Dufu Liquor Group Limited — Proxy Solicitation & Information Statement 2019

Jun 21, 2019

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all of your shares in China Environmental Energy Investment Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee, or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

China Environmental Energy Investment Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 986)

(I) VERY SUBSTANTIAL DISPOSAL IN RELATION TO THE DISPOSAL OF 25.88% ISSUED SHARE CAPITAL OF PURE POWER HOLDINGS LIMITED; AND

(II) NOTICE OF SPECIAL GENERAL MEETING

Financial adviser to the Company

==> picture [59 x 32] intentionally omitted <==

Capitalised terms used in this cover page shall have the same meaning as those defined in this circular.

A notice convening the SGM to be held at 10:00 a.m. on Thursday, 11 July 2019 at Falcon Room I, Basement, Gloucester Luk Kwok Hong Kong, 72 Gloucester Road, Wanchai, Hong Kong is set out on pages SGM-1 to SGM-2 of this circular. A form of proxy for use at the SGM is enclosed with this circular. Such form of proxy is also published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.986.com.hk).

Whether or not you are able to attend the SGM, please complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the meeting if they so wish and, in such event, the form of proxy shall be deemed to be revoked.

24 June 2019

• For identification purposes only

CONTENTS

			Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			4
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . .	I-1
APPENDIX II	–	FINANCIAL INFORMATION OF THE DISPOSAL GROUP . .	II-1
APPENDIX III	–	UNAUDITED PRO FORMA FINANCIAL INFORMATION
		OF THE REMAINING GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV	–	MANAGEMENT DISCUSSION AND
		ANALYSIS OF THE REMAINING GROUP . . . . . . . . . . . . . . . .	IV-1
APPENDIX V	–	GENERAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . .	V-1
NOTICE OF SPECIAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			SGM-1

– i –

DEFINITIONS

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

• ‘‘associates’’

• has the meaning ascribed to it under the Listing Rules

• ‘‘Board’’ the board of Directors

• ‘‘Business Day(s)’’

• a day (other than a Saturday, Sunday or public holiday in Hong Kong) on which commercial banks are generally open for business in Hong Kong

• ‘‘Company’’

China Environmental Energy Investment Limited (Stock code: 986), a company incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange

• ‘‘Completion’’

• the completion of the Disposal

• ‘‘Completion Date’’

• no later than one month after the date of the fulfilment of the conditions precedent or such other date as the Company and the Purchaser may agree in writing

• ‘‘connected person(s)’’

• has the meaning ascribed thereto under the Listing Rules

• ‘‘Consideration’’

• the consideration of HK$80,000,000 payable by the Purchaser to the Company for the Disposal pursuant to the SPA

• ‘‘Director(s)’’ director(s) of the Company

• ‘‘Disposal’’

• the disposal of the Sale Shares by the Company to the Purchaser pursuant to the SPA

• ‘‘Disposal Group’’

• the Disposed Company and the Project Company

• ‘‘Disposed Company’’

• PURE POWER HOLDINGS LIMITED, a company incorporated in the British Virgin Islands with limited liability and an associated company of the Company

• ‘‘Group’’

• the Company and its subsidiaries

• ‘‘HK$’’

• Hong Kong dollar(s), the lawful currency of Hong Kong

• ‘‘Hong Kong’’

• Hong Kong Special Administrative Region of the People’s Republic of China

• ‘‘Independent Third Party(ies)’’

• third party(ies) and their ultimate beneficial owner(s) which are independent of the Company and its connected persons

• ‘‘Latest Practicable Date’’

• 19 June 2019, being the latest practicable date for ascertaining certain information referred to in this circular prior to the printing

– 1 –

DEFINITIONS

• ‘‘Listing Rules’’

• the Rules Governing the Listing of Securities on the Stock Exchange

• ‘‘Nevada’’

• the State of Nevada, the U.S.

• ‘‘PRC’’

• the People’s Republic of China, excluding Hong Kong, Macau Special Administrative Region of the PRC and Taiwan for the purpose of this circular

• ‘‘OEM’’ original equipment manufacturing

• ‘‘Oil & Gas Leases’’

• three federal oil and gas leases with respective serial numbers NVN86605, NVN86657 and NVN86778 originally issued by the U.S. and administered by the Bureau of Land Management of the Nevada State Office of the U.S. and each carries a term of 10 years from 1 February 2009, 1 March 2009 and 1 April 2009 respectively, that entitle their holders the exclusive right to drill for, mine, extract, remove and dispose of all oil and gas (except helium) in parcels of lands in Nevada, subject to renewal or extension in accordance with the appropriate authority

• ‘‘Oil & Gas Rights’’ the exclusive right under the Oil & Gas Leases to drill for, mine, extract, remove and dispose of all oil and gas (except helium) in parcels of lands in Nevada

• ‘‘Previous Disposal’’

• the disposal of the 2,000 ordinary shares of US$1.00 each in the issued share capital of the Disposed Company, representing approximately 23.53% of the issued share capital of the Disposed Company as at the date of the Previous SPA, by the Company pursuant to the Previous SPA

• ‘‘Previous SPA’’

• the sale and purchase agreement in respect of the sale and purchase of 23.53% of the issued share capital of the Disposed Company dated 21 June 2018

• ‘‘Project Company’’

• Bright Sky Energy & Minerals, Inc., a company incorporated in Nevada on 15 June 2010 with limited liability

• ‘‘Purchaser’’

• Mr. Zhang Chunxiao, an Independent Third Party

• ‘‘Remaining Group’’

• the Company and its subsidiaries after Completion

• ‘‘Sale Shares’’

• 2,200 ordinary shares of US$1.00 each in the issued share capital of the Disposed Company, representing approximately 25.88% of the issued share capital of the Disposed Company as at the date of the SPA

• ‘‘SFC’’

the Securities and Futures Commission of Hong Kong

– 2 –

DEFINITIONS

‘‘SFO’’	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
‘‘SGM’’	the special general meeting of the Company to be held for
	the purpose of considering and, if thought fit, approving
	the SPA and the transactions contemplated thereunder
‘‘Share(s)’’	ordinary share(s) of HK$0.1 each in the share capital of the
	Company
‘‘Shareholder(s)’’	shareholders of the Company
‘‘SPA’’	the sale and purchase agreement in respect of the sale and
	purchase of 25.88% of the issued share capital of the
	Disposed Company dated 28 February 2019
‘‘Stock Exchange’’	The Stock Exchange of Hong Kong Limited
‘‘US$’’	U.S. dollars, the lawful currency of the U.S.
‘‘U.S.’’	the United States of America
‘‘%’’	per cent.

– 3 –

LETTER FROM THE BOARD

China Environmental Energy Investment Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 986)

Executive Directors: Ms. Zhou Yaying (Chairman) Mr. Wei Liang (Chief Executive Officer) Mr. Tang Wing Cheung Louis Ms. Hong Jingjuan

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Independent Non-executive Directors: Mr. Tse Kwong Chan Mr. Yiu To Wa Mr. Lau Leong Yuen

Head office and principal place of business in Hong Kong: Room 910, 9/F Harbour Centre 25 Harbour Road, Wanchai Hong Kong

24 June 2019

To the Shareholders

Dear Sir or Madam,

(I) VERY SUBSTANTIAL DISPOSAL IN RELATION TO THE DISPOSAL OF 25.88% ISSUED SHARE CAPITAL OF PURE POWER HOLDINGS LIMITED; AND

(II) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the announcements of the Company dated 28 February 2019, 21 March 2019, 25 April 2019 and 24 May 2019 in relation to, among other things, the Disposal.

On 28 February 2019 (after trading hours), the Company, as vendor, and the Purchaser entered into the SPA, pursuant to which the Company has conditionally agreed to sell and the Purchaser has conditionally agreed to purchase the Sale Shares at the Consideration of HK$80,000,000 payable by the Purchaser in accordance with the terms and conditions of the SPA.

The purpose of this circular is to provide you with, among other things, (i) details of the SPA; (ii) the financial information of the Group and the Disposal Group; (iii) the unaudited proforma financial information of the Remaining Group; and (iv) notice of the SGM.

• For identification purposes only

– 4 –

LETTER FROM THE BOARD

THE SPA

The principal terms and conditions of the SPA are as follows:–

Date

28 February 2019

Parties

(i) Vendor: the Company

• (ii) Purchaser: Mr. Zhang Chunxiao

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Purchaser is an Independent Third Party as at the Latest Practicable Date. The Purchaser is introduced to the Company by Ms. Zhou Yaying (‘‘Ms. Zhou’’), an executive Director. The Purchaser is an independent third party not connected with the purchaser for the Previous Disposal (being Hongkong Dragon Well Co., Limited) and its ultimate beneficial owner (being Mr. Jiang Bo). Ms. Zhou met the Purchaser in a private social party in around the end of December 2018 and realized that the Purchaser was exploring potential investment opportunity. There is not any prior or current relationship, written or verbal arrangement between the Purchaser and Ms. Zhou. Save for the Disposal, as at the Latest Practicable Date, there is not any prior or current relationship, written or verbal arrangement between the Purchaser and the Company and its connected person.

Assets to be disposed

Pursuant to the SPA, the Company has conditionally agreed to sell and the Purchaser has conditionally agreed to purchase the Sale Shares, being 2,200 ordinary shares in the issued share capital of the Disposed Company, representing approximately 25.88% of the issued share capital in the Disposed Company.

Detailed information of the Disposal Group is included under the section headed ‘‘Information on the Disposal Group’’ in this circular.

Consideration

Pursuant to the SPA, the Consideration of HK$80,000,000 shall be settled by cash on or before the Completion Date (being no later than one month after the date of the fulfilment of the conditions precedent or such other date as the Company and the Purchaser may agree in writing). No specific payment schedule for the Consideration has been stipulated in the SPA.

Basis of the Consideration

The Consideration was determined between the Company and the Purchaser after arm’s length negotiations and on normal commercial terms, taking into account the consideration for the Previous Disposal (the ‘‘Previous Consideration’’), the fair value of oil, the current economic and market uncertainty and the fair value of the Group’s interest in the Oil & Gas Leases held by the Project Company.

– 5 –

LETTER FROM THE BOARD

The current fair value of oil compared to that at the time of the Previous Disposal is a double-digit decline. According to Bloomberg, average crude oil price dropped from approximately US$69.96 per barrel in May 2018 (being the full calendar month prior to the date of the Previous SPA) to approximately US$51.42 per barrel in January 2019 (being the full calendar month prior to date of the SPA in respect of the Disposal), representing a decrease of approximately 26.5%. The Company adopts the fair value of the Oil & Gas Leases as used in the Previous Disposal which was valued by an independent professional valuer, as determined with reference to the fair value of the Oil & Gas Leases as at 31 May 2018. The fair value of the Oil & Gas Leases used in the Previous Disposal was approximately US$58 million (equivalent to approximately HK$450 million) (the ‘‘Oil & Gas Fair Value’’). Oil price is a primary factor which determines the fair value of oil assets.

Fair value of 25.88% of the Oil & Gas Fair Value is approximately HK$116.46 million. The Consideration represents a discount of approximately 31.3% to such value. Such discount is in line with the decline in current oil price by around 26.5% as compared with that at the time of the Previous Disposal as stated above.

The economic condition and market sentiment will also affect the pricing of assets. The trade war between China and the U.S. (the ‘‘Trade War’’) loomed since March 2018. Subsequent to the date of the Previous SPA, the Trade War was getting fierce since the third quarter of 2018, market held negative expectations on the economy and there was an increased level of uncertainty to the crude oil market. In addition, according to the data published by National Bureau of Statistics of China in January 2019, although the gross domestic product (‘‘GDP’’) of China in the fourth quarter of 2018 grew 6.4%, it was the slowest growth pace of GDP of China in 28 years. Given that China is one of the key consumers of global oil, a downturn of the economy of China could hamper its demand for crude oil, which may cause oil prices to fall. It is uncertain of the extent of the effect of the Trade War on the global economy and the China economy and how long it will continue.

It is common market practice for the parties to a transaction to take into account the then economic and market condition in the commercial negotiation process of the consideration. As the Previous Consideration was arrived at after arm’s length commercial negotiation between the parties to the Previous Disposal, apart from the Oil & Gas Fair Value (which has taken into account the then oil price), the then economic market condition was also considered in arriving at the Previous Consideration.

