undertaking given by CSL” in the section headed
	“Underwriting Arrangement” in this Circular
“Director(s)”	director(s) of the Company

— 2 —

DEFINITIONS

“Eagle Mate” Eagle Mate Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of Business Power
“EGM” the extraordinary general meeting of the Company to be convened and held at Unit 1611, 16/F, Shun Tak Centre, West Tower, 168-200 Connaught Road, Hong Kong at 4:30 p.m. on Wednesday, 14 January 2009 for the purposes of considering and approving, among other things, the Open Offer, the Subscription and the Re-election of Directors
“Enlarged Group” the Group and the GC Group following the conversion of the GC Convertible Bonds into the GC Conversion Shares by the Group amounting to 29.99% of the then issued share capital of Golife
“Excess Application Form” the form of application for excess Offer Shares
“GC Conversion Share(s)” the GC Share(s) which may fall to be allotted and issued upon exercise of the conversion rights attaching to the GC Convertible Bonds
“GC Convertible Bonds” the zero coupon convertible bonds in an aggregate principal amount of HK$100 million to be issued by Golife in five tranches of HK$20 million each due on the tenth anniversary of the date of issue for such tranche of the Subscription to the Company pursuant to the Subscription Agreement during the Subscription Period
“GC Existing Convertible collectively (i) the convertible bond of HK$3,200,000 Bonds” conferring rights to convert a total of 33,684,210 GC Shares on basis of an adjusted conversion price of HK$0.095 per GC Share (subject to adjustment); (ii) the convertible bonds in an aggregate principal amount of HK$35,000,000 conferring rights to convert a total of 280,000,000 GC Shares on the basis of an initial conversion price of HK$0.125 per GC Share (subject to adjustment); and (iii) the convertible bond of HK$7,000,000 conferring rights to convert a total of 56,000,000 GC Shares on the basis of an adjusted conversion price of HK$0.125 per GC Share (subject to adjustment)
“GC Group”

Golife and its subsidiaries

— 3 —

	DEFINITIONS
“GC Placing”	a placing of 53,000,000 new GC Shares at a placing price of
	HK$0.075 per new GC Share pursuant to the general mandate
	granted to the directors of Golife as announced by Golife on
	28 November 2008 and completed on 10 December 2008
“GC Open Offer”	an open offer to GC Shareholders for subscription of up
	to a maximum of 279,681,928 new GC Shares on the basis
	of every five issued GC Shares for two new GC Shares
	at a subscription price of HK$0.05 per new GC Share as
	announced by Golife on 28 November 2008
“GC Share(s)”	share(s) of HK$0.05 each in the share capital of Golife
“GC Shareholder(s)”	holder(s) of the GC Share(s)
“GC Share Options”	options granted under the share option scheme of Golife
	adopted on 6 March 2002
“Golife”	Golife Concepts Holdings Limited, a company incorporated
	in the Cayman Islands with limited liability whose shares are
	listed on GEM
“GEM”	Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	the Rules Governing the Listing of Securities on GEM
“Grand Cathay”	Grand Cathay Securities (Hong Kong) Limited, a licensed
	corporation to carry out types 1 (dealing in securities), 6
	(advising on corporate finance) and 9 (asset management)
	regulated activities as defined in Schedule 5 of the SFO
	being appointed as the independent financial adviser
	to advise the Independent Board Committee and the
	Independent Shareholders in relation to the Open Offer
“Group”	the Company and its subsidiaries
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	Hong Kong Special Administrative Region of the People’s
	Republic of China

— 4 —

DEFINITIONS

“Independent Board Committee”
a committee of the Board, comprising all independent nonexecutive Directors to advise the Independent Shareholders on the Open Offer
“Independent Financial Grand Cathay, which have been appointed by the Company as Adviser” the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Open Offer
“Independent Third Party” any person or company and their respective ultimate beneficial owner(s), to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, are third parties independent of the Company and its connected persons
“Independent Shareholder(s)” Shareholders other than Mr. Cheung, Mr. Lei and their respective associates
“Kingston Securities” Kingston Securities Limited, a licensed corporation to carry on business in type 1 regulated activity (dealing in securities) under the SFO
“Last Trading Day” 26 November 2008, being the last trading day for the Shares before the date of the Announcement
“Latest Practicable Date” 24 December 2008, being the latest practicable date prior to the printing of this Circular for inclusion of certain information in this Circular
“Latest Time for 4:00 p.m. on Friday, 30 January 2009 or such later time or Acceptance” date as may be agreed between the Company and Kingston Securities, being the latest time for acceptance of, and payment for, the Offer Shares
“Latest Time for 4:00 p.m. on the third Business Day after the Latest Time Termination” for Acceptance or such later time or date as may be agreed between the Company and Kingston Securities, being the latest time to terminate the Underwriting Agreement as supplemented by the Supplemental Agreement
“Lei Undertaking” an irrevocable undertaking dated 27 November 2008 given by Mr. Lei in favour of the Company and Kingston Securities, further details of which are set out in the paragraph headed “Undertaking given by Mr. Lei” in the section headed “Underwriting Arrangement” in this Circular

— 5 —

	DEFINITIONS
“Mander”	Mander International Limited, a company incorporated
	in Hong Kong with limited liability and a wholly-owned
	subsidiary of Business Power
“Mr. Cheung”	Mr. Cheung Kwok Wai, Elton, an executive Director
“Mr. Kwok”	Mr. Kwok Chuen Hung, Dominic, an independent non-
	executive Director
“Mr. Lei”	Mr. Lei Hong Wai, the Chairman of the Company and an
	executive Director
“Offer Share(s)”	1,131,207,381 new Shares proposed to be offered to the
	Qualifying Shareholders for subscription on the basis of nine
	Offer Shares for every one existing Share held on the Record
	Date and payable in full on acceptance pursuant to the Open
	Offer
“Open Offer”	the proposed issue of the Offer Shares by way of open offer to
	the Qualifying Shareholders on the terms to be set out in the
	Prospectus Documents and summarised herein
“Overseas Letter”	a letter from the Company to the Prohibited Shareholders
	explaining the circumstances in which the Prohibited
	Shareholders are not permitted to participate in the Open
	Offer
“Overseas Shareholders”	the Shareholders with registered addresses on the register of
	members of the Company which are outside Hong Kong on the
	Record Date
“Porterstone”	Porterstone Limited, a company incorporated in the British
	Virgin Islands with limited liability and its entire issued share
	capital is owned by Ms. Chen Ming Yin, Tiffany
“Prohibited Shareholder(s)”	those Overseas Shareholder(s) to whom the Board, after
	making enquires, considers it necessary or expedient on
	account either of legal restrictions under the laws of the
	relevant place or the requirements of the relevant regulatory
	body or stock exchange in that place not to offer the Offer
	Shares to them

— 6 —

	DEFINITIONS
“Prospectus”	the prospectus to be issued by the Company in relation to the
	Open Offer
“Prospectus Documents”	the Prospectus, the Application Form and the Excess
	Application Form
“Prospectus Posting Date”	15 January 2009 or such later date as may be agreed between
	Kingston Securities and the Company for the despatch of the
	Prospectus Documents
“Qualifying Shareholders”	the Shareholders, other than the Prohibited Shareholders,
	whose names appear on the register of members of the
	Company as at the close of business on the Record Date
“Record Date”	14 January 2009, being the date by reference to which
	entitlements to the Open Offer will be determined
“Registrar”	Tricor Secretaries Limited, 26th Floor, Tesbury Centre, 28
	Queen’s Road East, Wanchai, Hong Kong, the branch share
	registrar of the Company in Hong Kong
“Settlement Convertible	the ten years 3% coupon convertible bond to be issued by
Bond”	Golife pursuant to the conditional sale and purchase agreement
	dated 26 November 2008 entered into by Golife, as announced
	by Golife on 8 December 2008
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Share Options”	options granted under the share option scheme of the Company
	adopted on 2 August 2002
“Share(s)”	ordinary share(s) of HK$0.01 in the share capital of the
	Company
“Shareholder(s)”	holder(s) of the Share(s)
“Specified Event”	an event occurring or matter arising on or after the date of
	the Underwriting Agreement and prior to the Latest Time
	for Termination which if it had occurred or arisen before the
	date of the Underwriting Agreement would have rendered any
	of the warranties contained in the Underwriting Agreement
	as supplemented by the Supplemental Agreement untrue or
	incorrect in any material respect

— 7 —

	DEFINITIONS
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription”	the subscription of GC Convertible Bonds by the Company
	pursuant to the terms and conditions of the Subscription
	Agreement
“Subscription Agreement”	the subscription agreement dated 26 November 2008 entered
	into between the Company and Golife in relation to the
	subscription and issue of the GC Convertible Bonds
“Subscription Completion	a notice to be given by Golife to the Company pursuant to the
Notice”	terms and conditions of the Subscription Agreement
“Subscription Period”	the period of five years commencing from the date of passing
	the necessary resolutions at the extraordinary general
	meeting to be convened by Golife to approve, inter alia, the
	Subscription, being the period for subscription of the GC
	Convertible Bonds
“Subscription Price”	the subscription price of HK$0.04 per Offer Share
“Supplemental Agreement”	the supplemental agreement dated 4 December 2008 entered
	into between the Company and Kingston Securities in relation
	to certain amendments made to the Underwriting Agreement
“Underwriting Agreement”	the underwriting agreement dated 27 November 2008 entered
	into between the Company and Kingston Securities in relation
	to the Open Offer
“Underwritten Shares”	789,648,704 Offer Shares agreed to be underwritten by
	Kingston Securities pursuant to the Underwriting Agreement
	as supplemented by the Supplemental Agreement
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“%”	per cent.

— 8 —

2008

EXPECTED TIMETABLE

Despatch of Circular Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Monday, 29 December

2009

Last day of dealing in Shares on a cum-entitlement basis. . . . . . . . . . . . . . Tuesday, 6 January

First day of dealing in Shares on an ex-entitlement basis . . . . . . . . . . . . Wednesday, 7 January

Latest time for lodging transfer of Shares in order

to be qualified for the Open Offer. . . . . . . . . . . . . . . . . . . . . 4:00 p.m. Thursday, 8 January

Register of members of the Company closes. . . . . . . . . . . . . . . . . . . . . . . .Friday, 9 January to (both dates inclusive) Wednesday, 14 January

Latest time for lodging the proxy form for the EGM . . . . . . . . 4:30 p.m., Monday, 12 January

EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4:30 p.m., Wednesday, 14 January Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 14 January Register of members of the Company reopens . . . . . . . . . . . . . . . . . . . . Thursday, 15 January

Despatch of Prospectus Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 15 January Latest time for acceptance of and

payment for Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Friday, 30 January

Latest time for the Open Offer to

become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . .4:00 p.m. on Wednesday, 4 February

Announcement of the results of the Open Offer . . . . . . . . . . . . . . . . . . Wednesday, 4 February Despatch of refund cheques in respect of wholly or

partly unsuccessful excess applications . . . . . . . . . . . . . . . . . . . . . . . . Monday, 9 February

Share certificates for Offer Shares to be posted . . . . . . . . . . . . . . . . . . . . Monday, 9 February

Dealing in fully-paid Offer Shares commences . . . . . . . . . . . . . . . . . Wednesday, 11 February

— 9 —

EXPECTED TIMETABLE

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR OFFER SHARES

The latest time for acceptance of and payment for Offer Shares will not take place if there is:

a tropical cyclone warning signal number 8 or above, or
a “black” rainstorm warning
(i) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on Friday, 30 January 2009. Instead the latest time of acceptance of and payment for the Open Offer will be extended to 5:00 p.m. on the same Business Day; and
(ii) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on Friday, 30 January 2009. Instead the latest time of acceptance of and payment for the Open Offer will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m.

If the latest time for acceptance of and payment for the Open Offer does not take place on Friday, 30 January 2009, the dates mentioned above in the section headed “Expected timetable” in this Circular may be affected. An announcement will be made by the Company in such event.

All times stated in this Circular refer to Hong Kong times. Dates stated in this Circular for events in the timetable are indicative only and may be extended or varied. Any changes to the anticipated timetable for the Open Offer will be announced as appropriate.

— 10 —

LETTER FROM THE BOARD

==> picture [367 x 43] intentionally omitted <==

(Incorporated in the Cayman Islands with limited lability)

(Stock Code: 8130)

Executive Directors: Registered Office: Mr. Lei Hong Wai Cricket Square Hutchins Drive Mr. Cheung Kwok Wai, Elton P.O. Box 2681 Grand Cayman Independent non-executive Directors: KYY-1111 Mr. Leung Wai Man Cayman Island Mr. Man Kong Yui Mr. Kwok Chuen Hung, Dominic Principal place of business in Hong Kong Unit 1611, 16/F Shun Tak Centre West Tower 168-200 Connaught Road Central Hong Kong

29 December 2008

(1) OPEN OFFER OF 1,131,207,381 OFFER SHARES ON THE BASIS OF NINE OFFER SHARES FOR EVERY ONE EXISTING SHARE HELD ON THE RECORD DATE;

(2) VERY SUBSTANTIAL ACQUISITION: SUBSCRIPTION OF GC CONVERTIBLE BONDS;

(3) RE-ELECTION OF DIRECTORS;

(4) PROPOSED CHANGE OF BOARD LOT SIZE;

AND

(5) NOTICE OF EXTRAORDINARY GENERAL MEETING

To the Shareholders

Dear Sirs or Madams,

INTRODUCTION

Reference is made to the Announcement that the Board announced the Company proposed to raise approximately HK$45.2 million before expenses, by way of open offer of 1,131,207,381 Offer Shares at a subscription price of HK$0.04 per Offer Share on the basis of nine Offer Shares for every one existing Share held on the Record Date payable in full on acceptance. Qualifying Shareholders are entitled to apply for excess Offer Shares not taken up in excess of their respective entitlements under the Open Offer. The Open Offer will not be extended to the Prohibited Shareholders.

— 11 —

LETTER FROM THE BOARD

On 4 December 2008, the Board also announced the proposal to change the board lot size for trading of the Shares from 4,000 to 40,000 upon the Open Offer become unconditional.

On 4 December 2008, the Board also announced that the Company and Golife entered into the Subscription Agreement in respect of the subscription of the GC Convertible Bonds in an aggregate principal amount of HK$100 million in five tranches of HK$20 million each during the Subscription Period. Completion of the Subscription is subject to the conditions as set out in the paragraph headed “Conditions precedent” under the section headed “Subscription Agreement dated 26 November 2008” below. Principal terms of the GC Convertible Bonds are set out in the paragraph headed “Principal terms of the GC Convertible Bonds” under the section headed “Subscription Agreement dated 26 November 2008” below. The Subscription constitutes a very substantial acquisition on part of the Company under the GEM Listing Rules.

Reference is also made to the announcements of the Company dated 27 August 2008 and 10 November 2008 respectively in relation to, among other things, the appointment of Mr. Cheung as an executive Director and Mr. Kwok as an independent non-executive Director which are subject to re-election at the next following general meeting of the Shareholders (the “ Re-election of Directors ”) under the Articles.

The purpose of this Circular is to give you further information on, among other things, details of the Open Offer, the Subscription, the proposed change of board lot size, the Reelection of Directors, the recommendation of the Independent Board Committee and the letter from the Independent Financial Adviser to the Independent Board Committee and Independent Shareholders in respect of the Open Offer together with the notice convening the EGM.

OPEN OFFER

Issue statistics

Basis of the Open Offer: Nine Offer Shares for every one existing Share held on the Record Date Subscription Price: HK$0.04 per Offer Share payable in full on acceptance Number of Shares in issue as at 125,689,709 Shares the Latest Practicable Date: Number of Offer Shares: 1,131,207,381 Offer Shares

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LETTER FROM THE BOARD

Number of Offer Shares undertaken to be taken up or procured to be taken up by Mr. Lei

Mr. Lei has given an irrevocable undertaking in favour of the Company and Kingston Securities (a) to subscribe for or procure subscriptions for: (i) 9,484,677 Offer Shares to which Mr. Lei is entitled under the Open Offer; (ii) 162,000,000 Offer Shares to which Eagle Mate is entitled under the Open Offer; and (iii) 34,074,000 Offer Shares to which Mander is entitled under the Open Offer and (b) to procure subscription by Mander for 136,000,000 Offer Shares under Excess Application Form, which, when fully allotted and issued under the Open Offer together with all Shares held by Mr. Lei, Eagle Mate and Mander and their respective associates after the Open Offer, shall represent approximately 28.99% of the issued share capital of the Company on fully diluted basis

Number of Offer Shares underwritten by Kingston Securities:

789,648,704 Offer Shares, being the number of the Offer Shares less the aggregate number of the Offer Shares agreed to be taken up or procure to be taken up by Mr. Lei under the Lei Undertaking. Accordingly, the Open Offer is fully underwritten

Number of Shares in issue upon 1,256,897,090 Shares completion of the Open Offer:

Save for the 17,164,789 Share Options held by employees and consultants of the Group and the CSL Convertible Bond, which each of the holders of the Share Options has undertaken not to exercise any of the Share Options held before the Record Date and CSL has undertaken not to exercise any conversion attached thereto under the CSL Undertaking, 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 and has no intention to issue any new Shares or any of the above securities before the Record Date. The breakdown of Share Options held is as to 4,528,932 Share Options and 12,635,857 Share Options to employees and consultants of the Group respectively. Save for Mr. Lei and Mr. Cheung, the executive Directors, are the holders of 1,256,897 Share Options and 1,256,897 Share Options respectively, none of the holders of the Share Options is connected persons of the Company.

Subscription Price

The Subscription Price is HK$0.04 per Offer Share, payable in full on acceptance. The Subscription Price represents:

(i) a discount of approximately 87.30% to the closing price of HK$0.315 per Share as quoted on GEM on the Last Trading Day;

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LETTER FROM THE BOARD

(ii) a discount of approximately 40.74% to the theoretical ex-entitlement price of approximately HK$0.0675 per Share based on the closing price of HK$0.315 per Share as quoted on GEM on the Last Trading Day;
(iii) a discount of approximately 87.30% to the average of the closing prices of HK$0.315 per Share for the last five consecutive trading days prior to the date of the Underwriting Agreement;
(iv) a discount of approximately 87.30% to the average of the closing prices of HK$0.315 per Share for the last ten consecutive trading days prior to the date of the Underwriting Agreement; and
(v) a discount of approximately 28.57% to the closing price of HK$0.056 per Share as quoted on GEM on the Latest Practicable Date.

The Subscription Price was arrived at after arm’s length negotiation between the Company and Kingston Securities with reference to, among other things, the prevailing market price of the Shares and the recent financial requirements of the Company in light of the subscription of the GC Convertible Bonds. In view of the recent financial requirements of the Group as mentioned in the section headed “Reasons for the Open Offer and use of proceeds” below and taking into consideration of the theoretical ex-entitlement price per Share, in order to increase the attractiveness of the Open Offer to the Qualifying Shareholders, the Directors (including the independent non-executive Directors) consider that the proposed discount of the Subscription Price is appropriate. Each Qualifying Shareholder is entitled to subscribe for the Offer Shares at the same price in proportion to his/her/its existing shareholding in the Company. The Directors (including the independent non-executive Directors) consider the Subscription Price is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Status of the Offer Shares

The Offer Shares (when allotted, fully paid and issued) will rank pari passu in all respects with the Shares in issue on the date of allotment and issue of the Offer Shares. Holders of the Offer Shares will be entitled to receive all future dividends and distributions which are declared, made or paid on or after the date of allotment and issue of the Offer Shares.

Certificates of the fully-paid Offer Shares and refund cheques

Subject to fulfillment of the conditions of the Open Offer, share certificates for the Offer Shares are expected to be posted on or before Monday, 9 February 2009 to those entitled thereto by ordinary post at their own risk. Refund cheques in respect of wholly or partially unsuccessful applications for excess Offer Shares are also expected to be posted on or before Monday, 9 February 2009 by ordinary post at their own risk.

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LETTER FROM THE BOARD

Application for excess Offer Shares

For application of excess Offer Shares, the Company will determine on a fair and equitable basis on the following principles:

(1) preference will be given to applications for less than a board lot of Offer Shares where they appear to the Directors that such applications are made to round up odd-lot holdings to whole-lot holdings; and
(2) subject to availability of excess Offer Shares after allocation under principle (1) above, the excess Offer Shares will be allocated to Qualifying Shareholders who have applied for excess application based on a pro-rata basis to the excess Offer Shares applied by them, with board lots allocations to be made on a best effort basis.

Fractions of Offer Shares

Fractional entitlements of Offer Shares will not be allotted and will be aggregated. All Offer Shares arising from the aggregation of such fractional entitlements will be sold in the market and, if a premium (net of expenses) can be achieved, the Company will keep the proceeds for its own benefit. Any unsold fractions of Offer Shares will be made available for excess application.

Application for listing

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

Closure of register of members

The register of members of the Company will be closed from Friday, 9 January 2009 to Wednesday, 14 January 2009, both dates inclusive, to determine the eligibility of the Open Offer. No transfer of Shares will be registered during this period.

Qualifying Shareholders

The Open Offer is only available to the Qualifying Shareholders. The Company will send (i) the Prospectus Documents to the Qualifying Shareholders and (ii) the Overseas Letter together with the Prospectus, for information only, to the Prohibited Shareholders. To qualify for the Open Offer, the Shareholders must at the close of business on the Record Date:

(i) be registered on the register of members of the Company; and
(ii) not be the Prohibited Shareholders.

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LETTER FROM THE BOARD

In order to be registered as members of the Company on the Record Date, the Shareholders must lodge any transfer of the Shares (with the relevant share certificates) for registration with the Registrar by 4:00 p.m. on Thursday, 8 January 2009. The address of the Registrar is 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

The invitation to subscribe for the Offer Shares to be made to the Qualifying Shareholders will not be transferable. There will not be any trading in nil-paid entitlements on GEM. The Directors consider that the arrangement of trading in nil-paid entitlements on GEM will involve additional administrative work and costs for the Open Offer, which is not considered to be cost-effective.

Rights of the Overseas Shareholders

If, at the close of business on the Record Date, a Shareholder’s address on the register of members of the Company is in a place outside Hong Kong, that Shareholder may not be eligible to take part in the Open Offer as the Prospectus Documents will not be registered and/or filed under the applicable securities legislation of any jurisdictions other than Hong Kong. The Board will enquire its lawyers as to whether the issue of Offer Shares to the Overseas Shareholders (if any) may contravene the applicable securities legislation of the relevant overseas places or the requirements of the relevant regulatory body or stock exchange pursuant to the GEM Listing Rules. If, after making such enquiry, the Board is of the opinion that it would be necessary or expedient not to offer the Offer Shares to such Overseas Shareholders (if any), no provisional allotment of Offer Shares will be made to such Overseas Shareholders. Accordingly, the Open Offer will not be extended to the Prohibited Shareholders.

As at the Latest Practicable Date, there was one Shareholder whose address as shown on the register of members of the Company is in the British Virgin Islands. To the Directors’ best knowledge, information and belief having made all reasonable enquiries, there is no legal restriction to extend the Open Offer to such Overseas Shareholder. Formal legal opinion will be obtained by the Company before the Record Date and the details of which will be disclosed in the Prospectus.

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LETTER FROM THE BOARD

UNDERWRITING ARRANGEMENT

Underwriting Agreement as supplemented by the Supplemental Agreement

Date: 27 November 2008 (as supplemented by the Supplemental Agreement dated 4 December 2008) Underwriter: Kingston Securities Number of Offer Shares Pursuant to the Underwriting Agreement as supplemented by the underwritten: Supplemental Agreement, Kingston Securities has conditionally agreed to underwrite 789,648,704 Offer Shares (other than the Offer Shares agreed to be taken up by Mr. Lei under the Lei Undertaking) which are not taken up on the fifth Business Day following (but excluding) the Latest Time for Acceptance or such later date as the Company and Kingston Securities may agree. Accordingly, the Open Offer is fully underwritten.

Kingston Securities and its ultimate beneficial owners are Independent Third Parties.

The Open Offer is conditional upon, inter alia, the entering into of binding agreements by Kingston Securities with certain placees and/or sub-underwriters for placing and/or subunderwriting the Offer Shares, such that none of (i) Kingston Securities together with its parties acting in concert nor (ii) any of the placees and/or sub-underwriters and their respective parties acting in concert shall in aggregate be interested in 10% or more of the issued share capital of the Company as enlarged by the Open Offer and the public float of 25% will be maintained after the completion of the Open Offer. Such condition is nonwaivable pursuant to the Underwriting Agreement as supplemented by the Supplemental Agreement.

Undertaking given by Mr. Lei

Mr. Lei has given the Lei Undertaking in favour of the Company and Kingston Securities (a) to subscribe for or procure subscriptions for: (i) 9,484,677 Offer Shares to which Mr. Lei is entitled under the Open Offer; (ii) 162,000,000 Offer Shares to which Eagle Mate is entitled under the Open Offer; and (iii) 34,074,000 Offer Shares to which Mander is entitled under the Open Offer and (b) to procure subscription by Mander for 136,000,000 Offer Shares under Excess Application Form, which, when fully allotted and issued under the Open Offer and together with all Shares held by Mr. Lei, Eagle Mate and Mander and their respective associates after the Open Offer, shall represent 28.99% of the issued share capital of the Company on fully diluted basis.

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LETTER FROM THE BOARD

Undertaking given by CSL

CSL, being the legal and beneficial owner of 10,909,090 Shares and the holder of the CSL Convertible Bond, has given the CSL Undertaking in favour of the Company and Kingston Securities not to subscribe or procure subscription for the 98,181,810 Offer Shares to which CSL is entitled to under the Open Offer and not to exercise any of its conversion rights attached to the CSL Convertible Bond before completion of the Open Offer.

Undertakings given by holders of the Share Options

All holders of Share Options have given irrevocable undertakings in favour of the Company and Kingston Securities not to exercise any of the Share Options held by them before the Record Date. There are total of 17,164,789 Share Options as at the Latest Practicable Date. The Company will procure all grantees of Share Options to be granted before the Record Date, if any, to give irrevocable undertakings in favour of the Company and Kingston Securities not to exercise any of the Share Options held by them before the Record Date.

Termination of the Underwriting Agreement as supplemented by the Supplemental Agreement

If, prior to the Latest Time for Termination,

(1) in the absolute opinion of Kingston Securities, the success of the Open Offer would be materially and adversely affected by:
(a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the absolute opinion of Kingston Securities materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Open Offer; or
(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date thereof) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the absolute opinion of Kingston Securities materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or materially and adversely prejudice the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or

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LETTER FROM THE BOARD

(2) any adverse change in market conditions (including without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the absolute opinion of Kingston Securities is likely to materially or adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(3) there is any change in the circumstances of the Company or any member of the Group which in the absolute opinion of Kingston Securities will adversely affect the prospects of the Company, including without limiting the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any of member of the Group or the destruction of any material asset of the Group; or
(4) any event of force majeure including, without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic, terrorism, strike or lock-out; or
(5) any other material adverse change in relation to the business or the financial or trading position or prospects of the Group as a whole whether or not ejusdem generis with any of the foregoing; or
(6) any matter which, had it arisen or been discovered immediately before the date of the Prospectus and not having been disclosed in the Prospectus, would have constituted, in the absolute opinion of any of Kingston Securities, a material omission in the context of the Open Offer; or
(7) any suspension in the trading of securities generally or the Company’s securities on GEM for a period of more than ten consecutive Business Days, excluding any suspension in connection with the clearance of the Announcement or the Prospectus Documents or other announcements or circulars in connection with the Open Offer,

Kingston Securities shall be entitled by notice in writing to the Company, served prior to the Latest Time for Termination, to terminate the Underwriting Agreement as supplemented by the Supplemental Agreement.

Kingston Securities shall be entitled by notice in writing to rescind the Underwriting Agreement as supplemented by the Supplemental Agreement if prior to the Latest Time for Termination:

(1) any material breach of any of the representations, warranties or undertakings contained in the Underwriting Agreement as supplemented by the Supplemental Agreement comes to the knowledge of Kingston Securities; or

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LETTER FROM THE BOARD

(2) any Specified Event comes to the knowledge of Kingston Securities.

Any such notice shall be served by Kingston Securities prior to the Latest Time for Termination and thereupon the obligations of all parties under the Underwriting Agreement as supplemented by the Supplemental Agreement shall terminate and no party shall have any claim against any other party for costs, damages, compensation or otherwise save for any antecedent breaches.

Conditions of the Open Offer

The Open Offer is conditional upon:

(1) the delivery to the Stock Exchange for authorisation and the registration with the Registrar of Companies in Hong Kong respectively one copy of each of the Prospectus Documents duly signed by two Directors (or by their agents duly authorised in writing) as having been approved by resolution of the Directors (and all other documents required to be attached thereto) and otherwise in compliance with the GEM Listing Rules and the Companies Ordinance not later than the Prospectus Posting Date;
(2) the posting of the Prospectus Documents to the Qualifying Shareholders and the posting of the Prospectus and a letter in the agreed form to the Prohibited Shareholders, if any, for information purpose only explaining the circumstances in which they are not permitted to participate in the Open Offer on or before the Prospectus Posting Date;
(3) the GEM Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked listing of and permission to deal in the Offer Shares by no later than the first day of dealings of the Offer Shares;
(4) the passing of a resolution by the Shareholders to approve, among others, the Open Offer at the EGM;
(5) the obligations of Kingston Securities becoming unconditional and that the Underwriting Agreement as supplemented by the Supplemental Agreement is not terminated in accordance with its terms;
(6) compliance with and performance of all undertakings and obligations of the Company under the Underwriting Agreement as supplemented by the Supplemental Agreement;
(7) compliance with and performance of all undertakings and obligations of Mr. Lei under the Lei Undertaking;
(8) compliance with and performance of all undertakings and obligations of CSL under the CSL Undertaking;

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LETTER FROM THE BOARD

(9) compliance with and performance of all undertakings and obligations of the holders of Share Options not to exercise any of the Share Options held by them before the Record Date; and
(10) the entering into of binding agreements by Kingston Securities with certain placees and/or sub-underwriters, which shall be Independent Third Parties, for placing and/or sub-underwriting the Offer Shares, such that none of (i) Kingston Securities together with its parties acting in concert nor (ii) any of the placees and/or sub-underwriters and their respective parties acting in concert shall in aggregate be interested in 10% or more of the issued share capital of the Company as enlarged by the Open Offer.

The conditions precedent are incapable of being waived. If the conditions precedent are not satisfied in whole or in part by the Company by the Latest Time for Termination or such other date as the Company and Kingston Securities may agree, the Underwriting Agreement as supplemented by the Supplemental Agreement shall terminate and no party shall have any claim against any other party for costs, damages, compensation or otherwise save for any antecedent breaches. For the avoidance of doubts, the Subscription and the Open Offer are not inter-conditional.

As at the Latest Practicable Date, none of the above conditions has been fulfilled.

Warning of the risk of dealings in the Shares

Shareholders and potential investors should note that the Open Offer is conditional upon the Underwriting Agreement as supplemented by the Supplemental Agreement having become unconditional and Kingston Securities not having terminated the Underwriting Agreement as supplemented by the Supplemental Agreement in accordance with the terms thereof. Accordingly, the Open Offer may or may not proceed.

Shareholders and potential investors should exercise extreme caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers.

Shareholders should note that the Shares will be dealt in on an ex-entitlement basis commencing from Wednesday, 7 January 2009 and that dealing in Shares will take place while the conditions to which the Underwriting Agreement as supplemented by the Supplemental Agreement is subject remain unfulfilled. Any Shareholder or other person dealing in Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled (which is expected to be on Wednesday, 4 February 2009), will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares, who is in any doubt about his/her/its position, is recommended to consult his/her/its own professional adviser.

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LETTER FROM THE BOARD

EFFECTS ON SHAREHOLDING STRUCTURE

As at the Latest Practicable Date, the Company had an authorised share capital of HK$30,000,000 divided into 3,000,000,000 Shares of which 125,689,709 Shares are issued and fully paid up. The existing and enlarged shareholding structures of the Company immediately before and after the completion of (i) the Open Offer, (ii) the conversion rights attached to the Share Options being exercised in full and (iii) the conversion rights attached to the CSL Convertible Bond being exercised in full (assuming that there are no other changes in the issued share capital of the Company) are set out below:

Mr. Lei Eagle Mate Mander Kingston Securities_(Note 1)_ CSL Billion Era Group Limited Mr. Cheung Holders of the Share Options (except Mr. Lei and Mr. Cheung) Other public Shareholders	As at the Latest Practicable Date No. of Shares Approx. percentage 1,053,853 0.84% 18,000,000 14.32% 3,786,000 3.01% — — 10,909,090 8.68% 17,142,857 13.64% 1,053,853 0.84% — — 73,744,056 58.67%	As at the Latest Practicable Date No. of Shares Approx. percentage 1,053,853 0.84% 18,000,000 14.32% 3,786,000 3.01% — — 10,909,090 8.68% 17,142,857 13.64% 1,053,853 0.84% — — 73,744,056 58.67%	Immediately after completion of the Open Offer (assuming no Qualifying Shareholders take up their respective entitlements under the Open Offer except Mr. Lei, Mander and Eagle Mate) No. of Shares Approx. percentage 10,538,530 0.84% 180,000,000 14.32% 173,860,000 13.83% 789,648,704 62.83% 10,909,090 0.87% 17,142,857 1.36% 1,053,853 0.08% — — 73,744,056 5.87%	Immediately after completion of the Open Offer (assuming no Qualifying Shareholders take up their respective entitlements under the Open Offer except Mr. Lei, Mander and Eagle Mate) No. of Shares Approx. percentage 10,538,530 0.84% 180,000,000 14.32% 173,860,000 13.83% 789,648,704 62.83% 10,909,090 0.87% 17,142,857 1.36% 1,053,853 0.08% — — 73,744,056 5.87%	Immediately after completion of the Open Offer (assuming all Qualifying Shareholders take up his/her/its entitlements under the Open Offer except CSL) No. of Shares Approx. percentage 10,538,530 0.84% 180,000,000 14.32% 136,041,810 10.82% — — 10,909,090 0.87% 171,428,570 13.64% 10,538,530 0.84% — — 737,440,560 58.67%	Immediately after completion of the Open Offer (assuming all Qualifying Shareholders take up his/her/its entitlements under the Open Offer except CSL) No. of Shares Approx. percentage 10,538,530 0.84% 180,000,000 14.32% 136,041,810 10.82% — — 10,909,090 0.87% 171,428,570 13.64% 10,538,530 0.84% — — 737,440,560 58.67%	Immediately after completion of the Open Offer (assuming all Qualifying Shareholders take up his/her/its entitlements under the Open Offer except CSL) and upon the conversion rights attached to the Share Options being exercised in full No. of Shares Approx. percentage 11,795,427 0.93% 180,000,000 14.13% 136,041,810 10.68% — — 10,909,090 0.85% 171,428,570 13.45% 11,795,427 0.93% 14,650,995 1.15% 737,440,560 57.88%	Immediately after completion of the Open Offer (assuming all Qualifying Shareholders take up his/her/its entitlements under the Open Offer except CSL) and upon the conversion rights attached to the Share Options being exercised in full No. of Shares Approx. percentage 11,795,427 0.93% 180,000,000 14.13% 136,041,810 10.68% — — 10,909,090 0.85% 171,428,570 13.45% 11,795,427 0.93% 14,650,995 1.15% 737,440,560 57.88%	Immediately after completion of the Open Offer (assuming all Qualifying Shareholders take up his/her/its entitlements under the Open Offer) and upon the conversion rights attached to the Share Options being exercised in full and upon the conversion rights attached to the CSL Convertible Bond being exercised in full No. of Shares Approx. percentage 11,795,427 0.93% 180,000,000 14.12% 136,041,810 10.67% — — 11,427,224 0.90% 171,428,570 13.45% 11,795,427 0.93% 14,650,995 1.15% 737,440,560 57.85%	Immediately after completion of the Open Offer (assuming all Qualifying Shareholders take up his/her/its entitlements under the Open Offer) and upon the conversion rights attached to the Share Options being exercised in full and upon the conversion rights attached to the CSL Convertible Bond being exercised in full No. of Shares Approx. percentage 11,795,427 0.93% 180,000,000 14.12% 136,041,810 10.67% — — 11,427,224 0.90% 171,428,570 13.45% 11,795,427 0.93% 14,650,995 1.15% 737,440,560 57.85%
	125,689,709	100.00%	1,256,897,090	100.00%	1,256,897,090	100.00%	1,274,061,879	100.00%	1,274,580,013	100.00%

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LETTER FROM THE BOARD

Note:

(1) For illustration purpose only. Such scenario will never occur as the Open Offer is conditional upon, inter alia, the entering into of binding agreements by Kingston Securities with certain placees and/or sub-underwriters for placing and/or sub-underwriting the Offer Shares, such that none of (i) Kingston Securities together with its parties acting in concert nor (ii) any of the placees and/or sub-underwriters and their respective parties acting in concert shall in aggregate be interested in 10% or more of the issued share capital of the Company as enlarged by the Open Offer.

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

The estimated net proceeds from the Open Offer will be approximately HK$43.8 million. The Board intends to apply such proceeds from the Open Offer to finance the Subscription.

The estimated expenses in relation to the Open Offer, including financial, legal and other professional advisory fees, underwriting commission, printing and translation expenses, of approximately HK$1.4 million, will be borne by the Company. Having considered other fund raising alternatives for the Group, such as bank borrowings and placing of new securities of the Company, and taking into account the benefits and cost of each of the alternatives, the Open Offer allows the Group to strengthen its balance sheet without facing the increasing interest rates. The Board considers that the Open Offer is in the interest of the Company and the Shareholders as a whole as it offers all the Qualifying Shareholders an equal opportunity to participate in the enlargement of the capital base of the Company and enables the Qualifying Shareholders to maintain their proportionate interests in the Company and continue to participate in the future development of the Company should they wish to do so. However, those Qualifying Shareholders who do not take up the Offer Shares to which they are entitled should note that their shareholdings in the Company will be diluted.

The Directors (including the independent non-executive Director) consider that the Open Offer is fair and reasonable and in the interests of the Company and the Shareholders as a whole having taken into account the terms of the Open Offer.

FUND RAISING ACTIVITIES IN THE PAST TWELVE MONTHS

The Company has not conducted any other fund raising activities in the past twelve months before the Latest Practicable Date.

LISTING AND DEALINGS

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

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LETTER FROM THE BOARD

None of the securities of the Company is listed or dealt in on any other stock exchange other than GEM and no such listing or permission to deal is being or is proposed to be sought.

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

All necessary arrangements will be made to enable the Offer Shares to be admitted into CCASS.

It is proposed that the board lot size for trading of the Shares be changed from 4,000 to 40,000 upon the Open Offer become unconditional. As such, the Offer Shares will be traded in board lots of 40,000. Dealings in Offer Shares will be subject to the payment of the applicable stamp duty and any other applicable fees and charges in Hong Kong.

The first day of dealings in the Offer Shares is expected to commence on Wednesday, 11 February 2009.

SUBSCRIPTION AGREEMENT DATED 26 NOVEMBER 2008

1) Parties

Issuer: Golife

Subscriber: the Company

To the best of the knowledge, information and belief of the Directors and having made all reasonable enquiries, save for (i) Ms. Chan Mei Sau, Teresina, being the holder of the GC Existing Convertible Bonds in an aggregate principal amount of HK$38.20 million conferring rights to convert a total of 313,684,210 GC Shares, is the spouse of Mr. Cheung, an executive Director and (ii) Mr. Lai Hok Lim, a former independent non-executive Director who resigned on 10 November 2008, is an executive director of Golife, each of Golife and its beneficial owners is independent of and not connected with the Company, the directors, chief executive, substantial shareholders or management shareholders of the Company or any of its subsidiaries or any of their respective associates or its connected persons and is not a connected person of the Company.

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LETTER FROM THE BOARD

2) Principal terms of the GC Convertible Bonds

Principal amount: In the aggregate sum of HK$100 million which will be issued by Golife in five tranches of HK$20 million each at the aggregate price of HK$100 million, being 100% of the face value of the GC Convertible Bonds.
Subscription price: HK$20 million, being the subscription price of each tranche of the Subscription, shall be payable by the Company to Golife at completion of each tranche of the Subscription in cash.

The subscription price of each tranche of the Subscription shall be funded by the net proceeds of the Open Offer and internal resources of the Group.

Interest rate: The GC Convertible Bonds shall not carry any interest.
Maturity date: Unless previously redeemed, repurchased and cancelled or converted, any outstanding GC Convertible Bonds shall be redeemed on the date falling on the tenth anniversary of the date of issue of such tranche of the GC Convertible Bonds.
Ranking: The GC Convertible Bonds constitute general and unsecured obligations of Golife and rank equally among themselves and pari passu with all other present and future unsecured and unsubordinated obligations of Golife.
Early redemption: Golife may at any time upon the date of issue and before the maturity date of the GC Convertible Bonds, by serving at least seven days’ prior written notice on the bondholder(s) with the total amount proposed to be redeemed from the bondholder(s) specified therein, redeem the GC Convertible Bonds at par.
Conversion: Provided that any conversion of the GC Convertible Bonds (i) does not trigger off a mandatory offer under rule 26 of the Codes on the part of the Company and its parties acting in concert which exercised the conversion right and (ii) will not cause the public float of Golife unable to meet the requirement under the GEM Listing Rules, the Company will have the right to convert the whole or part of the principal amount of the GC Convertible Bonds into GC Shares at any time and from time to time, from the date of issue of the GC Convertible Bonds in amounts of not less than a whole multiple of HK$1 million on each conversion.

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LETTER FROM THE BOARD

Conversion price:

The conversion price is initially HK$0.05 per GC Conversion Share, subject to adjustment for, among other matters, subdivision or consolidation of GC Shares, rights issue, extraordinary stock or cash distribution, and other dilutive events (which are the standard anti-dilution adjustment) (i) from the date of the extraordinary general meeting to be convened by Golife to approve, among others, the Subscription and the issue of the GC Convertible Bonds until the date immediately before the issue date of the GC Convertible Bonds; and (ii) from the date of issue of such tranche of the GC Convertible Bonds). The initial conversion price represents:

(a) a discount of 18.03% to the closing price of HK$0.061 per GC Share as quoted on GEM on 18 November 2008, being the last trading date prior to the date of the Subscription Agreement; and
(b) a discount of approximately 43.82% to the average of the closing prices of HK$0.089 per GC Share for the last five trading days ended on 18 November 2008, being the last trading date prior to the date of the Subscription Agreement.

The conversion price is arrived at after arm’s length negotiation between the parties to the Subscription Agreement and is based on the closing price per GC Share at HK$0.061 as quoted on GEM on 18 November 2008, being the last trading date prior to the date of the Subscription Agreement, and taking into account the future prospect of the GC Group.

Voting:

The bondholder(s) will not be entitled to attend or vote at any general meeting of Golife by reason only of it being the holder of the GC Convertible Bonds.

Transfer: The bondholder(s) may only assign or transfer the GC Convertible Bonds to the transferee subject to the consent of Golife.

Based on the conversion price of HK$0.05 per GC Conversion Share, a maximum number of 2,000,000,000 GC Conversion Shares will be allotted and issued upon exercise of the conversion rights attached to the GC Convertible Bonds in full, which represent: (i) approximately 608.04% of the issued share capital of Golife as at the

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LETTER FROM THE BOARD

Latest Practicable Date; and (ii) approximately 85.88% of the issued share capital of Golife as enlarged by the allotment and issue of the GC Conversion Shares upon the exercise in full of the conversion rights attaching to the GC Convertible Bonds in full.

The GC Conversion Shares will rank pari passu in all respects with the GC Shares in issue as at the date of allotment and issue of the GC Conversion Shares.

No application will be made for listing of, or permission to deal in, the GC Convertible Bonds on GEM or any other stock exchange. Application will be made by Golife to the GEM Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the GC Conversion Shares.

3) Conditions precedent

Completion is conditional upon the fulfillment of the following conditions precedent:

(a) the GEM Listing Committee of the Stock Exchange shall have granted the listing of and permission to deal in the GC Conversion Shares;
(b) (if necessary) the passing by the GC Shareholders of the necessary resolution at the extraordinary general meeting to be convened and held to approve the issue of the GC Convertible Bonds and the transactions contemplated thereunder including but not limited to the allotment and issue of the GC Conversion Shares;
(c) (if necessary) the passing the Shareholders of the necessary resolution at the EGM to approve the Subscription and the transactions contemplated thereunder;
(d) there being no event existing or having occurred and no condition being in existence which would be (after the issue of the GC Convertible Bonds) an event of default under the GC Convertible Bonds and no event or act having occurred which, with the giving of notices, or the lapse or time, or both, would (after the issue of the GC Convertible Bonds), constitute such an event of default;
(e) the Company being satisfied in its absolute discretion with the results of the due diligence review to be conducted on the assets, liabilities, affairs and operations of the GC Group;
(f) the representations and warranties given by Golife to the Company under the Subscription Agreement remaining true, accurate and complete in all material respects; and
(g) all necessary consents and approvals required to be obtained on the part of the Company and Golife in respect of the Subscription Agreement and the transactions contemplated thereby having been obtained.

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LETTER FROM THE BOARD

If any of the above conditions are not fulfilled on or before the date falling 180 days from the date of the Subscription Agreement or such other date as the Company and Golife may agree, the Subscription Agreement will lapse and become null and void and the parties shall be released from all obligations hereunder, save the liabilities for any antecedent breaches thereof. For the avoidance of doubts, the Subscription and the Open Offer are not inter-conditional.

As at the Latest Practicable Date, none of the above conditions has been fulfilled.

4) Completion

Completion shall take place on the date as specified in the Subscription Completion Notice for each tranche of the Subscription which in any event shall not be later than (i) seven days after the date the Subscription Completion Notice or (ii) the date falling on the last day of the Subscription Period (whichever is the earlier).

Subject to fulfillment of the conditions precedent, each tranche of the Subscription may be demanded by Golife by serving on the Company a Subscription Completion Notice for the relevant tranche of the Subscription at any time during the Subscription Period. The Subscription Completion Notice shall specify the completion date of such tranche of Subscription which, once given, may not be withdrawn without the prior written consent of the Company.

Subscription Completion Notices for all five tranches of the Subscription shall be served by Golife to the Company on or before the expiry of the Subscription Period. Should there be a failure on the part of Golife to fulfill the aforementioned obligation, the Subscription shall be terminate and the Subscription for the remaining portion of the GC Convertible Bonds will not proceed and all obligations and liabilities of the parties under the Subscription Agreement shall forthwith cease and determine and party thereto shall have any claim against the others (save for any antecedent breaches thereof).

5) Termination

The Subscription Agreement may, as agreed in writing by the Company and Golife, be terminated at any time prior to the payment in full of the maximum aggregated subscription price to Golife, and the Subscription for the remaining portion of the GC Convertible Bonds shall not proceed and all obligations and liabilities of the parties under the Subscription Agreement shall forthwith cease and determine and neither party shall have any claim against the others (save for any antecedent breaches thereof and the obligations and liabilities of the parties thereto under any GC Convertible Bonds issued prior to such termination).

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LETTER FROM THE BOARD

In addition, the Company may, by notice to Golife given at any time prior to payment of the subscription price for the GC Convertible Bonds to Golife, terminate the Subscription Agreement in any of the following circumstances:

In the absolute opinion of the Company, the success of the Subscription would be materially and adversely affected by:

(i) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the absolute opinion of the Company materially and adversely affect the business or the financial or trading position or prospects of the GC Group as a whole or is materially adverse in the context of the Subscription; or
(ii) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date thereof) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the absolute opinion of the Company materially and adversely affect the business or the financial or trading position or prospects of the GC Group as a whole or materially and makes it inexpedient or inadvisable to proceed with the Subscription; or
(iii) any adverse change in market conditions (including without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the absolute opinion of the Company is likely to materially or adversely affect the success of the Subscription or otherwise makes it inexpedient or inadvisable to proceed with the Subscription; or
(iv) any event of force majeure including, without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic, terrorism, strike or lock-out; or
(v) any suspension in the trading of securities generally or the Golife’ securities on GEM for a period of more than 15 consecutive Business Days, excluding any suspension in connection with the clearance of the announcement, the circular or other documents in connection with the Subscription; or

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LETTER FROM THE BOARD

(vi) any material breach of any of the representations, warranties or undertakings contained in the Subscription Agreement comes to the knowledge of the Company.

In the event that the Company terminates the Subscription Agreement, the obligations of all parties under the Subscription Agreement shall terminate forthwith and no party shall have any claim against any other party for costs, damages, compensation or otherwise save for any antecedent breaches.

REASON FOR THE SUBSCRIPTION

The GC Group is principally engaged in distribution of high-end apparel and accessories.

According to the unaudited consolidated financial statements of GC Group for the six months ended 30 June 2008, which were prepared in accordance with the Hong Kong Financial Reporting Standards, the unaudited consolidated net liabilities of GC Group as at 30 June 2008 was approximately HK$12.2 million. The audited profit attributable to the GC Shareholders before and after taxation for the nine months ended 31 December 2006 were approximately HK$1.8 million and HK$1.2 million respectively. The audited loss attributable to the GC Shareholders before and after taxation for the year ended 31 December 2007 were both approximately HK$92.2 million. Please refer to Appendix II to this Circular for the financial information of the GC Group.

The conversion price of the GC Convertible Bonds represents a discount of 18.03% as compared to the closing price of the GC Shares on 18 November 2008, being the last trading date prior to the date of the Subscription Agreement. The conversion rights attached to the GC Convertible Bonds offer to the Company a ten-year time frame to evaluate the financial performance of the GC Group and the market performance of the GC Shares, and the flexibility to acquire equity interests in Golife and an opportunity to enjoy any potential capital gain in the value of the GC Shares. As advised by Golife, a sale and purchase agreement was entered into between Golife, Mega Shell Services Limited, a wholly-owned subsidiary of Golife, and Riche (BVI) Limited in relation to the proposed acquisition of the serviced apartments in Beijing, Mainland China by Mega Shell Services Limited. The deterioration in the unaudited pro forma consolidated profit of the Enlarged Group as set out in Appendix III to this Circular is attributable to the recognition of the loss on change in fair value of conversion option embedded in the GC Convertible Bonds of HK$35.96 million and the share of loss of an associate of HK$8.02 million, which are partly offset by the imputed interest income on the debt element of the GC Convertible Bonds of HK$3.64 million. The significant loss on change in fair value of conversion option embedded in the GC Convertible Bonds is resulted from the significant decrease in the price of the GC Shares from HK$0.61 on 1 April 2007 to HK$0.17 on 31 March 2008.

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LETTER FROM THE BOARD

do not reflect the future performance of the GC Group and/or the GC Shares. However, the Directors believe that the Subscription would provide the Group with an opportunity to participate in the future development of the GC Group, in particular the aforesaid proposed acquisition of Golife which may lead to an improvement on the financial performance of the Group and market performance of the GC Shares, by being entitling to the conversion rights attached to the GC Convertible Bonds. By holding the GC Convertible Bonds, the Company would have the flexibility to exercise the conversion rights attached to the GC Convertible Bonds for any potential capital gain and any outstanding GC Convertible Bonds, unless previously redeemed, repurchased and cancelled or converted, shall be redeemed on the relevant maturity date. Based on the above, the Directors (including independent nonexecutive Directors) consider that the terms of the Subscription Agreement are entered into on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

SHAREHOLDING STRUCTURE OF GOLIFE

Based on the information as set out in the announcement of Golife dated 28 November 2008 (the “GC Announcement”), Golife had an issued share capital of 275,926,613 GC Shares as at the date of the GC Announcement. As noted from the announcement of Golife dated 17 December 2008, upon completion of the GC Placing Golife had an issued share capital of 328,926,613 GC Shares.

