THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your Shares, you should at once hand this circular and the accompanying form of proxy to the purchaser(s) or the transferee(s) or to the bank, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

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

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HYBRID KINETIC GROUP LIMITED 正道集團有限公司

(incorporated in Bermuda with limited liability)

(Stock code: 1188)

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION REGARDING THE GBS EQUITY INTEREST DISPOSAL AND NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to

the Independent Board Committee and the Independent Shareholders

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Capitalised terms used in this cover page have the same meanings as those defined in the section headed “Definitions” in this circular. A letter from the Board is set out on pages 7 to 36 of this circular. A letter from the Independent Board Committee is set out on pages IBC-1 to IBC-2 of this circular. A letter from Donvex Capital containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages IFA-1 to IFA-40 of this circular.

A notice convening the Special General Meeting to be held at Suites 1408, 14th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong on Monday, 5 January 2015 at 11:00 a.m. is set out on pages N-1 to N-3 of this circular.

Whether or not you are able to attend the Special General Meeting, please complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the Special General Meeting or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Special General Meeting or any adjourned meeting thereof should you so wish.

16 December 2014

		Page
DEFINITIONS		1
LETTER FROM	THE BOARD	7
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE	IBC-1
LETTER FROM	DONVEX CAPITAL	IFA-1
APPENDIX I	– FINANCIAL INFORMATION OF THE GROUP	I-1
APPENDIX II	– ACCOUNTANTS’ REPORT OF
	THE DISPOSAL COMPANY	II-1
APPENDIX III	– UNAUDITED PRO FORMA FINANCIAL INFORMATION
	OF THE REMAINING GROUP	III-1
APPENDIX IV	– GENERAL INFORMATION	IV-1
NOTICE OF SPECIAL GENERAL MEETING		N-1

– i –

DEFINITIONS

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

“Accretions”

with respect to any Shares, all stocks, shares (and the Dividends in respect thereof), rights, monies or other property accruing or offered at any time by way of redemption, substitution, bonus, preference, option or otherwise to or in respect of the Shares and all allotments, accretions, offers, rights, warrants, benefits and advantages whatsoever at any time accruing, made, offered or arising in respect of any of the same

“Announcement”

the announcement of the Company dated 10 October 2014 in relation to the GBS Equity Interest Disposal and the contemplated transactions and/or arrangements

“associate(s)”

has the meaning ascribed to it under the Listing Rules

“Board”

the board of Directors

“Business Day”

a day on which banks in Hong Kong are open for business other than (i) a Saturday or (ii) a “general holiday; or (iii) a day on which a black rainstorm warning or tropical cyclone warning signal number 8 or above is hoisted in Hong Kong at any time between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon

“BVI”

the British Virgin Islands

“Company”

Hybrid Kinetic Group Limited（正道集團有限公司）, an exempted company incorporated in Bermuda with limited liability, the issued Shares of which are listed on the Main Board of the Stock Exchange

“Conditions Precedent”

the conditions precedent to the GBS Equity Interest Disposal as set out in the GBS Share Transfer Agreement and summarised in the paragraph headed “Conditions Precedent to the Disposal Completion” of the paragraph headed “GBS Share Transfer Agreement” under the section headed “Letter from the Board” in this circular

– 1 –

DEFINITIONS

“connected person(s)”
“Director(s)”
“Disposal Completion”
“Disposal Consideration”
Dividends
“Donvex Capital” or “Independent Financial Adviser”

“GBS”

has the same meaning ascribed to it under the Listing Rules

the director(s) of the Company

completion of the GBS Equity Interest Disposal subject to and upon the terms and conditions of the GBS Share Transfer Agreement

the consideration agreed to be paid by the Purchasers to the Group (being the net proceeds from the disposal of the Subject Shares upon the arrangements agreed between the Group and the Purchasers as summarised in the paragraph headed “Arrangements for the Disposal of the Subject Shares and the Retained Shares” under the section headed “Letter from the Board” in this circular) in respect of the GBS Equity Interest Disposal

with respect to any Shares, all dividends, distributions, interest and other sums which are or may become payable by the all stocks, shares (and the Dividends in respect thereof), rights, monies or other property accruing or offered at any time by way of redemption, substitution, bonus, preference, option or otherwise to or in respect of the Shares and all allotments, accretions, offers, rights, warrants, benefits and advantages whatsoever at any time accruing, made, offered or arising in respect of any of the same

Donvex Capital Limited, a corporation licensed to carry on Type 6 (advising on corporate finance) regulated activity as defined under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders with regard to the GBS Equity Interest Disposal contemplated under the GBS Share Transfer Agreement

Zhejiang GBS Energy Co., Ltd.（浙江佳貝思綠色能源有限公司）, a sino-foreign equity joint venture established in the Zhejiang Province, the PRC on 4 July 2007 and a wholly-owned subsidiary of the Company as at the date of this circular

– 2 –

DEFINITIONS

“GBS Acquisition”

the acquisition of 100% equity interest of GBS by the Group from Headland, WHY and WHQ, the completion of which took place in October 2010

“GBS Equity Interest Disposal” the disposal by the Group (through HK-Power) of its 75% equity interest in GBS to the Purchasers subject to and upon the terms and conditions of the GBS Share Transfer Agreement

“GBS Share Transfer Agreement” the conditional share transfer agreement dated 18 August 2014 entered into between HK-Power and the Purchasers in relation to the GBS Equity Interest Disposal
“Group” the Company and its subsidiaries, and following completion of the GBS Equity Interest Disposal, the Company and its subsidiaries (excluding GBS which will cease to be a subsidiary of the Company following the consummation of the GBS Equity Interest Disposal)
“Headland” Headland Co., Limited（海德蘭（香港）有限公司） a limited liability company incorporated in Hong Kong (whose entire issued share capital is solely and beneficially owned by an associate of WHY and WHQ), being one of the Purchasers
“HK-Power”
Hybrid Kinetic Power Battery Holdings Limited（正道動力電池控股有限公司）, a wholly-owned subsidiary of the Company (being the Vendor under the GBS Share Transfer Agreement)
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”
an independent Board committee (comprising all the independent non-executive Directors, namely Mr Wong Lee Hing, Dr Song Jian, Mr Cheng Tat Wa, Dr Zhu Guobin, Dr Li Jianyong and Mr Chan Sin Hang) established by the Board to advise the Independent Shareholders with regard to the GBS Equity Interest Disposal contemplated under the GBS Share Transfer Agreement

– 3 –

DEFINITIONS

“Independent Shareholders”

the Shareholders, other than the Purchasers and their respective associates, who/which do not have any material interest in the GBS Equity Interest Disposal contemplated under the GBS Share Transfer Agreement

“Independent Third Party(ies)” a party(ies) who is/are independent of, and is/are not connected with, the Company, its subsidiaries and their respective connected persons
“Latest Practicable Date” 12 December 2014, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Longstop Date” 30 November 2014 (or such later date as the parties to the GBS Share Transfer Agreement may agree)
“percentage ratios” the applicable percentage ratios under Rule 14.07 of the Listing Rules

“Placing Agent” Guotai Junan Securities (Hong Kong) Limited, a corporation licensed to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activity as defined under the SFO, being the placing agent nominated by the Company and engaged by the Purchasers, as agent for the Purchasers, to oversee the placing arrangements regarding the Placing Shares (comprising the Subject Shares and the Retained Shares) after completion of the GBS Equity Interest Disposal

“Placing Agreement”

the conditional placing agreement dated 12 December 2014 entered into between (i) the Purchasers (as vendors), (ii) the Company and the Vendor (as assignees) and (iii) the Placing Agent in respect of the placing of the Placing Shares (through a single placing exercise or multiple placing exercises) by the Placing Agent on a best effort basis pursuant to the terms of the Placing Agreement

– 4 –

DEFINITIONS

“Placing Shares” 457,324,692 Shares (comprising the 257,324,692 Subject Shares and the 200,000,000 Retained Shares) to be placed by the Placing Agent, on a best effort basis, pursuant to the terms of the Placing Agreement “PRC” the People’s Republic of China (for purpose of this circular, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan) “Purchasers” Headland, WHY and WHQ collectively, being the Purchasers under the GBS Share Transfer Agreement “Remaining Group” the group of companies comprising the Group (but excluding GBS) “Retained Shares” a portion of the Shares issued by the Company to Headland, WHY and WHQ (being the then vendors under the GBS Acquisition) upon completion of the GBS Acquisition and retained by the Company (being an aggregate of 200,000,000 Shares, as to 96,300,000 Retained Shares in the name of Headland, 67,900,000 Retained Shares in the name of WHY and 35,800,000 Retained Shares in the name of WHQ) as security for the attainment of the profit guarantee given by Headland, WHY and WHQ under GBS Acquisition “RMB” Renminbi Yuan, the lawful currency of the PRC “SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “Special General Meeting” or the special general meeting of the Company to be “SGM” convened and held to consider and, if thought fit, approve the GBS Equity Interest Disposal under the GBS Share Transfer Agreement and the contemplated transactions and/or arrangements “Share(s)” ordinary share(s) of HK$0.10 each in the Company “Shareholder(s)” holder(s) of Shares

– 5 –

DEFINITIONS

“Stock Exchange” The Stock Exchange of Hong Kong Limited “Subject Shares” an aggregate of 257,324,692 Shares (held as to 123,901,839 Shares by Headland, 87,361,733 Shares by WHY and 46,061,120 Shares by WHQ) “Sun East” Sun East LLC, a limited liability company incorporated in California, the U.S. and a substantial Shareholder as at the Latest Practicable “Trading Day” a day on which the Shares are traded on the Stock Exchange for a minimum of 4 hours “US” or “United States” the United States of America “Vendor” HK-Power, being the vendor under the GBS Share Transfer Agreement “WHQ” Mr Wenren Hongquan（聞人紅權）, a director of GBS and being one of the Purchasers “WHY” Ms Wenren Hongyan（聞人紅雁）, a director of GBS and being one of the Purchasers “HK$” Hong Kong dollar, the lawful currency of Hong Kong “US$” United States dollars, the lawful currency of the United States “%” per cent.

Unless otherwise stated, the conversion of US$ to HK$ are based on the exchange rate of US$1.00 = HK$7.80. No presentation is made that any amounts in US$ and HK$ have been or could be converted at the relevant dates at the above rate or any other rates or at all.

For identification purpose only

– 6 –

LETTER FROM THE BOARD

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HYBRID KINETIC GROUP LIMITED 正道集團有限公司

(incorporated in Bermuda with limited liability)

(Stock code: 1188)

Executive Directors: Dr Yeung Yung (Chairman) Dr Huang Chunhua (Deputy Chairman) Dr Wang Chuantao (Chief Executive Officer) Mr Hui Wing Sang, Wilson (Deputy Chairman) Mr Liu Stephen Quan Dr Zhu Shengliang Mr Xu Jianguo Mr Li Zhengshan Mr Ting Kwok Kit, Johnny Mr Chen Xiao

Registered office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Head office and principal place of business in Hong Kong: Suites 1407-8, 14th Floor Great Eagle Centre 23 Harbour Road Wanchai, Hong Kong

Non-executive Director: Dr Xia Tingkang, Tim

Independent non-executive Directors: Mr Wong Lee Hing Dr Song Jian Mr Cheng Tat Wa Dr Zhu Guobin Dr Li Jianyong Mr Chan Sin Hang

16 December 2014

To the Shareholders

Dear Sir or Madam

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION REGARDING THE GBS EQUITY INTEREST DISPOSAL

INTRODUCTION

Reference is made to the Announcement.

– 7 –

LETTER FROM THE BOARD

On 18 August 2014 (after trading hours), the GBS Share Transfer Agreement in respect of the GBS Equity Interest Disposal was entered into between the Vendor (namely HK-Power, a wholly-owned subsidiary of the Company) and the Purchasers (namely Headland, WHY and WHQ).

As one or more of the applicable percentage ratios in respect of the GBS Equity Interest Disposal as calculated under Rule 14.07 of the Listing Rules exceeds 75%, the GBS Equity Interest Disposal constitutes a very substantial disposal for the Company under Chapter 14 of the Listing Rules. As the Purchasers are connected persons of the Company under the Listing Rules by virtue of (a) Headland, being the associate of WHY and WHQ; and (b) WHY and WHQ, each being a director of GBS (being a wholly-owned subsidiary of the Company), the GBS Equity Interest Disposal also constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. Accordingly, the GBS Equity Interest Disposal is subject to the reporting, announcement and Independent Shareholders’ approval requirements under the Listing Rules.

The purpose of this circular is to provide Shareholders with, among other matters, further details of the GBS Share Transfer Agreement and the GBS Equity Interest Disposal contemplated thereunder and other ancillary arrangements, the opinion and advice of Donvex Capital, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of thereof, the recommendation from the Independent Board Committee to the Independent Shareholders in connection therewith and to give notice of the Special General Meeting to the Shareholders.

GBS SHARE TRANSFER AGREEMENT

Date

18 August 2014

Parties

Vendor : HK-Power, a wholly-owned subsidiary of the Company Purchasers : (1) Headland, a limited liability company incorporated in Hong Kong whose entire issued share capital is solely and beneficially owned by an associate of WHY and WHQ, and its principal business is investment holding

(2) Ms Wenren Hongyan（聞人紅雁）, a director of GBS
(3) Mr Wenren Hongquan（聞人紅權）, a director of GBS

– 8 –

LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Purchasers (and, in the case of Headland, its ultimate beneficial owner) are third parties independent of, and have no other relationship with, the Company and its connected persons at the Company’s level.

Assets to be disposed of

75% equity interests in GBS from the Vendor to the Purchaser (as to 48.15% to Headland, 23.95% to WHY and 2.90% to WHQ).

Disposal Consideration

It is commercially agreed that the GBS Equity Interest Disposal by the Group to the Purchasers shall be made in return for the net proceeds from the disposal of the Subject Shares (that is, an aggregate of 257,324,692 Shares owned as to 123,901,839 Shares by Headland, 87,361,733 Shares by WHY and 46,061,120 Shares by WHQ).

The settlement of the Disposal Consideration is, in substance, in the form of cash but on a deferred basis (that is, until the sale(s) of the Subject Shares and receipt of the net proceeds therefrom).

The aggregate value of the Disposal Consideration will depend on the amount of net proceeds to be derived from the sale(s) of the Subject Shares. The price for the disposal of the Subject Shares is to be determined in the manner as stated in the paragraph headed “Arrangements for the Disposal of the Subject Shares and the Retained Shares” under this section. but in any event will not be less than the aggregate nominal value of the Subject Shares at HK$0.10 each (that is, HK$25,732,469.20 in aggregate).

The Purchasers are the legal and beneficial owners of the Subject Shares (as to 20,201,839 Subject Shares by Headland, 155,261,733 Subject Shares by WHY and 81,861,120 Subject Shares by WHQ) before the GBS Equity Interest Disposal.

– 9 –

LETTER FROM THE BOARD

After completion of the GBS Equity Interest Disposal and save as and to the extent of the entitlement to the proceeds or net proceeds to be derived from the disposal of the Subject Shares (together with such dividends or distributions that may be declared, made and paid before the disposal of the Subject Shares), the Purchasers will remain as the beneficial owners of the Subject Shares who/which shall enjoy such rights and benefits to the Subject Shares (such as the voting rights attached to the Subject Shares) not reserved by the Company. Save as disclosed above, the Company does not and will not assume any title (legal or otherwise) to, or any voting rights attached to, the Subject Shares nor will any arrangements be made for the Company to direct the exercise of such voting rights. The Purchasers have no intention to, and are not interested in, exercising the voting rights attached to the Subject Shares and will provide an undertaking in favour of the Company not to do any act or take any action that may be detrimental to the above entitlements of the Company after completion of the GBS Equity Interest Disposal.

In order to capture the best time(s) and price(s) to maximize the amount of sale proceeds for the GBS Equity Interest Disposal, the Placing Agent nominated by the Company has been engaged by the Purchasers, as agent for the Purchasers, to oversee the selling/placing arrangements of the Subject Shares after completion of the GBS Equity Interest Disposal until all the Subject Shares are sold/placed and the net proceeds therefrom received by the Group. After completion of the GBS Equity Interest Disposal, the Purchasers will procure the Subject Shares to be held by, and registered in the name of, the Placing Agent, as agent for the Purchasers, which will be given all the consent and authorisation necessary to (i) effectuate the Placing arrangements; and (ii) ensure that the economic benefit from the GBS Equity Interest Disposal is received by the Company.

The Purchasers are required to (i) execute a stock power (or similar document) in respect of the Subject Shares in favour of the Placing Agent (that is, a document that allows the current owner of a registered security to transfer ownership to the Placing Agent and (ii) arrange for the physical share certificates representing the Subject Shares to be delivered to the Placing Agent.

Please refer to the paragraph headed “Arrangements for the Disposal of the Subject Shares and the Retained Shares” under this section for details.

In addition, the Purchasers (as assignor) will, subject to and upon completion of the GBS Equity Interest Disposal, execute an assignment of proceeds in favour of the Company and HKPower (as assignees) for the purpose of effecting an absolute assignment to the Company and HKPower (i) all proceeds arising from any sale or disposal of the Subject Shares and (ii) all Accretions and Dividends on the Subject Shares.

– 10 –

LETTER FROM THE BOARD

relatively more flexibility to maximise the amount of cash proceeds that the Group is to receive as it does not require the Subject Shares to be disposed of, in whole and in a one-off manner at the time of the Disposal Completion.

Although the Company will not receive the cash proceeds on the date of the Disposal Completion forthwith, this affords the Company with a better chance to capture the best time(s) and price(s) for disposing the Subject Shares over a relatively longer period of time. Besides, the Purchasers are not familiar with trading in securities in the Hong Kong stock market, the Purchasers are not, therefore, prepared to take the risk of possible fluctuations in the price of the Subject Shares. They, instead, prefer to let the Company have the full discretion to decide the selling/ placing arrangement as the Company considers appropriate in respect of the Subject Shares. In that case, the Purchasers will not be required to be concerned about, or be held responsible for the sale proceeds that may be obtained for the Company should there be any possible fluctuations in the price of the Subject Shares. The selling/placing arrangement regarding the Subject Shares could, therefore, also ensure that the Subject Shares are sold or placed in an orderly manner.

Basis of the Disposal Consideration

The Disposal Consideration was determined after arm’s length negotiations, and a commercial decision reached, among the parties to the GBS Share Transfer Agreement after taking into account of such factors including the net asset value of GBS, the historical business and financial performance of the business operated by GBS and the business prospects of GBS as perceived by the contracting parties as elaborated below:

the net segment asset value of lithium-ion power batteries business, based on the audited account of the Company, had been decreased from approximately HK$216.7 million as at 31 December 2010 to HK$136.4 million as at 31 December 2013 mainly due to segment losses;
the segment losses from lithium-ion power batteries business were approximately HK$54.8 million, HK$8.7 million and HK$16.1 million for the years ended 31 December 2011, 2012 and 2013 respectively. The continuous loss making from GBS was due partly to the global economic downturn, and the situation was aggravated by the mounting auto incidents in the PRC and faulty electric vehicle batteries recalled by certain battery manufacturer which had raised safety concerns, cast doubts on the quality of lithium-ion power battery and related products and shaken confidence of consumers and potential customers generally; and
the advance in battery technology, such as the innovation and development of lithium titanate (LTO) battery, has impacted the competitiveness of the market of lithiumion battery, which was the principal business of GBS. The production facilities of,

– 11 –

LETTER FROM THE BOARD

and the batteries produced by, GBS have lagged behind technology advancement. The factor has been negatively affecting, and can be reasonably foreseen that it will continue to reduce, the net segment assets value of lithium-ion power batteries business operated by, and the net asset value of, GBS. This situation has significantly weakened the bargaining power of and limited the options available to the Group. Given the circumstances, the business reality, quite often, is that the evaluation from any prospective buyer does not even remotely represent what the business or the assets is/are truly worth, and the Directors are of the view that separately selling the assets of GBS is least likely to generate more proceeds as compared to the GBS Equity Interest Disposal.

Since its acquisition of GBS and except for the Purchasers, the Group had not been approached by any prospective buyers who had expressed interests in acquiring any of the assets of GBS. In addition to the accumulated losses contributed by GBS, the Company would need to place further investment to GBS in, among others, the research and development of the lithium-ion battery if the Company maintained the operation of GBS.

Accordingly, the Directors considered that the GBS Equity Interest Disposal, which is the best option available to the Group, would be in the best interests of the Company and the Shareholders as a whole.

Conditions Precedent to the Disposal Completion

The Disposal Completion is conditional upon the fulfilment of the following Conditions Precedent by the Longstop Date:

(i) all consents, permission, authorisations and approvals (such as the approval of The Investment Promotion Bureau of Yuyao Municipal People’s Government（余姚市人民政府招商局）and The Administration for Industry and Commerce of Ningbo Municipal（寧波市工商行政管理局）of the PRC and the corporate authorisation of the Board) necessary for giving effect to the GBS Equity Interest Disposal as contemplated under the GBS Share Transfer Agreement having been obtained; and
(ii) the due compliance by the Company of all applicable legal and regulatory requirements (including but not limited to those under the Listing Rules and the sanction of the Independent Shareholders at the Special General Meeting) and of the regulatory authorities (including the Stock Exchange) in respect of the GBS Equity Interest Disposal.

None of the Conditions Precedents can be waived by any of the parties to the GBS Share Transfer Agreement.

– 12 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the Conditions Precedents to the Disposal Completion as disclosed above were yet to be fulfilled.

Disposal Completion

Subject to the fulfilment of all the Conditions Precedent, the GBS Equity Interest Disposal will take place within 15 days from the date upon which the approval of the GBS Equity Interest Disposal from the relevant PRC governmental and other authorities having been obtained.

INFORMATION ON GBS

GBS is a sino-foreign equity joint venture established in the Zhejiang Province, the PRC on 4 July 2007. GBS has commenced its operation since September 2007 and is principally engaged in the development and manufacturing of lithium-ion power batteries and power battery pack.

The segment assets of lithium-ion power batteries business operated through GBS as at 30 June 2014 were approximately HK$182 million and the segment liabilities (after taking into account of borrowings in lithium-ion power batteries business) were approximately HK$67 million. As such, the net segment assets of lithium-ion power batteries business as at 30 June 2014 was approximately HK$115 million.

For the financial year ended 31 December 2013, GBS segment net assets of lithium-ion power batteries business (after taking into account of borrowings of lithium-ion power batteries business in the segment liabilities) are HK$128 million. The decrease in segment net assets in the current period is approximately HK$13 million and are mainly represented by the loss for the period.

As regards the segment financial results of GBS, it recorded:

audited segment revenue of approximately HK$13.9 million and segment profit of approximately HK$1.4 million for the year ended 31 December 2010;
audited segment revenue of approximately HK$48.3 million and segment loss of approximately HK$54.8 million for the year ended 31 December 2011;
audited segment revenue of approximately HK$43.0 million and segment loss of approximately HK$8.7 million for the year ended 31 December 2012;
audited segment revenue of approximately HK$52.2 million and audited segment loss of approximately HK$16.1 million for the year ended 31 December 2013; and

– 13 –

LETTER FROM THE BOARD

unaudited segment revenue of approximately HK$25.9 million and unaudited segment loss of approximately HK$12.5 million for the six months ended 30 June 2014.

The unaudited segment loss was HK$12.5 million for the period ended 30 June 2014 and the audited segment loss was HK$16.1 million for the year ended 31 December 2013.

The aforementioned segment assets, segment net assets and segment results represented the assets and results of the lithium-ion power batteries business segment of the Group operated through GBS. These figures included certain adjustments of the fair value uplift and the corresponding amortisation of intangibles assets arose during the acquisition of GBS, and impairment of goodwill and intangibles assets that related to GBS which have been accounted for in the Group’s financial statements. The company level financial position and result of GBS for the three years ended 31 December 2011, 2012 and 2013 and for the six months ended 30 June 2014 were set out in Appendix II.

The Company had made impairment of goodwill on the assets of GBS in the subsequent financial years ended 2011, 2012 and 2013 after the acquisition in 2010. The impairment tests for the goodwill generated from the acquisition of GBS were made with reference to the actual performance of the lithium-ion power batteries business during the relevant financial years and the slowdown of prevailing condition of lithium-ion power batteries market and were conducted by the Directors semi-annually. The recoverable amount of that cash-generating units (“CGU”) was determined based on the value-in-use calculation. This calculation used cash flow projection based on financial budget approved by the management of the Company covering a five-year period together with pre-tax discount rate reflecting specific risks relating to the CGU. Pursuant to the value-in-use calculations, the management of the Company decided to recognize the impairment loss from goodwill in the amount of HK$59,542,000, HK$7,692,000 and HK$15,791,000 arising from the acquisition of GBS for the three financial years ended 2011, 2012 and 2013 respectively.

During the relevant periods, the major items under general operating expenses mainly included (i) research and development expenses; (ii) staff costs and (iii) depreciations. Significant increase is noted during the six months ended 30 June 2014 as there is an one-off expense, impairment of other receivables of approximately HK$3.0 million included in the period. Please refer to Note 9 on page II-32 of Appendix II to this circular for the expenses incurred for research and development expenses, staff costs, depreciation and the one-off expense and impairment of other receivables.

The inventory of GBS was increased from HK$28 million in the financial year ended 2011 to HK$44 million in the financial year ended 2013 but was slightly decreased to HK$41 million as at 30 June 2014. The details of the GBS inventory for the relevant periods were set out in Note 14 to Appendix II to the circular.

– 14 –

LETTER FROM THE BOARD

During the years from the financial year ended 2011 to the financial year ended 2014, the management of GBS prepared the production schedule according to the sales expectation for the ensuing year. There was a rise in the inventory in these years as the management expected there should be a growth in the lithium-ion power batteries market and so an increase in production volume to meet the expected sales. The trend is reflected in the sales result of the ensuing year. In addition, the production costs and overheads were increased in these years, which contributed further to the increase in inventory.

The capital expenditure that has been invested by the Company in GBS after the acquisition in October 2010 amounted to RMB35 million, which is considered immaterial to the Group.

REASONS FOR AND BENEFITS FROM THE GBS EQUITY INTEREST DISPOSAL

The Company is an investment holding company. The Group is principally engaged in the environmental automobile and related businesses.

Background and business review of GBS

The Group completed the acquisition of 100% equity interest in GBS from Headland, WHY and WHQ (being the then vendors under the GBS Acquisition, and the Purchasers under the GBS Equity Interest Disposal contemplated under the GBS Share Transfer Agreement) in October 2010 at the total consideration of RMB180 million, which was settled partly in cash and partly by the allotment and issue by the Company of a total of 457,324,692 new Shares at HK$0.358 each to the Purchasers. Following the completion of the GBS Acquisition, WHY and WHQ have been retained and continued to serve as (and still are) the directors of GBS so as to promote stability of the development of the business of GBS.

– 15 –

LETTER FROM THE BOARD

As Headland, WHY and WHQ were in breach of the profit guarantee, the Group was and is entitled to, under the terms of the GBS Acquisition, to exercise its discretion to dispose of the Shares retained to recoup any shortfall in the profit guaranteed. The Group has not yet disposed of any of the Shares retained by it for non-attainment of the profit guarantee as at the Latest Practicable Date.

The reason for the non-disposal is that it was one of the terms of the GBS Acquisition that the Retained Shares should be determined at a price which is (i) HK$0.358 each; or (ii) the same as the closing price on 31 December of the relevant financial year in which the profit guarantee is to be achieved (whichever is the higher). Given that the Company has been experiencing a share price decline, the Company has not yet exercised its right to dispose of the Retained Shares.

Further, the reason for holding the Retained Shares for years was that the Retained Shares represented a contingent consideration asset arising from the GBS acquisition in FY2010. During the profit forecast period, the number of Retained Shares that can be obtained by the Group is variable and uncertain as it is subject to the financial performance of GBS during the profit guarantee periods. Upon the lapse of the profit guarantee, the number of Retained Shares that can be obtained by the Group is determinable and becomes fixed. The Group can then execute the right to receive the cash proceeds from the disposal of the Retained Shares.

FY2011, 2012 and 2013 are within the profit guarantee period. The Retained Shares are contingent consideration assets and are subject to actual financial performance of GBS.

It is agreed between the Vendor and the Purchasers that the Retained Shares should be disposed of through the Placing Agent in similar manner as with the disposal of the Subject Shares.

After completion of the GBS Equity Interest Disposal, the Purchasers will procure the Retained Shares to be held by, and registered in the name of, the Placing Agent, as agent for the Purchasers, which will be given all the consent and authorization necessary to (i) effectuate the selling/placing arrangement and (ii) to ensure that the economic benefit from the disposal of the Retained Shares is received by the Company.

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LETTER FROM THE BOARD

Save as and to the extent of the entitlement to the proceeds or net proceeds to be derived from the disposal of the Retained Shares (together with such dividends or distributions that may be declared, made or paid before the disposal of the Retained Shares), the Purchasers are the legal and beneficial owners of the Retained Shares (as to 96,300,000 Retained Shares in the name of Headland, 67,900,000 Retained Shares in the name of WHY and 35,800,000 Retained Shares in the name of WHQ) before the GBS Equity Interest Disposal, and will remain as the beneficial owners of the Retained Shares after the GBS Equity Interest Disposal. Save as disclosed above, the Company does not and will not assume any title (legal or otherwise) to, or any voting rights attached to, the Retained Shares nor will any arrangements be made for the Company to direct the exercise of such voting rights. The Purchasers have no intention to, and are not interested in, exercising the voting rights attached to the Retained Shares and will provide an undertaking in favour of the Company not to do any act or take any action that may be detrimental to the above entitlements of the Company after completion of the GBS Equity Interest Disposal.