As shown above, the Consideration was determined on the same basis as the Previous Consideration but since the market situation has been changed (mainly attributable to the decline in current oil price) and with greater market and economic uncertainty stemming from the Trade War and slow down of growth pace of GDP of China subsequent to the date of the Previous SPA and after arm’s length negotiations between the Company and the Purchaser, it is slightly lower than the adjusted Previous Consideration (being adjusted for the decline in current oil price by around 26.5% as stated above) on a proportionate basis (the ‘‘Theoretical Consideration’’). At the time of entering into the Previous SPA, price of crude oil was in general in an upward trend during January 2018 to the date of the Previous SPA (being approximately six-month period). However, within the six-month period prior to the date of the SPA, according to Bloomberg, price of crude oil dropped sharply in just two months from its peak of US$76.41 per barrel on 3 October 2018 to US$42.53 per barrel on 24 December 2018, representing a drop of over 44%. In addition, with the Trade War getting fierce since third quarter of 2018, it casted greater level of uncertainty to crude oil market and global economy. In view of the aforesaid, the Consideration is slightly lower than the Theoretical Consideration instead of equal to the Theoretical Consideration.

– 6 –

LETTER FROM THE BOARD

Furthermore, the Company has approached four potential purchasers. However, as indicated by the aforesaid potential purchasers, in view of the declining oil price and current economic and market uncertainty, none of them provided positive feedback to the Company. The Purchaser is the only available willing buyer of the Sale Shares that the Company could identify.

The Board considers that the Disposal (i) represents an opportunity for the Group to divest and realize its investment in the Disposal Group; and (ii) will enable the Group to reallocate its resources to better focus on the development of current core business of the Group. In view of the above, despite the Group will record a loss from the Disposal, the Board considers that the Consideration is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

Conditions Precedent

Completion is conditional upon the following conditions being fulfilled:

• (a) all requisite consents, authorisations and approvals (or, as the case may be, the relevant waiver) in connection with the entering into and performance of the terms of the SPA having been obtained by the respective parties to the SPA (including but not limited to the necessary consent from the Stock Exchange, if any);

• (b) the passing of the necessary resolution(s) by the Shareholders (other than those who are required to abstain from voting under the Listing Rules and the applicable laws, rules and regulations) at the SGM to approve, inter alia, in accordance with the requirements of the Listing Rules and the applicable laws and regulations, the SPA and the transactions contemplated therein or incidental to the SPA;

• (c) the compliance of any other requirements under the Listing Rules or otherwise of the Stock Exchange or other regulatory authorities or any applicable laws and regulations which requires compliance by the Company or the Disposed Company at any time prior to Completion in relation to the transactions contemplated under the SPA and the uninterrupted continuation of the current rights and business of the Disposed Company after Completion; and

• (d) all third party consents and waivers required to be obtained by the Company or the Disposed Company having been obtained in connection with the transactions contemplated under the SPA.

None of the conditions above can be waived. If all the above conditions shall not have been fulfilled within 6 months (i.e. 31 August 2019) from the date of the SPA, the SPA shall be terminated forthwith (save for the survival clause(s)), whereupon the Company shall return all the paid consideration (if any) to the Purchaser and each party to the SPA shall have no liability to the other party save and except for any antecedent breaches of the terms in the SPA. As at the Latest Practicable Date, none of the conditions above has been fulfilled.

– 7 –

LETTER FROM THE BOARD

Completion

Subject to the fulfilment of the above conditions, Completion shall take place on the Completion Date.

Completion of each of the Disposal and the Previous Disposal are not inter-conditional upon each other.

INFORMATION ON THE DISPOSAL GROUP

The Disposed Company

The Disposed Company is an investment holding company incorporated in the British Virgin Islands on 1 April 2010 with limited liability. As at the Latest Practicable Date, the Company owns 4,200 ordinary shares of US$1.00 each in the issued share capital of the Disposed Company, representing approximately 49.41% of the issued share capital of the Disposed Company.

Reference is made to the Company’s circular dated 14 September 2018 and the announcement of the Company dated 18 February 2019 in relation to the Previous Disposal. Up to the Latest Practicable Date, an aggregate of HK$42.3 million has been received by the Company from the Previous Disposal during May 2018 to June 2019, details are set out as follows: (a) the Company received HK$2 million on 28 May 2018 as earnest money under the memorandum of understanding between the Company and the purchaser for the Previous Disposal (the ‘‘Previous Purchaser’’) dated 28 May 2018 before entering into the Previous SPA. Such amount was applied for settlement of part of the Previous Consideration as stipulated in the Previous SPA;

• (b) the Company received first instalment for the Previous Disposal in the sum of HK$3 million (the ‘‘First Instalment’’) on 25 June 2018, which was in line with the payment schedule of the Previous SPA (i.e. paid within 5 days from the date of the Previous SPA);

• (c) the Company received second instalment for the Previous Disposal in the sum of HK$3 million (the ‘‘Second Instalment’’) on 31 August 2018 which lagged behind the schedule (i.e. on or before 31 July 2018) as set out in the Previous SPA; and

• (d) pursuant to the Previous SPA, the Company should receive the third instalment in the sum of HK$2 million (the ‘‘Third Instalment’’) on or before 31 August 2018 and the balance of the Previous Consideration (i.e. HK$96 million) (the ‘‘Remaining Balance’’) within 1 month after the completion of the Previous Disposal. During the period from November 2018 to June 2019, the Company received a sum of HK$34.3 million, of which HK$2 million for payment of the Third Instalment (being settled in November 2018) and HK$32.3 million for partial payment of the Remaining Balance. The Company received the Third Instalment behind the payment schedule and received partial payment of the Remaining Balance prior to the transfer of documents for completion purpose (the ‘‘Relevant Documents’’).

– 8 –

LETTER FROM THE BOARD

Upon realizing delay in making scheduled payment of the Previous Consideration according to the Previous SPA by the Previous Purchaser, the Directors discussed with the Previous Purchaser immediately to recover relevant payment. As such, the Previous Purchaser made payment of the Second Instalment and the Third Instalment in August 2018 and November 2018, respectively, without adhering to the time frame in the Previous SPA and thus in breach of the Previous SPA. The Directors were made known of (i) the liquidity issues of the Previous Purchaser; and (ii) the intention of the Previous Purchaser to realize its investment(s) (the ‘‘Investment Realization(s)’’) with targeted timing for completion of the Investment Realization(s) in late June 2019 due to they would like to seek the optimal selling price to realize its investment(s). The Directors envisaged that the Previous Purchaser may have difficulty in paying the balance of Previous Consideration within one month after completion and it would require additional time for full payment of the balance of the Previous Consideration. The Previous Purchaser and the Company then negotiated in good faith for an extension in completion of the Previous Disposal (the ‘‘Extension’’) and agreed that the Company would withhold the Relevant Documents until the payment of the balance of the Previous Consideration has been fully made in order to safeguard interest of the Company and the Shareholders.

Crude oil price began to drop since early October 2018. In mid of December 2018, crude oil price decreased by over 20% when compare with the date of the Previous SPA (i.e. 21 June 2018). In view of the decline in oil price, if the Previous Disposal was terminated, it would be difficult for the Group to identify another potential buyer. Even if another buyer has been identified, the Directors anticipated that such buyer would only pay at price level lower than the Previous Consideration. In this connection, after considering (i) additional timing required by the Previous Purchaser for satisfying the Remaining Balance; (ii) consensus between the Company and the Previous Purchaser for a more favourable payment terms of the Previous Consideration to the Company to extend the completion date. Full receipt of Previous Consideration will take place on or before completion of the Previous Disposal instead of within one month after completion; and (iii) uncertainties in identifying potential buyer which will offer comparable price for such disposal, the Directors believed that it would be commercially sensible to extend the completion date and settlement of the Previous Consideration.

On 18 February 2019, 30 April 2019 and 31 May 2019, three supplemental agreements in respect of the Previous Disposal were entered into between the Company and the Previous Purchaser respectively, under which the completion date for the Previous Disposal will be postponed to 30 June 2019 (the ‘‘Third Supplemental Agreement’’) after taking into account the estimated timing for completion of the Investment Realization(s). Details are set out in the announcements of the Company dated 18 February 2019, 30 April 2019 and 31 May 2019. The remaining consideration to be settled by no later than 30 June 2019, an aggregate of HK$42.3 million has been received by the Group from the Previous Disposal during May 2018 up to the Latest Practicable Date as disclosed above. Since January 2019, the Company has continuously contacted the Previous Purchaser by phone and urged them to settle the remaining proceeds and the Previous Purchaser has expressed that they remain interested in completing the Previous Disposal. The Company will continue to follow up closely on the progress of collection of the remaining proceeds from the Previous Disposal.

– 9 –

LETTER FROM THE BOARD

According to the Previous SPA, the net proceeds from the Previous Disposal would be received by the Company latest by November 2018 after shareholders’ approval was obtained for the Previous Disposal in October 2018. The net proceeds from the Previous Disposal are intended to be applied for (i) general working capital, trading of gold and diamond business and/or acquisition if opportunity arises; (ii) development of financial services business; and (iii) money lending business. With reference to the announcements of the Company dated 16 May 2019 (the ‘‘May 2019 Announcement’’) and 19 June 2019 (the ‘‘June 2019 Announcement’’) in relation to, among other things, the disposal of an aggregate of the entire issued share capital of Maiden Faith Capital Group Limited (formerly known as GOLD CASTLE GROUP LIMITED) ((‘‘Maiden Faith’’), a holding company of First Fidelity Capital (International) Limited (‘‘FFCI’’) (formerly known as C.E. SECURITIES AND ASSET MANAGEMENT LIMITED, which in turn was formerly known as STI Securities & Wealth Management Limited)) to four purchasers (the ‘‘May 2019 Disposal’’), the Company intends to sell its loss-making financial services business to streamline the principal activities of the Group. As at the Latest Practicable Date, the May 2019 Disposal has completed. As at the date of the May 2019 Announcement, one (the ‘‘Maiden Faith Purchaser’’) of the purchasers of the May 2019 Disposal is a director of one of the subsidiaries of Maiden Faith. Therefore, the Maiden Faith Purchaser is a connected person of the Company at the subsidiary level. Save for the May 2019 Disposal and the Maiden Faith Purchaser is a connected person of the Company at the subsidiary level as disclosed above, as at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, the four purchasers of the May 2019 Disposal do not have any prior or current relationship, written or verbal arrangement with (i) the Company and its connected person; and (ii) the Purchaser. Prior to the May 2019 Disposal, HK$2.0 million of the unpaid portion of the Remaining Balance is intended to be applied for the development of financial services business. In view of the May 2019 Disposal, the Company plans to reallocate the aforesaid amount to the Jewelry Business (as defined below).

Majority of the net proceeds from the Previous Disposal are intended to be applied for money lending business. With the Extension, approximately HK$39.5 million from the net proceeds has yet been available for the Group’s money lending business. Currently, the Group charges an average interest rate of around 10% per annum (the ‘‘Existing Rate’’) for its loan receivables. Assuming the aforesaid amount was fully granted as loan by the Group at the Existing Rate on 1 November 2018, the Group would receive interest income of approximately HK$2.6 million for the period from 1 November 2018 to 30 June 2019 (being the latest date for completion of the Previous Disposal as stipulated in the Third Supplemental Agreement), which only represents approximately 4.5% of the Group’s total revenue for the six months ended 30 September 2018.

Based on the foregoing, the Board considers that the Extension has not materially affected the business plan of the Group.

At present, it is the Company’s intention to realize its investment in the Disposed Company for developing core business activities of the Group. In the event that the Previous Disposal could not be completed by the end of June 2019, the Company may consider to extend the completion date for the Previous Disposal or try to identify other potential purchasers for those equity interests of the Disposed Company as contemplated under the Previous Disposal. Prior to making relevant decision, the Directors would consider various factors, including but not limited to the financing position, funding requirements, business strategies and investment opportunities of the Group, additional timing which may be required for completion of the Previous Disposal, availability of other potential purchasers, potential purchase price, crude oil price and market situation, etc.

– 10 –

LETTER FROM THE BOARD

The Project Company

The Project Company is a company incorporated in Nevada on 15 June 2010 with limited liability and is wholly owned by the Disposed Company. As at the Latest Practicable Date, the principal assets of the Project Company are the Oil & Gas Rights under the Oil & Gas Leases.

