KOALA Financial Group Limited - Proxy Solicitation & Information Statement 2010

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities in Sonavox International Holdings Limited, you should at once hand this Response Document 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 transferee(s).

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this Response Document, make no representation as to their 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 Response Document.

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(incorporated in the Cayman Islands with limited liability) (Stock Code: 8226)

RESPONSE DOCUMENT RELATING TO THE UNCONDITIONAL MANDATORY CASH OFFERS BY OPTIMA CAPITAL LIMITED ON BEHALF OF FAME GLOBAL ENTERPRISES LIMITED FOR ALL THE ISSUED SHARES IN AND OUTSTANDING CONVERTIBLE BONDS OF SONAVOX INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY FAME GLOBAL ENTERPRISES LIMITED AND PARTIES ACTING IN CONCERT WITH IT) AND FOR THE CANCELLATION OF ALL THE OPTIONS OF SONAVOX INTERNATIONAL HOLDINGS LIMITED

Financial adviser to

Sonavox International Holdings Limited

Independent financial adviser to the Independent Board Committee

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Capitalised terms used on this cover page shall have the same meanings as those defined in the section headed “Definitions” in this Response Document.

A letter from the Board is set out on pages 6 to 11 of this Response Document. A letter from the Independent Board Committee is set out on page 12 of this document. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee is set out on pages 13 to 29 of this Response Document.

This Response Document will remain on the GEM website at http://www.hkgem.com and on the website of the Company at http://www.sonavox.com.hk as long as the Offers remain open.

27 August 2010

CHARACTERISTICS OF GEM

GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

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

	Page
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Appendix I – Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Appendix II – Property valuation report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Appendix III – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

EXPECTED TIMETABLE

The timetable set out below is extracted from the Offer Document and indicative only and any changes to the timetable will be announced by the Offeror.

Commencement of the Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 6 August 2010

Latest time and date for acceptance of the Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on

Friday, 10 September 2010

Closing date of the Offers (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 10 September 2010

Announcement of the results of the Offers to be

posted on the Stock Exchange’s website . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .by 7:00 p.m. on

Friday, 10 September 2010

Latest date for posting of remittances to

the accepting Independent Shareholders, Bondholders and Optionholders in respect of valid acceptances

received under the Offers (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 20 September 2010

Notes:

The Offers, which are unconditional, will be closed on 10 September 2010 unless the Offeror revises or extends the Offers, with the consent of the Executive, in accordance with the Takeovers Code. An announcement will be published on the website of the Stock Exchange by 7:00 p.m. on 10 September 2010 stating whether the Offers have been closed, revised or extended, and, if the Offers are extended or revised, the announcement will state the next closing date or that the Offers will remain open until further notice. In the event that the Offeror decides to keep the Offers open until further notice, at least 14 days’ notice in writing will be given, before the Offers are closed, to the Independent Shareholders, the Bondholders and the Optionholders who have not accepted the Offers.
Acceptance of the Offers shall be irrevocable and cannot be withdrawn, except in the circumstances set out in Rule 19.2 of the Takeovers Code. Remittances in respect of the cash consideration payable for the Offer Shares, the Convertible Bonds or the Options tendered under the Offers will be posted to the accepting Independent Shareholder(s), the accepting Bondholder(s) and the accepting Optionholder(s) at his/her/its own risks as soon as possible but in any event within 10 days of the date of receipt by Union Registrars Limited, the branch share registrar of the Company (as regards the Share Offer) and the company secretary of the Company (as regards the CB Offer and the Option Offer) of the duly completed Form(s) of Acceptance and the relevant documents of title.

Unless otherwise expressly stated, all time and date references contained in this Response Document refer to Hong Kong time and dates.

iii

DEFINITIONS

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

“acting in concert” has the meaning ascribed thereto in the Takeovers Code “Board” the board of Directors “Bondholders” holders of the Convertible Bonds “Business Day” a day (other than Saturday) on which banks in Hong Kong are generally open for business
“BVI” British Virgin Islands “CB Offer” the unconditional mandatory cash offer being made by Optima Capital on behalf of the Offeror for all the outstanding Convertible Bonds other than those already owned by the Offeror and parties acting in concert with it in accordance with the Takeovers Code
“CCASS” the Central Clearing and Settlement System established and operated by HKSCC
“Closing Date” Friday, 10 September 2010, the first closing date of the Offers or such later date revised or extended by the Offeror, with the consent of the Executive, in accordance with the Takeovers Code
“Company” Sonavox International Holdings Limited (stock code: 8226), a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on GEM
“Convertible Bonds” the outstanding 8% redeemable convertible bonds due 2011 issued by the Company in the principal amount of US$5,000,000, which entitles the holders thereof to convert into new Shares at the prevailing conversion price of HK$0.40 (subject to adjustments)
“Directors” directors of the Company
“Disposals” collectively, the disposals of (i) the entire issued share capital of and the shareholder’s loan owed by Indigo Enterprises Inc.; and (ii) the entire issued share capital of and the shareholder’s loan owed by Taraki Services Company Limited, pursuant to the Indigo Agreement and the Taraki Agreement respectively, details of which are set out in the Joint Announcement and the circular of the Company dated 6 August 2010, which were approved at the EGM

DEFINITIONS

“EGM”	the extraordinary general meeting of the Company convened and
	held on 23 August 2010 for the purpose of considering and, if
	thought fit, approving the terms of the Indigo Agreement and the
	Taraki Agreement and the transactions respectively contemplated
	thereunder
“Encumbrances”	includes without any limitation, with respect to any asset,
	any option, right to acquire, right of pre-emption, mortgage,
	charge, pledge, lien, hypothecation, title retention, right of set-
	off, counterclaim, trust arrangement or other security or any
	equity or restriction (including any restriction imposed under the
	Companies Ordinance (Chapter 32 of the Laws of Hong Kong))
“Executive”	the Executive Director of the Corporate Finance Division of the
	SFC or any delegates of the executive director
“Form(s) of Acceptance”	the form(s) of acceptance and transfer in respect of the Share
	Offer and the CB Offer and the form(s) of acceptance and
	cancellation in respect of the Option Offer accompanied with the
	Offer Document
“GEM”	the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	the Rules Governing the Listing of Securities on GEM
“Group”	the Company and its subsidiaries
“Guarantors”	Mr. Shan and Mr. Yang Ching Yau
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Independent Board	the independent committee of the Board, excluding Mr. Yiu Chi
Committee”	Wah who is an independent non-executive Director and was
	involved in the negotiation of the Offers and the Disposals,
	comprising Mr. Fan Chi Fai, Paul and Mr. Lee Fang Yu, being
	non-executive Directors who have no direct or indirect interest
	in the Offers, established to make recommendation to the
	Independent Shareholders, the Bondholders and the Optionholders
	in connection with the Offers
“Independent Financial	Goldin Financial Limited, a licensed corporation under the SFO
Adviser”	permitted to engage in type 6 (advising on corporate finance)
	regulated activity, the independent financial adviser appointed
	by the Company to advise the Independent Board Committee in
	respect of the Offers

DEFINITIONS

“Independent Shareholders” Shareholders other than the Offeror, its ultimate beneficial owner and parties acting in concert with any one of them
“Indigo Agreement” the conditional agreement dated 12 July 2010 entered into between the Company and Newood in relation to the disposal of the entire issued share capital of and the shareholders’ loan owed by Indigo Enterprises Inc.
“Joint Announcement” the announcement dated 16 July 2010 jointly issued by the Offeror and the Company in relation to, among other things, the Offers and the Disposals
“Last Trading Day” 12 July 2010, being the last trading day of the Shares immediately prior to its suspension in trading on the Stock Exchange on 13 July 2010 pending the release of the Joint Announcement
“Latest Practicable Date” 25 August 2010, being the latest practicable date prior to the printing of this Response Document for the purpose of ascertaining certain information in this Response Document
“Mr. Chan” Mr. Chan Ping Yee, a party acting in concert with the Offeror “Mr. Shan” Mr. Shan Xiaochang, the sole beneficial owner and the sole director of the Offeror
“Newood” Newood Consultancy Limited, a company incorporated in the BVI with limited liability which is wholly owned by Silver Way Limited, the entire issued share capital of which is in turn owned by Deutsche Bank International Trust Co. (Cayman) Limited as the trustee of The SEI Trust, and the discretionary objects of which are Mr. Yang Ching Yau and Mr. Yang Tsu Ying, both of which are the executive Directors
“Offeror” Fame Global Enterprises Limited, a company incorporated in the BVI with limited liability which is wholly and beneficially owned by Mr. Shan
“Offers” collectively, the Share Offer, the CB Offer and the Option Offer “Offer Document” the offer document dated 6 August 2010 issued by the Offeror in relation to the Offers
“Offer Period” has the meaning ascribed thereto in the Takeovers Code, being the period commencing from 16 July 2010 and ending on the Closing Date

DEFINITIONS

“Offer Share(s)”	Share(s) in respect of which the Share Offer is made, being
	Share(s) not already owned by the Offeror and parties acting in
	concert with it
“Optima Capital”	Optima Capital Limited, a licensed corporation under the SFO
	permitted to engage in type 1 (dealings in securities), type 4
	(advising on securities) and type 6 (advising on corporate finance)
	regulated activities, and the financial adviser to the Offeror
“Option(s)”	the option(s) granted under the Share Option Scheme which
	are outstanding as at the Latest Practicable Date and entitle the
	holders thereof to subscribe for Option Share(s) at a subscription
	price of HK$0.345 per Option Share
“Optionholder(s)”	holder(s) of the Options
“Option Offer”	the unconditional mandatory cash offer being made by Optima
	Capital on behalf of the Offeror for the cancellation of the Options
	in accordance with the Takeovers Code
“Option Offer Price”	the price at which the Option Offer is being made, being
	HK$0.055, for the cancellation of each Option
“Option Share(s)”	the new Share(s) which may fall to be issued upon the exercise
	by the Optionholders of the subscription rights attaching to the
	Options at a price of HK$0.345 per Share
“PRC”	the People’s Republic of China, for the purposes of this Response
	Document, excluding Hong Kong, Macau Special Administrative
	Region of the PRC and Taiwan
“Relevant Period”	the period from 16 January 2010, being the date falling on the
	six months before the date of the Joint Announcement, up to and
	including the Latest Practicable Date
“Relevant Securities”	relevant securities (as defined in Note 4 to Rule 22 of the
	Takeovers Code) include (a) securities of the Company which
	are being offered for or which carry voting rights; (b) equity
	share capital of the Company and the Offeror; (c) securities of
	the Offeror which carry the same or substantially the same rights
	as any to be issued as consideration for the Offers; (d) securities
	carrying conversion or subscription rights into any of the
	foregoing; and (e) options and derivatives in respect of any of the
	foregoing
“Remaining Group”	the Group immediately after completion of the Disposals

DEFINITIONS

“Response Document”	this offeree board circular issued by the Company in response to
	the Offers in accordance with the Takeovers Code
“Sale Shares”	a total of 240,000,000 Shares acquired by the Offeror from
	Newood pursuant to the terms and conditions of the SP Agreement
“SFC”	Securities and Futures Commission
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.01 each in the issued share capital of
	the Company
“Shareholder(s)”	holder(s) of the Shares
“Share Offer”	the unconditional mandatory cash offer being made by Optima
	Capital on behalf of the Offeror for all the Shares other than those
	already owned by the Offeror and parties acting in concert with it
	in accordance with the Takeovers Code
“Share Offer Price”	the price at which the Share Offer is being made, i.e. HK$0.40 per
	Offer Share
“Share Option Scheme”	the share option scheme adopted by the Company pursuant to an
	ordinary resolution of the Company passed on 8 July 2002
“SP Agreement”	the sale and purchase agreement dated 12 July 2010 entered into
	among Newood, the Offeror and the Guarantors in relation to the
	sale and purchase of the Sale Shares
“SP Completion”	completion of the sale and purchase of the Sale Shares in
	accordance with the terms and conditions of the SP Agreement
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Taraki Agreement”	the conditional agreement dated 12 July 2010 entered into
	between Taraki Inc. and Newood in relation to the disposal of the
	entire issued share capital of and the shareholder’s loan owed by
	Taraki Services Company Limited
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“US$”	US dollars, the lawful currency of United States of America
“%”	per cent.

Amounts expressed in US$ (in respect of the principal amount of the Convertible Bonds) have been translated into HK$ at a fixed exchange rate of US$1.00 = HK$7.75 as required under the instrument constituting the Convertible Bonds.

LETTER FROM THE BOARD

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(incorporated in the Cayman Islands with limited liability) (Stock Code: 8226)

Executive Directors: Mr. Yang Tsu Ying (Chairman) Mr. Yang Ching Yau (Chief Executive Officer)

Independent non-executive Directors: Mr. Yiu Chi Wah Mr. Fan Chi Fai, Paul Mr. Lee Fang Yu

Registered office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT George Town Grand Cayman British West Indies

Principal place of business in Hong Kong: Room 2104 Harcourt House 39 Gloucester Road Wan Chai Hong Kong 27 August 2010

To the Independent Shareholders, the Bondholders and the Optionholders

Dear Sir or Madam,

INTRODUCTION

Reference is made to the Joint Announcement, the circular of the Company dated 6 August 2010 in respect of the Disposals and the Offer Document.

On 16 July 2010, the Offeror and the Company jointly announced that the Offeror, Newood and the Guarantors entered into the SP Agreement on 12 July 2010, pursuant to which Newood agreed to sell and the Offeror agreed to acquire 240,000,000 Shares, representing approximately 73.83% of the entire issued share capital of the Company at a consideration of HK$96,000,000 (equivalent to HK$0.4 per Sale Share). The SP Completion took place on 16 July 2010.

LETTER FROM THE BOARD

As a result of the completion of the acquisition of the Sale Shares, the Offeror is beneficially holding and interested in 240,000,000 Shares, representing approximately 73.83% of the entire issued share capital of the Company as at the Latest Practicable Date. Save for the aforesaid, the Offeror and parties acting in concert with it do not have any other interests in any securities of the Company. Pursuant to Rule 26.1 of the Takeovers Code, the Offeror is required to make unconditional mandatory general offers in cash for all the issued Shares, the outstanding Convertible Bonds and the outstanding Options other than those already owned by the Offeror and parties acting in concert with it.

In addition, on 12 July 2010, the Company also entered into the Indigo Agreement and the Taraki Agreement which were approved by the Independent Shareholders at the EGM. Details of Indigo Agreement and the Taraki Agreement are disclosed in the Joint Announcement and the circular of the Company in respect thereof dated 6 August 2010. Completion of the Disposals took place on 25 August 2010.

Rule 2.8 of the Takeovers Code requires the Company to establish an independent committee of the Board to advise the Independent Shareholders, the Bondholders and the Optionholders on the Offers and that such independent committee should comprise all non-executive Directors who have no direct or indirect interest in the Offers and the Disposals other than as a Shareholder. The Company has three nonexecutive Directors, namely Mr. Yiu Chi Wah, Mr. Fan Chi Fai, Paul and Mr. Lee Fang Yu. As Mr. Yiu Chi Wah was involved in the negotiation of the Offers and the Disposals, the Directors consider that it would be more appropriate that Mr. Yiu Chi Wah does not sit on the Independent Board Committee. Accordingly, the Independent Board Committee comprising the remaining two non-executive Directors, namely Mr. Fan Chi Fai, Paul and Mr. Lee Fang Yu, has been established to advise and give recommendation to the Independent Shareholders, the Bondholders and the Optionholders in connection with the Offers.

The Offer Document was despatched on 6 August 2010. The latest time and date for acceptance of the Offers is 4:00 p.m. on Friday, 10 September 2010.

The purpose of this letter is to provide you with, among other things, information relating to the Group and the Offers, the recommendation of the Independent Board Committee to the Independent Shareholders, the Bondholders and the Optionholders regarding the Offers, and the advice of the Independent Financial Adviser to the Independent Board Committee on the Offers.

UNCONDITIONAL MANDATORY CASH OFFERS

The terms of the Offers are set out in the Offer Document and the Form(s) of Acceptance. You are recommended to refer to the Offer Document and the Form(s) of Acceptance for further details.

Principal terms of the Offers

Optima Capital, the financial adviser to the Offeror, is making the Offers, which are unconditional in all respects, on behalf of the Offeror in compliance with the Takeovers Code on the following terms:-

The Share Offer

For every Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.40 in cash

LETTER FROM THE BOARD

The Share Offer Price of HK$0.40 per Offer Share is the same as the price per Sale Share paid by the Offeror under the SP Agreement. The Offer Shares acquired under the Share Offer shall be fully paid and free and clear from all Encumbrances and together with all rights attaching to them, including but not limited to all rights to any dividend or other distribution declared, made or paid on or after the date of SP Completion.

The CB Offer

For each outstanding HK$1 face value of

the Convertible Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$1.0 in cash

Pursuant to the instrument constituting the Convertible Bonds, the conversion price of the Convertible Bonds shall be the US$ equivalent of HK$0.4 per new Share (subject to adjustments). Based on the Share Offer Price of HK$0.40 per Offer Share divided by the prevailing conversion price of the Convertible Bonds of HK$0.40 per new Shares (subject to adjustments), the offer price under the CB Offer is HK$1.0 for each outstanding HK$1 face value of the Convertible Bonds. The Convertible Bonds to be acquired under the CB Offer shall be free from all Encumbrances and any other third party rights of any nature and together with all rights attaching to them.

The Option Offer

For cancellation of each Option carrying

right to subscribe for one Option Share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.055 in cash

The Option Offer Price of HK$0.055 for every Option represents the difference between the Share Offer Price of HK$0.4 and the prevailing exercise price of the Options of HK$0.345 each. Any Optionholders accepting the Option Offer in respect of all or part of their Options will surrender and give up the subscription rights attaching to the relevant Options. Pursuant to the Shares Option Scheme, in the case that a general offer is made to the Shareholders, any Options not yet exercised before the close of the Offer Period shall lapse immediately after the close of the Option Offer.

Acceptance of the Offers shall be unconditional and irrevocable and shall not be capable of being withdrawn, except as permitted under the Takeovers Code.

Further terms of the Offers and procedures for acceptance were set out in the Offer Document and the Form(s) of Acceptance.

INFORMATION ON THE OFFEROR AND MR. CHAN

The Offeror is an investment holding company incorporated in the BVI with limited liability. The principal activity of the Offeror is investment holding and the principal assets held by it are the Sale Shares acquired from Newood. The sole beneficial owner and the sole director of the Offeror is Mr. Shan. Mr. Shan, aged 45, is an entrepreneur in the PRC with over 15 years of experience in corporate finance, operation and cashflow management and research and development. He also held senior positions in various private companies engaged in agriculture, environmental protection and chemical fertilizers in the PRC.

LETTER FROM THE BOARD

Mr. Chan, aged 59, as a strategic investor in respect of its investment in the Company, is a businessman who possesses over 20 years of experience in the manufacturing of consumer products, and held senior management positions in various business units relating to finance and operations. His family business has diversified into investments in securities, real estate development and mineral resources mining, both in Hong Kong and the PRC.

INFORMATION ON THE GROUP

The principal activity of the Company is investment holding with its subsidiaries principally engaged in the manufacture and sale of loudspeaker systems to customers in the PRC and overseas market.

The Group recorded audited consolidated losses attributable to equity holders of the Company of approximately HK$14.4 million and approximately HK$3.2 million for the two financial years ended 31 December 2008 and 2009 respectively. The Group recorded unaudited profit attributable to equity holders of the Company of approximately HK$2.0 million for the three months ended 31 March 2010. The audited consolidated total equity attributable to equity holders of the Company as at 31 December 2009 was approximately HK$82.5 million. As stated in the first quarterly report of the Company for the three months ended 31 March 2010, the Group was committed to strengthen its core businesses of manufacture and sales of high performance loudspeaker products to major automakers and consumer electronics companies around the world, such as Ford Motor Company, Volkswagen and Audi. In addition, the Group continued to launch new and competitive multimedia and home theatre products to satisfy our renowned customers’ needs. The sales of loudspeaker systems for automobiles were increased by 118% to approximately HK$118.0 million for three months ended 31 March 2010. Increase in overall sales by 101% for the first quarter of 2010 was primarily attributable to recovery of automobile market and hence rebound of shipments to customers.

OFFEROR’S INTENTION ON THE REMAINING GROUP

The Offeror intends that the Remaining Group will continue its existing principal activities, and leveraged on Mr. Shan’s assistance and experience in environmental protection and agricultural business, the Remaining Group will look for business opportunities in the sector of environmental protection in the PRC with a view to expanding the business activities of the Remaining Group. The Offeror will conduct a detailed review on the operations of the Remaining Group after the close of the Offers with a view to formulating a suitable business strategy for the Remaining Group and consider whether diversification of the business into the above sector will be appropriate to enhance the growth of the Remaining Group. In view of the foresaid, the Offeror is of the view that the Offers are in its long-term commercial interest. In the event that any of the aforesaid business opportunities materialize or the Offeror introduces any major changes to the existing operation and business of the Company (including re-deployment of fixed assets of the Remaining Group) after the close of the Offers, further announcement will be published by the Company as and when required under the GEM Listing Rules. As at 4 August 2010, being the latest practicable date prior to the printing of the Offer Document for ascertaining certain information contained therein, the Offeror has no intention or plan for re-deployment or disposal of assets and/or business of the Remaining Group.

The Board is aware of the intention of the Offeror in respect of the Remaining Group and is willing to co-operate with the Offeror to the extent permitted by the fiduciary duties of the Directors and the applicable law.

LETTER FROM THE BOARD

PROPOSED CHANGE OF BOARD COMPOSITION

As at the Latest Practicable Date, the Board comprises two executive Directors and three independent non-executive Directors. The Offeror intends to nominate Mr. Shan as the new Director to the Board on such date as the Offeror sees fit, subject to compliance with the Takeovers Code, the GEM Listing Rules and the Company’s articles of association. Mr. Shan will be responsible for the management of the Company’s business with a view to enhancing the corporate management of the Remaining Group immediately after the appointment. Further announcement will be published by the Company in respect of the changes to the Board pursuant to Rule 17.50(2) of the GEM Listing Rules as and when appropriate.

Save as disclosed above, the Offeror does not intend that there would be any material changes to the existing management and employees of the Remaining Group following the close of the Offers.

MAINTAINING THE LISTING STATUS OF THE COMPANY

The Offeror intends to maintain the listing of the Shares on the Stock Exchange after the close of the Offers. The director of the Offeror will undertake to the Stock Exchange to take appropriate steps following the close of the Offers to ensure that such number of Shares as may be required by the Stock Exchange are held by the public.

If, upon closing of the Offers, less than the minimum prescribed percentage applicable to the Company, being 25%, of the Shares are held by the public or if the Stock Exchange believes that (i) a false market exists or may exist in the trading of the Shares; or (ii) there are insufficient Shares in public hands to maintain an orderly market, then the Stock Exchange will consider exercising its discretion to suspend trading in the Shares.

Set out below is the shareholding structure of the Company as at the Latest Practicable Date:

The Offeror and parties acting in concert with it Public Shareholders Total	Number of Shares 240,000,000 85,089,974 325,089,974	Approximate % 73.83 26.17
		100.00

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 12 of this Response Document which contains its recommendation to the Independent Shareholders, the Bondholders and the Optionholders in respect of the Offers and the letter from the Independent Financial Adviser set out on pages 13 to 29 of this Response Document which contains its advice to the Independent Board Committee in relation to the Offers and the principal factors and reasons taken into consideration in arriving at its recommendation.

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this Response Document.

You are also recommended to read carefully further details in respect of the Offers as set out in the Offer Document and the Form(s) of Acceptance which contain details of the Offers before deciding whether or not to accept the Offers.

Yours faithfully, By order of the Board Sonavox International Holdings Limited Yang Tsu Ying Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(incorporated in the Cayman Islands with limited liability)

(Stock Code: 8226)

27 August 2010

To the Independent Shareholders, the Bondholders and the Optionholders

Dear Sir or Madam,

RESPONSE DOCUMENT RELATING TO THE UNCONDITIONAL MANDATORY CASH OFFERS BY OPTIMA CAPITAL LIMITED ON BEHALF OF FAME GLOBAL ENTERPRISES LIMITED FOR ALL THE ISSUED SHARES IN AND OUTSTANDING CONVERTIBLE BONDS OF SONAVOX INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY FAME GLOBAL ENTERPRISES LIMITED AND PARTIES ACTING IN CONCERT WITH IT) AND FOR THE CANCELLATION OF ALL THE OPTIONS OF SONAVOX INTERNATIONAL HOLDINGS LIMITED

We refer to the offeree board circular dated 27 August 2010 issued by the Company in response to the Offers (the “Response Document”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Response Document unless the context requires otherwise.