Since the first half of 2011, the operating environment of the business carried on by GBS has been testing and fallen short of the Group’s expectation. This was due partly to the global economic downturn, and the situation was aggravated by the mounting auto incidents in the PRC and faulty electric vehicle batteries recalled by certain battery manufacturer which had raised safety concerns, cast doubts on the quality of lithium-ion battery and related products and shaken confidence of consumers and potential customers generally. Such prevailing operating conditions (which have been affected more by the negative external factors as disclosed above and are beyond the control of the Group or the management of GBS) have caused the continuing loss in GBS’s automobile battery business amidst uncertain prospects.

As GBS has been contributing accumulated losses to the Group and the Purchasers (that is, the then sellers of the GBS Acquisition and two of which are the existing senior management of GBS) have expressed interest in acquiring a majority equity stake in, and continuing the operation of, GBS under their management, the Board considers it commercially sensible to proceed with the GBS Equity Interest Disposal as this will release the Group from further subsidizing substantially the business (through injection of additional capital or otherwise) carried on by GBS, which can be huge in the long term.

Unless the circumstance is considered by the Group to be exceptional, it is the current intention of the Group not to contribute additional capital into GBS after completion of the GBS Equity Interest Disposal. In the event that the other GBS shareholders opted for contributing additional capital into GBS, the Group would allow its remaining 25% shareholding to be diluted if so agreed.

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LETTER FROM THE BOARD

If, in the reasonable opinion of the Group, it is appropriate to contribute additional capital to GBS based on shareholding, its contribution will represent 25% (as opposed to the original 100% before completion of the GBS Equity Interest Disposal) of the total additional capital contribution. In that sense, the GBS Equity Interest Disposal will serve the purpose of releasing the Group from subsidizing substantially the business carried on by GBS.

The Board believes that, in the business world, taking corrective action for a business before its losses worsen or has gone out of hand is always a good business strategy. Avoiding losses entirely may not, sometimes, be possible. The Board accepts this business reality and tries to minimize its losses through the GBS Equity Interest Disposal. This will also allow the Company to reallocate and deploy its resources from the loss-making business run by GBS to other more promising battery or battery related business segment(s).

Furthermore, given the current adverse business performance of GBS and the advancement in other power battery technology, it is practically difficult for the Company to identify potential buyer(s) who is/are willing to take up the equity interests of GBS owned by the Group at a gain (despite attempts had been made by the Group but of no avail). The deteriorating financial performance of GBS (as shown in the segment financial results of GBS under the paragraph headed “Information on GBS” above) will, as time goes by, only make it more and more difficult for the Company to bargain. Besides, the plant and facilities in which the business of GBS is running are currently owned by the associate of the Purchasers. There will be uncertainty as to whether the owner of the plant and facilities of GBS will grant or continue to grant a lease to GBS to use the existing plant and facilities to run the business of GBS at an affordable rent and, if not, the relocation costs will be significant.

As the Purchasers are only prepared to acquire 75% equity interest of GBS pursuant to the terms of the GBS Share Transfer Agreement (which is the best option received by or made available to the Group as at the Latest Practicable Date), the Group will retain the remaining 25% equity interest of GBS in the hope that the Purchasers would be able to turn around the business of GBS. The Group has no present intention to further dispose of its minority stake in GBS.

Save as previously disclosed by the Company, the Company has not entered, or proposes to enter into any agreement, arrangement, understanding or undertaking, whether formal or informal and whether express or implied, or negotiation (whether concluded or not) and intention to dispose of or downsizing its remaining businesses.

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LETTER FROM THE BOARD

Possible LTO business venture

As the Board is of the view that the Group’s environmental automobile and automobilerelated business will be restrained unless and until there is innovative breakthrough in battery architecture and technology, the Board considers that the resources of the Group should be best deployed and aligned with the overall and long-term goals of the Group for the exploration and development of such other lines of automobile- and/or automobile battery and components-related business(es) or venture(s) with better prospects or higher growth potential that will best serve the interests of the Company and its shareholders in the long run.

As disclosed in the Company’s announcement dated 12 August 2014, the Group is exploring a potential strategic business venture with Symblu. Inc, an independent third party, in the research and development of LTO (lithium titanate) battery technology and its application and LTO-related business (the “LTO Project”). Symblu, Inc. is a corporation established in the State of Delaware, the US. It is a member of the Symblu Group, which is an independent and technology agnostic developer of alternative energy solutions and projects. The GBS Equity Interest Disposal would alleviate, to a certain extent, the potential business venture partner’s concerns over possible competition issue.

The negotiation with the potential business venture partner is ongoing. The parties intend to reach an agreement on the terms of the definitive agreement in the first quarter of 2015. Subject to finalization and entering into of a legally-binding definitive agreement, the Group is expected to hold a controlling stake in the LTO Project. The initial capital commitment for the LTO Project is estimated to be approximately US$30 million, which will be applied towards the development and construction of two manufacturing lines in China. It is the Company’s current intention to fund its part of the capital commitment by way of equity financing. Symblu, Inc. is a technology agnostic developer of alternative energy solutions and projects, their experts with work with the Group’s experts to run the LTO Project.

A LTO (lithium-titanate) battery is a modified lithium-ion battery that uses lithium-titanate nanocrystals on the surface of its anode instead of carbon. This gives the anode a surface area of about 100 square meters per gram, compared with 3 square meters per gram for carbon, allowing electrons to enter and leave the anode quickly. This makes fast recharging possible and provides high currents when needed. The LTO battery has the advantage of being faster to charge (as quick as 5 to 10 minutes) than other lithium-ion batteries. A perfect fit for bus application so that the electric bus can be fully charged during intervals between trips. In addition, LTO battery has longer life cycle (while a normal lithium-ion battery can only last 2000 cycles, a LTO battery can last as much as 25000 cycles) and can work under very severe weather conditions and has lower selfdischarging rate than lithium-ion battery.

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LETTER FROM THE BOARD

In addition, the Company is in discussions with certain parties to explore business opportunities concerning the acquisition of certain revenue-generating business/asset which is/are related and/or complementary to the environmental automobile and related businesses engaged by the Group.

The Company will comply with the applicable requirements under the Listing Rules in respect of any future plans for the businesses carried on by, and business venture and/or assets proposed to be participated or acquired by, the Group as and when appropriate.

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the GBS Equity Interest Disposal is a commercially sensible business decision and an appropriate course of action to take for the long term development of the Group. The terms and conditions of the GBS Equity Interest Disposal as contained under the GBS Share Transfer Agreement are fair and reasonable and, if materialised, in the interests of the Company and the Shareholders as a whole.

BUSINESS PLAN AND STRATEGIES FOR AND THE MAJOR ASSETS OF THE REMAINING GROUP

A. Environmental automobile and related business

As “going green” remains a global priority, the Board is of the view that new energy technology and automobiles are still the major driver of the environmental automobile industry. The Board is optimistic that the environmental automobile and related business presents a wealth of attractive investment opportunities and is likely to flourish in the future. Accordingly, it remains the Company’s intention to engage principally in this segment of business.

(i) Lithium-ion power battery business

Assuming and following the consummation of the GBS Equity Interest Disposal, the Group will still hold 25% equity interest in GBS. The Group will collaborate with the Purchasers and continue its efforts to optimize the revenue of the business operated by GBS to the extent practicable through, for instance, the expansion of customer base to less developed countries in which the demand for less advanced power battery is expected to be relatively higher or improving the performance of battery cells through research and development.

The production facilities of GBS, which are located in Yuyao, Ningbo, Zhejiang Province, the PRC, currently have one production line. GBS currently employs a total of approximately 100 employees in the operation of its business.

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LETTER FROM THE BOARD

The major customers of the products of GBS include those from vehicles manufacturers, automotive-related components manufacturers and dealers in the PRC, the U.S and certain European countries such as Germany and Italy. The major suppliers of GBS are battery-materials suppliers. To the best of the Directors’ knowledge and save as the business relationship with GBS, none of the major customers or suppliers has any relationship with GBS or the Purchasers.

(ii) New Energy Project

The Group has been engaging in the promotion and development of a new energy project (which involves the construction of production facilities for the production of key new energy automobile components including battery materials (such as single layer grapheme（單層石墨烯）, an ideal material for super battery)), super batteries, electric control systems and electrolyte for use in new energy automobiles (the “New Energy Project”) through a project company (namely, 連雲港正道新能源有限公司 (Hybrid Kinetic (Lianyuangang) New Energy Limited, Inc.) (the “Project Company”)) established on 29 March 2013 and based in the 連雲港經濟技術開發區 (Lianyungang Economic and Technology Development Zone) (“LETDZ”). The Project Company has an operating period of 20 years from the date of its establishment.

As at the Latest Practicable Date, the total investment amount of the Project Company was US$81,000,000 (equivalent to approximately HK$631,800,000). The total registered capital of the Project Company was US$27,000,000 (equivalent to approximately HK$210,600,000), which was or was to be contributed as to US$21,000,000 (equivalent to approximately HK$163,800,000) by the Group and as to US$6,000,000 (equivalent to approximately HK$46,800,000 by 江蘇新海連發展集團有限公司(Jiangsu NewHeadLine Development Group Co., Ltd.*), representing approximately 77.78% and 22.22% of the total registered capital of the Project Company.

The Project Company has completed the construction of the production facilities with an area of approximately 5,300 square meters (comprising a production centre of approximately 3,300 square meters and the remaining area is allocated for office, a laboratory, an inspection centre and other uses). Subject to compliance with the environmental laws and regulations applicable to the New Energy Project, the Project Company is expected to commence trial or initial production in early 2015. The funding required for the trial or initial production is estimated to be US$1.0 million which will mainly be funded by internal resources of the Group. The segment will be operated by the Group’s experts in the Project Company. The Project Company currently has approximately 21 employees.

The New Energy Project undertaken by the Project Company is and will be conducted independently of the business run by GBS.

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LETTER FROM THE BOARD

(iii) Environmental automobile business

The Group is dedicated to improving environmental quality through the research and development (R&D) of environmental automobile. There are currently a total of approximately 22 employees deployed for this segment of business. With the Group’s research and development capability, the Group has successfully designed two prototype electric buses for public transport, which are ready to be launched in the market. The Company had received positive response after demonstrating the prototype buses at road shows in certain cities in the PRC.

As at the Latest Practicable Date, the Group had, by entering into a legally binding agreement, confirmed and secured a substantial order for electric buses from an independent dealer engaged in transportation solutions in the PRC. Under the terms of the contract, the electric buses will be used for designated municipalities and transportation authorities. The electric buses will be manufactured on an original design manufacturer (ODM) basis. Delivery of the electric buses, which will be in stages, will first commence in December 2014 (representing approximately 7% of the total order) and revenue will begin to be recognised in the books of the Group by the end of December 2014. The remaining electric buses are scheduled for delivery in the first quarter (10%), the second quarter (17%), the third quarter (26%) and the fourth quarter (40%) of 2015. As at the Latest Practicable Date, the Group had received the deposit for the order of the first batch of the electric buses. The required working capital will be funded from internal resource. This segment with be supervised by our senior management with the assistance from the experts of the Group.

The environmental automobile business is and will be operated independently of the business run by GBS.

B. Natural Resources Business

Although the operating segment of the Group also includes natural resources business, the identification of natural resources has proved to be an undertaking that requires the conduct of exhaustive analysis, and has taken longer than anticipated. Further, natural resources requires the application of extensive amount of capital and human resources to be exploited (extracted, processed, refined) for the realization of their economic value. During the year ended 31 December 2013 and the six months ended 30 June 2014, this business segment recorded no turnover for the Group and a loss of HK$9.82 million and HK$4.93 million respectively which was mainly attributable to operating expenses incurred during the relevant period.

The development strategy for the Group’s natural resources business had been under constant review and evaluation by the Group. While the Group will try optimize its development potential, the Group will not preclude the possibility of adapting its business plan for this line of business.

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LETTER FROM THE BOARD

C. Major assets of the Remaining Group

The nature and amounts of the major assets of the Remaining Group as at 30 June 2014 included:

Property, plant and equipment (approximately HK$15 million): comprised 34 vehicles for business use, which amounted to approximately HK$12.1 million and certain computers, furniture and fixtures for office and administrative use;
Cash and cash equivalents (approximately HK$121 million);
Other investment (approximately HK$11 million): comprised unlisted debt instrument (representing two million units of Series B of Preferred Stock of a US company), which was carried at amortised cost less any impairment loss. The Group intends to hold the investment for long term capital appreciation;
Prepayment, deposits and other receivables (approximately HK$274 million): mainly comprised as to approximately HK$157 million for electric drive system, battery system, micro turbine system, electric bus development and engineering of electric bus project.

FINANCIAL EFFECT OF THE GBS EQUITY INTEREST DISPOSAL

GBS is currently a wholly-owned subsidiary of the Company and its results has, since the completion of the GBS Acquisition, been consolidated into the results of the Group.

Subject to and immediately after the GBS Equity Interest Disposal, the Group will hold 25% equity interest in GBS and GBS will cease to be a subsidiary of the Company. GBS will be treated as an associate of the Company and accounted for as such in the consolidated financial statements of the Company.

The Group expects to recognise, as a result of the GBS Equity Interest Disposal, an unaudited loss of approximately (a) RMB33.8 million, which is calculated based on the proceeds from the GBS Equity Interest Disposal of approximately RMB23.5 million (calculated based on the Company’s closing stock price of HK$0.1150 on 18 August 2014); or (b) RMB18.2 million, which is calculated based on the proceeds from the GBS Equity Interest Disposal of approximately

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LETTER FROM THE BOARD

RMB39.0 million (calculated based on the Company’s closing stock price of HK$0.191 on the Latest Practicable Date, deducted by (i) the carrying amount of the Group’s 75% equity interest in GBS and release of reserve reclassified from other comprehensive income to profit or loss of approximately RMB43.5 million as at 30 June 2014; (ii) written off of current account with GBS of approximately RMB11.6 million and (iii) an estimated transaction cost of approximately RMB2.2 million for the GBS Equity Interest Disposal. The actual gain or loss as a result of the GBS Equity Interest Disposal to be recorded by the Group is subject to audit and will be assessed after the Disposal Completion.

The amount of RMB11.6 million standing on the current account with GBS mentioned in the preceding paragraph and being written off represents the contribution of working capital to GBS from the Group. The Board does not consider GBS is, in the foreseeable future, in a position to recover such amount because the assets of GBS would have to be sold or liquidated before it could apply such proceeds for settling the current account.

GBS’s relatively weak financial position is demonstrated in (i) the statement of financial position on page II-5 of Appendix II in which it is stated that the net current asset of GBS was decreased by 58% to approximately HK$10.4 million as at 30 June 2014 as compared to approximately HK$16.4 million as at 31 December 2013; and (ii) the value of the net current assets of GBS was only amounted to approximately HK$10.4 million as at 30 June 2014. If the Company is adamant in recovering the amount due to the Group from GBS, the Company may need to sell part of the plant and machineries of GBS and/or take possession of certain of its currents assets. Such actions, if taken, would prevent GBS from conducting its normal business operation or having the ability to generate revenue to fund its working capital for its business operation. If this happened, GBS would become a shell with no revenue generating assets and the Board does not consider that the Purchasers would under such circumstances have interest in acquiring any stake in GBS.

The Board believes that, if the Company could secure the approval from the Shareholders of the GBS Equity Interest Disposal at the Special General Meeting and the stock price could prevail at a higher level, the Company might be able to derive more proceeds to offset part of the loss from the GBS Equity Interest Disposal and, in turn, reduce the negative impact of the disposal loss to a certain extent.

The GBS Equity Interest Disposal, upon its consummation, will result in a decrease in earnings and a decrease in net assets.

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LETTER FROM THE BOARD

USE OF PROCEEDS FROM THE GBS EQUITY INTEREST DISPOSAL

The net proceeds from the GBS Equity Interest Disposal will be used by the Group for general working capital purposes.

The amount of net proceeds that may be derived from the disposal of the Subject Shares and the Retained Shares are not currently intended for any specific purposes. Such net proceeds, if and when raised, will serve as additional financial buffer to and equip the Group with better financial capability and flexibility. Accordingly, the timing of completion of the Placing and/or the amount to be derived from the Placing will not create any pressing issues as far as the Company is concerned.

TREATMENT OF VOTING RIGHTS, DIVIDENDS OR OTHER DISTRIBUTIONS REGARDING THE SUBJECT SHARES AND THE RETAINED SHARES

Any dividends or other distributions paid or made on the Subject Shares and/or the Retained Shares before their disposal must be accounted to the Company or, as appropriate, the net proceeds of the relevant entitlement must be paid to the Company.

Open offer

If an open offer is conducted by the Company, the Shareholders will have a certain assured entitlement which is non-transferable (that is, the entitlement cannot be bought and sold in the market and there is no method of trading in the nil paid entitlements as in the case of a rights issue). The holders of Shares will have a choice only between taking up their entitlements and letting them lapse.

Since the intention of the Company is to raise as much cash from the GBS Equity Interest Disposal (or, as the case may be, from the disposal of the Retained Shares) as possible, the Company will not put additional funds to take up any assured entitlement under an open offer (if conducted by the Company) and will allow such entitlement to lapse.

Rights issue

In the case of a rights issue which provides that the rights themselves are tradable “nil paid” (that is, before any payment of the amount due has been made), it is the Company’s position not to allow or procure the subscription of any rights shares in a rights issue and to sell the rights, where possible, with the intent of raising additional cash therefrom.

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LETTER FROM THE BOARD

ACCOUNTING TREATMENT OF THE SUBJECT SHARES AND THE RETAINED SHARES

Under the GBS Share Transfer Agreement, the Group has the right to receive cash proceeds from the disposal of a fixed number of Subject Shares (being the Company’s ordinary shares). In accordance with Hong Kong Accounting Standard 32, an arrangement to receive a fixed number of the Company’s own shares is considered as an equity instrument. Despite the Group will not obtain the legal title to the Subject Shares, in substance, the significant portion of the potential risks and rewards of the Subject Shares are transferred and retained by the Group (that is, the proceeds from the disposal of the Subject Shares will be retained by the Group and any changes in share price will affect the amount of consideration received). In these regards, from accounting perspective, the Group will recognize the right to receive cash proceeds from disposal of the Subject Shares as an equity instrument in accordance with its substance (that is, risks and rewards) rather than its form (that is, the legal title). Such equity instrument will be initially recognized at its fair value on the completion date of the GBS Equity Interest Disposal, and will be subsequently carried at cost. When the Subject Shares are being disposed of, any differences between the cash proceeds received by the Group and the amounts initially recorded as equity instrument will still be recognized in the Group’s reserves, but not reclassified to the Group’s profit or loss. The Group considered the Subject Shares should not be presented as typical treasury shares as the Group will not formally reacquire its own shares and the legal title of the Subject Shares will not be transferred to the Group.

During the acquisition of the entire equity interest of GBS in 2010, the Group is entitled to a profit guarantee from the Purchasers, which was secured by the Retained Shares. The cash proceeds receivable by the Group from the disposal of the Retained Shares is variable and uncertain as it is subject to the profit before tax of GBS during the profit guarantee periods. In the Group’s audited financial statements as at 31 December 2011, 2012 and 2013, the profit guarantee is accounted for as other financial asset in the consolidated statement of financial position, which is stated at fair value through profit or loss.

CONSULTATION WITH THE SFC

The Company had consulted the SFC, and the SFC confirmed to the Company on 4 September 2014 that, (i) the GBS Equity Interest Disposal in return for the net proceeds from the disposal of the Subject Shares; and (ii) the disposal of the Retained Shares previously issued by the Company as part of the consideration for the GBS Acquisition (completed in October 2010) which are retained by the Company to recover damages under the profit guarantee given by the then vendors (that is, the Purchasers under the GBS Equity Interest Disposal) do not constitute share buy-backs for the purposes of the Code on Share Buy-backs.

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LETTER FROM THE BOARD

ARRANGEMENTS FOR THE DISPOSAL OF THE SUBJECT SHARES AND THE RETAINED SHARES

To facilitate the disposal of the Subject Shares and the Retained Shares after completion of the GBS Equity Interest Disposal, the Purchasers, the Vendor, the Company and the Placing Agent entered into the conditional Placing Agreement subject to and upon the terms and conditions as summarised below.

Date:

12 December 2014

Parties involved:

(1) Headland, WHY and WHQ
(2) HK – Power and the Company
(3) the Placing Agent

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Placing Agent and its ultimate beneficial owners are Independent Third Parties.

The engagement of the Placing Agent is on a non-exclusive basis.

Placees

The Placing Shares will be placed by the Placing Agent, on a best effort basis, to such Placee(s) who and (where a corporation) whose ultimate beneficial owner(s), as far as the Placing Agent is aware, are Independent Third Parties.

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LETTER FROM THE BOARD

The Board is of the view that, when entering into any type of commercial transaction, there is always potential for some degree of transaction risk. The conduct of the placing arrangements on a best effort basis (rather than on a fully underwritten basis) is a term reached with the Placing Agent after arm’s length negotiation. The Board does not consider the term particularly risky, onerous, cumbersome or costly for the Company to accept when compared with transactions of similar nature, and this is one of the terms of engagement that the Placing Agent is prepared to accept (and the Company cannot impose a term unilaterally without the Placing Agent’s agreement). If the placing arrangement is to be conducted on a fully underwritten basis instead, the Placing Agent will demand a much higher rate of underwriting commission. This will defeat the purpose of obtaining as much sale proceeds for the Company from the GBS Equity Interest Disposal as possible.

On the above basis, the Board considers that the conduct of the placing arrangement on a best effort basis (rather than on a fully underwritten basis) is not unfair or unreasonable and is in the overall interests of the Company and the Shareholders.

Maximum number of Shares to be placed under the Placing Agreement

457,324,692 Shares (comprising 257,324,692 Subject Shares and 200,000,000 Retained Shares, representing approximately 3.69% of the existing issued share capital of the Company).

Ranking of the Placing Shares

The Placing Shares rank and will continue to rank equally in all respects among themselves and with the Shares in issue and on the date of completion of the Placing.

Placing Price

In respect of each of the placing exercise under or pursuant to the Placing Agreement, the floor price shall not be lowered than 80% of the higher of the benchmarked price , being: (a) the closing price on the Trading Day immediately preceding the date of the relevant placing exercise; and (b) the average of the closing prices for the five consecutive Trading Days immediately preceding the date of such placing exercise (or such other minimum sale price per Placing Share as determined by the Company and notified to the Placing Agent but in any event will not be less than the nominal value of HK$0.10 per Share).

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LETTER FROM THE BOARD

As the mechanism is generally in line with such parameters as regarded as acceptable under the Listing Rules regarding the issue of securities under Chapter 13 of the Listing Rules, the Board considers the method of determining the Placing Price fair and reasonable.

The Company will rely on the professional and independent judgment of the Placing Agent to exercise its discretion to dispose of the Placing Shares within the parameters (that is, by reference to the given floor price and the benchmarked price), subject to the placing restrictions (including the limitation on the volume of Placing Shares allowed to be placed on each Trading Day) as contained in the Placing Agreement and disclosed below. This can also alleviate concerns over issues such as possible market manipulation and preserve an orderly market throughout the placing period.

Placing commission

The Placing Agent will receive a placing commission of 2.5% on the gross proceeds of the actual number of the Placing Shares being placed by it (or its sub-placing agents) upon completion of the Placing.

The placing commission was determined after arm’s length negotiation between the Company and the Placing Agent with reference to the market rate and after taking into account the size of the Placing and the time allowed for the Placing Agent to procure prospective Placees.

Placing restrictions

For the purpose of maintaining an orderly sale of the Placing Shares, the Placing Agent will observe the following placing limits and restriction:

(a) the aggregate amount of Placing Shares sold or offered to be sold by the Agent under the Placing during any one Trading Day shall not exceed 50,000,000 Placing Shares;
(b) the aggregate amount of Placing Shares sold or offered to be sold by the Agent under the Placing during any period of five consecutive Trading Days shall not exceed 250,000,000 Placing Shares;

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LETTER FROM THE BOARD

(c) the Company and the Vendor shall have the sole right and discretion to suspend the placing for such duration (for instance, during the period when there is any unpublished inside information) as shall be determined by the Company and the Vendor and notified to the Placing Agent and at any time during the suspension is in effect, no Placing Shares shall be offered to be sold by the Placing Agent.

Disposal and lock-up restriction

The Placing Shares are not subject to any lock-up or other disposal restriction(s) under the terms of the Placing Agreement.

No purchase of Placing Shares by connected persons

Each of the Purchasers and the Company shall use its reasonable endeavours to ensure that none of its associates or connected persons shall purchase any of the Placing Shares.

Condition(s) precedent to completion of the Placing

Completion of the Placing is conditional upon, among others, completion of the GBS Equity Interest Disposal contemplated under the GBS Share Transfer Agreement.

Placing period

Nine (9) months from the date of fulfilment of the conditions precedent to completion of the Placing (or such period as extended or varied by agreement reached by the Company, HK-Power and the Placing Agent in writing).

The above placing period is determined after arm’s length negotiation with the Placing Agent after taken into account the usual trading volume of the Company’s shares in recent year, the liquidity of Shares (with the average trading volume of Shares of approximately 0.5% of the total issued share capital) which is relatively thin, as well as the ever-changing market sentiment and the volatility of the stock market.

In the event that the Placing Agent failed to place the Subject Shares and the Retained Shares within the initial placing period, the Company may extend the initial placing period and/or identify another or additional placing agents to undertake the placing exercise with the ultimate goal of disposing all the Subject Shares and the Retained Shares.

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LETTER FROM THE BOARD

The Placing Shares will be placed, at the sole discretion of the Placing Agent, through a single placing exercise or multiple placing exercises. The disposal of the Placing Shares can be conducted on or off the Stock Exchange and there is no restriction in the Placing Agreement in that regard.

The Placing arrangements will be in place until all the Placing Shares have been disposed of.

Irrevocable authority and undertaking by the Purchasers

Subject to the Placing Agreement having become unconditional, each of the Purchasers will provide to the effect the following:

irrevocable authority/instruction to the Placing Agent authorizing them to release the proceeds from the disposal of the Subject Shares to the Company;
irrevocable power of attorney in favour of the Company authorizing the Company to, among others, execute any documentation in his/her/its name and on his/her/its behalf so as to give effect to the arrangements contemplated under the Placing Agreement; and
an undertaking in favour of the Company to the effect that the Purchasers will not do any act or exercise any rights attached to the Placing Shares which are or considered by the Company to be detrimental to the interests of the Company as far as the Company’s entitlement to the proceeds to be derived from the placing of the Placing Shares (together with any dividends or declarations that may be declared, made or paid before the disposal of the Placing Shares) are concerned.

As the overall arrangements contemplated under the Placing Agreement do not differ materially from a normal placement of shares by a listed issuer and are generally in line with such parameters as regarded as acceptable under the Listing Rules regarding the issue of securities, the Board considers the arrangements under the Placing Agreement are fair and reasonable and in the interests of the Company and the Shareholders.

Continuing Disclosure

The Company will update the Shareholders of the progress of the placing of the Placing Shares (comprising the Subject Shares and the Retained Shares) in its interim report and the annual report of the Company until all the Placing Shares are disposed of.

– 31 –

LETTER FROM THE BOARD

As the Subject Shares and the Retained Shares are to be disposed of pursuant to a pre-determined mechanism stipulated in the Placing Agreement as broadly summarized above, the Placing Agent will not have, or allowed to have access to any unpublished inside information of the Company. The Company understands the statutory requirements for the disclosure of inside information and will ensure that any of such disclosure is made in a manner that provides for equal, timely and effective access by the public and not in contravention of any applicable laws, rules and regulations.

FUND RAISING ACTIVITY OF THE COMPANY IN THE 12 MONTHS IMMEDIATELY PRECEDING THE LATEST PRACTICABLE DATE

The Company has not undertaken any fund raising exercise in the 12 months immediately prior to the Latest Practicable Date other than the following:

Amount utilized as at the Latest Practicable Event and date Net proceeds raised Intended use of Date and actual use of of completion from the event net proceeds raised net proceeds Subscription of HK$197,475,000 As to approximately Approximately HK$42,500,000 an aggregate of HK$125,000,000 for was utilized as general 1,979,750,000 new pursuing suitable working capital of the Group Shares completed acquisition and/or (which was in line with on 8 May 2014 investment opportunities the intended use) and the that either supplement balance of the net proceeds the existing businesses, remained unused as at the or fit into the long term Latest Practicable Date (and strategy, of the Group; and are expected to be used as as to the remaining net originally intended) proceeds of approximately HK$72,475,000 (and to the extent that the net proceeds as stated above are not applied for acquisition and/ or investment purposes) for general working capital of the Group

– 32 –

LETTER FROM THE BOARD

IMPLICATION UNDER THE LISTING RULES

As one or more of the applicable percentage ratios in respect of the GBS Equity Interest Disposal as calculated under Rule 14.07 of the Listing Rules exceeds 75%, the GBS Equity Interest Disposal constitutes a very substantial disposal for the Company under Rule 14.06(4) of the Listing Rules. The Purchasers are connected persons of the Company under the Listing Rules by virtue of (i) Headland (being the associate of WHY and WHQ) and WHY and WHQ (each being a director of GBS, a wholly-owned subsidiary of the Company). Accordingly, the GBS Equity Interest Disposal constitutes both a very substantial disposal and a connected transaction for the Company under the Listing Rules which are subject to the approval of Independent Shareholders at the SGM by way of poll.

To the best of the Directors’ knowledge having made all reasonable enquiries and except for the Purchasers and their respective associates (who hold an aggregate of 457,324,692 Shares (including the 200,000,000 Shares retained by the Group for non-attainment of the profit guarantee under the GBS Acquisition as disclosed above), representing approximately 3.69% of the issued share capital of the Company as at the Latest Practicable Date, none of the controlling Shareholders, the Directors and the chief executives of the Company and their respective associates have any material interest in the GBS Equity Interest Disposal as at the Latest Practicable Date.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee (comprising all the independent non-executive Directors, namely Mr Wong Lee Hing, Do Song Jian, Mr Cheng Tat Wa, Dr Zhu Guobin, Dr Li Jianyong and Mr Chan Sin Hang) has been formed to advise the Independent Shareholders in relation to the GBS Share Transfer Agreement and the GBS Equity Interest Disposal contemplated thereunder and other ancillary arrangements.