The Project Company is principally engaged in the exploration and exploitation of natural resources in the U.S.. The Project Company’s leasehold interest in the Oil & Gas Leases entitles the Project Company to receive 100% of the oil and gas (except helium) produced under the Oil & Gas Leases, subject to outstanding royalties.

The Project Company has drilled a well in December 2015 and an oil sample testing has been performed. Initially, the Project Company intended to finance its capital expenditure for the forthcoming five years by a combination of shareholders’ fund and bank financing, with bank financing accounted for a significant portion of total financing. The Project Company had attempted but did not succeed in obtaining relevant bank financing. Without obtaining relevant bank financing, the shareholders of the Disposed Company did not reach agreement on the advancement of further funding to the Project Company. As such, the Project Company did not have sufficient funding. As at the Latest Practicable Date, due to the funding limitation in the Project Company, the Project Company did not yet commence the extraction of oil or gas.

Upon Completion, (1) assuming the completion of the Previous Disposal has not yet taken place, the Company will be effectively interested in approximately 23.53% of the issued share capital of the Project Company through the Disposed Company, and the Disposed Company will remain as an associated company of the Company, and (2) assuming the completion of the Previous Disposal has taken place, the Company will not hold any interest in the Disposal Group and the Disposal Group will cease to be an associate of the Company.

Financial information on the Disposal Group

The Disposal Group comprises the Disposed Company which in turn holds 100% equity interest in the Project Company.

As at 31 December 2018, the unaudited net asset value of the Disposal Group was approximately US$39.1 million (equivalent to approximately HK$303.0 million).

The Disposed Company did not record any revenue nor profit/loss (both before and after taxation) for the years ended 31 March 2017 and 2018.

As set out in the Appendix II to this circular, set out below is a summary of the unaudited financial information on the Disposal Group for the years ended 31 March 2017 and 2018:

			For the year	ended	For the year	ended
			31 March	2018	31 March	2017
				(HK$		(HK$
			US$	equivalent)	US$	equivalent)
Net	loss	before tax	(760,000)	(5,890,000)	(843,000)	(6,533,250)
Net	loss	after tax	(760,000)	(5,890,000)	(843,000)	(6,533,250)

– 11 –

LETTER FROM THE BOARD

FINANCIAL EFFECT OF THE DISPOSAL AND USE OF PROCEEDS

Based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix III to this circular, assuming the Disposal had taken place on 30 September 2018, it is estimated that the Group will record a loss of approximately HK$23,711,000 (before tax) from the Disposal, being the difference between the net proceeds (after deducting the expenses attributable to the Disposal of approximately HK$600,000) and the unaudited carrying value of the Sale Shares as at 30 September 2018 of approximately HK$103,111,000.

Based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix III to this circular, assuming the Disposal had taken place on 30 September 2018, (i) the unaudited pro forma consolidated total assets of the Remaining Group would have decreased from approximately HK$403.7 million to approximately HK$380.0 million; and (ii) the unaudited pro forma consolidated total liabilities of the Remaining Group would remain unchanged at approximately HK$66.6 million.

Please refer to the unaudited pro forma financial information of the Remaining Group as set out in Appendix III to this circular for more details on the basis and assumptions of the aforesaid financial impact to the Group.

Shareholders should note that the actual financial effects on the Disposal to be recognized in the consolidated financial statements of the Company depends on the then financial position of the Disposal Group as at the date of Completion and therefore may be different from the amount mentioned above.

Upon Completion, (1) assuming the completion of the Previous Disposal has not yet taken place, the Disposed Company will remain as an associated company of the Company, and (2) assuming the completion of the Previous Disposal has taken place, the Disposed Company will cease to be an associate of the Company.

Upon Completion, the gross proceeds and net proceeds of the Disposal will be approximately HK$80,000,000 and HK$79,400,000, respectively. The Board intends to apply the net proceeds from the Disposal as to (i) approximately HK$16,400,000 for the general working capital of the Group and/or acquisition purpose if opportunity arises; (ii) approximately HK$38,000,000 for business of design, OEM and marketing of jewelry (the ‘‘Jewelry Business’’); and (iii) approximately HK$25,000,000 for money lending business.

Development of the Jewelry Business

The Jewelry Business is a major business operation of the Group which accounted for over 90% (approximately HK$52.3 million) and over 60% (approximately HK$21.4 million) of the Group’s revenue for six months ended 30 September 2018 and the year ended 31 March 2018, respectively. The unaudited revenue of the Jewelry Business was approximately HK$43 million for the three months ended 31 December 2018, with average monthly revenue of approximately HK$14.3 million, representing a growth of over 60% as compared with the average monthly revenue for the six months ended 30 September 2018 (the ‘‘Q4 2018 Average Monthly Revenue Growth’’).

– 12 –

LETTER FROM THE BOARD

In the operation of the Jewelry Business, it can be financed by a combination of different sources of funding, such as instant cash and working capital management (such as management of the trade receivables and trade payables so as to optimize the cash flow from operation). Based on internal record of the Group, the Jewelry Business generated positive operating cash flow for the six months ended 30 September 2018 and the year ended 31 March 2018. In this connection, the Jewelry Business is self-supporting in terms of cash flow.

The Jewelry Business remains as the Group’s business focus (which accounted for over 90% of the Group’s total revenue for the six months ended 30 September 2018 and attained the Q4 2018 Average Monthly Revenue Growth of over 60% during three months ended 31 December 2018) and the Board will continue to further develop the Jewelry Business in order to strengthen the Group’s income stream and maximise return to the Shareholders. In this connection, the Board intends to apply approximately HK$38 million from the proceeds of the Disposal (being the largest portion among the intended use of proceeds of the Disposal) to the Jewelry Business, out of which (i) approximately HK$5 million for establishing a retail point and for general working capital of the Jewelry Business; (ii) approximately HK$5 million for strengthening development of online sales channel, marketing and promotion activities and participation in trade exhibitions; (iii) approximately HK$13 million for expansion of its jewelry product base and purchase of production material, such as gem, diamond, gold, silver, platinum, etc.; and (iv) approximately HK$15 million for potential acquisition of upstream companies in the jewelry industry chain.

Alongside with the development of the existing Jewelry Business, with the Group’s proposed establishment of retail point, it will require a greater variety of readily-available jewelry products to be offered at retail point in order to meet diversified customers’ preference for jewelry products. Moreover, additional marketing and promotion activities will be essential for increasing brand awareness of the Group among retail clients.

The retail point has established in Tsim Sha Tsui, the tourist area in Hong Kong, in the end of March 2019 to sell brand products of the Group in order to broaden the customer base of the Jewelry Business to retail customers, while existing client base of the Group mainly focuses on OEM customers and wholesalers. Operations of retail point will require lease payments for the premises, maintaining certain level of inventory at retail point to satisfy customers’ needs, hiring and training of employees, marketing and promotion activities and payment of selling expenses, etc. The Directors will observe the return of the retail point for around half year and will determine the timing and location for further retail point establishment if appropriate.

To strengthen the sales channel of the Jewelry Business, in addition to establishing retail point, the Group plans to enhance its own online sales platform (the ‘‘Online Platform’’). The Group has engaged website designer to improve the appearance and functionality of the Online Platform. The new Online Platform is aimed to be launched in the fourth quarter of 2019. The Group also plans to advertise via the Internet and social media such as Facebook to raise the awareness of the Online Platform. By regularly updating and enriching the contents of the website, the Group will not only maintain an effective communication and sales channel with existing customers but will also reach out to potential customers. With a view to fostering business relationships with its existing customers, capturing business opportunities with potential customers and obtaining the latest marketing information of jewelry products, the sales representatives of the Group would visit the customers regularly. Moreover, in order to increase the visibility and awareness of the Jewelry Business, the Group will not only place advertisement, but will also join major international and regional jewelry exhibitions. As such, the Directors intend to apply approximately HK$5 million for strengthening development of online sales channel and for marketing and promotion activities.

– 13 –

LETTER FROM THE BOARD

Currently, the products offered by the Group mainly focus on jewelry made of diamond. The Directors consider a wider range of the jewelry product portfolio would be beneficial to the Group to capture more possible business opportunities. Thus, the Directors intends to apply approximately HK$13 million to diversify its jewelry products portfolio to introduce different jewelry design style and with jewelry made of different gemstones, initially, jade and emerald. The Group plans to explore the market potential by developing new product design which will involve different gemstones. The Group will consider to further expand its product offering by introducing new product series with new designs manufactured by new production techniques. The jewelry designers of the Group will continue to attend and visit various domestic and international exhibitions to keep abreast of the latest trends of jewelry industry in terms of product design and use of materials. Also, they will discuss with the jewelry subcontractors regularly on development of the production techniques and the feasibility of the new designs.

The Group will pursue to further expand the Jewelry Business through potential acquisition of upstream companies in the jewelry industry chain including but not limited to jewelry processing companies and jewelry manufacturers, which will result in vertical integration to strengthen the production and processing capability in jewelry operations and/or to provide additional growth opportunities for the Group. The Group considers that through vertical integration, it will enhance the competitiveness of the Jewelry Business by means of having more control and flexibility in the jewelry design and production process, improving cost efficiency, shortening the jewelry production time, diversifying the sourcing network and customers base. As such, it will enable the Jewelry Business to have greater capability to respond promptly to its customers’ needs and preferences in changing market trends in a cost-effective manner. The Group intends to acquire a controlling stake in potential targets participated in jewelry production and/or processing operations in Hong Kong and/or the PRC. The Group will take into account various factors in selecting suitable potential acquisition targets, such as, operating history, reputation, scale of operations, production facilities, production and processing capacity, techniques and quality, etc. As at the Latest Practicable Date, no potential acquisition targets have been identified by the Group.

Development of money lending business

The net proceeds from the Disposal will provide the Group with instant funding for the development of its money lending business. As the money lending business is capital intensive in nature and involves substantial operating cash outflows in the form of effecting loans to customers, it requires readily available funding for its business operation and development. Lack of immediate funding to be granted as loan will result in failure to capture relevant business opportunities for generating interest income and hence limit the development potential of the money lending business. In addition, based on internal record of the Group, operating profit margin of its money lending business is close to 90% given its low level of administrative expenses. While pursuing development of the Jewelry Business remains as the business focus of the Group, in view of the capital intensive nature of the money lending business which generated high operating profit margin as stated above, the Group intends to apply approximately HK$25 million from the proceeds of the Disposal for the expansion of money lending business. The Group targets corporations and individuals with both short-term and medium-term financing needs. The Group aims to expand its loan portfolios, broaden the scope of its money lending business and to strengthen its lending capacity in provision of personal loans and business loans so as to optimize its operational scale. Currently, the Group is being approached by 5 potential borrowers (the ‘‘Potential Borrowers’’) enquiring for aggregate loan size in the range of approximately HK$150 million to HK$200 million. The Potential Borrowers are Independent Third Parties.

– 14 –

LETTER FROM THE BOARD

As disclosed in the interim report of the Company for six months ended 30 September 2018 and annual report of the Company for the year ended 31 March 2018, the Group generated interest income of approximately HK$4.9 million (approximately 8.5% of total revenue) and HK$10.3 million (approximately 29.3% of total revenue) in the respective period. As at 30 September 2018, the loan receivables of the Group was approximately HK$38 million with average interest rate of around 10% per annum. The Group is of the view that the money lending business can provide a stable income and would invest more resources to expand the money lending business.

General working capital of the Group

The Group considers that with the further development of the Group’s existing businesses, it will be a merit for the Group to have additional working capital of approximately HK$16.4 million for its operational needs (such as payroll costs, operating lease expenses, legal and professional fees, utilities expenses, etc) and development and/or investment opportunities as may be identified from time to time.

REASONS FOR THE DISPOSAL

The Group is principally engaged in the businesses of design, OEM and marketing of jewelry and provision of loans as money lending.