We, being non-executive Directors, have been appointed to form the Independent Board Committee to consider the terms of the Offers and to advise you as to whether, in our opinion, the terms of the Offers are fair and reasonable so far as your interests are concerned and to make recommendation as to acceptance of the Offers. The Independent Financial Adviser has been appointed to advise us in this respect. Details of its advice and the principal factors taken into consideration in arriving at its recommendation are set out in the letter from the Independent Financial Adviser on pages 13 to 29 of the Response Document.

We also wish to draw your attention to the letter from the Board, the letter from the Independent Financial Adviser and the additional information set out in the Offer Document, Form(s) of Acceptance and the appendices to the Response Document.

Taking into account the terms of the Offers and the advice from the Independent Financial Adviser, we consider that the terms of the Offers are fair and reasonable so far as the Independent Shareholders, the Bondholders and the Optionholders are concerned. Accordingly, we recommend the Independent Shareholders, the Bondholders and the Optionholders to accept the Offers.

Yours faithfully, Independent Board Committee Fan Chi Fai, Paul Lee Fang Yu Independent non-executive Independent non-executive Director Director

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter from the Independent Financial Adviser setting out the advice to the Independent Board Committee in respect of the Offers, which has been prepared for the purpose of inclusion in this Response Document.

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Goldin Financial Limited 23rd Floor Two International Finance Centre 8 Finance Street Central Hong Kong 27 August 2010

To: the Independent Board Committee

Dear Sirs,

UNCONDITIONAL MANDATORY CASH OFFERS BY OPTIMA CAPITAL LIMITED ON BEHALF OF FAME GLOBAL ENTERPRISES LIMITED FOR ALL THE ISSUED SHARES IN AND OUTSTANDING CONVERTIBLE BONDS OF SONAVOX INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY FAME GLOBAL ENTERPRISES LIMITED AND PARTIES ACTING IN CONCERT WITH IT) AND FOR CANCELLATION OF ALL THE OPTIONS OF SONAVOX INTERNATIONAL HOLDINGS LIMITED

INTRODUCTION

We refer to our appointment as the independent financial adviser to the independent board committee of the board of directors (the “Independent Board Committee”) of Sonavox International Holdings Limited (the “Company”) in relation to the unconditional mandatory cash offers being made by Optima Capital Limited on behalf of Fame Global Enterprises Limited (the “Offeror”) for all the issued shares in and, outstanding convertible bonds of the Company other than those already owned by the Offeror and parties acting in concert with it and for cancellation of all the options of the Company (the “Offers”), details of which are set out in the offer document dated 6 August 2010 issued by the Offeror and the letter from the Board contained in this response document dated 27 August 2010 issued by the Company (the “Response Document”), of which this letter forms part. Capitalized terms used in this letter shall have the same meanings as defined in the Response Document unless the context requires otherwise.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 16 July 2010, the Company and the Offeror jointly announced that the Offeror, Newood and the Guarantors entered into the SP Agreement on 12 July 2010, pursuant to which Newood agreed to sell and the Offeror agreed to acquire the Sale Shares free from all Encumbrances and together with all rights attaching to them, including but not limited to all rights to any dividend or other distribution declared, made or paid on or after the date of the SP Completion, being 240,000,000 Shares, representing approximately 73.83% of the entire issued share capital of the Company. The consideration for the Sale Shares of HK$96,000,000 (equivalent to HK$0.4 per Sale Share) was agreed between the Offeror and Newood after arm’s length negotiations with reference to the prevailing market prices of the Shares. The SP Completion took place on 16 July 2010. As a result of completion of the acquisition of the Sale Shares, the Offeror is beneficially holding and interested in 240,000,000 Shares, representing approximately 73.83% of the entire issued share capital of the Company as at the Latest Practicable Date. Save for the aforesaid, the Offeror and parties acting in concert with it do not have any other interests in the Company. Pursuant to Rule 26.1 of the Takeovers Code, the Offeror is required to make unconditional mandatory general offers in cash for all the issued Shares, the outstanding Convertible Bonds and outstanding Options other than those already owned or agreed to be acquired by the Offeror and parties acting in concert with it.

As at the date of the SP Agreement, the Company had outstanding Options with 10,000,000 Option Shares to be issued upon the exercise thereof. Pursuant to the SP Agreement, Newood and Mr. Yang Ching Yau have undertaken to the Offeror that upon the SP Completion (i) Mr. Yang Ching Yau will surrender and give up the Options held by him; and (ii) Newood and Mr. Yang Ching Yau will procure Mr. Yang Tsu Ying to surrender and give up the Options held by him. Upon the SP Completion on 16 July 2010, both Mr. Yang Ching Yau and Mr. Yang Tsu Ying have surrendered an aggregate of 4,000,000 Options. Accordingly, the Company had 6,000,000 Options outstanding with 6,000,000 Option Shares to be issued upon the exercise thereof as at the Latest Practicable Date.

As at the Latest Practicable Date, the Company had 325,089,974 Shares in issue, outstanding Convertible Bonds in the principal amount of US$5,000,000 and outstanding Options with 6,000,000 Option Shares to be issued upon the exercise thereof. Save for the aforesaid, the Company does not have any outstanding options, derivatives, warrants or securities which are convertible or exchangeable into Shares and has not entered into any agreement for the issue of such options, derivatives, warrants or securities which are convertible or exchangeable into Shares.

THE INDEPENDENT BOARD COMMITTEE

The Company has three independent non-executive Directors, namely Mr. Yiu Chi Wah, Mr. Fan Chi Fai, Paul and Mr. Lee Fang Yu. As Mr. Yiu Chi Wah was involved in the negotiation of the Offers and the Disposals, the Directors consider that it would be more appropriate that Mr. Yiu Chi Wah should not sit on the Independent Board Committee. Accordingly, the Independent Board Committee comprising the remaining two independent non-executive Directors, namely Mr. Fan Chi Fai, Paul and Mr. Lee Fang Yu, has been established to advise and give recommendation to the Independent Shareholders, the Bondholders and the Optionholders, in respect of the Offers.

We, Goldin Financial Limited, have been appointed by the Company to advise the Independent Board Committee as to (i) whether the terms of the Offers are fair and reasonable; and (ii) whether the Independent Shareholders, the Bondholders and the Optionholders should accept the Offers.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR ADVICE

In formulating our opinion and recommendations, we have reviewed, inter alia, the Joint Announcement, the circular relating to the Disposals issued by the Company dated 6 August 2010, the Offer Document, the SP Agreement, the annual reports of the Company for the three financial years ended 31 December 2007, 2008 and 2009 and the interim report of the Company for the six months ended 30 June 2010. We have also reviewed certain information provided by the management of the Company relating to the operation, financial condition and prospect of the Group. We have also (i) considered such other information, analyses and market data which we deemed relevant; and (ii) conducted verbal discussions with the management of the Company regarding the financials, businesses and future outlook of the Group. We have assumed that such information and statements, and any representation made to us, are true, accurate and complete in all material respects as of the date hereof and we have relied upon them in formulating our opinion.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Response Document and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in the Response Document have been arrived at after due and careful consideration and there are no other facts not contained in the Response Document, the omission of which would make any statement herein or in the Response Document misleading. As regards the information in this Response Document relating to the Offeror, parties acting in concert with it and the intention of the Offeror regarding the Remaining Group compiled or summarized from the Offer Document, the Directors’ responsibility is limited to the correctness and fairness of the reproduction or presentation accuracy of extracts or summaries of such information. We consider that we have been provided with, and we have reviewed, all currently available information and documents which are available under present circumstances to enable us to reach an informed view regarding the terms of the Offers and to justify reliance on the accuracy of the information contained in the Response Document so as to provide a reasonable basis of our opinion. We have no reasons to suspect that any material information has been withheld by the Directors or management of the Company, or is misleading, untrue or inaccurate. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the businesses or affairs or future prospects of the Group. Our opinion is necessarily based on financial, economic, market and other conditions in effect, and the information made available to us, at the Latest Practicable Date.

We have not considered the tax consequences on the Independent Shareholders, the Bondholders and the Optionholders of acceptance of the Offers since these are particular to their individual circumstances. In particular, the Independent Shareholders, the Bondholders and the Optionholders who are resident overseas or subject to overseas taxes or Hong Kong taxation on securities dealings should consider their own tax positions and, if in any doubt, should consult their own professional advisers.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In giving our recommendation to the Independent Board Committee, we have taken into account the following principal factors and reasons:

1. Background information and prospect of the Group

The Group is principally engaged in the manufacture and sale of loudspeaker systems to customers in the PRC and overseas market. The Group currently offers a broad range of products including, among others, loudspeaker systems for automobiles, amplifiers and loudspeaker systems for home theatre. Set out below is the audited financial information of the Group for the three years ended 31 December 2007, 2008 and 2009 and the unaudited financial information of the Group for the six months ended 30 June 2010:

Table 1: Financial highlights of the Group

					For the six months	For the six months
	For the year ended 31 December				ended	30 June
	2007	2008		2009	2009	2010
	HK$’000	HK$’000 HK$’000			HK$’000	HK$’000
	(Restated)	(Restated)			(Unaudited)	(Unaudited)
Revenue	429,972	389,131	434,766		166,797	302,480
Profit/(Loss) attributable to
owners of the Company	(1,734)	(14,420)		(3,213)	(6,023)	952
						As at
		As at 31 December				30 June
	2007	2008			2009	2010
	HK$’000	HK$’000		HK$’000		HK$’000
	(Restated)	(Restated)				(Unaudited)
Non-current assets	219,344	234,879			238,310	238,312
Current assets	205,630	186,780			295,756	344,283
(Current liabilities)	(210,830)	(216,135)		(298,687)		(391,471)
(Net current liabilities)	(5,200)	(29,355)			(2,931)	(47,188)
Net assets	166,937	161,355			181,312	186,377

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the year ended 31 December 2007, the turnover of the Group increased from approximately HK$369.30 million to approximately HK$429.97 million, representing an increase of approximately 16.43%. As advised by the management of the Company, the increase in turnover was mainly due to the growth in the European and PRC markets. Loss attributable to owners of the Company was approximately HK$1.73 million, as opposed to the profit attributable to owners of the Company of approximately HK$3.60 million in the previous financial year. As advised by the management of the Company, such loss was mainly resulted from (i) the increase in administrative expenses due to the commencement of operation of subsidiaries in the PRC and Germany and the increase in salary level of the staff hired for the new subsidiaries; and (ii) the increase in finance costs due to additional bank loans obtained in the PRC for expansion of production capabilities and the increase in market interest rate. As at 31 December 2007, the audited net current liabilities and net assets of the Group amounted to approximately HK$5.20 million and approximately HK$166.94 million, respectively. The increase in the current liabilities of the Group was due to the increase in the bank borrowings.

For the year ended 31 December 2008, the turnover of the Group dropped from approximately HK$429.97 million to approximately HK$389.13 million, representing a decrease of approximately 9.50%. As advised by the management of the Company, such decrease was mainly resulted from the reduction in sales generated from the loudspeaker systems for home theatre due to the cessation of non-profitable business with some customers. Loss attributable to the owners of the Company increased from approximately HK$1.73 million to approximately HK$14.42 million. As advised by the management of the Company, such increase in loss was mainly attributable to (i) the increase in total expenses as a result of the commencement of operations of subsidiaries in the PRC and Germany in 2007; and (ii) the increase in finance costs as a result of additional bank loans obtained in the PRC for expansion in production capabilities. As at 31 December 2008, the audited net current liabilities and net assets of the Group amounted to approximately HK$29.36 million and approximately HK$161.36 million, respectively. The decrease of net assets was mainly due to overall net loss incurred during the year ended 31 December 2008.

For the year ended 31 December 2009, the turnover of the Group increased from approximately HK$389.13 million to approximately HK$434.77 million, representing an increase of approximately 11.73%. As advised by the management of the Company, despite the continual competitive and challenging business environment after the global financial turmoil in 2008, the performance of the Group had improved since second quarter of 2009. The increase in turnover of the Group was mainly due to a significant rebound of business with customers during the year ended 31 December 2009. Loss attributable to the owners of the Company reduced from approximately HK$14.42 million to approximately HK$3.21 million. As advised by the management of the Company, the reduction in loss was mainly attributable to the increase in turnover and the decrease in the cost of sales, which were derived as a result of the steady raw material prices and the increase in production volume and hence higher efficiency in economies of scale. As at 31 December 2009, the audited net current liabilities and net assets of the Group amounted to approximately HK$2.93 million and approximately HK$181.31 million, respectively. Such decrease in the net current liabilities was mainly attributable to the increase in current assets, which is due to the increase in cash and bank deposits as a result of the profit generated from operating activities of the Company during the year 31 December 2009.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the six months ended 30 June 2010, the turnover of the Group increased from approximately HK$166.80 million to approximately HK$302.48 million, representing an increase of approximately 81.34% as compared with that of the previous respective period. The increase in turnover of the Group was mainly due to recovery of automobile market and hence rebound of business with customers during the six months ended 30 June 2010. The performance of the Group has been improved and turned into profit. For the six months ended 30 June 2010, the Group recorded a profit attributable to the owners of the Company of approximately HK$952,000. As advised by the management of the Company, the improvement in earnings was mainly attributable to the increase in turnover and the decrease in the cost of sales, which were derived as a result of the steady raw material prices and the increase in production volume and hence higher efficiency in economies of scale. As at 30 June 2010, the audited net current liabilities and net assets of the Group amounted to approximately HK$47.19 million and approximately HK$186.38 million, respectively. The increase in the net current liabilities was mainly attributable to the increase in current liabilities as a result of the reclassification of the Convertible Bonds.

In order to cease the loss-making operation and to reallocate the resources to other business operations of the Company, the Company announced on 16 July 2010 that on 12 July 2010, the Company entered into the Indigo Agreement, pursuant to which the Company agreed to sell the entire issued share capital of Indigo Enterprises Inc. (“Indigo”) and all obligations, liabilities and debts owing or incurred by Indigo to the Company due and payable on completion of the Indigo Agreement at an aggregate consideration of approximately HK$43.75 million. On 12 July 2010, the Company also entered into the Taraki Agreement, pursuant to which the Company agreed to sell the entire issued share capital of Taraki Services Company Limited (“Taraki”) and all obligations, liabilities and debts owing or incurred by Taraki to Taraki Inc. due and payable on completion of the Taraki Agreement at an aggregate consideration of HK$8 million. With the intention to relocate the head office and principal place of business of the Company in Hong Kong, such disposal allows the Group to realise the investment in the property held by Taraki and the proceeds of which can be utilized for the Company’s other business operations. The Disposals were approved at the EGM on 23 August 2010 and the date of completions of both the Indigo Agreement and the Taraki Agreement are expected to take place by 12 October 2010. Further details of the Disposals are set out in the circular of the Company dated 6 August 2010.

2. Information of the Offeror, its intention regarding the Group and prospects of the Group

As stated in the Offer Document, the Offeror is an investment holding company incorporated in the BVI with limited liability. The principal activity of the Offeror is investment holding and the principal assets held by it are the Sale Shares acquired from Newood. The sole beneficial owner and the sole director of the Offeror is Mr. Shan, who is an entrepreneur in the PRC with over 15 years of experience in corporate finance, operation and cash flow management and research and development and he also held senior positions in various private companies engaged in agriculture, environmental protection and chemical fertilizers in the PRC.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Offeror intends that the Remaining Group will continue its existing principal activities and will also look for business opportunities in the sector of environmental protection in the PRC with a view to expanding the business activities of the Remaining Group by leveraging on Mr. Shan’s experience in environmental protection and agricultural businesses. The Offeror will conduct a detailed review on the operations of the Remaining Group after the close of the Offers with a view to formulating a suitable business strategy for the Remaining Group. As set out in the Offer Document, the Offeror has no intention or plan for re-deployment or disposal of assets and/or business of the Remaining Group.

As set out in the Offer Document, the Offeror intends to nominate Mr. Shan as the new Director to the Board on such date as the Takeovers Code, the GEM Listing Rules and the Company’s articles of association shall permit. Mr. Shan will be responsible for the management of the Company’s business with a view to enhancing the corporate management of the Remaining Group immediately after the appointment. As at the Latest Practicable Date, the Board comprised two executive Directors and three independent non-executive Directors.

Prior to completion of the Indigo Agreement, the Group is principally engaged in the manufacture and sale of home and automotive audio products to the retail markets, major automakers and consumer electronics companies. Following completion of the Indigo Agreement, the Group will cease its operation in North America which is principally engaged in the manufacture and sale of amplifiers and loudspeaker systems for home theatre to audio companies in the retail markets and the Remaining Group will be principally engaged in the manufacture and sales of loudspeaker products to major automakers and consumer electronics companies in the PRC, North America, Europe and other Asian countries.

According to the annual report of the Company for the year ended 31 December 2009 and the interim report of the Company for the six months ended 30 June 2010, the revenue streams of the Group during these periods are mainly derived from the sales of loudspeaker systems for automobiles, which are therefore largely dependent on the automobiles industry. In view of the above, we have conducted researches from public domains on the future outlook and prospects of the global automobiles industry, in particular, the PRC market, where approximately 43% of the total revenues of the Group are generated therefrom for both the year ended 31 December 2009 and the six months ended 30 June 2010, respectively.

According to a research dated 26 January 2010 conducted by Organisation for Economic Co-operation and Development, on the capacity and sales in the automobile industry involving 17 countries in North America, Europe and Asia, both the estimated production capacity and the market sales in 2015 will increase by approximately 9.97% and approximately 38.38%, respectively, as compared with that of 2009. The estimated production capacity refers to the capacity of domestically based producers (both nationally and foreign-owned) and the estimated market sales refer to all sales in that country’s market including those produced domestically (by nationally and foreign-owned firms) and imports. Given the revenue stream of the Remaining Group is highly dependent on the short-to-medium global production projection of automobiles, it is expected that the global automobiles industry and the derived demand for the products of the Remaining Group would be growing steadily in the medium term.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the China Statistical Yearbook 2009, the total number of possession of civil vehicles in 2008 was approximately 50,996,100, representing a year-on-year growth of approximately 17.0% from that of 2007. The total number of new registrations of civil vehicles for the year of 2008 was reported to 7,410,395, representing a year-on-year growth of approximately 22.3% from that of 2007. According to the “Swap of Used Cars and Home Appliances for New Ones” program announced by the State Council of the PRC in March 2009, consumers who tradein their old used vehicles for purchasing new ones will receive rebates from the government. Such policy applied to all vehicles traded in between the period from June 2009 to May 2010, with the deadline subsequently extended to December 2010. The management of the Company expects that the automobile audio systems industry, in which the Group is principally engaged in, would be benefited from such favourable government policy towards the automobiles industry.

The statistics above demonstrated that the automobiles industry, in particular, in the PRC shall remain prosperous. Despite the recent market condition under the shadow of the credit crunch and financial turmoil, it is believed that the long-term economic development and automobiles industry growth shall remain optimistic.

As mentioned above, the Offeror intends to continue the existing principal business of the Remaining Group and will explore new business opportunities in the sector of environmental protection in the PRC. Upon review of the description of background and the experience of Mr. Shan as stated above, we note that Mr. Shan does not have relevant experience in the existing principal business of the Group. As the controlling Shareholder and a proposed Director, Mr. Shan is considered instrumental in the management of the Group. It is uncertain that any of the business opportunities in the sector of environmental protection in the PRC would be identified, or if, materialized, such projects would bring positive impacts to the Group. Notwithstanding the optimistic prospect in the automobiles loudspeaker industry which the Remaining Group is principally engaged in, given the above factors, the prospects of the Group remain uncertain.

3. Principal terms of the Offers

The Share Offer Price is HK$0.40 per Offer Share, which is equivalent to the price per Sale Share paid by the Offeror under the SP Agreement.

The Share Offer Price of HK$0.40 per Offer Share:

(i) is equivalent to the closing price of HK$0.40 per Share as quoted on the Stock Exchange on 12 July 2010, being the Last Trading Day;
(ii) is equivalent to the average of the closing prices of the Shares as quoted on the Stock Exchange for the five trading days up to and including the Last Trading Day of HK$0.40 per Share;
(iii) is equivalent to the average of the closing prices of the Shares as quoted on the Stock Exchange for the ten trading days up to and including the Last Trading Day of HK$0.40 per Share;

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) represents a premium of approximately 60.0% over the audited consolidated total equity attributable to equity holders of the Company of approximately HK$0.25 per Share as at 31 December 2009, the date on which the latest audited financial results of the Group were made up;
(v) represents a premium of approximately 53.8% over the unaudited consolidated total equity attributable to equity holders of the Company of approximately HK$0.26 per Share as at 30 June 2010, the date on which the latest interim financial results of the Group were made up; and
(vi) represents a discount of approximately 17.53% to the closing price of HK$0.485 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The offer price under the CB Offer is HK$1.0 for each outstanding HK$1 face value of the Convertible Bonds.

The Option Offer Price for every Option is HK$0.055, which represents the difference between the Share Offer Price of HK$0.4 and the prevailing exercise price of the Options of HK$0.345 each.

Share price performance

Chart 1 below shows the daily closing price of the Shares versus the Share Offer Price for the period commencing from 25 August 2009, being the 12-month period prior to the Latest Practicable Date, up to and including the Latest Practicable Date (the “Review Period”):

Chart 1: Share price performance

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Chart 2: Liquidity of the Shares

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

Note: Trading in the Shares was suspended from 13 July 2010 to 16 July 2010, pending the release of the Joint Announcement

As shown in the charts above, during the Review Period, the highest closing price and the lowest closing price of the Shares were HK$0.61 on 19 July 2010 and HK$0.225 from 25 August 2009 to 18 September 2009, respectively. The Shares were traded in most of the time during the period from 25 August 2009 to 21 January 2010, below the Share Offer Price.

During the period from 22 January 2010 to 10 June 2010, the price of the Shares fluctuated in a range from HK$0.40 to HK$0.57. Subsequently, the trading of the Shares, at the request of the Company, was suspended on 13 July 2010 pending the release of the Joint Announcement. On 19 July 2010, being the first trading day of the Shares after publication of the Joint Announcement, the price of the Shares surged to HK$0.61. Save for the Joint Announcement in which the Directors confirmed that they were not aware of the reasons for the increase in price and transaction volume of the Shares, the Company did not issue any other announcement which is price-sensitive in nature during the period from 22 January 2010 to the Latest Practicable Date. As discussed in the paragraph below, given that the trading volume of the Shares has been extremely low, the market price of the Shares may not be an appropriate indicator of the valuation of the Shares, in particular the realizable value one could get by disposing of the Shares in the open market. In the absence of a meaningful market of reasonable depth for the Shares, we consider that the Share Offer Price, which was agreed between Offeror and Newood after arm’s length negotiations and being the actual transacted price for a sizable amount of the Shares, would be a more accurate indicator of the underlying value that a willing buyer, if any, is prepared to pay for the Shares in the open market, without taking in consideration any control premium that might have been accounted for in the Share Offer Price.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Historical trading volume of the Shares

Table 2: Historical trading volume of the Shares

					Percentage	Percentage
					of total	of average
					trading	daily trading
					volume to	volume
		No. of	Average	No. of	no. of	to no.of
	Total trading	Trading	daily trading	outstanding	outstanding	outstanding
Month	volume	Days	volume	Shares	Shares	Shares
Aug-09 (from
25 August
2009 to 31
August 2009)	0	5	0	325,089,974	0.00	0.00
Sep-09	598,000	22	27,182	325,089,974	0.18	0.01
Oct-09	908,000	20	45,400	325,089,974	0.28	0.01
Nov-09	348,000	21	16,571	325,089,974	0.11	0.01
Dec-09	828,000	22	37,636	325,089,974	0.25	0.01
Jan-10	532,000	20	26,600	325,089,974	0.16	0.01
Feb-10	1,028,000	18	57,111	325,089,974	0.32	0.02
Mar-10	574,000	23	24,957	325,089,974	0.18	0.01
Apr-10	272,000	19	14,316	325,089,974	0.08	0.00
May-10	232,000	20	11,600	325,089,974	0.07	0.00
June-10	276,000	21	13,143	325,089,974	0.08	0.00
Jul-10	100,155,000	17	5,891,471	325,089,974	30.81	1.81
Aug-10 (Up to
the Latest
Practicable
Date)	27,020,000	18	1,501,111	325,089,974	8.31	0.46

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

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in the table above, we noted that the average daily trading volume of Shares accounted for only a small portion of the outstanding Shares subsisted in the market during the Review Period, which ranged from nil Share to approximately 5,891,471 Shares, representing 0% to approximately 1.81% of the Shares in issue. We note that the total trading volume increased to 100,155,000 in July 2010, with an average daily trading volume of 5,891,471 Shares, representing approximately 1.81% of the total number of the Shares in issue as at the Latest Practicable Date. We consider such increase in the trading volume of Shares was due to the market speculation on the Offers as announced by the Company on 16 July 2010. Based on the above, the trading volume of the Shares during the Review Period was very thin and the average daily trading volume accounted for less than 1% of the total number of the Shares in issue in all months during the Review Period, except for July 2010. Given the consistently low liquidity and the recent volatility of the Shares, it may be difficult for Shareholders to dispose of a large number of Shares in the open market without exerting a downward pressure on the price of the Shares. As such, we are of the view that the Share Offer provides an alternative exit to the Independent Shareholders to realize their investment in the Shares.