The Company has, with the approval of the Independent Board Committee, appointed Donvex Capital as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in accordance with the requirements under the Listing Rules to advise the Independent Board Committee and the Independent Shareholders regarding the GBS Share Transfer Agreement and the GBS Equity Interest Disposal contemplated thereunder and other ancillary arrangements.

– 33 –

LETTER FROM THE BOARD

SPECIAL GENERAL MEETING

The Company will convene the Special General Meeting at Suite 1408, 14th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong on Monday, 5 January 2015 at 11:00 a.m. to consider the GBS Equity Interest Disposal contemplated under the GBS Share Transfer Agreement and other ancillary arrangements. An ordinary resolution will be put to the vote by poll at the Special General Meeting pursuant to the Listing Rules. A notice of the Special General Meeting is set out on pages N-1 to N-3 of this circular.

Any Shareholder with a material interest in the GBS Equity Interest Disposal and his/her/its associate(s) are required to abstain from voting on the resolution approving the GBS Share Transfer Agreement and the GBS Equity Interest Disposal contemplated thereunder and other ancillary arrangements in accordance with the Listing Rules.

To the best of the Directors’ knowledge having made all reasonable enquiries, except for the Purchasers and their respective associates (who/which held an aggregate of 457,324,692 Shares (including the 257,324,692 Subject Shares, the 200,000,000 Retained Shares), representing approximately 3.69% of the issued share capital of the Company as at the Latest Practicable Date) who are to abstain from voting at the Special General Meeting, none of the Shareholders are required to abstain from voting in respect of the resolution approving the GBS Share Transfer Agreement together with the GBS Equity Interest Disposal contemplated thereunder and other ancillary arrangements.

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

– 34 –

LETTER FROM THE BOARD

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on pages IBC-1 to IBC-2 of this circular and the letter of advice from Donvex Capital to the Independent Board Committee and the Independent Shareholders in connection with the GBS Share Transfer Agreement together with the transactions contemplated thereunder and other ancillary arrangements as well as the principal factors and reasons considered by them in arriving at such advice set out on pages IFA-1 to IFA-40 in this circular.

The Directors (including the independent non-executive Directors whose views are set out on pages IBC-1 to IBC-2 of this circular), having taken into account the opinion and advice of Donvex Capital, consider that the terms of the GBS Share Transfer Agreement together with the GBS Equity Interest Disposal and other ancillary arrangements are fair and reasonable so far as the Independent Shareholders are concerned, and the GBS Share Transfer Agreement together with the GBS Equity Interest Disposal contemplated thereunder and other ancillary arrangements are on normal commercial terms and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (including the independent non-executive Directors) recommend the Independent Shareholders to vote in favour of the resolution approving the GBS Share Transfer Agreement together with the GBS Equity Interest Disposal contemplated thereunder and other ancillary arrangements at the SGM.

GENERAL

Shareholders and potential investors of the Company should note that, completion of the GBS Equity Interest Disposal contemplated under the GBS Share Transfer Agreement is subject to fulfillment of the Conditions Precedent disclosed in this circular and may or may not materialize. At as the Latest Practicable Date, none of the Conditions Precedent had been satisfied. Shareholders and potential investors of the Company are advised to exercise caution when dealing in the securities of the Company, and are recommended to consult their professional advisers if they are in any doubt about their position and as to actions that they should take.

OTHER DISCLOSURE

On 2 December 2014, the Company entered into 21 several conditional subscription agreements with various subscribers, who are Independent Third Parties, for the subscription of an aggregate of 1,780,235,000 new Shares (collectively, the “Subscriptions”). Please refer to the Company’s announcement dated 2 December 2014 for details of the Subscriptions.

– 35 –

LETTER FROM THE BOARD

The Company would like to reiterate that the Subscriptions are not contradictory to the intention of the Company to dispose of the Retained Shares. The nature of, or the reason for, the Subscriptions is different from the disposal of the Retained Shares (the purpose of which is to recoup any shortfall in the profit guaranteed by the Purchasers (being the then vendors in the GBS Acquisition) under the GBS Acquisition)). This is because the Subscriptions are the Company’s fund raising exercise to facilitate its pursuit of such suitable acquisition and/or investment opportunities for the strategic development and expansion of the Group’s environmental automobile and related business.

In addition, the sale of the Retained Shares is subject to the availability of willing buyers who are interested in acquiring the Retained Shares with full knowledge of the background leading to the disposal of the Retained Shares. The Board believes that it is more appropriate to leave the disposal of the Retained Shares to independent placing agent(s) which has/have a wider source of (or a more sophisticated) clientele, the necessary expertise and better resources than the Company in identifying and procuring potential placees for the Retained Shares. Besides, the Company was not in a position to interfere with the decision of the subscribers under the Subscriptions whose intention are to subscribe for new Shares directly from the Company.

Accordingly, the Board considers that it is neither unfair nor unreasonable for the Company to proceed with the Subscriptions instead of the Retained Shares and it is in the overall interests of the Company and the Shareholders as a whole to reach the above decision.

The Company will use all reasonable endeavours and make all arrangements necessary to expedite the disposal of the Subject Shares and the Retained Shares. It is the intention of the Company not to conduct any fund raising exercise unless and until the Subject Shares and the Retained Shares are first disposed of.

ADDITIONAL INFORMATION

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

Yours faithfully

By order of the Board of Hybrid Kinetic Group Limited Yeung Yung

Chairman

– 36 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is a full text of the letter from the Independent Board Committee prepared for the purpose of inclusion in this circular.

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HYBRID KINETIC GROUP LIMITED 正道集團有限公司

(incorporated in Bermuda with limited liability)

(Stock code: 1188)

16 December 2014

To the Independent Shareholders

Dear Sir or Madam

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION REGARDING THE GBS EQUITY INTEREST DISPOSAL

We refer to the circular issued by the Company to the Shareholders dated 16 December 2014 (the “Circular”) of which this letter forms part.

Terms defined in the Circular have the same meanings when used in this letter unless the context otherwise requires.

The GBS Equity Interest Disposal contemplated under the GBS Share Transfer Agreement constitutes a connected transaction for the Company and are subject to the reporting, announcement and Independent Shareholders’ approval requirements under the Chapter 14A of the Listing Rules. As one or more of the applicable percentage ratios in respect of the GBS Equity Interest Disposal as calculated under Rule 14.07 of the Listing Rules exceeds 75%, the GBS Equity Interest Disposal also constitutes a very substantial disposal for the Company under Chapter 14 of the Listing Rules.

IBC – 1

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We have been appointed by the Board to consider the terms of the GBS Equity Interest Disposal contemplated under the GBS Share Transfer Agreement and to advise the Independent Shareholders in connection therewith and as to whether, in our opinion, the terms of the GBS Share Transfer Agreement and the transactions and/or arrangements contemplated thereunder are on normal commercial terms, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole. Donvex Capital has been appointed as the independent financial adviser to advise us in this respect.

We wish to draw your attention to the letter from the Board and the letter from Donvex Capital as set out in the Circular. Having considered the principal factors and reasons considered by, and the opinion and advice of, Donvex Capital as set out in its letter of advice, we consider that the terms of the GBS Share Transfer Agreement and the transactions and/or arrangements contemplated thereunder are fair and reasonable, on normal commercial terms and in the ordinary and usual course of business of the Group.

In view of the above, we consider that the GBS Share Transfer Agreement and the GBS Equity Interest Disposal contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution approving the GBS Share Transfer Agreement and the GBS Equity Interest Disposal contemplated thereunder and other ancillary arrangements at the Special General Meeting.

Yours faithfully For and on behalf of Independent Board Committee Mr Wong Lee Hing Dr Song Jian Mr Cheng Tat Wa Dr Zhu Guobin Dr Li Jianyong Mr Chan Sin Hang Independent Non-executive Directors

IBC – 2

LETTER FROM DONVEX CAPITAL

The following is the full text of the letter from Donvex Capital Limited setting out their advice to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

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Unit 1305, 13th Floor, Carpo Commercial Building 18-20 Lyndhurst Terrace Central Hong Kong

16 December 2014

The Independent Board Committee and the Independent Shareholders of Hybrid Kinetic Group Limited

Dear Sirs,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the GBS Equity Interest Disposal and the transactions and/or arrangements contemplated thereunder, details of which are set out in the letter from the Board (“Letter from the Board”) contained in the circular of the Company dated 16 December 2014 to the Shareholders (the “Circular”), of which this letter forms part. Terms used herein have the same meanings as defined elsewhere in the Circular unless the context require otherwise.

On 18 August 2014, HK-Power (a wholly-owned subsidiary of the Company) entered into the GBS Share Transfer Agreement with the Purchasers for the sales and purchase of aggregate of 75% equity interest in GBS.

As one or more of the applicable percentage ratios in respect of the GBS Equity Interest Disposal as calculated under Rule 14.07 of the Listing Rules exceeds 75%, the GBS Equity Interest Disposal constitutes a very substantial disposal for the Company under Rule 14.06(4) of the Listing Rules. The Purchasers are connected persons of the Company under the Listing Rules by virtue of (i) Headland, being the associate of WHY and WHQ, and (ii) WHY and WHQ, each being a director of GBS, a wholly-owned subsidiary of the Company. Accordingly, the GBS Equity Interest Disposal constitutes both a very substantial disposal and a connected transaction for the Company under the Listing Rules which are subject to the approval of Independent Shareholders at the SGM by way of poll.

IFA – 1

LETTER FROM DONVEX CAPITAL

To the best of the Directors’ knowledge having made all reasonable enquiries, except for the Purchasers and their respective associates (who/which hold an aggregate of 457,324,692 Shares (including the 200,000,000 Retained Shares retained by the Group for non-attainment of the profit guarantee under the GBS Acquisition), representing approximately 3.69% of the issued share capital of the Company as at the Latest Practicable Date) who/which are required to abstain from voting in respect of the resolution(s) approving the GBS Equity Interest Disposal and the transactions and/or arrangements contemplated thereunder at the SGM, none of the controlling Shareholders, the Directors and the chief executives of the Company and their respective associates have any material interest in the GBS Equity Interest Disposal as at the Latest Practicable Date.

Mr. Wong Lee Hing, Dr. Song Jian, Mr. Cheng Tat Wa, Dr. Zhu Guobin, Dr. Li Jianyong and Mr. Chan Sin Hang, the independent non-executive Directors, have been appointed as members of the Independent Board Committee to advise the Independent Shareholders on the GBS Equity Interest Disposal and the transactions and/or arrangements contemplated thereunder are (i) on normal commercial terms; (ii) in the ordinary and usual course of business of the Group; (iii) fair and reasonable as far as the Independent Shareholders are concerned; and (iv) in the interests of the Company and the Shareholders as a whole; and to advise the Independent Shareholders as to whether to vote in favor of the relevant resolution(s) to approve the GBS Equity Interest Disposal and the transactions and/or arrangements contemplated thereunder. Being the Independent Financial Adviser, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders in such regard.

BASIS OF OUR OPINION

In formulating our opinion, we consider that we have reviewed sufficient and relevant information and documents and have taken reasonable steps as required under Rule 13.80 of the Listing Rules to reach an informed view and to provide a reasonable basis for our recommendation. We have relied on the information, statements, opinion and representations contained or referred to in this Circular and all information and representations which have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so at the date hereof. We have also assumed that all statements of belief, opinion and intention of the Directors as set out in the Letter from the Board contained in this Circular were reasonable made after due and careful inquiry. We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information provided and referred to in this Circular.

IFA – 2

LETTER FROM DONVEX CAPITAL

The Company confirmed that it has provided us with all currently available information and documents which are available under present circumstances to enable us to reach an informed view and we have relied on the accuracy of the information contained in this Circular so as to provide a reasonable basis of our opinion. We have no reason to suspect that any material facts or information, which is known to the Company, have been omitted or withheld from the information supplied or opinions expressed in this Circular nor to doubt the truth and accuracy of the information and facts, or the reasonableness of the opinions expressed by the Company and the Directors which have been provided to us. We have not, however, carried out any independent verification on the information provided to us by the Directors, nor have we conducted any form of independent in-depth investigation into business and affairs of the prospects of the Company, the Purchasers or any of their respective subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendations to the Independent Board Committee and the Independent Shareholders, we have taken into consideration the following principal factors and reasons:

1. Background Information of the Group

The principal business of the Group during the year ended 31 December 2013 included (i) the environmental automobile and related business (comprising the lithium-ion power battery business, the environmental automobile business and the New Energy Project); and (ii) the natural resources business. Set out below is a summary of the Group’s operating results extracted from the Company’s annual report for the year ended 31 December 2013 (“FY2013”) and interim report for the six months ended 30 June 2014 (“1st Half 2014”):

Segment revenue – Lithium-ion power batteries business – Development of advanced batteries materials – Hybrid vehicles business – Natural resources business	For the year ended 31 December 2013 2012 HK$’000 HK$’000 (audited) (audited) 52,183 43,039 – – – – – – 52,183 43,039	For the six months ended 30 June 2014 2013 HK$’000 HK$’000 (unaudited) (unaudited) 25,976 24,036 – – – – – – 25,976 24,036	For the six months ended 30 June 2014 2013 HK$’000 HK$’000 (unaudited) (unaudited) 25,976 24,036 – – – – – – 25,976 24,036
			24,036

IFA – 3

LETTER FROM DONVEX CAPITAL

Segment profit/(loss) for the year – Lithium-ion power batteries business – Development of advanced batteries materials – Hybrid vehicles business – Natural resources business Loss for the year/period attributable to – Owners of the Company – Non-controlling interests	For the year ended 31 December 2013 2012 HK$’000 HK$’000 (audited) (audited) (16,144) (8,668) (4,853) – (14,092) (19,246) (9,823) (18,402) (44,912) (46,316) (179,086) (103,414) (7,340) (5,423) (186,426) (108,837)	For the six months ended 30 June 2014 2013 HK$’000 HK$’000 (unaudited) (unaudited) (12,545) (16,647) (1,926) – (7,434) (13,999) (4,926) (4,973) (26,831) (35,619) (57,891) (48,663) (1,817) (1,383) (59,708) (50,046)	For the six months ended 30 June 2014 2013 HK$’000 HK$’000 (unaudited) (unaudited) (12,545) (16,647) (1,926) – (7,434) (13,999) (4,926) (4,973) (26,831) (35,619) (57,891) (48,663) (1,817) (1,383) (59,708) (50,046)
			(35,619)

			(48,663) (1,383)
			(50,046)

Below are the segment financial information of the Group as stipulated in its latest annual report and interim report.

(a) Environmental automobile and related business

(i) Lithium-ion power battery business

The Group engages in the lithium-ion power battery business through GBS, which was acquired by the Group pursuant to the acquisition agreement dated 18 April 2010 from Headland, WHQ and WHY.

For FY2013, the turnover and the loss of this segment were approximately HK$52.18 million and HK$16.14 million respectively whereas in 2012, the turnover was HK$43.04 million and the loss was HK$8.67 million respectively. The loss for FY2013 was mainly attributable to the impairment of goodwill for the business amounted to HK$15.79 million.

IFA – 4

LETTER FROM DONVEX CAPITAL

For 1st Half 2014, the turnover and the loss of this segment were approximately HK$25.98 million and HK$12.55 million as compared to the turnover of approximately HK$24.04 million and the loss of approximately HK$16.65 million in the same period of 2013. The impairment of goodwill for the business amounted to nil (30 June 2013: HK$9.63 million).

Since the first half of 2011, the operating environment of the business carried on by GBS has been testing and fallen short of the Group’s expectation. This was due partly to the global economic downturn, and the situation was aggravated by the mounting auto incidents in the PRC and faulty electric vehicle batteries recalled by certain battery manufacturer which had raised safety concerns, cast doubts on the quality of lithium-ion battery and related products and shaken confidence of consumers and potential customers generally. Such prevailing operating conditions (which have been affected more by negative external factors as disclosed above and are beyond the control of the Group or the management of GBS) have caused the continuing loss in GBS’s automobile battery business amidst uncertain prospect.

(ii) Environmental automobile business

The Group engages in the research and development of environmental automobile through its U.S. subsidiary, Hybrid Kinetic Motors Corp.

For FY2013, this business segment recorded a loss of approximately HK$14.09 million (2012: HK$19.25 million). The loss was mainly attributable by impairment of fixed assets of HK$3.98 million and impairment of intangible assets of HK$1.45 million.

For 1st Half 2014, this business segment recorded no turnover (2013: nil), and a loss of approximately HK$7.43 million (2013: HK$14.00 million). The loss was mainly attributable to operating expenses incurred during the Period.

IFA – 5

LETTER FROM DONVEX CAPITAL

(iii) New energy project

The turnover and loss of the Project Company consolidated into the Group’s financial statement since the date of incorporation up to 31 December 2013 amounted to nil and HK$4.85 million respectively.

The turnover and loss of the Project Company consolidated into the Group’s financial statement for 1st Half 2014 amounted to nil and HK$1.93 million respectively.

(b) Natural resources business

Although the operating segment of the Group also includes natural resources business, the identification of natural resources has proved to be an undertaking that requires the conduct of exhaustive analysis, and has taken longer than anticipated. Further, natural resources requires the application of extensive amount of capital and human resources to be exploited (extracted, processed, refined) for the realization of their economic value. For FY2013 and 1st Half 2014, this business segment recorded no turnover for the Group and a loss of HK$9.82 million and HK$4.93 million respectively which was mainly attributable to operating expenses incurred during the relevant period.

IFA – 6

LETTER FROM DONVEX CAPITAL

The table below summarizes the consolidated financial position of the Group as at 31 December 2012 and 2013 and 30 June 2014.

Non-current assets – Property, plant and equipment Current assets – Cash and cash equivalents Total assets Non-current liabilities Current liabilities Net current assets Net assets Gearing ratio	As at 30 June 2014 (unaudited) HK$’000 93,896 46,561 540,844 126,642 634,740 3,670 106,412 110,082 434,432 524,658 22.76%	As at 31 December 2013 2012 (audited) (audited) HK$’000 HK$’000 89,333 154,304 40,781 50,546 660,161 210,764 147,996 21,006 749,494 365,068 4,005 4,669 104,202 96,230 108,207 100,899 555,959 114,534 641,287 264,169 31.27% 37.94%	As at 31 December 2013 2012 (audited) (audited) HK$’000 HK$’000 89,333 154,304 40,781 50,546 660,161 210,764 147,996 21,006 749,494 365,068 4,005 4,669 104,202 96,230 108,207 100,899 555,959 114,534 641,287 264,169 31.27% 37.94%
			365,068

			4,669 96,230
			100,899

			114,534

			264,169

			37.94%

The increment in cash and cash equivalents of the Group was mainly due to the fund raising activities during FY2013 and 1st Half 2014 with net proceed of approximately HK$163.00 million and HK$197.48 million respectively. The Company utilized part of the net proceeds to contribute the capital commitment for the establishment of the Project Company for the promotion of the New Energy Project and fund the Group’s general working capital.

IFA – 7

LETTER FROM DONVEX CAPITAL

As at 31 December 2013, the net assets of the Group amounted to approximately HK$641.29 million (31 December 2012: HK$264.17 million). The increase in net assets of the Group was mainly due to the increase in cash and cash equivalents, which resulted from the fund raising activities during FY2013, and the prepayment for research and development projects.

As at 30 June 2014, the net assets of the Group amounted to approximately HK$524.66 million (31 December 2013: HK$641.29 million). The decrease in net assets of the Group was mainly due to the decrease in amount due from a noncontrolling shareholder of a subsidiary.

2. The GBS Share Transfer Agreement

Introduction

(a) Assets to be disposed of

75% equity interests in GBS from the Vendor to the Purchasers (as to 48.15% to Headland, 23.95% to WHY and 2.90% to WHQ).

(b) Disposal Consideration

It has been commercially agreed that the GBS Equity Interest Disposal by the Group to the Purchasers shall be made in return for the net proceeds from the disposal of the Subject Shares (that is, an aggregate of 257,324,692 Shares owned as to 20,201,839 Shares by Headland, 155,261,733 Shares by WHY and 81,861,120 Shares by WHQ).

IFA – 8

LETTER FROM DONVEX CAPITAL

The aggregate value of the Disposal Consideration will depend on the amount of net proceeds to be derived from the sale(s) of the Subject Shares but in any event will not be less than the aggregate nominal value of the Subject Shares at HK$0.10 each (that is, HK$25,732,469.20 in aggregate).

After completion of the GBS Equity Interest Disposal and save as and to the extent of the entitlement to the proceeds or net proceeds to be derived from the disposal of the Subject Shares (together with such dividends or distributions that may be declared, made and paid before the disposal of the Subject Shares), the Purchasers will remain as the beneficial owners of the Subject Shares who/ which shall enjoy such rights and benefits to the Subject Shares (such as the voting rights attached to the Subject Shares) not reserved by the Company. Save as disclosed above, the Company does not and will not assume any title (legal or otherwise) to, or any voting rights attached to, the Subject Shares nor will any arrangements be made for the Company to direct the exercise of such voting rights. The Purchasers have no intention to, and are not interested in, exercising the voting rights attached to the Subject Shares and will provide an undertaking in favor of the Company not to do any act or take any action that may be detrimental to the above entitlements of the Company after completion of the GBS Equity Interest Disposal.

In order to capture the best time(s) and price(s) to maximize the amount of sale proceeds for the GBS Equity Interest Disposal, the Placing Agent nominated by the Company has been engaged by the Purchasers, as agent for the Purchasers, to oversee the selling/placing arrangements of the Subject Shares after completion of the GBS Equity Interest Disposal until all the Subject Shares are sold/placed and the net proceeds therefrom received by the Group. After completion of the GBS Equity Interest Disposal, the Purchasers will procure the Subject Shares to be held by, and registered in the name of, the Placing Agent, as agent for the Purchasers, which will be given all the consent and authorization necessary to (i) effectuate the Placing arrangements; and (ii) ensure that the economic benefit from the GBS Equity Interest Disposal is received by the Company.

IFA – 9

LETTER FROM DONVEX CAPITAL

The Purchasers are required to (i) execute a stock power (or similar document) in respect of the Subject Shares in favor of the Placing Agent (that is, a document that allows the current owner of a registered security to transfer ownership to the Placing Agent and (ii) arrange for the physical share certificates representing the Subject Shares to be delivered to the Placing Agent.

The net proceeds to be derived from the disposal of the Subject Shares are the consideration that the Purchasers were prepared to offer to the Group for the GBS Equity Interest Disposal. Although there may be uncertainty as to, for instance, the length of time that may take or the actual cash proceeds that may ultimately be obtained by the Group, this manner of settlement allows relatively more flexibility to maximize the amount of cash proceeds that the Group is to receive as it does not require the Subject Shares to be disposed of, in whole and in a one-off manner at the time of the Disposal Completion.

Please refer to the section under “The Placing Agreement” for details arrangements for the disposal of the Subject Shares and the Retained Shares.

(c) Conditions

The Disposal Completion is conditional upon the fulfillment of the following Conditions Precedent by the Longstop Date:

(i) all consents, permission, authorizations and approvals (such as the approval of The Investment Promotion Bureau of Yuyao Municipal People’s Government（余姚市人民政府招商局）and The Administration for Industry and Commerce of Ningbo Municipal
（寧波市工商行政管理局）of the PRC and the corporate authorization of the Board) necessary for giving effect to the GBS Equity Interest Disposal as contemplated under the GBS Share Transfer Agreement having been obtained; and
(ii) the due compliance by the Company of all applicable legal and regulatory requirements (including but not limited to those under the Listing Rules and the sanction of the Independent Shareholders at the SGM) and of the regulatory authorities (including the Stock Exchange) in respect of the GBS Equity Interest Disposal.

IFA – 10

LETTER FROM DONVEX CAPITAL

None of the Conditions Precedent can be waived by any of the parties to the GBS Share Transfer Agreement.

As at the Latest Practicable Date, the Conditions Precedents to the Disposal Completion as disclosed above were yet to be fulfilled.

(d) Completion

Subject to the fulfillment of all the Conditions Precedent, the GBS Equity Interest Disposal will take place within 15 days from the date upon which the approval of the GBS Equity Interest Disposal from the relevant PRC governmental and other authorities having been obtained.

3. Information on GBS

(a) Background of GBS Acquisition

The Group acquired 100% equity interest in GBS from Headland, WHY and WHQ (being the then vendors under the GBS Acquisition, and the Purchasers under the GBS Share Transfer Agreement) in October 2010 at the total consideration of RMB180 million, which was settled partly in cash and partly by the allotment and issue by the Company of a total of 457,324,692 new Shares at HK$0.358 each to the Purchasers. Following the completion of the GBS Acquisition, WHY and WHQ have been retained and continued to serve as (and still are) the directors of GBS so as to promote stability of the development of the business of GBS.

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LETTER FROM DONVEX CAPITAL

(b) Profit guarantee of the GBS Acquisition

At the time of the GBS Acquisition, profit guarantee was given by Headland, WHY and WHQ in respect of the before tax profit of GBS for the four financial years ended 31 December 2010, 2011, 2012 and 2013. As security for the attainment of the profit guarantee, it was then agreed that the Group should retain a portion of the new Shares (namely the 200,000,000 Retained Shares) then issued to Headland (96,300,000 Retained Shares), WHY (67,900,000 Retained Shares) and WHQ (35,800,000 Retained Shares) upon completion of the GBS Acquisition. As Headland, WHY and WHQ were in breach of the profit guarantee, the Group was and is entitled to, under the terms of the GBS Acquisition, to exercise its discretion to dispose of the Retained Shares to recoup any shortfall in the profit guaranteed.

The Group has not yet disposed of any of the Retained Shares as at the Latest Practicable Date. The reason for the non-disposal is that it was one of the terms of the GBS Acquisition that the Retained Shares should be determined at a price which is (i) HK$0.358 each; or (ii) the same as the closing price on 31 December of the relevant financial year in which the profit guarantee is to be achieved (whichever is the higher). Given that the Company has been experiencing a share price decline, the Company has not yet exercised its right to dispose of the Retained Shares. It is the intention of the Company to sell/place the Retained Shares through securities/placing agent(s), as agent for the Purchasers, in similar manner as with the Subject Shares.

Having considered that directly disposal of the Retained Shares in the market might have adverse impact of the Share’s price and thus affects the net proceed for the Company, we concur with the Company’s intention to sell/place the Retained Shares through securities/placing agent(s) so as to maximize the amount of sale proceeds for the Retained Shares.

(c) Financial performance of the lithium-ion power batteries business

The capital expenditure that has been invested by the Company in GBS after the GBS Acquisition amounted to RMB35 million, which is considered immaterial to the Group.

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LETTER FROM DONVEX CAPITAL

For FY2013, the net assets of lithium-ion power batteries business segment (after taking into account of borrowings of lithium-ion power batteries business in the segment liabilities) are HK$136 million. The decrease in segment net assets in the current period is approximately HK$13 million and is mainly represented by the loss for the period.

Set out below summarizes the financial results of lithium-ion power batteries business segment for the four years ended 31 December 2013 and for 1st Half 2014 as extracted from the annual reports and interim report of the Company.

	For the
	six months
	ended
	30 June		For the year ended	31 December
	2014	2013	2012	2011	2010
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
	(unaudited)	(audited)	(audited)	(audited)	(audited)
Segment revenue	25.9	52.2	43.0	48.3	13.9
Profit/(loss) for
the year/period	(12.5)	(16.1)	(8.7)	(54.8)	1.4

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4. Reasons for and benefits from the GBS Equity Interest Disposal

(a) Unsatisfactory financial performance of GBS

As stated in the section under “Background Information of the Group” and “Information on GBS”, the lithium-ion power batteries business of the Group recorded segment loss for the three financial years ended 31 December 2013 and for 1st Half 2014 due partly to the global economic downturn, and the situation was aggravated by the mounting auto incidents in the PRC and faulty electric vehicle batteries recalled by certain battery manufacturer which had raised safety concerns, cast doubts on the quality of lithium-ion battery and related products and shaken confidence of consumers and potential customers generally. Such results were prepared according to the corresponding accounting standards in the consolidation level of the Group and included, amongst others, the impairment resulted from the GBS Acquisition.

We had also reviewed the operating results of GBS on company level which incorporated in Appendix II of the Circular. Although GBS seems to be recorded a profit for the two years ended 31 December 2013, such results were mainly contributed by the subsidy income, which mainly comprised unconditional grants for subsidizing GBS’s research and development expense. Based on the Company’s information, such subsidy income was granted to GBS for the research and development in the new energy resources annually, subjected to the application from GBS and the approval from the PRC government, which is not guaranteed. Thus, we are of the view that such subsidy income may not be sustainable. GBS would record a loss and a marginal net profit for the year ended 31 December 2012 and 2013 respectively if excludes such subsidy income. Moreover, GBS recorded net loss of approximately RMB8.32 million for the six months ended 30 June 2014.

Based on the above, we concur with the Directors’ view that both the financial performances of the lithium-ion power batteries business on the group level and GBS on company level were unsatisfactory.

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LETTER FROM DONVEX CAPITAL

(b) Continuous working capital injection is required

The capital expenditure that has been invested by the Company in GBS after the GBS Acquisition amounted to approximately RMB35 million after the GBS Acquisition. Under the acquisition agreement of the GBS Acquisition, the Company committed to inject a sum of not less than RMB64 million in GBS as its general working capital to facilitate the expansion of the production capacity of GBS, which had been disclosed in the Circular of the Company dated 30 August 2010 (the “Acquisition Circular”).

The Directors are of the view that further capital working injection to GBS is not in the best interest of the Company and the Shareholders after taking into account the loss track record of GBS in the past three years. The GBS Equity Interest Disposal enables the Group to relieve from the capital commitment to GBS and reallocate its resources for and direct its focus to concentrate on other core activities.