The Disposal Group is principally engaged in the exploration and exploitation of natural resources in the U.S.. At the time of entering into the Previous SPA, the Board intended to retain interest in the Disposed Company to capture investment returns in the energy sector. However, the Disposal Group did not yet commence the extraction of oil or gas since the date of the Previous SPA and there is no concrete timetable for extraction yet. The Board considers that there has been no return from the Disposal Group yet and it is uncertain when there will be return, it will be in the interests of the Company and the Shareholders as a whole to realize the remaining interest in the Disposed Company and obtain additional cash flow for developing the current core business of the Group. The Company has been streamlining the principal activities of the Group and it is in the interest of the Company as a whole to focus its resources in pursuing development opportunities on the principal business of the Group. Hence, the entering into of the SPA is in line with the strategy of the Group as mentioned above.

The Directors consider that the Disposal contemplated by the SPA are on normal commercial terms and the terms of the SPA are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

As the Previous SPA and the SPA were entered into by the Company within a 12-month period and the transactions contemplated thereunder involve the disposal of securities or an interest in the Disposal Group, the Previous Disposal and the Disposal would be aggregated as a series of transactions pursuant to Rule 14.22 of the Listing Rules. As one of the applicable percentage ratios (as defined in the Listing Rules) in respect of the Disposal when aggregated with the Previous Disposal exceeds 75%, the Disposal constitutes a very substantial disposal of the Company under Chapter 14 of the Listing Rules and is therefore subject to the reporting, announcement and the Shareholders’ approval requirements.

– 15 –

LETTER FROM THE BOARD

GENERAL

A notice convening the SGM to be held at 10:00 a.m. on Thursday, 11 July 2019 at Falcon Room I, Basement, Gloucester Luk Kwok Hong Kong, 72 Gloucester Road, Wanchai, Hong Kong is set out on pages SGM-1 to SGM-2 of this circular.

A form of proxy for use at the SGM is enclosed with this circular. Such form of proxy is also published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.986.com.hk). Whether or not you are able to attend the SGM, please complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the meeting if they so wish and, in such event, the form of proxy shall be deemed to be revoked.

The SGM will be convened and held for the Shareholders to consider and, if thought fit, approve the SPA and the transactions contemplated thereunder. To the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, as at the Latest Practicable Date, no Shareholder or any of its close associates has any material interest in the SPA and the transactions contemplated thereunder. Accordingly, no Shareholder is required to abstain from voting on the resolution to approve the SPA and the transactions contemplated thereunder at the SGM.

Completion is conditional upon the satisfaction of the conditions set out in the section headed ‘‘Conditions Precedent’’ in this circular. According, the Disposal may or may not proceed. Shareholders and potential investors should therefore exercise caution when dealing in the Shares.

RECOMMENDATION

The Directors are of the opinion that the terms of the SPA are fair and reasonable and the Disposal is in the interests of the Company and the Shareholders as a whole. As such, the Directors recommend the Shareholders to vote in favour of the resolution to be proposed at the SGM in relation to the Disposal and the transactions contemplated therein.

ADDITIONAL INFORMATION

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

By order of the Board

China Environmental Energy Investment Limited Zhou Yaying Chairman

– 16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Financial information of the Group for the years ended 31 March 2016, 2017 and 2018, the six months ended 30 September 2018 are disclosed in the annual reports of the Company for the years ended 31 March 2016 (pages 33 to 126), 2017 (pages 44 to 130), 2018 (pages 45 to 130) and in the interim report of the Company for the six months ended 30 September 2018 (pages 19 to 52) respectively, which are published on both the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (www.986.com.hk) respectively. Please refer to the hyperlinks as stated below:

2016 annual report:

https://www1.hkexnews.hk/listedco/listconews/sehk/2016/0728/ltn20160728868.pdf

2017 annual report:

https://www1.hkexnews.hk/listedco/listconews/sehk/2017/0727/ltn201707271036.pdf

2018 annual report:

https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0724/ltn20180724343.pdf

2018 interim report:

https://www1.hkexnews.hk/listedco/listconews/sehk/2018/1205/ltn20181205694.pdf

2. INDEBTEDNESS STATEMENT

As at the close of business on 30 April 2019, the Group had outstanding borrowings of approximately HK$15,350,000, comprising (1) unsecured other borrowings of approximately HK$5,150,000; and (2) unsecured unconvertible bonds of approximately HK$10,200,000. The Group had total undiscounted lease liabilities of approximately HK$4,644,000.

Save as aforesaid and apart from intra-group liabilities and normal trade payables, the Group did not have: (a) any other debt securities issued and outstanding, and authorised or otherwise created but unissued; (b) any other term loans (whether guaranteed, unguaranteed, secured or unsecured); (c) any other borrowings or indebtedness in the nature of borrowing including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments; (d) any other mortgages or charges; or (e) any other material guarantees or contingent liabilities as at 30 April 2019. The Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Group since 30 April 2019, up to and including the Latest Practicable Date.

3. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the existing cash and bank balances and other internal resources available and also the net proceeds from the Disposal, the Group has sufficient working capital for its present requirements and for at least 12 months from the date of this circular in the absence of unforeseen circumstances.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial position or trading position of the Group since 31 March 2018, being the date to which the latest published audited financial statements of the Group was made up.

I – 1

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. FINANCIAL AND TRADING PROSPECT OF THE REMAINING GROUP

The Remaining Group is principally engaged in Jewelry Business and provision of loans as money lending (the ‘‘Money Lending’’).

The Directors will continue to enhance the Remaining Group’s businesses through review of its existing business portfolio from time to time and also seek suitable investment opportunities in the long run so as to broaden the source of income of the Remaining Group and diversify the Remaining Group’s business portfolio. For its existing businesses, the Remaining Group will allocate more resources to develop those businesses with high growth potential and will consider to divest those businesses with losses or facing intensive competition. In any potential acquisition, the Remaining Group will evaluate the management of the target to be acquired as well as the intrinsic value of the acquisition, with an overall goal and strategy to acquire businesses with high intrinsic value at attractive prices.

Jewelry Business

The Remaining Group is also engaging in design and sale of original designed manufacture (ODM) jewelry to wholesales and will also participate in jewelry exhibitions in Hong Kong and overseas to promote the design of its products. Despite there is intense competition in the market and the Remaining Group expects this business segment will continue to face challenges in the coming years due to the change of business model from trading of gold and diamond to design, OEM and marketing of jewelry since July 2018, taking into consideration the Jewelry Business attained Q4 2018 Average Monthly Revenue Growth of over 60% and it is self-supporting in terms of cash flow, the Remaining Group will continue to proactively expand this business.

Money Lending business

In view of the increasing demand in money lending in Hong Kong, the Remaining Group will proactively expand such business as the Directors believe that it will provide steady interest income for the Remaining Group and has been one of the focal businesses of the Remaining Group.

I – 2

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

As at the Latest Practicable Date, the Company is interested in approximately 49.41% of the issued share capital of the Disposed Company. The Disposed Company is an investment holding company incorporated in the British Virgin Islands on 1 April 2010 with limited liability. The Disposal Group comprised the Disposed Company which in turn holds 100% equity interest in the Project Company.

On 28 February 2019 (after trading hours), the Company, as vendor, and the Purchaser entered into the SPA, pursuant to which the Company has conditionally agreed to sell and the Purchaser has conditionally agreed to purchase the Sale Shares at the Consideration of HK$80,000,000 payable by the Purchaser in accordance with the terms and conditions of the SPA. Upon completion of the Disposal (i) assuming the completion of the Previous Disposal has not yet taken place, the Company will be effectively interested in approximately 23.53% of the issued share capital of the Project Company through the Disposed Company, and the Disposed Company will remain as an associated company of the Company; and (ii) assuming the completion of the Previous Disposal has taken place, the Company will not hold any interest in the Disposal Group and the Disposal Group will cease to be an associate of the Company.

Set out below are the consolidated statements of financial position of the Disposal Group as at 31 March 2016, 31 March 2017, 31 March 2018 and 31 December 2018, and the consolidated statements of profit or loss and other comprehensive income, the consolidated statements of changes in equity and the consolidated statement of cash flows of the Disposal Group for each of the three years ended 31 March 2018 and the nine months ended 31 December 2018 (the ‘‘Consolidated Financial Information’’).

The Consolidated Financial Information has been prepared by the Directors in accordance with Rule 14.68(2)(a)(i) of the Listing Rules, and solely for the purposes of inclusion in this circular to be issued by the Company in connection with the Disposal pursuant to the SPA.

The reporting accountants of the Company, CHENG & CHENG LIMITED was engaged to review the Consolidated Financial Information set out on pages II-3 to II-6 of this circular in accordance with Hong Kong Standard on Review Engagements 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ and with reference to Practice Note 750 ‘‘Review of Financial Information under the Hong Kong Listing Rules for a Very Substantial Disposal’’ issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’). A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable the auditor to obtain assurance that the auditor would become aware of all significant matters that might be identified in an audit. Accordingly, the auditor does not express an audit opinion.

Based on their review, nothing has come to their attention that causes them to believe that the Consolidated Financial Information is not prepared, in all material respects, in accordance with the basis of preparation set out below.

II – 1

APPENDIX II FINANCIAL INFORMATION OF THE DISPOSAL GROUP

The amounts include in the Consolidated Financial Information have been recognized and measured in accordance with the relevant accounting policies of the Company adopted in the preparation of the financial statements of the Company and its subsidiaries for the relevant years/ periods, which conform with Hong Kong Financial Reporting Standards issued by the HKICPA. The Consolidated Financial Information does not contain sufficient information to constitute a complete set of financial statements as defined in Hong Kong Accounting Standard (‘‘HKAS’’) 1 ‘‘Presentation of Financial Statements’’ or an interim financial report as described in HKAS 34 ‘‘Interim Financial Reporting’’ issued by the HKICPA.

The Consolidated Financial Information is presented in United States Dollars, the currency of primary economic environment in which the Disposal Group operates (i.e. the functional currency of the Disposal Group).

II – 2

APPENDIX II FINANCIAL INFORMATION OF THE DISPOSAL GROUP

Unaudited Consolidated Statement of Profit or Loss and Other Comprehensive Income For the years ended 31 March 2016, 2017 and 2018 and the nine months ended 31 December 2017 and 2018

Revenue Other operating costs Loss before taxation Taxation Loss and total comprehensive expenses for the year/period Attributable to: Owners of Disposed Company Non-controlling interest	Year 2016 USD’000 – (154) (154) – (154) (154) – (154)	ended 31 March 2017 2018 USD’000 USD’000 – – (843) (760) (843) (760) – – (843) (760) (843) (760) – – (843) (760)	Nine months ended 31 December 2017 2018 USD’000 USD’000 – – (565) (812) (565) (812) – – (565) (812) (565) (812) – – (565) (812)	Nine months ended 31 December 2017 2018 USD’000 USD’000 – – (565) (812) (565) (812) – – (565) (812) (565) (812) – – (565) (812)
				(812) –
				(812)
				(812) –
				(812)

II – 3

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

Unaudited Consolidated Statement of Financial Position At 31 March 2016, 2017 and 2018 and 31 December 2018

Non-current Assets Exploration and evaluation assets Oil and gas leases assets Current Assets Other receivables Cash and bank balances Current Liabilities Trade payables Other payables Net Current Liabilities Total Assets less Current Liabilities Capital and Reserve Share capital Reserve Non-current Liabilities Deferred tax liabilities	2016 USD’000 2,904 56,903 59,807 9 244 253 44 7,950 7,994 (7,741) 52,066 9 41,476 41,485 10,581 52,066	At 31 March 2017 USD’000 2,177 56,903 59,080 9 128 137 44 7,950 7,994 (7,857) 51,223 9 40,633 40,642 10,581 51,223	2018 USD’000 1,451 56,903 58,354 9 94 103 44 7,950 7,994 (7,891) 50,463 9 39,873 39,882 10,581 50,463	At 31 December 2018 USD’000 664 56,903
				57,567
				9 69
				78
				44 7,950
				7,994
				(7,916)
				49,651
				9 39,061
				39,070 10,581
				49,651

II – 4

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

Unaudited Consolidated Statement of Changes in Equity

For the years ended 31 March 2016, 2017 and 2018 and the nine months ended 31 December 2017 and 2018