Comparison of the Share Offer Price

The price-to-earning multiple (“P/E Ratio”) is regarded as the most widely used and accepted method to value a company with recurrent income base and we attempted to use P/E Ratio in evaluating the Company. Given the Company is at loss-making position for the financial year ended 31 December 2009, we consider the analysis of P/E Ratio not applicable. Alternatively, we have adopted the price-to-book multiple (“P/B Ratio”), one of the trading multiples commonly used for evaluating a company with significant asset base, in our analysis. We consider it appropriate to adopt the P/B Ratio in our analysis as the noncurrent assets of the Group (excluding land use rights, deferred tax assets, intangible assets and goodwill) accounted for approximately 33.16% of the total assets of the Group as at 30 June 2010, being the date of the latest published financial reports of the Group.

In order to assess the fairness and reasonableness of the Share Offer Price, we have conducted researches from the public domain and have identified three companies which (i) are listed on the main board of the Stock Exchange; (ii) are principally engaged in the manufacture or sale of electronic products which include, among others, loudspeakers or acoustic products (accounted for more than 50% of their turnovers or earnings for their respective latest financial year); and (iii) had a market capitalization of less than HK$1,000 million as at the Latest Practicable Date, and compared their P/B Ratios to that of the Company as implied by the Share Offer Price. Based on the aforesaid selection criteria, we consider the selected companies are relevant and could provide a general reference when assessing the fairness of the Share Offer Price. The list of the selected companies and their respective P/B Ratios, which is exhaustive, are set out below:

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Table 3: Comparison with selected companies

				Net asset
	Stock		Market	value
Company name	code	Principal business	capitalisation	(Note 1)	P/B Ratio
			(1)	(2)	(3)=(1)/(2)
			(HK$’ million)	(HK$’ million)	(times)
Gold Peak Industries	40	Development, manufacture and	839.62	1,474.04	0.57
(Holdings) Limited		distribution of batteries,
		electrical installation products,
		automotive electronics, specialty
		electronics, parts and components,
		wire harness and cables,
		loudspeakers and LED display
		screens
Fujikon Industrial	927	Design, manufacture, marketing	594.56	728.19	0.82
Holdings Limited		and trading or electro-acoustic
		products and accessories, and
		other electronic products
Shinhint Acoustic	2728	Sale of communication products,	250.81	328.18	0.76
Link Holdings		multimedia products,
Limited		entertainment products and
		others which mainly consists of
		unit speaker drivers, complete
		acoustic solutions and open models
			Median		0.76
			Mean		0.72
			Maximum		0.82
			Minimum		0.57
The Company		Manufacture and sale of	130.04	84.51	1.54
		loudspeaker systems to	(Note 2)
		customers in the PRC and
		overseas market

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

Notes:

(1) Based on the latest financial data as published in the respective annual/interim results by the Latest Practicable Date.
(2) Based on the Share Offer Price of HK$0.40.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in the table above, the P/B Ratios of the selected companies ranged from approximately 0.57 times to approximately 0.82 times, with a mean and a median of approximately 0.72 times and approximately 0.76 times, respectively. The P/B Ratio of approximately 1.54 times as implied by the Share Offer Price falls above the range of the P/B Ratios of the selected companies.

As noted from the Offer Document, the Share Offer Price is equivalent to the closing price per Share on the Last Trading Day and also the average of the closing prices of the Shares for the ten trading days up to and including the Last Trading Day. Moreover, the Share Offer Price represents a premium of approximately 60.0% over the Group’s audited consolidated total equity attributable to equity holders of the Company of approximately HK$0.25 per Share as at 31 December 2009.

In view of (i) the Company is at loss-making position for the year ended 31 December 2009; (ii) the Share Offer Price was determined based on arm’s length negotiations between the Company and the Offeror; (iii) the Share Offer Price represents a premium over the Group’s audited consolidated total equity attributable to equity holders of the Company as at 31 December 2009; (iv) the P/B Ratio of the Company is above the range of the P/B Ratios of the selected companies; and (v) the trading volume of the Shares during the Review Period was generally thin and the Share Offer provides an alternative exit to the Independent Shareholders to realize their investment in the Shares, we are of the view that the Share Offer Price is acceptable and the Share Offer is fair and reasonable to the Independent Shareholders.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATIONS

1. The Share Offer

Having considered the abovementioned principal factors and reasons, and after taking into account that:

although the performance of the Group has improved and the Company has turnaround into profit for the six months ended 30 June 2010, given it is uncertain that any business opportunities would be identified, or if, materialized, such projects would bring positive impacts to the Group, the prospects of the Group remain uncertain;
the trading volume of the Shares during the Review Period was generally thin and the Share Offer provides an alternative exit to the Independent Shareholders to realize their investment in the Shares;
the Share Offer Price (i) is equivalent to the closing price per Share on the Last Trading Day; (ii) is equivalent to the average of the closing prices of the Shares for the ten trading days up to and including the Last Trading Day; (iii) represents a premium of approximately 60.0% over the Group’s audited consolidated total equity attributable to equity holders of the Company of approximately HK$0.25 per Share as at 31 December 2009; and (iv) represents a premium of approximately 53.8% over the unaudited consolidated total equity attributable to equity holders of the Company of approximately HK$0.26 per Share as at 30 June 2010;
although the Share Offer Price represents a discount of approximately 17.53% to the closing price per Share as at the Latest Practicable Date, the recent surge in the price of the Share since the issue of the Joint Announcement might reflect the market response to the Offers but it is uncertain that the trading price of the Shares can be sustainable at such level in the long term; and
the P/B Ratio of the Company is above the range of the P/B Ratios of the selected companies in Table 3 above,

we consider that the terms of the Share Offer are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to accept the Share Offer.

Those Independent Shareholders who have a positive view on the Group’s future prospects may retain part or all of their shareholdings in the Company and should note that (i) the trading volume of the Shares during the Review Period was generally thin; and (ii) the Share Offer Price does not represent any discounts to the closing price per Share on the Last Trading Day, the average of the closing prices of the Shares for the ten trading days up to and including the Last Trading Day and the Group’s audited consolidated total equity attributable to equity holders of the Company as at 31 December 2009. Accordingly, the Independent Shareholders may consider the Share Offer as an alternative exit for their investments.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Independent Shareholders are reminded that they should carefully and closely monitor the market price of the Shares during the Offer Period and consider selling their Shares in the open market during the Offer Period, rather than accepting the Share Offer even though the terms of the Share Offer are fair and reasonable so far as the Independent Shareholders are concerned, if the net proceeds from the sales of such Shares in the open market would exceed the net amount receivable under the Share Offer.

2. The CB Offer

As at the Latest Practicable Date, the Company had outstanding Convertible Bonds in the principal amount of US$5,000,000. Pursuant to the instrument constituting the Convertible Bonds, all conversions between US$ and HK$ shall be converted at a fixed exchange rate of US$1.00 to HK$7.75, and if so converted would result in the aggregate of 96,875,000 new Shares being issued. The consideration payable by the Offeror under the CB Offer for all the outstanding Convertible Bonds is HK$38,750,000. The Convertible Bonds to be acquired under the CB Offer shall be free from all Encumbrances and any other third party rights of any nature and together with all rights attaching to them.

Pursuant to the instrument constituting the Convertible Bonds, the conversion price of the Convertible Bonds shall be the US$ equivalent of HK$0.4 per new Share (subject to adjustments). The offer price under the CB Offer is HK$1.0 for each outstanding HK$1 face value of the Convertible Bond. On the basis of each HK$1 face value of the Convertible Bond will be offered for HK$1.0 in cash and the conversion price of the Convertible Bonds of HK$0.4 per each Share, each underlying Share which may fall to be allotted and issued upon the exercise of the conversion rights attached to the Convertible Bonds will be valued at HK$0.4 under the CB Offer, which is same as the Share Offer Price.

In this respect, we consider that the basis of determining the offer price under the CB Offer is acceptable. On this basis and given our view that the terms of the Share Offer are fair and reasonable, the terms of the CB Offer are fair and reasonable so far as the Bondholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Bondholders to accept the CB Offer.

The Bondholders are strongly advised that the decision to accepting the CB Offer or to convert the Convertible Bonds and hold their investment in the Shares is subject to individual circumstances and investment objectives.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. The Option Offer

The Option Offer Price for every Option is HK$0.055. Any Optionholders accepting the Option Offer in respect of all or part of their Options will surrender and give up the subscription rights attaching to the relevant Options. Pursuant to the Share Option Scheme, in the case that a general offer is made to the Shareholders, any Options not yet exercised before the close of the Offer Period shall lapse immediately after the close of the Option Offer. As at the Latest Practicable Date, the Company had 6,000,000 Options outstanding with 6,000,000 Option Shares to be issued upon the exercise thereof. The consideration payable by the Offeror for the Option Offer for the cancellation of all Options is HK$330,000.

The “see-through” price approach is adopted in the evaluation of the terms of the Option Offer. The “see-through” price refers to the difference between the offer price for each share subject to a general offer less any given exercise price of the convertibles, and will be the minimum reasonable offer price for any convertibles under a general offer. We noted that under the Option Offer, the Option Offer Price of HK$0.055 for every Option represents the difference between the Share Offer Price of HK$0.4 and the prevailing exercise price of the Options of HK$0.345 each. On this basis and given our view that the terms of the Share Offer are fair and reasonable, we consider that the Option Offer Price is acceptable and the terms of the Option Offer are fair and reasonable so far as the Optionholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Optionholders to accept the Option Offer.

The Optionholders are hereby advised to consider whether to exercise their Options and selling the Option Shares in the open market if the market price of the Option Shares exceeds the sum of the exercise price of the Options and the Option Offer Price during the Offer Period and the net proceeds from such sale (after deducting the amount payable for exercising the Options and the transaction costs) would exceed the net amount receivable under the Option Offer.

Yours faithfully, For and on behalf of

Goldin Financial Limited

Billy Tang Hidulf Kwan Director Director

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following is a summary of the audited financial results of the Group for each of the three years ended 31 December 2009 as extracted from the annual reports of the Company for the year ended 31 December 2009 and 31 December 2008.

No qualified opinion had been given in the auditors’ reports issued by BDO Limited for the year ended 31 December 2009 and by Shinewing (HK) CPA Limited in respect of each of the two years ended 31 December 2008. There were no extraordinary items, or exceptional items during each of the three years ended 31 December 2009 based on the annual reports of the Company. No dividend has been declared by the Company during each of the three financial years ended 31 December 2009.

RESULTS

Turnover Cost of sales Gross profit Other revenue, gains and losses Selling and marketing costs Administrative expenses Finance costs Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense Minority interests Loss attributable to owners of the Company Losses per share (HK cent) – basic – diluted	Year 2007 HK$’000 (Restated) 429,972 (353,702) 76,270 2,695 (16,434) (50,929) (11,100) 502 1,704 2,206 (3,940) (1,734) (0.53) (Note) (0.53) (Note)	ended 31 December 2008 2009 HK$’000 HK$’000 (Restated) 389,131 434,766 (328,764) (336,876) 60,367 97,890 10,104 (433) (13,721) (13,051) (64,186) (60,337) (11,808) (10,178) (19,244) 13,891 (1,549) (947) (20,793) 12,944 6,373 (16,157) (14,420) (3,213) (4.44) (0.99) (4.44) (0.96)

Note:

Both the basic and diluted losses per share for the year ended 31 December 2007 of HK cent (0.53) are calculated by the Company based on the restated loss attributable to owners of the Company for the year ended 31 December 2007 and the weighted average number of ordinary shares in issue during the year ended 31 December 2007.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2009

Set out below are the audited financial statements of the Group for the year ended 31 December 2009 together with the accompanying notes as extracted from the annual report of the Company for the year ended 31 December 2009.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009

Notes Turnover 8 Cost of sales Gross profit Other revenue, gains and losses Selling and marketing costs Administrative expenses Finance costs 9 Profit/(loss) before income tax expense 11 Income tax expense 12 Profit/(loss) for the year Other comprehensive income – gain on revaluation of properties – exchange differences on translating foreign operations – income tax relating to revaluation of properties Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit/(loss) attributable to: – owners of the Company – minority interests Total comprehensive income attributable to: – owners of the Company – minority interests Losses per share_(HK cent)_ – basic 14 – diluted 14	2009 HK$’000 434,766 (336,876) 97,890 (433) (13,051) (60,337) (10,178) 13,891 (947) 12,944 1,207 5,320 (199) 6,328 19,272 (3,213) 16,157 12,944 1,909 17,363 19,272 (0.99) (0.96)	2008 HK$’000 (Restated) 389,131 (328,764) 60,367 10,104 (13,721) (64,186) (11,808) (19,244) (1,549) (20,793) 18,187 612 (3,588) 15,211 (5,582) (14,420) (6,373) (20,793) (11,680) 6,098 (5,582) (4.44) (4.44)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Financial Position

At 31 December 2009

Notes Non-current assets Property, plant and equipment 17 Investment properties 19 Prepaid lease payments 20 Deferred tax assets 21 Intangible assets 22 Goodwill 23 Total non-current assets Current assets Inventories 24 Trade and note receivables 25 Prepayments, deposits and other receivables Amount due from minority shareholder of a subsidiary 26 Pledged bank deposits 27 Cash and cash equivalents Total current assets Total assets Current liabilities Trade and note payables 28 Accruals and other payables Amount due to ultimate holding company 29 Amount due to minority shareholder of a subsidiary 26 Derivative financial instrument 32 Obligations under finance leases – due within one year 30 Bank borrowings – due within one year 31 Current tax liabilities Total current liabilities Net current liabilities Total assets less current liabilities	At 31 December 2009 2008 HK$’000 HK$’000 (Restated) 184,561 191,547 7,933 – 15,956 16,326 7,251 6,294 16,821 15,746 5,788 4,966 238,310 234,879 55,524 57,470 153,103 88,359 19,508 9,542 2,827 3,500 15,766 15,149 49,028 12,760 295,756 186,780 534,066 421,659 133,979 84,909 42,683 31,398 13,353 5,604 11,376 – – 27 59 134 93,361 91,136 3,876 2,927 298,687 216,135 (2,931) (29,355) 235,379 205,524	At 1 January 2008 HK$’000 (Restated) 167,147 – 12,649 11,700 21,532 6,316 219,344 53,730 114,974 11,490 246 – 25,190 205,630 424,974 101,238 29,601 – – – 326 76,262 3,403 210,830 (5,200) 214,144

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes Non-current liabilities Obligations under finance leases – due after one year 30 Deferred tax liabilities 21 Bank borrowings – due after one year 31 Embedded derivative financial instrument 33 Convertible bonds 33 Total non-current liabilities TOTAL NET ASSETS Capital and reserves attributable to owners of the Company Share capital 34 Reserves 35 Equity attributable to owners of the Company Minority interests TOTAL EQUITY	At 31 December 2009 2008 HK$’000 HK$’000 (Restated) – 51 2,622 2,504 2,161 2,265 7,426 2,145 41,858 37,204 54,067 44,169 181,312 161,355 3,251 3,251 79,244 77,335 82,495 80,586 98,817 80,769 181,312 161,355	At 1 January 2008 HK$’000 (Restated) 231 1,892 2,382 6,593 36,109
		47,207
		166,937

		3,251 89,015
		92,266 74,671
		166,937

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Statement of Financial Position

At 31 December 2009

Notes Non-current assets Investments in subsidiaries 18 Property, plant and equipment 17 Total non-current assets Current assets Prepayments and deposits Amounts due from subsidiaries 18 Cash and bank balances Total current assets Total assets Current liabilities Accruals and other payables Amount due to ultimate holding company 29 Bank borrowings – due within one year 31 Total current liabilities Net current assets Total assets less current liabilities Non-current liabilities Bank borrowings – due after one year 31 Embedded derivative financial instrument 33 Convertible bonds 33 Total non-current liabilities TOTAL NET ASSETS Capital and reserves Share capital 34 Reserves 35 TOTAL EQUITY	2009 HK$’000 16,204 4 16,208 104 84,788 961 85,853 102,061 641 13,353 104 14,098 71,755 87,963 2,161 7,426 41,858 51,445 36,518 3,251 33,267 36,518	2008 HK$’000 (Restated) 16,204 –
		16,204
		122 84,751 2,064
		86,937
		103,141
		625 5,604 6,002
		12,231
		74,706
		90,910

		2,265 2,145 37,204
		41,614
		49,296

		3,251 46,045
		49,296

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2009

At 1 January 2008 (Previously reported) Restatement of prior periods and opening balances_(Note 3) At 1 January 2008 (Restated) Total comprehensive income for the year (Restated) Cancellation of share options previously granted At 31 December 2008 (Restated) At 1 January 2009 (Previously reported) Restatement of prior periods and opening balances(Note 3)_ At 1 January 2009 (Restated) Total comprehensive income for the year Release of reserve Additional capital injected into a subsidiary At 31 December 2009	Share capital HK$’000 3,251 – 3,251 – – 3,251 3,251 – 3,251 – – – 3,251	Share premium HK$’000 27,682 – 27,682 – – 27,682 27,682 – 27,682 – – – 27,682	Property revaluation reserve HK$’000 2,598 – 2,598 8,074 – 10,672 10,672 – 10,672 1,008 – – 11,680	Statutory reserves (Note (a)) HK$’000 7,250 – 7,250 – – 7,250 7,250 – 7,250 – (438) – 6,812	Share-based payment reserve HK$’000 1,948 – 1,948 – (325) 1,623 1,623 – 1,623 – – – 1,623	Merger reserve (Note (b)) HK$’000 2,441 – 2,441 – – 2,441 2,441 – 2,441 – – – 2,441	Cumulative translation adjustment Accumulated reserve profits HK$’000 HK$’000 15,235 27,735 164 3,962 15,399 31,697 (5,334) (14,420) – 325 10,065 17,602 15,467 18,679 (5,402) (1,077) 10,065 17,602 4,114 (3,213) – 438 – – 14,179 14,827	Equity attributable to owners of the Company HK$’000 88,140 4,126 92,266 (11,680) – 80,586 87,065 (6,479) 80,586 1,909 – – 82,495	Minority interests HK$’000 70,706 3,965 74,671 6,098 – 80,769 75,700 5,069 80,769 17,363 – 685 98,817	Total HK$’000 158,846 8,091
										166,937 (5,582) –
										161,355

										162,765 (1,410)
										161,355 19,272 – 685
										181,312

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) Statutory reserves

Pursuant to the articles of association of the group entities in the People’s Republic of China (the “PRC”), appropriations are made from the accumulated profits to certain statutory reserves, based on a percentage of profit in accordance with the rules and regulations in the PRC. Such appropriations to reserves would be made only with approval from the board of directors of those group entities.

(b) Merger reserve

Merger reserve of the Group represents the difference between the nominal value of the shares issued by the Company and the share capital and share premium of a subsidiary acquired through an exchange of shares.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Cash Flows

For the year ended 31 December 2009

Cash flows from operating activities Profit/(loss) before income tax expense Adjustments for: Interest income Finance costs Depreciation and amortisation Fair value changes on embedded derivative financial instrument Fair value change on derivative financial instrument Allowance for bad and doubtful debts Gain on disposal of property, plant and equipment Allowance for inventories Operating profit before working capital changes Increase in inventories (Increase)/decrease in trade and note receivables (Increase)/decrease in prepayments, deposits and other receivables Increase/(decrease) in trade and notes payables Increase in accruals and other payables Cash generated from operations Income tax paid in the PRC Net cash from operating activities Cash flows from investing activities Payment of acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Payments for interests in leasehold land held for own use under operating leases Increase in pledged bank deposits Repayment from/(advance to) a minority shareholder of a subsidiary Interest received Net cash used in investing activities	2009 HK$’000 13,891 (533) 10,178 19,729 5,281 (27) – (16) 2,496 50,999 (550) (64,744) (9,966) 49,070 11,285 36,094 – 36,094 (17,724) 644 – (617) 673 533 (16,491)	2008 HK$’000 (Restated) (19,244) (415) 11,808 21,275 (4,448) 27 178 (1) 2,664 11,844 (6,404) 26,817 1,948 (16,329) 1,797 19,673 (966) 18,707 (17,221) 114 (3,389) (15,149) (3,254) 415 (38,484)

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Cash flows from financing activities Interest paid Proceeds from bank borrowings Repayment of bank borrowings Repayment of principal portion of obligations under finance leases Advance from minority shareholder of a subsidiary Additional advance from ultimate holding company Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year Analysis of the balances of cash and cash equivalents: Cash and bank balances Bank overdrafts Cash and cash equivalents at end of year	2009 HK$’000 (5,524) 86,963 (90,178) (126) 11,376 7,749 10,260 29,863 8,422 1,121 39,406 49,028 (9,622) 39,406	2008 HK$’000 (Restated) (10,461) 143,998 (124,310) (372) – 5,604 14,459 (5,318) 15,921 (2,181) 8,422 12,760 (4,338) 8,422

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended 31 December 2009

1. GENERAL INFORMATION

The principal activities of Sonavox International Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) are investment holding and manufacturing and sale of loudspeaker systems to customers in the PRC and overseas markets respectively.

The Company is a limited liability company incorporated in the Cayman Islands. The addresses of the registered office and principal place of business of the Company are disclosed in the Corporate Information section. The directors regard Newood Consultancy Limited, a company incorporated in the British Virgin Islands (“BVI”), as the ultimate holding company.

The shares of the Company have been listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) since 19 July 2002.

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

2. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

(a) Adoption of new/revised HKFRSs

The Group has adopted the following new/revised HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are effective for the current accounting period.

HKFRSs (Amendments)	Improvements to HKFRSs issued in 2008, except for the
	amendment to HKFRS 5 that is effective for annual
	periods beginning on or after 1 July 2009
HKFRSs (Amendments)	Improvements to HKFRSs issued in 2009 in relation to
	the amendment to paragraph 80 of HKAS 39
HKAS 1 (Revised)	Presentation of Financial Statements
HKAS 23 (Revised)	Borrowing Costs
HKAS 32 and HKAS 1 (Amendments)	Puttable Financial Instruments and Obligations Arising on
	Liquidation
HKFRS 1 and HKAS 27 (Amendments)	Cost of an Investment in a Subsidiary, Jointly Controlled
	Entity or Associate
HKFRS 2 (Amendment)	Vesting Conditions and Cancellations
HKFRS 7 (Amendment)	Improving Disclosures about Financial Instruments
HKFRS 8	Operating Segments
HK(IFRIC) – Interpretation 9 and	Embedded derivatives
HKAS 39 (Amendments)
HK(IFRIC) – Interpretation 13	Customer Loyalty Programmes
HK(IFRIC) – Interpretation 15	Agreements for the Construction of Real Estate
HK(IFRIC) – Interpretation 16	Hedges of a Net Investment in a Foreign Operation
HK(IFRIC) – Interpretation 18	Transfers of Assets from Customers

The adoption of the above new/revised HKFRSs had no material effect on the reported results or financial position of the Group for both the current and prior reporting periods, except for the following changes. All relevant changes in accounting policies and disclosures have been made in accordance with the provisions of the respective standards.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKAS 1 (Revised), “Presentation of Financial Statements”

The revised standard affects certain disclosures of financial statements. Under the revised standard, the Income Statement, the Balance Sheet and the Cash Flow Statement are renamed as the “Statement of Comprehensive Income”, the “Statement of Financial Position” and the “Statement of Cash Flows” respectively. All income and expenses arising from transaction with non-owners are presented under the “Statement of Comprehensive Income”; while the owners’ changes in equity are presented in the “Statement of Changes in Equity”.