Based on the information as set out in the circular of Golife (the “GC Circular”) dated 23 December 2008 regarding, among others, the issue of the GC Convertible Bond, the shareholding structure of Golife (1) as at 18 December 2008, being the latest practicable date prior to the printing of the GC Circular (the “GC LPD”) ; (2) after completion of the GC Open Offer; (3) after completion of the GC Open Offer and the allotment and issue of CS Consideration Shares; (4) after completion of the GC Open Offer, the allotment and issue of CS Consideration Shares and full conversion of the CS Convertible Bond; (5) after completion of the GC Open Offer, allotment and issue of CS Consideration Shares and conversion of CS Convertible Bond, which does not trigger a mandatory offer obligation under Rule 26 of the Code on the part of the bondholder(s) which exercised the conversion right and their respective concert parties; (6) after completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of the CS Convertible Bond and full conversion of the GC Convertible Bonds; (7) assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond and conversion of GC Convertible Bonds such that conversion of respective bonds do not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties; (8) after completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of the CS Convertible Bond, full conversion of the GC Convertible Bonds and full conversion of Settlement Convertible Bond; (9) assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond, conversion of GC Convertible Bonds and conversion of Settlement Convertible Bond such that conversion of

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LETTER FROM THE BOARD

the respective bonds do not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties; (10) assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of CS Convertible Bond, full conversion of GC Convertible Bonds, full conversion of Settlement Convertible Bond and full conversion of CSE Convertible Bonds; (11) assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond, conversion of GC Convertible Bonds, conversion of Settlement Convertible Bond and conversion of CSE Convertible Bonds such that conversion of respective bonds do not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties; (12) assuming completion of the GC Open Offer, allotment and issue of CS Consideration Shares, full conversion of CS Convertible Bond, full conversion of GC Convertible Bonds, full conversion of Settlement Convertible Bond, full conversion of CSE Convertible Bonds and full conversion of Other Convertible Bonds; and (13) assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond, conversion of GC Convertible Bonds, conversion of Settlement Convertible Bond, conversion of CSE

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LETTER FROM THE BOARD

Convertible Bonds and conversion of Other Convertible Bonds such that the public float of Golife maintains a minimum of 25% of the issued share capital of Golife are as follows:

Shareholder The Company CSE Riche Chan Mei Sau, Teresina (Note 2) Win Win Fortune Limited (Note 5) Cheung Pui Kay (Note 6) Public Total	As at the No. of Shares — — — — — — 328,926,613	GC LPD Approximate percentage — — — — — — 100.00%	After completion of the GC Open Offer No. of Shares Approximate percentage — — — — — — — — — — — — 460,497,258 100.00%	After completion of the GC Open Offer No. of Shares Approximate percentage — — — — — — — — — — — — 460,497,258 100.00%	After completion of the GC Open Offer and the allotment and issue of CS Consideration Shares No. of Shares Approximate percentage — — — — 117,691,940 20.36% — — — — — — 460,497,258 79.64%	After completion of the GC Open Offer and the allotment and issue of CS Consideration Shares No. of Shares Approximate percentage — — — — 117,691,940 20.36% — — — — — — 460,497,258 79.64%	After completion of the GC Open Offer, the allotment and issue of CS Consideration Shares and full conversion of CS Convertible Bond(Note 1) (For illustrative purpose only) No. of Shares Approximate percentage — — — — 2,117,691,940 82.14% — — — — — — 460,497,258 17.86%	After completion of the GC Open Offer, the allotment and issue of CS Consideration Shares and full conversion of CS Convertible Bond(Note 1) (For illustrative purpose only) No. of Shares Approximate percentage — — — — 2,117,691,940 82.14% — — — — — — 460,497,258 17.86%	After completion of the GC Open Offer, the allotment and issue of CS Consideration Shares and conversion of CS Convertible Bond, which does not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties (For illustrative purpose only) No. of Shares Approximate percentage — — — — 197,262,002 29.99% — — — — — — 460,497,258 70.01%	After completion of the GC Open Offer, the allotment and issue of CS Consideration Shares and conversion of CS Convertible Bond, which does not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties (For illustrative purpose only) No. of Shares Approximate percentage — — — — 197,262,002 29.99% — — — — — — 460,497,258 70.01%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of CS Convertible Bond and full conversion of GC Convertible Bonds (Note 1)(For illustrative purpose only) No. of Shares Approximate percentage 2,000,000,000 43.69 % (Note 1) (Note 1) — — 2,117,691,940 46.26% — — — — — — 460,497,258 10.05%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of CS Convertible Bond and full conversion of GC Convertible Bonds (Note 1)(For illustrative purpose only) No. of Shares Approximate percentage 2,000,000,000 43.69 % (Note 1) (Note 1) — — 2,117,691,940 46.26% — — — — — — 460,497,258 10.05%
	328,926,613	100%	460,497,258	100%	578,189,198	100%	2,578,189,198	100%	657,759,260	100%	4,578,189,198	100%

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LETTER FROM THE BOARD

Shareholder The Company CSE Riche Chan Mei Sau, Teresina (Note 2) Win Win Fortune Limited (Note 5) Cheung Pui Kay (Note 6) Public Total	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond and conversion of GC Convertible Bonds such that conversion of respective bonds do not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties (for illustrative purpose only) No. of Shares Approximate percentage 276,107,808 29.99% (Note 3) — — 184,061,183 19.99% (Note 3) — — — — — — 460,497,258 50.02%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond and conversion of GC Convertible Bonds such that conversion of respective bonds do not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties (for illustrative purpose only) No. of Shares Approximate percentage 276,107,808 29.99% (Note 3) — — 184,061,183 19.99% (Note 3) — — — — — — 460,497,258 50.02%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of CS Convertible Bond, full conversion of GC Convertible Bonds and full conversion of Settlement Convertible Bond (Note 1)(For illustrative purpose only) No. of Shares Approximate percentage 2,000,000,000 16.57% — — 9,611,248,180 79.62% — — — — — — 460,497,258 3.81%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of CS Convertible Bond, full conversion of GC Convertible Bonds and full conversion of Settlement Convertible Bond (Note 1)(For illustrative purpose only) No. of Shares Approximate percentage 2,000,000,000 16.57% — — 9,611,248,180 79.62% — — — — — — 460,497,258 3.81%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond, conversion of GC Convertible Bonds and conversion of Settlement Convertible Bond such that conversion of the respective bonds do not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties (For illustrative purpose only) No. of Shares Approximate percentage 184,061,183 19.99% (Note 4) — — 276,107,808 29.99% (Note 4) — — — — — — 460,497,258 50.02%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond, conversion of GC Convertible Bonds and conversion of Settlement Convertible Bond such that conversion of the respective bonds do not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties (For illustrative purpose only) No. of Shares Approximate percentage 184,061,183 19.99% (Note 4) — — 276,107,808 29.99% (Note 4) — — — — — — 460,497,258 50.02%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of CS Convertible Bond, full conversion of GC Convertible Bonds, full conversion of Settlement Convertible Bond and full conversion of CSE Convertible Bonds (Note 1)(For illustrative purpose only) No. of Shares Approximate percentage 2,000,000,000 15.07% 1,200,000,000 9.04% 9,611,248,180 72.42% — — — — 460,497,258 3.47%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of CS Convertible Bond, full conversion of GC Convertible Bonds, full conversion of Settlement Convertible Bond and full conversion of CSE Convertible Bonds (Note 1)(For illustrative purpose only) No. of Shares Approximate percentage 2,000,000,000 15.07% 1,200,000,000 9.04% 9,611,248,180 72.42% — — — — 460,497,258 3.47%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond, conversion of GC Convertible Bonds, conversion of Settlement Convertible Bond and conversion of CSE Convertible Bonds such that conversion of respective bonds do not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties (For illustrative purpose only) No. of Shares Approximate percentage 306,538,135 19.99% 459,883,874 29.99% 306,538,135 19.99% — — — — — — 460,497,258 30.03%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond, conversion of GC Convertible Bonds, conversion of Settlement Convertible Bond and conversion of CSE Convertible Bonds such that conversion of respective bonds do not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties (For illustrative purpose only) No. of Shares Approximate percentage 306,538,135 19.99% 459,883,874 29.99% 306,538,135 19.99% — — — — — — 460,497,258 30.03%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of CS Convertible Bond, full conversion of GC Convertible Bonds, full conversion of Settlement Convertible Bond, full conversion of CSE Convertible Bonds and full conversion of Other Convertible Bonds (Note 1)(For illustrative purpose only) No. of Shares Approximate percentage 2,000,000,000 14.66% 1,200,000,000 8.80% 9,611,248,180 70.46% 313,684,210 2.30% 32,000,000 0.23% 24,000,000 0.18% 460,497,258 3.37%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, full conversion of CS Convertible Bond, full conversion of GC Convertible Bonds, full conversion of Settlement Convertible Bond, full conversion of CSE Convertible Bonds and full conversion of Other Convertible Bonds (Note 1)(For illustrative purpose only) No. of Shares Approximate percentage 2,000,000,000 14.66% 1,200,000,000 8.80% 9,611,248,180 70.46% 313,684,210 2.30% 32,000,000 0.23% 24,000,000 0.18% 460,497,258 3.37%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond, conversion of GC Convertible Bonds, conversion of Settlement Convertible Bond, conversion of CSE Convertible Bonds and conversion of Other Convertible Bonds such that the public float of Golife maintains a minimum of 25% of the issued share capital of Golife No. of Shares Approximate percentage 257,693,088 13.99% 257,693,088 13.99% 552,412,510 29.99% 257,693,088 13.99% 32,000,000 1.73% 24,000,000 1.31% 460,497,258 25.00%	Assuming completion of the GC Open Offer, the allotment and issue of CS Consideration Shares, conversion of CS Convertible Bond, conversion of GC Convertible Bonds, conversion of Settlement Convertible Bond, conversion of CSE Convertible Bonds and conversion of Other Convertible Bonds such that the public float of Golife maintains a minimum of 25% of the issued share capital of Golife No. of Shares Approximate percentage 257,693,088 13.99% 257,693,088 13.99% 552,412,510 29.99% 257,693,088 13.99% 32,000,000 1.73% 24,000,000 1.31% 460,497,258 25.00%
	920,666,249	100%	12,071,745,438	100%	920,666,249	100%	13,271,745,438	100%	1,533,457,402	100%	13,641,429,648	100%	1,841,989,032	100%

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LETTER FROM THE BOARD

Notes:

(1) For illustrative purpose only, such scenario shall never occur. Pursuant to the terms of the CS Convertible Bond, the GC Convertible Bonds, the CSE Convertible Bonds and the Settlement Convertible Bond, conversion of the CS Convertible Bond, the GC Convertible Bonds, the CSE Convertible Bonds, or as the case may be, the Settlement Convertible Bond is restricted that any conversion of the CS Convertible Bond, the GC Convertible Bonds, the CSE Convertible Bonds, or as the case may be, the Settlement Convertible Bond (i) does not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties; and (ii) will not cause the public float of Golife unable to meet the requirement under the GEM Listing Rules .
(2) Ms. Chan Mei Sau, Teresina has undertaken not to exercise the conversion rights attaching to the convertible bonds in an aggregate principal amount of HK$38,200,000 if such conversion will cause her shareholding interest in Golife, together with the shareholding interest of the parties acting in concert with her in Golife, equal to or exceed 30% of the GC Shares in issue following such conversion unless Ms. Chan Mei Sau, Teresina is willing to make a general offer to all Shareholders pursuant to the Codes.
(3) This is to illustrate the effect of the conversion of GC Convertible Bonds to the largest extent while such conversion is subject to the restriction that any conversion of the GC Convertible Bonds (i) does not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties; and (ii) will not cause the public float of Golife unable to meet the requirement under the GEM Listing Rules.
(4) This is to illustrate the effect of the conversion of Settlement Convertible Bond to the largest extent while such conversion is subject to the restriction that any conversion of the Settlement Convertible Bond (i) does not trigger a mandatory offer obligation under Rule 26 of the Codes on the part of the bondholder(s) which exercised the conversion right and their respective concert parties; and (ii) will not cause the public float of Golife unable to meet the requirement under the GEM Listing Rules.
(5) As at the GC LPD, Win Win Fortune Limited is deemed to be interested in 32,000,000 GC Shares through its interest in the convertible bonds in the principal amount of HK$4,000,000 issued by Golife.
(6) As at the GC LPD, Mr. Cheung Pui Kay is deemed to be interested in 24,000,000 GC Shares through his interest in the convertible bonds in the principal amount of HK$3,000,000 issued by Golife.

BUSINESS REVIEW AND PROSPECTS

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

For the financial year ended 31 March 2008, the Group recorded an audited net profit of approximately HK$19.29 million and the audited net assets of the Group as at 31 March 2008 was approximately HK$163.97 million.

For the six months ended 30 September 2008, the Group recorded an unaudited net loss of approximately HK$1.85 million and the unaudited net assets of the Group as at 30 September 2008 were approximately HK$162.91 million.

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LETTER FROM THE BOARD

The Board is of the view that the business of the Group was affected by the financial tsunami. The local film market will continue to be difficult in the near future. The Company has been taken step to implement stringent cost control measures in order to maximising profit margin of the Group. In addition, save for the Subscription, the Group will continue to seek for new investment opportunities in the area of property investment for business diversification in order to maximise Shareholders’ value in a long run.

FINANCIAL EFFECT OF THE SUBSCRIPTION

Net assets

The unaudited consolidated net assets value of the Group as at 30 September 2008 was HK$162.91 million.

As set out in Appendix III to this Circular, assuming the subscription of the GC Convertible Bonds in an aggregate principal amount of HK$100 million and the conversion of the GC Convertible Bonds into the GC Conversion Shares amounting to 29.99% of the then issued share capital of Golife had been taken place on 30 September 2008, the unaudited pro forma consolidated net assets value of the Enlarged Group as at 30 September 2008 would have been HK$153.09 million.

The decrease in the unaudited pro forma consolidated net assets value of the Enlarged Group is mainly attributable to the recognition of the loss on changes in the estimated fair value of the GC Convertible Bonds at the acquisition date of HK$9.82 million.

Earnings

The audited consolidated profit of the Group for the year ended 31 March 2008 was HK$19.29 million.

As set out in Appendix III to this Circular, assuming the subscription of the GC Convertible Bonds in an aggregate principal amount of HK$100 million and the conversion of the GC Convertible Bonds into the GC Conversion Shares amounting to 29.99% of the then issued share capital of Golife had been taken place on 1 April 2007, the unaudited pro forma consolidated loss of the Enlarged Group for the year ended 31 March 2008 would have been HK$21.06 million.

The deterioration in the unaudited pro forma consolidated profit of the Enlarged Group is attributable to the recognition of the loss on change in fair value of conversion option embedded in the GC Convertible Bonds of HK$35.96 million and the share of loss of an associate of HK$8.02 million, which are partly offset by the imputed interest income on the debt element of the GC Convertible Bonds of HK$3.64 million. The significant loss on change in fair value of conversion option embedded in the GC Convertible Bonds is resulted from the significant decrease in the price of the GC Shares from HK$0.61 on 1 April 2007 to HK$0.17 on 31 March 2008.

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LETTER FROM THE BOARD

The Directors believe that (i) the share prices of the GC Shares used in the calculation of the estimated fair value of conversion option embedded in the GC Convertible Bonds; and (ii) the consolidated income statement of the GC Group for the year ended 31 March 2008 do not reflect the future performance of the GC Group and/or the GC Shares. The Directors also believe that, upon the completion of the proposed acquisition of the serviced apartments in Beijing, Mainland China by Golife, the GC Group will immediately record the revenue generated from the serviced apartments and the proposed acquisition will improve the profitability and financial position of the GC Group, which may lead to an improvement on the performance of the GC Shares in future.

Gearing ratio

As at 30 September 2008, the total borrowings of the Group were HK$3.02 million and the Group’s gearing ratio calculated as a percentage of total borrowings over equity attributable to the Company’s equity holders was 1.85%.

The total borrowings of the Enlarged Group would have remained at HK$3.02 million assuming the subscription of the GC Convertible Bonds in an aggregate principal amount of HK$100 million and the conversion of the GC Convertible Bonds into the GC Conversion Shares amounting to 29.99% of the then issued share capital of Golife had been taken place on 30 September 2008. The gearing ratio of the Enlarged Group would have been 1.97% as at 30 September 2008.

The increase on the Enlarged Group’s gearing ratio is attributable to the decrease in the unaudited pro forma consolidated net assets value of the Enlarged Group as discussed in “net assets” section above.

PROPOSED CHANGE OF BOARD LOT SIZE

As at the date of the Announcement, based on the closing price of HK$0.315 on the Last Trading Day and the Subscription Price of HK$0.04 for each Offer Share under the Open Offer, the theoretical ex-entitlement price of each Share will be approximately HK$0.0675 and the theoretical value of each board lot of 4,000 Shares upon completion of the Open Offer will be approximately HK$270.00.

In order to increase the value of each board lot of the Shares so that the value of each board lot of the Shares will not be less than HK$2,000 and to reduce transaction and registration costs incurred by the Shareholders and investors of the Company, the Board proposes to change the board lot size for trading of the Shares to from 4,000 to 40,000 upon the Open Offer becomes unconditional. The change in board lot size will not result in any change in the relative rights of the Shareholders. The Board is of the opinion that the change in board lot size is in the interests of the Company and its Shareholders as a whole.

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LETTER FROM THE BOARD

Further announcement will be made by the Company to inform the Shareholders as to the administrative arrangement regarding such change of board lot size in due course.

RE-ELECTION OF DIRECTORS

As announced by the Board by way of announcement dated 27 August 2008, Mr. Cheung was appointed as an executive Director to fill the vacancy on the Board arising from the resignation of Mr. Yip Tai Him as, inter alia, an executive Director with effect from 27 August 2008.

In addition, as announced by the Board by way of announcement dated 10 November 2008, Mr. Kwok was appointed as an independent non-executive Director to fill the vacancy on the Board arising from the resignation of Mr. Lai Lok Lim as, inter alia, an independent nonexecutive Director with effect from 10 November 2008.

Pursuant to Article 86(3) of the Articles, any Director appointed by the Board to fill the vacancy on the Board shall hold the office only until the next following general meeting of the Company and shall then be eligible for re-election at that meeting. Accordingly, Mr. Cheung and Mr. Kwok shall offer themselves for re-election as an executive Director and an independent non-executive Director respectively at the EGM.

Particulars of Mr. Cheung and Mr. Kwok are set out below:

Mr. Cheung Kwok Wai, Elton

Mr. Cheung, aged 42, is the general manager of the Company. He holds a Master Degree in Accounting and Finance of the University of Lancaster, England. Mr. Cheung has over 20 years experience in the area of corporate finance and securities industries. He is responsible for managing the Company’s investment in Canada and overseeing the Company’s daily operations. Mr. Cheung joined the Company in January 2008.

There is no service contract entered into between the Company and Mr. Cheung. As agreed, Mr. Cheung is appointed for a term of one year commencing from 27 August 2008 and he is subject to retirement by rotation and re-election in accordance with the Articles. Mr. Cheung will be entitled to an annual emolument of HK$120,000 (but not entitled to any bonus), which is determined by the Board with reference to his duties and responsibility with the Company. Either the Company or Mr. Cheung may terminate the appointment by giving the other party not less than three months’ prior notice in writing.

Mr. Cheung has confirmed to the Company that he had not held directorship in any other listed companies of Hong Kong during the last three years and is not connected with any other directors, senior management of the Company, substantial or controlling or management

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LETTER FROM THE BOARD

shareholders of the Company. As at the Latest Practicable Date, Mr. Cheung had interests in 1,053,853 Shares which were beneficially owned by Mr. Cheung. Mr. Cheung also had interests in 1,256,897 underlying Shares upon exercise of the conversion attached to the 1,256,897 Share Options currently owned by him. Save as disclosed herein, Mr. Cheung does not have any interests in the Shares within the meaning of Part XV of the SFO.

Save as disclosed herein, there is no information relating to Mr. Cheung that is required to be disclosed pursuant to paragraphs (h) to (v) of Rules 17.50(2) of the GEM Listing Rules nor are there any other matters that need to be brought to the attention of the Shareholders.

Mr. Kwok Chuen Hung, Dominic

Mr. Kwok, aged 48, he has substantial experience in project investment and other trading business both in Hong Kong and South East Asia. Mr. Kwok has not entered into a service contract with the Company. In accordance with the Articles, Mr. Kwok is subject to retirement by rotation and re-election at the Company’s general meetings. Mr. Kwok will receive a Director’s fee of HK$120,000 per annum which is determined with reference to his duties and responsibilities with the Company, the Company’s performance and the prevailing market situation. The Director’s fee for Mr. Kwok will be reviewed annually by the Board with reference to his duties and responsibilities with the Company, the Company’s performance and the prevailing market situation.

As at the Latest Practicable Date, Mr. Kwok did not have, and was not deemed to have any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO). Mr. Kwok does not have any relationship with any existing Directors, senior management of the Company, substantial Shareholders or controlling Shareholders or management Shareholders (as defined under the GEM Listing Rules).

Mr. Kwok does not hold any other position in the Company or any subsidiaries of the Company nor any other directorship in listed public companies in the last three years.

There is no information relating to Mr. Kwok that is required to be disclosed pursuant to Rules 17.50(2) (h) to (v) of the GEM Listing Rules. Save as disclosed above, there is no other matter in relation to the appointment of Mr. Kwok that needs to be brought to the attention of the Shareholders.

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LETTER FROM THE BOARD

GEM LISTING RULES IMPLICATIONS

As the Open Offer will increase the issued share capital and the market capitalisation of the Company by more than 50% within the 12 month period immediately preceding the date of the Announcement, pursuant to Rule 10.39 of the GEM Listing Rules, the Open Offer must be made conditional on approval by Independent Shareholders at the EGM and any controlling Shareholders and their associates or, where there are no controlling Shareholders, the Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour of the relevant resolutions relating to the Open Offer at the EGM.

As at the Latest Practicable Date, the Company did not have any controlling Shareholder. Therefore, each of (i) Mr. Cheung, an executive Director who has a personal interest in 1,053,853 Shares representing approximately 0.84% of the existing issued share capital of the Company; (ii) Mr. Lei, an executive Director who has a personal interest in 1,053,853 Shares representing approximately 0.84% of the existing issued share capital of the Company; (iii) Eagle Mate, being an associate of Mr. Lei and the legal and beneficial owner of 18,000,000 Shares representing approximately 14.32% of the existing issued share capital of the Company; and (iv) Mander, being an associate of Mr. Lei and the legal and beneficial owner of 3,786,000 Shares representing approximately 3.01% of the existing issued share capital of the Company, are required to abstain from voting in favour of the relevant resolutions at the EGM. Save as disclosed, to the best of the Directors’ knowledge, information and belief and having made all reasonable inquiry, no other Directors or chief executive of the Company or their respective associates beneficially hold any Shares as at the Latest Practicable Date. As at the Latest Practicable Date, there had been no voting trust or other agreement or arrangement or understanding (other than an outright sale) entered into by or binding upon any such Shareholders, and no obligation or entitlement of any such Shareholders whereby any one of them has or may temporarily or permanently passed control over the exercise of the voting right in respect of their respective interest in the Company to a third parties either especially or on a case-by-case basis.

The Subscription constitutes a very substantial acquisition on the part of the Company under the GEM Listing Rules. An ordinary resolution will be proposed to be passed at the EGM to approve, inter alia, the Subscription and the transaction contemplated thereunder, including but not limited to the exercise of the conversion rights attached to the GC Convertible Bonds. To the best of the knowledge, information and belief having made all reasonable enquires, none of the Shareholders has any material interest in the Subscription Agreement. As such, no Shareholder is required to abstain from voting at the EGM for approving the Subscription Agreement and the transactions contemplated thereunder.

Further, according to the amended Rule 17.47(4) of the GEM Listing Rules to be implemented on 1 January 2009, any vote of the Shareholders at the EGM must be taken by poll and an announcement will be made after the EGM on the results of the EGM.

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LETTER FROM THE BOARD

In addition, as the Subscription Price is HK$0.04 per Offer Share and the theoretical exentitlement price of each Share after completion of the Open Offer will be approximately HK$0.0675, under Rule 17.76 of the GEM Listing Rules, the Stock Exchange reserves its rights to require the Company to either change its trading method or to proceed with a consolidation of its Shares when its market price approaches the extremities of HK$0.01. The Stock Exchange will not consider granting an approval for listing in respect of any future fund raising by the Company, if the Shares are trading towards the extremities of HK$0.01.

EGM

There is set out on pages 332 to 335 of this circular a notice convening the EGM to be held at 4:30 p.m. on Wednesday, 14 January 2009 at Unit 1611, 16/F, Shun Tak Centre, West Tower, 168-200 Connaught Road, Hong Kong, at which ordinary resolutions will be proposed to consider and, if thought fit, to approve the Open Offer, the Subscription and the Re-election of Directors.

A form of proxy for use at the EGM is enclosed. If you are not able to attend the EGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the Registrar at 26th Floor, 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. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM should you so wish.

PROCEDURES BY WHICH A POLL MAY BE DEMANDED

Articles 66 and 67 of the Articles 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 members present in person or in the case of a member 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 member or members present in person or in the case of a member 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 members having the right to vote at the meeting; or

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LETTER FROM THE BOARD

(d) by a member or members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy and holding the Shares 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 member or in the case of a member being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a member.

Notwithstanding any other provisions of the Articles, (a) if the aggregate proxies held by the chairman of a particular meeting and the Directors account for 5% or more of the total voting rights at that meeting, and (b) if on a show of hands in respect of any resolution the members 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

Your attention is drawn to the letter from the Independent Board Committee set out on page 44 in this Circular which contains its recommendation to the Independent Shareholders as to voting at the EGM in relation to the Open Offer.

Your attention is also drawn to the letter from the Independent Financial Adviser set out on pages 45 to 57 in this Circular which contains its advice to the Independent Board Committee and the Independent Shareholders as regards the Open Offer and the principal factors and reasons considered by it in arriving thereat.

The Independent Board Committee has considered the terms of the Open Offer and the advice given by the Independent Financial Adviser, and recommends the Independent Shareholders to vote in favour of the resolution in relation to the Open Offer at the EGM.

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LETTER FROM THE BOARD

The Directors consider the terms of the Open Offer and the terms of the Subscription are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors also consider the Re-election of Directors is in the interest of the Company and the Shareholders as a whole. They recommend the Shareholders to vote in favour of all resolutions proposed at the EGM.

Yours faithfully,

For and on behalf of the Board of

Brilliant Arts Multi-Media Holding Limited Lei Hong Wai Chairman

— 43 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [367 x 43] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8130)

29 December 2008

To the Independent Shareholders

Dear Sir or Madam,

OPEN OFFER OF 1,131,207,381 OFFER SHARES ON THE BASIS OF NINE OFFER SHARES FOR EVERY ONE EXISTING SHARE HELD ON THE RECORD DATE

We refer to the Letter from the Board set out in the circular of the Company dated 29 December 2008 (the “Circular”) of which this letter forms part. Capitalised terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

We have been appointed as the Independent Board Committee to consider the Open Offer and to advise the Independent Shareholders as to the fairness and reasonableness of the Open Offer and to recommend whether or not the Independent Shareholders should vote for the resolution to be proposed at the EGM to approve the Open Offer. The Independent Financial Adviser have been appointed to advise the Independent Board Committee in relation to the terms of the Open Offer.

We wish to draw your attention to the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders which contains its advice to us in relation to the Open Offer as set out in the Circular. We also draw your attention to the Letter from the Board in the Circular.

Having taken into account principal factors and reasons considered by and the opinion of the Independent Financial Adviser as stated in its letter of advice, we consider the terms of the Open Offer are fair and reasonable so far as the interests of the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the resolution approving the Open Offer to be proposed at the EGM.

Yours faithfully, For and on behalf of

Independent Board Committee Leung Wai Man Man Kong Yui Kwok Chuen Hung, Dominic

Independent non-executive Directors

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from Grand Cathay in relation to the Open Offer, which has been prepared for the purpose of inclusion in this Circular:

==> picture [309 x 56] intentionally omitted <==

29 December 2008

To the Independent Board Committee

and the Independent Shareholders

of Brilliant Arts Multi-Media Holding Limited

Dear Sirs,

OPEN OFFER OF 1,131,207,381 OFFER SHARES ON THE BASIS OF NINE OFFER SHARES FOR EVERY ONE EXISTING SHARE HELD ON THE RECORD DATE

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Open Offer, details of which are set out in the section headed “Letter from the Board” (the “Letter”) in the Company’s circular dated 29 December 2008 (the “Circular”) to the Shareholders, of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 4 December 2008, the Company announced, among other things, that the Company proposed to raise approximately HK$45.2 million before expenses by issuing 1,131,207,381 Offer Shares by way of the Open Offer at the Subscription Price of HK$0.04 per Offer Share. The Open Offer is fully underwritten pursuant to the terms and conditions of the Underwriting Agreement as supplemented by the Supplemental Agreement. As the Open Offer will increase the issued share capital and the market capitalisation of the Company by more than 50% within 12 month period immediately preceding the date of the Announcement, pursuant to Rule 10.39 of the GEM Listing Rules, the Open Offer must be made conditional upon approval by Independent Shareholders at the EGM and any controlling Shareholders and their associates or, where there are no controlling Shareholders, Directors (excluding independent non-executive Directors) and the chief executive of the issuer and their respective associates shall abstain from voting in favour of the relevant resolutions relating to the Open Offer at the EGM. As at the Latest Practicable Date, the Company did not have any controlling Shareholder. Therefore, each of (i) Mr. Cheung, an executive Director who has a personal interest in 1,053,853 Shares representing approximately 0.84% of the existing issued

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

share capital of the Company; (ii) Mr. Lei, an executive Director who has a personal interest in 1,053,853 Shares representing approximately 0.84% of the existing issued share capital of the Company; (iii) Eagle Mate, being an associate of Mr. Lei and the legal and beneficial owner of 18,000,000 Shares representing approximately 14.32% of the existing issued share capital of the Company; and (iv) Mander, being an associate of Mr. Lei and the legal and beneficial owner of 3,786,000 Shares representing approximately 3.01% of the existing issued share capital of the Company, are required to abstain from voting in favour of the relevant resolution at the EGM. Save as disclosed, to the best of the Directors’ knowledge, information and belief and having made all reasonable inquiry, no other Directors of chief executive of the Company or their respective associates beneficially hold any Shares as at the Latest Practicable Date. Further, according to Rule 17.47(4)(b) of the GEM Listing Rules, any vote of the Independent Shareholders at the EGM will be taken by poll.

Mr. Leung Wai Man, Mr. Man Kong Yui and Mr. Kwok Chuen Hung, Dominic, being all the independent non-executive Directors, have been appointed by the Board to form the Independent Board Committee to advise and make recommendation to the Independent Shareholders as to how to vote at the EGM on the ordinary resolution regarding the Open Offer.

Subject to the fulfilment of the conditions contained in the Underwriting Agreement as supplemented by the Supplemental Agreement, the Independent Shareholders should be noted that the Open Offer would not proceed if Kingston Securities exercise their termination rights under the Underwriting Agreement. Details of the provisions granting Kingston Securities such termination rights are included in the Letter.

Our role as the independent financial adviser is to give our independent opinion to the Independent Board Committee and Independent Shareholders as to (i) whether the terms of the Open Offer are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole; and (ii) advise the Independent Shareholders on how to vote in relation to (i) above.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information, opinion and representations contained or referred to in the Circular and the information, opinion and representations provided to us by the management of the Company and the Directors. We have assumed that all information, opinion and representations contained or referred to in the Circular and all information, opinion and representations which have been provided by the management of the Company and the Directors, for which they are solely and wholly responsible, were true, accurate and complete at the time when they were made and continue to be so at the date hereof.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Accordingly, we have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information, opinion and representations contained in the Circular, or the reasonableness of the opinions expressed by the management of the Company and the Director. The Directors collectively and individually accept full responsibility for the accuracy of the information in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement in the Circular misleading. Furthermore, we consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have performed all applicable steps as required under Rule 17.92 of the GEM Listing Rules including the notes thereto. We have relied on such information, opinions and representations but have not, however, conducted any independent in-depth investigation into the business, financial conditions and affairs or the future prospects of the Group.

We have not considered the tax consequences on the Qualifying Shareholders arising from the subscription for, holding of or dealing in the Offer Shares or otherwise, since these are particular to their own circumstances. We will not accept responsibility for any tax effect on or liabilities, of any person resulting from the subscription for, holding of or dealing in the Offer Shares or the exercise of any rights attaching thereto or otherwise. In particular, Qualifying Shareholders subject to overseas taxes or Hong Kong taxation on securities dealings should consider their own tax positions with regard to the Open Offer and, if any doubt should consult their own professional advisers.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation in relation to the terms of the Open Offer, we have considered the following principal factors and reasons.

1. Background information and outlook of the Group

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

The table below tabulates the audited financial results of the Group for the two years ended 31 March 2007 and 2008, as extracted from the annual report for the year ended 31 March 2008 (the “Annual Report”).

	For the year ended	For the year ended	31 March
	2008		2007
	(audited)		(audited)
	HK$’000		HK$’000
Turnover	10,632		62,888
Net profit/(loss) attributable to the equity holders
of the Company	19,289		(16,154)
Earnings/(loss) per share — basic	HK4.9 cents	HK(18.9) cents

For each of the two financial years ended 31 March 2007 and 2008, the Group recorded a turnover of approximately HK$62.9 million and HK$10.6 million respectively. Profit of the Group for the financial year ended 31 March 2008 was approximately HK$19.3 million while the loss of the Group for the financial year ended 31 March 2007 was approximately HK$16.2 million.

According to the Annual Report, the Group recorded an audited net current assets of approximately HK$112.8 million as at 31 March 2008 and net current liabilities of approximately HK$14.0 million as at 31 March 2007. As at 31 March 2008, the Group had cash and bank balances of approximately HK$101.8 million.

2. Reasons for the Open Offer and the use of proceeds

As stated in the Letter, the estimated net proceeds from the Open Offer will be approximately HK$43.8 million and the Board intends to apply such proceeds from the Open Offer to finance the Subscription. Therefore, we would access whether the Subscription is justifiable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Reason for the Subscription

As stated in the Letter, the GC Group is principally engaged in distribution of highend apparel and accessories. Please refer to the Letter for detailed information of GC Group.

According to the Directors and as stated in the Letter, the Directors consider that the Subscription may give the opportunity of the Company to participate indirectly in property investment in the PRC as according to GC Group’s announcement dated 8 December 2008, GC Group intends to acquire a high-end serviced apartment located in Inner Jianggou Gate of Dongcheng District, Beijing, the PRC (the “Investment Properties”) for rental purpose.

Since we are not the experts in property market in the PRC, we are not in the position to opine whether the Investment Properties would be profitable to the GC Group or not. We are of the view that as the Subscription offer an opportunity to the Company to invest indirectly in new business opportunities in the area of property investment in the PRC which is in line with the business strategic of the Group as stated in the Annual Report; and may broaden the revenue base of the Group apart from its business provision of film production service and film distribution.

In order to give additional information for the Independent Shareholders in relation to the high-end serviced apartment in Beijing, we found some information regarding the aforesaid via internet. According to public information from internet, the rental income of high-end serviced apartment in Beijing, the PRC increased from approximately RMB214.4 square meter per month in third quarter of 2007 to approximately RMB252.4 square meter per month in third quarter of 2008, which represent an increase of approximately 17.7% and the vacancy rate increase from approximately 20.3% to approximately 24.8%. The Independent Shareholders should note that the Investment Properties may or may not be profitable to GC Group and in turn to the Company in the future.

Terms of the Subscription

The Directors consider that the Subscription is a way of investment in the GC Group in the form of debt securities. According to the Letter, the Company can terminate the Subscription Agreement in the absolute opinion of the Company and the subscription of the remaining portion of the GC Convertible Bonds shall not proceed if there is any occurrence which, may in the absolute opinion of the Company, materially and adversely affect the business or the financial or trading position or prospects of the GC Group. We consider that the aforesaid arrangement can minimise the risk of the Company’s investment if there is any adverse change in the condition of the GC Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the Letter and the Directors, the conversion price of the GC Convertible Bonds represents a discount of (i) approximately 18.03% to the closing price of HK$0.061 per GC Share as quoted on the Stock Exchange on 18 November 2008, being the last trading date prior to the date of the Subscription Agreement; (ii) approximately 43.82% to the average of the closing prices of HK$0.089 per GC Share for the last five trading days ended on 18 November 2008, being the last trading date prior to the date of the Subscription Agreement; and (iii) approximately 53.23% to the average of the closing price of HK$0.1069 per GC Share for the last ten trading days ended on 18 November 2008, being the last trading date prior to the date of the Subscription Agreement. We noted that the conversion price of the GC Convertible Bonds represented a discount to the market price of the GC Shares and with reference to the information of the website of the Stock Exchange, we further noted that the conversion price of the GC Convertible Bonds is substantially below the market price of the GC Shares for a one-year period before the date of the Announcement. The Directors (including independent non-executive Directors) consider that the terms of the Subscription are fair and reasonable. Based on the above, we are of the view and concur with the view of the Directors that the Subscription is justifiable.

According to the Letter, the Open Offer and the Subscription is not inter-condition, the Open Offer would still proceed if the Subscription is not complete. As stated in the unaudited pro forma consolidated balance sheet of the Enlarged Group in Appendix III of the Circular, the unaudited bank and cash balances of the Group as at 30 September 2008 was amounted to approximately HK$100.8 million. According to the Annual Report, the Group will not only continue to focus on its business of provision of film production service and film distribution, but also continue to seek for new investment opportunities in the area of property investment which, according to the Directors, may need substantial capital needs. Therefore, the Open Offer is an opportunity from the Group to raise capital for future investment. According to the Directors, if the Subscription does not proceed, the Group intends to use the proceeds from the Open Offer as general working capital or for future investment. As at the Latest Practicable Date, other than the Subscription, there is no other investment opportunity occurs.

3. Principal terms of the Open Offer

The Company proposed to raise approximately HK$45.2 million before expenses by issuing 1,131,207,381 Offer Shares at the Subscription Price of HK$0.04 per Offer Share, payable in full on application. Qualifying Shareholders will be offered 9 Offer Shares for every Share held on the Record Date. The Open Offer will be only available to the Qualifying Shareholders. Qualifying Shareholders are entitled to apply for any Offer Shares which are in excess of their assured entitlements.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Offer Shares, when allotted, issued and fully-paid, will rank pari passu with the Shares in issue in all respects. Holders of such Offer Shares will be entitled to receive full future dividends and distributions which are declared, made or paid on or after the date of allotment and issue of the fully paid Offer Shares. Dealings in fully-paid Offer Shares will be subject to the payment of stamp duty in Hong Kong.

The Open Offer is fully underwritten and is subject to the Underwriting Agreement as supplemented by the Supplemental Agreement becoming unconditional and not being terminated in accordance with its terms.

The Subscription Price was arrived at after arm’s length negotiation between the Company and Kingston Securities with reference to, among other things, the prevailing market price of the Shares and the recent financial requirements of the Company in light of the Subscription. As stated in the Letter, after considering the recent financial requirements of the Group as mentioned above and taking into consideration of the theoretical ex-entitlement price per Share, in order to increase the attractiveness of the Open Offer to the Qualifying Shareholders, the Directors (including the independent non-executive Directors) consider that the proposed discount of the Subscription Price is appropriate. Each Qualifying Shareholder is entitled to subscribe for the Offer Shares at the same price in proportion to his/her/its existing shareholding in the Company. The Directors (including the independent non-executive Directors) consider the Subscription Price is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

The Subscription Price represents:

(a) a discount of approximately 87.30% to the closing price of HK$0.315 per Share as quoted on GEM on the Last Trading Day;
(b) a discount of approximately 40.74% to the theoretical ex-entitlement price of approximately HK$0.0675 per Share based on the closing price of HK$0.315 per Share as quoted on GEM on the Last Trading Day;
(c) a discount of approximately 87.30% to the average of the closing prices of HK$0.315 per Share for the last five consecutive trading days prior to the date of the Underwriting Agreement; and
(d) a discount of approximately 87.30% to the average of the closing prices of HK$0.315 per Share for the last ten consecutive trading days prior to the date of the Underwriting Agreement.

— 51 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Review on prices of the Shares

In order to assess the fairness of the Subscription Price, we review the trading price and the liquidity of the Shares for the period from 26 May 2008 to the Last Trading Date (the “Review Period”), i.e. a six months period prior to the Last Trading Date. Set out below are the average daily closing price of the Share since during the Review Period:

				Highest closing	Highest closing	Lowest closing	Lowest closing	Lowest closing	Average daily
					price	price			closing price
					(HK$)	(HK$)			(HK$)
May (From 26 May		2008	to 30
May 2008)					1.05			1	1.01
June					1			0.9	0.97
July					1.02			0.77	0.85
August					0.8			0.64	0.69
September					0.7			0.5	0.61
October					0.64		0.315		0.44
November (From 3 November
2008 to the Last	Trading
Day)					0.315		0.315		0.315
Source: the website of	the Stock Exchange
The chart below illustrates				the daily closing price of		the Shares	versus the Subscription
Price during the Review Period:
1.2
1.0
0.8
0.6
0.4								Share price
0.2
								Subscription Price
0.0 26/5/2008 2/6/2008 9/6/2008 16/6/2008 23/6/2008 30/6/2008 7/7/2008 14/7/2008 21/7/2008 28/7/2008 4/8/2008 11/8/2008 18/8/2008 25/8/2008 1/9/2008 8/9/2008 15/9/2008 22/9/2008 29/9/2008 6/10/2008 13/10/2008 20/10/2008 27/10/2008 3/11/2008 10/11/2008 17/11/2008 24/11/2008

— 52 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

During the Review Period, the highest closing price and the lowest closing price of the Shares were HK$1.05 on 30 May 2008 and HK$0.315 for the period from 30 October 2008 to the Last Trading Date. The Subscription Price is lower than all the monthly lowest closing price of the Shares and the monthly average daily closing prices of the Shares during the Review Period, representing a discount of approximately 96.19% and 87.30% to such the highest and lowest closing price of the Shares during the Review Period.

The Directors advised that, given the financial requirements of the Company in relation to the Subscription; and to increase the attractiveness of the Open Offer to the Qualifying Shareholders, the proposed discount of the Subscription Price as stated above is appropriate.

Review on the trading volume of the Shares

Set out below are the monthly total trading volume of the Shares and the daily average trading volume to the Company’s total issued Shares as at the date of the Announcement during the Review Period:

		Daily average
		trading
		volume to the
		Company’s
		total issued
		Shares as at
	Total trading	the date of the
	volume	Announcement
	(Shares)	(%)
May (From 26 May 2008 to 30 May 2008)	1,010,000	0.16
June	2,535,000	0.10
July	815,900	0.03
August	1,101,255	0.05
September	5,487,452	0.02
October	7,245,028	0.27
November (From 3 November 2008 to the Last
Trading Day)	2,000,000	0.09

Source: the website of the Stock Exchange

We note that the daily trading volume of the Shares within the Review Period is significantly low relative to the Company’s total issued Shares as at the date of the Announcement. The highest daily average trading volume of the Shares only represents approximately 0.27% of the Company’s issued share capital as at the date of the Announcement.

— 53 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In view of the extremely low liquidity of the Shares on the Stock Exchange, which make placement of the same amount of the Shares to be difficult, and based on the fact that the Open Offer would not dilute the shareholding of the existing Shareholders (assume all the Qualifying Shareholders take up their respective assured allotment of the Offer Shares) (discussion of the potential dilution effect on the shareholding interests of the Open Offer is set out in the paragraph headed “Potential dilution effect on the shareholding interests of the Independent Shareholders” below), we consider that the Open Offer is a proper fund raising method.

Based on the above analysis, we are of the view that the Subscription Price is fair and reasonable so far as the Company and the Independent Shareholders are concerned. In view of the foregoing and having considered (i) the Subscription Price was determined after arm’s length negotiations between the Company and Kingston Securities with reference to, among other things, the prevailing market price of the Shares and the recent financial requirements of the Company in light of the Subscription; and (ii) all Qualifying Shareholders are offered an equal opportunity to participate in the Open Offer and to take up their entitlements in full at the same price to maintain their respective shareholdings in the Company, we are of the opinion and concur with the Directors that the discounts of the Subscription Price as compared to the recent market prices would encourage Shareholders to participate in the Open Offer and the future growth of the Company and that the Subscription Price is fair and reasonable insofar as the Independent Shareholders are concerned.

Application for excess Offer Shares

According to the Letter, for application of excess Offer Shares, the Company will determine on a fair and equitable basis on the following principles:

(i) preference will be given to applications for less than a board lot of Offer Shares where they appear to the Directors that such applications are made to round up odd-lot holdings to whole-lot holdings; and
(ii) subject to availability of excess Offer Shares after allocation under principle (i) above, the excess Offer Shares will be allocated to Qualifying Shareholders who have applied for excess application based on a pro-rata basis to the excess Offer Shares applied by them, with board lots allocations to be made on a best effort basis.

We are of the view that since the trading cost of odd-lot is relatively higher than the whole-lot and the aforesaid principles is for rounding up odd-lot holdings to wholelot holdings and is also based on a pro-rata basis (subject to availability of excess Offer Shares after allocation under principle (i) above), the aforesaid principles are justifiable.

— 54 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Alternatives to the Open Offer

The Directors advised that they have considered alternative means for the Group to raise funds other than the Open Offer, including but not limited to, debt financing and placing of new shares. Given the current financial condition of the Group, the Directors believe that taking up borrowings or other bank financing would increase the Group’s finance costs, and, in turn, may deteriorate the Group’s financial position and performance.

The Company has also considered the possibility of fund raising by way of share placements as an alternative to the Open Offer. However, unlike the Open Offer which provides all the Qualifying Shareholders an equal opportunity to participate in the enlargement of the capital base of the Company and at the same time allow them to maintain their proportionate interests in the Company, a share placement would involve an issue of new shares and result in a dilution of existing shareholders’ interest. Accordingly, the Directors do not consider a share placement to be desirable alternative to the Open Offer.

Having considered the existing financial position of the Group and that all Qualifying Shareholders are offered an equal opportunity to participate in the Open Offer and to take up their entitlement in full at the same price to maintain their respective shareholdings in the Company, we consider that the Open Offer is an equitable means to raise capital for the Group under the existing circumstances.

5. Potential dilution effect on the shareholding interests of the Independent Shareholders

Upon completion of the Open Offer, 1,131,207,381 Offer Shares will be issued. Qualifying Shareholders who elect to subscribe for in full their assured entitlements under the Open Offer will retain their current shareholding in the Company. Qualifying Shareholders who do not elect to subscribe for in full their assured entitlements under the Open Offer will be diluted after completion of the Open Offer by a maximum of approximately 90%. Please refer to the section headed “Effects on shareholding structure” in the Letter for detail information in relation to the dilution effect of the Open Offer. Despite the dilution effect by the Open Offer of a maximum of approximately 90%, we consider it should be balanced against the facts that (i) the Qualifying Shareholders have an equal opportunity to participate in the Open Offer; and (ii) the Open Offer would provide the fund to the Group for investment. As such, we consider the possible dilution effect on the Shareholders to be acceptable.

— 55 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6. Expenses in relation to the Open Offer

According to the Letter, the estimated expenses in relation to the Open Offer, including financial, legal and other professional advisory fees, underwriting commission, printing and translation expenses, of approximately HK$1.4 million, which represent approximately 3% of the gross proceed of the Open Offer, will be borne by the Company. According to the Directors, the cost of the Open Offer is relatively lower than the cost of borrowing from banks (which is around 6% interest per annum). Based on above, we are of the view and concur of the view of the Directors that the expenses in relation to the Open Offer are justifiable.

Subject to the fulfilment of the conditions contained in the Underwriting Agreement as supplemented by the Supplemental Agreement, it should also be noted that the Open Offer would not proceed if Kingston Securities exercise their termination rights under the Underwriting Agreement as supplemental by the Supplemental Agreement. Details of the provisions granting Kingston Securities such termination rights are included in the Letter.

7. Financial effects of the Open Offer

(a) Net tangible asset

According to the unaudited pro forma statement of adjusted consolidated net tangible assets of the Group (the “Pro Forma Statement”) set out in Appendix III to the Circular, the unaudited consolidated net tangible assets of the Group attributable to equity holders of the Company was approximately HK$149.0 million as at 30 September 2008. The unaudited pro forma adjusted consolidated net tangible assets of the Group would increase to approximately HK$192.8 million as a result of the estimated net proceeds of approximately HK$43.8 million from the Open Offer.

Accordingly, the net tangible assets of the Group will be strengthened as a result of the Open Offer.

(b) Gearing ratio/Working capital

Upon the completion of the Open Offer, the cash and bank balance of the Group will be increased as a result of the net proceeds from the Open Offer.

(c) Earnings

There will been no significant effect on the earnings of the Group immediately upon the completion of the Open Offer.

— 56 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Taking into account the factors and reasons as mentioned above, which include (i) reasons for the Open Offer and the use of proceeds; (ii) principal terms of the Open Offer; (iii) alternatives to the Open Offer; (iv) potential dilution effect on the shareholding interests of the Independent Shareholders; (v) expenses in relation to the Open Offer and (vi) financial effects of the Open Offer, we consider that, on balance, the terms of the Open Offer are fair and reasonable so far as the Independent Shareholders are concerned and the Open Offer is in the interest of the Company and the Independent Shareholders as a whole and would advise the independent Shareholders and recommend the Independent Board Committee to recommend to the Independent Shareholders to vote in favour of the resolution to approve the Open Offer to be proposed at the EGM.

Yours faithfully, For and on behalf of

Grand Cathay Securities (Hong Kong) Limited Kim Chan Director

Kevin Chan Director

— 57 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

The following financial information has been extracted from the audited financial statements of the Group for each of the three years ended 31 March 2008 as set out in the relevant published annual reports of the Company and from the unaudited interim results of the Group for the six months ended 30 September 2008 as set out in the published interim report of the Company.

The Company’s auditors have issued qualified opinions for the year ended 31 March 2006.

During the three years ended 31 March 2008, there was no extraordinary, exceptional item and minority interest applicable to the financial statements of the Group and no dividend had been declared or paid.

Consolidated Income Statement

Turnover (Loss)/Profit before taxation Tax (Loss)/Profit for the year Dividends (Loss)/Earnings per share_(HK$)_	For the six months ended 30 September 2008 HK$’000 805 (1,846) — (1,846) — (1.47) cents	For the year ended 31 March 2008 31 March 2007 31 March 2006 HK$’000 HK$’000 HK$’000 10,632 62,288 17,258 20,611 (16,154) (18,185) (1,322) — — 19,289 (16,154) (18,185) — — — 4.9 cents (18.9) cents (2.26) cents

— 58 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets/(liabilities)	For the six months ended 30 September 2008 HK$’000 57,459 113,715 171,174 6,824 1,441 8,265 162,909	For the year ended 31 March 2008 31 March 2007 31 March 2006 HK$’000 HK$’000 HK$’000 58,288 9,952 11,975 114,447 80,834 32,800 172,735 90,786 44,775 7,157 14,085 171 1,609 94,845 54,557 8,766 108,930 54,728 163,969 (18,144) (9,953)

— 59 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008

Set out below is the audited consolidated income statement, consolidated balance sheet, consolidated statement of changes in equity and consolidated cash flow statement of the Group, and the balance sheet of the Company together with the notes to the financial statements of the Group as extracted from pages 30 to 95 of the annual report of the Company for the year ended 31 March 2008.

Consolidated Income Statement

For the year ended 31 March 2008

Notes Turnover 7 Cost of sales Gross profit Fair value gain on investment properties 18 Other revenue and other income 7 Other operating expenses Provision for litigation 25 Loss from operations 9 Gain on disposal of subsidiaries 33 Finance costs 10 Profit/(loss) before taxation Taxation 13 Profit/(loss) for the year Earnings/(loss) per share 16 — Basic — Diluted	2008 HK$’000 10,632 (9,261) 1,371 7,700 3,345 (15,906) — (3,490) 25,736 (1,635) 20,611 (1,322) 19,289 HK4.9 cents HK4.1 cents	2007 HK$’000 62,288 (49,004) 13,284 — 813 (24,430) (4,000) (14,333) — (1,821) (16,154) — (16,154) (HK18.9 cents) N/A

— 60 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 March 2008

Notes Non-current assets Property, plant and equipment 17 Investment properties 18 Goodwill 19 Current assets Film rights 21 Films in progress 21 Production in progress Trade debtors 22 Deposits, prepayments and other debtors Bank balances and cash Current liabilities Trade creditors 23 Other creditors and accruals Receipt in advance Amounts due to directors 24 Amounts due to related companies 38(a) Provision for litigation 25 Obligations under finance leases — due within one year 26 Bank loan 27 Net current assets/(liabilities) Total assets less current liabilities		2008 HK$’000		2007 HK$’000
		1,333 55,506 1,449		9,952 — —
		58,288		9,952
		— 12,315 — 159 213 101,760		2,397 9,110 25,522 13,812 6,116 23,877
		114,447		80,834
		— 1,212 — — — — — 397		2,762 1,117 46,347 2,484 37,755 4,000 380 —
		1,609 112,838 171,126		94,845 (14,011) (4,059)

— 61 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 March 2008

Notes Capital and reserves Share capital 30 Reserves 31 Total equity Non-current liabilities Convertible bonds 28 Obligations under finance leases — due after one year 26 Bank loan 27 Deferred tax liabilities 29		2008 HK$’000 125,690 38,279 163,969 662 — 2,229 4,266 7,157 171,126		2007 HK$’000
		125,690 38,279		10,620 (28,764)
				(18,144)
		662 — 2,229 4,266		13,841 244 — —
				14,085 (4,059)

— 62 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance Sheet

As at 31 March 2008

Notes Non-current assets Interests in subsidiaries 20 Current assets Deposits, prepayments and other debtors Amounts due from subsidiaries 20 Bank balances and cash Current liabilities Other creditors and accruals Amount due to a subsidiary 20 Amounts due to directors 24 Amounts due to related companies 38(a) Net current assets Total assets less current liabilities Capital and reserves Share capital 30 Reserves 31 Total equity Non-current liabilities Convertible bonds 28		2008 HK$’000 13,205		2007 HK$’000 468
		177 65,178 79,886		300 16,070 17,813
		145,241		34,183
		687 29 — —		642 — 2,484 15,129
		716 144,525 157,730		18,255 15,928 16,396
		125,690 31,378		10,620 (8,065)
		157,068 662 157,730		2,555 13,841 16,396

— 63 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2008

Attributable to equity holders of the Company

At 1 April 2006 Loss for the year Issue of shares Share issue expenses Issue of convertible bonds Conversion into shares from convertible bonds At 31 March 2007 and 1 April 2007 Profit for the year Issue of shares Share issue expenses Recognition of equity- settled share-based payments Issue of convertible bonds Conversion into shares from convertible bonds Shares issued upon exercise of share options Cancellation of share options Exchange differences arising on translation of financial statements of foreign operation At 31 March 2008	Share capital HK$’000 8,050 — 1,610 — — 960 10,620 — 80,452 — — — 31,456 3,162 — — 125,690	Share premium Contributed surplus HK$’000 HK$’000 15,050 10 — — 1,932 — (159) — — — 1,251 — 18,074 10 — — 16,230 — (2,241) — — — — — 30,855 — 2,650 — — — — — 65,568 10	Share- based compens- ation reserve Convertible bonds reserve HK$’000 HK$’000 1,030 — — — — — — — — 2,692 — (323) 1,030 2,369 — — — — — — 4,370 — — 10,107 — (12,226) (1,699) — (1,030) — — — 2,671 250	Translation reserve Accumulated losses HK$’000 HK$’000 — (34,093) — (16,154) — — — — — — — — — (50,247) — 19,289 — — — — — — — — — — — — — 1,030 (292) — (292) (29,928)	Total HK$’000 (9,953) (16,154) 3,542 (159) 2,692 1,888
					(18,144) 19,289 96,682 (2,241) 4,370 10,107 50,085 4,113 — (292)
					163,969

— 64 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2008

OPERATING ACTIVITIES Profit/(loss) before taxation Adjustments for: Interest income Loss on disposal of property, plant and equipment Gain on disposal of subsidiaries Fair value gain on investment properties Excess of interest in fair value of acquiree’s identifiable assets and liabilities over the cost of a business combination Depreciation Amortisation of film rights Finance charges on finance leases Impairment loss of films in progress Interest expenses Provision for litigation Share-based payments Operating cash flows before movements in working capital Increase in films in progress Decrease/(increase) in production in progress Decrease/(increase) in trade debtors Decrease/(increase) in deposits, prepayments and other debtors (Decrease)/increase in trade creditors Increase in other creditors and accruals Increase in receipt in advance Decrease/(increase) in amounts due to directors NET CASH (USED IN)/GENERATED FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Interest received Acquisition of subsidiaries Additions of film rights Additions of film rights Disposal of subsidiaries Proceeds from disposal of property, plant and equipment Purchase of property, plant and equipment NET CASH GENERATED FROM/(USED IN) INVESTING ACTIVITIES		2008 HK$’000 20,611 (1,274) 3 (25,736) (7,700) (2,057) 1,236 2,976 8 — 1,627 — 4,370 (5,936) (24,395) 3,667 5,629 86 (2,166) 482 2,272 (2,484) (22,845)		2007 HK$’000 (16,154) (183) — — — — 3,941 30,058 45 1,600 1,776 4,000 — 25,083 (4,227) (13,158) (13,395) (1,172) 303 212 14,534 1,242 9,422
		1,274 311 (4,697) 21,136 3 (1,510)		183 — (27,196) — — (1,365)
		16,517		(28,378)

— 65 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

FINANCING ACTIVITIES Interest paid Finance charges on finance leases paid Repayment of bank loan Net amounts due to related companies Proceeds from issue of shares Proceeds from issue of convertible bonds Proceeds from issue of shares under share option scheme Repayment of amounts due to related companies 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 EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR CASH AND CASH EQUIVALENTS ANALYSIS Bank balances and cash		2008 HK$’000 (1,305) (8) (65) 18,500 78,682 22,500 4,113 (36,000) (96) (2,241) 84,080 77,752 23,877 131 101,760 101,760		2007 HK$’000
		(1,305) (8) (65) 18,500 78,682 22,500 4,113 (36,000) (96) (2,241)		(1,397) (45) (3,000) 22,500 3,542 18,200 — — (418) (159)
				39,223 20,267 3,610 — 23,877 23,877

— 66 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2008

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 Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands and Unit 1611, 16/F., Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong respectively.

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 and properties investment.

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

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

In the current year, the Group has applied, for the first time, the following new standards, amendments and interpretations of Hong Kong Financial Reporting Standards (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), which are effective for current accounting period.

HKAS 1 (Amendment)	Capital disclosures
HKFRS 7	Financial Instruments: Disclosures
HK(IFRIC) — Int 8	Scope of HKFRS 2
HK(IFRIC) — Int 9	Reassessment of embedded derivatives
HK(IFRIC) — Int 10	Interim financial reporting and impairment
HK(IFRIC) — Int 11	HKFRS2: Group and Treasury Share Transactions

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

The Group has applied the disclosure requirements under HKAS 1 (Amendment) and HKFRS 7 retrospectively. Certain information presented in prior year under the disclosure requirements of HKAS 32 has been removed and the relevant comparative information based on the requirements of HKAS 1 (Amendment) and HKFRS 7 has been presented for the first time in the current year.