At 1 April 2015 Loss and total comprehensive expenses for the year At 31 March 2016 Loss and total comprehensive expenses for the year At 31 March 2017 Loss and total comprehensive expenses for the year At 31 March 2018 Loss and total comprehensive expenses for the period At 31 December 2018 At 1 April 2017 Loss and total comprehensive expenses for the period At 31 December 2017	Share capital USD’000 9 – 9 – 9 – 9 – 9 9 – 9	Revaluation reserve USD’000 42,322 – 42,322 – 42,322 – 42,322 – 42,322 42,322 – 42,322	Accumulated losses USD’000 (692) (154) (846) (843) (1,689) (760) (2,449) (812) (3,261) (1,689) (565) (2,254)	Total USD’000 41,639 (154)
				41,485
				(843)
				40,642
				(760)
				39,882
				(812)
				39,070
				40,642 (565)
				(40,077)

II – 5

APPENDIX II FINANCIAL INFORMATION OF THE DISPOSAL GROUP

Unaudited Consolidated Statement of Cash Flows

For the years ended 31 March 2016, 2017 and 2018 and the nine months ended 31 December 2017 and 2018

Operating Activities Loss before taxation Adjustment for: Amortisation Operating cash flows before movements in working capital and Net cash used in operation activities Investing Activities Net cash from investing activities Financing Activities Net cash from financing activities Net decrease in cash and cash equivalent Cash and cash equivalent at the beginning of the year/period Cash and cash equivalent at the end of the year/ period, represented bank balances and cash	Year 2016 USD’000 (154) 126 (28) – – (28) 272 244	ended 31 March 2017 2018 USD’000 USD’000 (843) (760) 727 726 (116) (34) – – – – (116) (34) 244 128 128 94	Nine months ended 31 December 2017 2018 USD’000 USD’000 (565) (812) 545 787 (20) (25) – – – – (20) (25) 128 94 108 69	Nine months ended 31 December 2017 2018 USD’000 USD’000 (565) (812) 545 787 (20) (25) – – – – (20) (25) 128 94 108 69
				(25)
				–
				–
				(25) 94
				69

II – 6

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

The following is the text of a report received from our reporting accountants, CHENG & CHENG LIMITED, Certified Public Accountants prepared for the purpose of incorporation in this circular, in respect of unaudited pro forma financial information of the Remaining Group.

==> picture [229 x 34] intentionally omitted <==

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

To the Director of China Environmental Energy Investment Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of China Environmental Energy Investment Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’) by the directors of the Company (the ‘‘Directors’’) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 30 September 2018, the unaudited pro forma consolidated statement of profit or loss and other comprehensive income for the year ended 31 March 2018, the unaudited pro forma consolidated statement of cash flows for the year ended 31 March 2018 and related notes as set out on pages III-4 to III-11 of the circular issued by the Company dated 24 June 2019 (the ‘‘Circular’’). The applicable criteria on the basis of which the Directors have compiled the unaudited proforma financial information are described on pages III-4 to III-11 of the Circular.

The unaudited pro forma financial information has been compiled by the Directors to illustrate the impact of the proposed disposal of 25.88% equity interest in the Disposal Group on the Group’s financial position as at 30 September 2018 and the Group’s financial performance and cash flows for the year ended 31 March 2018 as if the transaction had taken place at 30 September 2018 and 1 April 2017 respectively. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Group’s condensed consolidated financial statement for the six months ended 30 September 2018, financial performance and cash flows have been extracted by the Directors from the Group’s consolidated financial statements for the year ended 31 March 2018.

Directors’ Responsibilities for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the unaudited pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with reference to Accounting Guideline 7 ‘‘Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars’’ (‘‘AG 7’’) issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’).

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the ‘‘Code of Ethics for Professional Accountants’’ issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

III – 1

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Our firm applies Hong Kong Standard on Quality Control 1 ‘‘Quality Control for Firms that Perform Audits and Review of Financial Statements, and Other Assurance and Related Services Engagements’’ issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the 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.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagement 3420 ‘‘Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus’’ issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the unaudited pro forma financial information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the unaudited pro forma financial information, nor have we, in the course of this engagement performed an audit or review of the financial information used in compiling the unaudited pro forma financial information.

The purpose of unaudited pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction at 30 September 2018 or 1 April 2017 would have been as presented.

A reasonable assurance engagement to report on whether the unaudited pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether applicable criteria used by the Directors in compilation of the unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

• The related pro forma adjustments give appropriate effect to those criteria; and

• The unaudited pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgement, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances.

III – 2

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

The engagement also involves evaluating the overall presentation of the unaudited pro forma financial information.

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

Opinion

In our opinion:

• (a) The unaudited pro forma financial information has been properly compiled 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 paragraph 4.29(1) of the Listing Rules.

CHENG & CHENG LIMITED

Certified Public Accountants Hong Kong 24 June 2019

III – 3

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The unaudited pro forma financial information presented below is prepared to illustrate (a) financial position of the Remaining Group as at 30 September 2018 as if the Disposal had been completed on 30 September 2018; (b) the results and cash flows of the Remaining Group as if the Disposal had been completed on 1 April 2017. This unaudited pro forma financial information has been for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Remaining Group as at 30 September 2018 or at any future dates or for the results and cash flows of the Remaining Group for the year ended 31 March 2018 or for any future periods.

The unaudited pro forma financial information is prepared based on the unaudited consolidated statement of financial position of the Group as at 30 September 2018 extracted from the interim report of the Company dated 30 November 2018, the unaudited consolidated statement of profit or loss and other comprehensive income and unaudited consolidated statement of cash flows of the Group for the year ended 31 March 2018 extracted from the annual report of the Company dated 26 June 2018 after giving effect to the pro forma adjustments described in the accompanying notes and was prepared in accordance with Rules 4.29 and 14.68(2)(a)(ii) of the Listing Rules. No adjustment have been made to reflect any trading results or other transactions of the Remaining Group entered into subsequent to 30 September 2018.

The unaudited pro forma financial information should be read in conjunction with other financial information contained in this circular.

III – 4

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

• I. Unaudited Proforma Consolidated Statement of Financial Position of the Remaining Group At 30 September 2018

Non-current assets Property, plant and equipment Goodwill Intangible assets Interest in an associate Loan receivables Deferred tax assets Financial assets at fair value through profit or loss Statutory deposits Deposits paid Current assets Trade receivables Loan and interest receivables Other receivables, prepayments and deposit paid Income tax recoverable Cash deposits held by securities brokers Client trust bank balance Bank balances and cash Assets classified as held for sale	The Group Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) 2,757 23,374 13,922 103,111 (103,111) 36,480 523 47,045 205 377 227,794 40,287 1,766 553 79,400 762 1 114 38,275 81,758 94,116 175,874	The Remaining Group HK$’000 2,757 23,374 13,922 – 36,480 523 47,045 205 377
		124,683
		40,287 1,766 79,953 762 1 114 38,275
		161,158 94,116
		255,274

III – 5

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Current liabilities Trade payables Loan and interest payables Other payables and accruals Income tax payable Net current assets Total assets less current liabilities Non-current liabilities Unconvertible bonds Net assets Capital and reserves Share capital Share premium and reserves	The Group Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) 27,547 1,678 26,145 824 56,194 119,680 347,474 10,408 337,066 56,785 280,281 (23,711) 337,066	The Remaining Group HK$’000 27,547 1,678 26,145 824
		56,194
		199,080
		323,763 10,408
		313,355
		56,785 256,570
		313,355

III – 6

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

• II. Unaudited Proforma Consolidated Statement of Profit or Loss and Other Comprehensive Income of the Remaining Group For the year ended 31 March 2018

Revenue Cost of sales Gross profit Other income Other gains and losses Selling and distribution expenses Administrative expenses Finance costs Share of loss of an associate Loss on disposal of the Sale Shares of the Disposal Group Loss before taxation Income tax credit Loss for the year Other comprehensive expenses Items that may be reclassified subsequently to profit or loss Exchange differences on: – Translation of foreign operations Available-for-sale investments Increase in fair value Reclassification adjustments for amounts transferred to profit or loss: – Gain on disposal – Impairment loss Other comprehensive expenses for the year Total comprehensive expense for the year	The Group Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 3) (Note 4) 35,220 (19,457) 15,763 47 (321,044) (305) (28,366) (3,209) (2,832) 1,484 – (25,940) (339,946) 2,508 (337,438) 86 8,694 (410,007) 7,126 (394,187) (394,101) (731,539)	The Remaining Group HK$’000 35,220 (19,457) 15,763 47 (321,044) (305) (28,366) (3,209) (1,348) (25,940) (364,402) 2,508 (361,894) 86 8,694 (410,007) 7,126 (394,187) (394,101) (755,995)

III – 7

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Loss for the year attributable to: Owners of the Company Non-controlling interest Total comprehensive expenses for the year attributable to: Owners of the Company Non-controlling interest	The Group Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 3) (Note 4) (337,438) – (337,438) (731,539) – (731,539)	The Remaining Group HK$’000 (361,894) – (361,894) (755,995) – (755,995)

III – 8

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

III. Unaudited Proforma Consolidated Statement of Cash Flows of the Remaining Group For the year ended 31 March 2018

Cash flows from operating activities Loss for the year Adjustment for: Income tax credit recognised in profit or loss Finance costs Depreciation of property, plant and equipment Impairment loss recognised on: – goodwill – available-for-sale investments – trade receivables Net realised loss on disposal of listed equity securities held for investment Share of loss of an associate Loss on disposal of the Sale Shares of the Disposal Group Loss on settlement of promissory notes by issue of shares Operating cash flows before movements in working capital Decrease in loan and interest receivables Increase in trade receivables Decrease in other receivables, prepayments and deposits paid Decrease in trade payables Decrease in other payables and accruals Cash generated from operations Income tax paid Net cash generated from operating activities	The Group Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 3) (Note 4) (337,438) 1,484 (25,940) (2,508) 3,209 3,868 28,840 218,441 166 68,466 2,832 (1,484) – 25,940 5,131 (8,993) 31,433 (846) 3,512 (90) (1,490) 23,526 (1,962) 21,564	The Remaining Group HK$’000 (361,894) (2,508) 3,209 3,868 28,840 218,441 166 68,466 1,348 25,940 5,131 (8,993) 31,433 (846) 3,512 (90) (1,490) 23,526 (1,962) 21,564

III – 9

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Cash flows from investing activities Acquisition of property, plant and equipment Acquisition of available-for-sale investments Proceeds from disposal of listed available-for-sale investments Net proceed from disposal of the Disposal Net cash generated from investing activities Cash flows from financing activities Proceeds from unsecured loan Share issue expenses Repayments of promissory notes payables Repayments of unconvertible bonds Interest paid Net cash used in financing activities Net decrease in cash and cash equivalent Cash and cash equivalents at 1 April 2017 Effects of exchange rate changes Cash and cash equivalents at 31 March 2018	The Group Pro forma adjustments HK$’000 HK$’000 (Note 5) (11) (13,344) 43,863 – 79,400 30,508 1,800 (20) (83,694) (20,000) (11,570) (113,484) (61,412) 67,051 2 5,641	The Remaining Group HK$’000 (11) (13,344) 43,863 79,400 109,908 1,800 (20) (83,694) (20,000) (11,570) (113,484) 17,988 67,051 2 85,041

III – 10

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Notes:

• 1) The adjustment represents the exclusion of the Group’s 25.88% equity interest (the ‘‘Sale Shares’’) in the Disposal Group based on its carrying amount as at 30 September 2018 stated in the unaudited consolidated statement of financial position of the Group, assuming the Disposal had been executed on 30 September 2018. The Group’s carrying amount of the Sale Shares of the Disposal Group of approximately HK$103,111,000.

• 2) The adjustment reflects the consideration to be received by the Group for the Disposal as if the Disposal had been executed on 30 September 2018, which based on the Consideration of HK$80,000,000 and the payment of cost directly attributable to the Disposal amounted to approximately HK$600,000. The Consideration of HK$80,000,000 is to be settled not later than one month upon fulfilment of the Conditions Precedent but before the Completion Date. Thus, net proceeds of approximately HK$79,400,000 is estimated to be received by the Group in cash at the Completion Date after payment of the transaction costs of approximately HK$600,000.

Calculation of loss on disposal (assume the Disposal had taken place on 30 September 2018):

The consideration for the Disposal Less: The Group’s carrying value of the Sale Shares of the Disposal Group at 30 September 2018 Cost directly attributable to the Disposal Loss on disposal of the Sale Shares of the Disposal Group	HK$’000 80,000 (103,111) (600)
	(23,711)

• 3) The adjustment represents the exclusion of the Group’s 25.88% share of loss of Disposal Group for the year ended 31 March 2018, assuming the Disposal had taken place on 1 April 2017. The Group’s share of loss of the Sale Shares of the Disposal Group for the year ended 31 March 2018 represents the Group’s 25.88% of the loss of approximately HK$1,484,000.