In addition, following the adoption of amendment to HKAS 1, as part of the Improvement to HKFRSs 2008, derivative financial instruments that are not expected to be realised within 12 months after the reporting period are classified as non-current assets or non-current liabilities. The Group’s embedded derivative financial liabilities (Note 33) were previously classified as current liabilities. The reclassification has been applied retrospectively and comparative figures have been restated accordingly.

HKAS 23 (Revised), “Borrowing Costs”

The revised standard removes the option to expense borrowing costs and requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. This change in accounting policy had no material impact on earnings per share and comparative figures have not been restated as a result of the adoption of this standard.

Pursuant to the transitional provision of the standard, group entities capitalise borrowing costs for all qualified assets where construction was commenced on or after 1 January 2009 and expense all borrowing costs relating to construction projects that commenced prior to 1 January 2009.

HKFRS 8, “Operating Segments”

HKFRS 8 replaces HKAS 14 “Segment Reporting”, and requires operating segments to be identified on the basis of internal reports of the Group that are regularly reviewed by the chief operating decision-maker in order to allocate resources to the segments and to assess their performance. As a result of adopting HKFRS 8, the Group identified two operating segments based on the geographical locations of group entities that are provided to the chief operating decision maker. The change of reporting structure did not result in a reallocation of goodwill for the purposes of impairment testing as required by HKAS 36 “Impairment of Assets”.

HKFRS 7 (Amendment), “Improving Disclosures about Financial Instruments”

The amendments to HKFRS 7 expand the disclosures relating to fair value measurements for financial instruments that are measured at fair value and liquidity risk of financial liabilities. A three-level hierarchy has been introduced to categorise the fair value measurements according to the degree they are based on observable market data. The Group has not provided comparative information for the expanded disclosures in accordance with the transitional provision.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) New/revised HKFRSs that have been issued but are not yet effective

The following new/revised HKFRSs, potentially relevant to the Group’s operations, have been issued and are mandatory for accounting periods beginning on or after 1 January 2010, but have not been early adopted by the Group.

HKFRSs (Amendments) Amendment to HKFRS 5 as part of Improvements to HKFRSs[1] HKFRSs (Amendments) Improvement to HKFRSs 2009[2] Amendments to HKFRS 2 Share-based Payment – Group Cash-settled Share-based Payment Transactions[3] HKAS 27 (Revised) Consolidated and Separate Financial Statements[1] HKFRS 3 (Revised) Business Combinations[1] HK(IFRIC) – Interpretation 17 Distributions of Non-cash Assets to Owners[1] HK(IFRIC) – Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments[4] HKAS 24 (Revised) Related Party Disclosures[5] HKFRS 9 Financial Instruments[6]

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

2 Effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate

3 Effective for annual periods beginning on or after 1 January 2010

4 Effective for annual periods beginning on or after 1 July 2010

5 Effective for annual periods beginning on or after 1 January 2011

6 Effective for annual periods beginning on or after 1 January 2013

The adoption of HKFRS 3 (Revised) Business Combinations may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1st July, 2009. HKAS 27 (Revised) “Consolidated and Separate Financial Statements” will affect the accounting treatment for changes in parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as equity transactions.

The amendment to HKAS 17 “Leases” made under “Improvements to HKFRSs 2009”, mandatory for accounting periods beginning on or after 1 January 2010, removes the specific guidance which stated that land held under a lease should be classified as an operating lease unless title to the land is expected to pass at the end of the lease term. It provides new guidance which indicates that entity should use judgement to decide whether the lease transfers the significant risks and rewards of ownership of the land in accordance with the criteria set out in HKAS 17. The Group will reassess the classification of land elements of unexpired leases at the date it adopts the amendment on the basis of information existing at the inception of the lease and recognise a lease newly classified as a finance lease retrospectively if the criteria of a finance lease is met.

HKFRS 9, which is effective for annual periods beginning on or after 1 January 2013, uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in HKAS 39. The approach in HKFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in HKAS 39. Thus HKFRS 9 improves comparability and makes financial statements easier to understand for investors and other users.

The Group is in the process of making an assessment of the potential impact of other new and revised HKFRSs and the directors so far concluded that the application of other new and revised HKFRSs will have no material impact on the results and the financial position of the Group except for the above.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. PRIOR PERIOD ADJUSTMENTS

In preparing the current year’s financial statements, the following comparative financial information has been restated:

(a) Certain foreign currency translation adjustments relating to the Group’s sales transactions for the year of 2008 and the years before have been miscalculated and fully recognised in the year of 2008. Part of these translation adjustments should have been recognised prior to the year of 2008. As a result, the total comprehensive income for the year ended 31 December 2008 has been overstated by approximately HK$9,501,000 and the opening balance of equity as at 1 January 2008 have been understated by HK$8,091,000.
(b) The exchange differences relating to the translation of the Group’s non-wholly owned foreign operations to the presentation currency of these financial statements have been misallocated between the owners of the Company and the minority interests. As a result, the equity attributable to the owners of the Company has been overstated by HK$5,760,000 and the equity attributable to the minority interests has been understated by the same amount. This adjustment does not have any effect on the total equity at 31 December 2008 and the profit or loss for the year then ended.

As a result of the above restatement, a Consolidated Statement of Financial Position as at 1 January 2008 has also been presented in accordance with the requirement of the (Revised) HKAS 1. The effects of the prior period adjustments are summarised below:

Consolidated Statement of Comprehensive Income for the year ended 31 December 2008

As a result of issue (a)
Decrease in turnover
Decrease in cost of sales
Decrease in other revenue, gains and losses
Increase in loss for the year
Increase in exchange difference on translating foreign operations
Decrease in total comprehensive income for the year
Increase in loss for the year attributable to:
– owners of the Company
– minority interests
Decrease in total comprehensive income for the year attributable to:
– owners of the Company
– minority interests
Increase in losses per share (HK cent) – basic and diluted

HK$’000
(3,174)
529
(7,236)
(9,881)
380
(9,501)
(5,039)
(4,842)
(9,881)
(4,845)
(4,656)
(9,501)
(1.55)

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Statement of Financial Position

Equity attributable to the owners of the Company As a result of issue (a): (Decrease)/increase in accumulated profits Increase in cumulative translation adjustment reserve As a result of issue (b): Increase in cumulative translation adjustment reserve (Decrease)/increase in minority interests As a result of issue (a) As a result of issue (b) (Decrease)/increase in total equity Increase in trade and note receivables Increase in other payables	31 December 2008 and 1 January 2009 HK$’000 (1,077) 358 (5,760) (6,479) (691) 5,760 5,069 (1,410) – (1,410) (1,410)	1 January 2008 HK$’000 3,962 164 – 4,126 3,965 – 3,965 8,091 9,466 (1,375) 8,091

4. BASIS OF PREPARATION

(a) Statement of compliance

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”) issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance. In addition, the financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange.

(b) Basis of measurement and going concern assumption

The financial statements have been prepared under the historical cost basis except for land and buildings, investment properties and certain financial instruments, which are measured at revalued amounts or fair values as explained in the accounting policies set out below.

At 31 December 2009, the Group’s current liabilities exceeded its current assets by HK$2,931,000 (2008 (restated): HK$29,355,000), which mainly includes bank and other loans repayable within one year of HK$118,149,000 (2008: HK$96,874,000). This situation indicates the existence of a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern. The directors of the Company are satisfied that the liquidity of the Group can be maintained in the coming year taking into consideration that sufficient cash flow will be generated from the Group’s businesses based on the financial budget forecast approved by senior management covering five years.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In assessing the liquidity and going concern of the Group, the directors have also considered the repayment of the convertible bonds as disclosed in note 33 as scheduled in April 2011. The directors of the Company believe that the Group will have sufficient cash resources to satisfy the repayment of the convertible bonds. In addition, the ultimate holding company has agreed not to demand for repayment of the amount due by the Group until such time when repayment will not affect the Group’s and the Company’s ability to repay other creditors within twelve months from 31 December 2009.

Accordingly, these financial statements have been prepared on a going concern basis and do not include any adjustments relating to the carrying amount and reclassification of assets and liabilities that might be necessary should the Group fail to continue as a going concern.

5. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Inter-company transactions and balances between group companies are eliminated in full in preparing the consolidated financial statements.

On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised.

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

Minority interests represent the portion of profit or loss and net assets of subsidiaries attributable to equity interests that are not owned directly or indirectly through subsidiaries, by the Company. Minority interests are presented in the consolidated statement of financial position within equity, separately from equity attributable to the equity shareholders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated statement of comprehensive income as an allocation of the profit or loss and total comprehensive income for the year between minority interests and the owners of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

(b) Subsidiaries

A subsidiary is an entity over which the Company is able to exercise control. Control is achieved where the Company, directly or indirectly, has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. In the Company’s statement of financial position, investments in subsidiaries are stated at cost less impairment loss, if any. The results of subsidiaries are accounted by the Company on the basis of dividend received and receivable.

(c) Goodwill

Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair values of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition.

Goodwill is capitalised as a separate asset with any impairment in carrying amount being recognised in profit or loss.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is recognised in profit or loss on the acquisition date, after re-assessment.

For the purpose of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units that are expected to benefit from the synergies of the acquisition. A cashgenerating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired.

For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro-rata on the basis of the carrying amount to each asset in the unit. Any impairment loss for goodwill is recognised in profit or loss and is not reversed in subsequent periods.

(d) Property, plant and equipment

Land and buildings of owner-occupied leasehold properties are stated at revalued amount, being their fair values at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair values at the end of the reporting period. Increases in value arising on revaluation are recognised in other comprehensive income and accumulated in property revaluation reserve within equity. Decreases in value arising on revaluation are first offset against increases on earlier valuations in respect of the same property and thereafter recognised in profit or loss. Any subsequent increases are recognised in profit or loss up to the amount previously charged and thereafter to the property revaluation reserve.

Upon disposal, the relevant portion of the revaluation reserve realised in respect of previous valuations is released directly from the property revaluation reserve to accumulated profits.

Other property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the items.

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 Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are recognised as an expense in profit or loss during the financial period in which they are incurred.

Property, plant and equipment, other than construction in progress, are depreciated so as to write off their cost or valuation net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The useful lives are as follows:

Land and buildings	Over terms of leasehold land, or 40 years whichever is shorter
Leasehold improvements	5 years
Machinery, furniture and equipment	5 - 10 years
Motor vehicles	5 years

Construction in progress is stated at cost less impairment losses. Cost comprises direct costs of construction as well as borrowing costs capitalised during the periods of construction and installation. Capitalisation of these costs ceases and the construction in progress is transferred to the appropriate class of property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided for in respect of construction in progress until it is completed and ready for its intended use.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of the relevant lease.

The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in profit or loss.

(e) Prepaid lease payments

Prepaid lease payments represent up-front payments for interests in leasehold land held for own use under operating leases in which the Group acquires long-term interests in lessee-occupied properties. These payments are stated at cost and are amortised over the period of the lease on a straight-line basis as an expense.

(f) Leasing

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

The Group as lessor

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

The Group as lessee

Assets held under finance leases are initially recognised as assets at their fair value or, if lower, at the present value of the minimum lease payments. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to profit or loss over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.

The total rentals payable under the operating leases are recognised in profit or loss on a straight-line basis over the lease term. Lease incentives received are recognised as an integrated part of the total rental expense, over the term of the lease.

The land and building elements of property leases are considered separately for the purpose of lease classification. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of land and buildings as a finance lease in property, plant and equipment.

(g) Intangible assets

Research and development expenditures

Expenditure on research activities is recognised as an expense in the year in which it is incurred.

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Subsequent to initial recognition, intangible assets with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment loss. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Intangible assets with indefinite useful lives are carried at cost less any accumulated impairment loss.

(h) Financial instruments

(i) Financial assets

The Group classifies its financial assets at initial recognition, depending on the purpose for which the asset was acquired. Financial assets at fair value through profit or loss are initially measured at fair value and all other financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets.

Financial assets at fair value through profit or loss

These assets include financial assets held for trading. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial asset at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised in profit or loss in the period in which they arise.

Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade receivables), and also incorporate other types of contractual monetary asset. Subsequent to initial recognition, they are carried at amortised cost using the effective interest method, less any identified impairment losses.

(ii) Impairment loss on financial assets

The Group assesses, at the end of each reporting period, whether there is any objective evidence that financial asset is impaired. Financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence of impairment may include:

significant financial difficulty of the debtor;
breach of contract, such as a default or delinquency in interest or principal payments;
granting concession to a debtor because of debtors’ financial difficulty;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

For loans and receivables

An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of financial asset is reduced through the use of an allowance account. When any part of financial asset is determined as uncollectible, it is written off against the allowance account for the relevant financial asset.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

(iii) Financial liabilities

The Group classifies its financial liabilities, depending on the purpose for which the liabilities were incurred. Financial liabilities at fair value through profit or loss are initially measured at fair value and financial liabilities at amortised cost are initially measured at fair value, net of directly attributable costs incurred.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in profit or loss or are expected not to be realised within 12 months after the end of reporting period.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial liability at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value recognised in profit or loss in the period in which they arise.

Financial liabilities at amortised cost

Financial liabilities at amortised cost, including trade and other payables, accruals and other payables, amount due to ultimate holding company, bank borrowings and the debt element of convertible debt issued by the Group, are subsequently measured at amortised cost, using the effective interest method. The related interest expense is recognised in profit or loss.

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

(iv) Convertible bonds

Convertible bonds issued by the Group that contain both liability and conversion option components are classified separately into their respective items on initial recognition. Conversion option that will be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is a conversion option derivative. At the date of issue, the conversion derivative is recognised at fair value, any excess of proceeds over the amount initially recognised as the derivative component is recognised as liability.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In subsequent periods, the liability component of the convertible bonds is carried at amortised cost using the effective interest method, until extinguished on conversion or maturity. The conversion option derivative is measured at fair value with changes in fair value recognised in profit or loss.

When the convertible bonds are converted, the carrying amount of the liability portion together with the fair value of the conversion derivative at the time of conversion are transferred to share capital and share premium as consideration for the shares issued. When the convertible bonds are redeemed, and difference between the redemption amount and the carrying amounts of both components is recognised in profit or loss.

Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and conversion option components in proportion to the allocation of the proceeds. Transaction costs relating to the conversion option derivative is recognised in profit or loss immediately. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible bonds using the effective interest method.

(v) Effective interest method

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

(vi) Equity instruments

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

(vii) Derecognition

The Group derecognises a financial asset when the contractual rights to the future cash flows from the financial asset expire or when the financial asset has been transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial asset. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

(i) Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the first-in first-out method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(j) Revenue recognition

Revenue from sales of goods, moulds and scrap materials is recognised on transfer of risks and rewards of ownership, which is at the time of delivery and the title is passed to customer.

Service fee income represents royalties which is recognised on an accrual basis in accordance with the substance of the relevant agreement.

Interest income is accrued on a time basis on the principal outstanding at the applicable interest rate.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(k) Income taxes

Income taxes for the year comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of reporting period.

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 goodwill and recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all 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 expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the end of reporting period.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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

(l) Foreign currency

Transactions entered into by group entities in currencies other than the currency of the primary economic environment in which it operates (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income, in which case, the exchange differences are also recognised in other comprehensive income.

On consolidation, the results of foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the rates approximating to those ruling when the transactions took place are used. All assets and liabilities of foreign operations are translated at the rate ruling at the end of reporting period. The resulting translation differences are recognised in other comprehensive income and accumulated in cumulative translation adjustment reserve within equity. Exchange differences recognised in profit or loss of group entities’ separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the foreign operation concerned are reclassified to the cumulative translation adjustment reserve.

On disposal of a foreign operation, the cumulative exchange differences recognised in the cumulative translation adjustment reserve relating to that operation up to the date of disposal are reclassified to profit or loss as part of the profit or loss on disposal.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the end of reporting period. Exchange differences arising are recognised in the cumulative translation adjustment reserve.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(m) Employee benefits

(i) Defined contribution retirement plans

The group entities incorporated in Hong Kong make monthly contributions to a Mandatory Provident Fund Scheme (the “MPF Scheme”), which is a defined contribution scheme managed by an independent trustee for those employees who are eligible to participate in the MPF Scheme. The Group makes contributions based on a percentage of the eligible employees’ salaries funded by the Group and are charged to profit or loss as they become payable in accordance with the rules of the MPF scheme.

In addition, the group entities incorporated in the PRC make monthly contributions to a statedsponsored defined contribution scheme for the local staff. The contributions are made at a specific percentage on the standard salary pursuant to relevant laws and regulations in the PRC issued by local social security authorities.

(ii) Employee leave entitlements

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the end of reporting period. Employee entitlements to non-accounting compensated absences are not recognised until the time of leave.

(iii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan, which is without realistic possibility of withdrawal.

(n) Share based payments

Where share options are awarded to employees, the fair value of the options at the date of grant is recognised in profit or loss over the vesting period with a corresponding increase in the employee sharebased payment reserve within equity. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at the end of each reporting period so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also recognised in profit or loss over the remaining vesting period.

The Company operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense, with a corresponding increase share-based payment reserve within equity. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in profit or loss, with a corresponding adjustment to share-based payment reserve within equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. At the time when the share options are exercised, the amount previously recognised in share-based payment reserve will be transferred to share premium. When the share options are cancelled after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share-based payment reserve will be transferred to accumulated profits.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(o) Impairment of other assets

At the end of each reporting period, the Group reviews the carrying amounts of the following assets to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment;
prepaid lease payments;
intangible assets with finite useful lives;
investments in subsidiaries.

If the recoverable amount (i.e. the greater of the fair value less costs to sell and value in use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another HKFRS, in which case the impairment loss is treated as a revaluation decrease under that HKFRS.

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

(p)

Capitalisation of borrowing costs

Borrowing costs attributable directly to the acquisition, construction or production of assets which require a substantial period of time to be ready for their intended use or sale, are capitalised as part of the cost of those assets. Income earned on temporary investments of specific borrowings pending their expenditure on those assets is deducted from borrowing costs capitalised. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

(q) Government grants

Government grants are recognised when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group 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 Group 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.

(r) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated. 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, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(s) Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation. On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at their fair values using the fair value model. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the year in which they arise.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Transfers are made to or from investment property only when there is a change in use. If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use.

6. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

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

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

Key sources of estimation uncertainty

In addition to information disclosed elsewhere in these financial statements, other key sources of estimation uncertainty that have a significant risk of resulting a material adjustment to the carrying amounts of assets and liabilities within next financial year are as follows:

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Other details of assessment are stated in note 23 to the financial statements.

Amortisation of intangible assets

Intangible assets represent trademark and patents are amortised on a straight-line basis over their estimated useful lives. The determination of the useful lives involves management’s estimation. The Group re-assesses the useful lives of trademark and patents and if the expectation differs from the original estimate, such a difference may impact the amortisation in the year and the estimate will be changed in the future period.

7. SEGMENT REPORTING

The Group determines its operating segments based on the reports reviewed by the chief operating decision maker that are used to make strategic decisions.

The Group has two reportable segments, namely the Mainland China and North American. The segments are managed separately based on the geographical locations in which they operate. Both segments are engaged in one business, which is manufacturing and sale of loudspeaker systems.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The segment information provided to the chief operating decision maker for reportable segments and reconciliation of the segments total to the amounts reported by the Group in these consolidated financial statements are as follows:

2009

	Mainland	North	Segments	Reconciliation
	China	America	total	(Note (c))	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Revenue from external customers
(Note (a))	370,933	63,833	434,766	–	434,766
Reportable segment profit/(loss)
(Note (b)(i))	33,921	(16,895)	17,026	(3,135)	13,891
Depreciation and amortisation	16,825	2,686	19,511	218	19,729
Interest income	512	2	514	19	533
Interest expense	5,164	4,936	10,100	78	10,178
Impairment losses on inventories	2,496	–	2,496	–	2,496
Loss arising from fair value change
of embedded derivative	–	(5,281)	(5,281)	–	(5,281)
Income tax expense	947	–	947	–	947
Segment assets_(Note (b)(ii))_	465,974	60,285	526,259	7,807	534,066
Segment liabilities_(Note (b)(iii))_	(260,116)	(75,904)	(336,020)	(16,734)	(352,754)
Addition to non-current assets:
– property, plant and equipment	17,126	593	17,719	5	17,724

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

2008

	Mainland	North	Segments	Reconciliation
	China	America	total	(Note (c))	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Revenue from external customers
(Note (a))	294,872	94,259	389,131	–	389,131
Reportable segment loss_(Note (b)(i))_	(12,307)	(3,547)	(15,854)	(3,390)	(19,244)
Depreciation and amortisation	17,904	3,177	21,081	194	21,275
Interest income	392	11	403	12	415
Interest expense	6,566	4,902	11,468	340	11,808
Impairment losses on
– inventories	2,664	–	2,664	–	2,664
– trade receivables	178	–	178	–	178
Gain arising from fair value change of
embedded derivative	–	4,448	4,448	–	4,448
Income tax expense	1,549	–	1,549	–	1,549
Segment assets_(Note (b)(ii))_	361,733	52,042	413,775	7,884	421,659
Segment liabilities_(Note (b)(iii))_	(189,766)	(55,766)	(245,532)	(14,772)	(260,304)
Addition to non-current assets:
– property, plant and equipment	17,144	77	17,221	–	17,221

Reconciliation of the segments’ assets and liabilities to the amounts reported by the Group in these consolidated financial statements as at 1 January 2008 is as follows:

	Mainland	North	Segments	Reconciliation
	China	America	total	(Note (c))	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment assets_(Note (b)(ii))_	370,875	46,440	417,315	7,659	424,974
Segment liabilities_(Note (b)(iii))_	(212,714)	(33,218)	(245,932)	(12,105)	(258,037)
Notes:

(a) Revenue of approximately HK$87,195,000 (2008: HK$81,874,000) was derived from a single external customer and is attributable to the reportable segment of “Mainland China”.
(b) The differences in respect of the measurements of the reportable segments’ profit or loss, segment assets and liabilities to the Group’s profit or loss before income tax expense, assets and liabilities, respectively, are as follows:
(i) The amount mainly represents staff costs incurred in maintaining operation of corporate level of the Group.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(ii) The amount mainly represents corporate assets of land and building situated in Hong Kong.

(iii) The amount mainly represents bank borrowings at corporate level of the Group.

Reportable segment profit/(loss) Depreciation and amortisation Directors’ emoluments_(Note 16(a))_ Others Profit/(loss) before income tax expense Assets Reportable segment assets Unallocated corporate assets Consolidated total assets Liabilities Reportable segment liabilities Unallocated corporate liabilities Consolidated total liabilities	2009 HK$’000 17,026 (218) (613) (2,304) 13,891 At 31 December 2009 2008 HK$’000 HK$’000 (Restated) 526,259 413,775 7,807 7,884 534,066 421,659 336,020 245,532 16,734 14,772 352,754 260,304	2008 HK$’000 (Restated) (15,854) (194) (662) (2,534)
		(19,244)

		At 1 January 2008 HK$’000 (Restated) 417,315 7,659
		424,974

		245,932 12,105
		258,037

8. TURNOVER

Turnover, which is also the revenue, represents the net invoiced value of goods sold, net of discounts and sales related taxes.

9. FINANCE COSTS

Interest on: – bank and other borrowings wholly repayable within five years_(Note) – mortgage loan repayable over five years – convertible bonds(Note 33)_ – finance leases	2009 HK$’000 5,443 58 4,654 23 10,178	2008 HK$’000 7,252 72 4,447 37
		11,808

Note:

Included in interest on other borrowings is an amount of HK$78,000 (2008: HK$Nil) charged by a minority shareholder of a group entity in the PRC.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

10. STAFF COSTS

Staff costs (including directors’ emoluments_(Note 16(a))_comprise: – salaries and welfare expenses and other benefits – retirement benefits scheme contributions	2009 HK$’000 69,642 6,228 75,870	2008 HK$’000 70,187 6,863
		77,050

11. PROFIT/(LOSS) BEFORE INCOME TAX EXPENSE

Profit/(loss) before income tax expense is arrived at after charging/(crediting):

	2009	2008
	HK$’000	HK$’000
		(Restated)
Inventories recognised as an expense	336,876	328,764
Depreciation of property, plant and equipment	17,936	19,244
Amortisation of intangible assets	1,412	1,521
Amortisation of prepaid lease payments	381	510
Auditor’s remuneration	420	420
Research and development costs	14,189	11,713
Minimum lease payments under operating leases	1,301	1,314
Fair value loss on derivative financial instrument	–	27
Gain on disposal of property, plant and equipment	(16)	(1)
Exchange loss, net	156	758
Write-down of inventories	2,496	2,664
Fair value loss/(gain) on embedded derivative	5,281	(4,448)
Interest income	(533)	(415)
Mould income	(778)	(3,639)
Net income from sales of scrap materials	(221)	(318)
Royalty income	(1,900)	(3,391)
Subsidy income_(Note)_	(1,318)	(673)

Note:

Subsidy income represents local government subsidies paid to the Group based on the pre-determined level of expenditures spent on certain advanced technology projects by the Group during the year.