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

HKAS 1 (Revised) Presentation of Financial Statements1 HKAS 23 (Revised) Borrowing Costs1 HKAS 27 (Revised) Consolidated and separate financial statements2 HKFRS 2 (Amendment) Vesting conditions and cancellation1 HKFRS 3 (Revised) Business combinations2 HKFRS 8 Operating Segments1 HK(IFRIC) — Int 12 Service Concession Arrangements3 HK(IFRIC) — Int 13 Customer Loyalty Programmes4 HK(IFRIC) — Int 14 HKAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction3

— 67 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1 Effective for annual periods beginning on or after 1 January 2009

2 Effective for annual periods beginning on or after 1 July 2009

3 Effective for annual periods beginning on or after 1 January 2008

4 Effective for annual periods beginning on or after 1 July 2008

The adoption of HKFRS 3 (Revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. HKAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as equity transactions. The directors of the Company anticipate that the application of the other new or revised standards and interpretations will have no material impact on the results and the financial position of the Group.

3. SIGNIFICANT ACCOUNTS POLICIES

(a) Statement of compliance

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA and the applicable disclosure requirements of the Hong Kong Companies Ordinance. These financial statements are prepared under the historical cost convention except for investment properties, which are measured at fair value, as explained in the accounting policies set out below.

The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates.

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

Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 6 to the financial statement.

These financial statements also comply with the applicable disclosure required by the Rules Governing the Listing of Securities on the GEM (“GEM Listing Rules”) of the Stock Exchange. A summary of the significant accounting policies adopted by the Group is set out below.

(b) 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.

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

— 68 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

All intra-group transactions, balances and unrealised gains on transactions within the Group are eliminated on consolidation.

(c) Business combination

The acquisition of business is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 “Business Combinations” are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the exceeds is recognised immediately in the consolidated income statement.

(d)

Goodwill

Goodwill arising on an acquisition of a business represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant business at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalised goodwill arising on an acquisition of a business is presented separately in the consolidated balance sheet.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of the relevant cash generating unit, the attributable amount of goodwill capitalised is included in the determination of the amount of gain or loss on disposal.

(e) Interests in subsidiaries

A subsidiary is a company controlled by the Company. Subsidiaries are 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.

In the Company’s balance sheet, interests in subsidiaries are stated at cost less impairment losses, unless the investment is classified as held for sale.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(f) 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%

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.

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

(g) Investment properties

Investment properties are properties held to earn rentals or for capital appreciation.

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at their fair value using the fair value model. Gains or losses arising from changes in the fair value of investment properties 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 disposal. 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 include in the consolidated income statement in the year in which the item is derecognised.

(h) Leasing

(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.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

(ii) Operating leases

Rental income from operating leases is recognised in the income statement on a straight-line basis over the term of the relevant lease. Initial direct cots incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line bass over the lease term.

Rentals payable under operating leases are charges to the income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

(i) Revenue recognition

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

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.

Rental income from operating leases is recognised in the income statement on a straightline basis over the term of the relevant lease.

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

(j) 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 reported as a non-current asset.

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(k) 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 consolidated balance sheet and are transferred to film production costs in the consolidated income statement upon completion.

(l) Films in progress

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

(m) Impairment losses

(i) Impairment of other receivables

Other current and non-current receivables that are stated at cost or amortised cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment.

Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.

If any such evidence exists, any impairment loss is determined and recognised as follows:

For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective Group.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss recognised in prior years.

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade receivable directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment (other than properties carried at revalued amounts);
intangible assets;
investment in subsidiaries (except for those classified as being held for sale); and
goodwill.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

—

Recognition of impairment losses

An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cashgenerating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.

Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(iii) Interim financial reporting and impairment

Under the GEM Listing Rules, the Group is required to prepare an interim financial report in compliance with HKAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see Note 3(m)).

Impairment losses recognised in an interim period in respect of goodwill are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates.

(n) 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 the income statement.

Financial assets

The Group’s financial assets are classified into loans and receivables. 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.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

— Effective interest method

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

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 debtors, prepayments, deposits and other debtors, amounts due from directors and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses.

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.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Interest expense is recognised on an effective interest basis other than those financial liabilities designated as at fair value through profit or loss, of which the interest expense is included in net gain or losses.

Other financial liabilities

Other financial liabilities including trade payables, other creditors and accruals, bank loan, amounts due to directors and obligations under finance leases are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

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

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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 the income statement.

For financial liabilities, they are removed from the Group’s balance sheet when, and only when, they are extinguished (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 paid or payable is recognised in the income statement.

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 Group and not designated 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 Group measures the financial guarantee contract 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.

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 bonds equity 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 bonds equity reserve until the conversion option is exercised (in which case the balance stated in convertible bonds equity reserve will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in convertible bonds equity reserve will be released to the retained profits. No gain or loss is recognised in the income statement upon conversion or expiration of the option.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

(o) 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.

(p) 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 Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement.

(q) Employee benefits

(i) Short-term employee benefits

Salaries, annual bonuses, paid annual leave and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees, where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(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 consolidated income statement on a straight-line basis over the vesting period, with a corresponding increase in equity (share-based compensation reserve).

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 consolidated income statement, and a corresponding adjustment to equity (Sharebased compensation reserve) in the consolidated 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.

(r) 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 excess of interest in fair value of acquiree’s identifiable assets and liabilities over the cost of a business combination) 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 consolidated 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.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(s) Provision and contingent liabilities

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 consolidated 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.

(t) 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 the income statement in the period 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 period, 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 the consolidated income statement in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments on identified assets acquired arising on the acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange difference arising are recognised in the translation reserve.

(u) 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.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

(v) Related parties

For the purpose of these financial statements, parties are considered to be related to the Group if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a joint venture in which the Group is a venturer;
(iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals; or
(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals, or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

(w) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purpose of these financial statements.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include trade receivables and property, plant and equipment. Segment revenue, expenses, assets and liabilities are determined before intragroup balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, tax balances, corporate and financing expenses.

4. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Group’s overall strategy remains unchanged from prior year.

The capital structure of the Group consists of total assets and total liabilities. Consistent with industry practice, the Group monitors its capital structure on the basis of a gearing ratio.

As at 31 March 2008 and 2007, the gearing ratio determined as the proportion of total liabilities to total assets was 5% (2007: 120%). The Group’s strategy was to maintain the gearing ratio at the lower end of the range 5% to 20%. In order to maintain or adjust the ratio, the Group may adjust the amount of dividends paid to shareholders, issue new shares, return capital to shareholders, raise new debt financing or sell assets to reduce debt.

5. FINANCIAL INSTRUMENTS

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. The Group is also exposed to equity price risk arising from its own equity share price.

(a) Fair values

The fair value of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flows analysis using prices or rates from observable current market transactions as input.

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

(b) Credit risk

The Group is exposed to credit risk that any single counter party or group of counter parties having similar characteristics will be unable to pay amounts in full when due. Credit risks associated with these transactions are closely monitored by management of the Group. The Group’s customers are film producers in Hong Kong and PRC which the Group believes have reliable credit standing. Taking into account the creditworthiness of the Group’s customers and the past history of settlement, the credit risk measures and the historical levels of the bad debts, the Directors consider that such concentration of credit risk would not result in significant credit default exposure to the Group. The default risk of the industry and the country in which customers operate also has an influence on credit risk but a lesser extent.

In respect of trade and other debtors, credit evaluations are performed on all customers requiring credit over a certain amount. These receivables are normally due within 90 days from the date of billing. Normally, the Group does not obtain collateral from customers.

The carrying amount of each financial asset in the consolidated balance sheet after deducting any impairment allowance represents the Group’s maximum exposure to credit risk in relation to financial assets.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

(c) Interest rate risk

The Group is exposed to fair value interest rate risk only in relation to fixed-rate borrowings, fixed-rate bank deposits and fixed rate convertible bonds issued. The Group currently does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise.

The Group’s convertible bonds issued at fixed rates expose the Group to fair value interest rate risk. The interest rates and terms of repayment of the convertible bonds of the Group are disclosed in Note 28.

At 31 March 2008, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would decrease/increase the Group’s profit after taxation and retained profits by approximately HK$985,000 (2007: approximately HK$94,000).

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the balance sheet date and had been applied to the exposure to interest rate risk for non-derivative financial instruments in existence at that date. The 100 basis point increase or decrease represents management’s assessment of a reasonably possible change in interest rates over the period until the next annual balance sheet date. The analysis is performed on the same basis for 2007.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(d) Liquidity risk

In management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the directors to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank loan and ensures compliance with loan covenants.

The following table details the Group’s remaining contractual maturity for its financial liabilities. This table has been drawn up based on undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

The Group

Weighted average effective interest rate Within 1 year or on demand More than 1 year but less than 2 years % HK$’000 HK$’000 2008 Other creditors and accruals — 1,212 — Bank loans 5.78% 397 421 Convertible bonds 9.00% — — 1,609 421 2007 Trade creditors — 2,762 — Other creditors and accruals — 1,117 — Receipt in advance — 46,347 — Amounts due to directors — 2,484 — Amounts due to related companies 5.12% 37,755 — Obligations under finance leases — 380 244 Convertible bonds 9.00% — — 90,845 244	More than 2 years but less than 5 years HK$’000 — 1,415 662 2,077 — — — — — — 13,841 13,841	More than 5 years Total undiscounted cash flow Total carrying amount HK$’000 HK$’000 HK$’000 — 1,212 1,212 393 2,626 2,626 — 662 662 393 4,500 4,500 — 2,762 2,762 — 1,117 1,117 — 46,347 46,347 — 2,484 2,484 — 37,755 37,755 — 624 624 — 13,841 13,841 — 104,930 104,930	More than 5 years Total undiscounted cash flow Total carrying amount HK$’000 HK$’000 HK$’000 — 1,212 1,212 393 2,626 2,626 — 662 662 393 4,500 4,500 — 2,762 2,762 — 1,117 1,117 — 46,347 46,347 — 2,484 2,484 — 37,755 37,755 — 624 624 — 13,841 13,841 — 104,930 104,930
			4,500

			2,762 1,117 46,347 2,484 37,755 624 13,841
			104,930

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Company

Weighted average effective interest rate Within 1 year or on demand More than 1 year but less than 2 years % HK$’000 HK$’000 2008 Other creditors and accruals — 697 — Amount due to a subsidiary — 29 — Convertible bonds 9.00% — — 726 — 2007 Other creditors and accruals — 642 — Amounts due to directors — 2,484 — Amounts due to related companies 5.12% 15,129 — Convertible bonds 9.00% — — 18,255 —	More than 2 years but less than 5 years HK$’000 — — 662 662 — — — 13,841 13,841	More than 5 years Total undiscounted cash flow Total carrying amount HK$’000 HK$’000 HK$’000 — 697 697 — 29 29 — 662 662 — 1,388 1,388 — 642 642 — 2,484 2,484 — 15,129 15,129 — 13,841 13,841 — 32,096 32,096	More than 5 years Total undiscounted cash flow Total carrying amount HK$’000 HK$’000 HK$’000 — 697 697 — 29 29 — 662 662 — 1,388 1,388 — 642 642 — 2,484 2,484 — 15,129 15,129 — 13,841 13,841 — 32,096 32,096
			1,388

			642 2,484 15,129 13,841
			32,096

No discounted cash flow is calculated as the effect of discounting would be immaterial.

(e) Foreign currency risk

The Group is exposed to currency risk primarily through receipt of rented income by a subsidiary, that are denominated in foreign currency. Approximately 3.5% (2007: Nil) of the Group’s turnover are denominated in currency other than the functional currency of the Group entity making the income.

The carrying amount of this subsidiary’s Canadian dollars denominated monetary assets representing trade debtors and other debtors and bank balances; and monetary liabilities representing other creditors and accruals, loans payable with the Group and bank loan at 31 March 2008 was HK$556,000 and HK$9,780,000 (2007: Nil and Nil) respectively.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to a 5% increase and decrease in Hong Kong dollars against Canadian dollars. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes outstanding amounts of a subsidiary’s Canadian dollars denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. For a 5% strengthening of Hong Kong dollars

— 84 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

against Canadian dollars, the profit for the year ended 31 March 2008 would be reduced by HK$461,000 (2007: Nil). For a 5% weakening of Hong Kong dollars against Canadian dollars, there would be an equal an opposite impact on the profit or loss.

6. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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 3m. The recoverable amounts of cashgenerating 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 debtors 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 debtors 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 debtors balances and write-off history. Certain debtors 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 debtors 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 aging 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 primarily on the latest contract prices and current market conditions. 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.

(e) Deposits, prepayments and other debtors

The Group makes impairment loss for doubtful debts based on an assessment of the recoverability of deposits, prepayments and other debtors. Provisions are applied to deposits, prepayments and other debtors where events or changes in circumstances indicate

— 85 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

that the balances may not be collectible. The identification of doubtful debts requires the use of judgement and estimates based on the credit history of the customers and the current market conditions. Where the expectation is different from the original estimate, such difference will impact carrying value of receivables and doubtful debt expenses in the period in which such estimate has been changed.

7. TURNOVER, OTHER REVENUE AND OTHER INCOME

Turnover represents the net amounts received and receivables for goods sold and rendering of services by the Group.

Turnover, other revenue and other income consist of:

Turnover Film production Film distribution Gross rentals from investment properties Other revenue Bank interest income Others Other income Excess of interest in fair value of acquiree’s identifiable assets and liabilities over the cost of a business combination_(Note 32(a))_ Other revenue and other income Total		2008 HK$’000		2007 HK$’000
		7,500 2,755 377		22,030 40,258 —
		10,632		62,288
		1,274 14		183 630
		1,288 2,057 3,345 13,977		813 — 813 63,101

8. BUSINESS AND GEOGRAPHICAL SEGMENTS

Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting.

(a) Business segments

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

Film production: production of films to customers Film distribution: distribution of films through the distributors to various licencees Properties investment: leasing of properties to generate rental income

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Income statement

Turnover Segment results Unallocated corporate income Unallocated corporate expenses Loss from operations Interest income Gain on disposal of subsidiaries Finance costs Profit/(loss) before taxation Taxation Profit/(loss) for the year	Film production 2008 2007 HK$’000 HK$’000 7,500 22,030 1,215 4,684	Film distribution 2008 2007 HK$’000 HK$’000 2,755 40,258 (221) 4,654	Properties investment 2008 2007 HK$’000 HK$’000 377 — 8,077 —	Consolidated 2008 2007 HK$’000 HK$’000 10,632 62,288 9,071 9,338 2,071 630 (15,906) (24,484) (4,764) (14,516) 1,274 183 25,736 — (1,635) (1,821) 20,611 (16,154) (1,322) — 19,289 (16,154)	Consolidated 2008 2007 HK$’000 HK$’000 10,632 62,288 9,071 9,338 2,071 630 (15,906) (24,484) (4,764) (14,516) 1,274 183 25,736 — (1,635) (1,821) 20,611 (16,154) (1,322) — 19,289 (16,154)

					9,338 630 (24,484)
					(14,516) 183 — (1,821)
					(16,154) —
					(16,154)

Balance sheet

Segment assets Unallocated corporate assets Consolidated total assets Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Film production 2008 2007 HK$’000 HK$’000 — 29,693 — (43,028)	Film distribution 2008 2007 HK$’000 HK$’000 33,848 25,193 — (6,081)	Properties investment 2008 2007 HK$’000 HK$’000 57,376 500 (7,413) —	Consolidated 2008 2007 HK$’000 HK$’000 91,224 55,386 81,511 35,400 172,735 90,786 (7,413) (49,109) (1,353) (59,821) (8,766) (108,930)	Consolidated 2008 2007 HK$’000 HK$’000 91,224 55,386 81,511 35,400 172,735 90,786 (7,413) (49,109) (1,353) (59,821) (8,766) (108,930)
					90,786

					(49,109) (59,821)
					(108,930)

— 87 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Other information

					Properties	Properties
	Film production		Film distribution		investment		Unallocated		Consolidated
	2008	2007	2008	2007	2008	2007	2008	2007	2008	2007
	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	4	—	77	—	1,429	—	—	2,195	1,510	2,195
Depreciation	102	—	393	—	95	—	646	3,941	1,236	3,941
Additions of film rights	—	—	4,697	27,196	—	—	—	—	4,697	27,196
Share-based payment
expense	—	—	—	—	—	—	4,370	—	4,370	—
Amortisation of film
rights	—	—	2,976	30,058	—	—	—	—	2,976	30,058
Impairment loss of films
in progress	—	—	—	1,600	—	—	—	—	—	1,600
Loss on disposal of
property, plant and
equipment	—	—	3	—	—	—	—	—	3	—

(b) Geographical segments

The Group’s film distribution and film production income are derived from Hong Kong and overseas distribution and rental income is derived from properties located at Canada. The following table provides an analysis of the Group’s sales revenue by geographical market:

Hong Kong Overseas	2008 HK$’000 8,551 2,081 10,632	2007 HK$’000 39,372 22,916
		62,288

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

Hong Kong Overseas	Carrying amount of segment assets 2008 2007 HK$’000 HK$’000 149,554 90,786 23,181 — 172,735 90,786	Additions to property, plant and equipment 2008 2007 HK$’000 HK$’000 1,510 2,195 — — 1,510 2,195	Additions to property, plant and equipment 2008 2007 HK$’000 HK$’000 1,510 2,195 — — 1,510 2,195
			2,195

— 88 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. LOSS FROM OPERATIONS

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

Auditor’s remuneration Amortisation of film rights (included in cost of sales) Impairment loss of films in progress (included in cost of sales) Production costs (included in cost of sales) Depreciation of property, plant and equipment — assets held under finance leases — owned assets Net foreign exchange loss Operating lease rental in respect of rental premises Loss on disposal of property, plant and equipment Rental income from investment properties less direct outgoings of HK$195,000 (2007: HK$Nil) Staff costs (include Directors’ remuneration (Note 11) Salaries and allowances Share-based payment expenses Staff welfare and messing Contribution to retirement benefits scheme Total staff costs FINANCE COSTS Interests on: Bank loan wholly repayable within five years Bank loan not wholly repayable within five years Amounts due to related companies_(Note 38(a))_ Effective interest expenses on convertible bonds wholly repayable within five years Finance charges on obligations under finance leases Total interest expense on financial liabilities not at fair value through profit or loss	Auditor’s remuneration Amortisation of film rights (included in cost of sales) Impairment loss of films in progress (included in cost of sales) Production costs (included in cost of sales) Depreciation of property, plant and equipment — assets held under finance leases — owned assets Net foreign exchange loss Operating lease rental in respect of rental premises Loss on disposal of property, plant and equipment Rental income from investment properties less direct outgoings of HK$195,000 (2007: HK$Nil) Staff costs (include Directors’ remuneration (Note 11) Salaries and allowances Share-based payment expenses Staff welfare and messing Contribution to retirement benefits scheme Total staff costs FINANCE COSTS Interests on: Bank loan wholly repayable within five years Bank loan not wholly repayable within five years Amounts due to related companies_(Note 38(a))_ Effective interest expenses on convertible bonds wholly repayable within five years Finance charges on obligations under finance leases Total interest expense on financial liabilities not at fair value through profit or loss	2008 HK$’000 260 2,976 — 6,285 49 1,187 140 793 3 (182)		2007 HK$’000 220 30,058 1,600 17,346 176 3,765 — 1,866 — —
		3,437 4,370 9 90		10,434 — 89 131
		7,906 2008 HK$’000 — 25 667 935 8 1,635		10,654 2007 HK$’000 10 — 1,545 221 45 1,821

10. FINANCE COSTS

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. DIRECTORS’ REMUNERATION

The remuneration of every director of the Company for the year disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is analysed as follows:

For the year ended 31 March 2008

Directors’ fee HK$’000 Executive directors Mr. Yip Tai Him_(Note a) — Mr. Lei Hong Wai(Note b) — Mr. Law Sau Yiu, Dennis(Note c) — Ms. Teng Chia Lin, Chialina(Note d) — Ms. Chan Dao Ho(Note e) — Independent non-executive directors Mr. Lai Hok Lim(Note f) 84 Mr. Leung Wai Man(Note g) 84 Mr. Man Kong Yui(Note h) 62 Mr. Lung Hak Kau(Note i) 38 Ms. Wai Lai Yung(Note j) 45 Ms. Tsang Kei Ling(Note k) 24 337 For the year ended 31 March 2007 Directors’ fee _HK$’000 Executive directors Mr. Law Sau Yiu, Dennis_(Note c) — Ms. Teng Chia Lin, Chialina (Note d) — Ms. Chan Dao Ho(Note e) — Independent non-executive directors Mr. Lung Hak Kau(Note i) 96 Ms. Wai Lai Yung(Note j) 96 Ms. Tsang Kei Ling(Note k)_ 60 252	Salaries and other allowances Share- based payments HK$’000 HK$’000 84 368 84 713 (444) — (108) — 248 — — — — — — — — — — — — — (136) 1,081 Salaries and other allowances Share- based payments HK$’000 HK$’000 1,800 — 456 — 757 — — — — — — — 3,013 —	Retirement benefits scheme contribution HK$’000 3 3 — — 2 3 3 2 — — — 16 Retirement benefits scheme contribution HK$’000 12 12 12 — — — 36	Total HK$’000 455 800 (444) (108) 250 87 87 64 38 45 24
			1,298

			Total HK$’000 1,812 468 769 96 96 60
			3,301

— 90 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes:

(a) Mr. Yip Tai Him was appointed on 10 July 2007.
(b) Mr. Lei Hong Wai was appointed on 10 July 2007.
(c) Mr. Law Sau Yiu, Dennis resigned on 9 October 2007 and entered into an arrangement under which he agreed to waive director remuneration payable to him under the service agreement dated 9 October 2003 for the period from 1 January 2007 to 9 October 2007.
(d) Ms. Teng Chia Lin, Chialina resigned on 18 September 2007 and entered into an arrangement under which she agreed to waive director remuneration payable to her under the service agreement dated 9 October 2003 for the period from 1 January 2007 to 18 September 2007.
(e) Ms. Chan Dao Ho resigned on 7 September 2007.
(f) Mr. Lai Hok Lim was appointed on 10 July 2007.
(g) Mr. Leung Wai Man was appointed on 10 July 2007.
(h) Mr. Man Kong Yui was appointed on 18 September 2007.
(i) Mr. Lung Hak Kau resigned on 24 August 2007.
(j) Ms. Wai Lai Yung resigned on 18 September 2007.
(k) Ms. Tsang Kei Ling resigned on 24 August 2007.

The share-based payments represent the estimated value of share options granted to the directors under the Company’s share option scheme. The value of these share options is measured according to the Group’s accounting policies for sharebased payment transactions as set out in Note 3(q)(iii).

At 31 March 2008, the directors held share options under the Company’s share option scheme. Details of the share options are disclosed under the paragraph “Share option schemes” in the report of the directors and Note 39.

During the years ended 31 March 2008 and 2007, 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.

12. INDIVIDUALS WITH HIGHEST EMOLUMENTS

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

Number of directors Number of other individuals	2008 2 3 5	2007 3 2
		5

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

Salaries and other allowances Retirement benefits scheme contribution Share-based payments	2008 HK$’000 1,550 7 987 2,544	2007 HK$’000 4,500 24 —
		4,524

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

Emoluments bands Nil — HK$1,000,000 HK$1,000,001 — HK$1,500,000 HK$4,000,001 — HK$4,500,000	Number of individuals 2008 2007 2 1 1 — — 1 3 2	Number of individuals 2008 2007 2 1 1 — — 1 3 2
		2

At 31 March 2008, the employees held share options under the Company’s share option scheme. Details of the share options are disclosed under the paragraph “Share option schemes” in Note 39.

13. TAXATION

Current tax charge for the year Hong Kong Overseas Deferred tax charge Current year Attributable to a change in overseas tax rate	2008 HK$’000 — — — 1,360 (38) 1,322 1,322	2007 HK$’000 — —
		—
		— —
		—
		—

No provision for Hong Kong profits tax has been made in the consolidated financial statements as the Group has no assessable profits in Hong Kong for the years ended 31 March 2008 and 2007. Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries.

— 92 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

Profit/(loss) before taxation Notional tax on profit/(loss) before taxation, calculated at the rates applicable to profits in the countries concerned (2007: 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 timing difference Decrease in opening deferred tax liabilities resulting from a change in overseas tax rate Actual tax expenses	2008 HK$’000 20,611 3,623 640 (6,656) 3,753 — — (38) 1,322	2007 HK$’000 (16,154) (2,827) 1,994 (32) 700 (238) 403 — —

14. PROFIT/(LOSS) ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The consolidated profit/(loss) attributable to equity holders of the Company includes a loss of approximately HK$8,603,000 (2007: a loss of approximately HK$4,632,000) which has been dealt with in the financial statements of the Company.

15. DIVIDEND

No dividend for the year ended 31 March 2008 has been proposed by the directors (2007: HK$Nil).

— 93 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. EARNINGS/(LOSS) PER SHARE

The calculation of the basic and diluted earnings/(loss) per share attributable to the equity holders of the Company are based on the following data:

Profit/(loss) attributable to equity holders of the Company (basic and diluted) Weighted average number of ordinary shares (basic) Issued ordinary shares at 1 April Effect of consolidation of shares Effect of conversion into shares from convertible bonds Effect of issue of new shares Effect of share options exercised Weighted average number of ordinary shares for basic earnings/(loss) per share at 31 March Weighted average number of ordinary shares (diluted) Weighted average number of ordinary shares at 31 March Effect of exercise of share options Weighted average number of ordinary shares for dilutive earnings/(loss) per share at 31 March Earnings/(loss) per share: — Basic — Diluted	2008 HK$’000 19,289 Number of ordinary shares ’000 106,200 — 125,889 159,062 606 391,757 391,757 78,086 469,843 HK4.9 cents HK4.1 cents	2007 HK$’000 (16,154) Number of ordinary shares ’000 805,000 (767,376) 403 47,636 — 85,600 85,600 — 85,600 (HK18.9 cents) N/A

The conversion of all potential ordinary shares arising from convertible bonds would have an antidilutive effect on the earnings per share for the year ended 31 March 2008.

No diluted loss per share has been presented for the year ended 31 March 2007 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 year ended 31 March 2007.

— 94 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. PROPERTY, PLANT AND EQUIPMENT

The Group

Leasehold improvements Furniture and fixtures Machinery and equipment Motor vehicles HK$’000 HK$’000 HK$’000 HK$’000 Cost At 1 April 2006 4,023 725 16,666 468 Additions 222 53 1,067 308 At 31 March 2007 4,245 778 17,733 776 At 1 April 2007 4,245 778 17,733 776 Additions 1,037 322 — — Disposal — — — — Disposal of subsidiaries (Note 33) (4,245) (827) (17,733) (776) At 31 March 2008 1,037 273 — — Accumulated depreciation At 1 April 2006 2,475 462 7,793 56 Charge for the year 815 149 2,523 114 At 31 March 2007 3,290 611 10,316 170 At 1 April 2007 3,290 611 10,316 170 Charge for the year 300 66 646 70 Written back on disposal of subsidiaries_(Note 33)_ (3,522) (659) (10,962) (240) At 31 March 2008 68 18 — — Net book value At 31 March 2008 969 255 — — At 31 March 2007 955 167 7,417 606	Office equipment HK$’000 1,793 545 2,338 2,338 151 (6) (2,365) 118 1,191 340 1,531 1,531 154 (1,676) 9 109 807	Total HK$’000 23,675 2,195
		25,870
		25,870 1,510 (6) (25,946)
		1,428
		11,977 3,941
		15,918
		15,918 1,236 (17,059)
		95
		1,333

		9,952

At 31 March 2008, the net book value of certain motor vehicles and office equipment of the Group of approximately HK$Nil (2007: HK$1,068,000) were held under finance leases.

— 95 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18. INVESTMENT PROPERTIES

The Group

Fair Value At 1 April Acquired on acquisition of subsidiaries (Note 32 (a) and (b)) Net increase in fair value recognised in the consolidated income statement Exchange adjustments At 31 March	2008 HK$’000 — 48,371 7,700 (565) 55,506	2007 HK$’000 — — — —
		—

(a) The analysis of carrying amount of investment properties is as follows:

In Hong Kong Long-term lease Outside Hong Kong Freehold	2008 HK$’000 34,300 21,206 55,506	2007 HK$’000 — —
		—

(b) The investment properties were revalued at 31 March 2008, on an open market basis by Grant Sherman Appraisal Limited, which are independent qualified professional valuers not connected with the Group. Grant Sherman Appraisal Limited are members of the Hong Kong Institute of Surveyors and have recent experience in the location and category of the investment property being valued.
(c) At 31 March 2008, investment properties of the Group with a fair value of approximately HK$21,206,000 (2007: HK$Nil) were pledged to secure banking facilities granted to the Group.

19. GOODWILL

Cost At 1 April Arising on acquisition of subsidiaries_(Note 32(b))_ At 31 March Impairment At 1 April and 31 March Carrying value At 31 March	2008 HK$’000 — 1,449 1,449 — 1,449	2007 HK$’000 — —
		—
		—
		—

— 96 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

During the year, goodwill was recognised on the acquisition of the entire interests in Grandeur Concord Limited and its subsidiary, Vincent Investment Limited (“Grandeur Group”), which principal activities were investment holding and properties investment respectively.

Goodwill arose has been allocated to the cash generating unit (“CGU”) of Grandeur Group. The recoverable amount of Grandeur Group, which covers the above goodwill, is determined from a value in use calculation. The key assumptions for the value in use calculation are those regarding the discount rate, growth rates, and expected changes to rental income and the outgoing expenses during the period.

The Group estimates discount rate using the rate that reflects current market assessments of the time value of money and the risks specific to Grandeur Group. The growth rates are based on the properties rental market forecasts. Changes in rental value and outgoing expenses are based on past practices and expectations of future changes in the properties rental market.

The Group prepares cash flow forecast derived from Grandeur Group approved budget for 5 years. The rate used to discount the forecasted cash flows is 5.09% per annum.

As Grandeur Group’s principal operation is rental of properties which is regulated in nature, the Group considers that cash flow projection for 5 years and 2.13% growth rates are appropriate for the impairment test review.

The results of the review undertaken as at 31 March 2008 indicated that no impairment charge was necessary for current year.

20. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Non-current portion Amounts due from subsidiaries_(Note ii) _Less:_Impairment loss(Note i) At 1 April and 31 March Current portion Amount due from subsidiaries(Note ii) _Less:_Impairment loss(Note i) Amount due to a subsidiary(Note ii)_		The Company 2008 2007 HK$’000 HK$’000 13,205 78 — 5,990 — (5,600) — 390 13,205 468 91,878 37,170 (26,700) (21,100) 65,178 16,070 (29) —	The Company 2008 2007 HK$’000 HK$’000 13,205 78 — 5,990 — (5,600) — 390 13,205 468 91,878 37,170 (26,700) (21,100) 65,178 16,070 (29) —	The Company 2008 2007 HK$’000 HK$’000 13,205 78 — 5,990 — (5,600) — 390 13,205 468 91,878 37,170 (26,700) (21,100) 65,178 16,070 (29) —
		— —		5,990 (5,600)
		— 13,205		390 468
		91,878 (26,700)		37,170 (21,100)
		65,178 (29)		16,070 —

— 97 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes:

(i) 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, an aggregate impairment losses of amounts due from subsidiaries of approximately HK$26,700,000 (2007: approximately HK$5,600,000 included in non-current portion and HK$21,100,000 included in current portion) were recognised in the Company’s financial statements for the year ended 31 March 2008.

The impairment losses associated with the Group’s film production and film distribution operations were HK$Nil for the year ended 31 March 2008 (2007: approximately HK$25,611,000), while the remaining amounts are associated with the unallocated corporate unit.

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

(ii) At 31 March 2008, the amounts due from/(to) subsidiaries are unsecured, interest-free and have no fixed terms of repayment. For the year 2007, the amounts due from subsidiaries are unsecured and non-interest bearing, except for an amount of HK$15,000,000 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 (“Milkyway Group”), of approximately HK$35,345,000 and HK$1,825,000 respectively. In the opinion of the Company’s directors, the amounts due from Milkyway Group will be reassigned to the Purchaser after the completion of the disposal of the Milkyway Group, as further detailed in Note 33. Therefore, the amounts due from the Milkyway Group as at 31 March 2007 are classified as current asset.
(iii) On 23 April 2007, the Group through its wholly owned subsidiary, Galaxy Image (BVI) Limited, entered into an agreement with Keep Beat Enterprises Limited, a company wholly owned by the former chief executive officer (resigned on 28 June 2007), Mr. To Kei Fung, pursuant to which the Group disposed of its entire interest in Milkyway Group for a total consideration of HK$26 million resulting a gain on disposal of approximately HK$28,320,000 (Note 33). The principal activities of Milkyway Group were provision of film production, film distribution and film production facilities. The net liabilities of the subsidiaries disposed of were disclosed in Note 33. The transaction was completed on 28 June 2007.
(iv) On 28 August 2007, the Company entered into an agreement with an independent third party for the acquisition of the entire interests of Classic Grace Enterprises Limited and its subsidiary, Grand Billion Investments Limited (“Classic Grace Group”), for a total consideration of HK$24 million by issuing the 5% convertible bond in the principal amount of HK$24 million resulting an excess of interest in fair value of acquiree’s identifiable assets and liabilities over the cost of a business combination of approximately HK$2,057,000. The net assets of the subsidiaries acquired were disclosed in Note 32(a). The transaction was completed on 2 November 2007.
(v) On 23 October 2007, the Company entered into an agreement with an independent third party for the acquisition of the entire interests of Grandeur Group for a total consideration of HK$18 million by issuing 180,000,000 shares in the authorised share capital at an issue price of HK$0.10 each resulting a goodwill of approximately HK$1,449,000. The net assets of the subsidiaries acquired of were disclosed in Note 32(b). The transaction was completed on 28 January 2008.

— 98 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(vi) On 9 January 2008, the Group through its wholly owned subsidiary, Galaxy Image (BVI) Limited, entered into an agreement with Mr. Law Sau Yau, Dennis, a former director of the Company (resigned on 9 October 2007), pursuant to which the Group will dispose of its entire interests in Point of View Movie Production Company Limited, Brilliant Picture Movie Production Company Limited (formerly known as Milkyway Image Limited) and Inspire Film Distribution Limited (“POV Group”) for a total consideration of HK$2 million resulting a loss on disposal of approximately HK$2,584,000 (Note 33). The principal activities of POV Group were provision of film production, film distribution and holding of film rights. The net assets of the subsidiaries disposed of were disclosed in Note 33. The transaction was completed on 15 January 2008.
(vii) Details of the subsidiaries of the Company at 31 March 2008 are as follows:

	Place of	Issued and
	incorporation/	fully paid		Principal
Name of subsidiary	operation	share capital	Interest held	activities
Direct subsidiaries:
Galaxy Image (BVI)	British Virgin	US$10,000	100%	Investment
Limited	Islands/Hong			holding
	Kong
Creative Formula	Hong Kong/	HK$1	100%	Provision
Limited*	Hong Kong			of film
				production
				and film
				distribution
Classic Grace	British Virgin	US$1	100%	Investment
Enterprises	Islands/Hong			holding
Limited_(Note iv)_	Kong
Grandeur Concord	British Virgin	US$1	100%	Investment
Limited_(Note v)_	Islands/Hong			holding
	Kong
Indirect subsidiaries:
Grand Billion	Hong Kong/	HK$1	100%	Properties
Investments	Hong Kong			investment
Limited_(Note iv)_
Vincent Investment	Canada/Canada	CAD300	100%	Properties
Limited_(Note v)_				investment

The subsidiary was newly incorporated during the year.

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 2008 and 2007.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21. FILM RIGHTS AND FILMS IN PROGRESS

The Group

Cost At 1 April 2006 Additions Transfers At 31 March 2007 At 1 April 2007 Additions Transfer Disposal of subsidiaries_(Note 33) At 31 March 2008 Accumulated amortisation and impairment At 1 April 2006 Amortisation for the year Impairment loss recognised At 31 March 2007 At 1 April 2007 Transfer Amortisation for the year Written back on disposal of subsidiaries (Note 33)_ At 31 March 2008 Net book value At 31 March 2008 At 31 March 2007 Analysed as At 31 March 2008 Non-current portion Current portion At 31 March 2007 Non-current portion Current portion	Film rights HK$’000 12,431 — 27,196 39,627 39,627 1,072 3,625 (44,324) — 7,172 30,058 — 37,230 37,230 1,600 2,976 (41,806) — — 2,397 — — — — 2,397 2,397	Films in progress HK$’000 6,483 31,423 (27,196) 10,710 10,710 28,020 (3,625) (22,790) 12,315 — — 1,600 1,600 1,600 (1,600) — — — 12,315 9,110 — 12,315 12,315 — 9,110 9,110	Total HK$’000 18,914 31,423 — 50,337 50,337 29,092 — (67,114) 12,315 7,172 30,058 1,600 38,830 38,830 — 2,976 (41,806) — 12,315 11,507 — 12,315 12,315 — 11,507 11,507

In 2007, the Group assessed the recoverable amounts of film rights and films in progress and determined that films in progress associated with the Group’s film distribution operations was impaired by HK$1,600,000. The recoverable amounts of film rights and films in progress were assessed by the directors of the Company with reference to the value-inuse calculation of film rights and films in progress as at the balance sheet date.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

22. TRADE DEBTORS

The Group normally grants credit terms of 30 days to 90 days to its customers. The following is an aged analysis of trade debtors at the balance sheet date:

Within 30 days 31-90 days 91-180 days 181-365 days Over 365 days	The Group 2008 2007 HK$’000 HK$’000 119 3,506 27 91 13 7,280 — 2,902 — 33 159 13,812	The Group 2008 2007 HK$’000 HK$’000 119 3,506 27 91 13 7,280 — 2,902 — 33 159 13,812
		13,812

There are no trade debtors past due or impaired for the years ended 31 March 2008 and 2007.

Management closely monitor the credit quality of trade debtors and considers the trade debtors that are neither past due nor impaired of good credit quality.

The aged analysis of trade debtors that are neither individually nor collectively to be impaired are as follows:

Neither past due nor impaired 1 to 3 months past due 4 to 6 months past due Over 6 months past due	The Group 2008 2007 HK$’000 HK$’000 146 3,597 13 7,280 — 2,902 — 33 159 13,812	The Group 2008 2007 HK$’000 HK$’000 146 3,597 13 7,280 — 2,902 — 33 159 13,812
		13,812

Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral over these balances.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

23. TRADE CREDITORS

The following is an aged analysis of trade creditors at the balance sheet date:

Within 6 months Over 1 year	The Group 2008 2007 HK$’000 HK$’000 — 2,693 — 69 — 2,762	The Group 2008 2007 HK$’000 HK$’000 — 2,693 — 69 — 2,762
		2,762

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

24. AMOUNTS DUE TO DIRECTORS

The Group and the Company

The amounts of HK$Nil and HK$2,484,000 represented accrued salaries to directors during the years ended 31 March 2008 and 2007 respectively, which are unsecured, non-interest bearing and have no fixed repayment terms.

25. PROVISION FOR LITIGATION

At 1 April Provision for litigation Disposal of subsidiaries_(Note 33)_ At 31 March	The Group 2008 2007 HK$’000 HK$’000 4,000 — — 4,000 (4,000) — — 4,000	The Group 2008 2007 HK$’000 HK$’000 4,000 — — 4,000 (4,000) — — 4,000
		4,000

On 8 August 2006, an individual engaged by Milkyway Image (Hong Kong) Limited (“MIHK”) in 2003, a subsidiary of the Company which was disposed of during the year, 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 was made in the financial statements for the year ended 31 March 2007.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

26. OBLIGATIONS UNDER FINANCE LEASES

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

Amount payable under finance leases: Within one year After one year but within two years After two years but within five years _Less:_Future finance charges Present value of lease obligations _Less:_Amount due for payment within one year	The Group Minimum leases payments Present value of minimum leases payments 2008 2007 2008 2007 HK$’000 HK$’000 HK$’000 HK$’000 — 414 — 380 — 175 — 244 — 85 — — 674 624 — (50) — 624 — (380) — 244

The Group has no obligation under finance leases at the year ended 31 March 2008 upon the disposal of subsidiaries (Note 33).

The lease term ranges from four to five years and the average effective borrowing rate is 8.3% during the year ended 31 March 2007. 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.

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. BANK LOAN

Bank loan comprises:

Secured On demand or within one year Between one and two years Between two and five years Over five years _Less:_Current portion Non-current portion	The Group 2008 2007 HK$’000 HK$’000 2,626 — 397 — 421 — 1,415 — 393 — 2,626 — (397) — 2,229 —	The Group 2008 2007 HK$’000 HK$’000 2,626 — 397 — 421 — 1,415 — 393 — 2,626 — (397) — 2,229 —

		— — — —
		— —
		—

At 31 March 2008, the bank loan was charged at fixed interest rate of 5.78% per annum (2007: Nil). The bank loan was secured by the investment properties with a fair value approximately HK$21,206,000 (2007: HK$Nil) of the Group as disclosed in Note 18.

28. CONVERTIBLE BONDS

Convertible bonds with principal amount of HK$20 million

On 30 January 2007, the Company issued two tranches of convertible 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 from the date of issue at the bond’s 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 a 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 2008, the bonds with the nominal value HK$17,600,000 (2007: HK$2,400,000) were converted into 70,400,000 (2007: 9,600,000) shares of the Company of HK$0.1 each at a conversion price of HK$0.25 per share.

Convertible bonds with principal amount of HK$25 million

On 25 May 2007, the Company issued bonds with total nominal value of HK$25,000,000 at the price of HK$22,500,000 to a wholly owned subsidiary of China Star Entertainment Limited, Classical Statue Limited, which becomes a substantial shareholder of the Company at the year end. The bonds are non-interest bearing and will be redeemed within five years from the date of issue at the bond’s nominal value.

— 104 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The bonds can be converted into ordinary shares of the Company of HK$0.1 each at any time during the conversion period at a fixed conversion price being HK$0.33. The Company may redeem any bond during the conversion period at the price of 110% 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 9.004% per annum. The residual amount, representing the value of the equity conversion component, is included in equity.

During the year ended 31 March 2008, the bonds with the nominal value HK$24,000,000 were converted into 72,727,272 shares of the Company of HK$0.1 each at a conversion price of HK$0.33 per share.

Convertible bonds with principal amount of HK$24 million

On 2 November 2007, the Company issued bonds with total nominal value of HK$24,000,000 at the price of HK$24,000,000 to an independent third party as a consideration for the acquisition of the entire issued share capital of Classic Grace Group (Note 32(a)). The bonds are interest bearing of 5%, payable on semi-annual basis and will be redeemed within five years from the date of issue at the bond’s 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$0.14. The Company may redeem any bond during the conversion period at the principal amount 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 9.25% per annum. The residual amount, representing the value of the equity conversion component, is included in equity.

During the year ended 31 March 2008, the bonds with the nominal value HK$24,000,000 were converted into 171,428,571 shares of the Company of HK$0.1 each at a conversion price of HK$0.14 per share.

— 105 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The movement of the liability component of the convertible bonds for the year is set out as below:

Convertible bonds with principal amount of HK$20 million HK$’000 — 18,200 (2,692) 15,508 221 (1,888) 13,841 — — — — 228 — (14,069) —	The Group and the Company Convertible Convertible bonds with bonds with principal principal amount of amount of HK$25 million HK$24 million HK$’000 HK$’000 — — — — — — — — — — — — — — 22,500 — — 24,000 (6,262) (3,845) 16,238 20,155 125 582 — (423) (15,701) (20,314) 662 —	Total HK$’000 —
18,200 (2,692)	— —	18,200 (2,692)
		15,508 221 (1,888) 13,841
— — —	22,500 — (6,262)	22,500 24,000 (10,107)
		36,393 935 (423) (50,084) 662

— 106 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

29. DEFERRED TAX LIABILITIES

The Group

The components of deferred tax (assets)/liabilities recognised in the consolidated balance sheet and the movement during the year are as follow:

Fair value adjustments Accelerated Revaluation arising from tax of investment acquisition of depreciation properties subsidiaries HK$’000 HK$’000 HK$’000 At 1 April 2006 1,639 — — Charge/(credit) to consolidated income statement (575) — — At 31 March 2007 and 1 April 2007 1,064 — — Disposal of subsidiaries (1,064) — — Arising from acquisition of subsidiaries (Note 32(a)_and(b))_ 806 1,634 570 Effect of change in tax rate (13) (24) (1) Exchange adjustments (20) (40) (3) Charge to consolidated income statement 15 1,345 — At 31 March 2008 788 2,915 566	Tax losses HK$’000 (1,639) 575 (1,064) 1,064 (3) — — — (3)	Total HK$’000 — — — — 3,007 (38) (63) 1,360 4,266

At 31 March 2008, the Group did not recognised deferred tax assets in respect of the tax losses and other deductible temporary difference of approximately HK$6,175,000 and HK$28,000 (2007: HK$44,559,000 and HK$Nil) respectively. As it is not probable that taxable profits will be available against which the unused tax losses and other deductible temporary difference of the Group can be utilised, deferred tax assets have not been recognised in respect of the unused tax losses and other deductible temporary difference. Tax losses are available indefinitely for offsetting future taxable profit of the companies in which the losses arose.

— 107 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. SHARE CAPITAL

The Group and the Company

Authorised: At 1 April, ordinary shares of HK$0.1 (2007: HK$0.01) each Increase in authorised share capital_(Note iii) Consolidation of shares (Note ii) At 31 March, ordinary shares of HK$0.1 each Issued and fully paid: At 1 April, ordinary shares of HK$0.1 (2007: HK$0.01) each Issue of shares(Note i) Consolidation of shares (Note ii) Ordinary shares of HK$0.1 each Open offer of new shares (Note iv) Placing of new shares (Note v) Exercise of share options (Note vi) Issued on acquisition of subsidiaries(Note 32(b)) Conversion into shares from convertible bonds (Note vii)_ At 31 March, ordinary shares of HK$0.1 each	2008 Number of shares 1,000,000,000 2,000,000,000 — 3,000,000,000 106,200,000 — 106,200,000 — 106,200,000 124,663,636 499,860,000 31,617,617 180,000,000 314,555,843 1,256,897,096	2007 Amount Number HK$’000 of shares 100,000 10,000,000,000 200,000 — — (9,000,000,000) 300,000 1,000,000,000 10,620 805,000,000 — 161,000,000 10,620 966,000,000 — (869,400,000) 10,620 96,600,000 12,466 — 49,986 — 3,162 — 18,000 — 31,456 9,600,000 125,690 106,200,000	Amount HK$’000 100,000 — —
			100,000

			8,050 1,610
			9,660 —
			9,660 — — — — 960
			10,620

— 108 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 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.
(iii) On 23 November 2007, an ordinary resolution was passed by the shareholders of the Company approving the increase in authorised share capital from 1,000,000,000 shares to 3,000,000,000 shares.
(iv) On 9 October 2007, an ordinary resolution was passed by the shareholders of the Company approving the open offer of 124,663,636 shares of HK$0.1 each in the share capital of the Company at a price of HK$0.15 per offer shares on the basis of one offer share for every two existing shares off the Company. The details of the open offer are set out in the Company’s circular dated 24 September 2007.
(v) On 23 October 2007, the Company entered into a placing agreement with Kingston Securities Limited, an independent third party for placing up to a maximum of 900,000,000 ordinary shares and on a fully underwritten basis 450,000,000 ordinary shares at a price of HK$0.12 per share. On 15 November 2007 and 21 February 2008, the Company issued and allotted 49,860,000 shares and 450,000,000 shares with the gross proceeds of approximately HK$5,983,200 and HK$54,000,000 respectively before expense. The details of the share placing are set out in the Company’s circular dated 7 November 2007.
(vi) During the year ended 31 March 2008, certain option holders exercised their option rights to subscribe for an aggregate of 4,988,544 shares at an exercise price of HK$0.1488, an aggregate of 3,490,534 shares at an exercise price of HK$0.118, an aggregate of 6,300,000 shares at an exercise price of HK$0.114 and 16,838,539 shares at an exercise price of HK$0.133 respectively.
(vii) During the year, bonds with nominal value HK$17,600,000 (2007: HK$2,400,000) were converted into 70,400,000 (2007: 9,600,000) shares of the Company of HK$0.1 each at a conversion price of HK$0.25 per share, bonds with nominal value HK$24,000,000 were converted into 72,727,272 shares of the Company of HK$0.1 each at a conversion price of HK$0.33 per share and bonds with the nominal value HK$24,000,000 were converted into 171,428,571 shares of the Company of HK$0.1 each at a conversion price of HK$0.14 per share.

— 109 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

31. RESERVES

The Group

At 1 April 2006 Loss for the year Issue of shares_(Note 30(i)) Share issue expenses Issue of convertible bonds(Note 28) Conversion into shares from convertible bonds (Note 28) At 31 March 2007 and 1 April 2007 Profit for the year Issue of shares(Note 30(iv) and (v)) Share issue expenses Recognition of equity-settled sharebased payments(Note 39) Issue of convertible bonds(Note 28) Conversion into shares from convertible bonds (Note 28) Shares issued upon exercises of share options (Note 39) Cancellation of share options(Note 39)_ Exchange differences arising on translation of financial statements of foreign operation At 31 March 2008	Attributable to equity holders of the Company Share-based Convertible Share Contributed compensation bonds Translation Accumulated premium surplus reserve reserve reserve losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 1,030 — — (34,093) — — — — — (16,154) 1,932 — — — — — (159) — — — — — — — — 2,692 — — 1,251 — — (323) — — 18,074 10 1,030 2,369 — (50,247) — — — — — 19,289 16,230 — — — — — (2,241) — — — — — — — 4,370 — — — — — — 10,107 — — 30,855 — — (12,226) — — 2,650 — (1,699) — — — — — (1,030) — — 1,030 — — — — (292) — 65,568 10 2,671 250 (292) (29,928)	Total HK$’000 (18,003) (16,154) 1,932 (159) 2,692 928
		(28,764) 19,289 16,230 (2.241) 4,370 10,107 18,629 951 — (292)
		38,279

— 110 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Company

At 1 April 2006 Loss for the year Issue of shares_(Note 30(i)) Share issue expenses Issue of convertible bonds(Note 28) Conversion into shares from convertible bonds (Note28) At 31 March 2007 and 1 April 2007 Loss the year Issue of shares(Note 30(iv) and (vi)) Share issue expenses Recognition of equity-settled share based payments (Note 39) Issue of convertible bonds(Note 28) Conversion into shares from convertible bonds (Note 28) Shares issued upon exercises of share options(Note 39) Cancellation of share options(Note 39)_ At 31 March 2008	Share premium HK$’000 15,050 — 1,932 (159) — 1,251 18,074 — 16,230 (2,241) — — 30,855 2,650 — 65,568	Attributable to equity holders of the Company Retained Share-based Convertible profits/ Contributed compensation bonds (accumulated surplus reserve reserve losses) HK$’000 HK$’000 HK$’000 HK$’000 78 1,030 — (24,984) — — — (4,632) — — — — — — — — — — 2,692 — — — (323) — 78 1,030 2,369 (29,616) — — — (8,603) — — — — — — — — — 4,370 — — — — 10,107 — — — (12,226) — — (1,699) — — — (1,030) — 1,030 78 2,671 250 (37,189)	Total HK$’000 (8,826) (4,632) 1,932 (159) 2,692 928 (8,065) (8,603) 16,230 (2,241) 4,370 10,107 18,629 951 — 31,378

(i) 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. The Company’s reserves available for distribution to shareholders as at 31 March 2008 amounting to approximately HK$28,457,000 (2007: HK$Nil).
(ii) 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. The contributed surplus of the Company 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 in exchange pursuant to the reorganisation of the Group.
(iii) The share-based compensation reserve of the Company and the Group arises on the grant of share options of the Company and is dealt with in accordance with the accounting policies set out in Note 3(q)(iii).
(iv) The convertible bond reserve represents the value of the unexercised equity component of convertible bonds issued by the Company. The reserve is dealt with in accordance with accounting policies set out in Note 3(n).

— 111 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(v) Translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in Note 3(t).

32. ACQUISITION OF A SUBSIDIARY

(a) Acquisition of Classic Grace Enterprises Limited and its subsidiary

On 28 August 2007, the Company entered into an agreement for the acquisition of the entire interests of Classic Grace Group for a total consideration of HK$24 million by issuing the 5% convertible bond in the principal amount of HK$24 million. The transaction was completed on 2 November 2007. This acquisition has been accounted for using the purchase method.

The net assets acquired on 2 November 2007, and the excess of interest in fair value of acquiree’s identifiable assets and liabilities over the cost of a business combination arising, are as follows:

Net assets acquired: Investment property Deferred tax liabilities Excess of interest in fair value of acquiree’s identifiable assets and liabilities over the cost of a business combination Total consideration Satisfied by: Convertible bonds issued (Note 28) Net cash inflow/(outflow) arising on acquisition	Acquiree’s carrying amount before combination on 28 August 2007 HK$’000 24,100 (106) 23,994	Fair value adjustments HK$’000 2,500 (437) 2,063	Fair value on acquisition date 2 November 2007 HK$’000 26,600 (543) 26,057 (2,057) 24,000 24,000 —

Excess of interest in fair value of acquiree’s identifiable assets and liabilities over the cost of a business combination arose because of the fluctuation of the fair value of the investment properties between the contract date on 28 August 2007 and the date on which the Group effectively obtains control on 2 November 2007.

— 112 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Classic Grace Group contributes approximately of HK$Nil and HK$5,900,000 to the Group’s revenue and profit since the date of acquisition on 2 November 2007 to the year ended 31 March 2008.

(b) Acquisition of Grandeur Concord Limited and its subsidiary

On 23 October 2007, the Company entered into an agreement for the acquisition of the entire interests of Grandeur Group for a total consideration of HK$18 million by issuing 180,000,000 shares in the authorised share capital at an issue price of HK$0.10 each. The transaction was completed on 28 January 2008. This acquisition has been accounted for using the purchase method.

The net assets acquired on 28 January 2008, and the goodwill arising, are as follows:

o Net assets acquired: Investment property Trade debtors Prepayments and other debtors Bank balances and cash Bank loan Other creditors and accruals Deferred tax liabilities Goodwill Total consideration Satisfied by: Shares issued_(Note 30)_ Net cash flow arising on acquisition: Bank balances and cash acquired	Acquiree’s carrying amount before combination n 23 October 2007 HK$’000 20,993 37 47 311 (2,761) (390) (2,331) 15,906	Fair value adjustments HK$’000 778 — — — — — (133) 645	Fair value on acquisition date 28 January 2008 HK$’000 21,771 37 47 311 (2,761) (390) (2,464) 16,551 1,449 18,000 18,000 311

Goodwill arose in the business combination because of the future economic benefits arising from the rental income of the investment property.

The Grandeur Group contributed approximately of HK$377,000 and HK$123,000 to the Group’s revenue and profit since the date of acquisition on 28 January 2008 to the year ended 31 March 2008.

— 113 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

33. DISPOSAL OF SUBSIDIARIES

On 23 April 2007, the Group through its wholly owned subsidiary, Galaxy Image (BVI) Limited, disposed of its entire interest in Milkyway Group for a total consideration of HK$26 million. The transaction was completed on 28 June 2007.

On 9 January 2008, the Group through its wholly owned subsidiary, Galaxy Image (BVI) Limited, disposed of its entire interest in POV Group for a total consideration of HK$2 million. The transaction was completed on 15 January 2008.

The principal activities of the Milkyway Group and POV Group were provision of film production, film distribution, film production facilities and holding of film rights.