• 4) The adjustment reflects the loss on the Disposal as if the Disposal had taken place on 1 April 2017, which based on the Consideration of HK$80,000,000.

Calculation of loss on disposal (assume the Disposal had taken place on 1 April 2017):

The consideration for the Disposal Less: The Group’s carrying value of the Sale Shares in the Disposal Group at 1 April 2017 Cost directly attributable to the Disposal Loss on disposal of the Sale Shares of the Disposal Group	HK$’000 80,000 (105,340) (600)
	(25,940)

• 5) The adjustment reflects the net cash inflow of consideration to be received and cost to be paid by the Group for the Disposal as if the Disposal had taken place on 1 April 2017, which represents the payment of the Consideration of HK$80,000,000 to settled not later than one month upon fulfilment of the Conditions Precedent but before the Completion Date. Thus, net proceeds of approximately HK$79,400,000 is estimated to be received by the Group in cash at the Completion Date after payment of the transaction costs of approximately HK$600,000.

• 6) All pro forma adjustments are not expected to have a continuing effect on the Group.

III – 11

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

Set out below is the management discussion and analysis on the Remaining Group for three years ended 31 March 2018 and for the six months ended 30 September 2018. Upon completion of the Disposal (assuming completion of the Previous Disposal has not yet taken place), the Company will be effectively interested in approximately 23.53% of the issued share capital of the Project Company through the Disposed Company, and the Disposed Company will remain as an associated company of the Company.

There will be no change to the principal business of the Remaining Group as a result of the Disposal. Following the Disposal, the Remaining Group will continue to carry out its existing businesses. The management discussion and analysis of the Remaining Group for each of the years ended 31 March 2016 (‘‘FY2016’’), 31 March 2017 (‘‘FY2017’’) and 31 March 2018 (‘‘FY2018’’) respectively and for the six months ended 30 September 2018 (‘‘Interim 2018’’) are set out below.

BUSINESS AND FINANCIAL REVIEW

FY2016

The Remaining Group was principally engaged in the businesses of waste paper, scrap metal and consumable wastes recycling, trading of petrochemical products, online products sales, provision of marketing, web design and maintenance services (the ‘‘Internet Services’’), trading of gold and diamond and Money Lending for FY2016.

For FY2016, the Remaining Group’s revenue from continuing operations was approximately HK$19.09 million (2015: approximately HK$11.25 million), representing an increase of approximately 69.69% as compared with last year. Gross profit from continuing operations was approximately HK$7.71 million (2015: approximately HK$5.53 million), representing an increase of approximately 39.42% as compared with last year. Gross profit margin was approximately 40.39% (2015: approximately 49.16%). The increase in gross profit was attributable to the contribution from the Internet Services business and the new business of the Remaining Group. Operating loss from continuing operations and discontinued operations after tax of the Remaining Group was approximately HK$28.70 million (2015: approximately HK$139.96 million), representing a decrease by approximately 79.49% as compared with last year. The decrease in operating loss was mainly attributable to fair value gains and realized gains on disposal of investment in securities of approximately HK$33.72 million (2015: realized losses of approximately HK$7.43 million) and decrease in finance costs of approximately HK$38.25 million as a result of reduction in debt level. The operating loss included the impairment loss on goodwill arising from the acquisition of the Internet Services business of approximately HK$3.70 million (2015: Nil).

(a) Internet Services business

The revenue and operating profit before tax generated from the Internet Services was approximately HK$3.66 million and HK$1.79 million respectively. The business picked up a steady and upward growth. Such increase was mainly driven by the rapid growth in the online shopping market in the PRC in recent years due to, in particular, the large number of internet users, along with a dynamic mobile telecommunications sector. It therefore offers huge potential for the Internet Services.

IV – 1

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

(b) Trading of gold and diamond business

The revenue and the operating profit before tax generated from trading of gold and diamond business was approximately HK$8.17 million and HK$1.14 million respectively for FY2016.

(c) Money Lending business

For FY2016, the Remaining Group had successfully made loans to certain clients amounting to approximately HK$44 million in total at the average interest rate of 20% per annum.

(d) Wastes recycling business and trading of petrochemical products business

For FY2016, the demand and price of recycling products from waste paper, scrap metal and consumable wastes as well as the petrochemical products have continued to remain low without any sign of improvement. The gross profit of trading of petrochemical products business had been minimal owing to high operating costs and costs of raw materials, labor and manufacturing overheads. As a result, losses from such business segments recorded approximately HK$21.67 million for FY2016.

In view of the unsatisfactory performance of these business segments, the Remaining Group had considered the possibility of selling the aforesaid business if the disposal would help the Remaining Group in realising its investment and would generate cash inflow for the Remaining Group. Prior to the completion of the above-mentioned possible disposal, these business segments had been classified as discontinued operations for FY2016. The revenue of discontinued operations were approximately HK$16.97 million (2015: approximately HK$29.77 million) and approximately HK$8.57 million (2015: approximately HK$11.69 million) from wastes recycling business and trading of petrochemical products business respectively.

FY2017

For FY2017, the Remaining Group was principally engaged in the businesses of Internet Services, trading of gold and diamond, Money Lending and provision of financial advisory and intermediary services (the ‘‘Financial Services’’).

For FY2017, the Remaining Group’s revenue from continuing operations was approximately HK$67.67 million (2016: approximately HK$19.09 million), representing an increase of approximately HK$48.58 million or 254.48% as compared with last year.

IV – 2

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

Gross profit from continuing operations was approximately HK$29.99 million (2016: approximately HK$7.71 million), representing an increase of approximately HK$22.28 million or 288.98% as compared with last year. Gross profit margin was approximately 44.32% (2016: approximately 40.39%). The increase in gross profit was mainly attributable to the contribution from Money Lending business of the Remaining Group. Operating profit from continuing operations and discontinued operations after tax of the Remaining Group was approximately HK$29.12 million (2016: operating loss of approximately HK$28.70 million). The turn from loss to profit was mainly attributable to (a) the gain on disposal of wastes recycling and trading of petrochemical products businesses of approximately HK$59.78 million (2016: Nil); and (b) goodwill impairment losses of approximately HK$33.13 million and HK$7.52 million arising from the Internet Services business and trading of gold and diamond business respectively (2016: approximately HK$3.70 million arising from the Internet Services business).

(a) Internet Services business

For FY2017, the revenue generated from the Internet Services business was approximately HK$5.49 million (2016: approximately HK$10.49 million). Operating profit before tax and impairment loss of goodwill of approximately HK$2.67 million was made for FY2017 (2016: approximately HK$2.88 million). The decrease in revenue was mainly due to the Company’s disposal of the entire share capital of Asian Champion Limited, which in turn held 90% equity interest in HKOMall Limited. HKOMall Limited was principally engaged in the Internet Services business in Hong Kong, and was the main contributor of revenue from the Internet Services business of the Remaining Group.

(b) Trading of gold and diamond business

For FY2017, the revenue and the operating profit before tax generated from the trading of gold and diamond business were approximately HK$40.07 million and HK$3.76 million respectively. Further, an impairment charge of approximately HK$7.52 million has been recorded against the goodwill. The carrying value of this segment was significantly higher than the recoverable amount of the underlying business, when projected forward result no longer supporting to profitability due to low profit margin.

(c) Money Lending business

For FY2017, the Remaining Group had successfully made loans to certain borrowers at the average interest rates of 20% per annum. The interest income from Money Lending for FY2017 was approximately HK$20.81 million (2016: approximately HK$0.43 million).

(d) Financial Services business

In August 2016, the Remaining Group completed the acquisition of the entire issued share capital of C.E. SECURITIES AND ASSET MANAGEMENT LIMITED (‘‘CE Securities’’) (currently known as FFCI) and has contributed approximately HK$1.31 million to the Remaining Group’s revenue from provision of Financial Services from August 2016 to March 2017.

IV – 3

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

FY2018

For FY2018, the Remaining Group was principally engaged in the businesses of Internet Services, trading of gold and diamond, Money Lending and Financial Services.

For FY2018, the Remaining Group’s revenue from continuing operations was approximately HK$35.22 million (2017: approximately HK$67.67 million), representing a decrease of approximately HK$32.45 million or 47.95% as compared with last year.

Gross profit from continuing operations was approximately HK$15.76 million (2017: approximately HK$29.99 million), representing a decrease of approximately HK$14.23 million or 47.45% as compared with last year. Gross profit margin was slightly increased from approximately 44.32% to 44.76%. Operating loss from continuing operations and discontinued operations after tax of the Remaining Group was approximately HK$335.95 million (2017: operating profit of approximately HK$29.12 million). The turn from profit to loss was mainly attributable to (a) the impairment loss of equity investment fund of approximately HK$209.95 million; (b) the net disposal loss of listed equity securities of approximately HK$68.47 million; (c) the impairment loss on listed equity securities of approximately HK$8.49 million; and (d) impairment loss on goodwill of Internet Services business of approximately HK$28.84 million.

(a) Internet Services business

For FY2018, the revenue generated from the Internet Services business was approximately HK$3.05 million (2017: approximately HK$5.49 million). Operating profit before tax and impairment loss on goodwill and trade receivables of approximately HK$0.59 million was made for the year ended 31 March 2018 (2017: approximately HK$2.67 million). The revenue of the Internet Services business was mainly attributed from the market of the PRC. The decrease in revenue of approximately 44.44% as compared with last year. The Remaining Group recognised an impairment loss of approximately HK$28.84 million for its goodwill for the year under review (2017: approximately HK$33.13 million).

(b) Trading of gold and diamond business

For FY2018, the revenue generated from the trading of gold and diamond business was approximately HK$21.36 million (2017: approximately HK$40.07 million). Operating profit before tax was approximately HK$3.10 million (2017: operating profit before tax and impairment of goodwill approximately HK$3.76 million). The gross profit ratio was increased from 10.92% to 16.04% due to this business changed its strategy to focus on selling to the customers which can generate higher margin.

(c) Money Lending business

For FY2018, the Remaining Group had made loans to certain borrowers amounting to HK$50 million in total at the average interest rate of 20% per annum. During FY2018, interest income from Money Lending was approximately HK$10.33 million (2017: approximately HK$20.81 million).

(d) Financial Services business

The Financial Services business contributed approximately HK$0.48 million to the Remaining Group’s revenue for FY2018 (2017: approximately HK$1.31 million).

IV – 4

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

Interim 2018

For Interim 2018, the Remaining Group was principally engaged in the Internet Services business, the Jewelry Business, the Money Lending business and the Financial Services business.

For the Interim 2018, the Remaining Group’s revenue was approximately HK$57.65 million, representing an increase of approximately HK$44.09 million or 325% as compared to approximately HK$13.56 million of corresponding period of 2017.

Gross profit was approximately HK$12.50 million (2017: HK$5.36 million). Gross profit margin was approximately 21.69% (2017: 39.52%). The decrease in gross profit margin of Interim 2018 as compared with the six months ended 30 September 2017 was due to the change of business model from trading of gold and diamond (the ‘‘Original Business Model’’) to design, OEM and marketing of jewelry (the ‘‘New Business Model’’). The Original Business Model focused on selling products with lower unit selling price which generate higher gross profit margins (such as melee and loose diamonds). In contrast, the New Business Model focused on selling jewelry products which have higher unit selling price but generate lower gross profit margins (such as in-house designed diamond-set jewelry). The increase in gross profit was due to the increase in revenue generated from Jewelry Business of the Remaining Group. Notwithstanding there was lower profit margin for New Business Model, it generated higher revenue and gross profit and larger base of sales as compared with the Original Business Model.

Loss after tax of the Remaining Group was approximately HK$22.46 million (2017: HK$332.28 million). The significant decrease of loss after tax was mainly due to, including but not limited to (a) the increase in revenue generated from Jewelry Business of approximately HK$44.08 million; (b) recorded the impairment loss on goodwill and available-for-sale investments of approximately HK$28.84 million and HK$218.44 million, respectively, for the six months ended 30 September 2017 whereas no such impairments were made for Interim 2018; (c) offset the expenses relating to the share options which were granted to director and employees during Interim 2018 and the share-based payment expense of approximately HK$7.18 million; and (d) the loss on investment amounted to approximately HK$12.00 million, representing a decrease of approximately HK$56.47 million comparing with the last corresponding period of approximately HK$68.47 million.