(c) Advancement in other power battery technology

The Company confirmed that the specification of the lithium-ion electric battery produced by GBS were one of the popular standard in the PRC as at the GBS Acquisition. GBS was also able to produce the lithium-ion battery with standards disclosed in the Acquisition Circular.

However, the Company stated that there was substantial development in the technology of rechargeable battery in recent years. It thus results in diminishing demand of the batteries produced by GBS due to its lag behind in the technology standard.

Based on the above factors, the Directors are of a conservative view that the business operation of the lithium-ion power batteries business is not expected to have much improvement and will continue to be restrained unless and until there is innovative breakthrough in battery architecture and technology. The Directors consider that the GBS Equity Interest Disposal will enable the Group to realize the relevant assets of GBS and reallocate its resources and direct its focus to concentrate on other core activities and improve the financial performance of the Group as a whole.

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LETTER FROM DONVEX CAPITAL

We had enquired the Company about the reasons to maintain 25% equity interest of GBS under the GBS Equity Interest Disposal. Based on the representation from the Company and as stated in the section under “Basis for the GBS Equity Interest Disposal”, the Company encountered difficulties in identifying potential buyer(s) to take up the equity interests of GBS due to (i) its unsatisfactory financial performance in recent years; and (ii) the uncertainty to continue the operation of GBS in the plant and facilities owned by the associate of the Purchasers. At last the Company was only able to dispose of the equity interest of GBS to the Purchasers which were the sole readily available buyers. Based on the Company’s information, it was the Purchasers’ intention to acquire only 75% equity interest of GBS.

As the current arrangement of the GBS Equity Interest Disposal was the only manner agreed by the Purchasers which are the sole readily available buyers, the Company compromises to retain 25% equity interest of GBS given its loss-making record. As the Directors considered that there would be no other potential buyer interested in acquiring the remaining 25% equity interest of GBS as at the current stage, the Company has no alternative option but to retain it.

After the completion of the GBS Equity Interest Disposal, the Company has the discretion to contribute any additional funding to GBS. Unless the circumstance is considered by the Group to be exceptional, it is the current intention of the Group not to contribute additional capital into GBS after completion of the GBS Equity Interest Disposal. In the event that the other GBS shareholders opted for contributing additional capital into GBS, the Directors are of the view that the Group would allow its remaining 25% shareholding to be diluted. If, in the reasonable opinion of the Group, it is appropriate to contribute additional capital to GBS based on shareholding, its contribution will represent 25% (as opposed to the original 100% before completion of the GBS Equity Interest Disposal) of the total additional capital contribution. As such, the GBS Equity Interest Disposal will serve the purpose of releasing the Group from subsidizing substantially the business carried on by GBS.

Having considered that (i) GBS was unable to fulfill the profit guarantee after the GBS Acquisition; (ii) the loss track record of the lithium-ion power battery business for the three years ended 31 December 2013 and for the 1st Half 2014; (iii) the GBS Equity Interest Disposal would enable the Group to reallocate its resources for and direct its focus to concentrate on other core activities rather than making further working capital injection

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to a loss making business; (iv) the advancement in other power battery technology limited the competitiveness of GBS; and (v) the current arrangement of the GBS Equity Interest Disposal was the only manner agreed by the Purchasers, which are the sole readily available buyers, we concur with the Directors’ view that it is fair and reasonable to conduct the GBS Equity Interest Disposal.

5. Basis for the GBS Equity Interest Disposal

(a) Basis of the Disposal Consideration

(i) the net segment asset value of lithium-ion power batteries business, based on the audited account of the Company, had been decreased from approximately HK$216.7 million as at 31 December 2010 to HK$136.4 million as at 31 December 2013 mainly due to segment losses;
(ii) the segment losses from lithium-ion power batteries business were approximately HK$54.8 million, HK$8.7 million and HK$16.1 million for the years ended 31 December 2011, 2012 and 2013 respectively. The continuous loss making from GBS was due partly to the global economic downturn, and the situation was aggravated by the mounting auto incidents in the PRC and faulty electric vehicle batteries recalled by certain battery manufacturer which had raised safety concerns, cast doubts on the quality of lithium-ion power battery and related products and shaken confidence of consumers and potential customers generally; and

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(iii) the advance in battery technology, such as the innovation and development of lithium titanate battery, has impacted the competitiveness of the market of lithium-ion battery, which was the principal business of GBS. The production facilities of, and the batteries produced by, GBS have lagged behind technology advancement. The above factors has been negatively affecting, and can be reasonably foreseen that it will continue to reduce, the net segment assets value of lithium-ion power batteries business operated by, and the net asset value of, GBS. This situation has significantly weakened the bargaining power of and limited the options available to the Group. Given the circumstances, the business reality, quite often, is that the evaluation from any prospective buyer does not even remotely represent what the business or the assets is/are truly worth, and the Directors are of the view that separately selling the assets of GBS is least likely to generate more proceeds as compared to the GBS Equity Interest Disposal.

(b) View on the reasonableness of the GBS Equity Interest Disposal

Release from further subsidizing substantially GBS

The Company stated that it would need to further subside GBS substantially if it remains the equity interest of GBS based on the fact that (i) substantial cost would be incurred in replacement of machineries in the event of improving the competitiveness of the batteries products of GBS; and (ii) injection of additional capital to support, among others, the operating expenses of GBS would be needed as the cash and cash equivalents of GBS only amounted to approximately HK$2.43 million as at 30 June 2014. The Directors are of the view that it is not in the best interest of the Company and Shareholders as a whole to further subsidizing substantially a loss-making business.

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LETTER FROM DONVEX CAPITAL

Limited potential buyers

However, given the current adverse business performance of GBS and the advancement in rechargeable battery technology, it is practically difficult for the Company to identify potential buyer(s) who is/are willing to take up the equity interests of GBS owned by the Group at a gain. Furthermore, the deteriorating financial performance of GBS will, as time goes by, only make it difficult for the Company to bargain.

Besides, the plant and facilities in which the business of GBS is running are currently owned by the associate of the Purchasers. There will be uncertainty as to whether the owner of the plant and facilities of GBS will grant or continue to grant a lease to GBS to use the existing plant and facilities to run the business of GBS as an affordable rent and, if not, the relocation costs will be significant.

We had enquired the Company about the process of identify potential buyers and ways of disposal of GBS. The Company expressed that it had initially made preliminary enquiries with certain parties located in county different from GBS with a view to explore any possibilities of either selling the equity interest of GBS or disposing of GBS’s assets separately. Due to (i) the lag behind in technology standard of GBS’s machineries and products; (ii) the significant relocation costs possibly incurred; and (iii) the lack of human capital for operation of GBS as the existing workers of GBS expressed their unwillingness to work in county different from GBS, such effort is to no avail. As such, to the best efforts of the Directors, we concur with the Company’s view that it could only dispose of the equity interest to the Purchasers, who are the sole readily available buyers.

We noticed that the Purchaser is the original vendors (who have been assuming senior management roles in GBS after the GBS Acquisition) of the GBS Acquisition. After enquiring the Directors, they are of the view that disposing the equity interest of GBS to the Purchasers, even at loss, are fair and reasonable on the basis of consideration that (i) the business performance of GBS has been affected more by negative external factors (rather than internal factors) which is not entirely within the control of the Group or the management of GBS; (ii) GBS has been contributing accumulated losses to the Group; and (iii) the GBS Equity Interest Disposal will release the Group from further subsidizing substantially (through injection of additional capital or otherwise) the business carried on by GBS, which can be huge in the long term.

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LETTER FROM DONVEX CAPITAL

The Company expressed that it had assessed the working capital requirement of GBS if it retained its equity interest in GBS rather than dispose of. The Company stated that the previous research and development conducted by GBS was not able to obtain a breakthrough in the battery technology standards. By comparing with other competitors, the only solution to increase the competitiveness of GBS is either making huge investment in research and development or purchasing patents externally. Both methods would incur tens of millions expenses. In addition, the existing facilities and machineries of GBS needed to be replaced if GBS adopted higher production standards. The forecasted expenses of the replacement would amounted to tens of millions as well. It is also expected that continuing funding is needed annually for the research and development, employment of additional specialist and the maintenance of the machineries. Based on the above, we concur with the Company’s view that the GBS Equity Interest Disposal can relieve the Company from the long term huge subsidization to GBS.

Financial position of GBS

As disclosed in the Letter from the Board, we noticed that (i) the net segment assets of lithium-ion power batteries business as at 30 June 2014 was approximately HK$115 million; (ii) the aggregate value of the Disposal Consideration will not be less than HK$25,732,492.20; (iii) the proceeds from the sale of Subject Shares would only be around RMB23.5 million (based on the share price of the Company at HK$0.115 on 18 August 2014); and (iv) the Group expects to recognize a loss of approximately HK$55.73 million according to the unaudited pro-forma financial information of the Remaining Group as set out in Appendix III (the “Remaining Group Pro Forma Report”) resulted from the GBS Equity Interest Disposal. Thus the net asset value of the lithium-ion power batteries business seems higher than the proceeds raised from the disposal and the Company might seems to be able to generate more proceeds from separately selling the GBS’s assets.

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LETTER FROM DONVEX CAPITAL

In order to access the value of GBS, we had reviewed the accountants’ report of GBS as set out in Appendix II. The total assets and net assets of GBS amounted to approximately HK$124.49 million and HK$41.81 million respectively for the 1st Half 2014. We noticed that, amongst the total assets of GBS, approximately 22.16% and 32.87% were the carrying value of machineries and inventories respectively. As mentioned above, with the advancement in rechargeable battery technology, both the production facilities and the batteries produced by GBS lagged behind in technology standard. The Directors are of the view that the above factors would adversely affect the value of GBS under the disposal circumstances. As such, The Directors are of the view that separately selling the GBS’s assets is least likely to generate more proceeds as compared to the GBS Equity Interest Disposal.

Based on the above factors, the Directors are of the view given the unavoidable losses incurred from the GBS Equity Interest Disposal, the Company still needs to take corrective action before the losses of GBS worsen or had gone out of hand. As such, disposes of GBS equity interest to the Purchasers, which are the sole readily available buyers, is in the best interest of the Company and the Shareholders.

Based on the fact that (i) the Disposal Consideration was determined after arm’s length negotiations by taking into account the historical business and financial performance and the business prospects of GBS; (ii) the GBS Equity Interest Disposal would eliminate the capital commitment to GBS and the adverse impact on the Group’s financial position; (iii) the Purchasers are the sole readily available buyers for GBS, given its adverse business performances; and (iv) the Group is least likely to generate more proceeds by selling the GBS’s assets separately, we concur with the Directors view that disposal of GBS to the Purchasers at the Disposal Consideration is in the best interest of the Company and the Shareholders.

6. Settlement of the Disposal Consideration

Details of the settlement of the Disposal Consideration have been stated in the section under “The Placing Agreement”.

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LETTER FROM DONVEX CAPITAL

Although the Company will not receive the cash proceeds on the date of the Disposal Completion forthwith, this affords the Company with a better chance to capture the best time(s) and price(s) for disposing the Subject Shares over a relatively longer period of time. Besides, the Purchasers are not familiar with trading in securities in the Hong Kong stock market, the Purchasers are not, therefore, prepared to take the risk of possible fluctuations in the price of the Subject Shares. They, instead, prefer to let the Company have the full discretion to decide the selling/placing arrangements as the Company considers appropriate in respect of the Subject Shares. In that case, the Purchasers will not be required to be concerned about, or be held responsible for the sale proceeds that may be obtained for the Company should there be any possible fluctuations in the price of the Subject Shares. The selling/placing arrangements regarding the Subject Shares could, therefore, also ensure that the Subject Shares are sold or placed in an orderly manner.

Such manner of settlement was the mutual agreement reached between the parties to the GBS Share Transfer Agreement. It is the outcome of the negotiations between the Company and the Purchasers. Notwithstanding that the Company had explored payment of cash manner with the Purchasers during the negotiation process, the manner of settlement as stated in the GBS Share Transfer Agreement was the only manner agreed to and acceptable by the Purchasers. Under the current arrangement, the Directors noticed that the Company would assume the risk of the fluctuations in the price of the Subject Shares and would affect the Disposal Consideration. However, based on the adverse impacts to the Company to continue operating GBS as stated in the section under “Reasons for and benefits from the GBS Equity Interest Disposal”, the Directors are of the view that it would be in the best interests of the Company and Shareholders to obtain the proceeds from the Disposal Consideration rather than further subsidizing GBS. After assessing the associated risk, the Directors considered that the Placing arrangement (i) enables the Company to have the full discretion to decide the selling/placing arrangements and dispose of the Subject Shares in a suitable period with a reasonable prices; and (ii) would sell/place the Subject Shares in an orderly manner. Taking into account (i) the assistant from the Placing Agent with professional knowledge; and (ii) the relatively longer placing period for the Placing arrangement, the Directors are of the view that the associated risk would be well managed.

Although the Company has considered other settlement methods on the Disposal Consideration, the Directors compromise to accept the current disposal arrangement and consideration in view of the lack of other buyer(s) and bargaining power of the Company in the GBS Equity Interest Disposal. To avoid the further adverse financial impact to the Group from the operation of GBS, the Directors are of the view that conducting the GBS Equity Interest Disposal is in the best interest of the Company and Shareholders at the current stage.

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We had enquired the Company about the feasibility to sell/place the Subject Shares as the Group has not yet disposed of any of the Retained Shares as at the Latest Practicable Date. The Company stated that the Retained Shares represented a contingent consideration asset arising from the GBS Acquisition. The number of Retained Shares can be obtained by the Group is variable and uncertain as it is subject to the financial performance of GBS during the profit guarantee periods. Upon the profit guarantee is lapsed, the number of Retained Shares can be obtained by the Group is determinable and becomes fixed. The Group can then execute the right to receive the cash proceeds from the disposal of Retained Shares. As the Company is now planning to dispose of the Subject Shares through the Placing, the Directors are of the view that it would be a suitable timing to dispose of the Retained Shares together with the Subject Shares in order to receive the cash proceeds and avoid putting in additional time and effort separately.

Before the Placing Agent/the Company considers to place the Placing Shares on a given date, they will take into account, including but not limited to (i) the trading price and volume of the Shares; (ii) the trading trend and volume of Hang Seng Index in the Stock Exchange; (iii) the absolute amount of the net proceed; and (iv) if there is any Hong Kong and/or PRC government policies affecting the battery business as well as the trading environment as a whole. As the Placing Agent has the relevant experience in placing arrangement, we are of the view that it would be able to execute the Placing arrangement in a fair and reasonable manner.

We had further made our assessment on the terms and conditions and the feasibility of the Placing arrangement in the section under “The Placing Agreement”.

After considered that (i) the Purchasers are the sole readily available buyers for GBS and the above manner of settlement was the only manner agreed to and acceptable by the Purchasers; (ii) the Group would be able to relieve form the adverse financial impact and the capital commitment of GBS after the GBS Equity Interest Disposal; (iii) the Subject Shares and Retained Shares would be sold or placed in an orderly manner under the current settlement arrangements; (iv) it could eliminate additional time and effort if settle the Subject Shares and Retained Shares together under the Placing Arrangement, we are of the view that it is reasonable for the current settlement basis of the Disposal Consideration.

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LETTER FROM DONVEX CAPITAL

7. The Placing Agreement

(a) Terms of the Placing Agreement

To facilitate the disposal of the Subject Shares and the Retained Shares after completion of the GBS Equity Interest Disposal, the Purchasers and the Placing Agent entered into the conditional Placing Agreement. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Placing Agent and its ultimate beneficial owners are Independent Third Parties.

Placing Shares

The Maximum number of Shares to be placed under the Placing Agreement is 457,324,692 Shares (comprising 257,324,692 Subject Shares and 200,000,000 Retained Shares and representing approximately 3.69% of the existing issued share capital of the Company). The Placing Shares rank and will continue to rank equally in all respects among themselves and with the Shares in issue and on the date of completion of the Placing.

Placing price

In respect of each of the placing exercise under or pursuant to the Placing Agreement, the floor price shall not be lowered than 80% of the higher of the benchmarked price, being: (a) the closing price on the Trading Day immediately preceding the date of the relevant placing exercise; and (b) the average of the closing prices for the five consecutive Trading Days immediately preceding the date of such placing exercise (or such other minimum sale price per Placing Share as determined by the Company and notified to the Placing Agent but in any event will not be less than the aggregate nominal value of the Subject Shares or (as the case may be) the Retained Shares at HK$0.10 each).

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Placing commission

The Placing Agent will receive a placing commission of 2.50% on the gross proceeds of the actual number of the Placing Shares being placed by it (or its sub-placing agents) upon completion of the Placing. The placing commission was determined after arm’s length negotiation between the Company and the Placing Agent with reference to the market rate and after taking into account the size of the Placing and the time allowed for the Placing Agent to procure prospective Placees.

Placing period

Completion of Placing is conditional upon completion of the GBS Equity Interest Disposal contemplated under the GBS Share Transfer Agreement. The placing period will be nine (9) months from the date of fulfillment of the conditions precedent to completion of the Placing. The Placing Shares will be placed, at the sole discretion of the Placing Agent, through a single placing exercise or multiple placing exercises. The disposal of the Placing Shares can be conducted on or off the Stock Exchange and there is no restriction in the Placing Agreement in that regard. The Placing Arrangements will be in place until all the Placing Shares have been disposed of.

The above placing period is determined after arm’s length negotiation with the Placing Agent after taken into account the usual trading volume of the Company’s shares in recent year, as well as the ever-changing market sentiment and the volatility of the stock market. In the event that the Placing Agent failed to place the Subject Shares and the Retained Shares within the initial placing period, the Company may extend the initial placing period and/or identify another or additional placing agents to undertake the placing exercise with the ultimate goal of disposing all the Subject Shares and the Retained Shares.

(b) View on the reasonableness of the Placing arrangement

In assessing the reasonableness of the terms of the Placing arrangement, we have, to the best of our knowledge, identified an exhaustive list of 13 placing of shares arrangements announced by listed issuers on the Stock Exchange since 24 November 2014 to 12 December 2014, being in the 3-weeks period preceding the date of the Placing Agreement (the “Comparables”).

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In order to increase the comparability of our comparison, we included only the placing arrangements of shares, but not bonds and convertible bonds in our comparison. We consider that the selection of 3-weeks period, which contains 13 Comparables, to be sufficient and are fair and representative samples for comparison.

Shareholders should note that the purpose of the Comparables is to provide a general reference for recent market trend of placing arrangement regardless of their respective business, scale of operations, track record, asset base, future prospects, shares trading liquidities, prosed use of proceeds and market capitalization.

Details of our findings on the Comparables are summarized in the table below.

				Maximum
			Percentage of	discount of
			placing shares	the placing
			to issued share	price to the
	Stock	Date of	capital of	benchmarked	Placing
Comparable	Code	announcement	the company	price	commission	Placing period	Placing nature
			(%)	(%)	(%)
			(Note 1)	(Note 2)
FEISHANG ANTHRACITE	1738	2014-12-10	10.84	5.51	0.50	2 Business Days	placing of new shares
RESOURCES LIMITED							under general mandate
UNIVERSE INTERNATIONAL	1046	2014-12-09	20.00	16.53	3.80	3 Business Days	placing of new shares
HOLDINGS LIMITED							under general mandate
SINO PROSPER (GROUP)	766	2014-12-08	18.94	19.70	3.50	1 Business Day	placing of existing shares
HOLDINGS LIMITED
TIMELESS SOFTWARE	8028	2014-12-03	16.43	2.00	2.50	upon 2014-12-09	placing of existing shares
LIMITED
HONG KONG EDUCATION	1082	2014-12-03	20.00	19.10	3.50	5 Business Days	placing of new shares
(INT’L) INVESTMENTS							under general mandate
LIMITED
ZHI CHENG HOLDINGS	8130	2014-12-03	7.00	16.67	2.50	14 days	placing of existing shares
LIMITED
SCUD GROUP LIMITED	1399	2014-12-02	5.62	7.80	3.50	upon 2014-12-08	placing of existing shares

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				Maximum
			Percentage of	discount of
			placing shares	the placing
			to issued share	price to the
	Stock	Date of	capital of	benchmarked	Placing
Comparable	Code	announcement	the company	price	commission	Placing period	Placing nature
			(%)	(%)	(%)
			(Note 1)	(Note 2)
IMPERIAL PACIFIC	1076	2014-12-02	6.37	7.74	2.00	2 Business Days	placing of new shares
INTERNATIONAL							under general mandate
HOLDINGS LIMITED
JIA MENG HOLDINGS	8101	2014-11-28	19.90	19.62	3.50	4 Business Days	placing of new shares
LIMITED							under general mandate
CULTURE LANDMARK	674	2014-11-28	20.00	19.35	2.50	3 Business Days	placing of new shares
INVESTMENT LIMITED							under general mandate
HSIN CHONG	404	2014-11-27	61.80	32.62	2.00	upon 2014-12-30	placing of new shares
CONSTRUCTION							under specific mandate
GROUP LTD.
AMAX INTERNATIONAL	959	2014-11-25	3.86	15.00	1.50	upon 2014-11-28	placing of existing shares
HOLDINGS LIMITED
WEALTH GLORY HOLDINGS	8269	2014-11-24	11.51	9.10	4.00	3 Business Days	placing of new shares
LIMITED							under specific mandate
		Average	17.10	14.67	2.72
		Maximum	61.80	32.62	4.00
		Minimum	3.86	2.00	0.50
		The Placing	3.69	20.00	5.00	9 months	placing of existing shares
		arrangement

Source: http://www.hkex.com.hk/

Notes:

Such data were extracted from their respective placing announcement published in the Stock Exchange’s website.
Except for a specific date stated, otherwise the placing period start from the date of fulfilment of the conditions precedent to completion of the respective placing.

Percentage of placing shares

As indicated in the above table, the percentage of the respective placing shares to the issued share capital of the Comparables ranged from approximately 3.86% to approximately 61.80% with an average of approximately 17.10%. The Placing Shares represents approximately 3.69% to the issued share capital of the Company, which is less that the minimum of the Comparables. As such, we are of the view that the Placing Agent would be capable to execute the Placing arrangement.

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LETTER FROM DONVEX CAPITAL

Discount of placing price

As indicated in the above table, the maximum discount of the placing price to the benchmark price of the Comparable ranged from approximately 2.00% to approximately 32.62% with an average of approximately 14.67%. Pursuant to the Placing Agreement, the maximum discount of the placing price for the placing of the Placing Shares shall not be at a discount of 20% or more to the Benchmarked price, which falls within the range of the Comparables and higher than the average of the Comparables. Also we noted that the Placing Agent would capture the best time(s) and price(s) to maximize the amount of sale proceeds for the GBS Equity Interest Disposal, we are of the view that the Placing Agent would probably be able to obtain a better placing price of the Placing Shares and would be least likely to place all the Placing Shares with the maximum 20% discount during the nine months placing period, which is significantly longer than that of the Comparables.

Placing Period

As indicated in the above table, the placing period normally accounted for few Business Days from the date of fulfillment of the conditions precedent to completion of the respectively placing arrangement of the Comparables. In order to increase the possibilities to maximize the amount of sale proceeds for the GBS Equity Interest Disposal, the placing period accounts for nine months under the Placing Agreement. We are of the view that such arrangement would be able to increase the chances of achieving that purposes.

Placing commission

As indicated in the above table, the placing commission of the Comparable ranged from 0.50% to 4.00% with an average of approximately 2.72%. The Company will pay the Placing Agent a placing commission of 2.50% on the gross proceeds of the actual number of Placing Shares being placed by it (or its sub-placing agents), which falls within the range of the Comparables and slightly lower than the average of the Comparables. As set out in the Letter from the Board, the placing commission was determined after arm’s length negotiation between the Company and the Placing Agent with reference to the market rate and after taking into account the size of the Placing and the time allowed for the Placing Agent to procure prospective Placees. The Company stated that it had approached several placing agents during the preliminary stage. During the negotiation with those placing agents,

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LETTER FROM DONVEX CAPITAL

the Company was unable to have a consensus in all aspects of the placing arrangement with other placing agents. Some placing agents showed no interest in the transaction while the others disagreed with, including but not limited to the legal terms and/or the placing period. As such, the Company cannot entered into the Placing arrangement with a lower placing commission available. At last, the Company and the Placing Agent entered into the Placing Agreement with all terms being mutually agreed under the current placing commission. We noted that the placing commission under the Placing Agreement is above the mean of the range of the placing commissions of the Comparables, however, as the current placing commission is the lowest amongst placing agents that the Company had approached which is able to have a consensus in all aspects of the Placing arrangement with no other alternative available, we consider the placing commission of 2.50% is fair and reasonable as far as the Shareholders are concerned and in the best interest of the Company and Shareholders as a whole.

We noted that the Placing is on a best effort basis and there would be chances that the Placing Shares to be remained unplaced after the placing period. The Company expressed that the conduct of the placing arrangements on a best effort basis (rather than on a fully underwritten basis) is a term reached with the Placing Agent after arm’s length negotiation. The Board does not consider the term particularly risky, onerous, cumbersome or costly for the Company to accept when compared with transactions of similar nature, and this is one of the terms of engagement that the Placing Agent is prepared to accept. If the placing arrangement is to be conducted on a fully underwritten basis instead, the Placing Agent will demand a much higher rate of underwriting commission. This will defeat the purpose of obtaining as much sale proceeds for the Company from the GBS Equity Interest Disposal as possible. The Company also stated that investors had subscribed 2,079,750,000 Shares and 1,780,235,000 Shares as announced by the Company on 17 April 2014 and

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LETTER FROM DONVEX CAPITAL

2 December 2014 respectively, which representing approximately 4.5 times and 3.9 times of the amount of the Placing Shares respectively. As such, the Company is confident that the Shares have enough attractiveness in the market and the possibility of unable to fully place the Placing Shares is minimal. In addition, the Company may extend the initial placing period and/or identify another or additional placing agents to undertake the placing exercise with the ultimate goal of disposing all the Placing Shares in the event that the Placing Agent failed to place the Placing Shares within the initial placing period. Based on the above, together with our assessment of the liquidity of the Shares as stated below, we are of the view that such term is fair and reasonable and in the interests of the Company and the Shareholders under a reasonable placing commission.

Under the Placing Agreement, the Placing Agent has its discretion to decide on (i) whether; (ii) when to dispose of the shares; and (iii) how many shares to dispose during the placing period. As the Company and the Placing Agent had entered into the Placing Agreement, the Placing Agent will have its obligation to fully place the Placing Shares within the placing period. In addition, the Placing Agent will base on its professional and independent judgment to place the Placing Shares at the best time(s) and price(s) to maximize the amount of sales proceeds for the GBS Equity Interest Disposal. The Placing arrangement should also be conducted within the parameters (that is, by reference to the given floor price and the benchmarked price) and subjected to the placing restrictions (including the limitation on the volume of Placing Shares allowed to be placed on each Trading Day) as contained in the Placing Agreement. The interest of the Company and the Shareholders are already taken into account during the negotiation process and being protected by the Placing Agreement although the role of the Company appears to be minimal during the execution of the Placing arrangement. As such, we are of the view that such arrangement is fair and reasonable.

To the best of our knowledge, we did not aware any terms and conditions of the Placing Agreement which would adversely affect the interests of the Company and Shareholders. As such, together with the factors taken into account above, we are of the view that the Placing Agreement is fair and reasonable and in the interest of the Company and Shareholders as a whole.

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LETTER FROM DONVEX CAPITAL

(c) Capability to complete the Placing

We had reviewed the liquidity of the Shares to access the capability to complete the Placing. The following table set out the trading volume of the Shares during November 2013 to December 2014 (up to the Latest Practicable Date), which is the 12-month period preceding the date of the Placing Agreement (the “Review Period”):

			Percentage of
			total trading	Percentage of
			volume for the	average daily
			month/period	trading volume
			to total number	to total number
			of Shares in	of Shares in
		Average daily	issue as at	issue as at
	Total trading	trading	the Latest	the Latest
	volume for the	volume for the	Practicable	Practicable
	month/period	month/period	Date	Date
	(Shares)	(Shares)
		(Note 1)	(Note 2)	(Note 2)
2013
November	49,745,000	2,368,810	0.40%	0.02%
December	169,672,000	8,483,600	1.37%	0.07%
2014
January	101,764,000	4,845,905	0.82%	0.04%
February	51,817,000	2,727,211	0.42%	0.02%
March	159,972,000	7,617,714	1.29%	0.06%
April	392,481,733	19,624,087	3.17%	0.16%
May	138,228,000	6,911,400	1.12%	0.06%
June	76,370,000	3,818,500	0.62%	0.03%
July	153,716,000	6,987,091	1.24%	0.06%
August (Note 3)	428,645,000	35,720,417	3.46%	0.29%
September (Note 3)	–	–	–	–
October (Note 3)	419,053,000	27,936,867	3.38%	0.23%
November	1,903,025,240	95,151,262	15.35%	0.77%
December (up to the
Latest Practicable Date)	507,162,000	50,716,200	4.09%	0.41%

Source: http://www.hkex.com.hk/

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LETTER FROM DONVEX CAPITAL

Notes:

Average daily trading volume is calculated by dividing the total trading volume for the month/period by the number of trading days during the month/period which exclude any trading day on which trading of the Shares on the Stock Exchange was suspended for the whole trading day.
Based on 12,395,909,756 Shares in issued as at the Latest Practicable Date.
Trading in the Shares on the Stock Exchange has been suspended from 19 August 2014 to 10 October 2014.