The carrying amounts of net assets/(liabilities) of the subsidiaries at the dates of disposal are as follows:

Net assets/(liabilities) disposed of: Property, plant and equipment Film rights Films in progress Production in progress Trade debtors Deposits, prepayments and other debtors Bank balances and cash Trade creditors Other creditors and accruals Receipt in advance Amounts due to related companies Provisions Obligation under finance leases Gain/(Loss) on disposal Total consideration Satisfied by: Cash Net cash flow arising on disposal: Cash consideration Cash and cash equivalents disposed of	Milkyway Group 28 June 2007 HK$’000 7,974 1,012 9,181 21,855 3,772 5,347 5,816 (415) (651) (48,620) (3,063) (4,000) (528) (2,320) 28,320 26,000 26,000 26,000 (5,816) 20,184	POV Group 15 January 2008 HK$’000 913 1,506 13,609 — 4,288 517 1,048 (236) (61) — (17,000) — — 4,584 (2,584) 2,000 2,000 2,000 (1,048) 952	Total HK$’000 8,887 2,518 22,790 21,855 8,060 5,864 6,864 (651) (712) (48,620) (20,063) (4,000) (528) 2,264 25,736 28,000 28,000 28,000 (6,864) 21,136

— 114 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Milkyway Group and POV Group contributed loss of approximately HK$3,004,000 and HK$2,680,000 to the Group’s profit for the period since 1 April 2007 to the date of disposal.

34. MAJOR NON-CASH TRANSACTIONS

The consideration for the acquisition of subsidiaries that occurred during the year comprised issue of shares and convertible bonds. Further details of the acquisitions are set out in Note 32.

35. CONTINGENT LIABILITIES

The Group and the Company have no contingent liabilities at the balance sheet date (2007: Nil).

36. PLEDGED OF ASSETS

At 31 March 2008, investment properties of the Group with a fair value of approximately HK$21,206,000 (2007: HK$Nil) were pledged to secure banking facilities granted to the Group.

37. COMMITMENTS

Operating lease commitments

(a) At 31 March 2008, 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 2008 2007 HK$’000 HK$’000 — 1,124 — 249 — 1,373	The Group 2008 2007 HK$’000 HK$’000 — 1,124 — 249 — 1,373
		1,373

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

The Company had no lease commitments at the balance sheet date upon the disposal of subsidiaries (Note 33).

(b) The Group leases out investment properties under operating leases. The lease terms for the properties ranged between 2 and 10 years. At the balance sheet date, the Group had contracted with tenants for the future minimum lease payments under non-cancellable operating leases receivable as follows:

Within one year In the second to fifth year inclusive	The Group 2008 2007 HK$’000 HK$’000 1,539 — 2,715 — 4,254 —	The Group 2008 2007 HK$’000 HK$’000 1,539 — 2,715 — 4,254 —
		—

— 115 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Other commitments

	The Group
	2008	2007
	HK$’000	HK$’000
Contracted but not provided for in the
financial statements in respect of:
— film production costs	1,975	14,011

38. RELATED PARTY TRANSACTIONS

(a) During the years ended 31 March 2008 and 2007, certain related companies provided loans 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 former directors of the Company, Mr. Law Sau Yiu, Dennis and Ms. Teng Chia Lin, Chialina (resigned on 9 October 2007 and 18 September 2007 respectively), granted certain loan facilities to the Group totalling approximately HK$64,000,000 for the year ended 31 March 2008 (2007: approximately HK$49,000,000). The Group drew the loan of approximately HK$53,000,000 during the year (2007: approximately HK$15,000,000). The loans are unsecured, interest charged at the rate of three-months HIBOR plus 0.85% and repayable within one year.

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

(ii) Keep Beat Enterprise Limited, which was incorporated in the British Virgin Islands and controlled by the former Chief Executive Officer of the Company, Mr. To Kei Fung (resigned on 28 June 2007), granted a loan to the Group of approximately HK$3,000,000 (2007: HK$3,000,000). The Group drew the loan of approximately HK$3,000,000 during the year (2007: HK$3,000,000) . The loan is unsecured, interest charged at the rate of three month HIBOR plus 0.85% and repaid on 28 July 2007.

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(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 Enterprise 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 Company balance sheet	2008 HK$’000 — — — — — — — — — —	2007 HK$’000 12,000 20,500 3,000 2,000 255
		37,755

		12,000 3,000 129
		15,129

(b) Compensation for key management personnels, including amounts paid to the Company’s directors and certain of the highest paid employees, as disclosed in Notes 11 and 12 as follows:

Salaries and other short-term benefits Retirement benefits scheme contribution Share-based payment	2008 HK$’000 1,219 19 1,080 2,318	2007 HK$’000 7,345 48 —
		7,393

(c) On 23 April 2007, the Group through its wholly owned subsidiary, Galaxy Image (BVI) Limited, entered into an agreement with Keep Beat Enterprises Limited, a company wholly owned by the former chief executive officer, Mr. To Kei Fung (resigned on 28 June 2007), pursuant to which the Group disposed of its entire interest in Milkyway Group for a total consideration of HK$26 million resulting a gain on disposal of approximately HK$28,320,000 (Note 33). The principal activities of Milkyway Group were provision of film production, film distribution and film production facilities. The net liabilities of the subsidiaries disposed of were disclosed in Note 33. The transaction was completed on 28 June 2007.
(d) On 9 January 2008, the Group through its wholly owned subsidiary, Galaxy Image (BVI) Limited, entered into an agreement with Mr. Law Sau Yau, Dennis, a former director of the Company (resigned on 9 October 2007), pursuant to which the Group disposed of its entire interest in POV Group for a total consideration of HK$2 million resulting a loss on disposal of approximately HK$2,584,000 (Note 33). The principal activities of POV Group were provision of film production, film distribution and holding of film rights. The net assets of the subsidiaries disposed of were disclosed in Note 33. The transaction was completed on 15 January 2008.

— 117 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

39. 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.
(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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(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 the date of adoption 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 the number of share options outstanding under the Company’s share option scheme and movements during the year were as follows:

	2008	2008	2007	2007
		Average		Average
	Number of	exercise	Number of	exercise
	shares issuable	price per	shares issuable	price per
	under options	share	under options	share
	granted	HK$	granted	HK$
At 1 April	6,440,000	0.040	64,400,000	0.040
Granted during the year	109,703,500	0.126	—	—
Cancellation of share options	(6,440,000)	0.121	—	—
Exercise of share options	(31,617,617)	0.130	—	—
Consolidation of shares
(Note 30)	—	—	(57,960,000)	0.040
Outstanding at 31 March	78,085,883	0.125	6,440,000	0.040

Exercisable at 31 March	78,085,883	0.125	6,440,000	0.040

— 119 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Date of grant Category of eligible persons Exercise period Exercise price At 1 April 2006 16 September 2005 Chief Executive 20 September 2005 HK$0.04 64,400,000 Officer to 19 September 2015 (Note b) 30 October 2007 Directors 30 October 2007 HK$0.1488 — to 29 October 2017 Consultants 30 October 2007 HK$0.1488 — to 29 October 2008 Employees 30 October 2007 HK$0.1488 — to 29 October 2008 29 November 2007 Directors 29 November 2007 HK$0.1180 — to 28 November 2017 Consultants 29 November 2007 HK$0.1180 — to 28 November 2008 Employees 29 November 2007 HK$0.1180 — to 28 November 2008 25 February 2008 Consultants 25 February 2008 HK$0.1140 — to 24 February 2011 Employees 25 February 2008 HK$0.1140 — to 24 February 2011 5 March 2008 Directors 5 March 2008 HK$0.1330 — to 4 March 2011 Employees 5 March 2008 HK$0.1330 — to 4 March 2011 64,400,000	Date of grant Category of eligible persons Exercise period Exercise price At 1 April 2006 16 September 2005 Chief Executive 20 September 2005 HK$0.04 64,400,000 Officer to 19 September 2015 (Note b) 30 October 2007 Directors 30 October 2007 HK$0.1488 — to 29 October 2017 Consultants 30 October 2007 HK$0.1488 — to 29 October 2008 Employees 30 October 2007 HK$0.1488 — to 29 October 2008 29 November 2007 Directors 29 November 2007 HK$0.1180 — to 28 November 2017 Consultants 29 November 2007 HK$0.1180 — to 28 November 2008 Employees 29 November 2007 HK$0.1180 — to 28 November 2008 25 February 2008 Consultants 25 February 2008 HK$0.1140 — to 24 February 2011 Employees 25 February 2008 HK$0.1140 — to 24 February 2011 5 March 2008 Directors 5 March 2008 HK$0.1330 — to 4 March 2011 Employees 5 March 2008 HK$0.1330 — to 4 March 2011 64,400,000	Consolidation of shares (57,960,000) — — — — — — — — — —	Number of share options At 31 March 2007 Cancelled Granted during the year 6,440,000 (6,440,000) — (Note c) — — 4,986,544 — — 14,959,632 — — 4,986,544 — — 3,490,534 — — 35,404,322 — — 3,490,534 — — 19,246,851 — — 6,300,000 — — 6,300,000 — — 10,538,539 6,440,000 (6,440,000) 109,703,500	Number of share options At 31 March 2007 Cancelled Granted during the year 6,440,000 (6,440,000) — (Note c) — — 4,986,544 — — 14,959,632 — — 4,986,544 — — 3,490,534 — — 35,404,322 — — 3,490,534 — — 19,246,851 — — 6,300,000 — — 6,300,000 — — 10,538,539 6,440,000 (6,440,000) 109,703,500	Number of share options At 31 March 2007 Cancelled Granted during the year 6,440,000 (6,440,000) — (Note c) — — 4,986,544 — — 14,959,632 — — 4,986,544 — — 3,490,534 — — 35,404,322 — — 3,490,534 — — 19,246,851 — — 6,300,000 — — 6,300,000 — — 10,538,539 6,440,000 (6,440,000) 109,703,500	Exercised during the year — (2,493,272) (2,493,272) (2,000) (1,745,267) (1,745,267) — (6,300,000) — (6,300,000) (10,538,539)	Exercised at 31 March 2008 Vesting period — N/A 2,493,272 N/A 12,466,360 N/A 4,984,544 N/A 1,745,267 N/A 33,659,055 N/A 3,490,534 N/A 12,946,851 N/A 6,300,000 N/A — N/A — N/A 78,085,883
	64,400,000	(57,960,000)	6,440,000	(6,440,000)	109,703,500	(31,617,617)

Notes:

(a) The 31,617,617 (2007: Nil) share options exercised during the year ended 31 March 2008 resulted in the issue of 31,617,617 (2007: Nil) ordinary shares of the Company and new share capital of HK$3,162,000 (2007: HK$Nil) and share premium of HK$2,650,000 (2007: HK$Nil). At 31 March 2008, the Company has an aggregate 78,085,883 (2007: 6,440,000) outstanding share options, after adjusting the Share Consolidation mentioned in Note b, (2007: 64,400,000 outstanding shares) represent approximately 6% (2007: approximately 6%) of the total issued share capital of the Company.
(b) The exercise price represented the higher of the closing price of the Company’s shares as stated in the Stock Exchange’s daily quotation 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 sheet for the 5 Business Days immediately preceding 16 September 2005.
(c) All the share options were cancelled upon resignation.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The estimated fair value was calculated using The Black-Scholes pricing model. Exceptions of early exercise are incorporated into the model. The inputs into the model were as follows:

			2008				2007
Date of grant	30 October 2007	30 October 2007 29 November 2007 29		November 2007 25 February 2008		5 March 2008	2 August 2002
Weighted average share price	HK$0.1780	HK$0.1780	HK$0.1780	HK$0.1780	HK$0.1780	HK$0.1780	HK$0.280
Number of shares issuable under
options granted	4,986,544	19,946,176	3,490,536	38,894,856	25,546,851	16,838,539	6,440,000(*)
Risk fee rate (based on
Exchange Fund Notes)	3.49%	2.75%	2.77%	0.67%	1.58%	1.21%	4.4%
Exercise price	HK$0.1488	HK$0.1488	HK$0.1180	HK$0.1180	HK$0.1140	HK$0.1330	HK$0.04
Expected volatility	79.87%	76.01%	80.16%	80.09%	94.06%	94.1%	17%
Expected dividend yield	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Expected option life	5 years	0.5 year	5 years	0.5 year	1.5 years	1.5 years	10 years

([*] ) Number of shares before share consolidation is 64,400,000.

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 of approximately HK$4,370,000 (2007: HK$Nil).

40. SUBSEQUENT EVENTS

The Company proposed to effect the capital reorganisation which will involve the capital reduction pursuant to which the nominal value of each issued and unissued share will be reduced from HK$0.10 each to HK$0.001 each; the share consolidation pursuant to which every 10 unissued and issued reduced shares will be consolidated into one consolidated share; the increase in authorised share capital from HK$3,000,000 to HK$30,000,000 by the creation of 2,700,000,000 new consolidated shares of par value HK$0.01 each. The proposal was approved by the Company’s shareholders at the extraordinary general meeting on 19 March 2008. The above transaction is detailed in the Company’s circular on 26 February 2008 and approved by the Grand Court of the Cayman Islands on 20 June 2008.

41. COMPARATIVE FIGURES

As a result of adopting HKFRS 7, Financial instruments: Disclosures , and the amendments to HKAS 1, Presentation of financial statements: Capital disclosures, certain comparative figures have been adjusted to conform with changes in disclosures in the current year and to show separately comparative amounts in respect of items disclosed for the first time in 2007. Further details of these developments are disclosed in Note 2.

— 121 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

UNAUDITED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008

Set out below is the unaudited consolidated income statement, consolidated balance sheet, consolidated statement of change in equity and consolidated cash flow statement of the Group, and the balance sheet of the Company together with the notes to the financial results of the Group as extracted from page 2 to page 13 of the financial results of the Company for the six months ended 30 September 2008.

CONDENSED CONSOLIDATED INCOME STATEMENT

		For the three months	For the three months	For the	six months
		ended 30 September		ended 30 September
		2008	2007	2008	2007
	Notes	HK$’000	HK$’000	HK$’000	HK$’000
		(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Turnover	2	402	448	805	9,995
Cost of sales		—	(1,309)	—	(8,982)
Gross profit/(loss)		402	(861)	805	1,013
Other revenue and
other income	2	466	322	891	28,935
Other operating
expenses		(2,022) (1,878)		(3,466) (8,821)
(Loss)/profit from
operations	4	(1,154) (2,417)		(1,770) 21,127
Finance costs	5	(36) (198)		(76) (1,023)
(Loss)/profit before
taxation		(1,190) (2,615)		(1,846) 20,104
Taxation	6	—	—	—	—
(Loss)/profit for the
period		(1,190) (2,615)		(1,846) 20,104

Dividend		—	—	—	—

		HK cent	HK cents	HK cents	HK cents
(Loss)/earnings per
share	7
— Basic		(0.95) (10.49)		(1.47) 102.02

— Diluted		N/A	N/A	N/A	N/A

— 122 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

Notes Non-current assets Property, plant and equipment Investment properties Goodwill Current assets Film in progress Trader debtors 8 Deposits, prepayments and other debtors Bank balances and cash Current liabilities Other creditors and accruals Bank loan Net current assets Total assets Capital and reserves Share capital Reserves Total equity Non-current liabilities Convertible bonds Bank loan Deferred tax liabilities	At 30 September 2008 HK$’000 (Unaudited) 1,191 54,819 1,449 57,459 12,423 180 353 100,759 113,715 1,057 384 1,441 112,274 169,733 1,257 161,652 162,909 668 1,967 4,189 6,824 169,733	At 31 March 2008 HK$’000 (Audited) 1,333 55,506 1,449
		58,288
		12,315 159 213 101,760
		114,447
		1,212 397
		1,609
		112,838
		171,126

		125,690 38,279
		163,969
		662 2,229 4,266
		7,157
		171,126

— 123 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

											Distributable	Distributable	Retained
						Share-based	Convertible					capital	profits/
		Share		Share	Contributed	compensation		bonds	Translation			reduction	(Accumulated
		capital		premium	surplus	reserve		reserve		reserve		reserve	losses)		Total
		HK$’000		HK$’000	HK$’000	HK$’000		HK$’000		HK$’000		HK$’000	HK$’000		HK$’000
	(Unaudited)		(Unaudited)		(Unaudited)	(Unaudited)	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)	(Unaudited)
At 1 April 2007		10,620		18,074	10	1,030		2,369		—		—	(50,247)		(18,144)
Profit for the period		—		—	—	—		—		—		—	20,104		20,104
Issues of convertible
bonds		—		—	—	—		6,262		—		—	—		6,262
Conversion into
shares from
convertible bonds		14,313		23,838	—	—		(8,381)		—		—	—		29,770
Cancellation of share
options		—		—	—	(1,030)		—		—		—	1,030		—
At 30 September 2007		24,933		41,912	10	—		250		—		—	(29,113)		37,992

At 1 April 2008		125,690		65,568	10	2,671		250		(292)		—	(29,928)		163,969
Loss for the period		—		—	—	—		—		—		—	(1,846)		(1,846)
Capital reduction
(Note 1)		(124,433)		—	—	—		—		—		87,244	37,189		—
Share-based payment
expenses
(Note 2)		—		—	—	1,148		—		—		—	—		1,148
Exchange difference
arising on
translation of
financial
statements of
foreign operation		—		—	—	—		—		(362)		—	—		(362)
Cancellation of share
options		—		—	—	(403)		—		—		—	403		—
At 30 September 2008		1,257		65,568	10	3,416		250		(654)		87,244	5,818		162,909

Notes:

Pursuant to the ordinary resolutions passed on 19 March 2008, capital reorganisation took effect by the way of comprising (i) capital reduction (“Capital Reduction”) that the nominal value of all issued and unissued share be reduced from HK$0.10 each to HK$0.001 each; (ii) share consolidation that every ten issued shares of HK$0.001 each be consolidated into one share of HK$0.01 each (“Consolidated Shares”); and (iii) the increase in authorised share capital of the Company from HK$3,000,000 to HK$30,000,000 by the creation of 2,700,000,000 new ordinary shares of HK$0.01 each. Part of the credit arising from the Capital Reduction applied towards cancelling the accumulated losses of the Company, whilst the balance was transferred to the distributable capital reduction reserve account of the Company. The above capital reorganisation was approved by the Grand Court of the Cayman Islands on 20 June 2008.
During the three months ended 30 June 2008, the Company granted share options on 28 April 2008 and recorded the share-based payment expense in full in the consolidated income statement amounted to HK$4,908,000. In accordance with the accounting policy of the Group, share options granted is recognised as an expense in the consolidated income statement on a straight-line basis over the vesting period, with a corresponding increase in share-based compensation reserve. The share-based payment expense amounted to HK$476,000 for the three months ended 30 June 2008 is restated accordingly with a corresponding decrease in share-based compensation reserve.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Net cash used in operating activities Net cash generated from investing activities Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalent at beginning of period Effect of foreign exchange rate changes Cash and cash equivalent at end of period Analysis of the balances of cash and cash equivalent bank balances and cash	For the Six months ended 30 September 2008 HK$’000 (Unaudited) (1,865) 891 (275) (1,249) 101,760 248 100,759 100,759	For the Six months ended 30 September 2007 HK$’000 (Unaudited) (6,637) 19,368 2,906 15,637 23,877 — 39,514 39,514

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The Group’s unaudited condensed consolidated financial statements have been prepared in accordance with the Hong Kong Financial Reporting Standards (“HKFRSs”) and Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The unaudited condensed consolidated financial statements comply with the applicable disclosure requirements of the Hong Kong Company Ordinance and the Rules Governing the Listing of Securities on the Growth Enterprises Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”). The accounting policies adopted in preparing the unaudited condensed consolidated financial statements for the six months ended 30 September 2008 are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 March 2008, except that the Group has changed certain of its accounting policies following its adoption of new/revised standards, amendments and interpretations (“new HKFRSs”) issued by the HKICPA that are effective for accounting periods beginning on or after 1 April 2008. The adoption of the new HKFRSs has no material effect on how the results and financial position for the current or prior accounting period as prepared and presented. The condensed consolidated financial statements are unaudited but have been reviewed by the audit committee.

— 125 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

For the period ended 30 September 2008, the Group has not early applied the following new amendments, standards or interpretations that have been issued but are not yet effective.

HKAS 1 (Revised) Presentation of Financial Statements[1] HKAS 23 (Revised) Borrowing Costs[1] HKAS 27 (Revised) Consolidated and separate financial statements[2] HKAS 32 & 1 (Amendments) Puttable Financial Instruments and Obligations Arising on Liquidation[1] HKFRS 2 (Amendment) Vesting conditions and cancellation[1] HKFRS 3 (Revised) Business combinations[2] HKFRS 8 Operating segments[1] HK(IFRIC)-Int 13 Customer Loyalty Programmes[3] HK(IFRIC)-Int 15 Agreements for the Construction of Real Estate[1] HK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation[4]

Notes:

1 Effective for annual periods beginning on or after 1 January 2009.
2 Effective for annual periods beginning on or after 1 July 2009.
3 Effective for annual periods beginning on or after 1 July 2008. 4 Effective for annual periods beginning on or after 1 October 2008.

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

— 126 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. TURNOVER AND OTHER REVENUE

An analysis of the turnover and other revenue of the Group during the reporting periods is as follows:

Turnover: Film production Film distribution Gross rentals from investment properties Other revenue: Interest income Sundry income Other income: Excess of interest in fair value of acquiree’s identifiable assets and liabilities over the cost of a business combination Other revenue and other income Total	For the three months ended 30 September 2008 2007 HK$’000 HK$’000 (Unaudited) (Unaudited) — — — 448 402 — 402 448 466 321 — 1 466 322 — — 466 322 868 770	For the six months ended 30 September 2008 2007 HK$’000 HK$’000 (Unaudited) (Unaudited) — 7,500 — 2,495 805 — 805 9,995 891 598 — 14 891 612 — 28,323 891 28,935 1,696 38,930	For the six months ended 30 September 2008 2007 HK$’000 HK$’000 (Unaudited) (Unaudited) — 7,500 — 2,495 805 — 805 9,995 891 598 — 14 891 612 — 28,323 891 28,935 1,696 38,930
			9,995
			598 14
			612 28,323
			28,935
			38,930

— 127 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. SEGMENT INFORMATION

Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting.

An analysis of the Group’s turnover, results and other information for the six months ended 30 September 2008 by business segment is as follows:

	Film production	Film production	Film distribution	Film distribution		Properties investment	Properties investment	Consolidated	Consolidated	Consolidated
	2008	2007	2008	2007		2008	2007	2008		2007
	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)	(Unaudited)
Turnover	—	7,500	—	2,495		805	—	805		9,995

Segment profit/(loss)	—	1,215	—	(976)		323	—	323		239
Other revenue								891		28,935
Unallocated finance
costs								(6)		(1,023)
Unallocated other
operating expenses								(3,054)		(8,047)
(Loss)/profit from
operations								(1,846)		20,104

Other information:
Addition of property,
plant and equipment
— unallocated								—		65
Disposal of property,
plant and equipment
— unallocated								—		6
Unallocated
depreciation								(142)		(1,084)
Addition of film rights	—	—	—	1,349		—	—	—		1,349
Amortisation of film
rights	—	—	—	983		—	—	—		983

An analysis of the Group’s turnover for the six months ended 30 September 2008 and 2007 by geographical segments is as follows:

Hong Kong Overseas	For the six months ended 30 September 2008 2007 HK$’000 HK$’000 (Unaudited) (Unaudited) — 9,754 805 241 805 9,995	For the six months ended 30 September 2008 2007 HK$’000 HK$’000 (Unaudited) (Unaudited) — 9,754 805 241 805 9,995
		9,995

— 128 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. (LOSS)/PROFIT FROM OPERATIONS

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

Amortisation of film rights (included in cost of sales) Depreciation of property, plant and equipment Gain on disposal of subsidiaries Net foreign exchange loss Staff costs including directors’ emoluments FINANCE COSTS Interests on: Bank loans not wholly repayable within five years Amount due to related companies Effective interest expenses on convertible bonds wholly repayable within five years Finance charges on obligations under finance leases	For the three months ended 30 September 2008 2007 HK$’000 HK$’000 (Unaudited) (Unaudited) — 3 72 57 — — 226 — 969 990 For the three months ended 30 September 2008 2007 HK$’000 HK$’000 (Unaudited) (Unaudited) 33 — — 195 3 3 — — 36 198	For the six months ended 30 September 2008 2007 HK$’000 HK$’000 (Unaudited) (Unaudited) — 983 142 1,084 — (28,323) 184 — 2,148 3,868 For the six months ended 30 September 2008 2007 HK$’000 HK$’000 (Unaudited) (Unaudited) 70 — — 667 6 348 — 8 76 1,023

5. FINANCE COSTS

6. TAXATION

(i) No provision for Hong Kong Profits Tax has been made as the Group has no assessable profits in Hong Kong for the six months ended 30 September 2008 (2007: Nil).
(ii) No provision for income tax was made as the Company’s overseas subsidiaries did not have taxable income for the six months ended 30 September 2008 (2007: Nil).
(iii) The Group had no significant unprovided taxation arising the six months ended 30 September 2008 (2007: Nil).

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7. (LOSS)/EARNINGS PER SHARE

The calculation of the basic loss per share is based on the loss attributable to equity holders of the Company for the three months ended 30 September 2008 of approximately HK$1.2 million (2007: loss attributable to equity holders of the Company of approximately HK$2.6 million) and loss attributable to equity holders of the Company for the six months ended 30 September 2008 of approximately HK$1.9 million (2007: profit attributable to equity holders of the Company of approximately HK$20.1 million) and the weighted average of 125,689,709 shares in issue during the three months 30 September 2008 (2007: 24,932,727 shares, as adjusted) and 125,689,709 shares in issue during the six months ended 30 September 2008 (2007: 19,705,707 shares, as adjusted). The comparative figure of basic (loss)/earnings per share for the three months and six months ended 30 September 2007 had been re-calculated to refl ect the share consolidation taken place on 20 June 2008.

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 three months and six months ended 30 September 2008.

No diluted (loss)/earnings per share has been presented for the three months and six months ended 30 September 2007 as the conversion of all potential ordinary shares arising from convertible bonds would have an anti-dilutive effect on the (loss)/earnings per share for the three months and six months ended 30 September 2007. The Company has no outstanding share options as at 30 September 2007.

8. 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	At 30 September 2008 HK$’000 (Unaudited) 180 — — 180	At 31 March 2008 HK$’000 (Audited) 119 27 13
		159

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MANAGEMENT DISCUSSION AND ANALYSIS

For the year ended 31 March 2006

FINANCIAL REVIEW

Financial Performance

The Group recorded a turnover for the year ended 31 March 2006 of approximately HK$17.3 million (2005: HK$36.8 million), representing a drop of approximately 53% when compared to that of previous financial year. The drop in turnover was due to the change in composition of revenues this year. In the previous financial year, the Group’s turnover was solely derived from the production of films and revenue was recognized in full upon delivery of film negatives to film owners. During the year, more than half of the Group’s turnover was derived from the film distribution activity and the corresponding revenue will be recognized based upon the delivery of master material to individual customer for exhibition in various regions. Accordingly, only those distribution incomes from regions where master material have been delivered were recognized in the year as revenue.

For the year ended 31 March 2006, the Group recorded a net loss of approximately HK$18.2 million (2005: HK$8.4 million). The increase in net loss this year was partly due to the reduction of turnover recorded and partly due to the fact that the Group incurred extra amount of marketing and promotion expenses for publicizing the film projects invested by itself during the year. Coupled with the increase in financing cost and staff costs, the overall expenditures of the Group increase as a result.

Gross profit ratio also reduced slightly from approximately 25% last year to 22% this year due to the high amortisation of film rights included in the cost of sales.

Liquidity, Financial Resources and Capital Structure

A deficit in shareholders’ funds of the Group as at 31 March 2006 amounted to approximately HK$9.9 million (2005: surplus in shareholders’ funds of HK$7.2 million) was recorded. Current assets amounted to approximately HK$32.8 million (2005: HK$21.1 million), of which approximately HK$3.6 million (2005: HK$2.9 million) were bank balances and cash. Current liabilities amounted to approximately HK$54.6 million (2005: HK$28.9 million) mainly comprised advanced receipts from film companies, bank loan of revolving nature and amounts due to related companies. At 31 March 2006, the Group had bank loan and loans from related companies amounted to HK$3 million (2005: HK$5 million) and HK$15 million (2005: HK$4 million) respectively. The Group also incepted a new finance lease of HK$230,000 during the year for the financing of purchase of property, plant and equipment.

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The Group generally financed its film production activities and other operations with inflow of advanced receipts from film companies. To cope with the continuous expansion of business activities namely investment in film productions, the Group incepted bank borrowings to provide funds for its general working capital and procured loans from related companies to finance its film production activities. All the Group’s borrowings bear interest at commercial rates.

Foreign Exchange Exposure

As the majority of the Group’s business transactions for the year ended 31 March 2006 and its assets and liabilities at the balance sheet date were denominated in Hong Kong Dollars and United States Dollars, the risk on fluctuation in exchange rates was considered to be minimal. Accordingly, the Group did not enter into any foreign exchange contract for hedging purpose.

Material Acquisition, Disposal and Significant Investments

For the year ended 31 March 2006, the Group did not made any significant capital investment other than investment in film projects which were recorded as films in progress at the production stage and transferred to film rights upon completion. The Group owns these film rights for future distribution purpose.

Apart from the aforesaid, the Group made no other material acquisitions or disposals of subsidiaries or any other investments during the year ended 31 March 2006.

Employees and Remuneration Policies

As at 31 March 2006, the Group employed a total of 22 employees (2005: 22), including the executive directors. The Group remunerated its employees in accordance with their work performance and experience. The Directors had their discretions in granting share options and bonuses to the Group’s employees depending upon the work performance of particular employee and the financial performance of the Group. During the year, the Group granted options to subscribe for 64,400,000 shares of the Company’s ordinary shares to the chief executive officer of the Group, Mr. To Kei Fung. No share options were granted in previous year. For the year ended 31 March 2006, total staff costs, including Directors’ emoluments, amounted to approximately HK$11.1 million (2005: HK$9.5 million).

Charges on Group Assets

As at 31 March 2006, the Group did not have any charges on its assets.

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Gearing Ratio

As at 31 March 2006, the gearing ratio, expressed as a percentage of total liabilities over total assets, was 122.2% (2005: 80.1%).

Contingent Liabilities

As at 31 March 2006, the Group did not have any material contingent liabilities.

BUSINESS REVIEW

Segment Information

For the year ended 31 March 2006, the Group’s total turnover amounted to approximately HK$17.3 million, of which approximately HK$9.3 million or 54% was derived from film distribution and the remaining of approximately HK$7.9 million or 46% was derived from film production. In prior year, the entire turnover was derived from film production.

During the year, the Group aligned its resources to focus more on investing in its own productions for distribution purpose. As such, services rendered to outsiders have reduced which resulted in reduced revenue from film production.

Film distribution become one of the major sources to the Group’s overall revenue during the year as compared to the revenue generated from provision of production services to outsiders. Although the results of the film distribution business, net of attributable costs and expenses, did not bring a positive contribution to the Group’s overall results for the year, it was believed that expenses incurred in the year for marketing and promotion can benefit the Group’s overall performance in the subsequent year.

For the year ended 31 March 2006, the Group did not produce any television movies. Nevertheless, the Group will continue to explore business opportunities in this segment in the future.

Sales and Marketing

With the aim of raising public awareness and enhancing the sales potential of the films produced by the Group, the Group continued to actively promote and market its films by participating in both local and international film festivals and it became an integral part of the Group’s marketing strategy.

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The Group has not only earned praises and achieved encouraging box office receipts in local market for the films produced by itself, but has also proven its competitiveness in international film market. For the year ended 31 March 2006, the films produced by the Group received awards and acclaims as set out below:

Name of

Films Film Festivals Awards and Acclaims Election The 25th Hong Kong Film Awards Best Film Best Director Best Screenplay Best Actor The 6th Chinese Film Media Awards Best Film Best Actor The 42nd Golden Horse Awards Best Original Screenplay Best Sound Effects 2005 Hong Kong Film Critics Society Best Film Best Director 2005 Sitges International Film Festival Best Film (Carnet Jove Jury) of Catalonia Best Director 2005 Cannes International Film Festival Official Competition Film 2005 London Film Festival Official Entry 2005 Torino Film Festival Official Entry 2005 Dubai International Film Festival Official Entry 2005 Melbourne International Film Closing Film Festival 2 Become 1 2005 Udine Far East Film Festival Official Selection

Film Investment

During the year, the Group completed the production of two film projects titled, “The Unusual Youth” 「非常青春期」and “Election”「黑社會」. The Group owns the film rights of these two films for distribution. The corresponding distribution income was recognized during the year in accordance with the Group’s revenue recognition policy. At the balance sheet date, several other film projects to which the Group will solely or partially own the film rights are in the production phases or in their preproduction phases. One of these films, titled “Election 2”「黑社會以和為貴」has completed subsequent to the balance sheet date and has released for exhibition in local cinemas with outstanding box office receipts whereas its overseas distribution pre-sale was also encouraging. “Election 2”「黑社會以和為貴」was selected as the Opening Film (World Premiere) for the 30th Hong Kong International Film Festival and as Out of Competition Official Selection of

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the 2006 Cannes International Film Festival. The Directors are confident in the Group’s productions and believe that by investing in the film projects produced by the itself, the Group is able to broaden its recurrent income base and will benefit the shareholders in the long-run.

Film Production

The provision of film production services remained a crucial income source of the Group during the year. The film “2 Become 1”「天生一對」was completed and delivered during the year. The box office receipts of the film was encouraging. At the date of this report, the Group has entered into production agreements with several film companies, to produce and/or to provide production resources for a number of films. The productions of some of these films have commenced at the balance sheet date.

Future Plans for Material Investments

Save as the aforementioned film investment activity, the Group does not have any future plans for material investments.

Prospects

Looking forward, the Group will continue to focus on its core businesses of provision of film production service and, in the mean time, engage in film investment and distribution activities. The Group will also ensure the full utilization of its existing resources by providing production resources and services for other projects produced by other film production companies.

To cope with the increasing number of film projects, the Group has engaged a number of talented film directors and scriptwriters to work with the Group’s key film director, Mr. To Kei Fung, in producing top quality films.

The Group will continue to implement prudent cost control measures to ensure a costeffective operation. It will also adopt a cautious approach in investment in the film productions whereas at the same time, strive to explore every business opportunities which are beneficial to its shareholders.

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For the year ended 31 March 2007

FINANCIAL REVIEW

Financial Performance

The Group recorded a turnover for the year ended 31 March 2007 of approximately HK$62.3 million (2006: HK$17.3 million), representing an increase of approximately 261% when compared to that of previous financial year. The growth was attributable to the increased revenue from provision of film production services from approximately HK$7.9 million in prior year to approximately HK$22 million this year coupled with the boosted revenue from film distribution from approximately HK$9.3 million in prior year to approximately HK$40.3 million this year. Revenue from film distribution segment has overtaken that from provision of film production services and accounted for approximately 65% of the overall turnover for the year.

Gross profit also soared from approximately HK$3.8 million in prior year to approximately HK$13.3 million in current year. Gross profit ratio remained similar to prior year of 21% (2006: 22%).

Despite of the encouraging growth in turnover and soaring gross profit, the Group, however, recorded a net loss of approximately HK$16.2 million (2006: HK$18.2 million) representing a minor improvement from that in the previous year. The continued loss recorded was attributable to the sustained high level of overhead of the Group. Marketing and promotion expenses increased commensurate with the increased productions while finance costs also hit a new record at the time the Group’s borrowings reached a new high. Professional fees incurred during the year in connection with the issue of shares and convertible bonds also contributed to the soared overhead. Coupled with the increase in the aforementioned overhead, the Group also made a provision for a litigation claim from an individual who was injured at the time of rendering service in film production. The combine effect results in a 34% increase in the overall administrative and other operating expenses.

Liquidity, Financial Resources and Capital Structure

A deficit in shareholders’ funds of the Group as at 31 March 2007 amounted to approximately HK$18.1 million (2006: HK$9.9 million) was recorded. Current assets amounted to approximately HK$80.8 million (2006: HK$32.8 million), of which approximately HK$23.9 million (2006: HK$3.6 million) were bank deposits and cash representing 29.5% of the current assets. Current liabilities amounted to approximately HK$94.8 million (2006: HK$54.6 million) mainly comprised advanced receipts from film companies and loans from related companies. The liability component of convertible bonds not yet converted of approximately HK$13.8 million (2006: nil) was recorded as

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non-current liabilities. At 31 March 2007, the Group had loans from related companies amounted to HK$37.5 million (2006: HK$15 million). The bank loans of HK$3 million as at 31 March 2006 was repaid during the year. The Group also incepted a new finance lease of HK$664,000 during the year for the financing of purchase of property, plant and equipment.

The Group generally financed its film production activities and other operations with inflow of advanced receipts from fi lm companies. During the year, it issued zero coupon convertible bonds to provide funds for its general working capital and financing of any possible diversified future investments. The Group also procured loans from related companies to finance its film production activities. All the Group’s borrowings bear interest at commercial rates.

In December 2006, the Group placed 161,000,000 shares of HK$0.01 each (equivalent to 16,100,000 shares of HK$0.1 each upon share consolidation in January 2007) under general mandate with net proceeds of approximately HK$3.4 million.

Foreign Exchange Exposure

As the majority of the Group’s business transactions for the year ended 31 March 2007 and its assets and liabilities at the balance sheet date were denominated in Hong Kong Dollars and United States Dollars, the risk on fluctuation in exchange rates was considered to be minimal. Accordingly, the Group did not enter into any foreign exchange contract for hedging purpose.

Material Acquisition, Disposal and Significant Investments

For the year ended 31 March 2007, the Group did not made any significant capital investment other than investment in film projects which were recorded as films in progress at the production stage and transferred to film rights upon completion. The Group owns these film rights for future distribution purpose.

In April 2007, the Group entered into an agreement with a company beneficially owned by the Group’s chief executive officer, Mr. To Kei Fung to disposed of the interests in two subsidiaries, namely, Milkyway Image (Hong Kong) Limited and Luminous Star Limited to it at a consideration of HK$26 million. The disposal was unanimously approved by the Company’s shareholders at an extraordinary general meeting held in June 2007.

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Employees and Remuneration Policies

As at 31 March 2007, the Group employed a total of 20 employees (2006: 22), including the executive directors. The Group remunerated its employees in accordance with their work performance and experience. The Directors had their discretions in granting share options and bonuses to the Group’s employees depending upon the work performance of particular employee and the financial performance of the Group. No share options were granted in previous year. For the year ended 31 March 2007, total staff costs, including Directors’ emoluments, amounted to approximately HK$10.7 million (2006: HK$11.1 million).

Charges on Group Assets

As at 31 March 2007, the Group did not have any charges on its assets.

Gearing Ratio

As at 31 March 2007, the gearing ratio, expressed as a percentage of total liabilities over total assets, was 120% (2006: 122.2%).

Contingent Liabilities

As at 31 March 2007, the Group did not have any material contingent liabilities.

BUSINESS REVIEW

Segment Information

For the year ended 31 March 2007, the Group’s total turnover amounted to approximately HK$62.3 million (2006: 17.3 million), of which approximately HK$40.3 million (2006: 9.3 million) or 65% (2006: 54%) was derived from film distribution and the remaining of approximately HK$22 million (2006: 7.9 million) or 35% (2006: 46%) was derived from film production.

During the year, the Group continued to devote more resources to investments in its own productions for distribution purpose. As a consequence, the revenue from film distribution overtook that from provision of production services to outsiders. The outcome was appealing as the gross profit attributable to the film distribution business accounted for 65% of the overall gross profit of the Group.

For the year ended 31 March 2007, the Group did not produce any television movies. Nevertheless, the Group will continue to explore business opportunities in this segment in the future.

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Sales and Marketing

The Group has not only earned praises and achieved encouraging box offi ce receipts in local market for the films produced by itself, but has also proven its competitiveness in international film market. Details of awards and acclaims received by the Group in the year are set out below:

Name of

Name of
Films	Film Festivals	Awards and Acclaims
Eye in the Sky	The 31st Hong Kong Film Festival	Opening Film
	The 9th Udine Fareast Film Festival	Official Entry
	The 10th Shanghai Film Festival	Opening Film
	The 25th Cognac Film Festival	Official Entry
Exiled	The 2006 Hong Kong Asia Film Festival	Closing Film
	The 39th Sitges International Film	Best Film
	Festival of Catalonia	(Young Jury Award)
	The 43rd Taipei Golden Horse Award	Best Action Choreography
	The 13th Hong Kong Film Critics	Best Director
	Society Award	Recommended Film
	The 25th Cognac Film Festival	Opening Film
	The 39th Auckland Film Festival	Official Entry
	The 8th Jeonju Film Festival	Closing Film
Election	The 51st Asia-Pacific Film Festival	Official Entry
	The 7th Tokyo Filmex Film Festival	Official Entry
	The 31st Toronto International Film Festival	Official Entry
	The 2006 Munich Asia Filmfest	Official Entry
Election 2	The 44th New York Film Festival	Official Selection
	The 24th Torino Film Festival	Official Selection
	The 30th Hong Kong International	Opening Film
	Film Festival	(World Premiere)
	The 2006 Cannes International	Out of Competition
	Film Festival	Official Selection
	The 7th Tokyo Filmex Film Festival	Official Entry
	The 31st Toronto International Film Festival	Official Entry
	The 2006 Munich Asia Filmfest	Official Entry
	The 13th Hong Kong Film Critics Society	Best Film
	Award
Triangle	The 60th Cannes Film Festival	Official Selection

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The Group’s film directors also received acclaims during the year, out of which Mr. To Kei Fung was granted the title “Filmmaker In Focus” at the 36th International Film Festival Rotterdam. He was also granted “Best Director” (based on the Group’s previous production entitled “The Mission”) at The 10th Anniversary of the Establishment of HKSAR Film Election.

Film Investment

During the year, the Group completed the production of three fi lm projects entitled, “Election 2”「黑社會以和為貴」, “love@first note”「戀愛初歌」and “Fatal Contact”「黑拳」. The Group owns the film rights of these films for distribution. The corresponding distribution income was recognized during the year in accordance with the Group’s revenue recognition policy. At the balance sheet date, several other fi lm projects to which the Group will solely or partially own the film rights are in the production phases or in their pre-production phases. One of these films, titled “Triangle” 「鐵三角」 has completed subsequent to the balance sheet date and pending for release. It was selected as the Official Selection at The 60th Cannes Film Festival. The Directors are confident in the Group’s productions and believe that by investing in the film projects produced by the itself, the Group is able to broaden its recurrent income base and will benefit the shareholders in the long-run. The encouraging results of film distribution during the year supported this move.

Film Production

During the year, the Group continued in the provision of film production services to other film companies. It completed the production of two film projects entitled “Exiled”「放．逐」and “Eye in the Sky”「跟蹤」. The films were completed and delivered during the year. At the date of this report, the Group has entered into production agreements with several film companies, to produce and/or to provide production resources for a number of films. The productions of some of these films have commenced at the balance sheet date.

Future Plans for Material Investments

Save as the aforementioned film investment activity, the Group does not have any concrete future plans for material investments.

Prospects

Despite of the drastic increase of turnover for the year, the Group still recorded a net loss of approximately HK$16 million. The Group considers the overhead of two wholly-owned subsidiaries, namely, Milkyway Image (Hong Kong) Limited and Luminous Star Limited has been at a consistently high level which is one of the major underlying reasons for the

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operating loss. With the decision made in disposing of the Group’s interest in these two subsidiaries, 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 convertible bonds issued during the year and subsequent to the balance sheet date, 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 of directors may 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 will be changed from “Milkyway Image Holdings Limited” to “Brilliant Arts Multi-Media Holding Limited”. The Group considers the current principal activities undertaken by the Group only relate to the media of film whereas the new name indicate multi-media which including various kinds of media and is to reflect the nature of the business of the Group in future.

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For the year ended 31 March 2008

BUSINESS OVERVIEW

Turnover contributed from film distribution and film production business decreased as such business remained hindered by an adverse operating environment. Investors have been becoming cautious in putting funds in this industry. The Board had adopted a prudence approach in such business segment. During the year ended 31 March 2008, the Group’s turnover contributed from film distribution and film production business amounted to approximately HK$2.8 million (2007: HK$40.3 million) and HK$7.5 million (2007: HK$22 million) respectively.

On 2 November 2007, the Group completed the acquisition of the entire issued share capital of Classic Grace Enterprises Limited (“Classic Grace”) for a total consideration of HK$24 million. The Company issued convertible bonds to the vendor to satisfy the consideration. The sole asset of Classic Grace is a commercial property located at Sheung Wan, Hong Kong. During the year ended 31 March 2008, the convertible bonds were fully converted into shares of the Company.

On 28 January 2008, the Group completed the acquisition of the entire issued share capital of Grandeur Concord Limited (“Grandeur Concord”) for a total consideration of HK$18 million. The Company issued 180,000,000 consideration shares to the vendor to satisfy the consideration. The sole asset of Grandeur Concord is a property that is utilised as a warehouse in Canada for rental income. Following the completion of the acquisition of the investment property located at Canada, a turnover of approximately HK$0.3 million (2007: Nil) was recorded from the leasing of investment property.

To stay competitive in the market, the Group has adopted measures to streamline the Group’s business. On 28 June 2007, the Group completed the disposal of two whollyowned subsidiaries, namely, Luminous Star Limited and Milkyway Image (Hong Kong) Limited for a consideration of HK$26 million. The net proceeds of approximately HK$25 million was utilised as general working capital for the Group. Such disposal was resulted a gain of approximately HK$28.3 million.

On 15 January 2008, the Group completed the disposal of another three wholly-owned subsidiaries, namely, Point of View Movie Production Company Limited, Inspire Film Distribution Company Limited and Brilliant Picture Movie Production Company Limited (formerly known as Milkyway Image Limited) for a consideration of HK$2 million. The net proceeds of the disposal was used for general working capital of the Group. Such disposal was resulted in a loss of approximately HK$2.6 million.

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In addition to streamline the Group’s business, the management had exercised prudence measures on cost control policies. As a result, other operating expenses decreased by 34.9% to approximately HK$15.9 million.

FINANCIAL REVIEW

For the year ended 31 March 2008, the Group’s turnover decreased by 82.9% to approximately HK$10.6 million (2007: HK$62.3 million). Of the total turnover amount, HK$10.3 million or 97.2% was generated from film distribution and film production, HK$0.3 million or 2.8% was generated from the leasing of investment property.

Gross profit for film distribution and film production decreased from approximately HK$13.3 million in prior year to approximately HK$1.0 million in the current year. Gross profit ratio in that business segment also decreased from 21% in previous year to 9.7% in the year under review. Such decrease was caused by the increase in film production activity which had a relatively lower gross profit margin.

Profit attributable to equity holders for the year ended 31 March 2008 amounted to approximately HK$19.3 million (2007: loss attributable to equity holders of HK$16.2 million). The turnaround was mainly contributed by the disposal of several wholly owned subsidiaries, the increase in fair value of investment properties and the decrease in other operating expenses in current year. The disposal of the subsidiaries was resulted in an aggregate gain of approximately HK$25.7 million, while the fair value of the investment properties increased by approximately HK$7.7 million as at the balance sheet date.

With the combined effect of the disposals of subsidiaries and the stringent cost control policy adopted by the Board, other operating expenses decreased by 34.9% to approximately HK$15.9 million from HK$24.4 million in prior year. Such decrease was mainly contributed by the decrease in salaries and allowances, depreciation, rent and rates and promotion expenses from HK$10.4 million, HK$3.9 million, HK$1.8 million and HK$3.9 million in last year to HK$7.8 million, HK$1.2 million, HK$0.5 million and HK$0.8 million in current year respectively.

Finance costs decreased by 10.2% to approximately HK$1.6 million from HK$1.8 million in prior year. The decrease of approximately HK$0.2 million was mainly attributed to the decrease in interest on amounts due to related companies which was partly offset by the increase in interest on convertible bonds. The interests on convertible bonds and amounts due to related companies were approximately HK$0.9 million (2007: HK$0.2 million) and HK$0.7 million (2007: HK$1.5 million) respectively.

Dividend

No dividend for the year ended 31 March 2008 has been proposed by the Directors (2007: HK$ Nil).

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Liquidity, Financial Resources and Capital Structure

At 31 March 2008, the Group had total assets of approximately HK$172.7 million (2007: HK$90.8 million), including cash and bank balances of approximately HK$101.8 million (2007: HK$23.9 million). The increase in cash and bank balances was mainly contributed by cash inflow generated from financing activities during the year.

During the year under review, the Group financed its operations with internally generated cash flows and the proceeds from the disposal of wholly-owned subsidiaries, issuance of convertible bonds, open offer, exercising share options from certain option holders and placing of new shares.

On 25 May 2007, the Company issued convertible bonds in a principal amount of HK$25 million to Classical Statue Limited, a wholly-owned subsidiary of China Star Entertainment Limited. During the year ended 31 March 2008, Classical Statue Limited had converted 72,727,272 shares of HK$0.1 each at a conversion price of HK$0.33 per share. The outstanding amount of the convertible bonds was HK$1 million at 31 March 2008.

On 9 October 2007, the Company raised approximately HK$18.7 million before expenses, by way of open offer of 124,663,636 offer shares at a price of HK$0.15 per offer share on the basis of one offer share for every two existing shares. The net proceeds of approximately HK$18.1 million were utilised for potential investments or for general working capital.

On 15 November 2007, the Company raised net proceeds of approximately HK$5.8 million by way of placing of 49,860,000 new shares to independent investors at a price of HK$0.12 per share. The proceeds were utilised for potential investments or for general working capital.

On 21 February 2008, the Company raised net proceeds of approximately HK$52.7 million by way of placing of 450,000,000 new shares to independent investors at a price of HK$0.12 per share. The proceeds were utilised for potential investments or for general working capital.

During the year ended 31 March 2008, certain option holders exercised their option rights to subscribe for an aggregate of 4,988,544 shares at an exercise price of HK$0.1488, an aggregate of 3,490,534 shares at an exercise price of HK$0.118, an aggregate of 6,300,000 shares at an exercise price of HK$0.114 and 16,838,539 shares at an exercise price of HK$0.133 respectively. The net proceeds from the exercise of option rights amounted to approximately HK$4.1 million.

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At 31 March 2008, the Group has pledged its investment property located at Canada with a fair value of HK$21.2 million to secure a mortgage loan amounted to approximately HK$2.6 million (2007: Nil).

At 31 March 2008, save as the mortgage loan, the Group did not have any bank borrowings nor any banking facilities. The gearing ratio, expressed as a percentage of total liabilities over total assets, was 5.1% (2007: 120%).

Treasury Policies

The Group has not used any foreign currency derivative instruments to hedge its exposure to foreign exchange risk. However, the management monitors closely the exposures and will consider hedging the exposures should the need arise.

Contingent liabilities

At 31 March 2008, the Group had no contingent liabilities.

Material acquisitions and disposal of subsidiaries and affiliated companies

Save as the disposals of subsidiaries and the acquisition of subsidiaries as mentioned above, the Group had no other material acquisitions and disposal of subsidiaries and affiliated companies during the year.

Capital Reorganisation and Change of Board Lot Size

Pursuant to the ordinary resolutions passed on 19 March 2008, capital reorganisation will be effected by the way of comprising (i) capital reduction that the nominal value of all issued and unissued shares be reduced from HK$0.10 each to HK$0.001 each; (ii) share consolidation that every 10 issued and unissued shares be consolidated into 1 consolidated share of the Company (“Consolidated Shares”); and (iii) the increase in authorised share capital from HK$3,000,000 to HK$30,000,000 by the creation of 2,700,000,000 new ordinary shares of the Company of HK$0.01 each. Upon the capital reorganisation becoming effective, the board lot size for trading of shares of the Company will be changed from 10,000 shares to 4,000 Consolidated Shares. The above transaction was approved by the Grand Court of the Cayman Islands on 20 June 2008.

Employee Information

At 31 March 2008, the Group had 6 (2007: 20) full time employees, including executive directors. The Group remunerated its employees in accordance their work performance and experience. The Directors had their discretions in granting share options and bonuses to the Group’s employees depending upon the work performance of particular employee and the financial performance of the Group. For the year ended 31 March 2008, total staff costs, including directors’ emoluments, amounted to approximately HK$7.9 million (2007: HK$10.7 million).

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

For the six months ended 30 September 2008

BUSINESS REVIEW

For the six months ended 30 September 2008, the Group recorded a turnover of approximately HK$805,000 (2007: HK$10 million). The Group did not have revenue generated from the business segment of film production and distribution for the period under review. All the revenue was generated from the leasing of the investment property located at Canada.

FINANCIAL REVIEW

Loss attributable to equity holders for the six months ended 30 September 2008 amounted to approximately HK$1.9 million (2007: profit attributable to equity holders of approximately HK$20.1 million). Excluding the share-based payment expenses of approximately HK$1.2 million, loss after taxation for the period was approximately HK$700,000.

Other revenue and other income amounted to approximately HK$891,000, representing a decrease of 96.9% over the same period last year. Such decrease was caused by the oneoff gain on disposal of two wholly-owned subsidiaries of approximately HK$28.3 million recorded in the same period of last year.

Other operating expenses decreased by 60.7% to approximately HK$3.5 million from HK$8.8 million in prior year. Excluding the share-based payment expenses of approximately HK$1.2 million, other operating expenses was approximately HK$2.3 million, representing a decrease of approximately 73.7% as compared to the corresponding period in 2007. Such decrease was mainly attributed to the combined effect of the disposals of several wholly-owned subsidiaries in last year and the stringent cost control policy adopted by the management.

Finance costs decreased by 92.6% to approximately HK$76,000 from HK$1 million in prior year. The decrease of approximately HK$947,000 was mainly attributed to the decrease in interest on amounts due to related companies and effective interest expenses on convertible bonds.

PROSPECT

The global economy was adversely affected by the financial tsunami and its magnitude is yet to be known. The management expects that the local film market will continue to be difficult in the near future and will continue to adopt a prudence approach in such business segment. On the other hand, the Group will aim to explore new investment opportunities in the area of property investment for business diversification. Meanwhile, it will continue to implement stringent cost control measures.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Liquidity, Financial Resources, Capital Structure and Gearing Ratio

At 30 September 2008, the Group had total assets of approximately HK$171.2 million (31 March 2008: HK$172.7 million), including cash and bank balances of approximately HK$100.8 million (31 March 2008: 101.8 million). During the period under review, the Group financed its operations with internally generated cash flows and the proceeds raised from the capital market in last year.

At 30 September 2008, the Group has pledged its investment property located at Canada to secure a mortgage loan amounted to approximately HK$2.4 million (31 March 2008: HK$2.6 million).

At 30 September 2008, save as the mortgage loan, the Group did not any bank borrowings nor any banking facilities. The gearing ratio, expressed as a percentage of total liabilities over total assets, was 4.8% (31 March 2008: 5.1%).

Treasury Policies

Contingent liabilities

At 30 September 2008, the Group had no contingent liabilities.

Material Acquisition, Disposal and Signifi cant Investments

During the six months period under review, the Group had no material acquisition, disposal or any significant investments.

Employees and Remuneration Policies

At 30 September 2008, the Group had 5 full time employees (31 March 2008: 6), including executive Directors. The Group remunerated its employees in accordance with their work performance and experience. The Directors had their discretions in granting share options and bonuses to the Group’s employees depending upon the work performance of a particular employee and the financial performance of the Group. For the period under review, total staff costs, including Directors’ emoluments, amounted to approximately HK$2.1 million (2007: HK$3.9 million).

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

II. INDEBTEDNESS

Statement of Indebtedness

Borrowings

As at the close of business on 30 November 2008, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this Circular, the Group had total outstanding borrowings of approximately HK$2,696,000, comprising (i) the convertible bonds of approximately HK$739,000, which bear no interest and will be due for repayment by May 2012; and (ii) the bank borrowing in relation to the mortgage loan of the investment property of approximately HK$1,957,000.

Contingent Liabilities

As at the close of business on 30 November 2008, the 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 30 November 2008, the 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 30 November 2008.