12. INCOME TAX EXPENSE

No provision for Hong Kong Profits Tax has been made as there is no assessable profits for the group entities operate in Hong Kong during the years ended 31 December 2009 and 2008.

With effect from 1 January 2008, the PRC Enterprise Income Tax (“EIT”) rate for foreign-invested enterprises has been unified at 25%.

Suzhou Shangsheng Electrics Co., Ltd. (“Shangsheng Electrics”) enjoys a preferential EIT rate of 15% as it has been granted the status of an Advanced and New Technology Enterprise.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Suzhou Shangsheng Technology Co., Ltd. (“Shangsheng Technology”) and Suzhou Hesheng Industries Co., Ltd. (“Suzhou Hesheng”) are entitled to full exemption from EIT for the years ended 31 December 2009 and 2008 to be followed by a 50% reduction for the next consecutive three years in accordance with the relevant tax rules and regulations applicable to foreign investment enterprises in Mainland China. Suzhou Hesheng has been reporting tax loss since its establishment. Shangsheng Technology was having its first profit-making year for the year ended 31 December 2008.

No EIT is payable for Suzhou Sonavox Acoustics Co., Ltd. since it was having tax loss for the year.

Taxation arising in other jurisdictions is calculated at the rates in the relevant jurisdictions.

The amount of taxation for the year in the consolidated statement of comprehensive income represents:

Current tax – PRC Enterprise Income Tax – (Over)/under provision of EIT in prior years Deferred tax_(Note 21)_ – current year – attributable to change of tax rate Income tax expense	2009 HK$’000 2,484 (1,455) (82) – 947	2008 HK$’000 (Restated) – 490 541 518
		1,549

The income tax expense for the year can be reconciled to the profit/(loss) before income tax expense as per the consolidated statement of comprehensive income as follows:

Profit/(loss) before income tax expense Tax calculated at domestic tax rates applicable to profits in the respective countries (Over)/under provision of PRC enterprise income tax in prior years Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Utilisation of previously unrecognised tax losses Deferred tax asset in respect of unrecognised tax losses Effect of concessionary tax rate Effect of change in tax rate Income tax expense	2009 HK$’000 13,891 2,036 (1,455) 5,282 (271) (507) 2,149 (6,287) – 947	2008 HK$’000 (Restated) (19,244)

		(2,296) 490 2,925 (972) (915) 5,498 (3,699) 518
		1,549

13. PROFIT OR LOSS ATTRIBUTABLE TO SHAREHOLDERS

Loss attributable to shareholders includes an amount of HK$12,778,000 (2008: HK$3,218,000) which has been dealt with in the financial statements of the Company.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. LOSSES PER SHARE

The calculation of the basic and diluted losses per share attributable to owners of the Company is based on the following data:

Loss attributable to owners of the Company (HK$’000) Weighted average number of ordinary shares, in thousand, for the purpose of losses per share Losses per share_(HK cent)_	2009 Basic Diluted (3,213) (3,213) 325,090 335,090 (0.99) (0.96)	2008 Basic Diluted (Restated) (Restated) (14,420) (14,420) 325,090 325,090 (4.44) (4.44)	2008 Basic Diluted (Restated) (Restated) (14,420) (14,420) 325,090 325,090 (4.44) (4.44)

			325,090

			(4.44)

No dilutive effect for the year ended 31 December 2008 because the exercise price of the Company’s share options was higher than the average market price for share in 2008.

15. DIVIDENDS

The directors of the Company do not recommend the payment of a final dividend for the years ended 31 December 2009 and 2008.

16. EMOLUMENTS FOR DIRECTORS AND FIVE HIGHEST PAID INDIVIDUALS

(a) Directors’ emoluments

The remuneration of each director for the year ended 31 December 2009 is set out below:

Name of director Executive: – Mr Yang Tsu Ying – Mr. Yang Ching Yau Independent non-executive: – Mr. Fan Chi Fai, Paul – Mr. Yiu Chi Wah – Mr. Lee Fang Yu	Directors’ fees HK$’000 – – 96 96 96 288	Basic salaries, other allowance and benefits in kind HK$’000 65 260 – – – 325	Total HK$’000 65 260 96 96 96
			613

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The remuneration of each director for the year ended 31 December 2008 is set out below:

Name of director Executive: – Mr Yang Tsu Ying – Mr. Yang Ching Yau Independent non-executive: – Mr. Fan Chi Fai, Paul – Mr. Yiu Chi Wah – Mr. Wong Kai Tung, Simon_(Note (1)) – Mr. Lee Fang Yu(Note (2))_	Directors’ fees HK$’000 – – 104 104 60 44 312	Basic salaries, other allowance and benefits in kind HK$’000 70 280 – – – – 350	Total HK$’000 70 280 104 104 60 44
			662

Notes

Mr. Wong Kai Tung, Simon resigned on 14 July 2008
Mr. Lee Fang Yu was appointed on 14 July 2008

No director waived or agreed to waive any emoluments during the two years ended 31 December 2009 and 2008. No emoluments were paid to the director as inducement to join or upon joining the Group or as compensation for loss of office.

The remuneration of directors is determined by the Remuneration Committee having regard to the performance of individuals and market trends.

(b) Five highest paid individuals

Of the five individuals with the highest emoluments in the Group, none was director (2008: Nil). The emoluments of the five (2008: five) highest paid individuals are as follows:

Salaries, other allowance and other benefits Contribution to pension scheme	2009 HK$’000 4,276 297 4,573	2008 HK$’000 3,711 387
		4,098

During the year, no emoluments were paid to the five highest paid individuals as inducement to join or upon joining the Group or as compensation for loss of office.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Their emoluments were within the following bands:

Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	2009 No. of individuals 3 2 5	2008 No. of individuals 3 2
		5

17. PROPERTY, PLANT AND EQUIPMENT

The Group Cost or valuation At 1 January 2008 Additions Disposals Transfers Surplus on revaluation Translation adjustments At 31 December 2008 Comprising: At cost At Valuation 2008 At 31 December 2008 and 1 January 2009 Reclassification Additions Disposals Surplus on revaluation Transfer to investment properties_(Note 19)_ Translation adjustments At 31 December 2009 Comprising: At cost At Valuation 2009	Machinery, Land and furniture and buildings Leasehold equipment (Note (a))improvements (Note (b)) HK$’000 HK$’000 HK$’000 80,252 14,987 99,092 3,430 5,382 6,629 – (19) – 18,548 7,421 7,170 7,354 – – 4,655 499 2,148 114,239 28,270 115,039 – 28,270 115,039 114,239 – – 114,239 28,270 115,039 (2,929) (1,152) 6,378 – 2,320 2,505 – – (1,177) (3,177) – – (7,925) – – 57 318 2,174 100,265 29,756 124,919 – 29,756 124,919 100,265 – – 100,265 29,756 124,919	Motor Construction vehicles in progress HK$’000 HK$’000 5,445 39,057 – 1,780 (147) – – (33,139) – – 290 2,039 5,588 9,737 5,588 9,737 – – 5,588 9,737 (2,397) (9,345) 219 12,680 (309) – – – – – 21 13 3,122 13,085 3,122 13,085 – – 3,122 13,085	Total HK$’000 238,833 17,221 (166) – 7,354 9,631
			272,873
			158,634 114,239
			272,873 (9,445) 17,724 (1,486) (3,177) (7,925) 2,583
			271,147
			170,882 100,265
			271,147

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group Accumulated depreciation At 1 January 2008 Charge for the year Eliminated on disposals Eliminated on revaluation Translation adjustments At 31 December 2008 and 1 January 2009 Reclassification Charge for the year Eliminated on disposals Eliminated on revaluation Translation adjustments At 31 December 2009 Carrying values At 31 December 2009 At 31 December 2008 At 1 January 2008	Machinery, Land and furniture and buildings Leasehold equipment (Note (a))improvements (Note (b)) HK$’000 HK$’000 HK$’000 6,101 11,256 51,580 4,242 3,942 10,391 – (2) – (10,833) – – 490 660 (47) – 15,856 61,924 – (8,698) 1,173 4,380 3,295 9,803 – – (580) (4,384) – – 4 118 1,886 – 10,571 74,206 100,265 19,185 50,713 114,239 12,414 53,115 74,151 3,731 47,512	Motor Construction vehicles in progress HK$’000 HK$’000 2,749 – 669 – (51) – – – 179 – 3,546 – (1,920) – 458 – (278) – – – 3 – 1,809 – 1,313 13,085 2,042 9,737 2,696 39,057	Total HK$’000 71,686 19,244 (53) (10,833) 1,282
			81,326 (9,445) 17,936 (858) (4,384) 2,011
			86,586
			184,561

			191,547

			167,147

Notes:

(a) Bank borrowings are secured by land and buildings with the carrying amount of approximately HK$100,265,000 (2008: HK$114,239,000) (Note 31).

Had the revalued land and buildings been measured on a historical cost basis, carrying values would have been HK$81,803,000 (2008: HK$89,043,000).

The Group’s interests in land and building situated in Hong Kong amounting to HK$6,620,000 (2008: HK$5,600,000) are held under medium-term lease.

The revaluation of the Group’s land and buildings as at 31 December 2009 and 2008 has been arrived at on the basis of valuations carried out on that date by, Malcolm & Associates Appraisal Limited, an independent qualified valuer not connected with the Group. Malcolm & Associates Appraisal Limited is a member of the Hong Kong Institute of Surveyors, and has appropriate qualifications and experience. A revaluation increase of HK$1,207,000 (2008: HK$18,187,000) was recognised in relation to the land and buildings. The valuation has been valued by the depreciated replacement cost approach arrived at the aggregate amount of the new replacement cost of the buildings and other site works, from which appropriate deductions may then be made to allow for the age, condition, economic or functional obsolescence and environmental factor.

(b) The carrying amounts of machinery, furniture and equipment includes an amount approximately HK$241,000 (2007: HK$279,000) in respect of assets held under finance leases (Note 30).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company

			Office equipment
			HK$’000
	Cost
	At 1 January 2008, 31 December 2008 and 1 January 2009		–
	Addition		5
	At 31 December 2009		5
	Accumulated depreciation
	At 1 January 2008, 31 December 2008 and 1 January 2009		–
	Charge for the year		1
	At 31 December 2009		1
	Carrying values
	At 31 December 2009		4
	At 31 December 2008		–
	At 1 January 2008		–
18.	INTERESTS IN SUBSIDIARIES
		2009	2008
		HK$’000	HK$’000
	Unlisted equity investments, at cost	16,204	16,204

The amounts due from subsidiaries are unsecured, interest-free and repayable on demand.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Details of the subsidiaries at 31 December 2009, 2008 and 1 January 2008 are as follows:

				Proportion	Proportion
				ownership
	Place of		Issued/paid	interest held
	incorporation	Class of	up share	by the Company
Name of subsidiary	operation	share held	capital	directly	Indirectly		Principal activities
Taraki Inc.	BVI	Ordinary	USD2	100%		–	Investment holding
Indigo Enterprise Inc.	Samoa	Ordinary	USD1	100%		–	Investment holding
Taraki Services	Hong Kong	Ordinary	HK$2	–		100%	Provision of management
Company Limited							services to group
							companies
Wise Point Holdings	Hong Kong	Ordinary	HK$1	–		100%	Investment holding
Sonavox Electronics	Samoa	Ordinary	USD1	–		100%	Inactive
Company Limited
Sonavox Canada Inc.	Canada	Common share	CAD504,103	–		100%	Design, development and
							marketing of home and
							automotive audio
							products
Shangsheng Electrics	PRC	Registered capital	USD5,000,000	–		51%	Manufacture and sales of
(Note)		loudspeaker systems
							for automobiles
Sonavox Acoustics	PRC	Registered capital	USD2,500,000	–		51%	Manufacture and sales of
(Note)		loudspeaker systems
							for home theatres
Shangsheng
Technology_(Note)_	PRC	Registered capital	USD5,130,000	–		51%	Manufacture and sales of
		(2008:					loudspeaker systems
			USD5,123,885)
Suzhou Hesheng	PRC	Registered capital	USD1,186,889	–		51%	Manufacture and sales of
(Note)		(2008:					parts for loudspeaker
			USD1,115,700)				systems
Detroit Sonavox Inc.	United States	Ordinary	USD1	–		51%	Provision of after-sales
	of America						services
Sonavox Europ	Germany	Ordinary	EUR25,000	–		51%	Provision of after-sales
GmbH							services e

None of the subsidiaries had issued any debt securities subsisting at the end of the year or at any time during the year.

Note:

These entities are registered as sino-foreign equity joint ventures under the PRC law. The English translation of these names is for reference only. The official names of these entities are in Chinese.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. INVESTMENT PROPERTIES

Fair value At 1 January 2008, 31 December 2008 and 1 January 2009 Transfer from property, plant and equipment_(Note 17)_ Translation adjustments At 31 December 2009	HK$’000 – 7,925 8
	7,933

The Group’s investment properties were revalued at 31 December 2009 on market value basis by Malcolm & Associates Appraisal Limited as disclosed in Note 17. There was no significant change in fair value of investment properties from the date of transfer to the end of reporting period.

Bank borrowings are secured by investment properties with carrying amount of approximately HK$7,933,000 (2008: HK$Nil) (Note 31).

20. PREPAID LEASE PAYMENTS

The Group’s prepaid lease payments represent land use rights and their carrying values are analysed as follows:

			At
	At 31	December	1 January
	2009	2008	2008
	HK$’000	HK$’000	HK$’000
Leasehold land in the PRC, held under
medium-term lease	15,956	16,326	12,649

Bank borrowings are secured by land use rights with the carrying amounts of approximately HK$12,760,000 (2008: HK$13,198,000) (Note 31).

21. DEFERRED TAX

For the purposes of presentation for the consolidated statement of financial position, certain deferred tax assets and liabilities have been offset. The following is an analysis of the deferred tax balances for financial reporting purposes:

Deferred tax assets Deferred tax liabilities Deferred tax assets/(liabilities), net	At 31 December 2009 2008 HK$’000 HK$’000 7,251 6,294 (2,622) (2,504) 4,629 3,790	At 1 January 2008 HK$’000 11,700 (1,892)
		9,808

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred tax assets/(liabilities)

Accelerated depreciation allowance HK$’000 At 1 January 2008 2,874 Effect of change in tax rate (402) Credited/(charged) to profit or loss 456 Charged to equity – Translation adjustments 97 At 31 December 2008 and 1 January 2009 3,025 Credited to profit or loss 82 Charged to equity – Translation adjustments 2 At 31 December 2009 3,109	Provisions and impairment losses HK$’000 1,573 (116) 5,253 – (856) 5,854 – – 891 6,745	Revaluation of buildings HK$’000 (1,892) 631 – (4,219) – (5,480) – (199) (3) (5,682)	Tax losses HK$’000 7,253 – (6,250) – (612) 391 – – 66 457	Total HK$’000 9,808 113 (541) (4,219) (1,371) 3,790 82 (199) 956 4,629

Under the EIT law effective from 1 January 2008, withholding tax is imposed on dividends declared in respect of profits earned by PRC subsidiaries. At the end of reporting period, deferred tax has not been provided for in the consolidated financial statements in respect of taxable temporary differences attributable to the profits earned by the PRC subsidiaries amounting to HK$36,658,000 (2008: HK$605,000) as the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

At the end of reporting period, the Group has unused tax losses and other deductible temporary differences totalling approximately HK$27,177,000 (2008: HK$16,322,000) available for offset against future profits. No deferred tax asset has been recognised in respect of these deductible temporary differences for both of the year ended 31 December 2009 and 2008 due to the unpredictability of future profit streams. Losses amounting to approximately HK$23,604,000 (2008: HK$14,389,000) will expire during 2011 to 2020.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. INTANGIBLE ASSETS

Cost
At 1 January 2008
Translation adjustments
At 31 December 2008 and 1 January 2009
Translation adjustments
At 31 December 2009
Accumulated amortisation
At 1 January 2008
Charge for the year
Translation adjustments
At 31 December 2008 and 1 January 2009
Charge for the year
Translation adjustments
At 31 December 2009
Carrying values
At 31 December 2009
At 31 December 2008
At 31 January 2008

Trademark
and patents
HK$’000
24,442
(4,760)
19,682
3,257
22,939
2,910
1,521
(495)
3,936
1,412
770
6,118
16,821
15,746
21,532

The trademark and patents was purchased as part of a business combination in 2006.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. GOODWILL

Cost At 1 January 2008 Translation adjustments At 31 December 2008 and 1 January 2009 Translation adjustments At 31 December 2009 Accumulated impairment At 1 January 2008, 31 December 2008 and 31 December 2009 Carrying value At 31 December 2009 At 31 December 2008 At 31 January 2008	HK$’000 6,316 (1,350)
	4,966 822
	5,788
	–
	5,788

	4,966

	6,316

The goodwill was arising on acquisition of Sonavox Canada Inc (“SCI”) on 12 April 2006 and is tested for impairment annually or whenever there is an indication of impairment.

The recoverable amount of SCI has been determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by management. The cash flows beyond the fiveyear period are extrapolated using a zero growth rate over the estimated remaining life of the patented technology owned by SCI. The management considered that forecast beyond five-year period is appropriate because the business of SCI from which goodwill arose is largely dependent on the patented technology owned by it. The discount rate applied to cash flow projections is 13% (2008: 5%). The recent economic recession to last in 2009 has been taken into consideration in the forecast of the revenue. Budgeted gross margins have been determined based on the management’s past performance and expectation for the consumer electronic market development. The expected growth rate does not exceed the annual growth rate for the consumer electronic business in which SCI operates. The directors of the Company are of the opinion, based on the forecast, that the recoverable amount of the goodwill arising from acquisition of SCI does exceed its carrying amount and any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of SCI to exceed its aggregate recoverable amount. No impairment loss is necessary.

24. INVENTORIES

Raw materials Work-in-progress Finished goods	At 31 December 2009 2008 HK$’000 HK$’000 27,040 24,801 9,993 7,903 18,491 24,766 55,524 57,470	At 1 January 2008 HK$’000 26,388 6,058 21,284
		53,730

Included in the above figures are raw materials of approximately HK$6,300,000 (2008: HK$4,954,000), work-inprogress of approximately HK$1,405,000 (2008: HK$1,108,000) and finished goods of approximately HK$224,000 (2008: HK$306,000) which have been pledged as security for bank borrowings (Note 31).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. TRADE AND NOTE RECEIVABLES

Trade and note receivables – third parties – related parties_(Note 37(c))_ Less: Accumulated impairment losses	At 31 December 2009 2008 HK$’000 HK$’000 155,569 90,220 214 710 155,783 90,930 (2,680) (2,571) 153,103 88,359	At 1 January 2008 HK$’000 (Restated) 118,191 172
		118,363 (3,389)
		114,974

The aging analysis of trade and note receivables, net of impairment, prepared based on delivery date is as follows:

Within 90 days 91 – 180 days 181 – 365 days More than 365 days	At 31 December 2009 2008 HK$’000 HK$’000 134,584 77,198 16,617 9,334 1,329 1,827 573 – 153,103 88,359	At 1 January 2008 HK$’000 (Restated) 106,920 6,915 1,139 –
		114,974

The majority of the Group’s sales are on open account in accordance with terms specified in the contracts governing relevant transactions. An average credit period is generally for 90 days. The Group seeks to maintain strict control over its outstanding receivables. Overdue balances are reviewed regularly by senior management. At 31 December 2009, an aging analysis of the Group’s trade and note receivables, that are past due but not impaired at the end of reporting period are as follows:

91 – 180 days 181 – 365 days More than 365 days	At 31 December 2009 2008 HK$’000 HK$’000 16,617 9,334 1,329 1,827 573 – 18,519 11,161	At 1 January 2008 HK$’000 6,915 1,139 –
		8,054

The Group reviews customer credit limit regularly based on historical repayment record. Trade receivables that were neither past due nor impaired relate to a member of independent customers that were a good track record with the Group.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The below table reconciled the impairment loss of trade and note receivables for the year:

At 1 January Impairment loss recognised Amounts written off as uncollectible Translation adjustments At 31 December	At 31 December 2009 2008 HK$’000 HK$’000 2,571 3,389 – 178 – (996) 109 – 2,680 2,571	At 1 January 2008 HK$’000 3,214 175 – –
		3,389

Included in the allowance for bad and doubtful debts are individually impaired trade receivables of approximately HK$2,680,000 (2008: HK$2,571,000). The Group does not hold any collateral over these balances. At 31 December 2009, the carrying amount of receivables, which have been pledged as security for the bank borrowings, is approximately HK$16,971,000 (2008: HK$13,592,000).

26. AMOUNT DUE FROM/TO MINORITY SHAREHOLDER OF A SUBSIDIARY

The amount due from minority shareholder of a subsidiary is unsecured, interest free and repayable on demand.

The amount due to minority shareholder of a subsidiary is unsecured, interest bearing at a rate of 6.831% p.a. and repayable within one year.

27. PLEDGED BANK DEPOSITS

Pledged bank deposits represent deposits pledged to banks to secure banking facilities granted to the Group. All the pledged bank deposits are denominated in Renminbi and have been pledged to secure short-term bank loans and are therefore classified as current assets. The pledged deposits carry fixed interest rate of 2.25% (2008: 4% to 4.14%) per annum. The pledged bank deposits will be released upon the settlement of relevant bank borrowings.

Restricted bank balances represent deposits required and restricted by banks in respect of the issue of letter of credit to certain suppliers. The balances carried fixed interest rate of 0.36% (2008: 0.35% to 0.72%) per annum, and will be released upon the completion of the respective transactions. All the restricted bank balances are denominated in Renminbi.

28. TRADE AND NOTE PAYABLES

Trade and note payables – third parties – related parties_(Note 37(c))_	At 31 December 2009 2008 HK$’000 HK$’000 133,975 84,887 4 22 133,979 84,909	At 1 January 2008 HK$’000 101,216 22
		101,238

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

In general, the credit terms granted by suppliers ranged from 30 to 90 days. An aging analysis of the Group’s trade and note payables is as follows:

Within 30 days 31 – 90 days 91 – 180 days 181 – 365 days More than 365 days	At 31 December 2009 2008 HK$’000 HK$’000 55,831 21,624 62,757 35,716 14,553 24,781 354 1,667 484 1,121 133,979 84,909	1 January 2008 HK$’000 51,944 41,180 7,324 504 286
		101,238

29. AMOUNT DUE TO ULTIMATE HOLDING COMPANY

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

30. OBLIGATIONS UNDER FINANCE LEASES

It is the Group’s policy to lease machinery, furniture and equipment under finance leases. The lease term is fixed at three years (2008: three years). Effective interest rate underlying the obligations under finance leases is fixed at an average of 8.5% (2008: 8.5%). At the end of reporting period, the amount payable under the finance leases due as follows:

Minimum leasepayments At At 31 December 1 January 2009 2008 2008 HK$’000 HK$’000 HK$’000 62 145 369 – 53 182 – – 65 62 198 616 (3) (13) (59) 59 185 557	Present value of minimum leasepayments	Present value of minimum leasepayments
At 31 December 2009 2008 HK$’000 HK$’000 62 145 – 53 – – 62 198 (3) (13) 59 185	At 31 December 2009 2008 HK$’000 HK$’000 59 134 – 51 – – 59 185 – – 59 185 (59) (134) – 51	At 1 January 2008 HK$’000 326 169 62
		557 –
		557

		(326)
		231

The Group’s obligations under finance leases as at 31 December 2009 and 2008 are denominated in CAD. It is secured by the lessor’s charge over the leased assets (Note 17).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. BANK BORROWINGS

At the end of reporting period, bank borrowings comprise:

Secured bank borrowings: – bank overdrafts_(Note 40)_ – short-term bank loans – mortgage loan	Group	At 1 January 2008 HK$’000 9,269 66,912 2,463 78,644	Company	Company
	At 31 December 2009 2008 HK$’000 HK$’000 9,622 4,338 83,635 86,696 2,265 2,367 95,522 93,401		At 31 December 2009 2008 HK$’000 HK$’000 – – – 5,900 2,265 2,367 2,265 8,267
				8,267

At the end of reporting period, total current and non-current borrowings are repayable as follows:

Group	Company	Company
At 31 December 2009 2008 HK$’000 HK$’000 93,361 91,136 108 105 338 216 1,715 1,944 95,522 93,401 (93,361) (91,136) 2,161 2,265	At 31 December 2009 2008 HK$’000 HK$’000 104 6,002 108 105 338 216 1,715 1,944 2,265 8,267 (104) (6,002) 2,161 2,265
		8,267 (6,002)
		2,265

32. DERIVATIVE FINANCIAL INSTRUMENT

			At
	At 31	December	1 January
	2009	2008	2008
	HK$’000	HK$’000	HK$’000
Fair value of foreign currency forward contract
(not under hedge accounting)	–	27	–

Major terms of the foreign currency forward contract are as follows:

Notional amount Maturity Exchange rate Buy USA 522,292 23 January 2009 RMB 6.88 = US$1

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. CONVERTIBLE BONDS AND EMBEDDED DERIVATIVE FINANCIAL INSTRUMENT

On 6 April 2006, the Company issued 8% convertible redeemable bonds (“Convertible Bonds”) due 2011 at a principal amount of US$5,000,000 (equivalent to approximately HK$38,791,000). The Convertible Bonds can be converted up to an aggregate 96,977,500 ordinary shares of the Company at HK$0.40 each. The Company shall have the option to redeem the Convertible Bonds in whole or in part (i) at any time after the second anniversary of the date of issue of the Convertible Bonds until 30 days prior to the maturity date, provided that the average closing price of the shares stated in the daily quotation sheet of the Stock Exchange for 20 consecutive trading days exceed 130% of the prevailing conversion price; or (ii) at any time the outstanding Convertible Bonds is less than 20% of the total issued amount. The amount payable for any redemption shall be 100% of the relevant amount of the principal amount of the Convertible Bonds so redeemed together with interest accrued thereon up to the date of repayment. On the second, third and fourth anniversary of the date of issue of the Convertible Bonds and only on such date, each holder of the Convertible Bonds shall have the right at such holder’s option to require the Company to redeem the Convertible Bonds held by such holder at 100% of the principal amount with respect to such Convertible Bonds together with interest accrued thereon up to the date of repayment.