As illustrated in the above table, the monthly total trading volume of the Shares during the Review Period ranged from approximately 49,745,000 Shares to 1,903,025,240 Shares with an average of approximately 350,125,998 Shares, representing approximately 0.40% to 15.35% with an average of approximately 2.82% of the total number of Shares issued as at the Latest Practicable Date. In view of (i) the amounts of the Placing Shares representing approximately 3.69% of the total number of Shares issued as at the Latest Practicable Date; (ii) the placing period is nine months which is significantly longer than the Comparables; and (iii) the top priority of the Company is to receive the net proceeds in cash for the general working capital purposes, we are of the view that the Placing Agent would probably be able to complete the Placing under the current liquidity of the Shares.

After considered that (i) the Placing Agreement is entered into on a normal commercial terms with no material factor that would affect its fairness and reasonableness comparing with the Comparables; and (ii) the liquidity of the Shares is enough to support the execution of the Placing, especially in a significantly longer placing period, we are of the view that the Placing arrangement is fair and reasonable and in the interest of the Company and Shareholders as a whole.

As stated in the section under “Business Plan and Strategies for the Remaining Group”, we are of the view that the outlook of the business of the Remaining Group is positive due to the growth of the environmental automobile and related business in the PRC. We noticed that the market expectation on the prospect of the Company would affect the Shares’ price, which in turns affect the amount of the sales proceeds placed through the Placing Shares. However, as the Share’s price would also be affected by numerous external factors, we cannot make a precise conclusion on the correlation between the prospect of the Company and the net proceeds of the Disposal Consideration.

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LETTER FROM DONVEX CAPITAL

8. Business Plan and Strategies for the Remaining Group

(a) Lithium-ion power battery business

The major customers of the products of GBS include those from vehicles manufacturers, automotive-related components manufacturers and dealers in the PRC, the US and certain European countries such as Germany and Italy. The major suppliers of GBS are battery-materials suppliers. To the best of the Directors’ knowledge and save as the business relationship with GBS, none of the major customers or suppliers has any relationship with GBS or the Purchasers.

However, based on the loss track records of GBS and limited competitiveness of GBS resulted from the advancement in other power battery technology in recent years, the possibility of the reversal of the financial performance of GBS is still uncertain as at the current stage. However, based on the fact that it was the only manner agreed to and acceptable by the Purchasers, it would be reasonable for the Group to retain 25% equity interest in GBS and further collaborate with the Purchasers and continue its efforts to optimize the revenue of the business operated by GBS.

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LETTER FROM DONVEX CAPITAL

(b) New Energy Project

As stated in the section under “Background Information of the Group”, The Group has been engaging in the New Energy Project through the Project Company.

As at the Latest Practicable Date, the total investment amount of the Project Company was US$81.00 million (equivalent to approximately HK$631.80 million). The total registered capital of the Project Company was US$27.00 million (equivalent to approximately HK$210.6 million), which was or was to be contributed as to US$21.00 million (equivalent to approximately HK$163.8 million) by the Group and as to US$6.00 million (equivalent to approximately HK$46.80 million) by 江蘇新海連發展集團有限公司 (Jiangsu NewHeadLine Development Group Co., Ltd.*), representing approximately 77.78% and 22.22% of the total registered capital of the Project Company.

The Project Company has completed the construction of the production facilities with an area of approximately 5,300 square meters (comprising a production center of approximately 3,300 square meters and the remaining area is allocated for office, a laboratory, an inspection center and other uses). Subject to compliance with the environmental laws and regulations applicable to the New Energy Project, the Project Company is expected to commence trial or initial production in early 2015. The funding required for the trial or initial production is estimated to be US$1.0 million which will mainly be funded by internal resources of the Group. The segment will be operated by the Group’s experts in the Project Company. The Project Company currently has approximately 21 employees.

We had also enquired the Company about the business plan of the New Energy Project. The Company stated that the process of construction of the production facilities and the application for the corresponding licenses are both on schedule. The target to commence trial or initial production in early 2015 is able to be met. Revenue is expected to be recorded in mid-2015 and no sales contract had been entered by far.

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LETTER FROM DONVEX CAPITAL

(c) Environmental automobile business

As at the Latest Practicable Date, the Group had, by entering into a legally binding agreement, confirmed and secured a substantial order for electric buses from an independent dealer engaged in transportation solutions in the PRC. Under the terms of the contract, the electric buses will be used for designated municipalities and transportation authorities. The electric buses will be manufactured on an original design manufacturer (ODM) basis. Delivery of the electric buses, which will be in stages, will first commence in December 2014 (represent approximately 7% of the total order) and revenue will begin to be recognized in the books of the Group by the end of December 2014. The remaining electric buses are scheduled for delivery in the first quarter (10%), the second quarter (17%), the third quarter (26%) and the fourth quarter (40%) of 2015. As at the Latest Practicable Date, the Group had received the deposit for the order of the first batch of the electric buses. The required working capital will be funded from internal resource. This segment with be supervised by our senior management with the assistance from the experts of the Group.

We had reviewed the agreement in relation to the sales of electric buses entered into by the Company. As the terms of the contract are legally binding and the electric buses will be used for designated municipalities and transportation authorities, we are of the view that such demand is relatively secured. We had also discussed with the Company about the manufacturing process of the first batch of electric buses. The Company confirmed that the execution of the manufacturing process were smooth up until the Latest Practicable Date. The Company is confident that delivery of the electric buses will be able to first commence in December 2014 and revenue will begin to be recognized in the books of the Group by the end of December 2014. The Company expressed that electric buses will be further delivered in 2015 and such business will be able to support the operation of the Remaining Group.

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LETTER FROM DONVEX CAPITAL

Based on the above, we are of the view that the environmental automobile business would be the main source of income of the Company and the existing sales contract would be able to support the Company operations after the GBS Equity Interest Disposal. The Company confirmed that the Company possesses the necessary expertise to operate these businesses having taken into account that the Company had already engaged in the environmental automobile and related business in recent years. Both the New Energy Project undertaken by the Project Company and the environmental automobile business is and will be operated independently of the business run by GBS.

According to interim report of the Group for the 1st Half 2014, the cash and cash equivalents of the Group amounted to approximately HK$126.64 million and the net proceeds from the GBS Equity Interest Disposal will also be used by the Group for the general working capital purposes. We concur with the Directors’ view that the working capital of Remaining Group is sufficient for its continuing operation.

Industrial Overviews

With reference to the Twelfth-Five Year Plan (2011 – 2015) of the PRC, it proposed, among others, the automobile industry of the PRC should strengthen the research and development capability of complete vehicles, realize the technical autonomy of key parts, and improve the level of energy conservation, environmental protection and security technology. The PRC government will encourage the development of new strategic industries energetically, including but not limited to new materials and new energy automobile. In the new energy automobile industry, the PRC government will focus on the development of plug-in hybrid electric vehicles, pure electric vehicles and fuel cell automobile technologies. The proportion of the added value of new strategic industries to gross domestic product of the PRC should attain about 8%.

With reference to the report titled “Batteries for Electric Cars – Challenges, Opportunities, and the Outlook to 2020” issued by the Boston Consulting Group, which is a global management consulting firm and the world’s leading advisor on business strategy, it anticipate that the approximately 14 million electric cars forecast to be sold in 2020 in the PRC, Japan, the United States and Western Europe will comprise some 1.5 million fully electric cars, 1.5 million range extenders, and 11 million hybrids. In the same year, the market for electric-car batteries in those regions will be worth some USD25 billion. This burgeoning market will be about trip the size of today’s entire lithium-ion battery market for consumer applications such as laptop computers and cell phones.

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LETTER FROM DONVEX CAPITAL

With reference to the report titled “China’s EV boom” issued by Commerce International Merchant Bankers, a universal bank headquartered in Kuala Lumpur, operating in high growth economies in the Association of Southeast Asian Nations, it expect more electric vehicle models to be launched in the PRC in the next two years. With the government’s subsidies and the electric vehicle targets committed to by 40 cities, it expects the number of electric vehicles in the PRC in surge from 45,000 currently to 177,000 by the end of 2015. The PRC is the third largest market of electric vehicles based on number of electric vehicles on the roads in the beginning of 2014. However, with the rapid growth ahead, it expects the PRC to become the second and perhaps the largest electric vehicle market in the world in the next two years.

In view of the above, it is reasonable to conclude that the growth of the environmental automobile and related business in the PRC is enormous. As such, we are of the view that the outlook of the business of the Remaining Group is positive.

9. Financial Effect of the GBS Equity Interest Disposal

GBS is currently a wholly-owned subsidiary of the Company and its results has, since the completion of the GBS Acquisition, been consolidated into the results of the Group.

The Group expects to recognize, as a result of the GBS Equity Interest Disposal, an unaudited loss of approximately (i) RMB33.8, which is calculated based on the estimated proceeds from the GBS Equity Interest Disposal of approximately RMB23.5 million (calculated based on the Company’s closing stock price of HK$0.1150 on 18 August 2014); or (ii) RMB18.2 million, which is calculated based on the proceeds from the GBS Equity Interest Disposal of approximately RMB39.0 million (calculated based on the Company’s closing stock price of HK$0.191 on the Latest Practicable Date, deducted by (i) the Group’s 75% equity interest in GBS and release of reserve reclassified from other comprehensive income to profit or loss of approximately RMB43.5 million as at 30 June 2014; (ii) written off of current account with GBS of approximately RMB11.6 million as at 30 June 2014 and (iii) an estimated transaction cost of approximately RMB2.2 million for the GBS Equity Interest Disposal. The actual gain or loss as a result of the GBS Equity Interest Disposal to be recorded by the Group is subject to audit and will be assessed after the Disposal Completion. The GBS Equity Interest Disposal, upon its consummation, will result in a decrease in earnings and a decrease in net assets.

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LETTER FROM DONVEX CAPITAL

According to unaudited pro forma financial information of the Remaining Group as set out in the Remaining Group Pro Forma Report, the nature and amounts of the major assets of the Remaining Group as at 30 June 2014 included certain property, plant and equipment (approximately HK$15.22 million), other investment (approximately HK$10.81 million), cash and cash equivalents (approximately HK$121.49 million) and prepayment, deposits and other receivables (approximately HK$273.91 million, in which the prepayment of approximately HK$156.70 million was made for the research and development of major components of electric buses).

Below are the major financial effects on the Group resulted from the GBS Equity Interest Disposal.

(a) Net assets

Based on the Remaining Group Pro Forma Report, the unaudited net assets of the Remaining Group would decrease by 15.70% from approximately HK$524.66 million as at 30 June 2014 to approximately HK$442.27 million, assuming the GBS Equity Interest Disposal had taken place on 30 June 2014.

(b) Liquidity

Based on the Remaining Group Pro Forma Report, the current ratio, in terms of current assets over current liabilities, would increase from approximately 5.08 times as at 30 June 2014 to approximately 11.60 times, assuming the GBS Equity Interest Disposal had taken place on 30 June 2014.

(c) Earnings

Based on the Remaining Group Pro Forma Report, the unaudited loss after tax of the Remaining Group would change from approximately HK$59.71 million for the six months ended 30 June 2014 to a loss of approximately HK$107.30 million, representing an increase in loss of approximately HK$47.59 million, assuming the GBS Equity Interest Disposal had taken place on 1 January 2014.

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LETTER FROM DONVEX CAPITAL

(d) Gearing ratio

Based on the Remaining Group Pro Forma Report, the gearing ratio of the Remaining Group, in terms of total liabilities divided by shareholders’ equity, will decrease from approximately 22.76% as at 30 June 2014 to approximately 9.56%, assuming the GBS Equity Interest Disposal had taken place on 30 June 2014.

Despite that based on the Remaining Group Pro Forma Report, the earnings of the Remaining Group would decrease as a result of assuming that the GBS Equity Interest Disposal had taken place on 1 January 2014 and the net assets of the of the Remaining Group would decrease assuming the GBS Equity Interest Disposal had taken place on 30 June 2014, having considered (i) the liquidity and the gearing ratio of the Remaining Group would improve assuming the GBS Equity Interest Disposal had taken place on 30 June 2014; and (ii) the reasons for the GBS Equity Interest Disposal as set out in the section headed “Reasons for and benefits from the GBS Equity Interest Disposal” above, we considered that the financial effects of the GBS Equity Interest Disposal on the Remaining Group are acceptable.

Please refer to Appendix III for the unaudited pro forma financial information of the Remaining Group.

RECOMMENDATION

Having considered the above mentioned principal factors and reasons and in particular that,

GBS was unable to meet the profit guarantee after the GBS Acquisition and the loss track record of the lithium-ion power battery business adversely impact the financial position of the Group since the GBS Acquisition;
advancement in other power battery technology limited the business operation of the lithium-ion power batteries business;
the Group would limit further capital injection to GBS by conducting the GBS Equity Interest Disposal;
the Purchasers are the only available buyers of GBS and the current settlement arrangement of the GBS Equity Interest Disposal was the only manner agreed to and acceptable by the Purchasers;

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LETTER FROM DONVEX CAPITAL

the terms and conditions of the Placing Agreement are fair and reasonable and on normal commercial terms;
engaging the Placing Agent to oversee the Placing arrangements for the disposal of the Subject Shares would be able to maximize the amount of sale proceeds for the GBS Equity Interest Disposal;
the Company possesses the necessary expertise and financial resources for the Remaining Group to operate in the environmental automobile and related business with positive outlook; and
the financial effects of the GBS Equity Interest Disposal on the Remaining Group are acceptable.

We consider that the terms and conditions of the GBS Share Transfer Agreement and the transactions and/or arrangements contemplate thereunder have been entered into are (i) on normal commercial terms; (ii) in the ordinary and usual course of business of the Group; (iii) fair and reasonable as far as the Independent Shareholders are concerned; and (iv) in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Shareholders and the Independent Board Committee to recommend the Independent Shareholders, to vote in favor of the ordinary resolution to be proposed at the SGM to approve the GBS Equity Interest Disposal and terms thereof.

Yours faithfully, For and on behalf of Donvex Capital Limited Doris Sy Director

IFA – 40

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

I. FINANCIAL INFORMATION OF THE GROUP

The audited consolidated financial statements of the Group (i) for the year ended 31 December 2011 are disclosed in the annual report 2011 of the Company published on 30 March 2012, from pages 39 to 136; (ii) for the year ended 31 December 2012 are disclosed in the annual report 2012 of the Company published on 28 March 2013, from pages 40 to 121; and (iii) for the year ended 31 December 2013 are disclosed in the annual report 2013 of the Company published on 31 March 2014, from pages 39 to 123. The unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2014 are disclosed in the interim report of the Company published on 29 August 2014, from pages 3 to 16.

All of these financial statements have been published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://hk1188.etnet.com.hk/index.html).

II. INDEBTEDNESS OF THE GROUP

As at the close of business on 31 October 2014, being the latest practicable date for the purpose of ascertaining the indebtedness of the Group prior to the printing of this circular, the Group had outstanding bank and other borrowings of approximately HK$15,551,000 which comprised:

Borrowings:

(a) bank borrowings of approximately HK$12,807,000 which were secured by the bank deposits, structured bank deposit and machineries of the Group and were secured by the personal guarantee and a property from an officer of the Group;
(b) unsecured other loan of HK$2,536,000, which was interest bearing at 6% per annum and repayable on demand; and
(c) unsecured other loan of HK$208,000, which was interest-free and repayable on demand.

I – 1

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities:

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables and bills arising in the ordinary course of business, the Group did not have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptable credits, debentures, mortgages, charges, hire purchase commitments, guarantees or other material contingent liabilities as at 31 October 2014.

For the purpose of compiling this indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the applicable rates of exchange at the close of business on 31 October 2014.

III. WORKING CAPITAL STATEMENT

The Directors are of the opinion that in the absence of unforeseen circumstances and after taking into account the financial resources available to the Group and also taking into account the effect of the Proposed Disposal, the Group will have sufficient working capital for at least twelve months from the date of this circular.

IV. MATERIAL CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position or prospect of the Group since 31 December 2013, the date to which the latest audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date.

I – 2

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, from the independent reporting accountant, BDO Limited, Certified Public Accountants, Hong Kong.

==> picture [76 x 62] intentionally omitted <==

==> picture [96 x 54] intentionally omitted <==

16 December 2014

The Directors

Hybrid Kinetic Group Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Zhejiang GBS Energy Co., Ltd (the “Disposal Company”), including the statement of comprehensive income, statement of changes in equity and statement of cash flows of the Disposal Company for the three years ended 31 December 2011, 2012 and 2013 and for the six months ended 30 June 2014 (the “Relevant Periods”), and the statement of financial position of the Disposal Company as at 31 December 2011, 2012 and 2013 and 30 June 2014, together with explanatory notes thereon (the “Financial information”), solely for inclusion in the circular of Hybrid Kinetic Group Limited (the “Company”) dated 16 December 2014 (the “Circular”) in connection with the proposed disposal of 75% equity interest of the Disposal Company (the “Disposal”).

The Disposal Company was a Sino-foreign equity joint venture established in the People’s Republic of China (the “PRC”) with limited liabilities on 4 July 2007 and its registered office is No. 6, Beihuan East Road, Yuyao City, Zhejiang Province, the PRC. The principal activity of the Disposal Company is manufacturing and sales of lithium-ion power batteries.

The Disposal Company has adopted 31 December as its financial year end date.

II – 1

APPENDIX II

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

The statutory financial statements of the Disposal Company for the years ended 31 December 2011, 2012 and 2013 were audited by 餘姚中誠會計師事務所 (Note: For identification purpose, the English name of the firm is Yuyao Zhongcheng Certified Public Accountants Co., Limited. The official name of the firm is in Chinese.), a firm of certified public accountants registered in the PRC. The financial statements of the Disposal Company for the six months ended 30 June 2014 were not audited. Financial statements are prepared in accordance with the accounting standards generally accepted in the PRC (the “PRC GAAP”).

For the purpose of the Financial Information of this report, the directors of the Company has prepared the financial statements (the “Underlying Financial Statements”) of the Disposal Company for the Relevant Periods in accordance with the basis as set out in note 2 of Section II and in accordance with the accounting policies set out in note 3 of Section II which conform with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

The Financial Information set out in this report has been prepared based on the Underlying Financial Statements of the Disposal Company.

RESPECTIVE RESPONSIBILITY OF DIRECTORS AND REPORTING ACCOUNTANTS

The directors of the Company is responsible for the preparation the true and fair presentation of the Financial Information prepared in accordance with the basis of presentation set out in note 2 of Section II below and the accounting policies set out in note 3 of Section II below and the applicable disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”), and the contents of this Circular in which this report is included. The directors of the Company are also responsible for such internal control as they determine is necessary to enable the preparation of Financial Information that is free from material misstatements, whether due to fraud or error.

Our responsibility is to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

II – 2

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

BASIS OF OPINION

For the purpose of this report, we have carried out appropriate audit procedures on the Underlying Financial Statements for the Relevant Periods in accordance with Hong Kong Standards on Auditing issued by the HKICPA. We have examined the Financial Information in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA and have carried out such additional procedures on the Financial Information as we considered necessary.

OPINION

In our opinion, the Financial Information set out below, for the purpose of this report, give a true and fair view of the results and cash flows of the Disposal Company for the Relevant Periods and of the state of affairs of the Disposal Company as at 31 December 2011, 2012 and 2013 and 30 June 2014, in accordance with HKFRSs.

COMPARATIVE FINANCIAL INFORMATION

For the purpose of this report, we have also reviewed the unaudited comparative financial information of the Disposal Company comprising the statement of comprehensive income, cash flow statement and statement of changes in equity for the six months ended 30 June 2013 (the “Comparative Period”), together with the notes thereto (the “Comparative Financial Information”), for which the directors are responsible.

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our responsibility is to express a conclusion on the Comparative Financial Information based on our review.

A review consists of making enquiries of management and applying analytical procedures to the financial information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit and consequently does not enable us to obtain assurance that we would become aware of any significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the Comparative Financial Information.

Based on our review, which does not constitute an audit, for the purpose of this report, nothing has come to our attention that causes us to believe that the Comparative Financial Information is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

I. FINANCIAL INFORMATION

Statements of Comprehensive Income

Notes Revenue 7 Cost of sales Gross profit Other income 7 Distribution costs General operating expenses Finance costs 8 (Loss)/profit before income tax 9 Income tax expense 10 (Loss)/profit for the year/period Other comprehensive income Items that may be reclassified subsequently to profit or loss: – Exchange differences on translation of financial statement Total comprehensive income for the year/period	Year 2011 HK$’000 48,315 (36,160) 12,155 443 (3,403) (15,880) (501) (7,186) (767) (7,953) 2,049 (5,904)	ended 31 December 2012 2013 HK$’000 HK$’000 43,039 52,183 (27,641) (33,665) 15,398 18,518 2,184 2,610 (2,781) (2,970) (11,559) (11,782) (2,078) (2,301) 1,164 4,075 (890) (1,019) 274 3,056 1,208 837 1,482 3,893	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) 24,036 25,976 (19,552) (21,873) 4,484 4,103 405 564 (1,356) (1,361) (3,351) (10,877) (990) (750) (808) (8,321) – – (808) (8,321) 268 (344) (540) (8,665)	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) 24,036 25,976 (19,552) (21,873) 4,484 4,103 405 564 (1,356) (1,361) (3,351) (10,877) (990) (750) (808) (8,321) – – (808) (8,321) 268 (344) (540) (8,665)
				4,103 564 (1,361) (10,877) (750)
				(8,321) –
				(8,321) (344)
				(8,665)

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

Statements of Financial Position

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 12 Intangible assets 13 Current assets Inventories 14 Trade receivables 15 Bills receivable Prepayments, deposits and other receivables 16 Tax recoverable Structured bank deposit 17 Pledged bank deposits 18 Cash and cash equivalents 18 Current liabilities Trade payables 19 Accruals and other payables 20 Borrowings 21 Bills payable Amount due to immediate holding company 22 Tax payable Net current assets Net assets EQUITY Equity attributable to owners of the Company Share capital 23 Reserves 24 Total equity	As at 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 40,397 37,838 33,951 182 162 140 40,579 38,000 34,091 28,183 37,853 44,136 21,122 15,359 28,392 – – 989 5,397 22,885 15,144 1,563 – – – – – 10,927 – – 1,563 2,249 1,626 68,755 78,346 90,287 23,194 28,798 32,215 3,433 350 4,384 – 2,493 7,608 21,856 22,439 12,680 18,235 14,981 15,239 – 672 1,746 66,718 69,733 73,872 2,037 8,613 16,415 42,616 46,613 50,506 45,032 47,547 47,547 (2,416) (934) 2,959 42,616 46,613 50,506	As at 30 June 2014 HK$’000 31,340 126 31,466 40,919 28,928 384 8,732 – 10,700 934 2,427 93,024 32,152 3,886 25,884 4,710 14,598 1,419 82,649 10,375 41,841 47,547 (5,706) 41,841

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

Statements of Changes in Equity

At 1 January 2011 Loss for the year Other comprehensive income Exchange differences on translation of financial statements At 31 December 2011 and 1 January 2012 Profit for the year Other comprehensive income Exchange differences on translation of financial statements Capital contribution from shareholder At 31 December 2012 and 1 January 2013 Profit for the year Other comprehensive income Exchange differences on translation of financial statements At 31 December 2013 and 1 January 2014 Loss for the period Other comprehensive income Exchange differences on translation of financial statements At 30 June 2014	Share capital HK$’000 45,032 – – 45,032 – – 2,515 47,547 – – 47,547 – – 47,547	Translation reserve HK$’000 57 – 2,049 2,106 – 1,208 – 3,314 – 837 4,151 – (344) 3,807	Accumulated profits/ (losses) HK$’000 3,431 (7,953) – (4,522) 274 – – (4,248) 3,056 – (1,192) (8,321) – (9,513)	Total HK$’000 48,520 (7,953) 2,049 42,616 274 1,208 2,515 46,613 3,056 837 50,506 (8,321) (344) 41,841

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APPENDIX II

For the six months ended 30 June 2013 (unaudited) At 1 January 2013 Loss for the period Other comprehensive income Exchange differences on translation of financial statements At 30 June 2013	47,547 – – 47,547 Share capital HK$’000	3,314 – 268 3,582 Translation reserve HK$’000	(4,248) (808) – (5,056) Accumulated profits/ (losses) HK$’000	46,613 (808) 268 46,073 Total HK$’000

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

Statements of Cash Flows

Cash flows from operating activities (Loss)/profit before income tax Adjustments for: Amortisation of intangible assets Depreciation of property, plant and equipment Interest expenses Interest income Gain on disposal of property, plant and equipment Impairment of trade receivables Impairment of other receivables Operating profit/(loss) before working capital changes (Increase)/decrease in inventories (Increase)/decrease in trade receivables Decrease/(increase) in prepayment, deposits and other receivables Decrease/(increase) in bills receivable Increase/(decrease) in trade payables Increase/(decrease) in bills payable (Decrease)/increase in accruals and other payables Cash generated from/(used in) operating activities Interest paid Income tax paid Net cash generated from/(used in) operating activities	Year 2011 HK$’000 (7,186) 25 4,509 501 – – 6,660 – 4,509 (15,533) (5,934) 4,703 2,133 13,929 19,520 (1,804) 21,523 (501) (93) 20,929	ended 31 December 2012 2013 HK$’000 HK$’000 1,164 4,075 25 25 5,437 5,419 2,078 2,301 (190) (914) – (36) 3,897 1,244 – – 12,411 12,114 (9,670) (6,283) 1,915 (13,982) (17,488) 7,741 – (989) 5,604 3,417 583 (9,759) (1,715) 4,034 (8,360) (3,707) (2,078) (2,301) (23) – (10,461) (6,008)	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) (808) (8,321) 13 13 2,338 2,796 990 750 (366) (12) – – – 603 – 2,999 2,167 (1,172) (6,383) 3,217 6,664 (1,139) 1,076 3,413 (100) 605 (856) (63) 129 (7,970) (229) (498) 2,468 (3,607) (990) (750) – (316) 1,478 (4,673)	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) (808) (8,321) 13 13 2,338 2,796 990 750 (366) (12) – – – 603 – 2,999 2,167 (1,172) (6,383) 3,217 6,664 (1,139) 1,076 3,413 (100) 605 (856) (63) 129 (7,970) (229) (498) 2,468 (3,607) (990) (750) – (316) 1,478 (4,673)
				(1,172) 3,217 (1,139) 3,413 605 (63) (7,970) (498)
				(3,607) (750) (316)
				(4,673)

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

Cash flows from investing activities Decrease/(increase) in pledged bank deposits Increase in structured bank deposit Interest received Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash (used in)/generated from investing activities Cash flows from financing activities Proceeds from capital contribution from shareholder Proceeds from bank borrowings Repayment of bank borrowings Proceeds from other borrowings (Decrease)/increase in amount due to immediate holding company Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Effect of foreign currency rate change Cash and cash equivalents at beginning of year/period Cash and cash equivalents at end of year/period	Year 2011 HK$’000 (8,591) – – (16,156) – (24,747) – – (11,680) – – (11,680) (15,498) 570 16,491 1,563	ended 31 December 2012 2013 HK$’000 HK$’000 10,927 – – – 190 914 (1,869) (1,393) – 477 9,248 (2) 2,515 – – 31,700 – (26,628) 2,493 – (3,254) 258 1,754 5,330 541 (680) 145 57 1,563 2,249 2,249 1,626	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) – (934) – (10,700) 366 12 (1,267) (422) – – (901) (12,044) – – 25,076 23,366 (2,507) (5,072) – – – – 22,569 18,294 23,146 1,577 72 (776) 2,249 1,626 25,467 2,427	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) – (934) – (10,700) 366 12 (1,267) (422) – – (901) (12,044) – – 25,076 23,366 (2,507) (5,072) – – – – 22,569 18,294 23,146 1,577 72 (776) 2,249 1,626 25,467 2,427
				(12,044)
				– 23,366 (5,072) – –
				18,294
				1,577 (776) 1,626
				2,427

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION

1. Corporate information

The Disposal Company, an indirectly wholly-owned subsidiary of Hybrid Kinetic Group Limited, is an exempted limited liability company incorporated in the PRC on 4 July 2007. The Company’s registered office and principal place of business is located at No. 6, Beihuan East Road, Yuyao City, Zhejiang Province, the PRC. The Disposal Company is principally engaged in manufacturing and sales of lithium-ion power batteries. Hybrid Kinetic Power Battery Holdings Limited and Ningbo Meilide Consulting Co., Ltd are the immediate holding companies of the Disposal Company and the wholly-owned subsidiaries of the Company.

On 18 August 2014, Hybrid Kinetic Power Battery Holdings Limited entered into the sale and purchase agreement for the disposal of the 75% equity interest of the Disposal Company to Headland Co., Limited, Mr Wenren Hongquan and Ms Wenren Hongyan (collectively the “Purchasers”), at a consideration of 257,324,692 shares of the Company.

2. Basis of presentation

The financial statements have been prepared in accordance with all applicable HKFRSs, Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to as the “HKFRSs”) and the disclosure requirements of Hong Kong Companies Ordinance. In addition, the financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). All HKFRSs effective for the accounting periods commencing from 1 January 2014 and relevant to the Disposal Company, have been adopted by the Disposal Company in the preparation of the Financial Information consistently throughout the Relevant Periods to the extent required or allowed by the transitional provisions in the HKFRSs. The Financial Information has been prepared under the historical cost convention.

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It should be noted that accounting estimates and assumptions are used in the preparation of the Financial Information. Although these estimates are based on management’s best knowledge and judgment of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Financial Information are disclosed in note 5.

The Financial Information is presented in Hong Kong dollars (“HK$”), which is different from the functional currency of the Disposal Company, being Renminbi (“RMB”). Since the presentation currency of the Company is HK$, the Disposal Company is consistent its presentation currency with the Company. All values are rounded to the nearest thousand except when otherwise indicated.

3. Adoption of Hong Kong Financial Reporting Standards (“HKFRSs”)

For the purpose of preparing and presenting the Financial Information, the Disposal Company has applied all HKFRSs which are effective for the Disposal Company’s financial year beginning on 1 January 2011 consistently throughout the Relevant Periods.

The Disposal Company has not early applied the following new or revised standards, amendments and interpretations that have been issued but are not yet effective as at the date of this report.