(a) Internet Services business

For Interim 2018, the revenue generated from the Internet Services business was approximately HK$0.39 million (2017: HK$1.15 million). The revenue of the Internet Services business was mainly attributed from the market of the PRC. The decrease of approximately 66.29% as compared with the same period last year was due to the unsustainable growth of the market.

(b) Jewelry Business

For Interim 2018, the revenue and the operating profit before tax generated from the Jewelry Business were approximately HK$52.29 million and HK$6.89 million, respectively (2017: HK$8.21 million and HK$0.97 million, respectively). The increase of approximately HK$44.08 million in revenue was mainly due to the recent new developments in this business.

IV – 5

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

(c) Money Lending business

As at 30 September 2018, the Remaining Group had made loans to certain borrowers amounting to approximately HK$37.98 million in total at the average interest rate of 10.32% per annum. The average interest rate decreased from 20% per annum for FY2018 to 10.32% per annum for Interim 2018. The decrease was due to lower interest rate being charged by the Remaining Group for loans which are secured by quality pledged assets (such as equity, land and property, etc.). The Remaining Group entered into a loan agreement, amounting to RMB22 million (equivalent to approximately HK$25.00 million) with a borrower on 28 September 2018 and the borrower drewdown it in October 2018. For Interim 2018, interest income from Money Lending was approximately HK$4.88 million (2017: HK$3.88 million).

(d) Financial Services business

For Interim 2018, the Financial Services business contributed approximately HK$90,000 to the Remaining Group’s revenue for the six months ended 30 September 2018 (2017: HK$322,000).

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

FY2016

As at 31 March 2016, the Remaining Group’s net current assets were approximately HK$7.08 million (2015: approximately HK$34.23 million), including cash and cash equivalents of approximately HK$22.77 million (2015: approximately HK$250.90 million). Total bank loans, other borrowings, convertible and unconvertible bonds and promissory notes payable amounted to approximately HK$153.10 million as at 31 March 2016 (2015: approximately HK$247.89 million). During FY2016, an aggregate principal amount of HK$130 million of the promissory notes had been issued for the acquisitions.

FY2017

As at 31 March 2017, the Remaining Group’s net current liabilities were approximately HK$21.42 million (31 March 2016: net current assets of approximately HK$7.08 million), including cash and cash equivalents of approximately HK$66.97 million (31 March 2016: approximately HK$22.77 million). Total unconvertible bonds and promissory notes payable amounted to approximately HK$173.81 million as at 31 March 2017 (31 March 2016: approximately HK$153.10 million).

FY2018

As at 31 March 2018, the Group’s net current liabilities were approximately HK$2.60 million (2017: approximately HK$21.99 million), including cash and cash equivalents of approximately HK$5.64 million (2017: approximately HK$66.97 million). Total interest-bearing borrowings amounted to approximately HK$11.80 million as at 31 March 2018 (2017: approximately HK$160 million).

Interim 2018

As at 30 September 2018, the Group’s net current assets were approximately HK$119.68 million (31 March 2018: net current liabilities of approximately HK$2.60 million), including cash and cash equivalents of approximately HK$38.28 million (31 March 2018: HK$5.54 million). Total interest-bearing borrowings amounted to approximately HK$11.55 million as at 30 September 2018 (31 March 2018: approximately HK$11.80 million).

IV – 6

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

GEARING RATIO

As at 31 March 2016, 2017 and 2018 and 30 September 2018, the gearing ratio of the Remaining Group was approximately 0.16, 0.12, 0.10 and 0.10 respectively. Gearing ratio is calculated on the basis of net debt divided by total Shareholders’ equity plus net debt.

CAPITAL COMMITMENTS

During FY2016, a sale and purchase agreement has entered into among the Company, as guarantor, Gold Castle Group Limited (currently known as Maiden Faith) (a wholly-owned subsidiary of the Company), as purchaser, and STI Financial Group Limited, as vendor in relation to the acquisition of the entire issued share capital of STI Securities & Wealth Management Limited (‘‘STI’’) (currently known as FFCI). The acquisition completed in August 2016.

As at 31 March 2017, 2018 and 30 September 2018, the Remaining Group did not have any material capital commitments.

FOREIGN EXCHANGE RISK

The Remaining Group mainly operates in Hong Kong and the PRC, most transactions, assets and liabilities are denominated in Hong Kong Dollars and Renminbi. During FY2016, FY2017, FY2018 and Interim 2018, the Remaining Group did not enter into any derivative contracts aimed at minimising exchange rate risks, but the Remaining Group will continue to review its foreign exchange exposure regularly and might consider using financial instruments to hedge against foreign exchange exposure at appropriate times.

EMPLOYMENT AND REMUNERATION POLICY

Remunerations are commensurate with the nature of job, staff experience and market conditions.

On 30 August 2011, the Company adopted a new share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Remaining Group’s operations.

The Remaining Group continued to strengthen its staff quality through staff development and training programmes. The Remaining Group had approximately 40, 35, 27 and 39 employees as at 31 March 2016, 2017, 2018 and 30 September 2018.

As at 31 March 2016, 2017, 2018 and 30 September 2018, the staff costs (including directors’ emoluments) of the Remaining Group amounted to approximately HK$12.1 million, HK$14.6 million, HK$13.6 million and HK$13.0 million respectively.

PLEDGE ON ASSETS

As at 31 March 2016, the Remaining Group’s deposits amounted to HK$2.4 million were placed with a bank in the PRC to secure bills issued and payable by the Remaining Group which were disclosed in assets classified as held for sale when an operation was classified as discontinued (2015: HK$5.88 million disclosed in restricted bank deposits).

As at 31 March 2017 and 2018 and 30 September 2018, the Remaining Group did not have any pledge on its assets.

IV – 7

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

CONTINGENT LIABILITIES

As at 31 March 2016, 2017 and 2018 and 30 September 2018, the Remaining Group did not have any material contingent liabilities.

SIGNIFICANT INVESTMENTS

FY2016

During FY2016, the Remaining Group’s securities investment business recorded a realized gain of approximately HK$33.72 million (2015: realized loss of approximately HK$7.43 million) and a net unrealized gain of approximately HK$443.36 million (2015: approximately HK$80.59 million). As at 31 March 2016, the market value of the listed securities being held by the Remaining Group is approximately HK$804.91 million in value (2015: approximately HK$127.59 million).

FY2017

During FY2017, the Remaining Group’s securities investment business recorded a net disposal gain of approximately HK$33.82 million (2016: approximately HK$33.72 million), which was mainly attributed from the disposal gain of approximately HK$169 million from disposed shares of China Jicheng Holdings Limited and the disposal losses of approximately of HK$104 million and HK$31 million from disposed shares of L & A International Holdings Limited and other disposed listed securities respectively. As at 31 March 2017, the market value of the listed securities being held by the Remaining Group was approximately HK$770.66 million in value (2016: approximately HK$804.91 million) and an unrealized gain on fair value change was approximately HK$402.88 million (2016: approximately HK$443.36 million).

FY2018

During FY2018, the Remaining Group’s listed equity securities investment business recorded a net disposal loss of approximately HK$68.47 million (2017: a net disposal gain of approximately HK$33.82 million).

During FY2018, the Remaining Group has entered a subscription agreement with Henghua Global Fund SPC (the ‘‘Fund Company’’), the Remaining Group has transferred of the certain listed equity securities held by the Remaining Group to the Fund Company as payment for the subscription of Henghua Global New Opportunity Fund SP II, a segregated portfolio of and, established by the Fund Company (the ‘‘Fund’’), resulted a gain of HK$79.81 million in this transfer. As at 31 March 2018, the market value of the listed equity securities held by the Remaining Group was nil (2017: approximately HK$770.66 million) and the fair value of the Fund was HK$59.04 million (2017: nil).

Interim 2018

As at 30 September 2018, the fair value of the equity investment fund was approximately HK$47.05 million (FY2018: HK$59.04 million).

IV – 8

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

MATERIAL ACQUISITIONS AND DISPOSALS

FY2016

On 4 September 2015, the Company and Mr. Wong Him Shun Philip, as a vendor, entered into a sale and purchase agreement, pursuant to which the vendor has conditionally agreed to sell and the Company has conditionally agreed to acquire the entire equity interest in Elite Honest Inc., at a consideration of HK$30 million by way of issuing promissory note by the Company. Elite Honest Inc. was incorporated under the laws of the British Virgin Islands with limited liability and it owns 100% equity interest in H & S Creation Limited (‘‘H&S’’). H&S is principally engaged in the business of trading of gold and diamond. The acquisition was completed on 18 September 2015.

On 16 October 2015, a wholly-owned subsidiary of the Company acquired the entire issued share capital of Great Luck Finance Limited (‘‘Great Luck’’) at a consideration of HK$1 million. Great Luck is incorporated in Hong Kong with limited liability and is a company holding a money lender’s license under Money Lenders Ordinance (Chapter 163 of the Laws of Hong Kong).

On 16 November 2015, the Company had, as guarantor, entered into a sale and purchase agreement with Gold Castle Group Limited (currently known as Maiden Faith) (a wholly-owned subsidiary of the Company), as purchaser, and STI Financial Group Limited, as vendor, in relation to the acquisition of the entire issued share capital of STI (currently known as FFCI), which is a licensed corporation to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 9 (asset management) regulated activities under the SFO at the consideration of HK$163 million.

On 20 November 2015, the Company as the purchaser, entered into a sale and purchase agreement with certain shareholders of the Disposed Company as the vendors the (‘‘Original Vendors’’), pursuant to which the Company had conditionally agreed to acquire and the Original Vendors had conditionally agreed to dispose of 3,350 shares of the Disposed Company, representing approximately 39.41% of the issued share capital of the Disposed Company, which in turn owned 100% equity interest in the Project Company, at a consideration of HK$163 million, which was settled as to HK$100 million by way of delivery of the promissory notes issued by the Company due in 12 months from the issue date and carrying interest of 8% per annum and as to HK$63 million by cash. The acquisition was completed on 29 January 2016. The Company is indirectly interested in aggregate approximately 49.41% of the issued share capital of the Project Company through the Disposed Company, and the Disposed Company became an associate of the Company. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, there is not any relationship, written or verbal arrangement between the Purchaser and the Original Vendors as at the Latest Practicable Date.

On 4 June 2014, the Company, as vendor, entered into a sale and purchase agreement (the ‘‘2014 SPA’’) with Lucky East International Limited, as purchaser, pursuant to which the purchaser had agreed to acquire and the Company had agreed to sell the 9.9% of the entire issued share capital of Swift Profit International Limited (‘‘Swift Profit’’), at a consideration of HK$66 million. On 29 January 2015 and 27 March 2015, the Company entered into two supplemental agreements with the purchaser to amend certain terms of the 2014 SPA including the postponement of completion date to 30 September 2015 and vary of payment terms. Upon completion of the disposal, Swift Profit ceased to be available-for-sale investment of the Remaining Group. The Remaining Group completed the disposal on 30 September 2015.

IV – 9

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

On 27 November 2015, the Remaining Group as vendor entered into a sale and purchase agreement with Ms. Chow Yan Ping as purchaser, pursuant to which the purchaser had agreed to acquire and the Company had agreed to sell the entire issued share capital of Asian Champion Limited at a consideration of HK$58 million. Upon completion of the disposal, the Company ceased to hold any equity interest of Asian Champion Limited and the results of Asian Champion Limited and its subsidiary were no longer consolidated into the consolidated financial statements of the Remaining Group. The disposal was completed on 4 February 2016.

FY2017

In August 2016, the Company had completed the acquisition of the entire issued share capital of CE Securities (currently known as FFCI). Such acquisition enables the Remaining Group to enter into the financial services industry. The Remaining Group through CE Securities (currently known as FFCI) has become a one-stop integrated financial services provider, offering an extensive range of financial services to its customers (including but not limited to, securities brokerage, investment advisory, margin financing and asset management), being a new business segment to the Remaining Group. The Remaining Group will be benefited from diversifying its revenue stream which is expected to increase the Shareholders’ value and benefit the Company and the Shareholders as a whole.