The Convertible Bonds contain two components, a liability component and an embedded derivative financial instrument. The fair value of the liability component, included in non-current liabilities, amounted to approximately HK$31,211,000, net of transaction costs, at the issuance date. The fair value of the embedded derivative financial instrument was estimated at the issuance date by reference to the Binomial Model. The effective interest rate of the liability component is 12.9%. The embedded derivative is subsequently measured at fair value with changes in fair value recognised in profit or loss.

The movement of the liability component and embedded derivative financial instrument for the years 31 December 2008 and 2009 is set out as follows:

At 1 January 2008 Interest charge_(Note 9) Interest paid Translation adjustments Gain arising on change of fair value At 31 December 2008 and 1 January 2009 Interest charge(Note 9)_ Gain arising on change of fair value At 31 December 2009	Liability component HK$’000 36,109 4,447 (3,100) (252) – 37,204 4,654 – 41,858	Embedded derivative financial instrument HK$’000 6,593 – – – (4,448) 2,145 – 5,281 7,426

During the year, the Company failed to pay interest to the bondholders on time, which constituted an event of default by which the bondholders are entitled to demand immediate settlement of the accrued interest of US$400,000 (equivalent to approximately HK$3,100,000) and outstanding principal of US$5,000,000 (equivalent to approximately HK$38,750,000). A wavier in relation to the event of default was obtained before the end of reporting period and as a result, the terms and conditions of the convertible bonds have remained unchanged.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. SHARE CAPITAL

Number of ordinary shares of HK$0.01 each Authorised: At 1 January 2008, 31 December 2008 and 31 December 2009 20,000,000,000 Issued and fully paid: At 1 January 2008, 31 December 2008 and 31 December 2009 325,089,974	Nominal value HK$’000 200,000

	3,251

35. RESERVES

The Group

At 1 January 2008 (Previously reported) Restatement of prior periods and opening balances_(Note 3) At 1 January 2008 (Restated) Total comprehensive income for the year (Restated) Cancellation of share options previously granted At 31 December 2008 (Restated) At 1 January 2009 (Previously reported) Restatement of prior periods and opening balances(Note 3)_ At 1 January 2009 (Restated) Total comprehensive income for the year Release of reserve At 31 December 2009	Share premium HK$’000 27,682 – 27,682 – – 27,682 27,682 – 27,682 – – 27,682	Property revaluation reserve HK$’000 2,598 – 2,598 8,074 – 10,672 10,672 – 10,672 1,008 – 11,680	Statutory reserves HK$’000 7,250 – 7,250 – – 7,250 7,250 – 7,250 – (438) 6,812	Share-based payment reserve HK$’000 1,948 – 1,948 – (325) 1,623 1,623 – 1,623 – – 1,623	Merger reserve HK$’000 2,441 – 2,441 – – 2,441 2,441 – 2,441 – – 2,441	Cumulative translation adjustment reserve HK$’000 15,235 164 15,399 (5,334) – 10,065 15,467 (5,402) 10,065 4,114 – 14,179	Accumulated profits HK$’000 27,735 3,962 31,697 (14,420) 325 17,602 18,679 (1,077) 17,602 (3,213) 438 14,827	Total HK$’000 84,889 4,126
								89,015 (11,680) –
								77,335

								83,814 (6,479)
								77,335 1,909 –
								79,244

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company

At 1 January 2008 Total comprehensive income for the year, net of tax Cancellation of share options previously granted At 31 December 2008 and 1 January 2009 Total comprehensive income for the year, net of tax At 31 December 2009	Share-based Share payment premium reserve HK$’000 HK$’000 27,682 1,948 – – – (325) 27,682 1,623 – – 27,682 1,623	Merger Accumulated reserve profits HK$’000 HK$’000 19,550 83 – (2,893) – – 19,550 (2,810) – (12,778) 19,550 (15,588)	Total HK$’000 49,263 (2,893) (325)
			46,045 (12,778)
			33,267

36. COMMITMENTS

(a) Capital commitment

			At
	At 31	December	1 January
	2009	2008	2008
	HK$’000	HK$’000	HK$’000
Capital expenditure in respect of the acquisition
of property, plant and equipment contracted for
but not provided in the consolidated financial
statements	10,284	134	15,639

(b) Operating leases

The Group as lessee

At the end of reporting period, the Group had commitments for future minimum lease payments under noncancellable operating lease which fall due as follows:

Within the first year In the second to the fifth year inclusive	At 31 December 2009 2008 HK$’000 HK$’000 1,217 1,128 1,437 2,450 2,654 3,578	At 1 January 2008 HK$’000 1,043 3,741
		4,784

Operating lease payments represent rentals payable by the Group for certain of its office premises. Leases and rentals are negotiated and fixed respectively for an average of 3 years.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group as lessor

During the year, the Group reclassified certain buildings from property, plant and equipment (Note 17) to investment properties (Note 19). The properties have been leased to tenants for an average of 5 years. At the end of reporting period, the minimum rental receivables under non-cancellable operating leases are follows:

Within the first year In the second to the fifth year inclusive	At 31 December 2009 2008 HK$’000 HK$’000 910 – 2,882 – 3,792 –	At 1 January 2008 HK$’000 – –
		–

37. RELATED PARTY TRANSACTIONS

During the year, the Group entered into the following transactions with related parties:

(a) Sales and purchases

Sonavox Electronics (Suzhou Industrial Park) Company Limited (“SSIP”)(Note (i)) – Sales of goods_(Note (ii))_ (b) Key management personnel compensation Salaries and other short-term employee benefits	2009 HK$’000 141 2009 HK$’000 4,898	2008 HK$’000 582

		2008 HK$’000 4,448

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Amounts due from related parties

Trade receivables from Asian Elite International Company Limited (i)(Note 25) Trade receivables due from Sonavox Electronics Suzhou Industrial Park Company Limited (i) (Note 25) Amount due from Suzhou City Xiangchen District Yuanhe Town Collective Assets Operation Company, minority shareholder of a subsidiary_(Note 26) Trade payables to Sonavox Electronics Inc. (i) (Note 28) Trade payables to Asian Elite International Company Limited (i)(Note 28) _Notes:	At 31 December 2009 2008 HK$’000 HK$’000 184 184 30 526 2,827 3,500 4 4 – 18	At 1 January 2008 HK$’000 172

		–

		246

		4

		18

(i) Mr. Yang Tsu Ying and Mr. Yang Ching Yau, the directors of the Company, have control over SSIP and in their opinion, the above transactions with related companies are carried out in the ordinary course of business on terms as agreed with the related parties.
(ii) The transaction constituted connected transactions as defined under Chapter 20 “Connected Transactions” of the GEM Listing Rules but is exempted from reporting, announcement and independent shareholders’ approval requirements contained in Chapter 20.
(iii) On 5 November 2009, Shangsheng Technology and Shangsheng Electrics entered into agreements with SSIP to acquire machinery from SSIP with an aggregate cash consideration of approximately RMB3,553,000 (approximately HK$4,040,000). At 31 December 2009, an prepayment of approximately RMB2,053,000 (approximately HK$2,335,000) was paid to SSIP and the transaction is expected to complete within 2010. This transaction constitutes a connected transaction under the GEM Listing Rules and is subject to reporting and announcement requirements under Chapter 20. The details of the transaction are included in the announcement of the Company dated 5 November 2009.

38. SHARE-BASED COMPENSATION

The Group adopted a share option scheme which became effective on 8 July 2002. Under which, share options are granted to any employees, consultants or professional advisors, and suppliers or customers of the Group.

The exercise price of the granted options is the highest of (i) the closing price of the Company’s shares on the date of the offer of grant, which must be a business day; (ii) the average closing price of the Company’s shares for the five trading days immediately preceding the date of the offer of grant; (iii) the nominal value of the share. The options are exercisable at the grant date and have a contractual option term of ten years. The Group has no legal or constructive obligation to repurchase or settle the options in cash.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The maximum number of shares of the Company which may be issued upon exercise of all options granted under its share option scheme or any other share option scheme adopted by the Company must not in aggregate exceed 30% of its issued share capital of the Company from time to time. The total number of shares which may be issued upon exercise of all options to be granted under the share option scheme and any other share option scheme of the Group must not in aggregate exceed 10% of the shares in issue as at the date of passing the relevant resolution adopting the Scheme unless it is approved by shareholders in a general meeting of the Company.

At 31 December 2009, the number of shares of the Company in respect of which options had remained outstanding under the share option scheme of the Company was 10,000,000 (2008: 10,000,000), representing 3.1% (2008: 3.1%) of the shares of the Company in issue at that date.

The offer of a grant of share options may be accepted within 21 business days from the date of the offer of grant of the option. The consideration for a grant of options of the Company is HK$1.00. The exercise period of the share options granted is determined by the Board of Directors.

Movements in the number of share options outstanding and their exercise prices are as follows:

Outstanding at the beginning of the year Cancelled during the year Outstanding at the end of the year Exercisable at the end of the year	Weighted average exercise price HK$ 0.345 0.345 0.345 0.345	2009 Number of option Directors Employees ’000 ’000 4,000 6,000 – – 4,000 6,000 4,000 6,000	Total ’000 10,000 – 10,000 10,000	Weighted average exercise price HK$ 0.345 0.345 0.345 0.345	2008 Number of option Directors Employees ’000 ’000 4,000 8,000 – (2,000) 4,000 6,000 4,000 6,000	Total ’000 12,000 (2,000)
						10,000 10,000

Share options outstanding at the end of both years will expire on 27 June 2015.

No share options have been granted to the directors and employees during the years ended 31 December 2009 and 2008.

39. RETIREMENT PLANS

The employees of the Group in Hong Kong participate in the Mandatory Provident Fund Scheme (the “MPF Scheme”), a defined contribution scheme managed by an independent trustee. The Group and its employees each make monthly contributions to the scheme at 5% of the employees’ earnings with the maximum contribution by each of the group entity and the employees limited to HK$1,000 per month and thereafter contributions are voluntary. During the year, the aggregate contributions made by the Group to the MPF Scheme amounted to approximately HK$28,000 (2008: HK$30,000).

As stipulated by the rules and regulations in Mainland China, group entities in the PRC contribute to a state sponsored retirement plan for its employees in Mainland China at a rate of 20% of the basic salaries of its employees, and has no further obligations for the actual payment of pensions or post-retirement benefits. The statesponsored retirement plans are responsible for the entire pension obligations payable to retired employees. For the year ended 31 December 2009, the aggregate amount of the Group’s employer contributions was approximately HK$6,228,000 (2008: HK$6,863,000). SCI does not provide any private retirement plan to its employees but it has to match employee contribution to the mandatory Canada Pension Plan (“CPP”), which is a national pension plan administered by Human Resources and Social Development Canada on behalf of employees in all provinces and territories except Quebec. The employees contribute to CPP according to the prescribed rate of the year.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

SCI matches the employee contribution, effectively doubling the contributions of the employees. SCI has no further obligation to the CPP other than matching the employee contribution. In 2009, the prescribed contribution rate is 4.95% (2008: 4.95%) of a salaried worker’s employment income between approximately HK$24,000 and HK$316,000 (2008: HK$33,000 and HK$330,000). The total amount contributed by SCI to CPP during the year ended 31 December 2009 was approximately HK$318,000 (2008: HK$493,000).

40. CAPITAL RISK MANAGEMENT

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

The capital structure of the Group consists of cash and cash equivalents, bank borrowings, convertible bonds and equity attributable to owners of the Company, comprising issued share capital, reserves and accumulated profits.

The Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholders’ returns, taking into consideration the future capital requirements of the Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. The Group currently does not adopt any formal dividend policy.

One of the group entities has subjected to an externally capital requirements from a banker for banking facilities granted. As at 31 December 2009, the subsidiary has a bank overdraft with carrying amount of approximately HK$9,622,000 (2008: HK$ 4,338,000) (Note 31). The subsidiary breached certain of the terms of the bank overdraft, which are primarily related to the debt-equity ratio of the subsidiary. On discovery of the breach, the directors of the Company informed the banker and commenced a renegotiation of the terms of the loan covenant with the relevant banker.

As at the date of approval of these consolidated financial statements, the negotiations are still in progress. The directors of the Company are confident that their negotiations with the banker will ultimately reach a successful conclusion and there are adequate alternative sources of finance for the subsidiary’s on-going operations.

41. FINANCIAL RISK MANAGEMENT

(a) Financial risk management objectives and policies

The Group’s major financial instruments include convertible bonds, trade and note receivables, other receivables, amount due from minority shareholder of a subsidiary, pledged bank deposits, cash and bank balances, trade and note payables, accruals and other payables, obligations under finance leases, bank borrowings, convertible bonds, derivative financial instrument and embedded derivative financial instrument. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Market risk

Currency risk

Foreign exchange risk arises when group entities enter into transactions denominated in a currency other than their functional currency. The Group’s monetary assets and liabilities are mainly denominated in Renminbi, Hong Kong dollars, US dollars, Canadian dollars and Euro. The exchanges rates among these currencies are not pegged except US dollars and HK dollars, and there is fluctuation of exchange rates among these currencies.

The Group currently does not have a foreign currency hedging policy. However, the management will closely monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The carrying amounts of the foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

The Group

US dollars Euro The Company US dollars		Assets	At 1 January 2008 HK$’000 (Restated) 40,997 6,251 47,248 Assets	Liabilities
					At 1 January 2008 HK$’000 (Restated) 19,567 76
					19,643

Sensitivity analysis

The following table indicates the approximate change in the Group’s profit or loss after income tax expense in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the end of reporting period. The sensitivity analysis includes balances of assets and liabilities of group entities where the denomination of these balances is in a currency other than the functional currencies of these entities. A positive number below indicates an increase in profit where the Hong Kong dollars strengthens against the relevant currency. For a weakening of the Hong Kong dollars against the relevant currency, there would be an equal and opposite impact on the profit, and the balances below would be negative.

US dollars Euro Canadian dollars	2009 Effect on Increase profit or in foreign loss after exchange income tax rate expense % HK$’000 5% (571) 5% 655 5% –	2008(Restated)
		Effect on Increase profit or in foreign loss after exchange income tax rate expense % HK$’000 5% (578) 5% 269 5% 336

–

Interest rate risk

The Group currently does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arises. The Group is exposed to interest rate risk as group entities may borrow funds at both fixed interest rates and floating interest rates. The

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Group manages the risk by maintaining an appropriate mix between fixed and floating rate borrowings. Although the board of directors accepts that this policy neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully cash flow risk associated with interest payments, it considers that it achieves an appropriate balance of exposure to these risks.

The following table details interest rates analysis that the management of the Group evaluates their interest rate risk.

The Group

Floating rate borrowings – bank overdraft – short-term bank loans – mortgage loans – obligations under finance leases – convertible bonds	2009 Effective interest Carrying rate amount % HK$’000 3.7% 9,622 6.1% 83,635 2.5% 2,265 8.5% 59 12.9% 41,858	2008
		Effective interest Carrying rate amount % HK$’000 6.0% 4,338 8.9% 86,696 2% 2,367 8.5% 185 12.9% 37,204

The Company

Floating rate borrowings – short-term bank loans – mortgage loans – convertible bonds	2009 Effective interest Carrying rate amount % HK$’000 – – 2.5% 2,265 12.9% 41,858	2008
		Effective interest Carrying rate amount % HK$’000 2.2% 5,900 2% 2,367 12.9% 37,204

Sensitivity analysis

The following table indicates the approximate change in the profit after income tax expense in response to reasonably possible changes in an interest rate to which the Group has significant exposure at the end of reporting period. In determining the effect on profit after income tax expense on the next accounting period, the management assumes that the change in interest rate had occurred at the end of reporting period and all other variables remain constant. There is no change in the methods and assumptions used in 2008 and 2009.

			2009	2008
			Effect on	Effect on
			profit after	profit after
			income tax	income tax
			expense	expense
			HK$’000	HK$’000
– increase by	200	basis points	(1,596)	(1,562)
– decrease by	200	basis points	1,596	1,562

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Credit risk

The Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the statement of financial position.

In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

The Group has no significant concentration of credit risk. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

None of the Group’s financial assets are secured by collateral or other credit enhancements. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statements of financial position of the Group and the Company after deducting any impairment allowance. Except for the financial guarantees given by the Company as set out in note 42, the Group and the Company do not provide any other guarantee, which would expose the Group or the Company to credit risk.

(iii) Liquidity risk

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

The Group relies on bank borrowings as a significant source of liquidity. As at 31 December 2009, the Group has available unutilised short-term banking facilities of approximately HK$9,806,000 (2008: HK$18,868,000). As at 31 December 2009, the Company has issued guarantee to a bank in respect of granting or giving credit facilities amounting to CAD1,675,000 (2008: CAD1,675,000) (approximately HK$12,382,000 (2008: approximately HK$10,624,000) to a wholly-owned subsidiary.

The Group is exposed to liquidity risk as the Group recorded net current liabilities of approximately HK$2,931,000 (2008 (restated): HK$29,355,000) as at the end of reporting period. In order to mitigate the liquidity risk, the Group has obtained sufficient banking facilities which enable the Group to continue its operations. There was net cash inflow from the operating activities and the liquidity of the Group can be maintained in the coming year taking into consideration of the positive cash flows will be generated from the Group’s businesses based on the financial budget forecast approved by senior management covering five years.

The following table details the Group’s remaining contractual maturity for its financial liabilities. For non-derivative financial liabilities, the table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. For derivative instrument settle on net basis, undiscounted net cash outflow are presented.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

At 31 December 2009 Non-derivative financial liabilities Trade and note payables Accruals and other payables Bank overdrafts and short-term bank loans Long-terms bank loans at variable rate Obligations under finance leases Convertible bonds Amount due to ultimate holding company Amount due to minority shareholder of Mainland China subsidiaries At 31 December 2008 Non-derivative financial liabilities Trade and note payables Accruals and other payables Bank overdrafts and short-term bank loans Long-terms bank loans at variable rate Obligations under finance leases Convertible bonds Amount due to ultimate holding company Derivatives – net settlement Derivative financial instrument	Weighted average interest rate – – 5.34% 2.25% 8.5% 12.9% – 6.831% Weighted average interest rate – – 7.00% 3.00% 8.50% 12.9% –	Within 1 year HK$’000 133,979 42,683 94,271 160 62 3,120 13,353 12,153 299,781 Within 1 year HK$’000 84,909 31,398 93,872 160 145 3,120 5,604 219,208 27	More than 1 year but less than 5 years HK$’000 – – – 640 – 42,120 – – 42,760 More than 1 year but less than 5 years HK$’000 – – – 640 53 42,932 – 43,625 –	More than 5 years HK$’000 – – – 1,999 – – – – 1,999 More than 5 years HK$’000 – – – 2,159 – – – 2,159 –	Total undiscounted cash flows HK$’000 133,979 42,683 94,271 2,799 62 45,240 13,353 12,153 344,540 Total undiscounted cash flows HK$’000 84,909 31,398 93,872 2,959 198 46,052 5,604 264,992 27	Carrying amount HK$’000 133,979 42,683 93,257 2,265 59 41,858 13,353 11,376
						338,830

						Carrying amount HK$’000 84,909 31,398 91,034 2,367 185 37,204 5,604
						252,701

						27

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company

At 31 December 2009 Non-derivative financial liabilities Accruals and other payables Long-terms bank loans at variable rate Convertible bonds Amount due to ultimate holding company Financial guarantee contract At 31 December 2008 Non-derivative financial liabilities Accruals and other payables Short-term bank loans Long-terms bank loans at variable rate Convertible bonds Amount due to ultimate holding company Financial guarantee contract	Weighted average interest rate – 2.25% 12.9% – – Weighted average interest rate – 5.34% 3% 12.9% – –	Within 1 year HK$’000 641 160 3,120 13,353 12,382 29,656 Within 1 year HK$’000 625 5,920 160 3,120 5,604 10,624 26,053	More than 1 year but less than 5 years HK$’000 – 640 42,120 – – 42,760 More than 1 year but less than 5 years HK$’000 – – 640 42,932 – – 43,572	More than 5 years HK$’000 – 1,999 – – – 1,999 More than 5 years HK$’000 – – 2,159 – – – 2,159	Total undiscounted cash flows HK$’000 641 2,799 45,240 13,353 12,382 74,415 Total undiscounted cash flows HK$’000 625 5,920 2,959 46,052 5,604 10,624 71,784	Carrying amount HK$’000 641 2,265 41,858 13,353 –
						58,117

						Carrying amount HK$’000 625 5,900 2,367 37,204 5,604 –
						51,700

(b) Fair value

The directors of the Company consider that the carrying amounts of financial assets and financial liabilities carried at amortised cost approximate their fair values due to short-term maturities.

As at 31 December 2009, the Group’s embedded derivative financial instrument (Note 33) is measured at fair value, which is determined by valuation techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly (i.e Level 2 fair value hierarchy as defined by HKFRS 7).

42. CONTINGENT LIABILITIES

As 31 December 2009, the Company has issued guarantee to a bank in respect of granting or giving credit facilities to a wholly-owned subsidiary. Under the guarantee, the Company is liable to the amount due from the subsidiary to this bank in the event of any default and its liability share at no time exceed the sum stated on the letters of guarantee.

The Company has not recognised any deferred income in respect of the guarantees issued as its fair value cannot be reliably measured and its transaction price was HK$ Nil.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

43. NON-ADJUSTING POST BALANCE SHEET EVENT

Subsequent the balance sheet date, one of the Company’s subsidiaries has received an advance from a related party, for an amount of USD500,000 (approximately HK$3,900,000) for its operation. The amount is unsecured, interestfree and repayable on demand.

44. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Board of Directors on 26 March 2010.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Set out below is the unaudited interim results of the Group for the six months ended 30 June 2010 as extracted from the interim report of the Company for the six months ended 30 June 2010.

Based on the interim report of the Company for the six months ended 30 June 2010, there were no extraordinary items, exceptional items and no dividend has been paid or declared by the Company for the six months ended 30 June 2010.