HKFRS 9 (2014) Financial Instruments[4] HKFRS 15 Revenue from Contracts with Customers[3] Amendments to HKFRS 9, Hedge Accounting HKFRS 7 and HKAS 39 HKFRSs (Amendments) Annual Improvements 2010-2012 Cycle[2] HKFRSs (Amendments) Annual Improvements 2011-2013 Cycle[1]

1 Effective for annual periods beginning on or after 1 July 2014

2 Effective for annual periods beginning, or transactions occurring, on or after 1 July 2014

3 Effective for annual periods beginning on or after 1 January 2017

4 Effective for annual periods beginning on or after 1 January 2018

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APPENDIX II

HKFRS 9 (2014) – Financial Instruments

HKFRS 9 (2014) adds to the existing HKFRS 9. HKFRS 9 (2014) introduces new impairment requirement for all financial assets that are not measured at fair value through profit or loss and amendments to the previously finalised classification and measurement requirements.

A new “expected loss” impairment model in HKFRS 9 (2014) replaces the “incurred loss” model in HKAS 39 Financial Instruments: Recognition and Measurement. For financial assets at amortised cost or fair value through other comprehensive income, an entity will now always recognise (at a minimum) 12 months of expected losses in profit or loss. For trade receivables, there is a practical expedient to calculate expected credit losses using a provision matrix based on historical loss patterns or customer bases.

HKFRS 9 (2014) also introduces additional application guidance to clarify the requirements for contractual cash flows of a financial asset to give rise to payments that are Solely Payments of Principal and Interest (SPPI), one of the two criteria that need to be met for an asset to be measured at amortised cost, which may result in additional financial assets being measured at amortised cost.

A third measurement category has also been added for debt instruments – fair value through other comprehensive income which applies to debt instruments that meet the SPPI contractual cash flow characteristic test.

The Disposal Company is in the process of making an assessment of what the impact of these new and revised HKFRSs is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the financial statements.

4. Summary of significant accounting policies

The significant accounting policies that have been used in the preparation of the Financial Information are summarised below. These policies have been consistently applied to all the years/periods presented unless otherwise stated. The Financial Information has been prepared under the historical cost basis. The measurement bases are fully described in the accounting policies below.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

It should be noted that accounting estimates and assumptions have been made in preparing the Financial Information. Although these estimates are based on management’s best knowledge and judgement of current events and actions, actual results may ultimately differ from those estimates and assumptions. The areas where assumptions and estimates are significant to the Financial Information are set out in note 5 “Critical accounting estimates and assumptions”.

4.1 Foreign currency translation

The Financial Information is presented in HK$, which is different from the functional currency of the Disposal Company, being RMB.

In the Financial Information of the Disposal Company, foreign currency transactions are translated into the functional currency of the entity using the exchange rates prevailing at the dates of the transactions. At the reporting date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at that date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the reporting date retranslation of monetary assets and liabilities are recognised in profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

In the Financial Information, the results and financial position of the Disposal Company, in which its functional currency different from its presentation currency, have been converted into HK$. Assets and liabilities for statement of financial position presented have been translated into HK$ at the closing rates at each of the reporting dates. Income and expenses for statement presenting profit or loss and other comprehensive income have been translated into HK$ at the exchange rates ruling at the dates of transactions, or at the average rates over each of the reporting periods provided that the exchange rates do not fluctuate significantly. All resulting exchange differences arising from this procedure have been recognised in other comprehensive income and accumulated separately in the translation reserve in equity.

4.2 Property, plant and equipment

Property, plant and equipment, other than construction in progress (“CIP”), are stated at cost less accumulated depreciation and accumulated impairment losses.

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APPENDIX II

Buildings held under leasing agreements are depreciated over their expected useful lives of 15 to 40 years or over the term of lease, whichever is shorter. Depreciation on other assets is provided to write off the cost less their residual values over their estimated useful lives, using the straight-line method, at the following rates per annum:

Leasehold improvements,	Over	the terms of the leases or estimated
fixture and fittings	useful lives, ranging from 5 years to
		10 years, whichever is shorter
Furniture and equipment		20%
Machineries		10%
Motor vehicles		20%

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

The gain or loss arising on retirement or disposal is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the profit or loss.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Disposal Company and the cost of the item can be measured reliably. All other costs, such as repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

CIP, which mainly represents leasehold improvements on buildings, is stated at cost less accumulated impairment losses. Cost comprises direct costs incurred during the periods of construction, installation and testing. No depreciation is provided on CIP. CIP is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

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APPENDIX II

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

4.3 Intangible assets (other than goodwill) and research and development activities

Intangible assets (other than goodwill)

Acquired intangible assets are recognised initially at cost. After initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on straight-line basis over their estimated useful lives. Amortisation commences when the intangible assets are available for use. The following estimated useful lives are applied:

Intangible assets with indefinite useful lives are carried at cost less any subsequent impairment losses.

Intangible assets, with finite and indefinite useful lives, are tested for impairment as described in note 4.12.

Research and development costs

Costs associated with research activities are expensed in profit or loss as they occur. Costs that are directly attributable to development activities are recognised as intangible assets provided they meet the following recognition requirements:

(i) demonstration of technical feasibility of the prospective product for internal use or sale;
(ii) there is intention to complete the intangible asset and use or sell it;
(iii) the Disposal Company’s ability to use or sell the intangible asset is demonstrated;
(iv) the intangible asset will generate probable economic benefits through internal use or sale;

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

(v) sufficient technical, financial and other resources are available for completion; and
(vi) the expenditure attributable to the intangible asset can be reliably measured.

Direct costs include employee costs incurred on development activities along with an appropriate portion of relevant overheads. The costs of development of internally generated software, products or knowhow that meet the above recognition criteria are recognised as intangible assets. They are subject to the same subsequent measurement method as acquired intangible assets.

All other development costs are expensed as incurred.

4.4 Financial assets

The Disposal Company’s accounting policies for financial assets are set out below.

Financial assets are classified as loans and receivables

Management determines the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and where allowed and appropriate, re-evaluates this designation at every reporting date.

All financial assets are recognised when, and only when, the Disposal Company becomes a party to the contractual provisions of the instrument. Regular way purchases of financial assets are recognised on trade date. When financial assets are recognised initially, they are measured at fair value, plus directly attributable transaction costs.

Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred.

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APPENDIX II

At each reporting date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, impairment loss is determined and recognised based on the classification of the financial asset.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are subsequently measured at amortised cost using the effective interest method, less any impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction cost.

Impairment of financial assets

At each reporting date, financial assets are reviewed to determine whether there is any objective evidence of impairment.

Objective evidence of impairment of individual financial assets includes observable data that comes to the attention of the Disposal Company about one or more of the following loss events:

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

Loss events in respect of a group of financial assets include observable data indicating that there is a measurable decrease in the estimated future cash flows from the group of financial assets. Such observable data includes but not limited to adverse changes in the payment status of debtors in the group and, national or local economic conditions that correlate with defaults on the assets in the group.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

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

Financial assets carried at amortised cost

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

If, in subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that it does not result in a carrying amount of the financial asset exceeding what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss of the period in which the reversal occurs.

For financial assets other than loans and receivables that are stated at amortised cost, impairment losses are written off against the corresponding assets directly. Where the recovery of loans and receivables is considered doubtful but not remote, the impairment losses for doubtful receivables are recorded using an allowance account. When the Disposal Company is satisfied that recovery of loans and receivables is remote, the amount considered irrecoverable is written off against loans and receivables directly and any amounts held in the allowance account in respect of that receivable are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

4.5 Inventories

Inventories are carried at the lower of cost and net realisable value. Cost is determined using weighted average method. Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and applicable selling expenses.

4.6 Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand, demand deposits with banks and short term highly liquid investments with original maturities of three months or less that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. For the purpose of the statement of cash flows presentation, cash and cash equivalents include bank overdrafts which are repayable on demand and form an integral part of the Disposal Company’s cash management.

4.7 Financial liabilities

The Disposal Company’s financial liabilities include trade payables, bills payable, other payables, borrowings and amount due to immediate holding company. They are included in line items in the statement of financial position as trade payables, accruals and other payables, borrowings and amount due to immediate holding company.

Financial liabilities are recognised when the Disposal Company becomes a party to the contractual provision of the instrument. All interest related charges are recognised in accordance with the Disposal Company’s accounting policy for borrowing costs (see note 4.19).

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

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

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Disposal Company has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.

Payables are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest method.

4.8 Leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Disposal Company determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Disposal Company

Assets that are held by the Disposal Company under leases which transfer to the Disposal Company substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Disposal Company are classified as operating leases.

(ii) Operating lease charges as the lessee

Where the Disposal Company has the right to use of assets held under operating leases, payments made under the leases are charged to profit or loss on a straight line basis over the lease terms except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rental are charged to profit or loss in the accounting period in which they are incurred.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

4.9 Provisions, contingent liabilities and contingent assets

Provisions are recognised when the Disposal Company has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the Disposal Company, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

Probable inflow of economic benefit to the Disposal Company that do not yet meet the recognition criteria of an asset are considered as contingent assets.

4.10 Share capital

Capital is classified as equity. Share capital is determined using the nominal value of shares that have been issued.

Any transaction costs associated with the issuing of capital are deducted from capital (net of any related income tax benefit) to the extent they are incremental costs directly attributable to the equity transaction.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

4.11 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services, net of rebates and discounts. Provided it is probable that the economic benefits will flow to the Disposal Company and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows:

Sales of goods are recognised upon transfer of the significant risks and rewards of ownership to the customer. This is usually taken as the time when the goods are delivered and the customer has accepted the goods.

Interest income is recognised on a time-proportion basis using the effective interest method.

Services fees are recognised in the accounting period in which the services are rendered.

Subsidy income is recognised when the right to receive payment is established.

4.12 Impairment of non-financial assets

Property, plant and equipment and intangible assets are subject to impairment testing.

Intangible assets with indefinite useful life or those not yet available for use are tested for impairment at least annually, irrespective of whether there is any indication that they are impaired. All other assets are tested for impairment whenever there are indications that the asset’s carrying amount may not be recoverable.

An impairment loss is recognised as an expense immediately for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of time value of money and the risk specific to the asset.

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APPENDIX II

For the purposes of assessing impairment, where an asset does not generate cash inflows largely independent from those from other assets, the recoverable amount is determined for the smallest group of assets that generate cash inflows independently (i.e. a cash-generating unit). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.

4.13 Employee benefits

Contributions are recognised as an expense in profit or loss as employees render services during the year. The Disposal Company’s obligation under these plans is limited to the fixed percentage contributions payable.

Retirement benefits

Retirement benefits to employees are provided through defined contribution plans.

The employees of the Disposal Company which operate in the PRC are required to participate in a central pension scheme operated by the local municipal government. The Disposal Company is required to contribute certain percentage of its payroll costs to the central pension scheme.

4.14 Borrowing costs

Borrowing costs incurred for the acquisition, construction or production of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. A qualifying asset is an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. Other borrowing costs are expenses when incurred.

Borrowing costs are capitalised as part of the cost of a qualifying asset when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are being undertaken. Capitalisation of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

4.15 Accounting for income taxes

Income tax comprises current tax and deferred tax.

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the reporting date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in profit or loss.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except for recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is measured at the tax rates appropriate to the expected manner in which the carrying amount of the asset or liability is realised or settled and that have been enacted or substantively enacted at the end of reporting period.

Deferred tax assets and liabilities are not recognised if the temporary difference arises from initial recognition of assets and liabilities in a transaction that affects neither taxable nor accounting profit or loss.

Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the period the liability is settled or the asset realised, provided they are enacted or substantively enacted at the reporting date.

Changes in deferred tax assets or liabilities are recognised in profit or loss, or in other comprehensive income or directly in equity if they relate to items that are charged or credited to other comprehensive income or directly in equity.

Income taxes are recognised in profit or loss except when they relate to items recognised in other comprehensive income in which case the taxes are also recognised in other comprehensive income.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

Current tax assets and current tax liabilities are presented in net if, and only if,

a. the Disposal Company has the legally enforceable right to set off the recognised amounts; and
b. intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

The Disposal Company presents deferred tax assets and deferred tax liabilities in net if, and only if,

a. the entity has a legally enforceable right to set off current tax assets against current tax liabilities; and
b. the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.

4.16 Segment reporting

The Disposal Company identifies operating segments and prepares segment information based on the regular internal financial information reported to the executive directors for their decisions about resources allocation to the Disposal Company’s business components and for their review of the performance of those components. The business components in the internal financial information reported to the executive directors are determined following the Disposal Company’s major products and service lines.

The measurement policies the Disposal Company uses for reporting segment results under HKFRS 8 are the same as those used in the financial statements prepared under HKFRSs.

No asymmetrical allocations have been applied to reportable segments.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

4.17 Government grants

Government grants are recognised when there is reasonable assurance that they will be received and that the Disposal Company will comply with the conditions attaching to them. Grants that compensate the Disposal Company for expenses incurred are recognised as revenue in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Disposal Company for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.

4.18 Related parties

(a) A person or a close member of that person’s family is related to the Disposal Company if that person:
(i) has control or joint control over the Disposal Company;
(ii) has significant influence over the Disposal Company; or
(iii) is a member of key management personnel of the Disposal Company or the Disposal Company’s parent.
(b) An entity is related to the Disposal Company if any of the following conditions apply:
(i) The entity and the Disposal Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

(v) The entity is a post-employment benefit plan for the benefit of the employees of the Disposal Company or an entity related to the Disposal Company.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of key management personnel of the entity (or of a parent of the entity).

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include:

(i) that person’s children and spouse or domestic partner;
(ii) children of that person’s spouse or domestic partner; and
(iii) dependents of that person or that person’s spouse or domestic partner.

4.19 Financial guarantee contract

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

5. Critical accounting estimates and judgements

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

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

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

Depreciation and amortisation

The Disposal Company depreciates the property, plant and equipment and amortises the intangible assets (other than goodwill) in accordance with the accounting policies stated in notes 4.2 to 4.3. The estimated useful lives reflect the directors’ estimates of the periods that the Disposal Company intends to derive future economic benefits from the use of these assets.

Impairment of loans and receivables

The Disposal Company estimates impairment losses for bad and doubtful debts resulting from the inability of the debtors to make the required payments. The Disposal Company bases the estimates on the ageing of the receivable balances, debtors’ credit-worthiness, and historical write-off experience. If the financial condition of the debtors were to deteriorate, actual write-offs would be higher than those estimated.

Impairment of non-financial assets (other than goodwill)

The Disposal Company assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Indefinite life intangible assets are tested for impairment annually and at other times when such indicator exists. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value-in-use calculations are undertaken, management estimates the expected future cash flows from the asset or cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows.

Provision for inventories

In determining the amount of allowance required for obsolete and slow-moving inventories, the Disposal Company would evaluate ageing analysis of inventories and compare the carrying value of inventories to their respective net realisable value. A considerable amount of judgement is required in determining such allowance. If conditions which have impact on the net realisable value of inventories deteriorate, additional allowances may be required.

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APPENDIX II

Research and development costs

In accordance with the accounting policy set out in note 4.3, costs associated with research activities are expensed in profit or loss as they are incurred, while costs that are directly attributable to development activities are recognised as intangible assets provided they meet all the requirements as set out in note 4.3. This requires the management to make judgements to distinguish the research phase and development phase of the projects being undertaken. Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use. Determining the amounts to be expensed in profit or loss or to be capitalised required management to make judgement and assumptions regarding the expected progress and outcome of the research and development activities, the future expected cash generation of the assets, discount rates to be applied, and also the expected period of probable future economic benefits. Because of the nature of the Disposal Company’s research and development activities, the criteria for the recognition of such costs as an asset are generally not met until late in the development stage of the projects. Hence research costs are generally recognised as expenses in the period in which they are incurred.

6. Segment information

The Disposal Company has identified only one operating segment and prepared segment information based on the regular internal financial information reported to the chief operating decision-maker for decisions about resources allocation to its business and the business decision-maker for Disposal Company mainly operates in the PRC and the sole business during the Relevant Periods and the Comparative Period is development and manufacturing of lithium-ion power battery.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

The Disposal Company’s revenue from external customers are divided into the following geographical areas:

Hong Kong PRC United States (“US”) Germany Korea Other locations	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 – 74 – 18,330 16,476 17,489 16,415 5,055 11,536 813 1,483 5,959 4,770 13,668 12,543 7,987 6,283 4,656 48,315 43,039 52,183	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) – – 4,286 7,864 6,282 2,733 3,598 4,515 6,313 6,744 3,557 4,120 24,036 25,976	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) – – 4,286 7,864 6,282 2,733 3,598 4,515 6,313 6,744 3,557 4,120 24,036 25,976
			25,976

The geographical location of customers is based on the location of customers.

All the non-current assets of the Disposal Company as at 31 December 2011, 2012 and 2013 and 30 June 2014 were located in the PRC. The geographical location of the noncurrent assets is based on the physical location of the assets.

For the year ended 31 December 2011, revenues from transactions with one customer amount to 10% or more of the Disposal Company’s revenue. The amount of revenues from that customer amounted to HK$16,405,000.

For the year ended 31 December 2012, revenues from transactions with three customers amount to 10% or more of the Disposal Company’s revenue. The amount of revenues from each of such customers amounted to HK$13,668,000, HK$6,508,000 and HK$4,421,000 respectively.

For the year ended 31 December 2013, revenues from transactions with three customers amount to 10% or more of the Disposal Company’s revenue. The amount of revenues from each of such customers amounted to HK$12,543,000, HK$11,536,000 and HK$6,555,000 respectively.

For the six months ended 30 June 2013 (unaudited), revenues from transactions with three customers amount to 10% or more of the Disposal Company’s revenue. The amount of revenues from each of such customers amounted to HK$6,360,000, HK$6,282,000 and HK$3,597,000 respectively.

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APPENDIX II

For the six months ended 30 June 2014, revenues from transactions with three customers amount to 10% or more of the Disposal Company’s revenue. The amount of revenues from each of such customers amounted to HK$6,744,000, HK$4,515,000 and HK$3,019,000 respectively.

The management determines the Disposal Company is domicile in the PRC, which is the location of the Disposal Company’s principal office.

7. Revenue and other income

The Disposal Company’s principal activities are disclosed in note 1 to this Financial Information.

Revenue, which is also the Disposal Company’s turnover, derived from the Disposal Company’s principal activities recognised during the Relevant Periods and the Comparative Period is as follows:

Revenue Sales of lithium-ion power batteries Other income Bank interest income Gain on disposal of property, plant and equipment Subsidy income* Other service income Exchange gain Miscellaneous	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 48,315 43,039 52,183 – 190 914 – – 36 317 1,994 1,452 126 – 172 – – – – – 36 443 2,184 2,610	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) 24,036 25,976 366 12 – – 39 – – – – 512 – 40 405 564	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) 24,036 25,976 366 12 – – 39 – – – – 512 – 40 405 564

			12 – – – 512 40
			564

Subsidy income mainly comprised unconditional grants for subsidising the Disposal Company’s research and development expenses.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

8. Finance costs

Interest on borrowings repayable within five years – Bank loans – Other loans	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 501 2,040 1,043 – 38 1,258 501 2,078 2,301	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) 611 438 379 312 990 750	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) 611 438 379 312 990 750
			750

9. (Loss)/profit before income tax

(Loss)/profit before income tax is arrived at after charging/(crediting):

	Year	ended 31 December		Six months ended 30 June	Six months ended 30 June
	2011	2012	2013	2013	2014
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Auditor’s remuneration	75	22	32	–	–
Depreciation of property,
plant and equipment	4,509	5,437	5,419	2,338	2,796
Amortisation of
intangible assets	25	25	25	13	13
Impairment of
trade receivables	6,660	3,897	1,244	–	603
Impairment of
other receivables	–	–	–	–	2,999
Research and development
expenses	2,946	2,477	1,036	937	4,014
Operating lease charges
in respect of land and
buildings	1,358	1,477	1,504	751	757
Cost of inventories
recognised as expenses	36,160	27,641	33,665	19,552	21,873
– Provision for inventories	–	–	1,847	–	–
Staff costs (including
directors’ remuneration):
– Salaries and wages	6,802	6,342	6,484	2,657	3,660
– Retirement scheme
contribution	561	443	395	241	324

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10. Income tax expense

Current tax – PRC income tax for the year/period Deferred taxation – PRC Income tax expense	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 767 890 1,019 – – – 767 890 1,019	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) – – – – – –	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) – – – – – –
			–

PRC current income tax is based on a statutory rate of 25% at the Relevant Periods and the Comparative Period of the assessable profit of the Disposal Company as determined in accordance with the relevant income tax rules and regulations of the PRC.

Reconciliation between tax expense and accounting profit/(loss) at applicable tax rates:

(Loss)/profit before income tax Tax at enterprise income tax rate in the PRC Tax effect of non-taxable income Tax effect of non-deductible expenses Income tax expense	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 (7,186) 1,164 4,075 (1,796) 291 1,018 (79) (498) (363) 2,642 1,097 364 767 890 1,019	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) (808) (8,321) (202) (2,080) (10) – 212 2,080 – –	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) (808) (8,321) (202) (2,080) (10) – 212 2,080 – –

			(2,080) – 2,080
			–

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

11. Directors’ remuneration and five highest paid individuals

(a) Directors’ emoluments

Fees Wages and salaries Pension costs Other benefits	Year 2011 HK$’000 – 566 8 – 574	ended 31 December 2012 2013 HK$’000 HK$’000 – – 565 580 13 16 – – 578 596	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) – – 253 245 10 9 – – 263 254	Six months ended 30 June 2013 2014 HK$’000 HK$’000 (unaudited) – – 253 245 10 9 – – 263 254
				254

There were no arrangements under which a director waived or agreed to waive any remuneration during the Relevant Periods and the Comparative Period.

(b) Five highest paid individuals

The five individuals for the years ended 31 December 2011, 2012 and 2013, and six months ended 30 June 2013 and 2014 whose emoluments were the highest in the Disposal Company included two, two, two, two and two directors whose emoluments are reflected in the analysis presented above respectively. The emoluments payable to the remaining three, three, three, three and three individuals for the years ended 31 December 2011, 2012 and 2013, and six months ended 30 June 2013 and 2014 respectively are as follows:

	Year	ended 31 December	ended 31 December	Six months	ended 30 June
	2011	2012	2013	2013	2014
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Salaries, pension costs and
other benefits	301	322	417	211	234

The emoluments of all individuals fell within the salary band of Nil to HK$1,000,000 during the Relevant Periods and the Comparative Period.

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APPENDIX II

During the Relevant Periods and the Comparative Period, no emoluments were paid by the Disposal Company to the directors or any of the five highest paid individuals as an inducement to join or upon joining the Disposal Company, or as compensation for loss of office.

12. Property, plant and equipment

At 1 January 2011 Cost Accumulated depreciation Net carrying amount Year ended 31 December 2011 Opening net carrying amount Transfers Additions Depreciation Exchange realignment Closing net carrying amount At 31 December 2011 and 1 January 2012 Cost Accumulated depreciation Net carrying amount Year ended 31 December 2012 Opening net carrying amount Additions Depreciation Exchange realignment Closing net carrying amount At 31 December 2012 and 1 January 2013 Cost Accumulated depreciation Net carrying amount	Buildings HK$’000 – – – – 2,725 – – – 2,725 2,725 – 2,725 2,725 – (184) 71 2,612 2,798 (186) 2,612	Construction in progress HK$’000 2,622 – 2,622 2,622 (2,725) – – 103 – – – – – – – – – – – –	Leasehold improvements, fixture and fittings HK$’000 1,579 (1,508) 71 71 – 2,859 (647) 13 2,296 4,501 (2,205) 2,296 2,296 40 (727) 54 1,663 4,663 (3,000) 1,663	Furniture and equipment HK$’000 545 (251) 294 294 – 364 (156) 15 517 931 (414) 517 517 16 (181) 11 363 972 (609) 363	Machineries HK$’000 29,458 (5,367) 24,091 24,091 – 12,838 (3,583) 1,011 34,357 43,461 (9,104) 34,357 34,357 1,813 (4,215) 862 32,817 46,433 (13,616) 32,817	Motor vehicles HK$’000 561 (53) 508 508 – 95 (123) 22 502 678 (176) 502 502 – (130) 11 383 696 (313) 383	Total HK$’000 34,765 (7,179)
							27,586

							27,586 – 16,156 (4,509) 1,164
							40,397

							52,296 (11,899)
							40,397

							40,397 1,869 (5,437) 1,009
							37,838

							55,562 (17,724)
							37,838

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APPENDIX II

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

Year ended 31 December 2013 Opening net carrying amount Additions Disposals Depreciation Exchange realignment Closing net carrying amount At 31 December 2013 and 1 January 2014 Cost Accumulated depreciation Net carrying amount Six months ended 30 June 2014 Opening net carrying amount Additions Depreciation Exchange realignment Closing net carrying amount At 30 June 2014 Cost Accumulated depreciation Net carrying amount	2,612 – – (188) 42 2,466 2,845 (379) 2,466 2,466 – (142) (17) 2,307 2,825 (518) 2,307 Buildings HK$’000	– – – – – – – – – – – – – – – – – Construction in progress HK$’000	1,663 151 – (560) 22 1,276 5,017 (3,741) 1,276 1,276 71 (290) (8) 1,049 5,052 (4,003) 1,049 Leasehold improvements, fixture and fittings HK$’000	363 21 – (115) 4 273 1,007 (734) 273 273 – (53) 5 225 1,007 (782) 225 Furniture and equipment HK$’000	32,817 1,221 (403) (4,429) 507 29,713 47,827 (18,114) 29,713 29,713 343 (2,258) (209) 27,589 47,823 (20,234) 27,589 Machineries HK$’000	383 – (38) (127) 5 223 552 (329) 223 223 8 (53) (8) 170 549 (379) 170 Motor vehicles HK$’000	37,838 1,393 (441) (5,419) 580 Total HK$’000
							33,951

							57,248 (23,297)
							33,951

							33,951 422 (2,796) (237)
							31,340

							57,256 (25,916)
							31,340

As at 31 December 2011, 2012 and 2013 and 30 June 2014, the Disposal Company has not yet obtained title certificates for its leasehold buildings in the PRC with carrying amounts of HK$2,725,000, HK$2,612,000, HK$2,466,000 and HK$2,307,000 respectively. The Disposal Company is in the process of obtaining the title certificates from the relevant government authorities.

As at 31 December 2011, 2012 and 2013 and 30 June 2014, the Disposal Company’s machineries with carrying amount of HK$26,656,000, HK$23,979,000, nil and HK$25,311,000 were pledged to secure general banking facilities granted to the Disposal Company.

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13. Intangible assets

At 1 January 2011
Cost
Accumulated amortisation
Net carrying amount
Year ended 31 December 2011
Opening net carrying amount
Amortisation
Exchange realignment
Closing net carrying amount
At 31 December 2011
Cost
Accumulated amortisation
Net carrying amount
Year ended 31 December 2012
Opening net carrying amount
Amortisation
Exchange realignment
Closing net carrying amount
At 31 December 2012
Cost
Accumulated amortisation
Net carrying amount

Patent
HK$’000
234
(35)
199
199
(25)
8
182
243
(61)
182
182
(25)
5
162
249
(87)
162

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APPENDIX II

Year ended 31 December 2013 Opening net carrying amount Amortisation Exchange realignment Closing net carrying amount At 31 December 2013 Cost Accumulated amortisation Net carrying amount Six months ended 30 June 2014 Opening net carrying amount Amortisation Exchange realignment Closing net carrying amount At 30 June 2014 Cost Accumulated amortisation Net carrying amount	Patent HK$’000 162 (25) 3 140 254 (114) 140 140 (13) (1) 126 252 (126) 126

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14. Inventories

Raw materials Work in progress Finished goods	As at 31 December 2011 2012 HK$’000 HK$’000 2,547 2,117 11,271 18,759 14,365 16,977 28,183 37,853	2013 HK$’000 2,085 12,567 29,484 44,136	As at 30 June 2014 HK$’000 3,580 21,611 15,728
			40,919

15. Trade receivables

Trade receivables Less: Provision for impairment	As at 31 December 2011 2012 HK$’000 HK$’000 27,782 25,965 (6,660) (10,606) 21,122 15,359	2013 HK$’000 33,688 (5,296) 28,392	As at 30 June 2014 HK$’000 34,787 (5,859)
			28,928

The Disposal Company normally applies credit terms to its customers according to industry practice together with consideration of their creditability and repayment history. Each customer has a maximum credit limit. The Disposal Company seeks to maintain strict control over its outstanding receivables.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

Impairment losses in respect of trade receivables are recorded using an allowance account unless the Disposal Company is satisfied the recovery of the amount is remote, in which case the impairment loss is written off against trade receivables directly. Movement in the provision for impairment of trade receivables is as follows:

At 1 January Impairment loss charged to profit or loss Bad debts written off Exchange realignment At 31 December	As at 31 December 2011 2012 HK$’000 HK$’000 – 6,660 6,660 3,897 – – – 49 6,660 10,606	2013 HK$’000 10,606 1,244 (6,849) 295 5,296	As at 30 June 2014 HK$’000 5,296 603 – (40)
			5,859

At each of the reporting date, the Disposal Company’s trade receivables were individually and collectively determined to be impaired. The individually impaired receivables are recognised based on the credit history of its customers, such as financial difficulties or default in payments, and current market conditions. Consequently, specific impairment provision was recognised. The Disposal Company does not hold any collateral over these balances.