Save as disclosed above, the Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Group since 30 November 2008.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

III. WORKING CAPITAL

The Board, after due and careful enquiry, is of the opinion that, in the absence of unforeseeable circumstances and after taking into account the Group’s financial resources, including internally generated funds, available banking facilities and the estimated net proceeds of the Open Offer, the Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of publication of this Circular.

IV. MATERIAL CHANGE

The Directors confirm that there was no material adverse change in the financial or trading position of the Group since 31 March 2008, being the date of which the latest audited financial statements of the Group were made up.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

1. AUDITED FINANCIAL STATEMENTS

Set out below are the independent auditor’s report and audited financial statements together with the relevant notes thereto as extracted from the annual report of Golife for the year ended 31 December 2007. For avoidance of doubt, capitalised terms used in the extract below shall have the meaning as ascribed to them in the annual report of Golife for the year ended 31 December 2007

Independent Auditor’s Report

==> picture [259 x 33] intentionally omitted <==

Room A,15th Floor Fortis Bank Tower 77-79 Gloucester Road Wanchai Hong Kong

To the members of

GOLIFE CONCEPTS HOLDINGS LIMITED

(incorporated in the Cayman Islands with limited liability)

We have audited the consolidated financial statements of Golife Concepts Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 32 to 99, which comprise the consolidated and Company balance sheets as at 31 December 2007, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility for the financial statements

The directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibility

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2007 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Cheung & Siu

Certified Public Accountants (Practising)

Hong Kong, 20 March 2008

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Income Statement

Year ended 31 December 2007

Notes TURNOVER 7 Continuing operations Discontinued operation Cost of sales Gross profit Other revenues and gains 7 Selling and distribution costs Administrative expenses Finance costs 8 Share of loss of jointly controlled entities Impairment of goodwill PROFIT/(LOSS) BEFORE TAX 9 Continuing operations Discontinued operation 13 Tax 11 Continuing operations Discontinued operation PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS Continuing operations Discontinued operation 13 Earnings/(loss) per share 15 From continuing and discontinued operations — basic (cents) — diluted (cents) From continuing operation — basic (cents) — diluted (cents)	Year ended 31/12/2007 HK$’000 60,536 62 60,598 (22,830) 37,768 6,212 (3,600) (55,264) (1,800) (4) (75,552) (92,580) 340 (92,240) — — — (92,580) 340 (92,240) (8.69) N/A (8.72) N/A	Period from 1/4/2006 to 31/12/2006 HK$’000 18,342 543 18,885 (7,385) 11,500 5,357 (994) (12,240) (1,799) — — 486 1,338 1,824 (676) — (676) (190) 1,338 1,148 0.32 N/A (0.05) N/A

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Balance Sheet

31 December 2007

Notes NON-CURRENT ASSETS Property, plant and equipment 16 Goodwill 17 Intangible assets 18 Investments in jointly controlled entities 20 Investment in an associate 21 Total non-current assets CURRENT ASSETS Inventories 22 Trade receivables 23 Deposits, prepayments and other receivables Financial assets at fair value through profit or loss 24 Derivative financial instruments 25 Amounts due from jointly controlled entities 20 Pledged deposits Cash and bank balances Total current assets CURRENT LIABILITIES Trade and bills payables 26 Other payables and accruals Derivative financial instruments 25 Interest-bearing bank and other borrowings 27 Amount due to a jointly controlled entity 20 Tax payable Total current liabilities Net current assets/(liabilities) Total assets less current liabilities NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings 27 Convertible notes 29 Total non-current liabilities Net assets EQUITY Issued capital 31 Equity component of convertible notes 29 Reserves Total equity	2007 HK$’000 6,712 — — — 6,712 8,992 4,195 13,914 966 840 562 5,949 3,587 39,005 2,593 15,114 459 13,563 675 755 33,159 5,846 12,558 805 — 805 11,753 12,470 — (717) 11,753	2006 HK$’000 2,955 75,552 4,720 — — 83,227 2,643 2,209 4,598 6,190 92 — — 3,426 19,158 3,116 3,212 — 12,460 — 1,076 19,864 (706) 82,521 2,785 48,188 50,973 31,548 5,268 11,316 14,964 31,548

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Statement Of Changes In Equity

Year ended 31 December 2007

At 1 April 2006 Capital reorganisation Issue of shares on open offer Share issuance costs Issue of convertible notes Redemption of convertible notes Reserve realized upon disposal of subsidiaries Net profit for the period At 31 December 2006 and 1 January 2007 Redemption of convertible notes —note 29 Conversion of convertible notes —note 29 Placing of new shares —note 31 Cost of placing of new shares Recognition of equity-settled share-based payments —note 32 Net loss for the year At 31 December 2007	Issued capital HK$’000 65,850 (64,533) 3,951 — — — — — 5,268 — 5,702 1,500 — — — 12,470	Share premium Equity component of convertible notes HK$’000 HK$’000 34,698 — — — 21,730 — (786) — — 11,999 — (683) — — — — 55,642 11,316 — (195) 53,546 (11,121) 23,250 — (335) — — — — — 132,103 —	Exchange reserve Share-based payments reserve Accumulated losses HK$’000 HK$’000 HK$’000 (15) — (106,359) — — 64,533 — — — — — — — — — — — — 15 — — — — 1,148 — — (40,678) — — — — — — — — — — — — — 98 — — — (92,240) — 98 (132,918)	Total HK$’000 (5,826) — 25,681 (786) 11,999 (683) 15 1,148
				31,548 (195) 48,127 24,750 (335) 98 (92,240)
				11,753

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Cash Flow Statement

Year ended 31 December 2007

OPERATING ACTIVITIES Profit/(loss) before tax: Continuing operations Discontinued operation Adjustments for: Finance costs Interest income Depreciation Impairment of investment in an associate Impairment of goodwill Impairment of intangible assets Impairment of trade receivables Amortisation of intangible assets Equity-settled share option expenses Share of loss of jointly controlled entities Loss on disposal of property, plant and equipment Gain on disposal of subsidiaries Waiver of other loan Fair value gain on financial assets at fair value through profit or loss Fair value gain on derivative financial instruments Reversal of impairment of trade receivables Operating cash flow before movements in working capital Decrease/(increase) in inventories Increase in trade receivables Decrease/(increase) in deposits, prepayments and other receivables Decrease/(increase) in financial assets at fair value through profit or loss Decrease in derivative financial instruments Increase/(decrease) in trade and bills payables Increase/(decrease) in other payables and accruals Increase in amount due to a jointly controlled entity Cash generated from/(used in) operations Interest received Hong Kong profits tax paid Overseas tax paid NET CASH FROM/(USED IN) OPERATING ACTIVITIES	Year ended 31/12/2007 HK$’000 (92,580) 340 1,800 (247) 2,991 — 75,552 4,047 490 673 98 4 501 (385) — (4) (381) — (7,101) (6,349) (2,476) (9,316) 5,228 92 (523) 12,237 675 (7,533) 247 (321) — (7,607)	Period from 1/4/2006 to 31/12/2006 HK$’000 486 1,338 1,799 (9) 732 4 — — — 280 — — — (1,698) (1,000) (2,014) (92) (3) (177) 2,837 (409) 5,677 (4,176) — 1,342 (400) — 4,694 9 (2,718) (47) 1,938

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Cash Flow Statement

Year ended 31 December 2007

INVESTING ACTIVITIES Acquisition of a subsidiary Disposal of subsidiaries Purchases of shareholding in jointly controlled entities Advances to jointly controlled entities Purchases of items of property, plant and equipment Increase in pledged time deposits NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Interest paid Proceeds from issue of shares Redemption of convertible notes Repayment of other loan New bank loans Repayment of bank loans Increase/(decrease) in trust receipt loans Repayments of capital element of finance leases NET CASH FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year/ period CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Bank overdrafts	Year ended 31/12/2007 HK$’000 — 50 (4) (562) (7,249) (5,949) (13,714) (1,056) 24,415 (1,000) — 3,807 (7,202) 4,577 (395) 23,146 1,825 955 2,780 3,587 (807) 2,780	Period from 1/4/2006 to 31/12/2006 HK$’000 (21,362) — — — (125) — (21,487) (315) 24,895 (3,500) (3,775) 7,300 (873) (3,157) (183) 20,392 843 112 955 3,426 (2,471) 955

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Balance Sheet

31 December 2007

Notes NON-CURRENT ASSETS Investments in subsidiaries 19 Total non-current assets CURRENT ASSETS Deposits, prepayments and other receivables Amounts due from subsidiaries 19 Cash and bank balances Total current assets CURRENT LIABILITIES Other payables and accruals Amounts due to subsidiaries 19 Total current liabilities Net current assets/(liabilities) Total assets less current liabilities NON-CURRENT LIABILITIES Convertible notes 29 Net assets EQUITY Issued capital 31 Equity components of convertible notes 29 Reserves 34 Total equity	2007 HK$’000 1 1 7,098 13,353 1 20,452 5,654 3,107 8,761 11,691 11,692 — 11,692 12,470 — (778) 11,692	2006 HK$’000 81,180 81,180 — — 1 1 685 3,915 4,600 (4,599) 76,581 48,188 28,393 5,268 11,316 11,809 28,393

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Notes to the Financial Statements

31 December 2007

1. General Information

Golife Concepts Holdings Limited (the “Company”) was incorporated as an exempted company with limited liability in the Cayman Islands on 11 June 2001 under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The Company’s shares have been listed on the Growth Enterprise Market (the “GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) since 26 March 2002.

The registered office and principal place of business of the Company are located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111 Cayman Islands and Suite A, 15 Floor, Wyndham Place, 40-44 Wyndham Street, Central, Hong Kong, respectively.

The Company’s principal activity has not changed during the year and consisted of investment holding. The principal activity of its subsidiaries is distribution of high-end apparel and accessories. The Group was also engaged in design, development and sales of location-based technology devices and application, which were discontinued upon the disposal of subsidiaries in current year, further details of which are set out in note 13 to the financial statements.

2. Basis of Preparation

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. In addition, the financial statements comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the GEM of the Stock Exchange. They have been prepared under the historical cost convention, except for certain financial assets, which have been measured at fair value. These financial statements are presented in Hong Kong dollars and all values are rounded to the nearest thousand except when otherwise indicated.

3. Impact of New and Revised Hong Kong Financial Reporting Standards

In the current year, the Group has applied, for the first time, the following new standards, amendment and interpretations (“new HKFRSs”) issued by the HKICPA, which are effective for the Group’s financial statements beginning on or after 1 January 2007.

HKAS 1 (Amendment)	Capital Disclosures
HKFRS 7	Financial Instruments: Disclosures
HK(IFRIC) — Int 8	Scope of HKFRS 2
HK(IFRIC) — Int 9	Reassessment of Embedded Derivatives
HK(IFRIC) — Int 10	Interim Financial Reporting and Impairment

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

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The adoption of the new HKFRSs has given rise to additional disclosures as follows:

HKAS 1 (Amendment) — Capital Disclosures

In accordance with the HKAS 1 (Amendment) — Capital Disclosures, the Group now reports on its capital management objectives, policies and procedures in each annual financial report. The new disclosures that become necessary due to this change are detailed in note 42.

HKFRS 7 — Financial Instruments: Disclosures

HKFRS 7 — Financial Instruments: Disclosures is mandatory for reporting periods beginning on 1 January 2007 or later. The new standard replaces and amends the disclosure requirements previously set out in HKAS 32 Financial Instruments: Presentation and Disclosures and has been adopted by the Group in its consolidated financial statements for the year ended 31 December 2007. All disclosures relating to financial instruments including the comparative information have been updated to reflect the new requirements. In particular, the Group’s consolidated financial statements now feature:

a sensitive analysis explained the Group’s market risk exposure in regard to its financial instruments, and
a maturity analysis that shows the remaining contractual maturities of financial liabilities,

each as at the balance sheet date. The first-time application of HKFRS 7, however, has not resulted in any prior-period adjustments on cash flows, net income or balance sheet items.

3.1 Impact of issued but not yet effective Hong Kong Financial Reporting Standards

The Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective. The directors of the Company anticipate that the application of these standards or interpretations will have no material impact on the results and the financial position of the Group.

HKAS 1 (Revised) Presentation of Financial Statements1 HKAS 23 (Revised) Borrowing Costs1 HKFRS 8 Operating Segments1 HK(IFRIC) — Int 11 HKFRS 2 — Group and Treasury Share Transactions2 HK(IFRIC) — Int 12 Service Concession Arrangements3 HK(IFRIC) — Int 13 Customer Loyalty Programmes4 HK(IFRIC) — Int 14 HKAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction3

Notes:

1 Effective for annual periods beginning on or after 1 January 2009

2 Effective for annual periods beginning on or after 1 March 2007

3 Effective for annual periods beginning on or after 1 January 2008

4 Effective for annual periods beginning on or after 1 July 2008

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

4. Summary of Significant Accounting Policies

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2007. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control, and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The acquisition of subsidiaries during the period has been accounted for using purchase method of accounting. This method involves allocating the cost of the business combinations to the fair value of the identifiable assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. The cost of the acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Minority interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company’s subsidiaries.

Subsidiaries

A subsidiary is an entity whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s investments in subsidiaries are stated at cost less any impairment losses.

Joint ventures

A joint venture is an entity set up by contractual arrangement, whereby the Company and other parties undertake an economic activity. The joint venture operates as a separate entity in which the Company and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture entity and the basis on which the assets are to be realized upon its dissolution. The profits and losses from the joint venture’s operations and any distributions of surplus assets are shared by the ventures, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture is treated as:

(a) a subsidiary, if the Company has unilateral control, directly or indirectly, over the joint venture;
(b) a jointly controlled entity, if the Company does not have unilateral control, but has joint control, directly or indirectly, over the joint venture;
(c) an associate, if the Company does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture’s registered capital and is in a position to exercise significant influence over the joint venture; or
(d) an equity investment accounted for in accordance with HKAS39, if the Company holds, directly or indirectly, less than 20% of the joint venture’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Jointly controlled entities

A jointly controlled entity is a joint venture that is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly controlled entity.

The Group’s share of the post-acquisition results and reserves of jointly controlled entities is included in the consolidated income statement and consolidated reserves, respectively. The Group’s interests in jointly controlled entities are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

The results of jointly controlled entities are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s investments in jointly controlled entities are treated as non-current assets and are stated at cost less any impairment losses.

Associates

An associate is an entity, not being a subsidiary or a jointly controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Group’s share of the post-acquisition results and reserves of associates is included in the income statement and reserves, respectively. The Group’s interests in associates are stated in the balance sheet at the Group’s share of net assets under equity method of accounting, less any impairment losses.

The results of associates are included in the Group’s income statement to the extent of dividends received and receivable. The Group’s investments in associates are treated as non-current assets and are stated at cost less any impairment losses.

Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition.

Goodwill arising on acquisition is initially recognised in the consolidated balance sheet as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units, or groups of cashgenerating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups or units. Each unit or group of units to which the goodwill is so allocated:

represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with HKAS 14 “Segment Reporting”.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cashgenerating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised.

Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

An impairment loss recognized for goodwill is not reversed in a subsequent period.

Impairment of assets

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

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

A party is considered to be related to the Group if:

(a) directly, or indirectly through one or more intermediaries, the party (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;
(b) the party is an associate;
(c) the party is a jointly controlled entity;

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

(d) the party is a member of the key management personnel of the Group or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d);
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or
(g) the party is a post-employment benefit plan for the benefit of employees of the Group, or of any entity that is a related party of the Group.

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses, except that when an item of property, plant and equipment is classified as held for sale, it is not depreciated and is measured at the lower of carrying amount and fair value less costs to sell. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment and the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold improvements Over the shorter of the lease terms or 20% Furniture and equipment 20% ‒ 25% Motor vehicles 20%

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the asset.

Intangible assets (other than goodwill)

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date.

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APPENDIX II

Franchise rights

Franchise rights are stated at cost less any impairment losses, and are amortised on the straightline basis over their estimated useful lives of 4 to 10 years.

Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalized at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalized finance leases are included in property, plant and equipment and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms.

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. The rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.

Investment and other financial assets

Financial assets in the scope of HKAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments or available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date i.e., the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category “financial assets at fair value through profit or loss”. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognised in the income statement.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

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APPENDIX II

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Company has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long term investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost. Amortised cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contracts that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in the income statement when the investments are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

Available-for-sales financial assets are those non-derivative financial assets in listed and unlisted equity securities that are designated as available-for-sale or are not classified in any of the other three categories. After initial recognition available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement.

When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; a discounted cash flow analysis and option pricing models.

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in profit or loss.

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APPENDIX II

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

Assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

Available-for-sale financial assets

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, its transferred from equity to the income statement. Impairment losses on equity instruments classified as available-for-sale are not reversed through profit or loss.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial asset) is derecognised where:

the rights to receive cash flows from the asset have expired;
the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or
the Group has transferred its right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

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APPENDIX II

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process.

Convertible notes

The component of convertible notes that exhibits characteristics of a liability is recognised as a liability in the balance sheet, net of transaction costs. On issuance of convertible notes, the fair value of the liability components is determined using a market rate for an equivalent nonconvertible note; and this amount is carried as a long term liability on the amortised cost basis until extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in shareholders’ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years.

Transaction costs are apportioned between the liability and equity components of the convertible notes based on the allocation of proceeds to the liability and components when the instruments are first recognised.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existed liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

Derivative financial instruments and hedging

The Company uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes on fair value on derivatives that do not qualify for hedge accounting are taken directly to net profit or loss for the year.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to the present value of estimated future cash flows.

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APPENDIX II

For the purpose of hedge accounting, hedges are classified as:

fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability; or
cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecast transaction.

A hedge of the foreign currency risk of a firm commitment is accounted for as a cash flow hedge.

At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedge item or transaction, the nature of the risk being hedged and how the Company will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follow:

Fair value hedges

Fair value hedges are hedges of the Company’s exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is remeasured at fair value and gains and losses from both are taken to profit or loss.

For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through profit or loss over the remaining terms to maturity. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortised to profit or loss.

Amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in profit or loss. The changes in the fair value of the hedging instrument are also recognised on profit or loss.

The Company discontinues fair value hedge accounting of the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Company revokes the designation. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortised to profit or loss. Amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

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APPENDIX II

Cash flow hedges

Cash flow hedges are hedges of the Company’s exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss.

Amounts taken to equity are transferred to the income statement when the hedged transaction affects profits or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale or purchase occurs. Where the hedged item is the cost if a non-financial asset or liability, the accounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction is no longer expected to occur, the amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, the amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to profit or loss.

Hedges of a net investment

Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a similar way to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in profit or loss. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to profit or loss.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to disposal.

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheets, cash and bank balances comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Provision

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

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APPENDIX II

When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the income statement.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement, or in equity if it relates to items that are recognised in the same or a different period, directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised except:

where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

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 profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

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APPENDIX II

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition

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

(a) from the sales of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) from the rendering of services, when services are rendered; and
(c) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

Employee benefits

Equity-settled share-based payment transactions

The Group operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employee is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, further details of which are given. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Group (“market conditions”), if applicable.

Cash-settled share-based payment transactions

For cash-settled share-based payments, the Group measures the goods or services acquired and the liability incurred at the fair value of the liability. At each balance sheet date, the liability is remeasured at its fair value until the liability is settled, with any changes in fair value recognized in profit or loss.

Pension scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

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APPENDIX II

Borrowing costs

Borrowing costs are recognised as expenses in the income statement in the period in which they are incurred.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Group’s functional and presentation currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the date of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currencies of certain overseas subsidiaries are currencies other than the Hong Kong dollar. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company at exchange rates ruling at the balance sheet date and, their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the period. The resulting exchange differences are included in a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the income statement.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the period are translated into Hong Kong dollars at the weighted average exchange rates for the period.

5. Significant Accounting Judgements And Estimates

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements.

Impairment of assets

In determining whether an asset is impaired or whether the event previously causing the impairment no longer exists, the Group has to exercise judgement in the area of asset impairment, particularly in assessing: (1) whether an event has occurred that may affect the asset value, or such an event affecting the asset value has not been in existence; (2) whether the carrying value of an asset can be supported by the net present value of future cash flows, which are estimated based upon the continued use of the asset or derecognition; and (3) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management to determine the level of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could have a material effect on the net present value used in the impairment test.

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APPENDIX II

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date 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.

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2007 was nil (2006: approximately HK$75,552,000). More details are given in note 17.

Impairment for trade receivables

The Group performs ongoing credit evaluations of its customers and adjusts credit limits based on payment history and the customer’s current credit-worthiness, as determined by a review of their current credit information. The Group continuously monitors collections and payments from its customers and maintain a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that it has identified.

6. Segment Information

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

(i) Business segments

The following tables present revenue, profit/(loss) and certain asset, liability and expenditure information for the Group’s business segments for the year ended 31 December 2007 and the period from 1 April 2006 to 31 December 2006.

For management purposes, the Group is organized into two operating divisions — design, development and sales of location-based technology devices and applications, and distribution of high-end apparel and accessories. These divisions are the basis on which the Group reports its primary segment information. In September 2007, the Group ceased the business of design, development and sales of location-based technology devices and application.

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APPENDIX II

Segment information about these businesses is presented below.

Turnover: External turnover Results: Segment results Unallocated revenue Unallocated expenses Finance costs Profit/(loss) before tax Tax Profit/(loss) for the year/period Assets: Segment assets Unallocated corporate assets Total assets Liabilities: Segment liabilities Unallocated corporate liabilities Total liabilities	Continuing	operation of high-end accessories Period from 1/4/2006 to 31/12/2006 HK$’000 18,342 363 operation of high-end accessories 2006 HK$’000 94,395 21,547	Discontinued operation Design, development and sales of location-based technology devices and applications Year ended 31/12/2007 Period from 1/4/2006 to 31/12/2006 HK$’000 HK$’000 62 543 340 1,338 Discontinued operation Design, development and sales of location-based technology devices and applications 2007 2006 HK$’000 HK$’000 — 1 — 417	Consolidated Year ended 31/12/2007 Period from 1/4/2006 to 31/12/2006 HK$’000 HK$’000 60,598 18,885 (90,924) 1,701 5,014 3,412 (4,530) (1,490) (1,800) (1,799) (92,240) 1,824 — (676) (92,240) 1,148 Consolidated 2007 2006 HK$’000 HK$’000 35,262 94,396 10,455 7,989 45,717 102,385 27,456 21,964 6,508 48,873 33,964 70,837	Consolidated Year ended 31/12/2007 Period from 1/4/2006 to 31/12/2006 HK$’000 HK$’000 60,598 18,885 (90,924) 1,701 5,014 3,412 (4,530) (1,490) (1,800) (1,799) (92,240) 1,824 — (676) (92,240) 1,148 Consolidated 2007 2006 HK$’000 HK$’000 35,262 94,396 10,455 7,989 45,717 102,385 27,456 21,964 6,508 48,873 33,964 70,837
	Distribution apparel and Year ended 31/12/2007 HK$’000 60,536 (91,264) Continuing
	Distribution apparel and 2007 HK$’000 35,262 27,456
					102,385

					21,964 48,873
					70,837

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APPENDIX II

FINANCIAL INFORMATION ON GC GROUP

		Period		Period		Period
	Year	from	Year	from	Year	from
	ended	1/4/2006 to	ended	1/4/2006 to	ended	1/4/2006 to
	31/12/2007	31/12/2006	31/12/2007	31/12/2006	31/12/2007	31/12/2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Other segment
information:
Capital
expenditure	7,249	1,741	—	—	7,249	1,741
Depreciation	2,991	732	—	—	2,991	732
Amortisation	673	280	—	—	673	280
Impairment loss	80,089	—	—	4	80,089	4

(ii) Geographical segments

The following tables present revenue, assets and capital expenditures for the Group’s geographical segments for the year ended 31 December 2007 and the period from 1 April 2006 to 31 December 2006.

Turnover: Continuing operations Discontinued operation External turnover Assets: Segment assets Unallocated corporate assets Total assets Other segment information: Capital expenditure	Hong Kong Year ended 31/12/2007 Period from 1/4/2006 to 31/12/2006 HK$’000 HK$’000 47,108 13,255 62 543 47,170 13,798 38,407 19,392 4,475 1,741	Taiwan Year ended 31/12/2007 Period from 1/4/2006 to 31/12/2006 HK$’000 HK$’000 13,428 5,087 — — 13,428 5,087 7,310 2,721 2,774 —	Consolidated Year ended 31/12/2007 Period from 1/4/2006 to 31/12/2006 HK$’000 HK$’000 60,536 18,342 62 543 60,598 18,885 45,717 22,113 — 80,272 45,717 102,385 7,249 1,741	Consolidated Year ended 31/12/2007 Period from 1/4/2006 to 31/12/2006 HK$’000 HK$’000 60,536 18,342 62 543 60,598 18,885 45,717 22,113 — 80,272 45,717 102,385 7,249 1,741
				18,885

				22,113 80,272
				102,385

				1,741

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

7. Turnover, Other Revenues and Gains

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts and the value of services rendered.

An analysis of the Group’s turnover, other revenues and gains is as follows:

TURNOVER CONTINUING OPERATIONS Distribution of high-end apparel and accessories DISCONTINUED OPERATION Design, development and sales of location-based technology devices and applications OTHER REVENUES AND GAINS Bank interest income Consultancy fee income Fair value gain on financial assets at fair value through profit or loss Fair value gain on derivative financial instruments Gain on disposal of subsidiaries Gain on disposal of financial assets at fair value through profit or loss Management services income Reversal of impairment of trade receivables Sundry income Waiver of other loan Finance Costs Interest on convertible notes Interest on bank loans and overdrafts wholly repayable within five years Interest on finance leases	Year ended 31/12/2007 HK$’000 60,536 62 60,598 247 — 4 381 385 4,813 340 — 42 — 6,212 Year ended 31/12/2007 HK$’000 744 1,004 52 1,800	Period from 1/4/2006 to 31/12/2006 HK$’000 18,342 543
		18,885

		9 72 2,014 92 1,698 398 — 3 71 1,000
		5,357

		Period from 1/4/2006 to 31/12/2006 HK$’000 1,484 289 26
		1,799

8. Finance Costs

— 176 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

9. Profit/(Loss) before Tax

Profit/(loss) before tax is arrived at after charging:

Cost of inventories sold Cost of services rendered Auditor’s remuneration Amortisation of intangible assets Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Exchange losses, net Minimum lease payments under operating leases on land and buildings Impairment of investment in an associate Impairment of trade receivables Impairment of intangible assets Staff costs (excluding directors’ remuneration_— note 10_) Salaries and allowances Equity-settled share option expenses Pension scheme contributions	Year ended 31/12/2007 HK$’000 22,830 — 360 673 2,991 501 378 15,202 — 490 4,047 11,778 32 364 12,174	Period from 1/4/2006 to 31/12/2006 HK$’000 7,323 62 295 280 732 — 76 3,962 4 — — 3,119 — 128 3,247

— 177 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

10. Directors’ Remuneration and Five Highest Paid Employees

The remuneration of each director for the year ended 31 December 2007 and the period from 1 April 2006 to 31 December 2006 are set out below:

Year ended 31 December 2007:

Executive directors Lo Mun Lam, Raymond Gouw San Bo, Elizabeth_(note 1) Richard Yen(note 2) Leung Tak Wah (note 3) Non-executive directors Duncan Chiu Yu Wai Yin, Vicky (note 4)_ Independent non- executive directors Lum Pak Sum Sum Chun Ho, Sam Wan Kwok Pan Total	Fees Salaries and allowances Retirement scheme contribution HK$’000 HK$’000 HK$’000 380 — — — 1,227 6 500 944 33 — 246 7 — — — 33 — — 221 — — 60 — — 49 — — 1,243 1,567 17	Share option benefit HK$’000 — — 631 — 33 — — — — 66	Total HK$’000 380 1,233 253 33 33 221 60 49
			2,893

— 178 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Period from 1 April 2006 to 31 December 2006

Executive directors Lo Mun Lam, Raymond Leung Tak Wah Yu Wai Yin, Vicky (note 4) Non-executive directors Duncan Chiu_(note 5) Richard Yen(note 2)_ Independent non- executive directors Lum Pak Sum Sum Chun Ho, Sam Wan Kwok Pan Total	Fees Salaries and allowances Retirement scheme contribution HK$’000 HK$’000 HK$’000 200 — — — 190 9 40 — — — — — — — — — — — 19 — — 14 — — 273 190 9	Share option benefit HK$’000 — — — — — — — — —	Total HK$’000 200 199 40 — — — 19 14
			472

Notes:

Ms. Gouw San Bo, Elizabeth was appointed as an executive director on 11 July 2007.
Mr. Richard Yen was appointed as a non-executive director and redesignated as an executive director on 27 September 2006 and 28 August 2007, respectively.
Mr. Leung Tak Wah resigned as an executive director on 11 July 2007.
Ms. Yu Wai Yin Vicky, was redesignated as a non-executive director on 3 April 2007.
Mr. Duncan Chiu was appointed as a non-executive director on 27 September 2006.

There was no arrangement under which a director waived or agreed to waive any remuneration during the year/period.

— 179 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Of the five highest paid individuals, three (period ended 31 December 2006: two) were directors of the Company and their remuneration has been included in the directors’ remuneration disclosures above and the disclosure below. Details of the emoluments of the remaining two (period ended 31 December 2006: three) non-directors, highest paid employees of the Group for the year/period are as follows:

Basic salaries, allowances and other benefits in kind Share option benefit Retirement benefits scheme contributions	Year ended 31/12/2007 HK$’000 3,868 32 18 3,918	Period from 1/4/2006 to 31/12/2006 HK$’000 600 — 30
		630

Included in the above, the remuneration of Ms. Gouw San Bo, Elizabeth, an executive director, who was one of the five highest paid individuals for the period from 1 April 2006 to 31 December 2006 before appointed as an executive director in current year is as follows:

Basic salaries, allowances and other benefits in kind Share option benefit Retirement benefits scheme contributions	Year ended 31/12/2007 HK$’000 953 — 6 959	Period from 1/4/2006 to 31/12/2006 HK$’000 460 — 4
		464

The number of non-director, highest paid individuals whose remuneration fell within the following bands (excluding Ms. Gouw San Bo), is as follows:

Nil to HK$1,000,000 HK$2,000,001 to HK$2,500,000	Year ended 31/12/2007 HK$’000 1 1 2	Period from 1/4/2006 to 31/12/2006 HK$’000 3 — 3

During the year, no emoluments were paid by the Group to any of the directors or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office (period ended 31 December 2006: nil).

During the year, share options were granted to a non-director, highest paid employee in respect of his services to the Group, further details of which are included in the disclosures in note 32 to the financial statements. The fair value of such options, which has been charged to the income statement, was determined as at the date of the grant and was included in the above non-director, highest paid employees’ remuneration disclosures.

— 180 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Retirement benefit costs

The Group operates a mandatory provident fund scheme (“the MPF scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF scheme is defined contribution retirement scheme administrated by independent trustees. 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. Contributions to the Scheme vest immediately. At the balance sheet date, there was no forfeited contribution, which arose upon employees leaving the retirement benefits scheme and which are available to reduce the contribution payable in the future years.

11. Tax

No provision for Hong Kong profits tax had been made as the Group did not generate any assessable profits arising in Hong Kong during the year. In prior year, Hong Kong profits tax has been provided at the rate of 17.5% on the estimated assessable profits arising in Hong Kong.

Taxation on overseas profits has been calculated on the estimated assessable profit for the year/ period at the rates of tax prevailing in the countries in which the Group operates.

Current provision: — Hong Kong — Overseas Attributable to: Continuing operations Discontinued operation_(note 13)_	Year ended 31/12/2007 HK$’000 — — — — — —	Period from 1/4/2006 to 31/12/2006 HK$’000 575 101
		676

		676 —
		676

— 181 —

APPENDIX II

FINANCIAL INFORMATION ON GC GROUP

A reconciliation of the tax expense applicable to profit/(loss) before tax using the statutory rate for the countries in which the Company and its subsidiaries are domiciled to the tax expense at the effective tax rates, and a reconciliation of the applicable rates (i.e., the statutory tax rates) to the effective tax rate, are as follows:

Profit/(loss) before tax Tax at the domestic income tax rate Effect of different tax rates in other jurisdictions Income not subject to tax Expenses not deductible for tax Deductible temporary differences not recognized Tax losses not recognized Tax charge at effective rate	Year ended 31/12/2007 HK$’000 (92,240) (16,142) (74) (70) 15,708 30 548 —	% (17.5) (0.1) (0.1) 17.0 0.1 0.6 —	Period from 1/4/2006 to 31/12/2006 HK$’000 1,824 319 (24) (471) 336 — 516 676	% 17.5 (1.3) (25.8) 18.4 — 28.3 37.1

12. Net Loss Attributable to Shareholders

The net loss attributable to shareholders for the year ended 31 December 2007 dealt with in the financial statements of the Company is approximately HK$89,146,000 (period ended 31 December 2006: loss of approximately HK$7,511,000).

13. Discontinued Operation

On 20 September 2007, the Group decided to cease its business of design, development and sales of location-based technology devices and application. On 27 September 2007, the Company disposed of Satellite Devices (BVI) Limited, which held a subsidiary called Satellite Devices Limited. Satellite Devices (BVI) Limited engaged in investment holding and Satellite Devices Limited engaged in design, development and sales of location-based technology devices and application and was a separate business segment that was part of Hong Kong operations.

— 182 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The operating result associated with the business of design, development and sales of locationbased technology devices and application for the year/period and gain on disposal of subsidiaries related to the discontinued operation are presented below:

Notes Turnover 7 Cost of sales Other revenues and gains Selling and distribution costs Administrative expenses Loss before tax and gain on disposal of subsidiaries Gain on disposal of subsidiaries 35 Profit before tax from the discontinued operation Tax 11 Profit attributable to shareholders from the discontinued operation	Year ended 31/12/2007 HK$’000 62 — — — (107) (45) 385 340 — 340	Period from 1/4/2006 to 31/12/2006 HK$’000 543 (62) 74 (5) (910) (360) 1,698 1,338 — 1,338

The net cash flows incurred by the disposed group are as follows:

Operating activities Investing activities Financing activities Net cash inflow/(outflow)	Year ended 31/12/2007 HK$’000 (1) 50 — 49	Period from 1/4/2006 to 31/12/2006 HK$’000 (89) — — (89)

14. Dividend

The directors of the Company do not recommend the payment of a dividend for the year (period ended 31 December 2006: nil).

— 183 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

15. Earnings/(Loss) Per Share

Basic earnings/(loss) per share is calculated by dividing the net profit/(loss) attributable to shareholders by the weighted average number of ordinary shares in issue during the year/period.

For continuing and discontinued operations Profit/(loss) attributable to shareholders For continuing operations Loss attributable to shareholders Weighted average number of ordinary shares in issue during the year/period	Year ended 31/12/2007 Period from 1/4/2006 to 31/12/2006 HK$’000 HK$’000 (92,240) 1,148 (92,580) (190) Number of shares 1,061,242,585 361,577,386

Diluted earnings/(loss) per share is not presented as the convertible notes and share options had anti-dilutive effects on the basic earnings/(loss) per share.

— 184 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

16. Property, Plant and Equipment

Group

Leasehold improvements HK$’000 Cost: At 1 April 2006 — Acquired on acquisition of a subsidiary 3,805 Additions 52 At 31 December 2006 and 1 January 2007 3,857 Additions 6,298 Disposals (1,493) At 31 December 2007 8,662 Accumulated depreciation: At 1 April 2006 — Acquired on acquisition of a subsidiary 2,050 Charge for the period 347 At 31 December 2006 and 1 January 2007 2,397 Charge for the year 2,469 Disposals (992) At 31 December 2007 3,874 Net book value: At 31 December 2007 4,788 At 31 December 2006 1,460	Furniture and equipment HK$’000 — 544 73 617 951 — 1,568 — 353 62 415 198 — 613 955 202	Motor vehicles HK$’000 — — 1,616 1,616 — — 1,616 — — 323 323 324 — 647 969 1,293	Total HK$’000 — 4,349 1,741 6,090 7,249 (1,493) 11,846 — 2,403 732 3,135 2,991 (992) 5,134 6,712 2,955

The net book value of the Group’s property, plant and equipment held under finance leases included in the total amount of motor vehicles at 31 December 2007, approximately amounted to HK$969,000 (2006: HK$1,293,000).

— 185 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

17. Goodwill

Group

The amounts of the goodwill capitalised by the Group as an asset and recognised in the consolidated balance sheet, arising from the acquisition of a subsidiary, are as follows:

At 1 April 2006 Arising from acquisition of a subsidiary Impairment during the period At 31 December 2006 and 1 January 2007 Impairment during the year At 31 December 2007	HK$’000 — 75,552 —
	75,552 (75,552)
	—

Impairment test for cash-generating units containing goodwill and intangible assets (note 18).

Goodwill acquired has been allocated to the cash generating unit (“CGU”) of Golife (Hong Kong) Limited, a wholly owned subsidiary of the Company.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

The recoverable amounts of the CGUs are determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a period of five years. Cash flows beyond the five-year period are extrapolated using the estimated rates stated below. The growth rates do not exceed the respective long-term average growth rates for the businesses in which the CGUs operate.

Key assumptions used for value-in-use calculations:

	2007
Gross profit margin	61.5%
Growth rate	5.0%
Discount rate	10.8%

Management determined the budgeted gross profit margin based on past performance and its expectation for market development. The discount rates used are pre-tax and reflect specific risks relating to the relevant the CGU.

The recoverable amounts of the CGU are lower than their carrying amounts based on value-in-use calculations.

Accordingly, the goodwill was fully impaired during the year. Impairment loss of approximately HK$75,552,000 (period ended 31 December 2006: nil) is recognised in the consolidated income statement.

— 186 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

18. Intangible Assets

Group

Cost: At 1 April 2006 Arising from acquisition of a subsidiary At 31 December 2006, 1 January 2007 and 31 December 2007 Accumulated amortisation and impairment: At 1 April 2006 Amortised for the period At 31 December 2006 and 1 January 2007 Amortised for the year Impairment for the year At 31 December 2007 Net book value: At 31 December 2007 At 31 December 2006	Franchise rights HK$’000 — 5,000
	5,000
	— 280
	280 673 4,047
	5,000
	—

	4,720

Intangible assets acquired has been allocated to the cash generating unit (“CGU”) of Golife (Hong Kong) Limited, a wholly owned subsidiary of the Company. The Group tests intangible assets annually for impairment, or more frequently if there are indications that goodwill might be impaired.

Accordingly, the intangible assets were fully impaired during the year. Impairment less of approximately HK$4,047,000 (period ended 31 December 2006: nil) is recognised in the consolidated income statement. Further details of the impairment test are also set out in note 17.

19. Interests in Subsidiaries

Unlisted shares, at cost Impairment in value Amounts due from subsidiaries Amounts due to subsidiaries Impairment in value	Company 2007 2006 HK$’000 HK$’000 81,181 81,180 (81,180) — 1 81,180 17,853 102,193 (3,107) (3,915) (4,500) (102,193) 10,246 (3,915) 10,247 77,265

— 187 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The amounts due from/(to) subsidiaries are unsecured, interest-free and have no fixed terms of repayment. The carrying amounts of the amounts due from/(to) subsidiaries approximate their fair values.

Particulars of the subsidiaries of the Company as at 31 December 2007 are as follows:

		Issued and
		fully paid	Attributable equity
	Place of	up capital/	interest	held
	incorporation/	registered	by the Company		Principal
Name	registration	capital	Directly	Indirectly	activities
Golife (Hong Kong) Limited	Hong Kong	HK$500,000	100%	—	Distribution
					of high-end
					apparel and
					accessories
Golife (Trading) Limited	Hong Kong	HK$300,000	—	100%	Distribution
					of high-end
					jewellery and
					accessories
Golife (Management) Limited	Hong Kong	HK$10,000	—	100%	Dormant
(Formerly known as
On Winner Enterprises
Limited)
GOL (International) Limited	British Virgin	US$1	—	100%	Dormant
	Islands
Peak Choice Limited	British Virgin	US$1	100%	—	Investment in
	Islands				securities
Sunfame Limited	British Virgin	US$100	100%	—	Dormant
	Islands
Profit First Investments	British Virgin	US$1	100%	—	Investment
Limited	Islands				holding
Better Point Limited	British Virgin	US$1	100%	—	Investment
	Islands				holding
CR Hong Kong (Trading)	Hong Kong	HK$1	—	100%	Dormant
Limited

— 188 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

20. Interests in Jointly Controlled Entities

Unlisted shares, at cost Share of post acquisition loss Amounts due from jointly controlled entities Amount due to a jointly controlled entity	Group 2007 2006 HK$’000 HK$’000 4 — (4) — — — 562 — (675) — (113) —	Group 2007 2006 HK$’000 HK$’000 4 — (4) — — — 562 — (675) — (113) —
		— — —
		—

The share of post acquisition loss is limited to the cost of investments. The unrecognized share of post acquisition loss for the year is amounted to approximately HK$725,000.

The amounts due from/(to) the jointly controlled entities are unsecured, interest-free and have no fixed terms of repayment. The carrying amounts of the amounts due from/(to) the jointly controlled entities approximate to their fair value.

Particulars of the jointly controlled entities as at 31 December 2007 are as follows:

	Place of		Percentage of
	incorporation/	Ownership	Voting	Profit	Principal
Name	registration	interest	power	sharing	activities
LOC Limited	British Virgin	50	50	50	Investment holding
	Islands
Life of Circle Limited	Hong Kong	50	50	50	Wholesales of high-end
					jewellery and accessories
CR Hong Kong Limited	Hong Kong	50	50	50	Dormant

All of the above investments in jointly controlled entities are indirectly held by the Company.

— 189 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The following table illustrates the summarized financial information of the Group’s jointly controlled entities:

The jointly controlled entities’ assets and liabilities: Current assets Non-current assets Current liabilities Non-current liabilities Net liabilities Group’s share of net assets of jointly controlled entities The jointly controlled entities’ results: Turnover Cost of sales Gross profit Total expenses Tax Loss after tax Group’s share of loss of jointly controlled entities for the year Unrecognized and accumulated unrecognized share of loss of jointly controlled entities	2007 HK$’000 1,400 12 (2,862) — (1,450) — 3,606 (2,511) 1,095 (2,553) — (1,458) (4) (725)	2006 HK$’000 — — — — —

		—

		— —
		— — —
		—

		—

		—

— 190 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

21. Investment in an Associate

Share of net assets Impairment	Group 2007 2006 HK$’000 HK$’000 — 4 — (4) — —

The investment in an associate was disposed during the year.

22. Inventories

	Group
	2007	2006
	HK$’000	HK$’000
Merchandise	8,992	2,643

At 31 December 2007, no inventories were carried at net realisable value (2006: Nil).

23. Trade Receivables

An aged analysis of the trade receivables as at the balance sheet date, based on the invoice date and net of provisions, is as follows:

0 — 30 days 31 — 60 days 61 — 90 days Over 90 days _Less:_impairment	Group 2007 2006 HK$’000 HK$’000 2,430 1,710 1,503 499 24 — 728 — 4,685 2,209 (490) — 4,195 2,209	Group 2007 2006 HK$’000 HK$’000 2,430 1,710 1,503 499 24 — 728 — 4,685 2,209 (490) — 4,195 2,209
		2,209 —
		2,209

24. Financial Assets at Fair Value Through Profit or Loss

Equity investments listed in Hong Kong, at fair value Derivative financial assets, at fair value	Group 2007 2006 HK$’000 HK$’000 238 1,493 728 4,697 966 6,190	Group 2007 2006 HK$’000 HK$’000 238 1,493 728 4,697 966 6,190
		6,190

— 191 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

At 31 December 2007, the carrying amount of the Group’s financial assets at fair value through profit or loss amounted to approximately HK$728,000 was pledged as security for the Group’s bank loans amounted to approximately HK$787,000 (2006: nil), as further detailed in note 27 to the financial statements.

The above equity investments were, upon initial recognition, designated by the Group as financial assets at fair value through profit or loss.

25. Derivative Financial Instruments

		Group
	2007		2006
	Assets	Liabilities	Assets	Liabilities
	HK$’000	HK$’000	HK$’000	HK$’000
Foreign currency
contracts	840	459	92	—

The carrying amount of forward currency contracts are the same as their fair values.

The Group has eight forward currency contracts outstanding at 31 December 2007 (2006: two) to manage its exchange rate exposures which did not meet the criteria for hedge accounting. Changes in the fair value of non-hedging currency derivatives amounting to approximately HK$381,000 was credited to the income statement during the year (period ended 31 December 2006: approximately HK$92,000).

26. Trade and Bills Payables

An aged analysis of the trade and bills payables as at the balance sheet date, based on the invoice date, is as follows:

0 — 30 days 31 — 60 days 61 — 90 days Over 90 days	Group 2007 2006 HK$’000 HK$’000 1,707 2,433 178 367 13 16 695 300 2,593 3,116	Group 2007 2006 HK$’000 HK$’000 1,707 2,433 178 367 13 16 695 300 2,593 3,116
		3,116

— 192 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

27. Interest-bearing Bank and Other Borrowings

2007 Maturity or interest reprice Effective date, interest whichever rate(%) is earlier Current Finance lease payables —note 28 3.35% 2008 Bank overdrafts — best lending on demand secured rate Bank loans — secured 5.81% or prime 2008 rate +2% Trust receipt loans — best lending 2008 secured rate Non-current Finance lease payables 3.35% 2009 – 2011 —note 28 Bank loans — secured prime 2009 – 2010 rate +2%	Group 2006 Maturity or interest reprice Effective date, interest whichever HK$’000 rate(%) is earlier 395 3.35% 2007 807 best lending on demand rate + 1% 5,021 prime 2007 rate +2% 7,340 best lending 2007 rate 13,563 643 3.25% 2008 – 2011 162 prime 2008 – 2009 rate + 2% 805 14,368	HK$’000 395 2,471 6,831 2,763
		12,460
		1,038 1,747
		2,785
		15,245

— 193 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Analysed into: Bank loans and overdrafts repayable: Within one year or on demand In the second year In the third to fifth years, inclusive Other borrowings payable: Within one year or on demand In the second year In the third to fifth years, inclusive	Group 2007 2006 HK$’000 HK$’000 13,168 12,065 162 1,584 — 163 13,330 13,812 395 395 395 395 248 643 1,038 1,433 14,368 15,245	Group 2007 2006 HK$’000 HK$’000 13,168 12,065 162 1,584 — 163 13,330 13,812 395 395 395 395 248 643 1,038 1,433 14,368 15,245
		13,812
		395 395 643
		1,433
		15,245

The Group’s banking facilities are secured by:

(i) the pledge of certain of the Group’s fixed deposits amounted to approximately HK$5,949,000;
(ii) the pledge of certain of the Group’s financial assets at fair value through profit or loss with carrying amount of approximately HK$728,000;
(iii) corporate guarantee provided by the Company; and
(iv) personal guarantees provided by directors of a subsidiary of the Group.

28. Finance Lease Payables

The Group leases its motor vehicles for its business. The leases are classified as finance leases and have remaining lease terms ranging from three to four years.

— 194 —

APPENDIX II

FINANCIAL INFORMATION ON GC GROUP

At the balance sheet date, the total future minimum lease payments under finance lease and the present value, were as follows:

Group Present value of minimum Minimum lease Minimum lease lease payments payments payments 2007 2006 2007 HK$’000 HK$’000 HK$’000 Amount payable: Within one year 447 447 395 In the second year 447 447 395 In the third year to fifth years, inclusive 280 727 248 Total minimum finance lease payments 1,174 1,621 1,038 Future finance charges (136) (188) Total net finance lease payables 1,038 1,433 Portion classified as current liabilities — note 27 (395) (395) Long term portion — note 27 643 1,038	Present value of minimum lease payments 2006 HK$’000 395 395 643
	1,433

29. Convertible Notes

On 31 July 2006, the Company issued interest-free convertible notes with a nominal value of HK$61.52 million to an independent noteholder. The noteholder has the right to convert the whole or any part of the principal amount of the convertible note into shares at any time and from time to time after six months from the date of issue of the convertible notes up to the date immediately prior to the maturity date.

The fair value of the liability component and the equity conversion component were determined at issurance of the convertible notes. The fair value of the liability component was calculated using a market interest rate. The residual amount, representing the value of the equity conversion component, has been included in the convertible notes reserve.

— 195 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The convertible notes recognized in the balance sheets of the Group and the Company are calculated as follows:

Nominal value of convertible notes issued on 31 July 2006 Equity component Liability component at the issuance date Redemption during the period Interest expenses Liability component at 31 December 2006 and 1 January 2007 Redemption during the year Conversion during the year Interest expenses Liability component at 31 December 2007 Equity component at the issuance date Redemption during the period Equity component at 31 December 2006 and 1 January 2007 Redemption during the year Conversion during the year Equity component at 31 December 2007	Group and Company HK$’000 61,520 (11,999)
	49,521 (2,817) 1,484
	48,188 (805) (48,127) 744
	—

	11,999 (683)
	11,316 (195) (11,121)
	—

During the year, the convertible notes of the Company were redeemed and converted into ordinary shares.

— 196 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

30. Deferred Tax

Group

The movements in deferred tax liabilities and assets during the year/period are as follows:

At 1 April 2006 Charged/(credited) to consolidated income statement At 31 December 2006 and 1 January 2007 Charged/(credited) to consolidated income statement At 31 December 2007	Accelerated tax depreciation HK$’000 (7) 1 (6) (15) (21)	Tax losses HK$’000 7 (1) 6 15 21	Total HK$’000 — —
			—
			—
			—

For purpose of the balance sheet presentation, the above deferred tax assets and liabilities were offset.

As at 31 December 2007, the Group had estimated unused tax losses of approximately HK$1,937,000 (2006: approximately HK$97,340,000) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. No deferred tax asset was recognized during the year (2006: nil) due to the unpredictability of future profit streams. The unrecognized tax losses may be carried forward indefinitely.

31. Share Capital

Authorised: 10,000,000,000 ordinary shares of HK$0.01 each Issued and fully paid: 1,247,001,488 (2006: 526,801,488) ordinary share of HK$0.01 each	2007 HK$’000 100,000 12,470	2006 HK$’000 100,000

		5,268

— 197 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

A summary of the movements of the Company’s issued capital and share premium account is as follows:

Number of shares in issue Notes At 1 April 2006, ordinary shares of HK$0.1 each 658,501,863 Capital reorganisation (i) (526,801,491) Open offer, net (ii) 395,101,116 At 1 January 2007, ordinary shares of HK$0.01 each 526,801,488 Conversion of convertible notes (iii) 570,200,000 Placing, net (iv) 150,000,000 At 31 December 2007, ordinary shares of HK$0.01 each 1,247,001,488	Issued capital Shares premium HK$’000 HK$’000 65,850 34,698 (64,533) — 3,951 20,944 5,268 55,642 5,702 53,546 1,500 22,915 12,470 132,103	Total HK$’000 100,548 (64,533) 24,895 60,910 59,248 24,415 144,573

Notes:

(i) Pursuant to the capital reorganization completed on 22 June 2006, 658,501,863 issued shares were consolidated into 131,700,372 shares on the basis of every 5 shares consolidated into 1 share. The nominal value of each issued consolidated share was then reduced from HK$0.1 each to HK$0.01 each by way of a reduction of capital. Accordingly, an amount of HK$64,533,183 from the share capital account was applied towards the elimination of part of the accumulated losses of the Company.
(ii) 395,101,116 new ordinary shares of the Company were issued under the Open Offer on 25 July 2006, proceed of approximately HK$23.05 million was being raised as working capital.
(iii) During the year, convertible notes with principal amount of HK$57,020,000 were converted into 570,200,000 ordinary shares at a conversion price of HK$0.10 per share.
(iv) 150,000,000 new ordinary shares of the Company had been issued at a placing price of HK$0.165 per share on 18 June 2007, proceed of approximately HK$24,415,000 was being raised as working capital.

32. Share Option Scheme

The Company adopted a Share Option Scheme (the “Scheme”) on 6 March 2002. Under the terms of the Scheme, the board of directors of the Company (the “Board”) may, at their discretion, grant options to selected persons to subscribe for shares in the Company as incentives or rewards for their contribution to the Group. The maximum number of shares in respect of which options may be granted under the Scheme may not exceed 30% of the issued share capital of the Company.

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The subscription price will be determined by the Board and will not be less than the highest of (i) the nominal value of the shares on the date of the offer, (ii) the closing price of the shares on the date of grant of the options, and (iii) the average of the closing prices of the shares on the five business days immediately preceding the date of offer of the options. The total number of shares issued and to be issued upon exercise of the options granted to each grantee (including both exercised and outstanding options) in any 12-month period up to the date of grant shall not exceed 1% of the shares in issue at the date of grant. The Scheme is valid and effective for a period of ten years from the listing of the Company’s shares on the GEM on 26 March 2002. Any options granted under the Scheme may be exercised at any time during a period to be notified by the Board to each grantee but may not be exercised after the expiry of ten years from the date of grant of the option. Upon acceptance of the option, the grantee must pay HK$1.00 to the Company by way of consideration for the grant.

On 3 July 2007, the Company granted share options to certain of its directors and employees at a nominal consideration of HK$1.00 for each lot of share option to subscribe for an aggregate of 2,970,000 shares under the Scheme at an exercise price of HK$0.219 per share.

(a) Details of share options granted during the year and remain outstanding as at year end

Name and Exercise categories Date price of grantees of grant Exercise period per share HK$ Non-executive directors Duncan Chiu 3/7/2007 3/7/2007-5/3/2012 0.219 Richard Yen 3/7/2007 3/7/2007-5/3/2012 0.219 Sub-total Employee In aggregate 3/7/2007 3/7/2007-5/3/2012 0.219 Total	Number of options 2007 2006 990,000 — 990,000 — 1,980,000 — 990,000 — 2,970,000 —	Number of options 2007 2006 990,000 — 990,000 — 1,980,000 — 990,000 — 2,970,000 —
		— —
		—

(b) The fair value of options granted under the Scheme measured at the date of grant on 3 July 2007 was approximately HK$98,000. The following significant assumptions were used to derive the fair values using the Binomial Option Pricing Model:

Date of grant	3 July 2007
Time to maturity_(year)_	4.7
Expected volatility_(%)_	35.0
Risk-free interest rate_(%)_	4.5
Up movement probability_(%)_	49.9
Sub-optimal factor	1.5

Taken into consideration of early exercise behavior of the option holders, sub-optimal factor of 1.5 was used. Due to the recent business transformation of the Company, the historical volatility of the Company cannot fully reflect the stock price movement of new business of the Company. The calculation of expected volatility used the historical volatility of two comparable companies with similar business.

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33. Employee Award Plan

The Company’s employee award plan (the “Plan”) was adopted by the Board of Directors on 24 July 2007 for the primary purpose of recruiting and motivating employees and directors to achieve superior performance. The Plan is valid and effective for 10 years commencing 24 July 2007. Under the Plan, the Remuneration Committee of the Company may conditionally grant an award to any directors or employee of the Company and its subsidiaries. Upon vesting of the award, the grantee shall be entitled to cash payment under the award if the vesting price exceeds award price, subject to an overall limit as stated in the award letter.

The amount of award payment shall be determined in accordance with the following formula:

(Vesting Price — Award price) x Award Number

Vesting price means the average closing price of the Company’s shares as stated in the daily quotation sheets issued by the stock exchange for five business days immediately preceding the vesting date.