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2010

Notes Turnover 4 Cost of sales Gross profit Other revenue, gains and losses Selling and marketing costs Administrative expenses Finance costs Profit/(loss) before income tax expense 5 Income tax expense 6 Profit/(loss) for the period Other comprehensive income – exchange differences on translating foreign operations – Recognition of statutory reserves Other comprehensive income for the period, net of tax Total comprehensive income for the period Profit/(loss) attributable to: – owners of the Company – non-controlling interests	For the three months ended 30 June 2010 2009 *HK$’000* HK$’000 167,477 99,591 (126,559) (79,569) 40,918 20,022 (201) 436 (4,229) (2,520) (30,443) (14,777) (2,764) (2,440) 3,281 721 (1,036) – 2,245 721 648 3,412 – (47) 648 3,365 2,893 4,086 (1,025) (1,475) 3,270 2,196 2,245 721	For the six months ended 30 June 2010 2009 *HK$’000* HK$’000 302,480 166,797 (229,608) (134,426) 72,872 32,371 258 792 (8,454) (4,593) (47,123) (27,874) (5,142) (4,910) 12,411 (4,214) (3,180) – 9,231 (4,214) 1,741 2,455 – (47) 1,741 2,408 10,972 (1,806) 952 (6,023) 8,279 1,809 9,231 (4,214)

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes Total comprehensive income attributable to: – owners of the Company – non-controlling interests Earnings/(losses) per share (HK cent) – basic 7 – diluted 7	For the three months ended 30 June 2010 2009 *HK$’000* HK$’000 (1,213) (2,757) 4,106 6,843 2,893 4,086 (0.32) (0.45) (0.24) (0.45)	For the six months ended 30 June 2010 2009 *HK$’000* HK$’000 2,011 (8,262) 8,961 6,456 10,972 (1,806) 0.29 (1.85) 0.22 (1.85)

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Condensed Consolidated Statement of Financial Position (Unaudited)

For the six months ended 30 June 2010

Notes
Non-current assets
Property, plant and equipment
Investment properties
Land use rights
10
Deferred tax assets
Intangible assets
11
Goodwill
Total non-current assets
Current assets
Inventories
12
Trade and note receivables
13
Prepayments, deposits and other receivables
Amount due from non-controlling
shareholder of a subsidiary
Pledged bank deposits
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and note payables
14
Accruals and other payables
Amount due to ultimate holding company
Amount due to non-controlling shareholders
of subsidiaries
Obligation under finance leases – due
within one year
Bank borrowings – due within one year
15
Current tax liabilities
Embedded derivative financial instrument
Convertible bonds
Total current liabilities
Net current liabilities
Total assets less current liabilities

As at
30 June
31 December
2010
2009
HK$’000
HK$’000
185,183
184,561
7,997
7,933
15,893
15,956
7,289
7,251
16,134
16,821
5,816
5,788
238,312
238,310
77,580
55,524
198,599
153,103
27,148
19,508
–
2,827
10,710
15,766
30,246
49,028
344,283
295,756
582,595
534,066
172,399
133,979
44,380
42,683
17,753
13,353
14,559
11,376
20
59
91,256
93,361
2,481
3,876
7,426
–
41,197
–
391,471
298,687
(47,188)
(2,931)
191,124
235,379

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes Non-current liabilities Deferred tax liabilities Bank borrowings – due after one year 15 Embedded derivative financial instrument Convertible bonds Total non-current liabilities TOTAL NET ASSETS Capital and reserves attributable to owners of the Company Share capital 16 Reserves Equity attributable to owners of the Company Non-controlling interests TOTAL EQUITY	As at 30 June 31 December 2010 2009 *HK$’000* HK$’000 2,640 2,622 2,107 2,161 – 7,426 – 41,858 4,747 54,067 186,377 181,312 3,251 3,251 81,255 79,244 84,506 82,495 101,871 98,817 186,377 181,312	As at 30 June 31 December 2010 2009 *HK$’000* HK$’000 2,640 2,622 2,107 2,161 – 7,426 – 41,858 4,747 54,067 186,377 181,312 3,251 3,251 81,255 79,244 84,506 82,495 101,871 98,817 186,377 181,312
		54,067
		181,312

		3,251 79,244
		82,495 98,817
		181,312

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Changes in Equity (Unaudited)

For the six months ended 30 June 2010

Share capital HK$’000 At 1 January 2009 3,251 Total comprehensive income for the period – Transfer to statutory reserves – At 30 June 2009 3,251 At 1 January 2010 3,251 Total comprehensive income for the period – Proposed dividend – At 30 June 2010 3,251	Share premium HK$’000 27,682 – – 27,682 27,682 – – 27,682	Property revaluation reserve HK$’000 10,672 – – 10,672 11,680 – – 11,680	Share-based Statutory payment reserves reserve (Note (a)) HK$’000 HK$’000 7,250 1,623 411 – 150 – 7,811 1,623 6,812 1,623 – – – – 6,812 1,623	Merger reserve (Note (b)) HK$’000 2,441 – – 2,441 2,441 – – 2,441	Cumulative Equity translation attributable adjustment Accumulated to owners of reserve profits the Company HK$’000 HK$’000 HK$’000 10,065 17,602 80,586 (2,650) (6,023) (8,262) – (150) – 7,415 11,429 72,324 14,179 14,827 82,495 1,059 952 2,011 – – – 15,238 15,779 84,506	Non- controlling interests HK$’000 80,769 6,456 – 87,225 98,817 8,961 (5,907) 101,871	Total HK$’000 161,355 (1,806) –
							159,549

							181,312 10,972 (5,907)
							186,377

Notes:

(a) Statutory reserves

(b) Merger reserve

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Cash Flow (Unaudited)

For the six months ended 30 June 2010

Net cash (used in)/from operating activities
Net cash used in investing activities
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalent at beginning of period
Effect of exchange rate changes on cash and cash
equivalents
Cash and cash equivalents at end of period
Analysis of the balances of cash and cash equivalents:
Cash and bank balances
Bank overdrafts
Cash and cash equivalents at end of period

For the six months ended
30 June
2010
2009
HK$’000
HK$’000
(10,942)
12,096
(1,516)
(5,222)
43
5,642
(12,415)
12,516
39,406
8,422
(5,906)
987
21,085
21,925
30,246
28,613
(9,161)
(6,688)
21,085
21,925

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

1. GENERAL INFORMATION

The principal activities of the Group are investment holding and manufacturing and sale of loudspeaker systems to customers in the PRC and overseas markets respectively.

The Company is a limited liability company incorporated in the Cayman Islands. The directors regard Newood Consultancy Limited, a company incorporated in the British Virgin Islands (“BVI”), as the ultimate holding company.

The shares of the Company have been listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) since 19 July 2002.

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

2. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES

The unaudited condensed financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRS”), Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to as the “HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the disclosure requirements of the Hong Kong Companies Ordinance. In addition, the financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the GEM of the Stock Exchange.

The financial statements have been prepared under the historical cost basis except for land and buildings and certain financial instruments, which are measured at revalued amounts or fair values, as appropriate.

The accounting policies and method of computation used in preparing the financial statements are consistent with those used in the audited financial statements for the year ended 31 December 2009 except as described below.

The Group has adopted certain new/revised HKFRSs issued by the HKICPA that are effective for the current accounting period. The adoption of the new/revised HKFRSs had no material effect on the reported results or financial position of the Group for both the current and prior reporting periods.

The Group has not early adopted the new/revised HKFRS, potentially relevant to the Group’s operations, that have been issued but are yet effective.

The condensed financial statements are unaudited but have been reviewed by the audit committee of the Company.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. SEGMENT REPORTING

The Group determines its operating segments based on the reports reviewed by the chief operating decision maker that are used to make strategic decisions.

The Group has two reportable segments, namely the Mainland China and North America. The segments are managed separately based on the geographical locations in which they operate. Both segments are engaged in one business, which is manufacturing and sale of loudspeaker systems.

2010

	Mainland	North	Segments
	China	America	total	Reconciliation	Consolidated
				(Note (c))
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Revenue from external customers (Note (a))	255,917	46,563	302,480	–	302,480
Reportable segment profit/(loss) (Note (b)(i))	20,076	(3,611)	16,465	(4,054)	12,411
Depreciation and amortisation	9,665	1,467	11,132	130	11,262
Interest income	141	–	141	–	141
Interest expense	2,405	2,709	5,114	28	5,142
Income tax expense	3,180	–	3,180	–	3,180
Segment assets (Note (b)(ii))	504,568	71,264	575,832	6,763	582,595
Segment liabilities (Note (b)(iii))	(289,572)	(83,375)	(372,947)	(23,271)	(396,218)
Addition to non-current assets:
– property, plant and equipment	9,593	4	9,597	–	9,597

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2009

	Mainland	North	Segments
	China	America	total	Reconciliation	Consolidated
				(Note (c))
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Revenue from external customers_(Note (a))_	143,465	23,332	166,797	–	166,797
Reportable segment profit/(loss)(Note (b)(i))	3,693	(6,230)	(2,537)	(1,677)	(4,214)
Depreciation and amortisation	8,587	1,283	9,870	108	9,978
Interest income	355	–	355	19	374
Interest expense	2,400	2,461	4,861	49	4,910
Income tax expense	–	–	–	–	–
Segment assets_(Note (b)(ii))_	465,974	60,285	526,259	7,807	534,066
Segment liabilities_(Note (b)(iii))_	(260,116)	(75,904)	(336,020)	(16,734)	(352,754)
Addition to non-current assets:
– property, plant and equipment	5,630	24	5,654	5	5,659

Notes:

(a) Revenue of approximately HK$59,833,000 (2009: HK$34,398,000) was derived from a single external customer and is attributable to the reportable segment of “Mainland China”.
(b) The differences in respect of the measurements of the reportable segments’ profit or loss, segment assets and liabilities to the Group’s profit or loss before income tax expense, asset and liabilities, respectively, are as follows:
(i) Staff cost incurred in maintaining operation of corporate level of the Group
(ii) Corporate assets of land and building situated in Hong Kong
(iii) Bank borrowings at corporate level of the Group

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Reportable segment profit/(loss) Depreciation and amortisation Directors’ emoluments Others Profit/(loss) before income tax expense Assets Reportable segment assets Unallocated corporate assets Consolidated total assets Liabilities Reportable segment liabilities Unallocated corporate liabilities Consolidated total liabilities	For the six months ended 30 June 2010 2009 HK$’000 HK$’000 16,465 (2,537) (130) (108) (307) (307) (3,617) (1,262) 12,411 (4,214) 30 June 31 December 2010 2009 HK$’000 HK$’000 575,832 526,259 6,763 7,807 582,595 534,066 372,947 336,020 23,271 16,734 396,218 352,754	For the six months ended 30 June 2010 2009 HK$’000 HK$’000 16,465 (2,537) (130) (108) (307) (307) (3,617) (1,262) 12,411 (4,214) 30 June 31 December 2010 2009 HK$’000 HK$’000 575,832 526,259 6,763 7,807 582,595 534,066 372,947 336,020 23,271 16,734 396,218 352,754
		(4,214)

		31 December 2009 HK$’000 526,259 7,807
		534,066

		336,020 16,734
		352,754

4. TURNOVER

Turnover, which is also the revenue, represents the net invoiced value of goods sold, net of discounts and sales related taxes.

5. PROFIT/(LOSS) BEFORE INCOME TAX EXPENSE

Profit/(loss) before income tax expense is arrived at after charging:

	For the six months	ended
	30 June
	2010	2009
	HK$’000	HK$’000
Depreciation of property, plant and equipment	10,293	9,121
Amortisation of intangible assets	778	667
Amortisation of land use rights	191	190

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. INCOME TAX EXPENSE

No provision for Hong Kong Profits Tax has been made as there is no assessable profits for the group entities operate in Hong Kong during the six months ended 30 June 2010 and 2009.

The PRC Enterprise Income Tax (“EIT”) rate for foreign-invested enterprises is 25%.

Suzhou Shangsheng Electrics Co., Ltd. enjoys a preferential EIT rate of 15% as it has been granted the status of an Advanced and New Technology Enterprise.

Suzhou Shangsheng Technology Co., Ltd. and Suzhou Hesheng Industries Co., Ltd. (“Suzhou Hesheng”) are entitled to a 50% reduction on EIT for three consecutive three years from 1 January 2010 in accordance with the relevant tax rules and regulations applicable to foreign investment enterprises in Mainland China.

No EIT is payable for Suzhou Hesheng and Suzhou Sonavox Acoustics Co., Ltd. since they were having tax loss for the period.

Taxation arising in other jurisdictions is calculated at the rates in the relevant jurisdictions.

The amount of taxation for the period to the condensed consolidated statement of comprehensive income represents:

Current tax – PRC Enterprise Income Tax Deferred tax Income tax expense	2010 HK$’000 3,180 – 3,180	2009 HK$’000 – –
		–

7. EARNINGS/LOSSES PER SHARE

The calculation of the basic and diluted earnings/losses per share attributable to owners of the Company is based on the following data:

For the three months ended 30 June 2010:

Profit/(loss) attributable to owners of the Company (HK$’000) Weighted average number of ordinary shares, in thousand, for the purpose of earnings/losses per share Earnings/(losses) per share (HK cent)	2010 Basic Diluted (1,025) (1,025) 325,090 432,068 (0.32) (0.24)	2009 Basic Diluted (1,475) (1,475) 325,090 325,090 (0.45) (0.45)	2009 Basic Diluted (1,475) (1,475) 325,090 325,090 (0.45) (0.45)

			325,090

			(0.45)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the six months ended 30 June 2010:

Profit/(loss) attributable to owners of the Company (HK$’000) Weighted average number of ordinary shares, in thousand, for the purpose of earnings/losses per share Earnings/(losses) per share (HK cent)	2010 Basic Diluted 952 952 325,090 432,068 0.29 0.22	2009 Basic Diluted (6,023) (6,023) 325,090 325,090 (1.85) (1.85)

No dilutive effect for the six months ended 30 June 2009 because the exercise prices of the Company’s share options and convertible bonds were higher than the average market price for share during the period.

8. DIVIDENDS

The directors of the Company do not recommend the payment of an interim dividend for the six months ended 30 June 2010 and 2009.

9. PROPERTY, PLANT AND EQUIPMENT

During the period from 1 January 2010 to 30 June 2010, the Group had additions to property, plant and equipment of approximately HK$9,597,000 and disposed of property, plant and equipment with net book value of approximately HK$91,000 for proceeds of about HK$57,000.

10. LAND USE RIGHTS

Net carrying values of the Group’s land use rights are analysed as follows:

Leasehold land outside Hong Kong, held under medium-term leases Beginning of period/year Addition Amortisation for the period/year Translation adjustment End of period/year	30 June 2010 HK$’000 15,893 15,956 – (191) 128 15,893	31 December 2009 HK$’000 15,956 16,326 – (381) 11 15,956

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. INTANGIBLE ASSETS

Cost At 1 January 2010 Translation adjustment At 30 June 2010 Accumulated amortisation At 1 January 2010 Charge for the period Translation adjustment At 30 June 2010 Carrying values At 30 June 2010 At 31 December 2009 INVENTORIES Raw materials Work-in-progress Finished goods	30 June 2010 HK$’000 37,001 11,256 29,323 77,580	Trademark and patents HK$’000 22,939 111
		23,050
		6,118 778 20
		6,916
		16,134

		16,821

		31 December 2009 HK$’000 27,040 9,993 18,491
		55,524

12. INVENTORIES

13. TRADE AND NOTE RECEIVABLES

The majority of the Group’s sales are on open account in accordance with terms specified in the contracts governing relevant transactions. An average credit period is generally for 90 days.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The aging analysis of trade and note receivables, net of impairment, prepared based on delivery date is as follows:

Within 90 days 91 – 180 days 181 – 365 days More than 365 days	30 June 2010 HK$’000 157,924 21,019 19,656 – 198,599	31 December 2009 HK$’000 134,584 16,617 1,329 573
		153,103

14. TRADE AND NOTE PAYABLES

An aging analysis of the Group’s trade and note payables is as follows:

Within 30 days 31 – 90 days 91 – 180 days 181 – 360 days Over 360 days	30 June 2010 HK$’000 83,061 64,401 24,418 141 378 172,399	31 December 2009 HK$’000 55,831 62,757 14,553 354 484
		133,979

15. BORROWINGS

During the six months ended 30 June 2010, the Group obtained new short-term bank loans in the amount of approximately HK$46.4 million. The loans bear interest at variable market rates and are repayable within one year. Repayments of short-term bank loans amounting to approximately HK$46.4 million were made during the period.

16. SHARE CAPITAL

Authorised: At 31 December 2009 and 30 June 2010 Issued and fully paid: At 31 December 2009 and 30 June 2010	Number of ordinary shares of HK$0.01 each 20,000,000,000 325,089,974	Nominal Value HK$’000 200,000

		3,251

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. COMMITMENTS

(a) Capital commitment

	30 June	31 December
	2010	2009
	HK$’000	HK$’000
Capital expenditure in respect of the acquisition of
property, plant and equipment contracted for
but not provided in the consolidated financial
statements	3,485	10,284

(b) Operating leases

At the end of reporting period, the Group had commitments for future minimum lease payments under noncancellable operating lease which fall due as follows:

Within the first year In the second to fifth year inclusive	30 June 2010 HK$’000 1,034 969 2,003	31 December 2009 HK$’000 1,217 1,437
		2,654

Operating lease payments represent rentals payable by the Group for certain of its office premises. Leases and rentals are negotiated and fixed respectively for an average of 3 years.

18. RELATED PARTY TRANSACTIONS

During the period, the Group entered into the following transactions with related parties:

(a) Sales and purchases

	For the six months	ended
	30 June
	2010	2009
	HK$’000	HK$’000
Sonavox Electronics (Suzhou Industrial Park) Company
Limited (“SSIP”)(Note (i))
– Sales of goods_(Note (ii))_	82	136

100

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Amounts due from related parties

Trade receivables due from Asian Elite International Company Limited_(Note (i)) Trade receivables due from SSIP(Note (i)) Amount due from Suzhou City Xiangchen District Yuanhe Town Collective Assets Operation Company, non-controlling shareholder of a subsidiary Trade payables to Sonavox Electronics Inc.(Note (ii)) _Notes:	30 June 2010 HK$’000 185 21 – 4	31 December 2009 HK$’000 184

		30

		2,827

		4

(i) Mr. Yang Tsu Ying and Mr. Yang Ching Yau, the directors of the Company, have control over SSIP and in their opinion, the above transactions with related companies are carried out in the ordinary course of business on terms as agreed with the related parties.
(ii) The transaction constituted connected transactions as defined under Chapter 20 “Connected Transactions” of the GEM Listing Rules but is exempted from reporting, announcement and independent shareholders’ approval requirements contained in Chapter 20.

19. NON-ADJUSTING POST BALANCE SHEET EVENT

Subsequent to the reporting period end date, Newood Consultancy Limited, the ultimate holding company of the Company, sold all its shares of the Company to Fame Global Enterprises Limited, and agreements were entered into in respect of disposals of certain subsidiaries of the Company. The details have been set out in the Company’s joint announcement and circulars dated 16 July 2010 and 6 August 2010 respectively.

101

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. INDEBTEDNESS

Borrowings

At the close of business on 30 June 2010, being the latest practicable date for the purpose of the indebtedness statement prior to the printing of this Response Document, the Group had outstanding borrowings of approximately HK$93.4 million which comprised secured bank overdrafts of approximately HK$9.2 million, secured short-term bank loans of approximately HK$82.0 million, secured mortgage loan of approximately HK$2.2 million and an obligation under finance lease of approximately HK$20,000. As at 30 June 2010, the Company had unsecured convertible bond with principal amounting to HK$38.8 million and related outstanding interest of approximately HK$3.8 million, unsecured amount due from the Company to Newood amounting to approximately HK$17.8 million and unsecured amount due from the Company to minority shareholder of a subsidiary amounting to approximately HK$14.6 million.

Capital commitments

As at 30 June 2010, the Group had outstanding capital commitments contracted but not provided for in the Group’s financial statements of approximately HK$3.5 million.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into HK$ at the rates of the exchange prevailing at the close of business on 30 June 2010.

Save as disclosed above and apart from intra-group liabilities, none of the companies in the Group had outstanding at the close of business on 30 June 2010 any debt securities issued and outstanding or authorised or otherwise created but unissued, term loans, bank overdrafts, loans or other similar indebtedness, liabilities under acceptance or acceptance credits, debentures, mortgages and charges, hire purchase commitments, guarantees or other material contingent liabilities.

5. MATERIAL CHANGE

As a result of the global financial turmoil in early 2009, the performance of the Group was negatively affected and the loss attributable to owners of the Company for the year ended 31 December 2009 was approximately HK$3.2 million. As noted from the Company’s interim results for the six months ended 30 June 2010, the Group recorded a profit attributable to owners of the Company as a result of steady raw material prices and increase in production volume and the earnings of the Group was improved since 31 December 2009.

The Directors have confirmed that save for the matters discussed above, there has been no material change in the financial or trading position or outlook of the Group since 31 December 2009, being the date to which the last audited financial statements of the Group were prepared, up to and including the Latest Practicable Date.

102

PROPERTY VALUATION REPORT

APPENDIX II

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this Response Document received from BMI Appraisals Limited, an independent valuer, in connection with its valuations as at 30 June 2010 of the properties held by the Group in Hong Kong and the PRC and the properties leased by the Group in Canada, USA and Germany.

==> picture [233 x 77] intentionally omitted <==

27 August 2010

The Directors Room 2104 Harcourt House 39 Gloucester Road Wan Chai Hong Kong

Sonavox International Holdings Limited

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from Sonavox International Holdings Limited (the “Company”) for us to value the properties held by the Company and/or its subsidiaries (together referred to as the “Group”) located in Hong Kong and the People’s Republic of China (the “PRC) and the properties leased by the Group in Canada, the United States of America (the “USA”) and Germany. We confirm that we have conducted inspections, made relevant enquiries and obtained such further information, as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 30 June 2010 (the “date of valuation”).

BASIS OF VALUATION

Our valuations of the concerned properties have been based on the Market Value, which is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

PROPERTY CATEGORIZATION

In the course of our valuations, the portfolio of properties of the Group is categorized into the following groups:

Group I – Property held by the Group in Hong Kong Group II – Properties held by the Group in the PRC

103

PROPERTY VALUATION REPORT

APPENDIX II

Group III – Property leased by the Group in Canada

Group IV – Property leased by the Group in the USA Group V – Property leased by the Group in Germany

VALUATION METHODOLOGY

In valuing the property held by the Group in Hong Kong, we have valued it on an open market basis by the Comparison Approach assuming sale in its existing state with the benefit of vacant possession and by making reference to comparable sales evidence as available in the relevant market. Appropriate adjustments have then been made to account for the differences between the property and the comparables in terms of time, location, size and other relevant factors.

For the properties held by the Group in the PRC, we have valued them by Depreciated Replacement Cost Approach due to the inherent nature of usage and lack of market sales comparables. Depreciated Replacement Cost is defined as “the aggregate amount of the value of the land for the existing use or a notional replacement site in the same locality and the new replacement cost of the buildings and other site works, from which appropriate deductions may then be made to allow for age, condition, economic or functional obsolescence and environmental factors, etc.; all of these might result in the existing property being worth less to the undertaking in occupation than would a new replacement.” This basis has been used due to the lack of an established market upon which to base comparable transactions. However, this approach generally furnishes the most reliable indication of value for assets without a known used market. This opinion of values does not necessarily represent the amount that might be realized from the dispositions of the subject assets in the open market and is subject to adequate potential profitability of the business.

For the property leased by the Group in Canada, the USA and Germany, we are of the opinion that they have no commercial value either because of the prohibitions against assignment and/or subletting contained in the respective tenancy agreements or the lack of marketable and / or substantial profit rents.

TITLE INVESTIGATION

For the property located in Hong Kong, we have caused land search to be made at the Land Registry and have been provided with copies of title documents. We have been advised by the Group that no further relevant documents have been produced. However, we have neither examined the original documents to verify ownership nor to ascertain the existence of any amendments, which do not appear on the copies handed to us. All documents have been used for reference only.

For the properties held by the Group in the PRC, we have been provided with copies of title/legal documents and have been advised by the Group that no further relevant documents have been produced. Moreover, we have not examined the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the copies handed to us. Therefore, in the course of our valuations, we have relied on the advice and information given by the Group and the Group’s PRC legal adviser, Guangdong Jiang Shan Hong Law Firm (廣東江山宏律師事務所), (the “PRC Legal Adviser”), regarding the title of the properties in the PRC. All documents have been used for reference only.

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In valuing the interests in the properties leased by the Group, we have been provided with a copy of the tenancy agreements relating to the properties located in Canada, the USA and Germany. However, we have not searched the titles of the properties and have not scrutinized the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the copies handed to us. All documents have been used for reference only.

VALUATION ASSUMPTIONS

Our valuations have been made on the assumptions that the properties are sold in the open market without the benefit of deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which would serve to affect the values of the properties. In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the properties and no forced sale situation in any manner is assumed in our valuations.