On 19 May 2016, the Company, as vendor, entered into a sale and purchase agreement with an independent third party, as purchaser, pursuant to which the purchaser had agreed to acquire and the Company had agreed to sell the approximately 93.33% of the entire issued share capital of Ideal Market Holdings Limited (‘‘Ideal Market’’) at a consideration of HK$150 million (the ‘‘2016 Disposal’’). Prior to the 2016 Disposal, Ideal Market together with its wholly-owned subsidiaries were principally engaged in wastes recycling business and trading of petrochemical products business. Subsequently, these disposed business segments had been re-classified as discontinued operations for FY2016 and FY2017. Upon completion of the 2016 Disposal on 30 August 2016, the Company ceased to hold any equity interest in Ideal Market and its result was no longer consolidated into the consolidated financial statements of the Remaining Group.

FY2018

In May 2017, the Remaining Group has entered a subscription agreement with the Fund Company, the Remaining Group has transferred of the certain listed equity securities held by the Remaining Group to the Fund Company as payment for the subscription of Fund. Upon the completion, the Remaining Group had subscribed for approximately 260,297 of the participating shares designed as a class b shares of the Fund based on an aggregate market value of the listed equity securities of approximately HK$260.30 million. Such investment in the Fund is accounted for as available-for-sales investments in the Remaining Group’s consolidated financial statements.

Interim 2018

During the six months ended 30 September 2018, the Company did not have any material acquisition and disposal except for the Previous Disposal. As at the Latest Practicable Date, the Previous Disposal is not yet completed.

IV – 10

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

APPENDIX IV

FUTURE PLANS FOR MATERIAL INVESTMENT

FY2016

On 16 November 2015, the Remaining Group, as purchaser entered into of the agreement with STI Financial Group Limited, as vendor in relation to the acquisition of the entire issued share capital of STI (currently known as FFCI). Please refer to the announcement of the Company dated 16 November 2015 for detail. Following the completion of such acquisition on 9 August 2016, the Company intended to strengthen the development of the financial services business.

Save as disclosed above, as at 31 March 2016, the Remaining Group did not have any future plans for material investment or capital assets.

FY2017

On 27 March 2017, the Remaining Group proposed the entering into of subscription agreement with the Fund Company, the Remaining Group will transfer of the certain listed equity securities held by the Remaining Group to the Fund Company as payment for the subscription of Fund. Please refer to the announcement of the Company dated 27 March 2017 and circular of the Company dated 11 May 2017 for detail.

Save as disclosed above, the Remaining Group did not have any future plans for material investment or capital assets as at 31 March 2017.

FY2018

As at 31 March 2018, the Remaining Group did not have any future plans for material investment or capital assets.

Interim 2018

As at 30 September 2018, the Remaining Group did not have any future plans for material investment or capital assets.

The Remaining Group entered into four sale and purchase agreements with four purchasers on 16 May 2019 in relation to the May 2019 Disposal with the view to sell the loss-making Financial Services business and to streamline the principal activities of the Remaining Group. As at the date of the May 2019 Announcement, Maiden Faith Purchaser is a director of one of the subsidiaries of Maiden Faith. Therefore, the Maiden Faith Purchaser is a connected person of the Company at the subsidiary level. Save for the May 2019 Disposal and the Maiden Faith Purchaser is a connected person of the Company at the subsidiary level as disclosed above, as at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, the four purchasers of the May 2019 Disposal do not have any prior or current relationship, written or verbal arrangement with (i) the Company and its connected person; and (ii) the Purchaser. Please refer to the May 2019 Announcement and June 2019 Announcement for details. As at the Latest Practicable Date, the May 2019 Disposal has completed.

Besides, the Remaining Group will pursue to further expand the Jewelry Business through potential acquisition of upstream companies in the jewelry industry chain including but not limited to jewelry processing companies and jewelry manufacturers.

IV – 11

GENERAL INFORMATION OF THE GROUP

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the 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 the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DIRECTORS’ INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY

As at the Latest Practicable Date, the interest or short position of the Directors or chief executive of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she was deemed or taken to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, to be notified to the Company and the Stock Exchange were as follows:

Long position in shares and underlying shares of the Company:

				Approximate
				percentage
		Capacity/Nature	Number	of total
Name	of Director	of interest	of Shares	shareholding
				(Note 1)
Zhou	Yaying	Beneficial owner	4,371,386	0.77%
Note:

1. The approximate percentage of shareholding is calculated based on 567,852,500 Shares in issue as at the Latest Practicable Date.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she was deemed or taken to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, none of the Directors was a director or employee of a company which had an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

V – 1

GENERAL INFORMATION OF THE GROUP

APPENDIX V

3. DIRECTORS’ SERVICE CONTRACTS

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

4. DIRECTORS’ INTERESTS IN THE GROUP’S ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors, either directly or indirectly, had any interest in any assets which have been, since 31 March 2018 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

None of the Directors was materially interested in any contract or arrangement, subsisting at the Latest Practicable Date, which is significant to the business of the Group.

5. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors or their respective close associates (as defined under the Listing Rules) had any interest in the businesses, other than being a Director, which compete or are likely to compete, either directly or indirectly, with the businesses of the Group pursuant to Rule 8.10 of the Listing Rules.

6. MATERIAL CONTRACTS

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

1. a deed of settlement entered into between the Company and Mr. Xiong Wei (as promissory notes holder) dated 11 July 2017 in relation to the settlement of the outstanding amount of the promissory notes issued by the Company on 29 January 2016, together with relevant interest payable are amounted to approximately HK$16,358,000 by issue of 62,910,000 settlement shares at the issue price of HK$0.26 per settlement share;

2. a deed of settlement entered into between the Company and Mr. Wong Him Shun Philip (as promissory notes holder) dated 31 October 2017 in relation to the settlement of outstanding amount of the 2-year promissory notes with carrying interest of 8% per annum of HK$30 million, issued by the Company and all outstanding accrued interests thereon by issue of 87,000,000 settlement shares at the issue price of HK$0.4 per settlement share;

3. a placing agreement entered into between the Company (as issuer) and Southwest Securities (HK) Brokerage Limited (as placing agent) dated 8 May 2018 in relation to the placing of the 5% per annum coupon interest rate convertible bonds in the aggregate principal amount of up to HK$78.4 million;

V – 2

GENERAL INFORMATION OF THE GROUP

APPENDIX V

1. the Previous SPA (as supplemented by (i) supplemental agreement dated 18 February 2019 to extend the completion date to 30 April 2019; (ii) second supplemental agreement dated 30 April 2019 to extend the completion date to 31 May 2019; and (iii) third supplemental agreement dated 31 May 2019 to extend the completion date to 30 June 2019);

2. the SPA; and

3. four sale and purchase agreements each dated 16 May 2019 entered into between the Company (as vendor) and four purchasers respectively in relation to the disposal of an aggregate of the entire issued share capital of Maiden Faith, a wholly-owned subsidiary of the Company for the total consideration of HK$14.35 million.

7. LITIGATION

So far as the Directors are aware, no member of the Group was engaged in any litigation, claim or arbitration of material importance and no litigation, claim or arbitration of material importance was pending or threatened against any member of the Group as at the Latest Practicable Date.

8. EXPERTS AND CONSENTS

The following is the qualification of the expert who has given opinion or advice contained in this circular:

Name Qualification Cheng & Cheng Certified Public Accountants Limited

As at the Latest Practicable Date, Cheng & Cheng Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and report and references to its name in the form and context in which it appears.

As at the Latest Practicable Date, Cheng & Cheng Limited did not had any interest, either direct or indirect, in any assets which have been, since 31 March 2018, being the date to which the latest published audited consolidated financial statements of the Group 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 nor had any shareholding in any member of the Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

V – 3

GENERAL INFORMATION OF THE GROUP

APPENDIX V

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any weekday (except public holidays) at the head office and principal place of business of the Company in Hong Kong at Room 910, 9/F., Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including the date of the EGM (both days inclusive):

1. the memorandum of association and bye-laws of the Company;

2. the material contracts referred to in the paragraph headed ‘‘Material Contracts’’ in this appendix;

3. the annual reports of the Company for the years ended 31 March 2016, 2017 and 2018 respectively;

4. the interim report of the Company for the six months ended 30 September 2018;

5. the report on the unaudited pro forma financial information of the Remaining Group issued by Cheng & Cheng Limited set out in Appendix III to this circular;

6. the consent letter referred to in the paragraph under the heading ‘‘Experts and Consents’’ in this appendix to this circular; and

7. this circular.

10. GENERAL

1. the registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda;

2. the head office and principal place of business of the Company in Hong Kong is situated at Room 910, 9/F, Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong;

3. the Company’s branch share registrar and transfer office in Hong Kong is Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong;

4. the secretary of the Company is Mr. Chan Kin Ming, who is a member of the Hong Kong Institute of Certified Public Accountants; and

5. the English text of this circular shall prevail over the Chinese text in case of any inconsistency.

V – 4

NOTICE OF SPECIAL GENERAL MEETING

China Environmental Energy Investment Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 986)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the ‘‘SGM’’) of China Environmental Energy Investment Limited (the ‘‘Company’’) will be held at 10:00 a.m. on Thursday, 11 July 2019 at Falcon Room I, Basement, Gloucester Luk Kwok Hong Kong, 72 Gloucester Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing with or without amendments the following resolution which will be proposed as ordinary resolution of the Company:

ORDINARY RESOLUTION

‘‘THAT

1. (A) the entering into of the SPA (as defined in the circular of the Company dated 24 June 2019), a copy of which is tabled at the SGM and marked ‘‘A’’ and signed by the chairman of the SGM for identification purpose, and all the transactions contemplated thereunder be and are hereby approved, ratified and confirmed; and

2. (B) any one of the directors of the Company (‘‘Director(s)’’) be and is hereby authorised to do all such acts and things, to sign, execute and seal (where required) any such documents, instruments or agreements for and on behalf of the Company as may be deemed by such Director in his/her absolute discretion to be incidental to, ancillary to or in connection with the SPA and all transactions contemplated thereunder.’’

By order of the Board China Environmental Energy Investment Limited Zhou Yaying Chairman

Hong Kong, 24 June 2019

• For identification purposes only

SGM – 1

NOTICE OF SPECIAL GENERAL MEETING

Notes:

1. A form of proxy for use at the SGM is enclosed herewith.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of any officer or attorney duly authorised.

3. Any shareholder of the Company entitled to attend and vote at the SGM convened by the above notice shall be entitled to appoint another person as his proxy to attend and vote on behalf of him. A proxy needs not be a shareholder of the Company. A shareholder of the Company who is the holder of two or more shares of the Company may appoint more than one proxy to represent him/her/it to attend and vote on his/her/its behalf. If more than one proxy are so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.

4. In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power of attorney or authority, must be deposited at the Hong Kong branch share registrar of the Company, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding of the above SGM or any adjournment thereof at which the person named in the form of proxy proposes to vote or, in the case of a poll taken subsequently to the date of the SGM or any adjournment thereof, not less than 24 hours before the time appointed for the taking of the poll and in default the form of proxy shall not be treated as valid.

5. Completion and return of the form of proxy will not preclude a shareholder of the Company from attending and voting in person at the SGM convened or at any adjourned meeting (as the case may be) and in such event, the form of proxy will be deemed to be revoked.

6. Where there are joint holders of any share of the Company, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she/it were solely entitled thereto, but if more than one of such joint holders are present at the SGM, whether in person or by proxy, priority shall be determined by the order in which the names stand on the register of members of the Company in respect of the joint holding.

7. In order to determine the right to attend the SGM, the register of members of the Company will be closed from Wednesday, 10 July 2019 to Thursday, 11 July 2019 (both days inclusive), during which no transfer of Shares can be registered. To qualify for the attendance at the SGM, shareholders of the Company must ensure that all transfer documents accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, for registration not later than 4:30 p.m. on Tuesday, 9 July 2019.

As at the date of this notice, the Board comprises four executive Directors, namely Ms. Zhou Yaying, Mr. Wei Liang, Mr. Tang Wing Cheung Louis and Ms. Hong Jingjuan; and three independent non-executive Directors, namely Mr. Tse Kwong Chan, Mr. Yiu To Wa and Mr. Lau Leong Yuen.

In the case of inconsistency, the English text of this notice shall prevail over the Chinese text.

SGM – 2