The following tables set out the movement in the Plan:

Year ended 31 December 2007

Name and categories of grantees Date of grant Date of expiry Director Gouw San Bo, 25 July 2007 31 December 2007 Elizabeth Lo Mun Lam, 25 July 2007 31 December 2007 Raymond Richard Yen 25 July 2007 31 December 2007 Sub-total Employee In aggregate 25 July 2007 31 December 2007 Total	Award Award number Price HK$ 30,000,000 0.236 5,000,000 0.236 5,000,000 0.236 40,000,000 85,000,000 0.236 125,000,000	Overall limit of cash payment HK$’000 3,000 500 500 4,000 8,500 12,500	Award granted during the year HK$ — — —
			— —
			—

No grantee was entitled to any payment under the award during the year.

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34. Reserves

The amounts of the Group’s reserves and the movements therein for the current year and prior period are presented in the consolidated statement of changes in equity on page 34 of the financial statements.

Company

At 1 April 2006 Capital reorganization Issue of shares on open offer Share issuance costs Net loss for the period At 31 December 2006 and 1 January 2007 Conversion of convertible notes Placing of new shares —note 31 Cost of placing of new shares Recognition of equity-settled share-based payments —note 32 Net loss for the year At 31 December 2007	Share premium HK$’000 34,698 — 21,730 (786) — 55,642 53,546 23,250 (335) — — 132,103	Share-based payments reserve HK$’000 — — — — — — — — — 98 — 98	Accumulated losses HK$’000 (100,855) 64,533 — — (7,511) (43,833) — — — — (89,146) (132,979)	Total HK$’000 (66,157) 64,533 21,730 (786) (7,511) 11,809 53,546 23,250 (335) 98 (89,146) (778)

Note: The share premium account of the Company is the premium from the shares issued. Under the Companies Law of the Cayman Islands, the share premium is distributable to the shareholders of the Company, provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as and when fall due in the ordinary course of business.

At 31 December 2007, in the opinion of the directors, there is no Company’s reserves available for distributions to shareholders (2006: HK$11,809,000).

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35. Disposal of Subsidiaries

		Period from
	Year ended	1/4/2006 to
	31/12/2007	31/12/2006
	HK$’000	HK$’000
Net liabilities disposal of:
Amounts due to group companies	(100,521)	(3,193)
Accrued liabilities	(335)	—
	(100,856)	(3,193)
Realisation of reserves	—	15
Gain on disposal of subsidiaries	385	1,698
A mounts waived by group companies	100,521	1,480
	50	—

Satisfied by:
Cash	50	—

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of the
subsidiaries is as follows:
		Period from
	Year ended	1/4/2006 to
	31/12/2007	31/12/2006
	HK$’000	HK$’000
Cash consideration	50	—
Cash and bank balances disposed of	—	—
Net inflow of cash and cash equivalents
in respect of the disposal of a subsidiary	50	—

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APPENDIX II

36. Related Party Transactions

(a) In addition to the transactions and balances detailed elsewhere in these financial statements, the Group and the Company had the following material transactions with related parties during the year/period:

Notes Management fee charged by a related company (i) Sales to a jointly controlled entity (ii) Purchases from a jointly controlled entity (iii) Management fee income charged to a jointly controlled entity (iv) Subsidy received from a jointly controlled entity and deducted the cost of leasehold improvements (v) Management fee income charged to subsidiaries (vi)	Group Period from Year ended 1/4/2006 to 31/12/2007 31/12/2006 HK$’000 HK$’000 984 495 11 — 3,446 — 340 — 100 — Company 780 —

Notes:

(i) Management fee was charged at a rate mutually agreed between the Group and the related company in which certain directors of the Company’s subsidiary have beneficial interests, by reference to sharing of office premises and supplies, and manpower in provision of administrative services to the Group.
(ii) Sales to a jointly controlled entity were carried out at cost.
(iii) Purchases from a jointly controlled entity were carried out in accordance with the negotiated prices with reference to market price.
(iv) Management fee income was charged at a rate mutually agreed between the Group and a jointly controlled entity and based on the cost of the administrative services provided by the Group.
(v) Subsidy received from a jointly controlled entity was based on a pre-agreed fixed amount.
(vi) Management fee income was charged by the Company based on the cost of manpower in provision of human resource services to the subsidiaries.

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(b) On 15 August 2007, Better Point Limited (“Better Point”), a wholly-owned subsidiary of the Company, entered into an agreement with Austen Limited (“Austen”) in which Mr. Richard Yen, a director of the Company, has interest, to establish CR Hong Kong Limited (“CR Hong Kong”) which will principally engage in the holding of licensing rights including without limitation the investment in design, manufacturing and distribution of fashion and life style product of the brand called Cynthia Rowley.
(c) The Group’s related company has guaranteed the trust receipt loans and bank overdrafts made to the Group’s subsidiary up to HK$4,000,000 and HK$1,000,000 respectively at nil consideration. At the balance sheet date, such guarantee has been released by the related company.

37. Contingent Liabilities

At the balance sheet date, the Company has given unlimited corporate guarantees (2006: unlimited) to banks to secure the banking facilities granted to its subsidiaries. Facilities amounting to HK$12,490,038 (2006: HK$5,429,000) were utilized at the balance sheet date.

38. Operating Lease Arrangements

The Group leases certain retail shops and office premises under operating lease arrangements. Leases for retail shops and office premises are negotiated for terms ranging from 1 to 3 years. At the balance sheet date, the Group had total future minimum lease payments under non-cancelable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	2007 HK$’000 14,783 13,581 28,364	2006 HK$’000 6,301 4,618
		10,919

The operating lease rentals of certain retail shops in Hong Kong are based on the higher of a fixed rental or contingent rent based on sales of the retail shops pursuant to the terms and conditions as set out in the respective rental agreements. As the future sales of these retail shops could not be accurately determined, the relevant contingent rents have not been included above and only the minimum lease commitments have been included in the above table.

The operating lease rentals of certain retail shops in Taiwan are based solely on the sales of the outlets. In the opinion of the directors of the Group, as the future sales of the retail outlets could not be accurately estimated, the relevant rental commitments have not been included above table.

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APPENDIX II

39. Commitments

In addition to the operating lease commitments detailed in note 38 above, the Group and the Company had the following commitments at the balance sheet date:

(a) Commitments under license agreements in respect of several brand name products:

Minimum purchases: Within one year In the second to fifth years, inclusive Beyond five years (b) Capital commitments Contracted, but not provided for: Acquisition of a subsidiary_(note i)_ Legal and professional fee related to the acquisition	Group 2007 2006 HK$’000 HK$’000 26,451 19,072 92,017 86,151 — 6,649 118,468 111,872 Company 2007 2006 HK$’000 HK$’000 89,086 — 981 — 90,067 —	Group 2007 2006 HK$’000 HK$’000 26,451 19,072 92,017 86,151 — 6,649 118,468 111,872 Company 2007 2006 HK$’000 HK$’000 89,086 — 981 — 90,067 —
		—

Note (i): On 8 November 2007, the Company entered into an acquisition agreement in relation to the acquisition of 96.57% of the issued shares in Financière Solola and EUR1,400,000 convertible bonds issued by Financière Solola for an initial consideration of EUR7,717,766 and an Earn Out payment with a maximum amount of EUR2,894,162 which is subject to the audited consolidated EBITDA of the Financière Solola Group for the year ending 31 December 2008 based on the French GAAP. The above amount only represents the initial consideration of EUR7,717,766, which is equivalent to approximately HK$89,086,000.

In addition, the Company agreed that if the acquisition is not completed on or before a final cut-off date which defined in the acquisition agreement, the Company shall pay to the sellers, a break-up fee of EUR1,000,000 on or before 7 May 2008 or, the date falling 5 days after final cut-off date, provided that no such break up fee shall be payable in the event of fraud, negligence or willful default on the part of the sellers or where the sellers fail to comply with any of their material obligations with the acquisition agreement.

The transaction is yet to be approved by the shareholders.

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APPENDIX II

(c) Pursuant to a shareholders agreement dated 21 February 2007 and a supplemental agreement dated 23 February 2007 entered into between Profit First Investments Limited (“Profit First”), a wholly owned subsidiary of the Company, and Zion Worldwide Limited (“Zion Worldwide”), a venturer of jointly controlled entity namely LOC Limited (“LOC”), Profit First has agreed to pay an earn-out payment to Zion Worldwide. The earn-out payment is based on the consolidated and audited net profit of LOC during the period from 1 March 2007 to 31 December 2010 with a minimum payment of HK$3,000,000 but in any event not exceeding HK$7,500,000. At 31 December 2007, the commitment on the earn-out payment is with minimum of HK$2,348,000.
(d) Pursuant to a shareholders agreement dated 15 August 2007 entered into between Better Point Limited (“Better Point”), a wholly owned subsidiary of the Company, and Austen Limited (“Austen”), a venturer of jointly controlled entity namely CR Hong Kong Limited (“CR Hong Kong”), Better Point and Austen have agreed to inject capital by equity and by way of shareholders’ loans to CR Hong Kong in equal share in the total sum of HK$12,000,000. The proportion of the equity and shareholders’ loans shall be agreed between Better Point and Austen. At 31 December 2007, Better Point has the outstanding commitment of HK$5,532,000 for the capital inject into CR Hong Kong.

40. Post Balance Sheet Events

The following events have occurred subsequent to 31 December 2007:

(a) On 4 February 2008, the Board announced that the Company proposes to raise funds ranging from approximately HK$56.86 million to approximately HK$57.00 million, before expenses, by way of the Rights Issue of not less than 997,601,190 Rights Shares and not more than 999,977,190 Rights Shares at the Subscription Price of HK$0.057 per Rights Share. The basis of the Rights Issue is four Rights Shares for every five existing ordinary shares of the Company held on 12 March 2008. Further details of the transaction are also set out in a prospectus, circular and an announcement of the Company dated 14 March 2008, 25 February 2008 and 4 February 2008, respectively.
(b) On 18 February 2008, Better Point Limited (“Better Point”), a directly wholly owned subsidiary of the Company, entered into a sale and purchase agreement with Austen Limited to purchase its entire interests in CR Hong Kong Limited (“CR Hong Kong”) which is a jointly controlled entity of Better Point. Upon the completion of the acquisition, CR Hong Kong becomes an indirectly wholly owned subsidiary of the Company.
(c) On 18 February 2008, the Company entered into a subscription agreement (as amended by a supplemental agreement dated 7 March 2008) with Chung Chiu Limited (“Chung Chiu”) whereby Chung Chiu agreed to subscribe for the convertible bonds in the principal amount of HK$40,000,000 to be issued by the Company for a term of 3 years with a coupon rate of 2% per annum. Further details of the transaction are also set out in a circular and an announcement of the Company dated 12 March 2008 and 20 February 2008, respectively.

41. Financial Risk Management Objectives and Policies

The Group’s principal financial liabilities, other than derivatives, comprise interest-bearing bank loans, finance leases, and trade and bill payables. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various financial assets such as trade receivables as well as deposits, prepayments and other receivables, which arise directly from its operations.

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APPENDIX II

The Group also enters into derivative transactions, primarily forward currency contracts. The purpose is to manage currency risks arising from the Group’s operations.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, liquidity risk and credit risk. The board of directors reviews and agrees policies for managing each of the risks which are summarized below. The Group’s accounting policies in relation to derivatives are set out in note 4 to the financial statements.

Interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to its bank borrowings with a floating interest rate. The Group does not use derivative financial instruments to hedge its interest rate risk.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s loss before tax (through the impact on floating rate borrowings).

	Increase/	Increase/	Increase/
	(decrease) in	(decrease) in	(decrease) in
	basis points	loss before tax	equity
		HK$’000	HK$’000
2007
Hong Kong dollar	50	67	(67)
Hong Kong dollar	(50)	(67)	67
2006
Hong Kong dollar	50	69	(69)
Hong Kong dollar	(50)	(69)	69

Foreign currency risk

The Group has transactional currency exposures. Such exposures arise from purchases by operating units in currencies other than the units’ functional currency. Approximately 87% (period ended 31 December 2006: 100%) of the Group’s purchases are denominated in currencies other than the functional currency of the operating units. The Group manages the foreign exchange exposure arising from its normal course of business activities through forward currency contracts. The management monitors foreign exchange exposure closely and will consider hedging significant foreign currency exposure should the need arise.

As at the balance sheet date, all balances in foreign currencies other than the functional currency of the operating units have been substantially hedged by foreign exchange forward contracts. Thus, no sensitivity analysis on the foreign currency risk is presented.

Liquidity risk

The Company monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets (e.g., trade receivables) and projected cash flows from operations.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, finance leases and other interest-bearing loans.

The maturity profile of the Group’s financial liabilities as at the balance sheet date, based on the contracted undiscounted payments, was as follows:

31 December 2007 Interest-bearing loans and borrowings Trade and bills payables Other payables and accruals 31 December 2006 Interest-bearing loans and borrowings Trade and bills payables Other payables and accruals	On demand HK$’000 806 — — 806 On demand HK$’000 2,471 — — 2,471	Less than 3 months HK$’000 9,361 2,593 15,114 27,068 Less than 3 months HK$’000 4,867 3,116 3,212 11,195	3 to 12 months HK$’000 3,396 — — 3,396 3 to 12 months HK$’000 5,122 — — 5,122	1 to 5 years HK$’000 805 — — 805 1 to 5 years HK$’000 2,785 — — 2,785	Total HK$’000 14,368 2,593 15,114 32,075 Total HK$’000 15,245 3,116 3,212 21,573

Credit risk

The Group has no significant concentration of credit risk. The Group deals mainly with retail customers who pay with cash and credit cards. The Group’s trade receivables mainly represented by receivables from banks in respect of sales settled by customers through credit cards in Hong Kong and shopping malls that collected sales proceeds in Taiwan on behalf of the Group.

Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables are disclosed in note 23 to the financial statements.

42. Capital Management

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

to shareholders, issue net shares, or sell assets to reduce debt. No changes were made in the objectives, policies or processes during the year ended 31 December 2007 and the period from 1 April 2006 to 31 December 2006.

The Group monitors capital using a gearing ratio, which is borrowings divided by the total of borrowings and equity. Borrowings includes interest-bearing borrowings and convertible notes. Equity includes total equity less equity components of convertible notes. The gearing ratios as at the balance sheet dates were as follows:

Borrowings: Interest-bearing bank and other borrowings Convertible notes — equity and liability components Equity: Total equity Convertible notes — equity components Borrowings and equity Gearing ratio	2007 HK$’000 14,368 — 14,368 11,753 — 11,753 26,121 55%	2006 HK$’000 15,245 59,504 74,749 31,548 (11,316) 20,232 94,981 79%

43. Comparative

The comparative amounts shown for the consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement and related notes cover the period from 1 April 2006 to 31 December 2006 and therefore may not be comparable with amounts shown for the current year.

Certain comparatives are reclassified during the year to conform current year’s presentation.

44. Approval of the Financial Statements

The financial statements were approved and authorised for issue by the board of directors on 20 March 2008.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

2. AUDITED FINANCIAL STATEMENTS

Set out below are the independent auditor’s report and audited financial statements together with the relevant notes thereto as extracted from the annual report of Golife for the period from 1 April 2006 to 31 December 2006. For avoidance of doubt, capitalised terms used in the extract below shall have the meaning as ascribed to them in the annual report of Golife for period from 1 April 2006 to 31 December 2006.

Independent Auditor’s Report

==> picture [259 x 33] intentionally omitted <==

Room A,15th Floor Fortis Bank Tower 77-79 Gloucester Road Wanchai Hong Kong

To the members of

GOLIFE CONCEPTS HOLDINGS LIMITED

(formerly known as “Satellite Devices Corporation”) (incorporated in the Cayman Islands with limited liability)

We have audited the consolidated financial statements of Golife Concepts Holdings Limited (the “Company”) set out on pages 26 to 77, which comprise the consolidated and Company balance sheets as at 31 December 2006, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the period from 1 April 2006 to 31 December 2006, and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility for the financial statements

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2006 and of the Group’s profit and cash flows for the period from 1 April 2006 to 31 December 2006 in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Cheung & Siu

Certified Public Accountants (Practising) Hong Kong, 28 March 2007

— 211 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Income Statement

Period from 1 April 2006 to 31 December 2006

Period from
1/4/2006 to
31/12/2006
Notes
HK$’000
Turnover
7
18,885
Cost of sales
(7,385)
Gross profit
11,500
Other revenue and gains
7
5,357
Selling and distribution costs
(994)
Administrative expenses
(12,240)
Finance costs
8
(1,799)
PROFIT/(LOSS) BEFORE TAX
9
1,824
Tax
11
(676)
PROFIT/(LOSS) ATTRIBUTABLE
TO SHAREHOLDERS
12
1,148
Dividend
13
—
Earnings/(loss) per share
14
— basic_(cents)
0.32
— diluted(cents)_
N/A

Year ended
31/3/2006
HK$’000
1,359
(520)
839
3,130
—
(21,695)
—
(17,726)
—
(17,726)
—
(14.49)
N/A

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Balance Sheet

31 December 2006

Notes NON-CURRENT ASSETS Property, plant and equipment 15 Goodwill 16 Intangible assets 17 Investments in associates 19 Total non-current assets CURRENT ASSETS Inventories 20 Trade receivables 21 Deposits, prepayments and other receivables Financial assets at fair value through profit or loss 22 Derivative financial instruments 23 Cash and bank balances Total current assets CURRENT LIABILITIES Trade and bills payables 24 Other payables and accruals Interest-bearing bank and other borrowings 25 Tax payable Total current liabilities Net current liabilities Total assets less current liabilities	31/12/2006 HK$’000 2,955 75,552 4,720 — 83,227 2,643 2,209 4,598 6,190 92 3,426 19,158 3,116 3,212 12,460 1,076 19,864 (706) 82,521	31/3/2006 HK$’000 — — — 4 4 — 328 10 — — 112 450 — 1,505 — — 1,505 (1,055) (1,051)

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Notes NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings 25 Convertible notes 27 Total non-current liabilities Net assets/(liabilities) EQUITY Issued capital 29 Equity component of convertible notes 27 Reserves Total equity	31/12/2006 HK$’000 2,785 48,188 50,973 31,548 5,268 11,316 14,964 31,548	31/3/2006 HK$’000 4,775 — 4,775 (5,826) 65,850 — (71,676) (5,826)

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Statement of Changes in Equity

Period from 1 April 2006 to 31 December 2006

At 1 April 2005 Issue of shares upon loan capitalisation Net loss for the year At 31 March 2006 and 1 April 2006 Capital reorganisation —note 29 Issue of shares on open offer Share issuance costs Issue of convertible notes —note 27 Redemption of convertible notes Reserve realized upon disposal of subsidiaries Net profit for the period At 31 December 2006	Issued capital HK$’000 59,092 6,758 — 65,850 (64,533) 3,951 — — — — — 5,268	Share premium Equity component of convertible notes HK$’000 HK$’000 34,698 — — — — — 34,698 — — — 21,730 — (786) — — 11,999 — (683) — — — — 55,642 11,316	Exchange reserve Accumulated losses HK$’000 HK$’000 (15) (88,633) — — — (17,726) (15) (106,359) — 64,533 — — — — — — — — 15 — — 1,148 — (40,678)	Total HK$’000 5,142 6,758 (17,726)
				(5,826) — 25,681 (786) 11,999 (683) 15 1,148
				31,548

— 215 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Cash Flow Statement

Period from 1 April 2006 to 31 December 2006

Period from
1/4/2006 to
31/12/2006
HK$’000
OPERATING ACTIVITIES
Profit/(loss) before tax
1,824
Adjustments for:
Finance costs
1,799
Interest income
(9)
Depreciation
732
Provision for impairment on investment in an associate
4
Amortisation of intangible assets
280
Gain on disposal of subsidiaries
(1,698)
Waiver of other loan
(1,000)
Fair value gain on financial assets at fair value through
profit or loss
(2,014)
Fair value gain on derivative financial instruments
(92)
Write-off of property, plant and equipment
—
Reversal of write-down of inventories
—
Reversal of provision for doubtful debts
(3)
Operating cash flow before movements in working capital
(177)
Decrease in inventories
2,837
Decrease/(increase) in trade receivables
(409)
Decrease in deposits, prepayments and other receivables
5,677
Increase in financial assets at fair value through
profit or loss
(4,176)
Increase in trade and bill payables
1,342
Decrease in other payables and accruals
(400)
Increase in amount due to a fellow subsidiary
—
Increase in amount due to a director
—
Cash generated from operations
4,694
Interest received
9
Hong Kong profits tax paid
(2,718)
Overseas tax paid
(47)
NET CASH FROM OPERATING ACTIVITIES
1,938

Year ended
31/3/2006
HK$’000
(17,726)
—
—
11,194
—
—
—
—
—
—
5,827
(176)
(2,537)
(3,418)
512
2,380
177
—
—
(961)
667
650
7
—
—
—
7

— 216 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Period from
1/4/2006 to
31/12/2006
HK$’000
INVESTING ACTIVITIES
Acquisition of a subsidiary
(21,362)
Purchases of items of property, plant and equipment
(125)
NET CASH USED IN INVESTING ACTIVITIES
(21,487)
FINANCING ACTIVITIES
Interest paid
(315)
Proceeds from open offer
24,895
Redemption of convertible notes
(3,500)
Repayment of other loan
(3,775)
New bank loans
7,300
Repayment of bank loans
(873)
Decrease in trust receipt loans
(3,157)
Repayments of capital element of finance leases
(183)
NET CASH FROM/(USED IN) FINANCING
ACTIVITIES
20,392
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS
843
Cash and cash equivalents at beginning of period/year
112
CASH AND CASH EQUIVALENTS AT END OF
PERIOD/YEAR
955
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances
3,426
Bank overdrafts
(2,471)
955

Year ended
31/3/2006
HK$’000
—
(9)
(9)
—
—
—
—
—
—
—
(8)
(8)
(10)
122
112
112
—
112

— 217 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Balance Sheet

31 December 2006

Notes NON-CURRENT ASSETS Investments in subsidiaries 18 CURRENT ASSETS Cash and bank balances CURRENT LIABILITIES Other payables and accruals Due to a subsidiary 18 Total current liabilities Net current liabilities Total assets less current liabilities NON-CURRENT LIABILITIES Convertible notes 27 Net assets/(liabilities) EQUITY Issued capital 29 Equity components of convertible notes 27 Reserves 31 Total equity	31/12/2006 HK$’000 81,180 1 685 3,915 4,600 (4,599) 76,581 48,188 28,393 5,268 11,316 11,809 28,393	31/3/2006 HK$’000 — 22 329 — 329 (307) (307) — (307) 65,850 — (66,157) (307)

— 218 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Notes to the Financial Statements

31 December 2006

1. General information

The registered office and principal place of business of the Company are located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111 Cayman Islands and Suite 14A, 14 Floor, Shun Ho Tower, 24-30 Ice House Street, Central, Hong Kong, respectively.

The Company’s principal activity has not changed during the period and consisted of investment holding. The principal activities of its subsidiaries are design, development and sales of locationbased technology devices and application, and distribution of high-end apparel and accessories.

2. Basis of preparation

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. In addition, the financial statements comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the GEM of the Stock Exchange. They have been prepared under the historical cost convention, except for certain financial assets which have been measured at fair value.

3. Impact of new Hong Kong Financial Reporting Standards and changes in accounting policies

In the current period, the Group has applied, for the first time, a number of new standards, amendments and interpretations (“new HKFRSs”) issued by the HKICPA, which are either effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the new HKFRSs had no material effect on how the results for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

3.1 Impact of issued but not yet effective Hong Kong Financial Reporting Standards

The Group has not early applied the following new standards, amendment and interpretations that have been issued but are not yet effective. The directors of the Company anticipate that the application of these standards, amendment or interpretations will have no material impacts on the financial statements of the Group.

HKAS 1 (Amendment) Capital Disclosures1 HKFRS 7 Financial Instruments Disclosures1 HK(IFRIC)-Int 8 Scope of HKFRS 22 HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives3 HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment4 HK(IFRIC)-Int 11 HKFRS 2 — Group and Treasury Share Transactions5 HK(IFRIC)-Int 12 Service Concession Arrangements6

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

2 Effective for annual periods beginning on or after 1 May 2006

3 Effective for annual periods beginning on or after 1 June 2006

4 Effective for annual periods beginning on or after 1 November 2006

5 Effective for annual periods beginning on or after 1 March 2007

6 Effective for annual periods beginning on or after 1 January 2008

4. Summary of significant accounting policies

Basis of presentation

The financial statements have been prepared on a going concern basis notwithstanding the Group had net current liabilities as at 31 December 2006, the validity of which is dependent upon the success of the Group’s future operations and its ability to generate adequate cash flows in order to meet its obligations as and when they fall due such that the Group can meet its future working capital. Subsequent the balance sheet date, the Group’s operation has generated sufficient cash flows to meet its obligations as and when they fall due. Accordingly, the directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis.

The Group changed its financial year end date from 31 March to 31 December. The financial statements for the current period cover 9 months from 1 April 2006 to 31 December 2006. The comparative amounts shown for the consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement and related notes cover the year ended 31 March 2006 and therefore, are not with a comparable time period.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the period from 1 April 2006 to 31 December 2006. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control, and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

— 220 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The acquisition of subsidiaries during the period has been accounted for using purchase method of accounting. This method involves allocating the cost of the business combinations to the fair value of the assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. The cost of the acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Minority interests represent the interests of outside shareholders in the results and net assets of the Company’s subsidiaries.

Subsidiaries

A subsidiary is an entity whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

Associates

An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

Goodwill

Goodwill arising on acquisition is initially recognised in the consolidated balance sheet as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

— 221 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with HKAS 14 “Segment Reporting”.

An impairment loss recognized for goodwill is not reversed in a subsequent period.

Impairment of assets

— 222 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Related parties

A party is considered to be related to the Group if:

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

Property, plant and equipment and depreciation

Leasehold improvements	20%
Furniture, fixtures and office equipment, and computer equipment	20% — 33.3%
Motor vehicles	20 — 25%
Moulds	50%

— 223 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each balance sheet date.

Leases

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.

Intangible assets

Franchise rights

Franchise rights are stated at cost less any impairment losses, and are amortised on the straightline basis over their estimated useful lives of 4 to 10 years.

Investment and other financial assets

Financial assets in the scope of HKAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, or available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Financial assets at fair value through profit or loss

Loans and receivables

Available-for-sale financial assets

Available-for-sales financial assets are those non-derivative financial assets in listed and unlisted equity securities that are designated as available-for-sale or are not classified in any of the other two categories. After initial recognition available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Fair value

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired.

Assets carried at amortised cost

— 225 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Assets carried at cost

Available-for-sale financial assets

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial asset) is derecognised where:

the rights to receive cash flows from the asset have expired;
the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or
the Group has transferred its right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

— 226 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Where continuing involvement takes the form of a written and/or purchased option (including a cashsettled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process.

Convertible notes

Inventories

Cash and cash equivalents

For the purpose of the balance sheets, cash and bank balances comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

— 227 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Provision

Income tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax liabilities are recongised for all taxable temporary differences, except:

where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

— 228 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Revenue recognition

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

(a) from the sales of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) from the rendering of services, when services are rendered; and
(c) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

Employee benefits

Share-based payment transactions

— 229 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Pension scheme

Borrowing costs

Borrowing costs are recognised as expenses in the income statement in the period in which they are incurred.

Foreign currencies

5. Significant accounting judgements and

Estimates

Judgements

— 230 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Impairment of assets

6. Segment information

(i) Business segments

The following tables present revenue, profit/(loss) and certain asset, liability and expenditure information for the Group’s business segments for the period from 1 April 2006 to 31 December 2006 and the year ended 31 March 2006.

For management purposes, the Group is currently organized into two operating divisions — design, development and sales of location-based technology devices and applications, and distribution of high-end apparel and accessories. These divisions are the basis on which the Group reports its primary segment information.

— 231 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Segment information about these businesses is presented below.

	Design, development and	Design, development and	Design, development and
	sales of location-based
	technology devices and			Distribution of high-end
	applications			apparel and accessories		Consolidated
	Period from			Period from		Period from
	1/4/2006 to	Year ended		1/4/2006 to	Year ended	1/4/2006 to	Year ended
	31/12/2006		31/3/2006	31/12/2006	31/3/2006	31/12/2006		31/3/2006
	HK$’000		HK$’000	HK$’000	HK$’000	HK$’000		HK$’000
TURNOVER
External turnover	543		1,359	18,342	—	18,885		1,359

RESULTS
Segment results	(360)		(16,879)	363	—	3		(16,879)
Unallocated revenue						5,110		204
Unallocated expenses						(1,490)		(1,051)
Finance costs						(1,799)		—
Profit/(loss) before tax						1,824		(17,726)
Tax						(676)		—
Profit/(loss) for the period/year						1,148		(17,726)

	Design, development and
	sales of location-based
	technology devices and			Distribution of high-end
	applications			apparel and accessories		Consolidated
	31/12/2006		31/3/2006	31/12/2006	31/3/2006	31/12/2006		31/3/2006
	HK$’000		HK$’000	HK$’000	HK$’000	HK$’000		HK$’000
Assets:
Segment assets	1		428	94,395	—	94,396		428
Investment in an associate	—		4	—	—	—		4
Unallocated corporate assets						7,989		22
Total assets						102,385		454

Liabilities:
Segment liabilities	417		5,950	21,547	—	21,964		5,950
Unallocated corporate liabilities						48,873		330
Total liabilities						70,837		6,280

— 232 —

APPENDIX II

FINANCIAL INFORMATION ON GC GROUP

	Period from		Period from		Period from
	1/4/2006 to	Year ended	1/4/2006 to	Year ended	1/4/2006 to	Year ended
	31/12/2006	31/3/2006	31/12/2006	31/3/2006	31/12/2006	31/3/2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Other segment information:
Capital expenditure	—	9 1,741	—	1,741	9
Depreciation	—	11,194	732	—	732	11,194
Amortisation	—	—	280	—	280	—
Impairment loss	4	—	—	—	4	—

(ii) Geographical segments

During the period, the Group’s turnover was derived from operations carried out in Hong Kong and Taiwan. Over 90% of the Group’s assets, liabilities and capital expenditures are derived from operations carried out in Hong Kong. Accordingly, no further geographical segment information is presented in the financial statements except the followings.

	Hong Kong	Hong Kong	Taiwan	Taiwan		Other		Consolidated	Consolidated
	Period from		Period from		Period from			Period from
	1/4/2006 to	Year ended	1/4/2006 to	Year ended	1/4/2006 to	Year ended		1/4/2006 to	Year ended
	31/12/2006	31/3/2006	31/12/2006	31/3/2006	31/12/2006	31/3/2006		31/12/2006	31/3/2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000
TURNOVER
External turnover	13,798	1,359	5,087	—	–		—	18,885	1,359

RESULTS
Segment results	1,759	(16,614)	433	—	(368)		(1,112)	1,824	(17,726)
Tax								(676) —
Profit/(loss) for the
period/year								1,148	(17,726)

— 233 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

7. Turnover, other revenue and gains

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts and the value of services rendered.

An analysis of the Group’s turnover, other revenue and gains is as follows:

TURNOVER Design, development and sales of location-based technology devices and applications Distribution of high-end apparel and accessories OTHER REVENUE AND GAINS Bank interest income Consultancy fee income Fair value gain on financial assets at fair value through profit or loss Fair value gain on derivative financial instruments Gain on disposal of financial assets at fair value through profit or loss Gain on disposal of subsidiaries Reversal of provision for doubtful debts Reversal of write-down of inventories Waiver of other loan Write-off of long outstanding other payables and accruals Sundry income Finance costs Interest on convertible notes Interest on bank loans and overdrafts wholly repayable within five years Interest on finance leases	Period from 1/4/2006 to 31/12/2006 HK$’000 543 18,342 18,885 9 72 2,014 92 398 1,698 3 — 1,000 — 71 5,357 Period from 1/4/2006 to 31/12/2006 HK$’000 1,484 289 26 1,799	Year ended 31/3/2006 HK$’000 1,359 —
		1,359

		— — — — — — 2,498 176 — 252 204
		3,130

		Year ended 31/3/2006 HK$’000 — — —
		—

8. Finance costs

— 234 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

9. Profit/(loss) before tax

Profit/(loss) before tax is arrived at after charging:

Cost of inventories sold Cost of services rendered Auditors’ remuneration Amortisation of intangible assets Depreciation of property, plant and equipment Exchange losses, net Minimum lease payments under operating leases on land and buildings Provision for impairment on investment in an associate Write-off of property, plant and equipment Staff costs (excluding directors’ remuneration —note 10) Salaries and allowances Pension scheme contributions	Period from 1/4/2006 to 31/12/2006 HK$’000 7,323 62 295 280 732 76 3,962 4 — 3,119 128 3,247	Year ended 31/3/2006 HK$’000 — 520 250 — 11,194 10 310 — 5,827 1,687 (16)
		1,671

10. Directors’ remuneration and five highest paid employees

The remuneration of each director for the period from 1 April 2006 to 31 December 2006 and the year ended 31 March 2006 are set out below:

Period from 1 April 2006 to 31 December 2006:

Executive directors Leung Tak Wah Lo Mun Lam, Raymond Yu Wai Yin, Vicky Independent non-executive directors Lum Pak Sam Sum Chun Ho, Sam Wan Kwok Pan Non-executive directors Duncan Chiu_(note 1) Richard Yen(note 1)_ Total	Fees Salaries and allowances Retirement scheme contribution HK$’000 HK$’000 HK$’000 — 190 9 200 — — 40 — — — — — 19 — — 14 — — — — — — — — 273 190 9	Total HK$’000 199 200 40 — 19 14 — —
		472

— 235 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Year ended 31 March 2006:

Executive directors Tsoi Siu Ching, Leo_(note 2) Leung Tak Wah Lo Mun Lam, Raymond Yu Wai Yin, Vicky Independent non-executive directors Chan Chi Tong(note 3) Huang Hai Wen(note 4) Liu Kwong Sang(note 5) Lum Pak Sum Sum Chun Ho, Sam Wan Kwok Pan Total _Notes:	Fees Salaries and allowances Retirement scheme contribution HK$’000 HK$’000 HK$’000 — — — — 260 12 — — — 70 — — 70 — — 64 — — — — — — — — 35 — — 6 — — 245 260 12	Total HK$’000 — 272 — 70 70 64 — — 35 6
		517

Mr. Chiu and Mr. Yen appointed on 27 September 2006.
Mr. Tsoi resigned on 31 August 2005.
Mr. Chan resigned on 15 September 2005.
Mr. Huang resigned on 31 August 2005.
Mr. Liu resigned on 8 February 2006.

There was no arrangement under which a director waived or agreed to waive any remuneration during the period/year.

The five individuals whose emoluments were the highest in the Group for the period include two (year ended 31 March 2006: one) directors, details of whose emoluments are set out in above. Details of the emoluments of the remaining three (year ended 31 March 2006: four) are nondirectors, highest paid employees of the Group for the period/year are as follows:

Basic salaries, allowances and other benefits in kind Retirement benefits scheme contributions	Period from 1/4/2006 to 31/12/2006 HK$’000 600 30 630	Year ended 31/3/2006 HK$’000 675 31
		706

— 236 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The emoluments of each of the non-director, highest paid individuals for the period from 1 April 2006 to 31 December 2006 and year ended 31 March 2006 fell within Nil to HK$1,000,000 band.

During the period from 1 April 2006 to 31 December 2006 and year ended 31 March 2006, no emoluments were paid by the Group to any of the directors or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

Retirement benefit costs

11. Tax

Hong Kong profits tax has been provided at the rate of 17.5% on the estimated assessable profits arising in Hong Kong during the period. In prior year, no provision for Hong Kong profits tax had been made as the Group did not generate any assessable profits arising in Hong Kong.

Taxation on overseas profits has been calculated on the estimated assessable profit for the period at the rates of tax prevailing in the countries in which the Group operates.

Current provision: — Hong Kong — Overseas	Period from 1/4/2006 to 31/12/2006 HK$’000 575 101 676	Year ended 31/3/2006 HK$’000 — —
		—

— 237 —

APPENDIX II

FINANCIAL INFORMATION ON GC GROUP

Profit/(loss) before tax Tax at the domestic income tax rate Effect of different tax rates in other jurisdictions Income not subject to tax Expenses not deductible for tax Tax losses not recognized Tax charge at effective rate	Period from 1/4/2006 to 31/12/2006 HK$’000 1,824 319 (24) (471) 336 516 676	% 17.5 (1.3) (25.8) 18.4 28.3 37.1	Year ended 31/3/2006 HK$’000 (17,726) (3,102) 28 — 230 2,844 —	% (17.5) 0.9 — 7.4 9.2 —

12. Net profit/(loss) attributable to shareholders

The net profit/(loss) attributable to shareholders for the period from 1 April 2006 to 31 December 2006 dealt with in the financial statements of the Company is loss of approximately HK$7,511,000. (year ended 31 March 2006: loss of approximately HK$6,517,000).

13. Dividend

The directors of the Company do not recommend the payment of a dividend for the period.

14. Earnings/(loss) per share

The calculation of basic earnings per share is based on the net profit for the period from 1 April 2006 to 31 December 2006 of approximately HK$1,148,000 (year ended 31 March 2006: loss of HK$17,726,000) and the weighted average number of 361,577,386 ordinary shares (year ended 31 March 2006: 122,367,968 ordinary shares being adjusted retrospectively for the share consolidation) in issue during the period.

The weighted average number of ordinary shares for the purpose of calculating basic loss per share for the year ended 31 March 2006 has been retrospectively adjusted for the effect of the share consolidation completed during the period.

Diluted earnings/(loss) per share is not presented as the convertible notes had anti-dilutive effects on the basic earnings/(loss) per share.

— 238 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

15. Property, plant and equipment

Group

Furniture, Leasehold Computer and fixture office improvements equipment equipment HK$’000 HK$’000 HK$’000 Cost: At 1 April 2005 — 58,680 86 Additions — 9 — Write-off — (58,689) (86) At 31 March 2006 and 1 April 2006 — — — Acquired on acquisition of a subsidiary 3,805 — 544 Additions 52 — 73 At 31 December 2006 3,857 — 617 Accumulated depreciation: At 1 April 2005 — 41,677 77 Charge for the year — 11,185 9 Write-off — (52,862) (86) At 31 March 2006 and 1 April 2006 — — — Acquired on acquisition of a subsidiary 2,050 — 353 Charge for the period 347 — 62 At 31 December 2006 2,397 — 415 Net book value: At 31 December 2006 1,460 — 202 At 31 March 2006 — — — At 31 March 2005 — 17,003 9	Motor vehicles HK$’000 213 187 — (213) — — 1,616 1,616 213 — (213) — — 323 323 1,293 — —	Mould HK$’000 59,166 — (187) — — — — 187 — (187) — — — — — — —	Total HK$’000 9 (59,175)
			— 4,349 1,741
			6,090
			42,154 11,194 (53,348)
			— 2,403 732
			3,135
			2,955

			—

			17,012

The net book value of the Group’s property, plant and equipment held under finance leases included in the total amount of motor vehicles at 31 December 2006, approximately amounted to HK$1,293,000 (31 March 2006: Nil).

— 239 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

16. Goodwill

Group

The amounts of the goodwill capitalised by the Group as an asset and recognised in the consolidated balance sheet, arising from the acquisition of a subsidiary, are as follows:

Arising from acquisition of a subsidiary Impairment during the period At 31 December 2006 17. Intangible assets *Group*	HK$’000 75,552 —
	75,552

Cost: Arising from acquisition of a subsidiary At 31 December 2006 Accumulated amortisation and impairment: Amortised for the period At 31 December 2006 Net book value: At 31 December 2006 18. Interests in subsidiaries Unlisted shares, at cost Due from subsidiaries Due to a subsidiary Impairment in value	Franchise rights HK$’000 5,000 5,000 280 280 4,720 Company 31/12/2006 31/3/2006 HK$’000 HK$’000 81,180 — 102,193 97,629 (3,915) — (102,193) (97,629) (3,915) — 77,265 —	Franchise rights HK$’000 5,000
		5,000
		280
		280
		4,720

		97,629 — (97,629)
		—
		—

The amounts due from/(to) subsidiaries are unsecured, interest-free and have no fixed terms of repayment. The carrying amounts of the amounts due from/(to) subsidiaries approximate their fair values.

— 240 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Particulars of the subsidiaries of the Company as at 31 December 2006 are as follows:

		Issued and	Attributable	Attributable
		fully paid	equity	interest
	Place of	up capital/	held	by the
	incorporation/	registered	Company
Name	registration	capital	Directly	Indirectly		Principal activities
Golife (Hong Kong) Limited	Hong Kong	HK$500,000	100%		—	Distribution of high-end
						apparel and accessories
Satellite Devices (BVI) Limited	British Virgin Islands	US$3	100%		—	Investment holding
Satellite Devices Limited	Hong Kong	HK$5,000,000	—	100%		Design, development and sales
						of location-based technology
						devices and application

19. Investments in associates

Share of net assets Amount due to an associate Impairment Particulars of the associate of the Group as at 31 December 2006 Issued and Place of fully paid Name incorporation up capital Telematics Systems Limited Hong Kong HK$10,000 Inventories Merchandise	Group 31/12/2006 31/3/2006 HK$’000 HK$’000 4 1,474 — (1,470) (4) — — 4 are as follows: Equity interest held Principal indirectly activities 40% Dormant Group 31/12/2006 31/3/2006 HK$’000 HK$’000 2,643 —

20. Inventories

At 31 December 2006, no inventories were carried at net realisable value (31 March 2006: Nil).

— 241 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

21. Trade receivables

An aged analysis of the trade receivables as at the balance sheet date, based on the invoice date and net of provisions, is as follows:

0 — 30 days 31 — 60 days 61 — 90 days Over 90 days _Less:_provision for doubtful debts	Group 31/12/2006 31/3/2006 HK$’000 HK$’000 1,710 283 499 45 — — — 12,719 2,209 13,047 — (12,719) 2,209 328	Group 31/12/2006 31/3/2006 HK$’000 HK$’000 1,710 283 499 45 — — — 12,719 2,209 13,047 — (12,719) 2,209 328
		13,047 (12,719)
		328

22. Financial assets at fair value through profit or loss

Equity investments listed in Hong Kong, at fair value Derivative financial assets, at fair value	Group 31/12/2006 31/3/2006 HK$’000 HK$’000 1,493 — 4,697 — 6,190 —	Group 31/12/2006 31/3/2006 HK$’000 HK$’000 1,493 — 4,697 — 6,190 —
		—

The derivative financial assets represent some warrants on equity investments listed in Hong Kong and are with maturity date of 21 May 2007.

23. Derivative financial instruments

	31/12/2006	31/12/2006	31/3/2006	31/3/2006
	Assets	Liabilities	Assets	Liabilities
	HK$’000	HK$’000	HK$’000	HK$’000
Cash flow hedges
— foreign currency contracts	92	—	—	—

The Group has two forward currency contracts outstanding at 31 December 2006 to manage its exchange rate exposures which did not meet the criteria for hedge accounting. Changes in the fair value of non-hedging currency derivatives amounting to HK$92,000 was credited to the income statement during the year (year ended 31 March 2006: Nil).

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APPENDIX II

24. Trade and bills payables

An aged analysis of the trade and bills payables as at the balance sheet date, based on the invoice date, is as follows:

0 — 30 days 31 — 60 days 61 — 90 days Over 90 days	31/12/2006 HK$’000 2,433 367 16 300 3,116	31/3/2006 HK$’000 — — — —
		—

25. Interest-bearing bank and other borrowings

Effective interest rate (%) Maturity or Interest reprice date, whichever is earlier Current Finance lease payables_(note 26) Bank overdrafts — secured 3.25% best lending rate + 1% 2007 on demand Bank loans — secured prime rate + 2% 2007 Trust receipt loans — secured best lending rate 2007 Non-current Finance lease payables(note 26)_ Bank loans — secured Other loan — unsecured 3.25% prime rate + 2% 10% 2008-2011 2008-2009 2007, but early repaid in the period Analysed into: Bank loans and overdrafts payable: Within one year or on demand In the second to fifth years, inclusive Other borrowings payable: Within one year or on demand In the second to fifth years, inclusive	31/12/2006 HK$’000 395 2,471 6,831 2,763 12,460 1,038 1,747 — 2,785 15,245 12,065 1,747 13,812 395 1,038 1,433	31/3/2006 HK$’000 — — — —
		—
		— — 4,775
		4,775
		4,775

		— —
		—

		— 4,775
		4,775

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The Group’s banking facilities are secured by:

(i) personal guarantees provided by directors of a subsidiary of the Group; and
(ii) corporate guarantee provided by the Company and the Group’s related company.

26. Finance lease payables

The Group leases its motor vehicles for its business. The leases are classified as finance leases and have remaining lease terms ranging from four to five years.

At the balance sheet date, the total future minimum lease payments under finance lease and the present value, were as follows:

Amount payable: Within one year In the second year to fifth years, inclusive Total minimum finance lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities_(note 25) Long term portion(note 25)_	Minimum lease payments 31/12/2006 HK$’000 447 1,174 1,621 (188) 1,433 (395) 1,038	Present value Present value Minimum of minimum of minimum lease lease lease payments payments payments 31/3/2006 31/12/2006 31/3/2006 HK$’000 HK$’000 HK$’000 — 395 — — 1,038 — — 1,433 — — — — —	Present value Present value Minimum of minimum of minimum lease lease lease payments payments payments 31/3/2006 31/12/2006 31/3/2006 HK$’000 HK$’000 HK$’000 — 395 — — 1,038 — — 1,433 — — — — —
			—

27. Convertible notes

The fair value of the liability component and the equity conversion component were determined at issuance of the convertible notes. The fair value of the liability component was calculated using a market interest rate. The residual amount, representing the value of the equity conversion component, has been included in the convertible notes reserve.

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APPENDIX II

The convertible notes recognized in the balance sheets are calculated as follows:

Nominal value of convertible notes issued during the period Equity component Liability component at the issuance date Redemption during the period Interest expenses Liability component at balance sheet date Equity component at the issuance date Redemption during the period Equity component at balance sheet date	Group and Company 31/12/2006 31/3/2006 HK$’000 HK$’000 61,520 — (11,999) — 49,521 — (2,817) 1,484 — 48,188 — 11,999 — (683) — 11,316 —	Group and Company 31/12/2006 31/3/2006 HK$’000 HK$’000 61,520 — (11,999) — 49,521 — (2,817) 1,484 — 48,188 — 11,999 — (683) — 11,316 —
		— —
		—

		— —
		—

On 19 October 2006 and 21 December 2006, the Company redeemed convertible notes with principal amount of HK$2,500,000 and HK$1,000,000, respectively.

28. Deferred tax

The movements in deferred tax liabilities and assets during the period are as follows:

Accelerated Tax depreciation HK$’000 At 1 April 2005 2,869 Charged/(credited) to consolidated income statement (2,876) At 31 March 2006 and 1 April 2006 (7) Charged/(credited) to consolidated income statement 1 At 31 December 2006 (6)	Tax losses HK$’000 (2,869) 2,876 7 (1) 6	Total HK$’000 — —
		— —
		—

For purpose of the balance sheet presentation, the above deferred tax assets and liabilities were offset.

As at 31 December 2006, the Group had unused tax losses of approximately HK$97,340,000 (31 March 2006: approximately HK$97,339,000) available for offset against future profits. No deferred tax asset was recognized during the period due to the unpredictability of future profit streams (year ended 31 March 2006: HK$40,000). The unrecognized tax losses may be carried forward indefinitely.

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APPENDIX II

29. Share capital

Authorised: At 1 April 2006, ordinary shares of HK$0.1 each Capital reorganisation_(note a) At 31 December 2006, ordinary shares of HK$0.01 each Issued and fully paid: At 1 April 2006, ordinary shares of HK$0.1 each Capital reorganisation(note a) Open offer(note b)_ At 31 December 2006, ordinary shares of HK$0.01 each	Number of shares 10,000,000,000 — 10,000,000,000 658,501,863 (526,801,490) 395,101,116 526,801,489	HK$’000 1,000,000 (900,000) 100,000 65,850 (64,533) 3,951 5,268

Notes:

(a) Pursuant to the capital reorganization completed on 22 June 2006, 658,501,863 issued shares were consolidated to 131,700,373 shares on the basis of every 5 shares consolidated into 1 share. The nominal value of each issued consolidated share was then reduced from HK$0.1 each to HK$0.01 each by way of a reduction of capital. Accordingly, an amount of HK$64,533,183 from the share capital account was applied towards the elimination of part of the accumulated losses of the Company.
(b) 395,101,116 new shares of the Company had been issued under the Open Offer on 25 July 2006, proceeds of approximately HK$23.05 million was being raised as working capital. As at 31 December 2006, the total issued share capital of the Company after the Open Offer are 526,801,489 shares.

30. Share option scheme

The subscription price will be determined by the Board and will not less than the highest of (i) the nominal value of the shares on the date of the offer, (ii) the closing price of the shares on the date of grant of the options, and (iii) the average of the closing prices of the shares on the five business days immediately preceding the date of offer of the options. The total number of shares issued and to be issued upon exercise of the options granted to each grantee (including both exercised and outstanding options) in any 12-month period up to the date of grant shall not exceed 1% of the shares in issue at the date of grant. The Scheme is valid and effective for a period of ten years from the listing of the Company’s shares on the GEM on 26 March 2002. Any options granted under the Scheme may be exercised at any time during a period to be notified by the Board to each grantee but may not be exercised after the expiry of ten years from the date of grant of the option. Upon acceptance of the option, the grantee must pay HK$1.00 to the Company by way of consideration for the grant.

At the balance sheet date, no share option was granted under the Scheme since its adoption.

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APPENDIX II

31. Reserves

The amounts of the Group’s reserves and the movements therein for the current period and prior year are presented in the consolidated statement of changes in equity on page 29 of the financial statements.

Company

At 1 April 2005 Net loss for the year At 31 March 2006 and 1 April 2006 Capital reorganization Issue of shares on open offer Share issuance costs Net loss for the period At 31 December 2006	Share premium HK$’000 34,698 — 34,698 — 21,730 (786) — 55,642	Accumulated losses HK$’000 (94,338) (6,517) (100,855) 64,533 — — (7,511) (43,833)	Total HK$’000 (59,640) (6,517) (66,157) 64,533 21,730 (786) (7,511) 11,809

Note:

The share premium account of the Company is the premium from the shares issued. Under the Companies Law of the Cayman Islands, the share premium is distributable to the shareholders of the Company, provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as and when fall due in the ordinary course of business.

At 31 December 2006, in the opinion of the directors, the Company’s reserves available for distributions to shareholders amounted to HK$11,809,000.

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APPENDIX II

32. Acquisition of a subsidiary

On 31 July 2006, the Company acquired 100% equity interest in Golife (Hong Kong) Limited (formerly known as “Hip Kin Retailing Limited”). This transaction has been accounted for by the purchase method.

The net assets acquired, being the fair value, in the transaction, and goodwill on acquisition, are as follows:

Net assets acquired comprised: Property, plant and equipment Intangible assets Inventories Trade receivables Deposit, prepayments and other receivables Cash and bank balances Trade payables Other payables and accruals Tax payable Bank overdrafts Bank loans Trust receipts loans Net assets acquired Goodwill arising on acquisition Satisfied by: Cash consideration Convertible notes	Carrying amount of the acquiree HK$’000 1,946 — 5,480 1,469 10,265 474 (1,774) (3,820) (3,165) (2,176) (2,151) (5,920) 628	Fair value adjustment HK$’000 — 5,000 — — — — — — — — — — 5,000	Fair value of the acquiree HK$’000 1,946 5,000 5,480 1,469 10,265 474 (1,774) (3,820) (3,165) (2,176) (2,151) (5,920) 5,628 75,552 81,180 19,660 61,520 81,180

An analysis of the net outflow of cash and cash equivalents in respect of the acquisition of a subsidiary is as follows:

Cash consideration Cash and bank balances acquired Bank overdrafts acquired Net outflow of cash and cash equivalents in respect of the acquisition of a subsidiary	HK$’000 (19,660) 474 (2,176)
	(21,362)

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

33. Disposal of subsidiaries

	Period from
	1/4/2006 to		Year ended
	31/12/2006		31/3/2006
	HK$’000		HK$’000
Net liabilities disposal of:
Amounts due to group companies	(3,193)		—
	(3,193)		—
Realisation of reserves	15		—
Gain on disposal of subsidiaries	1,698		—
Amounts waived by group companies	1,480		—
	—		—

Satisfied by:
Cash	—		—

An analysis of the net inflow of cash and cash equivalents in respect of the		disposal of the
subsidiaries is as follows:
	Period from
	1/4/2006 to		Year ended
	31/12/2006		31/3/2006
	HK$’000		HK$’000
Cash consideration	—		—
Cash and bank balances disposed of	—		—
Net inflow of cash and cash equivalents
in respect of the acquisition of a subsidiary	—		—

34. Notes to the consolidated cash flow statement

(a) During the period, the Group entered into finance lease arrangements in respect of property, plant and equipment with a total capital value at the inception of the leases of approximately HK$1,616,000 (31 March 2006: Nil).
(b) During the period, the Group settled the part of the purchase consideration for acquisition of Golife (Hong Kong) Limited of approximately HK$61,520,000 by issue of convertible notes with nominal value of HK$61,520,000.

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APPENDIX II

35. Related party transactions

(a) In addition to the transactions and balance detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the period/ year:

	Group
	Period from
	1/4/2006 to	Year ended
	31/12/2006	31/3/2006
	HK$’000	HK$’000
Management fee charged by a related company	495	—

Management fee was charged at a rate mutually agreed between the Group and the related company in which certain directors of the Company’s subsidiary have beneficial interests.

(b) At the balance sheet date, the Group’s related company has guaranteed the trust receipt loans and bank overdrafts made to the Group’s subsidiary up to HK$4,000,000 and HK$1,000,000, respectively (31 March 2006: Nil) at nil consideration.

36. Litigation

On 29 June 2005, a landlord issued writ against Satellite Devices Limited, a wholly owned subsidiary of the Company, to claim for the arrears of rent, rates, air-conditioning and management fee, reinstatement costs and late payment interest for a total amount of approximately HK$331,000. Full provision for this amount had been made in the financial statements.

Apart from the action against the Group disclosed above, there are no other material outstanding writs and litigations against the Group and/or the Company.

37. Contingent liabilities

At the balance sheet date, the Company has given unlimited corporate guarantees (31 March 2006: Nil) to banks to secure the banking facilities granted to its subsidiaries. Facilities amounting to HK$5,429,000 (31 March 2006: Nil) were utilized at the balance sheet date.

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APPENDIX II

38. Operating lease arrangements

Within one year In the second to fifth years, inclusive	31/12/2006 HK$’000 6,301 4,618 10,919	31/3/2006 HK$’000 93 77
		170

39. Commitments

In addition to the operating lease commitments detailed in note 38 above, the Group had the following commitments at the balance sheet date:

Commitments under license agreements in respect of two brand name products are:

Minimum purchases: Within one year In the second to fifth years, inclusive Beyond five years	31/12/2006 HK$’000 19,072 86,151 6,649 111,872	31/3/2006 HK$’000 — —
		—

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

40. Post balance sheet events

The following events have occurred subsequent to 31 December 2006:

(a) On 21 February 2007, Profit First Investments Limited (“Profit First”), a wholly owned subsidiary of the Company, has entered into an agreement with Zion Worldwide Limited (“Zion Worldwide”) to establish LOC Limited (“LOC”) which will be principally engaged in the wholesale, design, sourcing, merchandise planning and marketing of lifestyle consumer products including but not limited to jewellery and accessories under the Trademarks (the “Business”). LOC are owned by Profit First and Zion Worldwide in equal shares. Profit First has agreed to pay an earn-out payment to Zion Worldwide while Zion Worldwide has agreed to transfer and assign to LOC the Trademarks and all the Intellectual Property of “Business” at a consideration of HK$1. Further details of the transaction are also set out in a circular and an announcement of the Company dated 16 March 2007 and 23 February 2007, respectively.
(b) On 19 January 2007 the Company redeemed convertible notes with principal amount of HK$1,000,000.
(c) On 13 March 2007, convertible notes with principal amount of HK$37,100,000 converted into 371,000,000 ordinary shares at the conversion price of HK$0.10 per share. After issurance of 371,000,000 conversion shares, the Company’s issued ordinary shares have been increased from 526,801,488 to 898,101,488.