The ageing analysis of the trade receivables of the Disposal Company as at the end of each of the Relevant Periods, based on the invoice date, is as follows:

0 – 30 days 31 – 90 days 91 – 180 days Over 180 days At 31 December	As at 31 December 2011 2012 HK$’000 HK$’000 6,327 5,762 2,947 666 4,835 4,283 7,013 4,648 21,122 15,359	2013 HK$’000 16,136 1,524 3,262 7,470 28,392	As at 30 June 2014 HK$’000 4,035 11,025 7,715 6,153
			28,928

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

The ageing analysis of the Disposal Company’s trade receivables that are not impaired are as follows:

Neither past due nor impaired 1 – 90 days past due Over 90 days past due	As at 31 December 2011 2012 HK$’000 HK$’000 9,274 6,428 4,835 4,283 7,013 4,648 11,848 8,931 21,122 15,359	2013 HK$’000 17,660 3,262 7,470 10,732 28,392	As at 30 June 2014 HK$’000 15,060
			7,715 6,153
			13,868
			28,928

Trade receivables that are neither past due nor impaired related to independent customers for whom there was no recent history of default.

16. Prepayments, deposits and other receivables

Prepayments to suppliers Other receivables Other deposits and prepayments	As at 31 December 2011 2012 HK$’000 HK$’000 160 1,932 1,823 18,960 3,414 1,993 5,397 22,885	2013 HK$’000 895 12,242 2,007 15,144	As at 30 June 2014 HK$’000 876 3,730 4,126
			8,732

At the end of each of the Relevant Periods, the Disposal Company reviews receivables for evidence of impairment on both an individual and collective basis. As at 31 December 2011, 2012 and 2013, the Disposal Company has determined that no other receivables were individually impaired. As at 30 June 2014, other receivables of HK$2,999,000 were impaired and were charged to the profit or loss.

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APPENDIX II

17. Structured bank deposit

As at 30 June 2014, the structured bank deposit was interest-bearing and not quoted in an active market. The interest earned is linked to the investments associated with the exchange rate fluctuation of foreign currencies. The deposit was subject to maturity of 6 months. The entire structured bank deposit was pledged to borrowings as at 30 June 2014 (31 December 2011, 2012 and 2013: no structured bank deposit).

18. Cash and cash equivalents and pledged deposits

As at 31 December 2011, 2012 and 2013 and 30 June 2014, all the cash and cash equivalents and pledged deposits of the Disposal Company were denominated in RMB. The RMB is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Disposal Company is permitted to exchange RMB for foreign currencies through banks that are authorised to conduct foreign change business.

19. Trade payables

The ageing analysis of the trade payables of the Disposal Company as at the Relevant Periods, based on the invoice date, is as follows:

0 – 180 days Over 180 days	As at 31 December 2011 2012 HK$’000 HK$’000 11,161 9,676 12,033 19,122 23,194 28,798	2013 HK$’000 14,067 18,148 32,215	As at 30 June 2014 HK$’000 21,896 10,256
			32,152

Balances with related parties of approximately HK$171,000, HK$133,000, HK$13,000 and HK$425,000 were included in the trade payables as at 31 December 2011, 2012 and 2013 and 30 June 2014 respectively. The balances with the related parties are unsecured, interest-free and have no fixed repayment terms.

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ACCOUNTANTS’ REPORT OF

THE DISPOSAL COMPANY

20. Accruals and other payables

Deposits received from customers Accrued staff costs Other payables Other accrued expenses	As at 31 December 2011 2012 HK$’000 HK$’000 2,278 – 309 305 818 25 28 20 3,433 350	2013 HK$’000 1,534 262 2,467 121 4,384	As at 30 June 2014 HK$’000 1,729 33 2,114 10
			3,886

21. Borrowings

Bank loans repayable within one year Other loan repayable within one year	As at 31 December 2011 2012 HK$’000 HK$’000 – – – 2,493 – 2,493	2013 HK$’000 5,072 2,536 7,608	As at 30 June 2014 HK$’000 23,366 2,518
			25,884

As at 31 December 2012 and 2013 and 30 June 2014, other loan was unsecured and repayable within one year from the reporting dates and was interest bearing at 6% per annum.

22. Amount due to immediate holding company

As at 31 December 2011, 2012 and 2013 and 30 June 2014, the amount is unsecured, interest-free and has no fixed repayment terms.

II – 43

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

23. Share capital

Paid-up capital: At beginning of the year/period Addition Balance at end of the year/period	As at 31 December 2011 2012 HK$’000 HK$’000 45,032 45,032 – 2,515 45,032 47,547	2013 HK$’000 47,547 – 47,547	As at 30 June 2014 HK$’000 47,547 –
			47,547

For the purpose of this report, the share capital as at 31 December 2011, 2012 and 2013 and 30 June 2014 represented the paid up share capital of the Disposal Company in which the equity shareholders of the Disposal Company held direct interests.

24. Reserves

The amounts of the Disposal Company’s reserves and the movements therein for the Relevant Periods are presented in the statements of changes in equity of the Financial Information.

25. Related party transactions

Save as disclosed elsewhere in the Financial Information and Comparative Financial Information, the Disposal Company had the following related party transactions during the Relevant Periods and the Comparative Period:

	Year	ended 31 December		Six months ended 30 June	Six months ended 30 June
	2011	2012	2013	2013	2014
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Rental expenses paid to
a related party	1,358	1,477	1,504	751	757
Purchases of goods from
related parties	1,771	1,198	313	255	426

II – 44

APPENDIX II

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

26. Commitments and contingent liabilities

(a) Capital commitments

The Disposal Company had outstanding capital commitments as follows:

				As at
		As at 31 December		30 June
	2011	2012	2013	2014
	HK$’000	HK$’000	HK$’000	HK$’000
Contracted but not provided for
Purchase of property,
plant and equipment	79	81	124	–

(b) Operating lease commitments

As lessee

At the reporting dates, the total future minimum lease payments under non-cancellable operating leases in respect of rented premises of the Disposal Company are as follows:

Within one year After one year but within five years	As at 31 December 2011 2012 HK$’000 HK$’000 1,457 312 364 – 1,821 312	2013 HK$’000 1,522 1,522 3,044	As at 30 June 2014 HK$’000 1,511 755
			2,266

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

27. Financial guarantee contracts

As at 31 December 2011, the Disposal Company had executed a guarantee of RMB5,500,000 with respect to bank loans of a company owned by a director of the Disposal Company. Under the guarantee, the Disposal Company would be liable to pay the bank if the bank is unable to recover the loans. The original loans amounts were RMB10,000,000. The maximum amount guaranteed under this financial guarantee was equivalent to HK$6,678,000. As at 31 December 2011, the said bank loans were fully settled and the Disposal Company had no exposure under the financial guarantee contract. The financial guarantee contract had expired on 24 June 2012.

The Disposal Company had no financial guarantee contract for the years ended 31 December 2012 and 2013 and the six months ended 30 June 2014.

28. Banking facilities

The general banking facilities granted to the Disposal Company during the Relevant Periods were secured by the followings:

For the year ended 31 December 2011

(a) pledge of the Disposal Company’s bank deposit of HK$10,927,000;
(b) corporate guarantee of RMB10,000,000 executed by a company owned by a director of the Disposal Company;
(c) joint personal guarantee of RMB10,000,000 by a director of the Disposal Company and her close family member; and
(d) pledge of the Disposal Company’s machineries with carrying amount of HK$26,656,000.

II – 46

APPENDIX II

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

For the year ended 31 December 2012

(a) pledge of deposits of an officer of the Disposal Company of RMB9,000,000;
(b) pledge of a property of an officer of the Disposal Company with maximum limit to RMB3,000,000; and
(c) pledge of the Disposal Company’s machineries with carrying amount of HK$23,979,000.

For the year ended 31 December 2013

(a) personal guarantee of an officer of the Disposal Company of RMB9,900,000; and
(b) pledge of a property of an officer of the Disposal Company with maximum limit to RMB3,500,000.

For the six months ended 30 June 2014

(a) pledge of the Disposal Company’s bank deposit of HK$934,000;
(b) personal guarantee of an officer of the Disposal Company RMB9,900,000;
(c) pledge of a property of an officer of the Disposal Company with maximum limit to RMB3,500,000;
(d) pledge of structured bank deposit of HK$10,700,000 for bank borrowings; and
(e) pledge of the Disposal Company’s machineries with carrying amount of HK$25,311,000.

II – 47

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

29. Capital management

The Disposal Company’s capital management objectives include:

(i) to ensure the Disposal Company’s ability to continue as a going concern; and
(ii) to provide an adequate return to shareholders.

In order to maintain or adjust the capital structure, the Disposal Company may adjust the amount of dividends paid to shareholders, return capital to shareholders and issue new shares to reduce debt level.

The capital-to-overall financing ratio at the Relevant Periods was as follows:

Capital Total equity Overall financing Total liabilities Gearing ratio	As at 31 December 2011 2012 HK$’000 HK$’000 42,616 46,613 66,718 69,733 156.56% 149.60%	2013 HK$’000 50,506 73,872 146.26%	As at 30 June 2014 HK$’000 41,841

			82,649

			197.53%

II – 48

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

30. Financial risk management objectives and policies

The Disposal Company is exposed to a variety of financial risks which result from both its operating and investing activities. The Disposal Company’s risk management is coordinated at its headquarters, in close co-operation with the directors, and focuses on actively securing the Disposal Company’s short to medium term cash flows by minimising the exposure to financial markets. The most significant financial risks to which the Disposal Company is exposed to are described below.

(a) Interest rate risk

The Disposal Company’s exposure to interest rate risk for changes in interest rates relates primarily to the Disposal Company’s floating interest rates bank balances and deposits. The Disposal Company does not actively engage in derivative financial instruments to hedge its interest rate risk.

It is estimated that a general increase/decrease of 50 basis points in interest rates, with all other variables held constant, would decrease/increase the Disposal Company’s profit/loss after tax and accumulated profits/losses as below.

Increase of 50 basis points in interest rate Decrease of 50 basis points in interest rate	As at 31 December 2011 2012 Loss for the year decreases Profit for the year increases HK$8,000 HK$11,000 Loss for the year increases Profit for the year decreases HK$8,000 HK$11,000	2013 Profit for the year decreases HK$17,000 Profit for the year increases HK$17,000	As at 30 June 2014 Loss for the period increases HK$26,000

			Loss for the period decreases HK$26,000

II – 49

APPENDIX II

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the reporting dates and had been applied to the exposure to interest rate risk for financial instruments in existence for the whole year/ period. The 50 basis points increase or decrease represents management’s assessment of reasonably possible change in interest rates over the period until the next annual reporting date. The same basis of analysis was applied consistently in the Relevant Periods.

(b) Credit risk

The Disposal Company trades only with recognised and creditworthy third parties. It is the Disposal Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Disposal Company’s exposure to bad debts is not significant.

The credit risk of the Disposal Company’s other major financial assets, which comprise cash and cash equivalents, pledged deposits and structured bank deposit, arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Credit risk on cash and cash equivalents, pledged deposits and structured bank deposit are mitigated as bank balances were deposited in banks of high credit ratings.

Since the Disposal Company trades only with recognised and creditworthy third parties, for trade debtors, there is no requirement for collateral.

(c) Foreign currency risk

The Disposal Company is exposed to foreign currency risk arising from various currency exposures, primarily with respect to United States Dollars (“US$”). Foreign exchange risk arises from commercial transactions and recognised assets and liabilities. The Disposal Company currently does not have a foreign currency hedging policy.

(d) Liquidity risk

The Disposal Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long term financial liabilities as well as cash outflows due in day-to-day business. Liquidity needs are monitored on a day-to-day basis. Long-term liquidity needs for a 360-day lookout period are identified monthly.

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ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

The Disposal Company maintains mainly cash to meet its liquidity requirements for up to 30-day periods. Funding for long term liquidity needs is additionally secured by an adequate amount of committed credit facilities.

As at each of the Relevant Periods, the Disposal Company’s financial liabilities have contractual maturities which are summarised below:

As at 31 December 2011 Trade payables Other payables Bills payable Amount due to immediate holding company As at 31 December 2012 Trade payables Other payables Borrowings Bills payable Amount due to immediate holding company As at 31 December 2013 Trade payables Other payables Borrowings Bills payable Amount due to immediate holding company As at 30 June 2014 Trade payables Other payables Borrowings Bills payable Amount due to immediate holding company	Repayable on demand HK$’000 – 818 – 18,235 19,053 – 25 – – 14,981 15,006 – 2,467 2,688 – 15,239 20,394 – 2,114 2,593 – 14,598 19,305	Within one year HK$’000 23,194 – 21,856 – 45,050 28,798 – 2,493 22,439 – 53,730 32,215 – 5,347 12,680 – 50,242 32,152 – 23,686 4,710 – 60,548	Total contractual undiscounted cash flow HK$’000 23,194 818 21,856 18,235 64,103 28,798 25 2,493 22,439 14,981 68,736 32,215 2,467 8,035 12,680 15,239 70,636 32,152 2,114 26,279 4,710 14,598 79,853	Carrying amount HK$’000 23,194 818 21,856 18,235
				64,103

				28,798 25 2,493 22,439 14,981
				68,736

				32,215 2,467 7,608 12,680 15,239
				70,209

				32,152 2,114 25,884 4,710 14,598
				79,458

II – 51

ACCOUNTANTS’ REPORT OF THE DISPOSAL COMPANY

APPENDIX II

The Disposal Company’s policy is to regularly monitor current and expected liquidity requirement to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer terms.

(e) Fair value

The fair values of the Disposal Company’s financial assets and liabilities were not materially different from their carrying amounts because of the immediate or short term maturity of these financial instruments.

(f) Summary of financial assets and liabilities by category

The carrying amounts of the Disposal Company’s financial assets and liabilities as recognised at the Relevant Periods may be categorised as follows. See notes 4.4 and 4.7 for explanations about how the category of financial instruments affects their subsequent measurement.

(i) Financial assets

Loans and receivables: Trade receivables Bills receivable Other receivables Structured bank deposit Pledged deposits Cash and cash equivalents	As at 31 December 2011 2012 HK$’000 HK$’000 21,122 15,359 – – 1,823 18,960 – – 10,927 – 1,563 2,249 35,435 36,568	2013 HK$’000 28,392 989 12,242 – – 1,626 43,249	As at 30 June 2014 HK$’000 28,928 384 3,730 10,700 934 2,427
			47,103

II – 52

APPENDIX II

ACCOUNTANTS’ REPORT OF

THE DISPOSAL COMPANY

(ii) Financial liabilities

Financial liabilities at amortised cost: Trade payables Other payables Borrowings Bills payable Amount due to immediate holding company	As at 31 December 2011 2012 HK$’000 HK$’000 23,194 28,798 818 25 – 2,493 21,856 22,439 18,235 14,981 64,103 68,736	2013 HK$’000 32,215 2,467 7,608 12,680 15,239 70,209	As at 30 June 2014 HK$’000 32,152 2,114 25,884 4,710 14,598
			79,458

31. Subsequent events

No significant events have taken place within Disposal Company subsequent to 30 June 2014.

32. Subsequent financial statements

No audited financial statements have been prepared for the Disposal Company in respect of any period subsequent to 30 June 2014.

Yours faithfully,

BDO Limited

Certified Public Accountants

Chiu Wing Cheung Ringo

Practising Certificate Number P04434 Hong Kong

II – 53

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Introduction

The unaudited pro forma financial information of the Remaining Group (the “Unaudited Pro Forma Financial Information”) presented below is prepared to illustrate (a) the financial position of the Remaining Group as if the Disposal was completed on 30 June 2014; and (b) the financial performance and cash flows of the Remaining Group for the six months ended 30 June 2014 as if the Disposal had taken place on 1 January 2014. This Unaudited Pro Forma Financial Information has been prepared by the Directors in accordance with Paragraph 4.29 of the Listing Rules for illustrative purposes only, based on their judgements, estimations and assumptions, and because of its hypothetical nature, it may not give a true picture of the financial position of the Remaining Group as at 30 June 2014 or at any future date had the Disposal been completed on 30 June 2014 or the financial performance and cash flows of the Remaining Group for the six months ended 30 June 2014 or for any future period had the Disposal been completed on 1 January 2014.

The Unaudited Pro Forma Financial Information should be read in conjunction with the unaudited interim financial information of the Group for the six months ended 30 June 2014 as set out in the interim report of the Company for the six months ended 30 June 2014 (“2014 Interim Report”) and other financial information included elsewhere in the Circular.

The Unaudited Pro Forma Financial Information is prepared based on the unaudited consolidated statement of financial position of the Group as at 30 June 2014, the unaudited consolidated statement of comprehensive income and the unaudited consolidated statement of cash flows of the Group for the six months ended 30 June 2014 extracted from the unaudited interim financial information of the Group for the six months ended 30 June 2014 as set out in the 2014 Interim Report of the Company and, after making pro forma adjustments relating to the Disposal as described in the notes that are (i) directly attributable to the transactions concerned and not relating to future events or decisions; (ii) factually supportable; and (iii) considered to be integral to the Disposal.

III – 1

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited pro forma consolidated statement of financial position

Non-current assets Property, plant and equipment Interest in an associate Goodwill Intangible assets Other investment Current assets Inventories Trade receivables Bills receivable Prepayments, deposits and other receivables Amount due from a non- controlling shareholder of a subsidiary Other financial asset Derivative financial asset Short-term investment Structured bank deposit Pledged bank deposits Cash and cash equivalents	Unaudited consolidated statement of financial position of the Group as at 30 June 2014 Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2 Note 3 Note 4 46,561 (31,340) – 8,243 11,900 (10,629) 24,626 (126) (24,500) 10,809 93,896 40,966 (40,919) 28,928 (28,928) 384 (384) 282,638 (8,732) 113 22,000 9,109 17,623 10,700 (10,700) 1,741 (934) 126,642 (2,427) (2,730) 540,844	Unaudited pro forma consolidated statement of financial position of the Remaining Group as at 30 June 2014 HK$’000 15,221 8,243 1,271 – 10,809
		35,544
		47 – – 273,906 113 22,000 9,109 17,623 – 807 121,485
		445,090

III – 2

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Current liabilities Trade payables Accruals and other payables Borrowings Bills payable Amount due to immediate holding company Tax payable/(recoverable) Net current assets Total assets less current liabilities Non-current liabilities Deferred tax liabilities Net assets Capital and reserves attributable to owners of the Company Share capital Reserves Equity attributable to owners of the Company Non-controlling interests Total equity	Unaudited consolidated statement of financial position of the Group as at 30 June 2014 Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2 Note 3 Note 4 32,152 (32,152) 42,291 (3,886) 26,090 (25,884) 4,710 (4,710) – (14,598) 14,598 1,169 (1,419) 106,412 434,432 528,328 3,670 (3,670) 524,658 1,239,091 (755,458) (82,385) 483,633 41,025 524,658	Unaudited pro forma consolidated statement of financial position of the Remaining Group as at 30 June 2014 HK$’000 – 38,405 206 – – (250)
		38,361
		406,729
		442,273
		–
		442,273

		1,239,091 (837,843)
		401,248 41,025
		442,273

III – 3

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited pro forma consolidated statement of comprehensive income

Revenue Cost of sales Gross profit Other income Distribution costs and general operating expenses Change in fair value of other finance asset Finance costs Loss on disposal of a subsidiary Share of result of an associate Loss before income tax Income tax credit Loss for the period Other comprehensive income Items that may be reclassified subsequently to profit or loss: Exchange difference on translating foreign operations Share of other comprehensive income of an associate Reclassification adjustment of release of exchange reserve on disposal of interests in overseas subsidiaries Other comprehensive income for the period Total comprehensive income for the period	Unaudited consolidated statement of comprehensive income of the Group for the six months ended 30 June 2014 Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 5 Note 6 Note 7 Note 8 Note 9 25,976 (25,976) (21,873) 21,873 4,103 2,834 (564) (63,944) 12,238 2,230 (2,000) (1,036) 750 – (55,730) – (2,080) (60,043) 335 (335) (59,708) (5,259) 344 – (86) – (4,151) (5,259) (64,967)	Unaudited pro forma consolidated statement of comprehensive income of the Remaining Group for the six months ended 30 June 2014 HK$’000 – –
		– 2,270 (49,476) (2,000) (286) (55,730) (2,080)
		(107,302) –
		(107,302)

		(4,951) (86) (4,151)
		(9,188)
		(116,490)

III – 4

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited pro forma consolidated statement of cash flows

Cash flows from operating activities Loss before income tax Adjustments for: Loss on disposal of a subsidiary Share-based compensation Interest income Imputed interest income on long-term non-interest bearing deposits Interest expense Depreciation of property, plant and equipment Amortisation of intangible assets Fair value loss on derivative financial asset Impairment of trade receivables Impairment of other receivables Gain on disposal of property, plant and equipment Change in fair value of other financial asset Share of result of an associate Operating loss before working capital changes Decrease/(increase) in inventories Increase in trade receivables Decrease in bills receivable Decrease in other receivables, prepayments and deposits Decrease in trade payables Decrease in accruals and other payables Decrease in bills payable Cash used in operations Interest paid Income tax paid Net cash used in operating activities	Unaudited consolidated statement of cash flows of the Group for the six months ended 30 June 2014 Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 10 Note 11 Note 12 Note 13 (60,043) 8,321 2,230 (55,730) (2,080) – 55,730 1,630 (324) 12 (994) 1,036 (750) 4,613 (2,796) 2,243 (13) (2,230) 4,151 603 (603) 2,999 (2,999) (815) 2,000 – 2,080 (42,901) 3,198 (3,217) (1,139) 1,139 605 (605) 51,801 (3,413) (432) 63 (7,320) 498 (7,970) 7,970 (4,158) (1,036) 750 (316) 316 (5,510)	Unaudited pro forma consolidated statement of cash flows of the Remaining Group for the six months ended 30 June 2014 HK$’000 (107,302) 55,730 1,630 (312) (994) 286 1,817 – 4,151 – – (815) 2,000 2,080
		(41,729) (19) – – 48,388 (369) (6,822) –
		(551) (286) –
		(837)

III – 5

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Cash flow from investing activities Net cash outflow from disposal of a subsidiary Purchase of property, plant and equipment Purchase of short-term investment Settlement of short-term investment Settlement from a non-controlling shareholder of a subsidiary Interest received Proceeds from disposal of property, plant and equipment Decrease in pledged bank deposits Increase in structured bank deposit Net cash generated from investing activities Cash flow from financing activities Proceeds from issuance of share capital Share issue expenses Capital reduction from non-controlling interests Proceeds from borrowings Repayment of borrowings Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the period Effect of foreign exchange rate changes Cash and cash equivalents at end of period Analysis of balances of cash and cash equivalents at end of period Bank and cash balances	Unaudited consolidated statement of cash flows of the Group for the six months ended 30 June 2014 Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 10 Note 12 Note 13 – (4,356) (9,625) 422 (54,128) 45,317 54,126 324 (12) 641 (934) 934 (10,700) 10,700 25,021 197,975 (323) (250,944) 23,366 (23,366) (5,072) 5,072 (34,998) (15,487) 147,996 (5,867) 776 126,642 126,642	Unaudited pro forma consolidated statement of cash flows of the Remaining Group for the six months ended 30 June 2014 HK$’000 (4,356) (9,203) (54,128) 45,317 54,126 312 641 – –
		32,709 197,975 (323) (250,944) – –
		(53,292)
		(21,420) 147,996 (5,091)
		121,485

		121,485

III – 6

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Notes to the unaudited pro forma financial information

The unaudited consolidated statement of financial position of the Group as at 30 June 2014, the unaudited consolidated statement of comprehensive income and the unaudited consolidated statement of cash flows of the Group for the six months ended 30 June 2014 are extracted from the unaudited interim financial information of the Group for the six months ended 30 June 2014 as set out in the 2014 Interim Report of the Company.
These adjustments represent the elimination of assets and liabilities of the Disposal Company as at 30 June 2014, assuming the Disposal had taken place on 30 June 2014. The assets and liabilities of the Disposal Company as at 30 June 2014 are extracted from the Accountants’ Report of the Disposal Company as at 30 June 2014 set out in Appendix II to the Circular.
These adjustments represent the elimination of goodwill, intangible assets and the deferred tax liabilities arising from the acquisition of the Disposal Company in 2010.

The intangible assets had been revalued to their fair value and deferred tax liabilities had been recognised accordingly at the date of acquisition of the Disposal Company. As at 30 June 2014, the amounts of the fair value adjustments on the intangible assets arising from the acquisition of the Disposal Company and deferred tax liabilities recognised were HK$24,500,000 and HK$3,670,000 respectively.

The goodwill is arising from the excess of the fair value of the total cost of acquisition of the Disposal Company over the interest in the net fair value of the net identifiable assets at the date of acquisition of the Disposal Company in 2010. The carrying amount of the goodwill as at 30 June 2014 of HK$10,629,000 will be eliminated upon the completion of disposal of the Disposal Company.

These adjustments represent (i) the estimated fair value of the consideration receivable by the Group from the Disposal of HK$28,306,000; (ii) the estimated expenses directly attributable to the Disposal of HK$2,730,000; (iii) the estimated loss from the Disposal as if the Disposal had taken place on 30 June 2014; (iv) the written off of the amount due to the Remaining Group by the Disposal Company; and (v) the fair

III – 7

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

value of the Group’s retained remaining 25% equity interest in the Disposal Company of HK$8,243,000, which will be accounted for as an associate of the Group upon completion of the Disposal. The calculation of the estimated loss on the Disposal to be recognised in profit or loss, as if the Disposal had taken place on 30 June 2014, is as follow:

Fair value of the Consideration (Note 4.1)
Net assets of the Disposal Company as at 30 June 2014
to be disposed of (Note 4.2)
Release of translation reserve of the Disposal Company
as at 30 June 2014 upon the Disposal (Note 4.3)
Fair value of the Group’s retained remaining 25% equity interest
in the Disposal Company (Note 4.4)
Written off of amount due from the Disposal Company
to the Remaining Group (Note 4.5)
Estimated expenses directly attributable to the Disposal
(Note 4.6)
Estimated loss on Disposal as if the Disposal had taken place
on 30 June 2014

HK$’000
28,306
(73,300)
3,807
8,243
(14,598)
(2,730)
(50,272)

The financial impact to the Group’s reserves, as if the Disposal had taken place on 30 June 2014, is reconciled below:

Estimated loss on Disposal Fair value of the Consideration recognised as an equity instrument (Note 4.1) Release of translation reserve of the Disposal Company as at 30 June 2014 (Note 4.3)	HK$’000 (50,272) (28,306) (3,807) (82,385)

III – 8

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Notes:

4.1 The Consideration will be satisfied by 257,324,692 Subject Shares. Assuming the Disposal was completed on 30 June 2014, the estimated fair value of the Consideration will be HK$28,306,000 (being calculated on 257,324,692 Subject Shares at the closing price of the Company’s share of HK$0.11 per share as of 30 June 2014).

The Directors confirmed that the Subject Shares will not be repurchased by the Company and so the Group will not become the legal owner of the Subject Shares upon completion of the Disposal. Instead, the Group will be entitled the right to receive the net cash proceeds from the disposal of the Subject Shares. After completion of the Disposal, the Group will have the right to instruct the placing agent(s) to dispose of the Subject Shares (or any part thereof) and will have the right to receive the net cash proceeds from the disposal of the Subject Shares (which legally owned by the Purchaser and held by the placing agent(s) to be appointed by the Purchasers).

Regarding the arrangement of the Subject Shares, the Company arranged a consultation to the Securities and Futures Commission (the “SFC”). SFC has issued a ruling and confirmed that the arrangement of Subject Shares does not constitute a share buy-back for the purpose of the Share buy-backs Code.

The Company also obtained a legal advice from a Bermuda legal adviser. The Bermuda legal adviser advises that the GBS Equity Interest Disposal (i.e. the sale of 75% equity interest in GBS to the Purchasers in return for the net proceeds to be derived from the sale of an aggregate of 257,324,692 shares in the Company held by and registered in the names of the Purchasers) is not in contravention of the Bye-laws or applicable laws of Bermuda.

Despite the Group will not obtain the legal title to the Subject Shares, in substance, the significant portion of the potential risks and rewards of the Subject Shares are transferred and retained by the Group (i.e. the cash proceeds from the disposal of the Subject Shares will be retained by the Group and any changes in share price will affect the amount of consideration receivable). In these regards, from accounting perspective, the Group will recognise the right to receive cash proceeds from disposal of the Subject Shares as an equity instrument in accordance with its substance (i.e., risk and reward) rather than its form (i.e., the legal title).

Under GBS Share Transfer Agreement, the Group has the right to receive the cash proceeds from the disposal of a fixed number of Subject Shares (being the Company’s ordinary shares). In accordance with Hong Kong Accounting Standard 32, an arrangement to receive a fixed number of the Company’s own shares is considered as an equity instrument.

The right to receive cash proceeds from the disposal of the Subject Shares will, after completion of the Disposal, be recognised as an equity instrument of the Group. Such equity instrument will be initially recognised at its fair value at the completion date of the Disposal, and will be subsequently carried at cost. When the Subject Shares are being disposed of, any differences between the cash proceeds received by the Group and the amounts initially recorded in equity instrument will still be recognised in the Group’s reserves, but not reclassified to the Group’s profit or loss.

III – 9

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

The Group considered the Subject Shares should not be presented as typical treasury shares as the Group will not formally reacquire its own shares and the legal title of the Subject Shares will not be transferred to the Group. Notwithstanding this, the accounting treatment of such equity instrument is consistent with treasury shares.

4.2 The details of the net assets of the Disposal Company to be disposed of, as if the Disposal had taken place on 30 June 2014, is as follows:

Net assets of the Disposal Company as at 30 June 2014 (as set out
in the Accountants’ Report included in Appendix II to the Circular)
Fair value adjustment on intangible assets arising from the acquisition
of the Disposal Company (Note 3)
Deferred tax liabilities recognised in relation to the fair value adjustment
on intangible assets arising from the acquisition of the Disposal
Company (Note 3)
Goodwill arising from the acquisition of the Disposal Company (Note 3)

HK$’000
41,841
24,500
(3,670)
10,629

73,300

4.3 The amount of translation reserves of the Disposal Company reclassified from other comprehensive income to profit or loss of amounted to HK$3,807,000 as at 30 June 2014.
4.4 The amount represents the estimated fair value of the Group’s retained remaining 25% equity interest in the Disposal Company of HK$8,243,000, which will be accounted for as an associate of the Group upon completion of the Disposal. The Directors have assessed the estimated fair value of the Group’s retained remaining 25% equity interest in the Disposal Company as at 30 June 2014 with reference to a valuation report prepared by Greater China Appraisal Limited, an independent firm of professional valuer.

The fair value of 25% equity interest in the Disposal Company is determined using the income approach by using a discounted cash flow methodology. The significant assumption and unobservable inputs used in the fair value measurement are the estimated weighted average growth rate and the discount rates for lack of control and lack of marketability.

The financial projection and the related assumptions contained in the valuation are prepared by the management of the Company. The major assumption mainly contained (i) the estimated weighted average of revenue growth rate of 3%; (ii) the basis of cost of sales, which mainly included direct manufacturing expenses and material costs, would be 74% to 76% to the projected revenue and (iii) the basis of operating expenses, which represented selling, general and administrative expenses, would be 20% to 21% to the projected revenue.

III – 10

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Significant unobservable inputs were as follow:

Weighted average growth rate	3%
Discount for lack of marketability	35%
Discount for lack of control	24%

4.5 The Directors considered that the amount due to the Remaining Group by the Disposal Company of HK$14,598,000 (equivalent to RMB11.6 million) as at 30 June 2014 will not be recoverable and therefore shall be fully written off upon the Disposal was completed.
4.6 The estimated amount of legal and professional fees directly attributed to the Disposal is estimated by the Directors and it is assumed that these fees are settled by cash.

The final gain or loss on the Disposal may be different from the amount described above and would be subject to the fair value of the Consideration and also the assets and liabilities of the Disposal Company on the date of Disposal.

These adjustments represent the exclusion of the results and reserves of the Disposal Company for the six months ended 30 June 2014, which are extracted from the Accountants’ Report of the Disposal Company for the six months ended 30 June 2014 set out in Appendix II to the Circular, assuming the Disposal had taken place on 1 January 2014.
These adjustments represent the reversal of amortisation on the revalued intangible assets (arising from the acquisition of the Disposal Company in 2010) of HK$2,230,000 and the effect of related deferred tax liabilities HK$335,000 for the six months ended 30 June 2014.

III – 11

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

These adjustments reflect the estimated loss arising from the Disposal as if the Disposal had taken place on 1 January 2014. The calculation of the estimated loss on the Disposal to be recognised in profit or loss, as if the Disposal had taken place on 1 January 2014, is as follow:

Fair value of the Consideration (Note 7.1)
Net assets of the Disposal Company as at 31 December 2013
to be disposed of (Note 7.2)
Release of translation reserve of the Disposal Company
as at 30 June 2014 upon the Disposal (Note 7.3)
Fair value of the Group’s retained remaining 25% equity interest
in the Disposal Company (Note 7.4)
Written off of amount due from the Disposal Company
to the Remaining Group (Note 7.5)
Estimated expenses directly attributable to the Disposal
(Note 7.6)
Estimated loss on Disposal as if the Disposal had taken place on
1 January 2014
Notes:

HK$’000
30,879
(83,967)
4,151
11,176
(15,239)
(2,730)
(55,730)

7.1 The Consideration will be satisfied by 257,324,692 Subject Shares. Assuming the Disposal was completed on 1 January 2014, the estimated fair value of the Consideration will be HK$30,879,000 (being calculated on 257,324,692 Subject Shares at the closing price of the Company’s share of HK$0.12 per share as of 31 December 2013).

III – 12

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

7.2 The details of the net assets of the Disposal Company to be disposed of, as if the Disposal had taken place on 1 January 2014, is as follows:

Net assets of the Disposal Company as at 31 December 2013 (as set out
in the Accountants’ Report included in Appendix II to the Circular)
Fair value adjustment on intangible assets arising from the acquisition
of the Disposal Company
Deferred tax liabilities recognised in relation to the fair value adjustment
on intangible assets arising from the acquisition of
the Disposal Company
Goodwill arising from the acquisition of the Disposal Company

HK$’000
50,506
26,837
(4,005)
10,629

83,967

7.3 The amount of translation reserves of the Disposal Company reclassified from other comprehensive income to profit or loss of amounted to HK$4,151,000 as at 1 January 2014.
7.4 The amount represents the estimated fair value of the Group’s retained remaining 25% equity interest in the Disposal Company of HK$11,176,000, which will be accounted for as an associate of the Group upon completion of the Disposal. The Directors have assessed the estimated fair value of the Group’s retained remaining 25% equity interest in the Disposal Company as at 31 December 2013 with reference to a valuation report prepared by Greater China Appraisal Limited, an independent firm of professional valuer.

The financial projection and the related assumptions contained in the valuation are prepared by the management of the Company. The major assumption mainly contained (i) the estimated weighted average of revenue growth rate of 3%; (ii) the basis of cost of sales, which mainly included direct manufacturing expenses and material costs, would be 68% to 70% to the projected revenue and (iii) the basis of operating expenses, which represented selling, general and administrative expenses, would be 20% to 21% to the projected revenue.

III – 13

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Significant unobservable inputs were as follow:
Weighted average growth rate	3%
Discount for lack of marketability	35%
Discount for lack of control	24%

7.5 The Directors considered that the amount due to the Remaining Group by the Disposal Company of HK$15,239,000 as at 1 January 2014 will not be recoverable and therefore shall be fully written off upon the Disposal was completed.
7.6 The estimated amount of legal and professional fees directly attributed to the Disposal is estimated by the Directors and it is assumed that these fees are settled by cash.

The share of results of the Disposal Company assuming the Disposal had been taken place on 1 January 2014 and the Disposal Company became an associate of the Company thereafter. The share of results of an associate is calculated based on the Group’s share of the loss of the Disposal Company of HK$2,080,000 for the six months ended 30 June 2014, which was extracted from the Accountants’ Report of the Disposal Company as set out in Appendix II to the Circular.
The adjustment related to the share of other comprehensive income of an associate represented the share of translation reserve of the Disposal Company of HK$86,000 for the six months ended 30 June 2014, assuming the Disposal had taken place on 1 January 2014 and the Disposal Company became an associate of the Group thereafter.
These adjustments represent the exclusion of the cash flows of the Disposal Company which are extracted from the Accountants’ Report of the Disposal Company for the six months ended 30 June 2014 as set out in Appendix II to the Circular, assuming the Disposal had taken place on 1 January 2014.

III – 14

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

These adjustments represent the reversal of amortisation on the revalued intangible assets (arising from the acquisition of the Disposal Company in 2010) of HK$2,230,000 for the six months ended 30 June 2014, as if the Disposal had taken place on 1 January 2014.
These adjustments represent the net cash outflow of HK$4,356,000 from disposal of the Disposal Company, as if the Disposal had taken place on 1 January 2014, which is calculated by cash and cash equivalents held by the Disposal Company of HK$1,626,000 on and the cash paid for the estimated legal and professional fees of HK$2,730,000.

These adjustments also include the estimated loss from the Disposal of HK$55,730,000 (Note 7), as if the Disposal had taken place on 1 January 2014.

The adjustments represent the share of result of the Disposal Company amounted to HK$2,080,000 (Note 8), assuming the Disposal had been taken place on 1 January 2014 and the Disposal Company became an associate of the Group thereafter.
The Directors consider that pro forma adjustments will have no continuous effect on the Remaining Group in the subsequent reporting periods.

III – 15

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

B. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

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16 December 2014

The Board of Directors Hybrid Kinetic Group Limited Suites 1407-8, 14/F Great Eagle Centre 23 Harbour Road, Wanchai Hong Kong

Dear Sirs,

We have completed our assurance engagement to report on the compilation of pro forma financial information of Hybrid Kinetic Group Limited (the “Company”) and its subsidiaries (collectively the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The pro forma financial information consists of the pro forma consolidated statement of financial position as at 30 June 2014, the pro forma consolidated statement of comprehensive income for the six months ended 30 June 2014, the pro forma consolidated statement of cash flows for the six months ended 30 June 2014, and related notes (the “Unaudited Pro Forma Financial Information”) as set out in section headed “Unaudited Pro Forma Financial Information of the Remaining Group” in Appendix III of the circular issued by the Company dated 16 December 2014 (the “Circular”). The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are also described is section headed “Unaudited Pro Forma Financial Information of the Remaining Group” in Appendix III of the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the proposed disposal of the 75% equity interest in Zhejiang GBS Energy Co., Ltd (the “Disposal Company”) on the Group’s financial position as at 30 June 2014 and the Group’s financial performance and cash flows for the six months ended 30 June 2014 as if the transaction was completed on 30 June 2014 and had taken place at 1 January 2014 respectively. As part of this process, information about the Group’s financial position, financial performance and cash flows has been extracted by the Directors from the Group’s unaudited interim financial information for the six months ended 30 June 2014, on which the interim report has been published.

III – 16

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

DIRECTORS’ RESPONSIBILITY 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 (“HKICPA”).

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 Engagements 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 comply with ethical requirements and 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 AG7 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 entity 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 Disposal at 30 June 2014 or 1 January 2014 would have been as presented.

III – 17

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

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 the applicable criteria used by the Directors in the 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 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.

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 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.

Yours faithfully,

BDO Limited

Certified Public Accountants Hong Kong

III – 18

GENERAL INFORMATION

APPENDIX IV

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance which 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.

SHARE CAPITAL

(a) Share capital

As at the Latest Practicable Date, the authorised and issued share capital of the Company were as follows:

Authorised share capital HK$ 800,000,000,000 Shares 80,000,000,000.00 Issued and fully paid share capital HK$ 12,395,909,756 Shares 1,239,590,975.60

All the existing Shares rank pari passu in all respects with each other including rights to dividends, voting and return of capital.

(b) Share options

Save for the options carrying the rights to subscribe for up to a total of 2,426,070,000 Shares at the exercise prices ranging from HK$0.102 to HK$0.201 granted under the share option scheme adopted by the Company on 12 June 2013, there were no outstanding options of the Company as at the Latest Practicable Date.

(c) Convertible securities

As at the Latest Practicable Date, none of the members of the Group has granted any options, warrants or other rights to call for the issue of or agreed to issue any share or loan capital or any instrument convertible into or exchangeable for shares of such capital, and none of the members of the Group is a party to or otherwise bound by any agreement for the purchase or repurchase of shares of any member of the Group.

IV – 1

GENERAL INFORMATION

APPENDIX IV

DISCLOSURE OF INTERESTS

(a) Interests of Directors and chief executive of the Company

As at the Latest Practicable Date, the interests and short positions of each Director and chief executive of the Company in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in 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 maintained by the Company referred to therein, or which were required, pursuant to Appendix 10 to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) contained in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

(1) Interests in Shares

Name of Director Capacity Yeung Yung Controlled corporation Beneficial owner Liu Stephen Quan Founder of trust Interest of children under 18 Zhu Shengliang Beneficial owner Hui Wing Sang, Wilson Beneficial owner Li Zhengshan Beneficial owner Chan Sin Hang Beneficial owner	Number of Shares 2,673,071,189 (Note 2) 10,000,000 2,683,071,189 (Note 3) 281,760,000 (Note 4) 5,333,883 2,904,000 8,700,000 2,500,000	Approximate percentage of shareholding (Note 1) 21.56% 0.08%
		21.64% 2.27% 0.04% 0.02% 0.07% 0.02%

IV – 2

GENERAL INFORMATION

APPENDIX IV

Notes:

(1) The percentage of shareholding is calculated on the basis of 12,395,909,756 Shares in issue as at the Latest Practicable Date and did not take into account any Shares which may fall to be allotted and issued upon exercise of any subscription rights attaching to any share options granted by the Company.
(2) These Shares are held by Sun East LLC. Sun East LLC is a limited liability company incorporated in California, the US, which is owned as to (i) 35% by Dr Yeung Yung (shared commonly with his spouse under the laws of California, the US) and 65% by Mr Ma Manwai (alias Ma Manwai, Philip) and Mr Jimmy Wang (alias Wang Jian) as co-trustees for certain trusts established for the benefit of the children of Dr Yeung Yung on 30 December 2002. Dr Yeung Yung (as well as his spouse) was deemed to be interested in the Shares held by Sun East LLC under Part XV of the SFO. Dr Yeung Yung is an executive Director.
(3) The spouse of Dr Yeung Yung is deemed to be interested in the Shares personally and beneficially held by Dr Yeung Yung by virtue of Part XV of the SFO.
(4) These Shares were indirectly owned by certain trusts of which Mr Liu Stephen Quan were the founder. The children of Mr Liu were eligible beneficiaries of the trusts. Mr Liu was deemed to be interested in these Shares by virtue of Part XV of the SFO.

(2) Interests in share options of the Company

Name of Director Date of grant Exercisable period Exercise price (HK$) Yeung Yung 9 August 2005 29 August 2005 to 8 August 2015 0.102 6 February 2008 6 February 2008 to 5 February 2018 0.114 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201	No. of underlying Shares subject to outstanding options 11,140,000 27,000,000 10,000,000 10,000,000 58,140,000	Approximate percentage of shareholding (Note)
		0.47%

IV – 3

APPENDIX IV

GENERAL INFORMATION

Name of Director Date of grant Exercisable period Exercise price (HK$) Huang Chunhua 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201 Wang Chuantao 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201 Liu Stephen Quan 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201 Hui Wing Sang, Wilson 6 February 2008 6 February 2008 to 5 February 2018 0.114 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201 Zhu Shengliang 9 August 2005 29 August 2005 to 8 August 2015 0.102 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201	No. of underlying Shares subject to outstanding options 65,000,000 50,000,000 115,000,000 30,000,000 30,000,000 60,000,000 10,000,000 10,000,000 20,000,000 27,000,000 60,000,000 50,000,000 137,000,000 16,710,000 20,000,000 20,000,000 56,710,000	Approximate percentage of shareholding (Note)
		0.93%
		0.48%
		0.16%
		1.11%
		0.46%

IV – 4

APPENDIX IV

GENERAL INFORMATION

Name of Director Date of grant Exercisable period Exercise price (HK$) Xu Jianguo 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201 Li Zhengshan 9 August 2005 29 August 2005 to 8 August 2015 0.102 6 February 2008 6 February 2008 to 5 February 2018 0.114 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201 Xia TingKang, Tim 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201 Song Jian 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201 Zhu Guobin 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201	No. of underlying Shares subject to outstanding options 30,000,000 50,000,000 80,000,000 5,570,000 5,000,000 25,000,000 50,000,000 85,570,000 10,000,000 10,000,000 20,000,000 10,000,000 10,000,000 20,000,000 10,000,000 10,000,000 20,000,000	Approximate percentage of shareholding (Note)
		0.65%
		0.69%
		0.16%
		0.16%
		0.16%

IV – 5

APPENDIX IV

GENERAL INFORMATION

Name of Director Date of grant Exercisable period Exercise price (HK$) Li Jianyong 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201 Wong Lee Hing 29 July 2014 29 July 2014 to 28 July 2024 0.1136 20 November 2014 20 November 2014 to 19 November 2024 0.201 Cheng Tat Wa 29 July 2014 29 July 2014 to 28 July 2024 0.1136 20 November 2014 20 November 2014 to 19 November 2024 0.201 Chan Sin Hang 20 November 2014 20 November 2014 to 19 November 2024 0.201 Ting Kwok Kit, Johnny 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201 Chen Xiao 6 September 2013 6 September 2013 to 5 September 2023 0.108 20 November 2014 20 November 2014 to 19 November 2024 0.201	No. of underlying Shares subject to outstanding options 10,000,000 20,000,000 30,000,000 10,000,000 2,000,000 12,000,000 5,000,000 5,000,000 10,000,000 5,000,000 5,000,000 35,000,000 25,000,000 60,000,000 25,000,000 50,000,000 75,000,000	Approximate percentage of shareholding (Note)
		0.24%
		0.10%
		0.08%
		0.04%
		0.48%
		0.61%

Note: The percentage of shareholding is calculated on the basis of 12,395,909,756 Shares in issue as at the Latest Practicable Date.

IV – 6

APPENDIX IV

GENERAL INFORMATION

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 corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including the interests and short positions in which they were deemed or taken to have under such provisions of the SFO), or which are required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

(b) Interests of substantial Shareholders

So far as was known to the Directors or the chief executive of the Company, as at the Latest Practicable Date, persons other than a Director or chief executive of the Company who had interests or short positions in the shares or 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, or were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group, or held any option in respect of such capital were as follows:

Long position in the Shares

Name of Shareholder Capacity Sun East LLC Beneficial owner (Note 3) Yeung Yung Interest of controlled corporation (Note 4) Beneficial owner (Note 5)	Number of issued Shares held (L) 2,673,071,189 2,673,071,189 10,000,000 2,683,071,189	Approximate percentage of shareholding (Note 2) 21.56% 21.56% 0.08%
		21.64%

Notes:

(1) The letter “L” represents the entity’s interest in the Shares.
(2) The percentage of shareholding is calculated on the basis of 12,395,909,756 Shares in issue as at the Latest Practicable Date and did not take into account any Shares which may fall to be allotted and issued upon exercise of any subscription rights attaching to any share options granted by the Company.

IV – 7

GENERAL INFORMATION

APPENDIX IV

(3) Sun East LLC is a limited liability company incorporated in California, the US, which is owned as to (i) 35% by Dr Yeung Yung (shared commonly with his spouse under the laws of California, the US) and (ii) 65% by Mr Ma Manwai (alias Ma Manwai, Philip) and Mr Jimmy Wang (alias Wang Jian) as co-trustees for certain trusts established for the benefit of the children of Dr Yeung Yung on 30 December 2002. Dr Yeung Yung (as well as his spouse) was deemed to be interested in these 2,673,071,189 Shares held by Sun East LLC under Part XV of the SFO. Dr Yeung Yung is an executive Director.
(4) These 2,673,071,189 Shares are the same parcel of Shares held by Sun East LLC in which Dr Yeung Yung (as well as his spouse) is deemed interested under Part XV of the SFO.
(5) These 10,000,000 Shares are directly held by Dr Yeung Yung, in which his spouse is deemed interested under Part XV of the SFO.

Save as disclosed above, so far as was known to the Directors or the chief executive of the Company, as at the Latest Practicable Date, no persons other than a Director or chief executive of the Company had any interests or short positions in the shares or 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, or were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group, or held any option in respect of such capital.

Save as disclosed above, none of the Directors was a director or an employee of a company which has 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.

MATERIAL LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors entered or proposed to enter into any service contract with any member of the Group which is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

IV – 8

GENERAL INFORMATION

APPENDIX IV

DIRECTORS’ INTEREST IN ASSETS AND CONTRACTS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been, since 31 December 2013 (being the date to which the latest published audited accounts of the Group 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.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement, subsisting at the date of this circular, which is significant in relation to the business of the Group.

COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors or, so far as is known to them, any of their respective associates was interested in any business (apart from the Group’s business) which competes or is likely to compete either directly or indirectly with the Group’s business.

MATERIAL ADVERSE CHANGE

The Directors confirm that, as at the Latest Practicable Date, they are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2013, being the date to which the latest published audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date.

MATERIAL CONTRACTS

During the two years immediately preceding the date of this circular, the following contracts, not being contracts entered into in the ordinary course of business, have been entered by the Company and/or members of the Group and are or may be material:

(a) the cooperative agreement dated 23 November 2012 entered into among, among others, the Company and 江蘇新海連發展集團有限公司 (Jiangsu NewHeadLine Development Group Co., Ltd.*) and LETDZ in relation to the proposed establishment of the Project Company for the promotion and development of the New Energy Project, at a total investment amount of RMB10,000,000,000;
(b) the GBS Share Transfer Agreement;

IV – 9

GENERAL INFORMATION

APPENDIX IV

(c) 21 several subscription agreements all dated 2 December 2014 entered into by the Company with 21 several subscribers, who/which are Independent Third Parties, in respect of the subscription of an aggregate of 1,780,235,000 new Shares at the subscription price of HK$0.16 each (the completion of which were yet to take place as at the Latest Practicable Date); and
(d) the Placing Agreement.

QUALIFICATION AND CONSENT OF EXPERTS

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

Name

Qualification

Donvex Capital Limited

Donvex Capital Limited, a licensed corporation to carry out Type 6 regulated activity as defined under the SFO

BDO Limited

Certified Public Accountants

(a) As at the Latest Practicable Date, each of Donvex Capital Limited and BDO Limited had no shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities of any member of the Group.
(b) As at the Latest Practicable Date, each of Donvex Capital Limited and BDO Limited did not have any interest, direct or indirect, in any assets which have been, since 31 December 2013, 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 proposed to be acquired or disposed of by or leased to any member of the Group.
(c) Each of Donvex Capital Limited and BDO Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of and references to its name and letter in the form and context in which they respectively appear.

IV – 10

GENERAL INFORMATION

APPENDIX IV

GENERAL

(a) The registered office of the Company is at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.
(b) The secretary of the Company is Mr Ting Kwok Kit, Johnny, who is a fellow member of the Association of Chartered Certified Accountants, a member of the Certified General Accountants Association of Canada and a fellow member of the Hong Kong Institute of Chartered Secretaries.
(c) The qualified accountant of the Company is Mr Hui Wing Sang, Wilson, who is an associate member of The Hong Kong Institute of Certified Public Accountants (HKICPA).
(d) The head office and principal place of business of the Company in Hong Kong is situated at Suites 1407-8, 14th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong.
(e) The Company’s principal share registrar and transfer office in Bermuda is Appleby Management (Bermuda) Ltd at Canon’s Court, 22 Victoria Street, Hamilton, HM12, Bermuda.
(f) The Hong Kong branch share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(g) In the event of inconsistency, the English text of this circular and the form of proxy shall prevail over the Chinese text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. (except Saturdays and public holidays) at the head office and principal place of business of the Company in Hong Kong at Suites 1407-8, 14th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including the date of the Special General Meeting:

(a) the memorandum of association and the bye-laws of the Company;

IV – 11

GENERAL INFORMATION

APPENDIX IV

(b) the annual reports of the Company for the financial years ended 31 December 2012 and 2013 and the interim report of the Company for the six months ended 30 June 2014;
(c) the material contracts as referred to in the section headed “Material Contracts” in this appendix;
(d) the letter from the Independent Board Committee containing its advice to the Independent Shareholders, the text of which is set out in the section headed “Letter from the Independent Board Committee” in this circular;
(e) the letter from Donvex Capital containing its advice to the Independent Board Committee and the Independent Shareholders, the text of which is set out in the section headed “Letter from Donvex Capital” in this circular;
(f) the written consent of the experts referred to in the paragraph headed “Qualification and Consent of Experts” in this appendix; and
(g) this circular.

IV – 12

NOTICE OF SPECIAL GENERAL MEETING

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HYBRID KINETIC GROUP LIMITED 正道集團有限公司

(incorporated in Bermuda with limited liability)

(Stock code: 1188)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the “Meeting”) of Hybrid Kinetic Group Limited (the “Company”) will be held at Suites 1408, 14th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong on Monday, 5 January 2015 at 11:00 a.m. for the purpose of considering and, if thought fit, passing (with or without modification), the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT the terms and conditions, and the entering into, of the conditional share transfer agreement dated 18 August 2014 (the “GBS Share Transfer Agreement”) entered into between (i) Hybrid Kinetic Power Battery Holdings Limited（正道動力電池控股有限公司）(an indirect, wholly-owned subsidiary of the Company) (the “Vendor”) and (ii) Headland Co., Limited（海德蘭（香港）有限公司）(“Headland”), Ms Wenren Hongyan（聞人紅雁） (“WHY”) and Mr Wenren Hongquan（聞人紅權）(“WHQ”) (Headland, WHY and WHQ collectively, the “Purchasers”) regarding the disposal of 75% equity interest of Zhejiang GBS Energy Co., Ltd（浙江佳貝思綠色能源有限公司）by the Vendor to the Purchasers (the “GBS Equity Interest Disposal”) at the consideration and subject to and upon the terms and conditions contained in the GBS Share Transfer Agreement (a copy of which has been produced to the meeting marked “A” and signed by the chairman of the Meeting for the purpose of identification); and all the transactions contemplated under the GBS Share Transfer Agreement and ancillary arrangements be and are hereby approved, confirmed and/ or ratified (as the case may be); and that any one director or (if affixing of seal is required) any two directors of the Company be authorised for and on behalf of the Company, among other matters, to sign, execute, perfect, delivery (including under seal where applicable) and to authorise the signing, executing, perfecting and delivering (including under seal where applicable) of all such documents and deeds, and to do or authorise doing all such acts, matters and things, as he may in his absolute discretion consider necessary, expedient

N – 1

NOTICE OF SPECIAL GENERAL MEETING

or desirable to give effect to and implement and/or complete all matters in connection with the transactions contemplated under and/or ancillary to the GBS Share Transfer Agreement, and to waive compliance from or make and agree such variations of a non-material nature to any of the terms of the GBS Share Transfer Agreement as he may in his absolute discretion consider to be desirable and in the interests of the Company, and all of such acts of director(s) as aforesaid be hereby approved, ratified and confirmed (as the case may be).”

Yours faithfully For and on behalf of the board of directors Hybrid Kinetic Group Limited Yeung Yung Chairman

Hong Kong, 16 December 2014

Registered office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Principal place of business in Hong Kong: Suites 1407-8, 14th Floor Great Eagle Centre 23 Harbour Road Wanchai, Hong Kong

Notes:

Any member of the Company entitled to attend and vote at the Meeting convened by the above notice is entitled to appoint one or more separate proxy(ies) to attend and, subject to the provisions of the bye-laws of the Company, vote in his stead. A proxy need not be a member of the Company.
A form of proxy for use at the Meeting is enclosed with the circular of the Company dated 16 December 2014.
To be valid, the form of proxy in the prescribed form together with the power of attorney or other authority (if any) under which it is signed (or a certified copy thereof) must be deposited with the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the Meeting (or any adjournment thereof).
Delivery of an instrument appointing a proxy should not preclude a member from attending and voting in person at the Meeting or at any adjournment thereof and in such event, the instrument appointing a proxy shall be deemed to be revoked.

N – 2

NOTICE OF SPECIAL GENERAL MEETING

In the case of joint holders of a share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders are present at the Meeting, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.
Resolution set out in this notice will be taken by poll at the Meeting.

As at the date of this notice, the board of directors of the Company comprises ten executive directors, namely Dr Yeung Yung (Chairman), Dr Huang Chunhua (Deputy Chairman), Dr Wang Chuantao (Chief Executive Officer), Mr Hui Wing Sang, Wilson (Deputy Chairman), Mr Liu Stephen Quan, Dr Zhu Shengliang, Mr Xu Jianguo, Mr Li Zhengshan, Mr Ting Kwok Kit, Johnny and Mr Chen Xiao, one non-executive director, namely Dr Xia Tingkang, Tim and six independent non-executive directors, namely Mr Wong Lee Hing, Dr Song Jian, Mr Cheng Tat Wa, Dr Zhu Guobin, Dr Li Jianyong and Mr Chan Sin Hang.

N – 3

AI assistant

Hybrid Kinetic Group Limited — Proxy Solicitation & Information Statement 2014

49754_rns_2014-12-15_4bedfc2d-1f92-4613-be2c-6ca88ce06bdd.pdf

HYBRID KINETIC GROUP LIMITED 正道集團有限公司

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION REGARDING THE GBS EQUITY INTEREST DISPOSAL AND NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

HYBRID KINETIC GROUP LIMITED 正道集團有限公司

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION REGARDING THE GBS EQUITY INTEREST DISPOSAL

INTRODUCTION

LETTER FROM THE BOARD

GBS SHARE TRANSFER AGREEMENT

Date

Parties

LETTER FROM THE BOARD

Assets to be disposed of

Disposal Consideration

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Basis of the Disposal Consideration

LETTER FROM THE BOARD

Conditions Precedent to the Disposal Completion

LETTER FROM THE BOARD

Disposal Completion

INFORMATION ON GBS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS FROM THE GBS EQUITY INTEREST DISPOSAL

Background and business review of GBS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Possible LTO business venture

LETTER FROM THE BOARD

BUSINESS PLAN AND STRATEGIES FOR AND THE MAJOR ASSETS OF THE REMAINING GROUP

A. Environmental automobile and related business

(i) Lithium-ion power battery business

LETTER FROM THE BOARD

(ii) New Energy Project

LETTER FROM THE BOARD

(iii) Environmental automobile business

B. Natural Resources Business

LETTER FROM THE BOARD

C. Major assets of the Remaining Group

FINANCIAL EFFECT OF THE GBS EQUITY INTEREST DISPOSAL

LETTER FROM THE BOARD

LETTER FROM THE BOARD

USE OF PROCEEDS FROM THE GBS EQUITY INTEREST DISPOSAL

TREATMENT OF VOTING RIGHTS, DIVIDENDS OR OTHER DISTRIBUTIONS REGARDING THE SUBJECT SHARES AND THE RETAINED SHARES

Open offer

Rights issue

LETTER FROM THE BOARD

ACCOUNTING TREATMENT OF THE SUBJECT SHARES AND THE RETAINED SHARES

CONSULTATION WITH THE SFC

LETTER FROM THE BOARD

ARRANGEMENTS FOR THE DISPOSAL OF THE SUBJECT SHARES AND THE RETAINED SHARES

Date:

Parties involved:

Placees

LETTER FROM THE BOARD

Maximum number of Shares to be placed under the Placing Agreement

Ranking of the Placing Shares

Placing Price

LETTER FROM THE BOARD

Placing commission

Placing restrictions

LETTER FROM THE BOARD

Disposal and lock-up restriction

No purchase of Placing Shares by connected persons

Condition(s) precedent to completion of the Placing

Placing period

LETTER FROM THE BOARD

Hybrid Kinetic Group Limited Proxy Solicitation & Information Statement 2014