41. Financial risk management objectives and polices

The Group’s overall risk management programme seeks to minimize potential adverse effects on the financial performance of the Group.

(i) Cash flow and fair value interest rate risk

Interest rate risk refers to the risk experienced by the Group as a result of the fluctuation in interest rates. Currently, the Group does not have a hedge policy. However, the management monitors interest rate exposure and will consider hedging significant bank borrowings when the need arises.

(ii) Foreign currency risk

The Group incurs foreign currency risk on transactions and balances that are denominated in currencies other than Hong Kong dollars. The currencies giving rise to this risk are primarily Euro, Pound Sterling and New Taiwan Dollar.

Certain trade receivables, payables and trade related transactions of the Group are denominated in foreign currencies. The management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure when the need arises.

(iii) Credit risk

The Group has no significant concentration of credit risk. The Group deals mainly with retail customers who pay with cash and credit cards. The Group’s accounts receivable mainly represented by receivables from banks in respect of sales settled by customers through credit cards in Hong Kong and shopping malls that collected sales proceeds in Taiwan on behalf of the Group.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

(iv) Liquidity risk

The Group aims to manage its operating cash flows and the availability of funding so as to ensure that all repayment and funding needs are met. As part of its overall liquidity management, the Group maintains sufficient levels of cash to meet its working capital requirements. Short term funding is obtained from bank overdraft and trade financing facilities.

(v) Commodity price risk

The Group’s exposure to commodity price risk is minimal.

42. Approval of the financial statements

The financial statements were approved and authorised for issue by the board of directors on 28 March 2007.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

3. AUDITED FINANCIAL STATEMENTS

Set out below are the independent auditor’s report and audited financial statements together with the relevant notes thereto as extracted from the annual report of Golife for the financial year ended 31 March 2006. For avoidance of doubt, capitalised terms used in the extract below shall have the meaning as ascribed to them in the annual report of Golife for the financial year ended 31 March 2006.

Independent Auditor’s Report

==> picture [234 x 40] intentionally omitted <==

AUDITORS’ REPORT TO THE SHAREHOLDERS OF

SATELLITE DEVICES CORPORATION

(incorporated in the Cayman Islands with limited liability)

We have audited the financial statements on pages 21 to 51 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Basis of opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2006 and of the Group’s loss and cash flows for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Graham H.Y. Chan & Co.

Certified Public Accountants (Practising)

Hong Kong, 23 June 2006

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Income Statement

For the year ended 31 March 2006

Note Revenue 5 Cost of location-based technology devices and applications Other income Reversal of provision for doubtful debts Reversal of write-down/(write-down) of inventories Write-off of long outstanding other payables and accruals Waiver of accrued salary payable to a director Write-off of property, plant and equipment Staff costs Depreciation Other operating expenses Loss before taxation 6 Taxation 7 Loss attributable to shareholders 8 Basic loss per share 9	2006 HK$’000 1,359 (520) 839 204 2,498 176 252 — (5,827) (2,188) (11,194) (2,486) (17,726) — (17,726) 14.49 cents	2005 HK$’000 1,442 (522) 920 29 — (1,378) 133 248 — (2,628) (11,772) (2,715) (17,163) — (17,163) 14.52 cents

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Balance Sheet

As at 31 March 2006

Note Non-current assets Property, plant and equipment 12 Investments in associates 14 Current assets Inventories 15 Trade receivables 16 Deposits, prepayments and other receivables Cash and cash equivalents 17 Current liabilities Other payables and accruals Amount due to a fellow subsidiary 18 Amount due to a director 19 Current portion of obligation under finance leases Net current liabilities Total assets less current liabilities Capital and reserves Share capital 20 Reserves Total (deficits)/equity attributable to equity holders of the Company Non-current liabilities Other loan 23	2006 HK$’000 — 4 4 — 328 10 112 450 1,505 — — — 1,505 (1,055) (1,051) 65,850 (71,676) (5,826) 4,775 (1,051)	2005 HK$’000 17,012 4 17,016 336 171 187 122 816 2,466 4,108 6,108 8 12,690 (11,874) 5,142 59,092 (53,950) 5,142 — 5,142

The financial statements on pages 21 to 51 were approved and authorised for issue by the Board of Directors on 23 June 2006 and are signed on its behalf by:

LEUNG Tak Wah Director

LO Mun Lam, Raymond Director

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Balance Sheet

As at 31 March 2006

2006 Note HK$’000 Non-current assets Investment in subsidiaries 13 — Current assets Cash and cash equivalents 17 22 Current liabilities Other payables and accruals 329 Net current liabilities (307) Total assets less current liabilities (307) Capital and reserves Share capital 20 65,850 Reserves 22 (66,157) (307) LO Mun Lam, Raymond LEUNG Tak Wah Director Director	2005 HK$’000 — 1 549 (548) (548) 59,092 (59,640) (548)

— 258 —

FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Statement of Changes in Equity

For the year ended 31 March 2006

At 1 April 2004 Exchange differences arising on translation of financial statements of overseas subsidiaries and net losses not recognised in the consolidated income statement Loss for the year At 31 March 2005 At 1 April 2005 Issue of shares upon loan capitalisation Loss for the year At 31 March 2006	Share capital HK$’000 59,092 — — 59,092 59,092 6,758 — 65,850	Share premium HK$’000 34,698 — — 34,698 34,698 — — 34,698	Exchange Accumulated reserve losses HK$’000 HK$’000 (13) (71,470) (2) — — (17,163) (15) (88,633) (15) (88,633) — — — (17,726) (15) (106,359)	Total HK$’000 22,307 (2) (17,163) 5,142 5,142 6,758 (17,726) (5,826)

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Consolidated Cash Flow Statement

For the Year Ended 31 March 2006

Loss before taxation Adjustments for: Depreciation Write-off of property, plant and equipment (Reversal of write-down)/write-down of inventories Reversal of provision for doubtful debts Operating loss before working capital changes Decrease in inventories Decrease in trade receivables Decrease/(increase) in deposits, prepayments and other receivables Increase in trade payables, other payables and accruals including amount due to a director and a fellow subsidiary Net cash from operating activities Net cash used in investing activities Purchase of property, plant and equipment Net cash used in financing activities Repayment of capital element of finance leases Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 April Effect of foreign exchange rate changes Cash and cash equivalents at 31 March Analysis of balances of cash and cash equivalents: Bank balances and cash	2006 HK$’000 (17,726) 11,194 5,827 (176) (2,537) (3,418) 512 2,380 177 356 7 (9) (8) (10) 122 — 112 112	2005 HK$’000 (17,163) 11,772 — 1,378 — (4,013) 159 188 (158) 3,947 123 (39) (15) 69 55 (2) 122 122

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Notes to the Financial Statements

1. General information

The Company was incorporated as an exempted company with limited liability in the Cayman Islands on 11 June 2001 under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The Company’s shares have been listed on the Growth Enterprise Market (the “GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) since 26 March 2002.

The address of its registered office and principal place of business of the Company are disclosed in the “Corporate Information” section of the annual report.

The principal activity of the Company is investment holding. The principal activities of the Company’s principal subsidiaries are set out in note 13 to the financial statements.

The financial statements have been prepared on a going concern basis which assumes, among other things, the realisation of assets and satisfaction of liabilities in the normal course of business. This assumption is dependent upon the continuing financial support of the Group’s creditors and other external funding being available.

At 31 March 2006, the Group’s net current liabilities exceeded its current assets by approximately HK$1,055,000 and the net liabilities of the Group amounted to approximately HK$5,826,000. As more detailed in note 29 below, subsequent to the balance sheet date, the directors of the Company proposed a capital reorganisation of the Company’s share capital and an open offer to qualifying shareholders for subscription on the basis of three offer shares for every new share (being share of HK$0.01 each in the share capital of the Company upon the capital reorganisation become effective). Details of the proposed capital reorganisation and proposed open offer are disclosed in the Company’s circular dated 27 March 2006. The estimated net proceeds from the proposed open offer will be approximately HK$23.73 million which is intended to be applied as to approximately HK$18.48 million for the partial payment of the consideration for a proposed acquisition (details of which are also disclosed in the Company’s circular dated 27 March 2006) and as to approximately HK$1.85 million for marketing the brands to be acquired under the proposed acquisition and the remaining balance of approximately HK$3.40 million for general working capital of the Company. All the proposed capital reorganisation, proposed open offer and proposed acquisition were approved by the shareholders of the Company on 20 April 2006.

On the basis that the Group will raise additional working capital from the proposed open offer, the directors consider that it is appropriate to prepare the financial statements on a going concern basis.

Had the going concern basis not been used, adjustments would have to be made to reclassify noncurrent liabilities to current liabilities, reduce the value of assets to their recoverable amounts and provide for any future liabilities which might arise.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

2. Adoption of new and revised Hong Kong Financial Reporting Standards (“HKFRSs”) and Hong Kong Accounting Standards (“HKASs”)

The Hong Kong Institute of Certified Public Accountants (the “HKICPA”) has issued a number of new and revised HKFRSs, HKASs and Interpretations that are generally effective for accounting periods beginning on or after 1 January 2005. The Group has adopted the following HKFRSs and HKASs issued up to 31 December 2005 which are pertinent to its operations and relevant to these financial statements.

HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 12 Income Taxes HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 18 Revenue HKAS 19 Employee Benefits HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 32 Financial Instruments: Disclosure and Presentation HKAS 33 Earnings per Share HKAS 36 Impairment of Assets HKAS 37 Provisions, Contingent Liabilities and Contingent Assets HKAS 39 Financial Instruments: Recognition and Measurement HKAS 39 (Amendment) Transitional and Initial Recognition of Financial Assets and Financial Liabilities HKFRS 2 Share-based Payment

The adoption of HKASs 2, 7, 8, 10, 12, 16, 17, 18, 19, 21, 27, 32, 33, 36, 37 and 39 has had no material impact on the Group’s accounting policies and the methods of computation, presentation and disclosure in the Group’s consolidated financial statements. The major effects on adoption of the other HKFRSs and HKASs are summaries as follows:

(a) The adoption of HKAS 1 requires the disclosure of judgments (apart from those involving estimations) and key assumptions concerning the future and other sources of estimation uncertainty. These disclosures are detailed in note 3 to the financial statements.
(b) The adoption of HKAS 24 affects the identification of related parties and the disclosure of related party transactions. These related party disclosures are presented in note 26 to the financial statements.
(c) The adoption of HKFRS 2 has resulted in a change in accounting policy for share options. Prior to this, no recognition and measurement of share-based payment transactions in which share options granted over shares in the Company were required until such options were exercised, at which time the share capital and share premium were credited with the proceeds received.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

With effect from 1 January 2005, in order to comply with HKFRS 2, the Group has adopted a new policy for share options. Under the new policy, the Group recognises the fair value of such share options as an expense with a corresponding increase recognised in a capital reserve within equity. Further details of the new policy are set out in note 4(l).

There were no share options granted by the Company after 7 November 2002 but had not vested before by 1 January 2005. Accordingly, the adoption of HKFRS 2 in respect of share options granted has had no effect on these financial statements.

The Group has not early applied the following new HKFRSs that have been issued by the HKICPA but not yet effective. The Group has considered these standards and interpretations but does not expect that they will have a material effect on the results of operation and financial position of the Group.

HKAS 1 (Amendment)	Capital Disclosures 1
HKAS 19 (Amendment)	Actuarial Gains and Losses, Group Plans and Disclosures			2
HKAS 21 (Amendment)	The Effects of Changes in Foreign Exchange Rates –	Net	Investment
	in a Foreign Operation 2
HKAS 39 (Amendment)	Cash Flow Hedge Accounting of Forecast Intragroup	Transactions			2
HKAS 39 (Amendment)	The Fair Value Option 2
HKAS 39 and HKFRS 4	Financial Instruments: Recognition and Measurement and			Insurance
(Amendment)	Contracts – Financial Guarantee Contracts 2
HKFRS 6	Exploration for and Evaluation of Mineral Resources	2
HKFRS 7	Financial Instruments: Disclosures 1
HK(IFRIC) – INT 4	Determining Whether an Arrangement Contains a Lease		2
HK(IFRIC) – INT 5	Rights to Interests Arising from Decommissioning, Restoration and
	Environmental Rehabilitation Funds 2
HK(IFRIC) – INT 6	Liabilities Arising from Participating in a Specific Market-Waste,
	Electrical and Electronic Equipment 3
HK(IFRIC) – INT 7	Applying the Restatement Approach under HKAS 29	Financial
	Reporting in Hyperinflationary Economies 4
HK(IFRIC) – INT 8	Scope of HKFRS 2 5
HK(IFRIC) – INT 9	Reassessment of Embedded Derivatives 6

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

2 Effective for the annual periods beginning on or after 1 January 2006

3 Effective for the annual periods beginning on or after 1 December 2005

4 Effective for the annual periods beginning on or after 1 March 2006

5 Effective for the annual periods beginning on or after 1 May 2006

6 Effective for the annual periods beginning on or after 1 June 2006

3 . Critical accounting judgments and key source of estimation uncertainty

Estimates and judgments 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 assumption concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

There are no significant risk of key assumptions concerning the future and other key sources of estimation at the balance sheet date which will cause an adjustment to carrying amounts of assets and liabilities within the next year.

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There are no significant effects on amounts recognised in the financial statements arising from the judgments or estimates used by management.

4. Principal accounting policies

These financial statements have been prepared in accordance with HKFRS and HKAS issued by the HKICPA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. In addition, the financial statements comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the GEM of the Stock Exchange. The measurement basis used in the preparation of the financial statements is the historical cost basis. The principal accounting policies adopted in the preparation of these financial statements are set out below:

(a) Group accounting

(i) Consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 March. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, until the date such control ceases. All significant inter-company transactions and balances within the Group are eliminated on consolidation.

A subsidiary is a company in which the Company, directly or indirectly, controls more than one half of the voting power or issued share capital or controls the composition of its board of directors or has power to govern its financial and operating policies.

Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(ii) Associates

An associate is a company, not being a subsidiary or a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and significant influence is exercised in its management.

The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated income statement and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting less any impairment losses.

(b) Property, plant and equipment

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

The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the

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income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment, the expenditure is capitalised as an additional cost of that asset.

Depreciation is calculated on a straight-line basis to write off the cost of each item of property, plant and equipment over its estimated useful life. The principal annual rates are as follows:

Furniture, fixtures and office equipment, and computer equipment	20%-33.3%
Motor vehicles	25%
Moulds	50%

Useful lives and depreciation method are reviewed and adjusted if appropriate, at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. The gain or loss on disposal or retirement of an asset is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the income statement.

(c) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Rentals applicable to operating leases net of any incentives received from the leasing company are charged to the income statement on straight-line basis over the lease term.

(d) Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.

(e) Financial instruments

Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for bad and doubtful debts, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with bank.

Other payables

Other payable are initially recognised at fair value and thereafter stated at amortised cost unless the effects of discounting would be immaterial, in which case they are stated at cost.

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Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new shares are taken to equity as a deduction, net of tax, from the proceeds.

(f) Impairment

At each balance sheet date, the Group reviews the carrying amounts of its 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 asset is reduced to its recoverable amount. Impairment loss is recognised as an expenses immediately.

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

(g) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

(h) 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 and expense that are taxable or deductible in other years, and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amount 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 only to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the accounting profit nor the tax profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to 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.

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(i) Related parties

For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party 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 other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefits plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

(j) Foreign currencies

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

In preparing the financial statements, transactions in currencies other than the Group entity’s functional currency (foreign currencies) are recorded 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 is 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 the income statement in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which case, the exchange differences are also recognised directly in equity.

On consolidation, the assets and liabilities of the Group’s operations outside Hong Kong are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group’s exchange reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

(k) Employee benefits

Salaries, annual bonuses, paid annual leave, leave passage and the cost to the Group of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

Contributions to Mandatory Provident Fund as required under the Hong Kong Mandatory Provident Fund Schemes Ordinance, are recognised as an expense in the income statement as incurred.

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(l) Share-based payments

The Company operates share option schemes for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of sharebased payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company, if applicable.

The cost of equity-settled transaction is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date of which the relevant employees became fully entitled to the award (the “vesting date”). The cumulative expense recognised for equity-settlement transactions at each balance sheet date until the vesting date reflects the extent to which (i) the vesting period has expired, and (ii) the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movements in cumulative expense recognised as at the beginning and end of the period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

(m) Research and development costs

Costs incurred in the research and development of products of the Group are expensed as incurred unless the costs of development satisfy the criteria for the recognition of such costs as assets. During the year, all research and development costs have been expensed.

(n) Revenue recognition

Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when goods are delivered to customers and the title has passed.

Interest income is recognised as it accrues using the effective interest method.

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5. Revenue

Revenue, which is also the Group’s turnover, represents net invoiced value of goods sold, less discounts and returns.

No activity analysis and geographical analysis are presented for the years ended 31 March 2006 and 2005 as substantially all the Group’s turnover and contribution to results were derived from the design, development and sales of location-based technology devices and applications in Hong Kong.

6. Loss before taxation

Loss before taxation is stated after charging/(crediting) the following:

	2006	2005
	HK$’000	HK$’000
Auditors’ remuneration
— current year	250	250
— under provision in prior year	—	80
Building management fee	251	201
Depreciation of fixed assets
— owned assets	11,194	11,757
— assets held under finance leases	—	15
Exchange loss	10	—
Legal and professional fees	680	531
Operating lease rental in respect of land and buildings	310	499
Research and development costs *	1,010	1,120
Retirement benefits costs **	(4)	33
Telephone	259	374

Included in the research and development costs were staff costs of HK$1,008,000 (2005: HK$1,043,000) which had also been included in staff costs in the consolidated income statement.
** This item is included in staff costs in the consolidated income statement.

7. Taxation

(a) No provision for Hong Kong profits tax has been made in the financial statements as the Group has no assessable profit for the years ended 31 March 2006 and 2005.
(b) No provision for overseas taxation has been made for the year as the subsidiaries operating in the PRC had no assessable income for PRC taxation purpose.

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Loss before taxation Tax at the domestic income tax rate of 17.5% Tax effect of non-deductible expenses Tax effect of non-taxable income Effect on different tax rates of subsidiaries operating in other jurisdictions Deferred tax assets not recognised	2006 HK$’000 (17,726) (3,102) 230 — 28 2,844 —	2005 HK$’000 (17,163) (3,003) 252 (115) 27 2,839 —

8. Loss attributable to shareholders

The loss attributable to shareholders is dealt with in the financial statements of the Company to the extent of HK$6,517,000 (2005: profit of HK$88,000).

9. Loss per share

The calculation of basic loss per share is based on the loss for the year of approximately HK$17,726,000 (2005: HK$17,163,000) and the weighted average number of 122,367,968 ordinary shares (2005 (restated): 118,183,200 ordinary shares) in issue during the year.

The weighted average number is stated after taking into consideration of the consolidation of shares by way of every five existing shares into one new consolidated share (“Share Consolidation”). The Share Consolidation was effective on 22 June 2006. Further details of the Share Consolidation are also disclosed in note 29 “Post balance sheet event”.

Diluted loss per share is not presented for the years ended 31 March 2006 and 2005 as there were no potential dilutive shares outstanding during both years.

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10. Directors’ and senior management’s emoluments

The remuneration of each director for the year ended 31 March 2006 and 2005 are set out below:

2006 Executive directors Tsoi Siu Ching, Leo_(note 1) Leung Tak Wah Yu Wai Yin, Vicky(note 2) Lo Mun Lam, Raymond(note 3) Independent non-executive directors Liu Kwong Sang(note 4) Chan Chi Tong(note 5) Huang Hai Wen(note 1) Sum Chun Ho(note 6) Lum Pak Sum(note 7) Wan Kwok Pan(note 8) Total 2005 _Executive directors Tsoi Siu Ching, Leo Leung Tak Wah Independent non-executive directors Liu Kwong Sang Chan Chi Tong Huang Hai Wen Ku Ngai_(note 9)_ Total	Salaries and Retirement scheme Fees allowances contribution HK$’000 HK$’000 HK$’000 — — — — 260 12 70 — — — — — — — — 70 — — 64 — — 35 — — — — — 6 — 6 245 260 12 Salaries and Retirement scheme Fees allowances contribution HK$’000 HK$’000 HK$’000 — 250 2 — 179 8 — — — 154 — — 76 — — — — — 230 429 10	Total HK$’000 — 272 70 — — 70 64 35 — — 517 Total HK$’000 252 187 — 154 76 — 669

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Note:

Mr. Tsoi and Mr. Huang resigned on 31 August 2005
Ms. Yu was appointed on 26 August 2005
Mr. Lo was appointed on 13 September 2005
Mr. Liu resigned on 8 February 2006
Mr. Chan resigned on 15 September 2005
Mr. Sum was appointed on 26 August 2005
Mr. Lum was appointed on 13 September 2005
Mr. Wan was appointed on 8 February 2006
Mr. Ku resigned on 29 June 2004

During the year ended 31 March 2005, Mr. Tsoi Siu Ching, Leo waived his salaries to the amount of HK$248,000. The waived amount has not been included in the above disclosure. Apart from this, no directors waived or agreed to waive any of their emoluments in respect of the years ended 31 March 2006 and 2005.

The five individuals whose emoluments were the highest in the Group for the year include one (2005: one) director, details of whose emoluments are set out in above. Details of the emoluments of the remaining four (2005: four) non-director, highest paid employees of the Group for the year are as follows:

Basic salaries, allowances and other benefits in kind Retirement benefits scheme contributions	2006 HK$’000 675 31 706	2005 HK$’000 1,041 38
		1,079

The emoluments of each of the non-director, highest paid individuals for the years ended 31 March 2006 and 2005 fell within Nil to HK$1,000,000 band.

During the year ended 31 March 2006 and 2005, no emoluments were paid by the Group to any of the directors or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

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11. Retirement benefit costs

The Group operates a mandatory provident fund scheme (“the MPF Scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF scheme is defined contribution retirement scheme administrated by independent trustees. 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. Contributions to the Scheme vest immediately. At the balance sheet date, there was no forfeited contribution, which arose upon employees leaving the retirement benefits scheme and which are available to reduce the contribution payable in the future years.

12. Property, plant and equipment

Furniture fixture Computer and office equipment equipment HK$’000 HK$’000 Cost At 1 April 2004 58,641 86 Additions 39 — At 31 March 2005 58,680 86 At 1 April 2005 58,680 86 Additions 9 — Write-off (58,689) (86) At 31 March 2006 — — Depreciation, amortisation and impairment loss At 1 April 2004 29,947 60 Charge for the year 11,730 17 At 31 March 2005 41,677 77 At 1 April 2005 41,677 77 Charge for the year 11,185 9 Eliminated on write-off (52,862) (86) At 31 March 2006 — — Net book value At 31 March 2006 — — At 31 March 2005 17,003 9	Motor vehicles HK$’000 213 — 213 213 — (213) — 188 25 213 213 — (213) — — —	Moulds HK$’000 187 — 187 187 — (187) — 187 — 187 187 — (187) — — —	Total HK$’000 59,127 39 59,166 59,166 9 (59,175) — 30,382 11,772 42,154 42,154 11,194 (53,348) — — 17,012

At 31 March 2006, no property, plant and equipment were held under finance leases. At 31 March 2005, the net book value of property, plant and equipment held by the Group under finance leases included in the total amount of furniture, fixtures and office equipment amounted to HK$8,000.

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13. Investment in subsidiaries

Amounts due from subsidiaries_(note (b))_ _Less:_provision	Company 2006 2005 HK$’000 HK$’000 97,629 92,414 (97,629) (92,414) — —	Company 2006 2005 HK$’000 HK$’000 97,629 92,414 (97,629) (92,414) — —
		—

(a) The following is a list of the subsidiaries of the Company as at 31 March 2006:

			Issued and
		Principal	fully paid up
		activities and	share capital/
Name of company	Place of incorporation	place of operation	registered capital	Interest held
Shares held directly:
Satellite Devices (BVI)	The British Virgin Islands	Investment holding in	Ordinary US$3	100%
Limited		Hong Kong
Satellite Devices	The British Virgin Islands	Investment holding in	Ordinary US$1	100%
Intelligence (BVI)		Hong Kong
Limited
Shares held indirectly:
Satellite Devices Limited	Hong Kong	Design, development	Ordinary	100%
		and sale of location	HK$5,000,000
		based technology
		devices and
		applications in
		Hong Kong
衛科導航技術（深圳）	The People’s Republic of	Provision of technical	Registered capital	100%
有限公司	China excluding	support services	HK$3,000,000
(“Satellite Devices	Hong Kong (the “PRC”)	in the PRC
Technology
(Shenzhen) Company
Limited”)
Predominate Technology	The British Virgin Islands	Investment holding in	Ordinary US$1	100%
Limited		Hong Kong
Satellite Devices	Hong Kong	Inactive	Ordinary HK$1	100%
Intelligence Limited

Satellite Devices Technology (Shenzhen) Company Limited has adopted 31 December as its financial year end date in order to comply with the Accounting Regulations of the People’s Republic of China for Enterprises with Foreign Investment.

(b) The amounts due from subsidiaries are unsecured, interest free and have no fixed terms of repayment.

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14. Investments in associates

Share of net assets Amount due to an associate_(note (b))_	2006 HK$’000 1,474 (1,470) 4	2005 HK$’000 1,474 (1,470)
		4

(a) The following is a list of the associates of the Group at 31 March 2006:

		Principal
	Place	activities and		Interest
	and date of	place of	Issued	held
Company	incorporation	operation	share capital	indirectly
Telematics Systems	Hong Kong	Inactive	Ordinary	40%
Limited	22 June 2001		shares of
			HK$10,000
New Era Telematics	Hong Kong	Inactive	Ordinary	49%
Limited	5 September		shares of
	2001		K$3,000,000

Telematics Systems Limited and New Era Telematics Limited have adopted 31 December as their financial year end date.

(b) The amount due to an associate is unsecured, interest free and has no fixed terms of repayment.

15. Inventories

As at 31 March 2005, all inventories were carried at cost.

16. Trade receivables

The Group has a policy of allowing its trade customers with credit period normally ranged from 30 to 90 days. The aging analysis of trade receivables is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days _Less:_Provision for doubtful debts	2006 HK$’000 283 45 — 12,719 13,047 (12,719) 328	2005 HK$’000 98 45 8 15,237
		15,388 (15,217)
		171

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17. Cash and cash equivalents

The cash and cash equivalents at 31 March 2006 and 2005 comprised cash and bank balances only. Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amount of the cash and cash equivalents approximate to their fair values.

18. Amount due to a fellow subsidiary

The amount is due to Arcon Technology Limited (“ATL”) and is unsecured, interest-free and repayable on demand. During the year, ATL assigned the amount due to it to a third party and the amount was included in other loan in the consolidated balance sheet at 31 March 2006.

19. Amount due to a director

The amount is due to Mr. Tsoi Siu Ching, Leo and is unsecured, interest-free and repayable on demand. During the year, Mr. Tsoi assigned the amount due to him to Executive Talent Limited, a company incorporated in the British Virgin Islands (“ETL”). The amount due to ETL was subsequently capitalised as detailed in note 20 below.

20. Share capital

Ordinary shares of HK$0.1 each Authorised: At 1 April 2004, 31 March 2005 and 31 March 2006 Issued and fully paid: At 1 April 2004 and 31 March 2005 Issue of shares upon loan capitalisation_(note)_ At 31 March 2006	Number of shares 10,000,000,000 590,916,000 67,585,863 658,501,863	Amount HK$’000 1,000,000
		59,092 6,758
		65,850

Note: On 9 December 2005, 67,585,863 new ordinary shares of HK$0.1 each were issued and allotted at par to a creditor, Executive Talent Limited, pursuant to a loan capitalisation deed entered into on 10 October 2005 with the creditor. Details of the loan capitalisation were disclosed in the Company’s circular dated 27 March 2006. This is also the major non-cash transaction during the year.

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21. Share options

The subscription price will be determined by the Board and will not be less than the highest of (i) the nominal value of the shares on the date of offer, (ii) the closing price of the shares on the date of grant of the options, and (iii) the average of the closing prices of the shares on the five business days immediately preceding the date of offer of the options. The total number of shares issued and to be issued upon exercise of the options granted to each grantee (including both exercised and outstanding options) in any 12-month period up to the date of grant shall not exceed 1% of the shares in issue at the date of grant. The Scheme is valid and effective for a period of ten years from the listing of the Company’s shares on the GEM on 26 March 2002. Any options granted under the Scheme may be exercised at any time during a period to be notified by the Board to each grantee but may not be exercised after the expiry of ten years from the date of grant of the option. Upon acceptance of the option, the grantee must pay HK$1.00 to the Company by way of consideration for the grant.

No share option was granted under the Scheme since its adoption.

22. Reserves

The amounts of the Group’s reserves and the movements therein for the current and prior year are presented in the consolidated statement of changes in equity on page 24 of the financial statements.

Company At 1 April 2004 Profit for the year At 31 March 2005 At 1 April 2005 Loss for the year At 31 March 2006	Share premium HK$’000 34,698 — 34,698 34,698 – 34,698	Accumulated losses HK$’000 (94,426) 88 (94,338) (94,338) (6,517) (100,855)	Total HK$’000 (59,728) 88
			(59,640)

			(59,640) (6,517)
			(66,157)

In the opinion of the director, the Company had no reserve available for distributions to shareholders at the balance sheet date.

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APPENDIX II

23. Other loan

The other loan is unsecured, interest bearing at the rate of 10% per annum and repayable by 4 quarterly instalments with the first instalment due on 30 June 2007.

24. Deferred taxation

The following are the major deferred tax liabilities and assets recognised and movements thereon during current and prior accounting period:

Accelerated tax depreciation HK$’000 At 1 April 2004 4,880 Charged/(credited) to consolidated income statement (2,011) At 31 March 2005 2,869 At 1 April 2005 2,869 Charged/(credited) to consolidated income statement (2,876) At 31 March 2006 (7)	Tax losses HK$’000 (4,880) 2,011 (2,869) (2,869) 2,876 7	Total HK$’000 — —
		—

		— —
		—

For purpose of the balance sheet presentation, the above deferred tax assets and liabilities were offset.

As at 31 March 2006, the Group had unused tax losses of approximately HK$97,339,000 (2005: approximately HK$98,477,000) available for offset against future profits. A deferred tax asset was recognised for the year ended 31 March 2006 in respect of HK$40,000 (2005: HK$16,393,000) of such losses. No deferred tax asset has been recognised in respect of the remaining tax losses due to the unpredictability of future profit streams. The unrecognised tax losses may be carried forward indefinitely.

The Company had no significant unprovided deferred taxation at the balance sheet date.

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APPENDIX II

25. Financial risk management

The Group’s activities exposed it mainly to currency risk and credit risk. The Group’s overall risk management programme seeks to minimize potential adverse effects on the Group’s financial performance.

(a) Credit risk

The Group is exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. It arises primarily from the Group’s bank deposits and trade and other receivables. Cash transactions are limited to high-credit-quality institutions. In respect of the receivables, the Group reviews the recoverable amount of each individual receivable at each balance sheet date to ensure that adequate impairment losses, if necessary, are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Company’s credit risk is significantly reduced.

(b) Currency risk

The Group’s principal businesses are mainly conducted and recorded in Hong Kong dollars and Renminbi Yuan. Therefore, the Group does not have any significant exposure to currency risk.

(c) Interest rate risk

The Group’s exposure to changes in interest rates is mainly attributable to its interest bearing unsecured loan. The unsecured loan at fixed rate exposes the Group to fair value interest rate risk. The Group has not used any interest rate swaps to hedge its exposure to interest rate risk.

26. Related party transactions

Other than related party transactions in respect of key management personnel remuneration, amount due to a fellow subsidiary and amount due to a director, which were disclosed in notes 10, 18 and 19 respectively, the Group entered into the following transactions with a fellow subsidiary in the ordinary course of business:

	2006	2005
	HK$’000	HK$’000
Office rental expenses paid and
payable to Arcon Technology Limited	—	16

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APPENDIX II

27. Commitments

(a) Commitment under operating leases

As at 31 March 2006, the Group had future aggregate minimum lease payments under noncancellable operating leases in respect of land and buildings falling due as follows:

Within one year In the second to fifth years inclusive	2006 HK$’000 93 77 170	2005 HK$’000 166 9
		175

(b) Capital commitments in respect of acquisition of property, plant and equipment

As at 31 March 2006, the Group had commitments in respect of acquisition of property, plant and equipment as follows:

Contracted but not provided for Authorised but not contracted for	2006 HK$’000 — — —	2005 HK$’000 540 —
		540

(c) Capital commitments in respect of investment in a subsidiary

As at 31 March 2006, the Group had unprovided capital commitments amounting to HK$857,000 (2006: HK$857,000) in respect of the investment in a subsidiary, Satellite Devices Technology (Shenzhen) Company Limited, being the balance of the required capital contribution to this subsidiary by the Group as at that date.

(d) Capital commitments in respect of acquisition of a company

On 10 October 2005 and 24 November 2005, the Company entered into a sale and purchase agreement and supplemental agreement respectively, with Chung Chiu Limited, a company incorporated in the British Virgin Islands with its principal office in Hong Kong, (the “Vendor”) for the acquisition of the entire issued share capital of Hip Kin Retailing Limited, a company incorporated in Hong Kong (“HKR”) at the consideration of HK$80 million. The consideration shall be satisfied by (i) approximately HK$18.48 million in cash out of the estimated net proceeds from the proposed open offer (as detailed in note 29 below) and the issue of convertible note for the remaining balance of approximately HK$61.52 million. The proposed acquisition of HKR is subject to the Company’s shareholders’ approval and certain conditions, among of which are the Capital Reorganisation having become effective and the completion of Open Offer (both as defined below). Further details of the proposed acquisition are set out in the Company’s circular dated 27 March 2006. Such proposed acquisition was approved by the Company’s shareholders on 20 April 2006.

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28. Litigation

Apart from the action against the Group disclosed above, there are no other material outstanding writs and litigations against the Group and/or the Company.

29. Post balance sheet events

On 20 April 2006, the following proposals which are detailed in the Company’s circular dated 27 March 2006 (the “Circular”), were approved by the shareholders of the Company:

(i) proposed capital reorganisation (“Capital Reorganisation”) — (i) every five existing issued and unissued shares of HK$0.10 each in the share capital of the Company be consolidated into one share of HK$0.50 each (the “Consolidated Share”) in the capital of the Company (the “Share Consolidation”); (ii) the issued share capital of the Company be reduced (the “Capital Reduction”) by cancelling paid-up capital to the extent of HK$0.49 on each Consolidated Share in the capital of the Company in issue on the date the Capital Reduction become effective (the “Effective Date”) so that each issued share in the capital of the Company shall be treated as one fully-paid up share of HK$0.01 each in the capital of the Company (the “New Share”); (iii) the authorised but unissued share capital of the Company be sub-divided by subdividing each of the authorised but unissued shares of HK$0.50 each in the capital of the Company into fifty new shares of HK$0.01 each; and (iv) the credit amount arising from the Capital Reduction be applied to a distributable reserve of the Company where it may be utilised by the directors of the Company in accordance with the articles of association of the Company and all applicable laws, including to eliminate the accumulated losses of the Company as at the Effective Date. The Capital Reorganisation had become effective on 22 June 2006;
(ii) proposed open offer (“Open Offer”) — conditional upon the Capital Reorganisation having become effective and other conditions set out in the Circular being satisfied, the issue by way of open offer of 395,101,116 shares of HK$0.01 each in the share capital of the Company upon the Capital Reorganisation (the “Offer Shares”) to the Qualifying Shareholders (as defined in the Circular) for subscription on the basis of three Offer Shares for every one share of HK$0.01 at a price of HK$0.065 per Offer Share; and
(iii) the proposed acquisition of HKR as mentioned in note 27 above.

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4. UNAUDITED FINANCIAL STATEMENTS

Set out below are the unaudited financial statements together with the relevant notes thereto as extracted from the third quarterly report of Golife for the nine months ended 30 September 2008. For avoidance of doubt, capitalised terms used in the extract below shall have the meaning as ascribed to them in the third quarterly report of Golife for the nine months ended 30 September 2008.

Condensed Consolidated Income Statement — Unaudited

For the nine months ended 30 September 2008

Note TURNOVER Cost of sales Gross profit Other revenues and gains 4 Selling and distribution costs Administrative expenses Other expenses and losses 5 Finance costs 6 Share of loss of jointly controlled entities PROFIT/(LOSS) BEFORE TAX 7 Tax 8 PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS DIVIDEND 9 Earnings/(loss) per share 10 Basic Diluted	For the three months ended 30 September 2008 2007 HK$’000 HK$’000 15,926 17,427 (7,516) (5,998) 8,410 11,429 276 2,702 (742) (1,558) (24,713) (14,032) (131) — (426) (346) — (180) (17,326) (1,985) — (213) (17,326) (2,198) — — (6.40) (0.88) cents cents N/A N/A	For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 51,177 39,454 (23,298) (13,845) 27,879 25,609 5,354 6,071 (2,497) (2,085) (58,386) (29,353) (13,705) — (1,097) (1,254) — (233) (42,452) (1,245) (12) (734) (42,464) (1,979) — — (16.53) (0.99) cents cents N/A N/A

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Notes to the Condensed Consolidated Financial Statements

1. General Information

The registered office and principal place of business of the Company are located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111 Cayman Islands and Suite A, 15/F., Wyndham Place, 40-44 Wyndham Street, Central, Hong Kong respectively.

The Company’s principal activity is investment holding. The principal activity of its subsidiaries is distribution of high-end apparel and accessories.

2. Basis of Preparation and Accounting Policies

The unaudited condensed consolidated financial statements (the “Financial Statements”) have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards, including the Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants; accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. In addition, the Financial Statements comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the GEM of the Stock Exchange. They have been prepared under the historical cost convention, except for certain financial assets which have been measured at fair value.

The accounting policies and basis of preparation adopted in the preparation of the Financial Statements are consistent with those adopted in annual financial statements for the year ended 31 December 2007.

All significant transactions and balances within the Group have been eliminated on consolidation.

The Financial Statements have not been audited by the Company’s auditors, but have been reviewed by the Company’s audit committee.

3. Turnover

The Group’s principal activity is distribution of high-end apparel and accessories. Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts and the value of services rendered.

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4. Other Revenues and Gains

For the three months ended 30 September 2008 2007 HK$’000 HK$’000 Bank interest income 230 13 Fair value gain on financial assets at fair value through profit or loss — — Profit on disposal of financial assets at fair value through profit or loss 16 2,180 Profit on disposal of derivative financial instruments — — Profit on disposal of subsidiaries — 392 Management services income 30 117 Waiver of other payable — — 276 2,702 Other Expenses and Losses For the three months ended 30 September 2008 2007 HK$’000 HK$’000 Fair value loss on financial assets at fair value through profit or loss 31 — Loss on disposal of financial assets at fair value through profit or loss 100 — Loss on disposal of derivative financial instruments — — Break-up fee for a terminated acquisition_(note)_ — — 131 —	For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 591 13 — 346 16 5,040 3,057 — — 392 90 280 1,600 — 5,354 6,071 For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 482 — 140 — 783 — 12,300 — 13,705 —	For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 591 13 — 346 16 5,040 3,057 — — 392 90 280 1,600 — 5,354 6,071 For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 482 — 140 — 783 — 12,300 — 13,705 —
		—

5. Other Expenses and Losses

Note: Upon termination of the agreement to purchase 96.57% of a French company, a break-up fee of EUR 1 million was paid to the counterparties accordingly.

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6. Finance Costs

For the three months ended 30 September 2008 2007 HK$’000 HK$’000 Interest on convertible notes 145 — Interest on bank loans and overdrafts wholly repayable within five years 268 346 Interest on finance leases 13 — 426 346 7. Profit/(Loss) before Tax Profit/(loss) before tax is arrived at after charging: For the three months ended 30 September 2008 2007 HK$’000 HK$’000 Cost of inventories sold 7,516 5,998 Depreciation 1,097 460 Minimum lease payments under operating leases on land and buildings 5,401 3,774 8. Tax For the three months ended 30 September 2008 2007 HK$’000 HK$’000 Current income tax Hong Kong — 131 Overseas — 82 Under provision for prior years Overseas — — — 213	For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 161 498 897 743 39 13 1,097 1,254 For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 23,298 13,845 3,521 931 15,344 9,357 For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 — 637 — 97 12 — 12 734	For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 161 498 897 743 39 13 1,097 1,254 For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 23,298 13,845 3,521 931 15,344 9,357 For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 — 637 — 97 12 — 12 734
		734

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No provision for Hong Kong profits tax has been made as the Group did not generate any assessable profits arising in Hong Kong during the period. In the corresponding period last year, Hong Kong profits tax was provided at the rate of 17.5% on the estimated assessable profits arising in Hong Kong.

Taxation on overseas profits has been calculated on the estimated assessable profit for the period at the rates of tax prevailing in the countries in which the Group operates.

9. Dividend

The Board does not recommend the payment of dividend for the nine months ended 30 September 2008 (2007: Nil).

10. Earnings/(Loss) Per Share

The calculation of basic earnings/(loss) per share is calculated by dividing the net profit/(loss) attributable to shareholders by the weighted average number of ordinary shares in issue during the period.

Profit/(loss) attributable to shareholders Weighted average number of ordinary shares in issue	For the nine months ended 30 September 2008 2007 HK$’000 HK$’000 (42,464) (1,979) Number of shares 256,820,965 199,403,008

Diluted earnings/(loss) per share is not presented as the convertible bonds and share options had antidilutive effects.

The weighted average number of ordinary shares in issue has been adjusted for the effect of share consolidation on 13 August 2008.

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11. Reserves

At 1 January 2007 Conversion of convertible notes Placing of new shares Cost of placing of new shares Loss for the period As at 30 September 2007 At 1 January 2008 Issue of convertible bonds Conversion of convertible bonds Loss for the period As at 30 September 2008	Share premium Equity component of convertible notes Share-based payments reserve Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 55,642 11,316 — (40,678) 53,300 (11,316) — — 23,250 — — — (335) — — — — — — (1,979) 131,857 — — (42,657) 132,103 — 98 (132,918) — 5,587 — — 1,673 (89) — — — — — (42,464) 133,776 5,498 98 (175,382)	Total HK$’000 26,280 41,984 23,250 (335) (1,979) 89,200 (717) 5,587 1,584 (42,464) (36,010)

12. Comparative Figures

Certain comparative figures have been reclassified to conform with current period’s presentation.

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5. MANAGEMENT DISCUSSION AND ANALYSIS OF GOLIFE

The following management discussion and analysis of Golife for the respective periods as stated below is extracted from the relevant annual reports and quarterly report of Golife. For avoidance of doubt, capitalised terms used in the extract below shall have the meaning as ascribed to them in the relevant annual reports and quarterly report of Golife.

For the year ended 31 March 2005

Financial Results

During the year under review, the group continues to engage in the design, development and sale of location based technology devices and applications in Hong Kong. The market conditions of the business remained harsh and very competitive.

The Group recorded a turnover of approximately HK$1.44 million for the year ended 31 March 2005, representing a decrease of approximately HK$13.33 million or 90% as compared with last year’s HK$14.78 million. The loss attributable to shareholders is approximately HK$17.16 million.

Business Review

Due to the growth of business in car security monitoring market condition of the Group, a self-owned and well equipped control centre has already been sat up to meet its demand. A team of well-trained control centre operators serves the clients 24 hours a day; 7 days a week. We believe our services have been improved after we have taken up the role of car security monitoring from our co-partner.

The hard effort in developing our products and services in target segment is going on. The number of members for subscription of service is gradually increased especially we have jointly worked with Canful Motors Limited. We are keeping close touch with other great luxurious private car dealers to seek for opportunity to enlarge our business with them.

The Group is now re-engineering its products by developing GPRS solution replacing currently using SMS message. The costs for communication channel will substantially be reduced.

With the continued improvement of the economies in Hong Kong, the import of great luxurious private car becomes more favorable. It is believed that the demand for security monitoring system would increase. Nevertheless, the prospect for the security monitoring industry is still challenging due to keen competition from local and PRC competitors. As such, the Group would stay vigilant over the market environment and would maintain a prudent and conservative approach to its business.

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In order to improve the Group’s operating results, the Group will continue to implement stringent cost control measures.

Capital Structure

There has been no change in the capital structure of the Company during the year under review. The capital of the Company comprises only ordinary shares.

Financial Resources And Liquidity

As at 31 March 2005, the Group has total assets of approximately HK$17.8 million, which was mainly financed by current liabilities of approximately HK$12.7 million and shareholders’ fund amounting to approximately HK$5.1 million. The ratio of total liabilities over the shareholders’ funds is at 2.47 as at 31 March 2005.

Current assets amounted to approximately HK$0.8 million which mainly comprised of approximately HK$0.3 million inventories and HK$0.1 million cash and bank balance. The working capital ratio is 0.06 as at 31 March 2005.

The Group had no banking facilities available or any bank loans outstanding as at 31 March 2005.

The Directors believe that the Group has a strong financial position. The Group is comfortable that existing financial resources will be sufficient for future expansion plans. Should other opportunities arise requiring additional funding, the Directors believe the Group is in a good position to obtain financing on favorable terms.

Foreign Exchange Exposure

The revenues of the Group are denominated mostly in Hong Kong Dollars. The group has minimal exposure to foreign exchange fluctuations and seldom needs to make use of financial instruments for hedging purposes.

Charges on Group Assets and Contingent Liabilities

As at 31 March 2005, there was no charge made on the Group’s assets and any material contingent liability outstanding.

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Employees

As at 31 March 2005, the Group had a total of 20 employees as comparing to 24 last year, who are engaged in the following operations:

Engineering and R&D Sales and marketing (including field application engineers) Finance, accounting, operation and administration Total headcount	10 4 6
	20

Employees in both Hong Kong and Mainland China are remunerated according to their performance and work experience. In addition to basic salaries, staff benefits include medical scheme, share options and performance bonus.

Significant Investments/Material Acquisitions and Disposals of Subsidiaries

During the year, the Group had no significant investments and no material acquisitions or disposal of subsidiaries.

Future Prospects

As per keen competition, our management team was very cautious in using the precious financial resources of the Group. We have focused on the fleet management and security monitoring system on vehicles. We expect we would diversify our products and services in Macau and PRC. The group would fine-tune its existing operations and strive for long term returns for the Company and our shareholders.

For the year ended 31 March 2006

Financial Results

For the year ended 31 March 2006, the Company and its subsidiaries (collectively the “Group”) continued to focus on the security monitoring services and recorded an audited consolidated turnover of HK$1,359,000, which was trading at a similar level as of last year. The loss attributable to shareholders (the “Shareholders”) of the Company this year of HK$17.73 million was also at a similar level as of last year. However, for the year ended 31 March 2006, staff cost was reduced by approximately HK$0.50 million and the successful recovery of an amount of bad debt provision, amounting to HK$2.50 million was also recorded. These savings were offset by the provision made against out-dated equipment and software amounting to HK$5.83 million. The market for our services has not grown since the last financial year, although the market in general remained very competitive.

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Business Review

In 2005 and the first quarter of 2006, the Group continued to operate under keen competition. The Group has been exploring opportunities and additional sales channels for its 3G Skyeye Monitoring System by cooperating with other car dealers and insurance companies but the response from the insurance companies has not been encouraging. In August 2005, Mr. Tsoi resigned from the Group as Chairman of the board (the “Board”) of directors, Chief Executive and Executive Director. The Group immediately sought qualified replacements. To strengthen the business prospects of the Group, additional directors were recruited to provide advice and service support. Furthermore, the Group also tried to improve its operational efficiency by reducing its administration headcounts and mitigating its overhead expenses by implementing tight operational control. For the year ended 31 March 2006, the Group was in pursuit of capital improvements, rationalizing and strategizing its operations to promote the return of profitability.

Capital Structure

The Board announced on 25 November 2005 that the Company and Executive Talent Limited (the “Creditor”) entered into a deed on 10 October 2005 whereby the Company proposed to issue 67,585,863 shares (the “Loan Shares”) at HK$0.10 each to the Creditor as full repayment of a loan owed by the Company to the Creditor (the “Loan Capitalisation”). The Loan Shares represent approximately 11.44% of the issued share capital of the Company prior to the completion of the Loan Capitalisation and approximately 10.26% of the enlarged share capital of the Company upon completion of the Loan Capitalisation which took place on 9 December 2005. It was also announced that the Board intended to put forward proposals to the Shareholders in relation to the (1) proposed capital reorganisation; (2) proposed open offer; and (3) proposed acquisition. All the proposals were submitted to the Shareholders for their approval in the extraordinary general meeting of the Company (the “EGM”) held on 20 April 2006. The Directors are delighted to mention that all the special resolutions proposed at the EGM were approved, the approval of which will greatly enhance the future operations of the Group. The proposed capital reorganisation of the Group became effective on 22 June 2006.

Financial Resources and Liquidity

As at 31 March 2006, the Group has total assets of approximately HK$0.5 million, which was mainly financed by current liabilities of approximately HK$1.5 million, non-current liabilities of approximately HK$4.8 million and shareholders’ deficits amounting to approximately HK$5.8 million. The ratio of total liabilities over the shareholders’ fund is not applicable as at 31 March 2006 as the shareholders’ fund is negative.

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Current assets amounted to approximately HK$0.5 million which is mainly comprised of trade receivable and cash and bank balance of approximately HK$0.3 million and HK$0.1 million respectively. The working capital ratio is 0.30 as at 31 March 2006.

The Group had no banking facilities available or any bank loan outstanding as at 31 March 2006.

Foreign Exchange Exposure

The revenue of the Group was denominated mostly in Hong Kong Dollars. The Group has minimal exposure to foreign exchange fluctuations and seldom needs to make use of financial instruments for hedging purpose.

Charges on Group Assets and Contingent Liabilities

As at 31 March 2006, there was no charge made on the Group’s assets and any material contingent liability outstanding.

Employees

As at 31 March 2006, the Group had a total of 15 employees as comparing to 20 last year, who are engaged in the following operations:

Engineering and R & D Sales and Marketing (including field application engineers) Finance, accounting, operation and administration Total headcount	9 1 5
	15

Employees in both Hong Kong and Mainland China are remunerated according to their performance and work experience.

Significant Investment and Material Acquisitions and Disposals of Subsidiaries

As reported in the circular to Shareholders dated 27 March 2006, the Group proposed to acquire the entire share interest of Hip Kin Retailing Limited. The proposed acquisition was approved by the Shareholders at the EGM of 20 April 2006. Hip Kin Retailing Limited has been the exclusive distribution of (i) London based Anya Hindmarch, a brand offering chic designer ladies’ handbags, leather accessories, luggage, shoes and apparel, in Hong Kong since 1995 and in Taiwan since 2002; (ii) Paris-based Paule Ka, a women’s wear design house offering a “young couture” style that appeal to women who opt for subtly elegant designer apparel, in Hong Kong since 2002. The whole consideration is HK$80 million, payable in cash and convertible notes upon completion.

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Save as the above, the Group had no significant investments and no material acquisition or disposal of subsidiaries during the year.

Future Prospects

Leveraging on its own brand name, the Group will continue to provide services and product solutions of the locationbased technology and innovations to its high-income clientele in Hong Kong. The Group’s services and product solutions are still suffering from fierce competition in terms of pricing and function variety that may hamper the Group’s number of subscribers in the future. In order to maintain the Group’s competitiveness, the management has directed the in-house engineering team to improve the services by concentrating on certain state-of-the-art developments. We also monitor all newly introduced solutions offered by our competitors to stay ahead within the market.

In view of the positive economic growth in Hong Kong, the management will devote more effort to ensure the acquired businesses of Hip Kin Retailing Limited contribute to the future profitability of the Group. We are expecting the completion of this acquisition and the open offer made for new shares in the later part of July 2006. The successful implementation of the proposed transactions shall strengthen both the financial position and profitability of the Group substantially.

For the nine months period ended 31 December 2006

Overview

During the period, the Group changed its year-end to 31 December. Hence, the results of the period under review are effectively the results of the 9 months ended 31 December 2006.

The Group underwent a period of significant change and growth in the nine months period under review and recorded the following developments:—

Key changes in management personnel
Open offer raised HK$23.73 million in net proceeds
Acquired 100% interest in Golife (Hong Kong) Limited (formerly Hip Kin Retailing Limited), which holds the Greater China distribution rights of luxury fashion brands Anya Hindmarch and Paule Ka, at HK$81 million in cash and convertible notes

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To reflect the change in business nature of the Group, we changed the name of the Company from “Satellite Devices Corporation” to “Golife Concepts Holdings Limited” in October 2006.

Turnover of the Group was approximately HK$18,885,000 for the period, representing an increase of 1,290% against the entire FY2005. The Group turned around its business to report profit attributable to shareholders of HK$1,148,000 against loss attributable to shareholders of HK$17,726,000 in last year. Excluding an interest charge of HK$1,484,000, which was arising from the remeasurement of the fair value of liabilities component of Convertible Notes amounting to HK$49,521,000, profit attributable to shareholders would be HK$2,632,000. Subsequent to the year-end, HK$37,100,000 of the Convertible Notes, of which the convertible price is HK$0.10, have been converted. Should the remaining Convertible Notes be fully converted within 2007, no similar charge shall be made in the Profit and Loss Account.

The Group’s improved financial results is owed mainly to the acquisition of 100% equity interest in Golife (Hong Kong) Limited completed on 31 July 2006 (the “Acquisition”).

During the nine months period under review, the Group made an open offer of 395,101,116 shares and raised net proceeds of HK$23.73 million. HK$18.48 million of the proceeds was used for the Acquisition, and the balance of HK$5.25 million as working capital of the Group. HK$1.85 million is earmarked for brand marketing. The Group’s financial position has strengthened as a result of these transactions.

The five-month results of Golife (Hong Kong) Limited after the Acquisition was completed had been consolidated into the Group’s account. Golife (Hong Kong) Limited had contributed positively and significantly to the profitability and cash flows of the Group.

A previous shareholder of Golife (Hong Kong) Limited, Chung Chiu Limited, provided a profit guarantee to the Group, as a condition of Sale and Purchase, of no less than HK$10,000,000 of net profit before tax for the year ended 31 March 2006. Golife (Hong Kong) Limited announced on 27 September 2006 that its net profit before tax for the year was HK$9,333,387. As agreed, Chung Chiu Limited paid the Group the shortfall of guarantee profit of HK$666,613.

Operational Review

During the nine months period, the Group’s apparel and accessories distribution business made HK$18.34 million in turnover and gross profit of HK$11.02 million, translating into a gross profit margin of 60%. Demand for products of the two brands currently carried by the Group, namely London-based Anya Hindmarch and Parisbased Paule Ka, was strong driven by favourable economic conditions in Hong Kong

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APPENDIX II

and Taiwan. The Group believes the net margin of the business will improve with rental of shop space peaked in 2006 and expected to come down in 2007, hence lower rental cost of the business is expected.

As for the Group’s location-based auto-recovery business, it reported a turnover of HK$0.54 million. Competition remained keen with players making continuous capital investment and pushing for technological innovation. The Board will carefully monitor the performance of this business and will consider ceasing this business unit as soon as practicable if it does not achieve desirable profitability in the near term.

Future Plans and Prospects

The strong macro economic environment of the Greater China region is favorable for the Group’s luxury consumer products distribution business. The Board believes the Group is poised to capture opportunities in the region in the next few years to achieve rapid growth.

On February 2007, the Group entered into an Agreement with Zion Worldwide Limited (“Zion Worldwide”) to establish LOC Limited (“LOC”), with Profit First Investment Limited and Zion Worldwide owning equal stake. LOC will wholesale, design, source, merchandise and market lifestyle consumer products including but not limited to jewellery and accessories under the Life of Circle trademark. Created by awardwinning designer Dickson Yewn, Life of Circle is an accessories brand that infuses Chinese philosophy into product designs. The brand offers concept ‘bridge’ jewelry and accessories. The world-renowned brand received the DTC Diamond Award in 2004, and its store was named by Forbes magazine as among the world’s top 25 stores in 2005.

When the transaction is completed, Dickson Yewn and Zion Worldwide will transfer and assign to the new company all LOC IP Rights and existing Trademark-related products, and Golife will be involved in brand management and product development of LOC. Golife will also be the exclusive agent to market, distribute, promote or conduct deals of the products in overseas markets. In Hong Kong, it will open as many as 4 mono-brand stores for LOC in premium shopping malls and be responsible for wholesale arrangements with other prestigious multi-brand stores.

With Life of Circle added to its portfolio, the Group is prepared to aggressively expand its luxury consumer products distribution business in 2007.

For Anya Hindmarch, the Group has secured prime shop spaces and will open two new stores in Taiwan in mid-2007 and one new store in Hong Kong in the second half of 2007. For Paule Ka, the Group will open a second and third store in Hong Kong in the third quarter of 2007. For Life of Circle, the Group has plans for two stores in premium shopping malls in Hong Kong. Upon completion of these expansion plans, the Group will have a total of 13 points of sales compared to 6 as at 31 December 2006.

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The Group will continue to identify and forge equity and/or distribution partnership with unique fashion and lifestyle-product brands with character, market potential and longevity. It will focus on a “vertical brandraising” model, which will enable it to attract more “up-and-coming” brands in Greater China to become its partners. The Group targets to double its points of sales every 18 months.

The Group also plans to start distributing products and setting up retail operations in Mainland China, the fastest growing economy in Asia. It expects to complete mapping out related strategy and mechanism in the near future. The Group is confident of capturing the demand for luxury products in key Mainland cities.

Liquidity and Financial Resources

The Group had cash and bank balances of HK$3.43 million as at 31 December 2006. To achieve a higher return for working capital, the Group also held short-term investments, mainly derivatives and equity listed in Hong Kong, totaling HK$6.20 million.

The Group will continue to improve its financial position. With positive cash inflow from operations and secured banking facilities, the Group has sufficient financial resources to meet its commitments and working capital requirements.

For the year ended 31 March 2007

Financial Review

Financial year 2007 was a significant and challenging year for the Group. It saw rapid development of brands represented by the Group and growth of the Group’s distribution business. Significant financial and human resources were deployed in strengthening and re-structuring the management team and operational units to ensure the Group is able to meet the anticipated expansion of demand in 2008.

Turnover of the Group was approximately HK$60,598,000 for the year, representing an increase of 221% compared with the period from 1 April 2006 to 31 December 2006. Gross profit was HK$37,768,000, representing approximately 62% of turnover. Loss attributable to shareholders after tax was HK$92,240,000. In accordance with Hong Kong Accounting Standard 36, the Group recognised a one-time write-off of goodwill of HK$75,552,000; such goodwill was attributable to the acquisition of Golife (Hong Kong) Limited (formerly known as “Hip Kin Retailing Limited”) in 2006. An impairment of intangible assets of HK$4,047,000 was also recognised.

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During the year, the Group added two new brands, Cynthia Rowley and Life of Circle, to its distribution business and commenced product design and development for both brands. As a result, certain one-off pre-opening expenses were incurred, which contributed negatively to the financial performance that would have been achieved otherwise.

Distribution Business

Distribution business for two luxury brands, Anya Hindmarch and Paule Ka, continued to grow steadily. British accessory brand Anya Hindmarch remained the Group’s main revenue contributor accounting for 72% of the Group’s turnover. Turnover from Anya Hindmarch was HK$43,831,000, of which 69% was derived in Hong Kong and the remaining 31% from Taiwan. Turnover from the Paris-based women’s wear brand Paule Ka was HK$12,931,000.

In March 2007, designer jewellery and accessory brand, Life of Circle, was added to the Group’s distribution portfolio. Two points of sale (“POS”) of the brand commenced operation during the year in Hong Kong, with the third one scheduled to open in April 2008. During the year, distribution business for Life of Circle achieved a turnover of HK$3,774,000 and reported a loss of HK$2,641,000. The Group believes the Life of Circle brand has enormous long-term potential, and it is only a matter of time for the brand to reach the critical mass.

In September 2007, the Group became the licensee and distributor of New Yorkdesigner brand Cynthia Rowley in Hong Kong and mainland China. The Group had secured two premises in Hong Kong and one in Beijing for setting up POS of the brand, the first of which will open in May 2008. Under the licensing agreement, the Group plans to open up to 20 POS for the brand by 2013, some of which will be opened in second-tier cities in mainland China to be operated by individual franchisees.

During the year, the Group strengthened its management by recruiting managers for its distribution and marketing departments to ensure that the manpower of these departments are sufficient to support the expansion of the Group’s distribution business in the Greater China region. With a number of new POS to open in 2008, the Directors believe the Group will be able to achieve greater economies of scale and brace the performance of the distribution business and operating margins in 2008.

Product Development

Life of Circle Limited, which was formed in February 2007, and in which the Group had a 50% interest is responsible for the design, sourcing, merchandise planning and wholesale of conceptual jewellery and accessories carrying the Life of Circle trademark.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The new Life of Circle operation, which gave the Group indirect interest of the trademark, has transformed the Group from a pure distribution company into also a brand development and management company. The Group now works closely with Life of Circle Limited to ensure marketability and profitability of Life of Circle products. The Group plans to double the number of new jewellery products and introduce a new line of corporate gifts in 2008 to meet market demand.

CR Hong Kong Limited, a company in which the Group had a 50% interest as at 31 December 2007, was granted the licensing rights to design, manufacture and distribute products carrying the Cynthia Rowley trademark in Hong Kong and mainland China. It handles the design, sourcing and merchandise planning of women’s apparels and accessories under the Cynthia Rowley trademark.

Expecting Cynthia Rowley brand products to contribute revenues in a decent proportion to its total revenues in the next few years, the Group has deployed resources to strengthen product development and sourcing capabilities in Hong Kong and mainland China to support the brand. The different measures taken included conducting focused market researches and recruitment of designers and merchandisers for the brand.

Acquisition of French-brand Solola

On 8 November 2007, the Group signed an agreement with Crédit Lyonnais Capital Investissement, Crédit Lyonnais Développement 2, Mr. Pierre Hémar, Lion Capital Investissement, Nollius BV and Quilvest France (“the Sellers”) to purchase the sale shares, representing 96.57% of the issued share capital of Financière Solola and FS Convertible Bonds at a total initial consideration of EUR7,717,766 (approximately HK$92,381,659). Upon conversion of the FS Convertible Bonds, the Company’s interest in Financière Solola will increase to approximately 98.25%.

In addition to the initial consideration and upon satisfaction of certain EBITDA targets set in the agreement, the Group will pay to the Sellers the Earn Out – a oneoff performance related payment of EUR2,894,162 (approximately HK$34,643,119). If the audited consolidated EBITDA of Financière Solola Group for the year ending 31 December 2008 based on the French GAAP is equal to or in excess of the EBITDA Target, the Earn Out shall be capped at EUR2,894,162 (approximately HK$34,643,119). (Note: Euro/Hong Kong Dollar = 11.97, as per circular dated 8 March 2008)

Financière Solola was incorporated on 6 February 2003 and the Financière Solola Group is principally engaged in the design and sale of women’s apparels carrying the “Solola” brand. “Solola” products are sold in 13 boutiques of the brand in France as well as a network of over 500 wholesale points in France and worldwide.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

The acquisition will give the Group equity ownership of an established French brand in Europe and will boost the Group’s design and product development capabilities. On top of bringing in revenues and profits, Financière Solola becoming a member of the GoLife family is also conducive to the Group’s plan to extend its POS network in Greater China and speed up business development in mainland China where demand for quality consumer brands is growing.

It is expected that, subject to satisfaction of the various conditions, including approval from shareholders of the Company, the proposed acquisition will be completed in the second quarter of 2008.

Future Plans and Strategies

Upon completion of the acquisition of the Solola brand, the Group will have five prestigious brands in its portfolio and thirty mono-branded POS in its distribution network. The Group aims to become an international premier lifestyle-product company, with emphasis on brand management, product development as well as distribution and marketing.

With China becoming the fastest growing economy in Asia, the Group will continue to focus on building a sizable POS network in mainland China, where there will be abundant opportunities for the Group’s luxury lifestyle products.

The Group will continue to seek and identify unique international accessory and apparel brands with character, market potential and longevity to form distribution, product development and equity partnerships.

Corporate Planning and Administration

During the financial year, the management established a Corporate Planning and Administration division for the Group to oversee the finance as well as human resources and administration departments. The respective departments under this division support the Group’s business operations, in areas including accounting, company secretarial functions, legal and compliance, human resources and investor relations.

To cope with the expanding operations in different countries, namely China, Taiwan and France, the division plans to commence an overall internal review of the Group’s current systems and affairs as well as implement new internal control systems, including setting up corporate governance committees upon completion of such review as appropriate and necessary.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Liquidity and Financial Resources

The Group had cash and bank balances of HK$9,536,000 as at 31 December 2007, out of which HK$5,949,000 was pledged for banking facilities. To achieve a higher return from working capital, the Group also held short-term investments, mainly in equity listed in Hong Kong, totalling 966,000 of which HK$728,000 was secured. Total borrowings as at 31 December 2007 amounted to HK$14,368,000, which included HK$13,563,000 with maturity within one year. Except for borrowings of HK$1,613,000 denominated in pound sterling, all other borrowings were denominated in Hong Kong dollar. The Group’s gearing ratio, representing borrowings divided by the total of borrowings and equity, was 55%. The Group’s major exposure in foreign currency risk was arising from purchase transactions. Forward contracts were entered into for hedging such transactions during the year.

As at 31 December 2007, the Group had operating lease commitments of HK$28,364,000, purchase commitments of HK$118,468,000, capital commitment for investment in Financière Solola Group of HK$89,086,000 and other capital commitments of HK$7,880,000.

Employees

As at 31 December 2007, the Group had 73 employees. Their remuneration, promotion and salary review are assessed based on job responsibilities, work performance, professional experiences and the prevailing industry practices. The employees in Hong Kong joined the Mandatory Provident Fund Scheme. Other benefits include share options granted or to be granted under the share option scheme.

For the nine months period ended 30 September 2008

Overview

Turnover of the Group was approximately HK$51,177,000 for the nine months ended 30 September 2008 (the “Period”), representing an increase of 30% compared with the corresponding period last year. Gross profit was HK$27,879,000, representing approximately 54% of turnover. Loss attributable to shareholders after tax was HK$42,464,000. Within the total losses, HK$22,421,000 was attributed by the termination of the acquisition of Financière Solola in April 2008 and certain related financing exercises. Excluding the one-time losses that were attributed from the termination of this acquisition, the Group’s net loss attributable to shareholders was HK$20,043,000.

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FINANCIAL INFORMATION ON GC GROUP

APPENDIX II

Business performance

Distribution business for two luxury European brands, Anya Hindmarch, and Paule Ka, continued to grow steadily. British accessory brand Anya Hindmarch remained as the Group’s main revenue contributor accounting for 63% of the Group’s turnover. Turnover from Anya Hindmarch was HK$32,183,000, of which 66% was derived in Hong Kong and the remaining 34% from Taiwan. Turnover from the Paris-based women’s wear brand Paule Ka was HK$13,440,000.

Distribution business of the Group’s 50% owned designer jewelry brand, Life of Circle, achieved satisfactory results through 3 POS in Hong Kong. During the Period, distribution business for Life of Circle achieved a turnover of HK$5,316,000. The Group believes the Life of Circle brand has enormous long-term potential and it is a matter of time for the brand to reach the critical mass.

Future Plans

During the review period, the global financial crisis has begun to affect consumer spending in the Greater China region. In the interests of shareholders, the Group has immediately implemented measures to cut down costs as well as scale-down its retail operations. The Board also considers it necessary to diversify the Group’s income base by entering into industries that are less affected by the expected persistent economic downturn.

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UNAUDITED PRO FORMA

APPENDIX III

FINANCIAL INFORMATION OF THE GROUP

1. ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE 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 [79 x 59] intentionally omitted <==

To the Directors of

Brilliant Arts Multi-Media Holding Limited

Unit 1611, 16/F., Shun Tak Centre, West Tower 168-200 Connaught Road Central Hong Kong

We report on the unaudited pro forma financial information of Brilliant Arts MultiMedia Holding Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out on page 305 to 318 under the heading of “Unaudited Pro Forma Financial Information of the Group” (the “Unaudited Pro Forma Financial Information”) in Appendix III of the Company’s circular date 29 December 2008 (the “Circular”), in connection with the proposed subscription (the “Subscription”) of convertible bonds issued by Golife Concepts Holdings Limited (the “GC Convertible Bonds”) (collectively referred to as the “Enlarged Group”) and the proposed open offer (the “Open Offer”) of the Company on the basis of nine offer shares for every one exiting share held on the record date. The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company, for illustrative purpose only, to provide information about how the Subscription of the GC Convertible Bonds and the Open Offer might have affected the relevant financial information of the Group presented. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in Appendix III of 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

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

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.

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 30 September 2008 or any future date; or
the results and cash flows of the Enlarged Group for the year ended 31 March 2008 or for any future period.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

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, 29 December 2008

Chan Wai Dune, Charles Practising Certificate Number P00712

— 304 —

UNAUDITED PRO FORMA

APPENDIX III

FINANCIAL INFORMATION OF THE GROUP

2. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP

The following is the unaudited pro forma consolidated balance sheet (the “Unaudited Pro Forma Consolidated Balance Sheet”) of the Enlarged Group assuming that the Subscription had been completed on 30 September 2008, and the Group had exercised those conversion rights attached solely to the GC Convertible Bonds after the Subscription, to the extent that the Group’s aggregate holding in the GC shares immediately after such conversion shall be less than 30% of the then issued share capital of Golife (the “Partial Conversion”). The Unaudited Pro Forma Consolidated Balance Sheet is based on the unaudited consolidated balance sheet of the Group as at 30 September 2008 as set out in Appendix I to the Circular, and the unaudited consolidated balance sheet of the GC Group as at 30 September 2008 and after making pro forma adjustments relating to the Subscription and the Partial Conversion, as if the Subscription and the Partial Conversion had been completed on 30 September 2008.

The Unaudited Pro Forma Consolidated Balance Sheet has been prepared for illustrative purposes only, and because of its hypothetical nature, it 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 30 September 2008 and any future date.

— 305 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Unaudited Pro Forma Consolidated Balance Sheet of the Enlarged Group

Non-current assets Property, plant and equipment Investment properties Investment in an associate Convertible bonds receivable Conversion option embedded in convertible bonds receivable Goodwill Current assets Film in progress Trade debtors Deposits prepayments and other debtors Bank balances and cash Current liabilities Other creditors and accruals Bank borrowing Net current assets Total assets less current liabilities	Unaudited consolidated balance sheet of the Group as at 30 September 2008 Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) 1,191 54,819 — 5,330 — 54,539 (3,223) — 35,644 (2,107) 1,449 57,459 12,423 180 353 100,759 (100,000) 113,715 1,057 384 1,441 112,274 169,733	Unaudited pro forma consolidated balance sheet of the Enlarged Group as at 30 September 2008 HK$’000 1,191 54,819 5,330 51,316 33,537 1,449
		147,642
		12,423 180 353 759
		13,715
		1,057 384
		1,441
		12,274
		159,916

— 306 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Capital and reserves Share capital Reserves Total equity Non-current liabilities Convertible bonds Bank borrowing Deferred tax liabilities	Unaudited consolidated balance sheet of the Group as at 30 September 2008 Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) 1,257 161,652 (9,817) 162,909 668 1,967 4,189 6,824 169,733	Unaudited pro forma consolidated balance sheet of the Enlarged Group as at 30 September 2008 HK$’000 1,257 151,835
		153,092
		668 1,967 4,189
		6,824
		159,916

— 307 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Notes to the Unaudited Pro Forma Consolidated Balance Sheet:

(1) The pro forma adjustment represented:
the payment of HK$100,000,000 by the Group for the Subscription;
the initial measurement of the estimated fair values of the debt element and the conversion option element of the GC Convertible Bonds as at 30 September 2008, assuming the Subscription had been completed on 30 September 2008, were approximately HK$54,539,000 and HK$35,644,000 respectively, based on a valuation performed by Grant Sherman Appraisal Limited, an independent professional valuer; and
the impairment loss on acquisition date of HK$9,817,000 is debited to income statement. The amount represents the payment of HK$100,000,000 by the Group for the Subscription less the initial measurement of the estimated fair values of the debt element and the conversion option element of the GC Convertible Bonds, based on a valuation performed by Grant Sherman Appraisal Limited, an independent professional valuer.
(2) Golife had 275,926,613 GC shares in issue as at 30 September 2008. Accordingly, the maximum number of GC shares that the Group can convert under the terms of GC Convertible Bonds to the extent that the aggregate holding of the GC shares shall be less than 30% (assumed to be 29.99%) of the then issued share capital of Golife is 118,197,959.

The pro forma adjustment represented the recognition of the interest in an associate – the GC Group of approximately HK$5,330,000, de-recognition of the debt element and the conversion option element of the GC Convertible Bonds of approximately HK$3,223,000 and HK$2,107,000 respectively, assuming the Partial Conversion had been completed on 30 September 2008. The derecognised debt element and conversion option element is calculated by initial measurement of the estimated fair value of debt element and the conversion option element on the proportion of converted options.

— 308 —

UNAUDITED PRO FORMA

APPENDIX III

FINANCIAL INFORMATION OF THE GROUP

3. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE ENLARGED GROUP

The following is the unaudited pro forma consolidated income statement (the “Unaudited Pro Forma Consolidated Income Statement”) of the Enlarged Group assuming that the Subscription and the Partial Conversion had been completed on 1 April 2007. The Unaudited Pro Forma Consolidated Income Statement is based on the audited consolidated income statement of the Group for the year ended 31 March 2008 as set out in Appendix I to the Circular, and the unaudited consolidated income statement of the GC Group for the year ended 31 December 2007 extracted from the annual report of the GC Group for the year ended 31 December 2007 and after making pro forma adjustments relating to the Subscription and the Partial Conversion, as if the Subscription and the Partial Conversion had been completed on 1 April 2007. The Unaudited Pro Forma Consolidated Income Statement has been prepared for illustrative purposes only, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial result of the Enlarged Group for the year ended 31 March 2008 and any future period.

— 309 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Unaudited Pro Forma Consolidated Income Statement for the Enlarged Group

					Unaudited
	Audited				pro forma
	consolidated				consolidated
	income				income
	statement				statement of
	of the				the Enlarged
	Group for the				Group for the
	year ended				year ended
	31 March				31 March
	2008	Pro	forma adjustments		2008
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(Note 3)	(Note 4)	(Note 5)
Turnover	10,632				10,632
Cost of sales	(9,261)				(9,261)
Gross profit	1,371				1,371
Fair value gain on investment
properties	7,700				7,700
Other revenue and other income	3,345	3,640			6,985
Other operating expenses	(15,906)				(15,906)
(Loss)/profit from operations	(3,490)				150
Gain on disposal of subsidiaries	25,736				25,736
Finance costs	(1,635)				(1,635)
Share of result of an associate	—			(8,024)	(8,024)
Change in fair value of conversion
option embedded in convertible
bonds receivable	—		(35,960)		(35,960)
Profit/(loss) before taxation	20,611				(19,733)
Taxation	(1,322)				(1,322)
Profit/(loss) for the year	19,289				(21,055)

— 310 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Notes to the Unaudited Pro Forma Consolidated Income Statement:

(3) The pro forma adjustment represented the imputed interest income on the debt element of the GC Convertible Bonds using the effective interest method for the year ended 31 March 2008, assuming the Subscription and the Partial Conversion had been completed on 1 April 2007. The adjustment had continuing financial effect.
(4) The pro forma adjustment represented the fair value change on the conversion option element of the GC Convertible Bonds for the year ended 31 March 2008, assuming the Subscription and the Partial Conversion had been completed on 1 April 2007, based on a valuation performed by Grant Sherman Appraisal Limited, an independent professional valuer. The adjustment had continuing financial effect.
(5) The pro forma adjustment represented the share of result of an associate – the GC Group, for the year ended 31 March 2008, restricted to the cost of investment in an associate – the GC Group. Assuming the Partial Conversion had been completed on 1 April 2007, the recognition of the interest in an associate represented the de-recognition of the debt element and the conversion option element of the GC Convertible Bonds of approximately HK$1,946,000 and HK$6,078,000 respectively. The adjustment had continuing financial effect. The de-recognised debt element and conversion option element is calculated by initial measurement of the estimated fair value of debt element and the conversion option element as at 1 April 2007 on the proportion of converted options.

— 311 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

4. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT FOR THE GROUP

The following is the unaudited pro forma consolidated cash flow statement (the “Unaudited Pro Forma Consolidated Cash Flow Statement”) of the Enlarged Group assuming that the Subscription and the Partial Conversion had been completed on 1 April 2007. The Unaudited Pro Forma Consolidated Cash Flow Statement is based on the audited consolidated cash flow statement of the Group for the year ended 31 March 2008 as set out in Appendix I to the Circular, and after making pro forma adjustments relating to the Subscription and Partial Conversion, as if the Subscription and the Partial Conversion had been completed on 1 April 2007.

The Unaudited Pro Forma Consolidated Cash Flow Statement has been prepared for illustrative purposes only, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the cash flow of the Enlarged Group for the year ended 31 March 2008 and any future period.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Unaudited Pro Forma Consolidated Cash Flow Statement for the Enlarged Group

				Unaudited
	Audited			pro forma
	consolidated			consolidated
	cash flow			cash flow
	statement			statement of
	of the			the Enlarged
	Group for the			Group for the
	year ended			year ended
	31 March 2008	Pro forma	adjustments	31 March 2008
	HK$’000	HK$’000	HK$’000	HK$’000
		(Note 6)	(Note 7)
OPERATING ACTIVITIES
Profit/(loss) before taxation	20,611	(40,344)		(19,733)
Adjustments for:
Interest income	(1,274)	(3,640)		(4,914)
Loss on disposal of property, plant
and equipment	3			3
Gain on disposal of subsidiaries	(25,736)			(25,736)
Fair value gain on investment
properties	(7,700)			(7,700)
Fair value change on conversion
option embedded in convertible
bonds	—	35,960		35,960
Excess of interest in fair value of
acquiree’s identifiable assets
and liabilities over the cost of a
business combination	(2,057)			(2,057)
Depreciation	1,236			1,236
Amortisation of film rights	2,976			2,976
Finance charges on finance leases	8			8
Interest expenses	1,627			1,627
Share of result of an associate	—	8,024		8,024
Share-based payments	4,370			4,370

— 313 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

				Unaudited
	Audited			pro forma
	consolidated			consolidated
	cash flow			cash flow
	statement			statement of
	of the			the Enlarged
	Group for the			Group for the
	year ended			year ended
	31 March 2008	Pro forma	adjustments	31 March 2008
	HK$’000	HK$’000	HK$’000	HK$’000
		(Note 6)	(Note 7)
Operating cash flows before
movements in working capital	(5,936)			(5,936)
Increase in films in progress	(24,395)			(24,395)
Decrease in production in progress	3,667			3,667
Decrease in trade debtors	5,629			5,629
Decrease in deposits, prepayments
and other debtors	86			86
Decrease in trade creditors	(2,166)			(2,166)
Increase in other creditors and
accruals	482			482
Increase in receipt in advance	2,272			2,272
Decrease in amounts due to directors	(2,484)			(2,484)
NET CASH USED IN OPERATING
ACTIVITIES	(22,845)			(22,845)
INVESTING ACTIVITIES
Interest received	1,274			1,274
Acquisition of subsidiaries	311			311
Acquisition of convertible bonds	—		(100,000)	(100,000)
Additions of film rights	(4,697)			(4,697)
Disposal of subsidiaries	21,136			21,136
Proceeds from disposal of property,
plant and equipment	3			3
Purchase of property plant and
equipment	(1,510)			(1,510)
NET CASH GENERATED FROM
(USED IN) INVESTING
ACTIVITIES	16,517			(83,483)

— 314 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

				Unaudited
	Audited			pro forma
	consolidated			consolidated
	cash flow			cash flow
	statement			statement of
	of the			the Enlarged
	Group for the			Group for the
	year ended			year ended
	31 March 2008	Pro forma	adjustments	31 March 2008
	HK$’000	HK$’000	HK$’000	HK$’000
		(Note 6)	(Note 7)
FINANCING ACTIVITIES
Interest paid	(1,305)			(1,305)
Finance charges on finance leases
paid	(8)			(8)
Repayment of bank loan	(65)			(65)
Net amounts due to related
companies	18,500			18,500
Proceeds from issue of shares	78,682			78,682
Proceeds from issue of convertible
bonds	22,500			22,500
Proceeds from issue of shares under
share option scheme	4,113			4,113
Repayment of amounts due to related
companies	(36,000)			(36,000)
Repayment of obligations under
finance leases	(96)			(96)
Share issue expenses	(2,241)			(2,241)
NET CASH GENERATED FROM
FINANCING ACTIVITIES	84,080			84,080

— 315 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

				Unaudited
	Audited			pro forma
	consolidated			consolidated
	cash flow			cash flow
	statement			statement of
	of the			the Enlarged
	Group for the			Group for the
	year ended			year ended
	31 March 2008	Pro forma	adjustments	31 March 2008
	HK$’000	HK$’000	HK$’000	HK$’000
		(Note 6)	(Note 7)
NET INCREASE IN CASH AND
CASH EQUIVALENTS	77,752			(22,248)
CASH AND CASH EQUIVALENTS
AT THE BEGINNING
OF THE YEAR	23,877			23,877
EFFECT OF FOREIGN EXCHANGE
RATE CHANGES	131			131
CASH AND CASH EQUIVALENTS
AT THE END OF THE YEAR	101,760			1,760

Notes to the Unaudited Pro Forma Consolidated Cash Flow Statement:

(6) The pro forma adjustment represented the imputed interest income, the fair value change on the conversion option element of the GC Convertible Bonds and share of result of an associate – the GC Group for the year ended 31 March 2008, assuming the Subscription and the Partial Conversion had been completed on 1 April 2007. The adjustment had continuing financial effect.
(7) The pro forma adjustment represented the cash used for the Subscription. The adjustment did not have continuing financial effect.

— 316 —

UNAUDITED PRO FORMA

APPENDIX III

FINANCIAL INFORMATION OF THE GROUP

5. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

The following is an illustrative unaudited pro forma statement of adjusted consolidated net tangible assets (the “Unaudited Pro Forma Net Tangible Assets”) of the Group in accordance with paragraph 29 of Chapter 4 of the GEM Listing Rules to illustrate the effect of the Open Offer on the consolidated net tangible assets attributable to equity holders of the Company, as set out in Appendix I to this Circular, as if the Open Offer had been completed on 30 September 2008.

The Unaudited Pro Forma Net Tangible Assets of the Group has been prepared for illustrative purposes only, and because of its hypothetical nature, it 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 Group as at 30 September 2008 and any future date.

Unless otherwise defined, capitalised terms used in the following text shall have the same meaning of those used in the Circular.

Unaudited
consolidated
net assets
as at 30
September
2008
HK’000
(Note 1)
162,909
Consolidated net tangible
assets per Share prior to the
Open Offer_(Note 3)_

Less:
Intangible
assets
Unaudited
consolidated
net tangible
assets
as at 30
September
2008
Add:
Estimated
net proceeds
from the
Open Offer
Unaudited
pro forma
adjusted
consolidated
net tangible
assets upon
completion
of the Open
Offer
as at 30
September
2008
HK’000
HK’000
HK’000
HK’000
(Note 1)
(Note 2)
(13,872)
149,037
43,800
192,837
HK$1.18

Unaudited pro forma adjusted consolidated net tangible assets per Share upon completion of the Open Offer (Note 4)

HK$0.15

— 317 —

UNAUDITED PRO FORMA

APPENDIX III

FINANCIAL INFORMATION OF THE GROUP

Notes:

The unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the equity holders of the Company as at 30 September 2008 is based on the unaudited consolidated net assets of the Group attributable to the Company’s equity holders as at 30 September 2008 of approximately HK$162,909,000, as extracted from the published interim report of the Company for the six months ended 30 September 2008 as set out in Appendix I to the Circular, with an adjustment for the intangible assets as at 30 September 2008 of HK$13,872,000.
The estimated net proceeds from the Open Offer are calculated based on 1,131,207,381 Offer Shares to be issued at a subscription price of HK$0.04 per Offer Share after deduction of estimated expenses of approximately HK$1.4 million.
The number of Shares used for the calculation of this amount is 125,689,709 which represented Shares in issue as at 30 September 2008.
The number of Shares used for the calculation of this amount is 1,256,897,090 which will be the total number of Shares expected to be in issue after the completion of the Open Offer, representing 125,689,709 Shares in issue as at 30 September 2008 and 1,131,207,381 Offer Shares to be issued pursuant to the Open Offer.

— 318 —

GENERAL INFORMATION

APPENDIX IV

1. 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.

2. SHARE CAPITAL

(a) Share capital

The authorised and issued share capital of the Company (i) as at the Latest Practicable Date and (ii) upon completion of the Open Offer are as follows:

(i) As at the Latest Practicable Date

		HK$
Authorised share capital:
3,000,000,000	Shares	30,000,000

Issued and fully	paid share capital or credited as fully paid:
125,689,709	Shares in issue as at the Latest	1,256,897
	Practicable Date

— 319 —

GENERAL INFORMATION

APPENDIX IV

(ii) Upon completion of the Open Offer

		HK$
Authorised share capital:
3,000,000,000	Shares	30,000,000

Issued and fully	paid share capital or credited as fully paid:
125,689,709	Shares in issue as at the Latest	1,256,897
	Practicable Date
1,131,207,381	Offer Shares to be issued pursuant to	11,312,073
	the Open Offer
1,256,897,090	Shares in issue upon completion of the	12,568,970
	Open Offer

All the issued Shares rank pari passu in all respects including all rights as to dividends, voting and return of capital. All the Offer Shares which will be in issue upon completion of the Open Offer will rank pari passu in all respects with the existing Shares in issue including as regards to all rights as to dividends, voting and return of capital.

The issued Shares are listed on GEM. There is no arrangement under which future dividends are/will be waived or agreed to be waived.

Save as disclosed in this Circular, no share or loan capital of the Company or any members of the Group has been put under option or agreed conditionally or unconditionally to be put under option and no warrant or conversion right affecting the Shares has been issued or granted or agreed conditionally, or unconditionally to be issued or granted.

3. DISCLOSURE OF INTERESTS

(a) Directors’ interests in the Company

Save as disclosed below, 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 and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to

— 320 —

GENERAL INFORMATION

APPENDIX IV

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); (b) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) 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:

					Percentage
					of the
	Personal	Corporate	Interest in	Total	Company’s
	interest	interest	underlying	interest in	issued share
Name of Director	in Shares	in Shares	Shares	Shares	capital
Mr. Lei	1,053,853	21,786,000	342,815,574	365,655,427	290.92%
	(Note 1)	(Not 1)	(Note 2)
Mr. Cheung	1,053,853	—	1,256,897	2,310,750	1.84%
	(Note 3)		(Note 3)

Notes:

3,786,000 Shares and 18,000,000 Shares are held by Mander and Eagle Mate respectively. Both companies are wholly and beneficially owned by Business Power.
Mr. Lei is deemed to be interested in 1,256,897 Shares which would fall to be issued upon exercise of the 1,256,897 Share Options. Mr. Lei has given the Lei Undertaking (a) to subscribe for or procure subscriptions for: (i) 9,484,677 Offer Shares to which Mr. Lei is entitled under the Open Offer; (ii) 162,000,000 Offer Shares to which Eagle Mate is entitled under the Open Offer; and (iii) 34,074,000 Offer Shares to which Mander is entitled under the Open Offer and (b) to procure subscription by Mander for 136,000,000 Offer Shares under Excess Application Form, which, when fully allotted and issued under the Open Offer and together with all Shares held by Mr. Lei, Eagle Mate and Mander and their respective associates after the Open Offer, shall represent 28.99% of the issued share capital of the Company on fully diluted basis.
Mr. Cheung is deemed to be interested in 1,256,897 Shares which would fall to be issued upon exercise of the 1,256,897 Share Options. Mr. Cheung also owns 1,053,853 Shares in his personal capacity.

— 321 —

GENERAL INFORMATION

APPENDIX IV

(b) Directors’ interests in assets of the Company

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any asset which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 March 2008, the date to which the latest published audited financial statements of the Group were made up.

(c) Directors’ service agreements and interests in contract or arrangement

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement subsisting at the date of this Circular which is significant in relation to the business of the Group.

4. SUBSTANTIAL SHAREHOLDERS

Save as disclosed below, so far as is known to the Directors or chief executive of the Company, no person (other than a Director or chief executive of the Company) who, as at the Latest Practicable Date, had an interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would fall to be disclosed under provisions of Division 2 and 3 of Part XV of the SFO, or who, as at the Latest Practicable Date, was directly and indirectly interested in 5% 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 the Group.

— 322 —

GENERAL INFORMATION

APPENDIX IV

Long positions in the Shares and underlying Shares

					Approximate
					percentage of
					the
			Interest in	Total	Company’s
		Interest in	underlying	interest in	issued share
Name	Capacity	Shares	Shares	Shares	capital
					(%)
CSL	Beneficial owner	10,909,090	518,134	11,427,224	9.09
	(Note 1)
Porterstone	Interest of	10,909,090	518,134	11,427,224	9.09
	controlled
	corporation
	(Note 1)
Heung Wah Keung	Interest of	10,909,090	518,134	11,427,224	9.09
	controlled
	corporation
	(Note 1)
Chen Ming Yin,	Interest of	10,909,090	518,134	11,427,224	9.09
Tiffany	controlled
	corporation
	(Note 1)
Kingston Securities	Other_(Note 2)_	—	789,648,704	789,648,704	62.82
Chu Yuet Wah	Interest of	—	789,648,704	789,648,704	62.82
	controlled
	corporation
	(Note 2)
Ma Siu Fong	Interest of	—	789,648,704	789,648,704	62.82
	controlled
	corporation
	(Note 2)
Billion Era Group	Beneficial owner	17,142,857	—	17,142,857	13.87
Limited	(Note 3)

— 323 —

GENERAL INFORMATION

APPENDIX IV

					Approximate
					percentage of
					the
			Interest in	Total	Company’s
		Interest in	underlying	interest in	issued share
Name	Capacity	Shares	Shares	Shares	capital
					(%)
Leong Chi Meng	Interest of	17,142,857	—	17,142,857	13.87
	controlled
	corporation
	(Note 3)
Ung Siu Han	Interest of spouse	17,142,857	—	17,142,857	13.87
	(Note 3)
Eagle Mate	Beneficial owner	18,000,000	162,000,000	180,000,000	143.21
	(Note 4)
Mander	Beneficial owner	3,786,000	170,074,000	173,860,000	138.32
	(Note 4)
Business Power	Interest of	21,786,000	332,074,000	353,860,000	281.53
	controlled
	corporation
	(Note 4)
Lok Hoi Yan	Interest of	21,786,000	332,074,000	353,860,000	281.53
	controlled
	corporation
	(Note 4)

Notes:

CSL is a company wholly owned by Glenstone Investments Limited, which in turn is owned as to 60% by Porterstone and as to 40% by Mr. Heung Wah Keung. CSL was interested in 10,909,090 Shares, and was deemed to be interested in 518,134 underlying Shares in relation to the CSL Convertible Bond.
Kingston Securities was deemed to be interested in 789,648,704 Shares by virtue of its capacity as the underwriter pursuant to the Underwriting Agreement. Ms. Chu Yuet Wah and Ms. Ma Siu Fong own 51% and 49% interest in Kingston Securities respectively.
Billion ERA Group Limited was beneficially interested in 17,142,857 Shares. 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.

— 324 —

GENERAL INFORMATION

APPENDIX IV

3,786,000 Shares and 18,000,000 Shares are held by Mander and Eagle Mate respectively. Both companies are wholly and beneficially owned by Business Power. Mr. Lei also owns 1,053,853 Shares in his personal capacity and is deemed to be interested in 1,256,897 Shares which would fall to be issued upon exercise of the 1,256,897 Shares Options. Mr. Lei has given the Lei Undertaking (a) to subscribe for or procure subscriptions for: (i) 9,484,677 Offer Shares to which Mr. Lei is entitled under the Open Offer; (ii) 162,000,000 Offer Shares to which Eagle Mate is entitled under the Open Offer; and (iii) 34,074,000 Offer Shares to which Mander is entitled under the Open Offer and (b) to procure subscription by Mander for 136,000,000 Offer Shares under Excess Application Forms, which, when fully allotted and issued under the Open Offer and together with all Shares held by Mr. Lei, Eagle Mate and Mander and their respective associates after the Open Offer, shall represent 28.99% of the issued share capital of the Company on fully diluted basis.

5. PARTICULARS OF THE DIRECTORS

Qualification of the Directors

Executive Directors

Mr. Lei Hong Wai, aged 40, is the Chairman and Chief Executive Officer of the Company. Mr. Lei is responsible for the overall strategic planning and managing function of the Group. Mr. Lei has over 16 years experience in the entertainment industry. Mr. Lei was a director of The Chamber of Hong Kong Listed Companies Limited, which promotes interaction amongst its members, which are listed companies in Hong Kong and the People’s Republic of China, in 2002. Mr. Lei joined the Company in July 2007.

Mr. Cheung Kwok Wai, Elton, aged 42, is the general manager of the Group. He holds a Master Degree in Accounting and Finance of the University of Lancaster, England. Mr. Cheung has over 20 years experience in the area of corporate finance and securities industries. He is responsible for managing the Group’s investment in Canada and overseeing the Group’s daily operations. Mr. Cheung joined the Group in January 2008.

Independent non-executive Directors

Mr. Leung Wai Man, aged 38, has over 9 years of experience in company secretarial, accounting and financial management. He is an associate member of the Association of Chartered Certified Accountants in the United Kingdom. Mr. Leung was appointed as an independent non-executive Director on 10 July 2007. He is also a member of the audit committee of the Company as at the Latest Practicable Date.

Mr. Man Kong Yui, aged 48, has been involved in the financial and securities industries for over 26 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 Degree in

— 325 —

GENERAL INFORMATION

APPENDIX IV

Business Administration from Chinese University of Hong Kong. Mr. Man is currently an independent non-executive director of Greater China Technology Group Limited and Get Nice Holdings Limited, which all these companies are listed on the Stock Exchange. Mr. Man was appointed as an independent non-executive Director on 18 September 2007. He is also a member of the audit committee of the Company as at the Latest Practicable Date.

Mr. Kwok Chuen Hung, Dominic, aged 48, has substantial experience in project investment and other trading business both in Hong Kong and South East Asia. Mr. Kwok was appointed as an independent non-executive Director on 10 November 2008. He is also a member of the audit committee of the Company as at the Latest Practicable Date.

6. AUDIT COMMITTEE

The Company established an audit committee with written terms of reference in compliance with the GEM Listing Rules. Rule 5.28 of the GEM Rules requires that the audit committee must comprise a minimum of three members with a majority of independent non-executive Directors and at least one member must have appropriate professional qualifications or accounting or related financial management expertise. As at the Latest Practicable Date, the audit committee comprises Mr. Leung Wai Man, Mr. Man Kong Yui and Mr. Kwok Chuen Hung, Dominic, all of whom are also independent non-executive Directors. The main duties of the audit committee include the followings:

(a) to review the financial statements and reports and consider any significant or unusual items raised by the qualified accountant, compliance officer or external auditors before submission to the board;
(b) to review the relationship with the external auditors by reference to the work performed by the auditors, their fees and terms of engagement, and make recommendation to the Board on the appointment, re-appointment and removal of external auditors; and
(c) to review the adequacy and effectiveness of the Company’s financial reporting system, internal control system and risk management system and associated procedures.

The audit committee held four meetings during the year ended 31 March 2008, to review the financial results and reports, financial reporting and compliance procedures, report on the Company’s internal control and risk management review and processes as well as the re-appointment of the external auditors.

— 326 —

GENERAL INFORMATION

APPENDIX IV

There is no material uncertainty relating to events and conditions that may cast significant doubt on the Company’s ability to continue as a going concern.

There is no disagreement between the Board and the audit committee regarding the selection, appointment, resignation or dismissal of external auditors.

The Company’s annual results for the year ended 31 March 2008, has been reviewed by the audit committee.

7. CORPORATE INFORMATION AND PARTIES INVOLVED IN THE OPEN OFFER

Registered Office Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands Head office and principal place of Unit 1611, 16/F. business in Hong Kong Shun Tak Centre West Tower 168-200 Connaught Road Central Hong Kong Authorised representatives Mr. Lei Principal share registrar and transfer Bank of Bermuda (Cayman) Limited office in Cayman Islands Strathvale House North Church Street George Town Grand Cayman Cayman Islands British West Indies Branch share registrar and transfer Tricor Secretaries Limited office in Hong Kong 26th Floor, Tesbury Centre 28 Queen’s Road East Wanchai, Hong Kong Legal advisers to the Company as to (i) Hong Kong Law Michael Li & Co. (ii) Cayman Islands Law Conyers Dill and Pearman

— 327 —

GENERAL INFORMATION

APPENDIX IV

Independent Financial Adviser to the Grand Cathay Independent Board Committee and the Independent Shareholders Auditors CCIF CPA Limited 20/F., Sunning Plaza 10 Hysan Avenue Causeway Bay Hong Kong

Principal banker Hang Seng Bank Central Branch 83 Des Voeux Road Central Hong Kong

8. EXPERTS

The following are the qualifications of the experts who have given an opinion or advice, which is contained in this Circular:

Grand Cathay a licensed corporation for type 1 (dealing in securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

CCIF CPA Limited certified public accountants

As at the Latest Practicable Date, none of Grand Cathay and CCIF CPA Limited had any interest, either direct or indirect, in any assets which have been, since 31 March 2008, the date to which the latest published audited consolidated financial statements of the Company were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group or shareholding in any number of the Group or the right to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, none of Grand Cathay and CCIF CPA Limited had any shareholding in any member of the 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 Group.

— 328 —

GENERAL INFORMATION

APPENDIX IV

Each of Grand Cathay and CCIF CPA Limited has given and has not withdrawn its respective written consent to the issue of this Circular with the inclusion of its respective letter and/or report and/or reference to its respective name, in the form and context in which it respectively appears.

9. LITIGATION

As at the Latest Practicable Date, none of the member of the Group was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Group.

10. MATERIAL CONTRACTS

Save for the contracts set out below, there is no other material contract (not being contract entered into in the ordinary course of business) entered into by the Company within the two years immediately preceding the issue of this Circular:

(a) the Underwriting Agreement and the Supplemental Agreement;
(b) the Subscription Agreement;
(c) the disposal agreement dated 9 January 2008 for the disposal of the shares of Point of View Movie Production Company Limited, Brilliant Picture Movie Production Company Limited and Inspire Film Distribution Limited to a former Director for a total consideration of HK$2,000,000;
(d) the service agreement entered into between the Group and China Star HK Entertainment Co. Ltd., a wholly-owned subsidiary of China Star Entertainment Limited, dated 21 December 2007 in relation to the provision of the lead actor of the motion picture to be produced and the procurement to provide professional services in relation to post-production of the said film from China Star HK Entertainment Co. Ltd. for a total consideration of HK$4,500,000;
(e) the sale and purchase agreement dated 23 October 2007 for the acquisition of Grandeur Concord Limited from Eagle Mate for a total consideration of HK$18,000,000;
(f) the placing agreement dated 23 October 2007 entered into between the Company and Kingston Securities for placing up to a maximum of 900,000,000 ordinary shares of HK$0.10 each on a best effort basis and 450,000,000 ordinary shares of HK$0.10 each on a fully underwritten basis at a price of HK$0.12 per share;
(g) the placing agreement dated 23 October 2007 entered into between the Company and Kingston Securities for placing up to 49,860,000 ordinary shares of HK$0.10 each on a fully underwritten basis at a price of HK$0.12 per share;

— 329 —

GENERAL INFORMATION

APPENDIX IV

(h) the sale and purchase agreement dated 28 August 2007 entered into between the Company, Billion ERA Group Limited as vendor and Mr. Leong Chi Meng as guarantor in relation to the sale and purchase of the entire issued share capital of Classic Grace Enterprises Limited and a sale loan at a total consideration of HK$24,000,000;
(i) the underwriting agreement dated 28 August 2007 entered into between the Company and Kingston Securities in relation to the issue by way of open offer of 124,663,636 offer shares of HK$0.10 each on the basis of one offer share for every two existing shares of HK$0.01 each on the record date at a price of HK$0.15 per offer share;
(j) the sale and purchase agreement dated 23 April 2007 entered into between Galaxy Image (BVI) Limited, a wholly-owned subsidiary of the Company and Keep Beat Enterprises Limited in relation to the disposal of the entire issued share capital of Luminous Star Limited and Milkyway Image (Hong Kong) Limited, and the sale loans at a total consideration of HK$26,000,000;
(k) the subscription agreement dated 12 March 2007 entered into between the Company and CSL in relation to the subscription and issue of the CSL Convertible Bond in the principal amount of HK$25,000,000 due 2012; and
(l) the bond placing agreement dated 5 December 2006 entered into between the Company and Kingston Securities for a placing of the convertible bonds of the Company up to an aggregate principal amount of HK$20,000,000.

11. INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors, the compliance advisor, employees and controlling shareholder of the Company and their respective associates was considered to have interests in businesses apart from the Group’s businesses which compete, or are likely to compete, either directly or indirectly, with the businesses of the Group, or any other conflict of interest which any of them has or may have with the Group.

12. GENERAL

(a) Mr. Lee Chan Wah is the company secretary, qualified accountant and compliance officer of the Company. He is a member of the Hong Kong Institute of Certified Public Accountants and a member of the Association of Chartered Certified Accountants. He has been appointed as the company secretary of the Company since October 2007.

— 330 —

GENERAL INFORMATION

APPENDIX IV

(b) The business address of all Directors is Unit 1611, 16/F, Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong.
(c) The expenses in connection with the Open Offer, including financial, legal and other professional advisory fees, underwriting commission, printing and translation expenses are estimated to be approximately HK$1.4 million and will be payable by the Company.
(d) The English text of this document shall prevail over the Chinese text for the purpose of interpretation.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any Business Day at the principal place of business in Hong Kong of the Company at Unit 1611, 16/F, Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong, from the date of this Circular up to and including the date of the EGM:

(a) this Circular;
(b) the Articles;
(c) the annual reports of the Company for each of the two financial years ended 31 March 2007 and 2008 and the interim report of the Company for the six months ended 30 June 2008;
(d) the report from CCIF CPA Limited on the unaudited pro forma financial information of the Group, the text of which is set out on pages 302 to 318 of this Circular;
(e) the letter from the Independent Board Committee, the text of which is set out on page 44 of this Circular;
(f) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 45 to 57 of this Circular;
(g) the written consents referred to under the paragraph headed “Experts” in this appendix; and
(h) the material contracts referred to under the paragraph headed “Material Contracts” in this appendix.

— 331 —

NOTICE OF EGM

==> picture [367 x 43] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8130)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ Meeting ”) of Brilliant Arts Multi-Media Holding Limited (the “ Company ”) will be held at Unit 1611, 16/F, Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong, at 4:30 p.m. on Wednesday, 14 January 2009 for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions of the Company to be taken by way of poll:

ORDINARY RESOLUTIONS

“ THAT subject to the fulfillment of the conditions as set out in the underwriting agreement (the “ Underwriting Agreement ”, a copy of which has been produced to the Meeting marked “A” and signed by the chairman of the Meeting for the purpose of identification) dated 27 November 2008 as supplemented by the supplemental agreement (the “ Supplemental Agreement ”, a copy of which has been produced to the Meeting marked “B” and signed by the chairman of the Meeting for the purpose of identification) dated 4 December 2008 both entered into between the Company and Kingston Securities Limited (the “ Kingston Securities ”), and the Underwriting Agreement as supplemented by the Supplemental Agreement not being terminated in accordance with the terms thereof prior to 4:00 p.m. on the last acceptance day of the Open Offer (as defined below),
(i) the issue by way of open offer (the “ Open Offer ”) of 1,131,207,381 shares (the “ Offer Shares ”) of the Company to the shareholders (the “ Qualifying Shareholders ”) of the Company whose names appear on the register of members of the Company on the date (the “ Record Date ”) by reference to which entitlements under the Open Offer are to be determined (excluding those shareholders (the “ Prohibited Shareholders ”) with registered addresses as shown in the register of members of the Company at the close of business on the Record Date in places outside Hong Kong in respect of whom the board (the (“ Board ”) of directors (the “ Directors ”) of the Company consider it necessary or expedient not to offer the Offer Shares after making the relevant enquiries regarding the legal restrictions under the laws of the relevant places and the requirements of the relevant regulatory body or stock exchange in those places) on the basis of nine Offer Shares for every one existing share of the Company then held is hereby approved, confirmed and ratified;

— 332 —

NOTICE OF EGM

(ii) any Directors be and is hereby authorised to allot and issue the Offer Shares pursuant to or in connection with the Open Offer notwithstanding that the same may be offered, allotted or issued otherwise than pro rata to the Qualifying Shareholders and, in particular, the Directors be and are hereby authorised to make such exclusions or other arrangements in relation to fractional entitlements or Prohibited Shareholders as they deem necessary or expedient having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong applicable to the Company;
(iii) the Underwriting Agreement as supplemented by the Supplemental Agreement and the transactions contemplated thereunder (including but not limited to the arrangements for taking up of the unsubscribed Offer Shares, if any, by Kingston Securities) be and are hereby approved, confirmed and ratified;
(iv) the arrangements for application for the Offer Shares by the Qualifying Shareholders in excess of their entitlements under the Open Offer be and are hereby approved, confirmed and ratified; and
(v) any Director be and is hereby authorised to sign and execute such documents and do all such acts and things incidental to the Open Offer or as they consider necessary, desirable or expedient in connection with the implementation of or giving effect to the Open Offer, the Underwriting Agreement as supplemented by the Supplemental Agreement and the transactions contemplated thereunder.”

2. “ THAT

(i) subject to the fulfillment of the conditions as set out therein, the subscription agreement (the “ Subscription Agreement ”, a copy of which has been produced to the Meeting marked “C” and signed by the chairman of the Meeting for the purpose of identification) dated 26 November 2008 entered into between the Company and Golife Concepts Holdings Limited (“ Golife ”), in relation to the subscription (the “ Subscription ”) of the zero coupon convertible bonds (the “ GC Convertible Bonds ”) in an aggregate principal amount of HK$100 million to be issued by Golife in five tranches of HK$20 million each due on the tenth anniversary of the date of issue of such GC Convertible Bonds and the transactions contemplated thereunder (including but not limited to the exercise of conversion rights conferred by such GC Convertible Bonds) be and are hereby approved, confirmed and ratified; and

— 333 —

NOTICE OF EGM

(ii) any Director be and is hereby authorised to sign and execute such documents and do all such acts and things incidental to the Subscription or as they consider necessary, desirable or expedient in connection with the implementation of or giving effect to the Subscription Agreement, the Subscription and the transactions contemplated thereunder.”
“ THAT Mr. Cheung Kwok Wai, Elton be and is hereby re-elected as an executive Director with immediate effect.”
“ THAT Mr. Kwok Chuen Hung, Dominic be and is hereby re-elected as an independent non-executive Director with immediate effect.”

By Order of the board of directors of Brilliant Arts Multi-Media Holding Limited Lei Hong Wai Chairman

Hong Kong, 29 December 2008

Head office and principal place of business in Hong Kong: Unit 1611, 16/F. Shun Tak Centre West Tower 168-200 Connaught Road Central Hong Kong

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

Notes:

A member entitled to attend and vote at the Meeting convened by the above notice is entitled to appoint one or more proxies to attend and, subject to the provisions of the articles of association of the Company, vote in his stead. A proxy need not be a member of the Company but must be present in person to represent the member.
A form of proxy for use at the Meeting is enclosed. In order to be valid, the form of proxy attached to this circular must be duly completed and signed in accordance with the instructions printed thereon and deposited together with a power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority, at the office of the branch share registrar of the Company in Hong Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time for holding the Meeting or adjourned meeting. Completion and return of the form of proxy will not preclude a member from attending and voting in person at the Meeting or at any adjournment thereof should he so wish.

— 334 —

NOTICE OF EGM

Where there are joint holders of any share of the Company, any one of such holders may vote at the Meeting either personally or by proxy in respect of such share as if he were solely entitled thereto, but if more than one of such holders be present at the Meeting personally or by proxy, then the one of such holders whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased member in whose name any share stands shall for this purpose be deemed joint holders thereof.
Voting on all resolutions above will be conducted by way of poll.

— 335 —

AI assistant

Dadi International Group Limited — Proxy Solicitation & Information Statement 2008

51285_rns_2008-12-28_f9c9216a-27f5-4f04-947d-8c6a0bedb91f.pdf

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR OFFER SHARES

(3) RE-ELECTION OF DIRECTORS;

(4) PROPOSED CHANGE OF BOARD LOT SIZE;

AND

(5) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

OPEN OFFER

Issue statistics

LETTER FROM THE BOARD

Subscription Price

Status of the Offer Shares

Certificates of the fully-paid Offer Shares and refund cheques

Application for excess Offer Shares

Fractions of Offer Shares

Application for listing

Closure of register of members

Qualifying Shareholders

LETTER FROM THE BOARD

Rights of the Overseas Shareholders

UNDERWRITING ARRANGEMENT

Underwriting Agreement as supplemented by the Supplemental Agreement

Undertaking given by Mr. Lei

Undertaking given by CSL

Undertakings given by holders of the Share Options

Termination of the Underwriting Agreement as supplemented by the Supplemental Agreement

LETTER FROM THE BOARD

Conditions of the Open Offer

Warning of the risk of dealings in the Shares

LETTER FROM THE BOARD

EFFECTS ON SHAREHOLDING STRUCTURE

LETTER FROM THE BOARD

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

FUND RAISING ACTIVITIES IN THE PAST TWELVE MONTHS

LISTING AND DEALINGS

LETTER FROM THE BOARD

SUBSCRIPTION AGREEMENT DATED 26 NOVEMBER 2008

1) Parties

LETTER FROM THE BOARD

2) Principal terms of the GC Convertible Bonds

LETTER FROM THE BOARD

LETTER FROM THE BOARD

3) Conditions precedent

LETTER FROM THE BOARD

4) Completion

5) Termination

LETTER FROM THE BOARD

LETTER FROM THE BOARD

REASON FOR THE SUBSCRIPTION

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF GOLIFE

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

BUSINESS REVIEW AND PROSPECTS

LETTER FROM THE BOARD

FINANCIAL EFFECT OF THE SUBSCRIPTION

Net assets

Earnings

LETTER FROM THE BOARD

Gearing ratio

PROPOSED CHANGE OF BOARD LOT SIZE

LETTER FROM THE BOARD

RE-ELECTION OF DIRECTORS

Mr. Cheung Kwok Wai, Elton

LETTER FROM THE BOARD

Mr. Kwok Chuen Hung, Dominic

GEM LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

EGM

PROCEDURES BY WHICH A POLL MAY BE DEMANDED

Dadi International Group Limited Proxy Solicitation & Information Statement 2008