In valuing the properties held by the Group, we have relied on the advice given by the Group and the PRC Legal Adviser that the Group has valid and enforceable titles to the properties which are freely transferable, and have free and uninterrupted right to use the same, for the whole of the unexpired term granted subject to the payment of annual government rent/land use fees and all requisite land premium/ purchase consideration payable have been fully settled.

VALUATION CONSIDERATIONS

We have inspected the exterior and wherever possible, the interior of the properties. During the course of our inspections, we did not note any serious defects. However, no structural surveys have been made. We are, therefore, unable to report whether the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

In the course of our valuations, we have relied to a considerable extent on the information given by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenures, completion dates of buildings, particulars of occupancy, site/floor areas, identification of the properties and other relevant information.

We have not carried out detailed on-site measurements to verify the correctness of the site / floor areas in respect of the properties but have assumed that the site/floor areas shown on the documents handed to us are correct. Dimensions, measurements and areas included in the valuation certificates are based on information contained in the documents provided to us by the Group and are therefore only approximations.

We have no reason to doubt the truth and accuracy of the information provided to us by the Group and we have relied on your confirmation that no material facts have been omitted from the information so supplied.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the properties or for any expenses or taxation, which may be incurred in effecting a sale.

As at the Latest Practicable Date, based on the prevailing rules and regulations and the information provided by the Group, the potential liability which would arise on the disposal of the property in Hong Kong is stamp duty being 3.75% on the contracted sales amount. For the properties located in the PRC, the potential liabilities include business tax at 5% of the contracted sales amount, city development tax at 10% of the business tax, stamp duty at 0.05% of the contracted sales amount, profit tax at the enterprise income

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tax rate of the corresponding entities of the Group that hold the properties and land appreciation tax at 30% to 60% of adjusted gains. The exact amount of tax payable upon realization of the relevant properties will be subject to formal tax advice issued by the relevant tax authorities at the time of disposal of the relevant properties upon presentation of the relevant transaction documents.

It is expected that the relevant stamp duty arising on the disposal of the property in Hong Kong will be crystallised in the future as the property is held for sale. However, as advised by the Group, the Group will continue to occupy the properties in the PRC in their existing uses, the likelihood of any tax liabilities being crystallised is, therefore, remote.

Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

Our valuations have been prepared in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

Our valuations have been prepared under the generally accepted valuation procedures and are in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

REMARKS

Unless otherwise stated, all money amounts stated herein are in Hong Kong Dollars (HK$) and no allowances have been made for any exchange transfer. The exchange rate adopted is the average rate as at the date of valuation being HK$1=RMB0.8710. There has been no significant fluctuation in the exchange rate between that date and the date of this report.

Our Summary of Values and the Valuation Certificates are attached herewith.

Yours faithfully, For and on behalf of

BMI APPRAISALS LIMITED

Dr. Tony C.H. Cheng BSc., MUD, MBA(Finance), MSc.(Eng), PhD(Econ), MHKIS, MCIArb, AFA, SIFM, FCIM, MASCE, MIET, MIEEE, MASME, MIIE Managing Director

Joannau W.F. Chan BSc., MSc., MRICS, MHKIS, RPS(GP) Senior Director

Notes:

Dr. Tony C.H. Cheng is a member of the Hong Kong Institute of Surveyors (General Practice) who has over 17 years’ experience in valuations of properties in Hong Kong and the People’s Republic of China, over 10 years’ experience in valuations of properties in the USA and over 4 years’ experience in valuations of properties in Canada and Germany.

Ms. Joannau W.F. Chan is a member of the Hong Kong Institute of Surveyors (General Practice) who has over 17 years’ experience in valuations of properties in Hong Kong and over 11 years’ experience in valuations of properties in the People’s Republic of China.

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SUMMARY OF VALUES

		Market Value	Interest	Value attributable
		in existing state	attributable	to the Group
No.	Property	as at 30 June 2010	to the Group	as at 30 June 2010
		HK$		HK$
*Group*	*I – Property held by the Group in Hong Kong*
1.	14th Floor,	8,300,000	100%	8,300,000
	Kam Sang Building,
	Nos. 255-257 Des
	Voeux Road Central,
	Hong Kong
	Sub-total:	8,300,000		8,300,000
*Group*	*II – Properties held by the Group in the PRC*
2.	An industrial	49,590,000	51%	25,290,900
	complex located at
	No. 88 Wanli Road,
	Yuanhe Town,
	Xiangcheng District,
	Suzhou City,
	Jiangsu Province,
	the PRC
	中國江蘇省蘇州市
	相城區元和街道萬
	里路88號之工業城
3.	An industrial	79,760,000	51%	40,677,600
	complex located at
	No. 333
	Zhongchuang Road,
	Yuanhe Science and
	Technology Park,
	Xiangcheng District,
	Suzhou City,
	Jiangsu Province,
	the PRC
	中國江蘇省蘇州市
	相城區元和科技園
	中創路333號之
	工業城

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		Market Value	Interest	Value attributable
		in existing state	attributable	to the Group
No.	Property	as at 30 June 2010	to the Group	as at 30 June 2010
		HK$		HK$
4.	An industrial	43,020,000	51%	21,940,200
	complex located at
	East of Jufeng Road,
	Beiqiao Town,
	Xiangcheng District,
	Suzhou City,
	Jiangsu Province,
	the PRC
	中國江蘇省蘇州市
	相城區北橋街道聚
	豐路東首之工業城
	Sub-total:	172,370,000		87,908,700
*Group*	*III – Property leased by the Group in Canada*
5.	10 Konrad Cres.,	No Commercial Value	N/A	Nil
	Markham,
	Ontario,
	Canada
	L3R 8T7
	Sub-total:	Nil		Nil
*Group*	*IV – Property leased by the Group in the USA*
6.	37557 Schoolcraft,	No Commercial Value	N/A	Nil
	Livonia,
	MI 48150,
	Michigan,
	USA
	Sub-total:	Nil		Nil
*Group*	*V – Property leased by the Group in Germany*
7.	Three office units	No Commercial Value	N/A	Nil
	located at
	Industriestr. 29-31,
	82194 Groebenzell,
	Munich,
	Germany
	Sub-total:	Nil		Nil
	TOTAL:	180,670,000		96,208,700

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VALUATION CERTIFICATE

Group I – Property held by the Group in Hong Kong

Market Value Particulars of in existing state No. Property Description and tenure occupancy as at 30 June 2010 HK$ 1. 14th Floor, The property comprises the The property is 8,300,000 Kam Sang Building, whole 14th Floor of a 25-storey occupied by the Nos. 255-257 Des commercial building which was Company for office Voeux Road Central, completed in 1992. use. Hong Kong The gross floor area of the property 106/2,764th of is about 1,463 sq.ft (or about 135.92 99/100th equal and sq.m.) whereas the saleable area of undivided shares of the property is about 1,019 sq.ft. (or and in Inland Lot about 94.67 sq.m.). No. 8585 and the Remaining Portion of The property is held under Section A of Marine Conditions of Grant and a Lot No. 352 Government Lease with the following terms: Lot No. Term Inland Lot No. 75 years 8585 renewable (Conditions of for 75 years Grant No. commencing on 11765) 29 November 1984 Marine Lot No. 999 years 352ARP commencing on (Government 31 June 1900 Lease)

No. Property

The annual Government rent payable for the lots is HK$1,021 whereas the rates payable for the property annually is equal to 5% of its rateable value.

Notes:

The registered owner of the property is Taraki Services Company Limited, a wholly-owned subsidiary of the Company, registered vide Memorial No. 06042200050017 dated 23 June 2006 at a consideration of HK$4,330,000.

The property is held under a Mortgage in favour of Hang Seng Bank Limited registered vide Memorial No. 07071303040035 dated 14 June 2007.

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VALUATION CERTIFICATE

Group II – Properties held by the Group in the PRC

Description and tenure

No. Property

An industrial complex The property comprises 2 parcels located at of land, namely Land Parcel I and No. 88 Wanli Road, Land Parcel II, with a total site area Yuanhe Town, of 41,372.25 sq.m. (or about Xiangcheng District, 445,331 sq.ft.) together with 14 Suzhou City, buildings and structures completed Jiangsu Province, in stages between 1993 and 2000 the PRC erected thereon. 中國江蘇省蘇州市 The total gross floor area (“GFA”) 相城區元和街道 of the buildings is approximately 萬里路88號之 34,509.64 sq.m. (or about 371,462 工業城 sq.ft.).

Market Value Particulars of in existing state occupancy as at 30 June 2010 HK$ The property is 49,590,000 occupied by the Group for industrial (51% interest and other ancillary attributable to uses. the Group: 26,290,900)

The land use rights of Land Parcel I have been granted for a term expiring on 12 September 2050 for industrial use. The land use rights of Land Parcel II have been granted for a term expiring on 29 December 2051 for industrial use.

Notes:

Pursuant to two State-owned Land Use Rights Grant Contracts (國有土地使用權出讓合同) entered into between Jiangsu Province Wuxian City State-owned Land Administration Bureau (江蘇省吳縣市國土管理局) and Jiangsu Province Suzhou City Xiangcheng District State-owned Land Administration Bureau (江蘇省蘇州市相城區國土管理局) and the Group dated 21 August 2000 and 30 December 2001 respectively, the formers have agreed to grant to the latter the land use rights of the property with a total site area of 41,372.25 sq.m. for a common term of 50 years for industrial use at a total land premium of RMB4,964,666. Details of which are summarized as below:

Land Parcel Contract No. Company I Wu Di Rang He (2000) Di No. 68 (吳地讓合(2000)第68號) Sonavox Acoustics Co., Ltd. Suzhou (“Sonavox Acoustics”) II Xiang Di Bu Rang He Zi (2001) Di No. (1) (相地補讓合字(2001)第(1)號) Xuzhou Shangsheng Electrics Co., Ltd. (“Shangsheng Electrics”) Total:	Site Area in sq.m. 24,038.92 17,333.33 41,372.25	Land Premium RMB 2,884,670 2,079,996
		4,964,666

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Pursuant to two State-owned Land Use Rights Certificates (國有土地使用證) issued by The People’s Government of Suzhou City (蘇州市人民政府) both dated 11 August 2009, the land use rights of the property with a total site area of 41,372.25 sq.m. have been granted to the Group for industrial use. Details of which are summarized as below:

Land Parcel Certificate No. Company Land Use Right Expiry Date I Xiang Guo Yong (2009) Di No. 00237 (相國用(2009)第00237號) Sonavox Acoustics 12 September 2050 II Xiang Guo Yong (2009) Di No. 00236 (相國用(2009)第00236號) Shangsheng Electrics 29 December 2051 Total:	Site Area in sq.m. 24,038.92 17,333.33
	41,372.25

Pursuant to a Building Ownership Certificate (房屋所有權證), Su Fang Quan Zheng Xiang Cheng Zi Di No. 30004147 (蘇房權相城字第30004147號), issued by Suzhou City Real Estate Administration Bureau (蘇州市房產管理局) dated 24 May 2007, 6 buildings of the property with a total GFA of approximately 14,483.99 sq.m. are legally owned by Sonavox Acoustics. Details of which are summarized as below:

No. Structure No. of Storey(s) User 1. Reinforced Concrete 2 Non-residential 2. Reinforced Concrete 2 Non-residential 3. Mixed 1 Non-residential 4. Mixed 1 Non-residential 5. Mixed 1 Non-residential 6. Mixed 1 Non-residential Total:	GFA in sq.m. 6,576.57 5,943.17 326.11 217.60 1,395.60 24.94
	14,483.99

Pursuant to a Building Ownership Certificate (房屋所有權證), Su Fang Quan Zheng Xiang Cheng Zi Di No. 30004397 (蘇房權證相城字第30004397號), issued by Suzhou City Real Estate Administration Bureau (蘇州市房產管理局) dated 31 May 2007, 8 buildings of the property with a total GFA of approximately 20,025.65 sq.m. are legally owned by Shangsheng Electrics. Details of which are summarized as below:

No. Structure No. of Storey(s) User 1. Mixed 1 Non-residential 2. Mixed 1 Non-residential 3. Mixed 2 Non-residential 4. Reinforced Concrete 3 Non-residential 5. Reinforced Concrete 3 Non-residential 6. Reinforced Concrete 3 Non-residential 7. Reinforced Concrete 2 Non-residential 8. Mixed 2 Non-residential Total:	GFA in sq.m. 91.84 69.38 615.87 7,940.19 5,076.87 5,201.07 535.84 494.59
	20,025.65

The status of title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

State-owned Land Use Rights Grant Contracts State-owned Land Use Rights Certificates Building Ownership Certificates

Yes Yes Yes

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PROPERTY VALUATION REPORT

Pursuant to two Maximum Amount Mortgage Contracts (最高額抵押合同) entered into between the Group and Bank of China Holdings Limited – Suzhou Xiangcheng Branch (中國銀行股份有限公司蘇州相城支行) (the “Mortgagee”) both dated 5 August 2009, the former has mortgaged the building ownership rights of the property with a total GFA of approximately 34,509.64 sq.m and the land use rights of the property with a total site area of 41,372.25 sq.m. to the latter as security for loans with a maximum loan amount of RMB25,000,000 for a common term commencing on 21 August 2009 and expiring on 20 July 2010. As advised by the Group, they are in the course of entering into new Maximum Amount Mortgage Contract(s) with the Mortgagee. The details of the above contracts are as follows:

Agreement No.
Company
Certificate No. of the
Mortgaged Property
Year 2009 Su Zhou Xiang Cheng
3281690 Di Zi Di No. 002
(2009年蘇州相城3281690
抵字第002號)
Sonavox Acoustics
Su Fang Quan Zheng Xiang Cheng
Zi Di No. 30004147
(蘇房權證相城字第30004147
號)
Xiang Guo Yong (2009)
Di No. 00237
(相國用(2009)第00237號)
Year 2009 Su Zhou Xiang Cheng
3281690 Di Zi Di No. 001
(2009年蘇州相城3281690
抵字第001號)
Shangsheng Electrics
Su Fang Quan Zheng Xiang Cheng
Zi Di No. 3000439
(蘇房權證相城字第30004397號)
Xiang Guo Yong (2009)
Di No. 00236
(相國用(2009)第00236號)
Total:

Maximum Loan
Amount
RMB
8,000,000
4,000,000
11,000,000
2,000,000

25,000,000

The opinion given by the PRC Legal Adviser dated 20 August 2010 to the Group is as follows:
a. The land use rights and the building ownership rights of the property are legally vested in the Group;
b. All land premium has been settled in full;
c. The existing uses of the property are in compliance with its registered uses;
d. The Group has the rights to legally use and occupy the property; however, due to portions of the property are subject to mortgages, the Group cannot transfer, lease or otherwise dispose of the property without consent from the Mortgagee; and
e. The property is not subject to other material encumbrances except the mortgages mentioned in Note 6.
Sonavox Acoustics and Shangsheng Electrics are 51%-owned subsidiaries of the Company.

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VALUATION CERTIFICATE

No. Property

Description and tenure

Market Value Particulars of in existing state occupancy as at 30 June 2010 HK$

An industrial The property comprises a parcel of complex located land with a site area of 71,934 sq.m. at No. 333 (or about 774,398 sq.ft.) together Zhongchuang Road, with 2 buildings and structures Yuanhe Science and completed in about 2006 erected Technology Park, thereon. Xiangcheng District, Suzhou City, The total gross floor area (“GFA”) Jiangsu Province, of the buildings is approximately the PRC 37,804.92 sq.m. (or about 406,932 sq.ft.).

中國江蘇省蘇州市相城區元和科技園中創路333號之工業城

The land use rights of the property have been granted for a term expiring on 17 June 2054 for industrial use.

The property is 79,760,000 occupied by the Group for industrial (51% interest and other ancillary attributable to uses. the Group: 40,677,600)

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract (國有土地使用權出讓合同), Xiang Di Rang He (2004) Di No. 60 (相地讓合(2004)第60號), entered into between Jiangsu Province Suzhou City Xiangcheng District State-owned Land Resources Bureau (江蘇省蘇州市相城區國土資源局) and Suzhou Shangsheng Technology Co., Ltd. (“Suzhou Shangsheng”) dated 18 June 2004, the former has agreed to grant to the latter the land use rights of the property with a site area of 71,934 sq.m. for a term of 50 years for industrial use at a land premium of RMB11,869,110.
Pursuant to a State-owned Land Use Rights Certificate (國有土地使用證), Xiang Guo Yong (2009) Di No. 00235 (相國用 (2009)第00235號), issued by The People’s Government of Suzhou City (蘇州市人民政府) dated 11 August 2009, the land use rights of the property with a site area of 71,934 sq.m. have been granted to Suzhou Shangsheng for industrial use.
Pursuant to a Building Ownership Certificate (房屋所有權證), Su Fang Quan Zheng Xiang Cheng Zi Di No. 30002141 (蘇房權證相城字第30002141號), issued by Suzhou City Real Estate Administration Bureau (蘇州市房產管理局), 2 buildings of the property with a total GFA of approximately 37,804.92 sq.m. are legally owned by Suzhou Shangsheng. Details of which are summarized as below:

No. Structure No. of Storey(s) User GFA in sq.m. 1. Reinforced Concrete 3 Non-residential 8,473.62 2. Reinforced Concrete 3 Non-residential 29,331.30 Total: 37,804.92

The status of title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:
State-owned Land Use Rights Grant Contracts State-owned Land Use Rights Certificates Building Ownership Certificates

Yes Yes Yes

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PROPERTY VALUATION REPORT

Pursuant to a Maximum Amount Mortgage Contract (最高額抵押合同), Year 2009 Su Zhou Xiang Cheng 0995130 Di Zi Di No. 001 (2009年蘇州相城0995130抵字第001號), entered into between Suzhou Shangsheng and Bank of China Holdings Limited – Suzhou Xiangcheng Branch (中國銀行股份有限公司蘇州相城支行) (the “Mortgagee”) dated 5 August 2009, the former has mortgaged the building ownership rights of the property with a total GFA of approximately 37,804.92 sq.m. and the land use rights of property with a site area of 71,934 sq.m. to the latter as security for loans with a maximum loan amount of RMB40,000,000 for a term commencing on 21 August 2009 and expiring on 20 July 2010. As advised by the Group, they are in the course of entering into new Maximum Amount Mortgage Contract with the Mortgagee.
The opinion given by the PRC Legal Adviser dated 20 August 2010 to the Group is as follows:
a. The land use rights and the building ownership rights of the property are legally vested in Suzhou Shangsheng;
b. All land premium has been settled in full;
c. The existing uses of the property are in compliance with its registered uses;
d. Suzhou Shangsheng has the rights to legally use and occupy the property; however, due to portions of the property are subject to mortgages, Suzhou Shangsheng cannot transfer, lease or otherwise dispose of the property without consent from the Mortgagee; and
e. The property is not subject to other material encumbrances expect the mortgages mentioned in Note 5.
Suzhou Shangsheng is a 51%-owned subsidiary of the Company.

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VALUATION CERTIFICATE

No. Property

Description and tenure

Market Value Particulars of in existing state occupancy as at 30 June 2010 HK$

An industrial complex The property comprises 2 parcels located at of land, namely Land Parcel I East of Jufeng Road, and Land Parcel II, with a total Beiqiao Town, site area of 52,915 sq.m. (or about Xiangcheng District, 569,577 sq.ft.) together with 10 Suzhou City, buildings and structures completed Jiangsu Province, in about 2007 erected thereon the PRC (the “completed property”). 中國江蘇省蘇州市相 The total gross floor area (“GFA”) 城區北橋街道聚豐路 of the buildings is approximately 東首之工業城 15,690.22 sq.m. (or about 168,890 sq.ft.).
The property is 43,020,000 occupied by the Group for industrial (51% interest and other ancillary attributable to uses. the Group: 21,940,200)

In addition to the completed property, the property also comprises 4 buildings under development (the “CIP”).

The CIP is proposed to be developed into 4 industrial buildings with a total GFA of approximately 17,921.37 sq.m. (or about 192,906 sq.ft.) upon completion. The estimated total construction cost is approximately RMB19,000,000, of which approximately RMB14,932,323.62 has been paid up to the date of valuation. The construction works of the CIP are scheduled to be completed in 2010.

The land use rights of Land Parcel I have been granted for a term expiring on 13 September 2054 for industrial use. The land use rights of Land Parcel II have been granted for a term expiring on 23 January 2058 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract (國有土地使用權出讓合同), Xiang Di Rang He (2004) Di No. 93 (相地讓合(2004)第93號), entered into between Jiangsu Province Suzhou City Xiangcheng District State-owned Land Resources Bureau (江蘇省蘇州市相城區國土資源局) and Suzhou Hesheng Industries Co., Ltd. (“Suzhou Hesheng”) dated 14 September 2004, the former has agreed to grant to the latter the land use rights of Land Parcel I with a site area of 39,666.7 sq.m. for a term of 50 years for industrial use at a land premium of RMB5,553,338.

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Pursuant to a State-owned Land Use Rights Transfer Contract (國有土地使用權轉讓合同), Xiang Di Zhuan He Zi (2008) Di No. 54 (相地轉合字(2008)第54號), entered into between Suzhou City Xiangcheng District Beiqiao Town Lingfeng Village Economic Cooperative Association (蘇州市相城區北橋鎮靈峰村經濟合作社) and Suzhou Hesheng dated 2 September 2008, the former has agreed to transfer to the latter the land use rights of Land Parcel II with a site area of 13,248.3 sq.m. for a term of 50 years for industrial use at a consideration of RMB4,481,369.96.
Pursuant to two State-owned Land Use Rights Certificates (國有土地使用證) issued by The People’s Government of Suzhou City (蘇州市人民政府) dated 13 October 2004 and 16 September 2008, the land use rights of the property with a total site area of 52,915 sq.m. have been granted to Suzhou Hesheng for industrial use. Details of which are summarized as below:

Land Parcel Certificate No. Land Use Right Expiry Date Site Area in sq.m. I Xiang Guo Yong (2004) Zi Di No. 00483 13 September 2054 39,666.7 (相國用(2004)字第00483號) II Xiang Guo Yong (2009) Di No. 00324 23 January 2058 13,248.3 (相國用(2009)第00324號) Total: 52,915.0

Pursuant to a Building Ownership Certificate (房屋所有權證), Su Fang Quan Zheng Xiang Cheng Zi Di No. 30011013 (蘇房權證相城字第30011013號), issued by Suzhou City Real Estate Administration Bureau (蘇州市房產管理局) dated 5 December 2007, the building ownership rights of 10 buildings of the property with a total GFA of approximately 15,690.22 sq.m. are legally owned by Suzhou Hesheng. Details of which are summarized as below:

No.
Structure
No. of Storey(s)
User
1.
Mixed
1
Non-residential
2.
Reinforced Concrete
2
Non-residential
3.
Reinforced Concrete
1
Non-residential
3a
Reinforced Concrete
1
Non-residential
4
Reinforced Concrete
2
Non-residential
5.
Reinforced Concrete
1
Non-residential
6
Reinforced Concrete
1
Non-residential
7
Reinforced Concrete
1
Non-residential
8
Mixed
1
Non-residential
9
Mixed
1
Non-residential
Total:

GFA
in sq.m.
63.90
4,872.47
2,752.75
1,070.26
1,032.99
2,758.05
2,758.05
185.92
27.01
168.82

15,690.22

The status of title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

State-owned Land Use Rights Grant/Transfer Contracts Yes State-owned Land Use Rights Certificates Yes Building Ownership Certificates Yes

As advised by the Group, they are in the process of applying for the relevant Building Ownership Certificates of the buildings of the CIP with a total GFA of approximately 17,921.37 sq.m.. Thus, we cannot attribute any commercial value to these buildings. For your reference purposes, the total cost spent on the CIP up to the date of valuation is approximately RMB14,932,323.62.
Pursuant to a Maximum Amount Mortgage Contract (最高額抵押合同), Di Zi (2009) 123010 Di No. 049 (抵字 (2009)123010第049號), entered into between Suzhou Hesheng and Construction Bank of China Holdings Limited – Suzhou Xiangcheng Branch (中國建設銀行股份有限公司蘇州相城支行) (the “Mortgagee”) dated 24 April 2009, the former has mortgaged the building ownership rights of the property with a total GFA of approximately 15,690.22 sq.m. and the land use rights of Land Parcel I with a site area of 39,666.7 sq.m. to the latter as security for loans with a maximum loan amount of RMB21,500,000 for a term commencing on 24 April 2009 and expiring on 23 April 2011.

116

PROPERTY VALUATION REPORT

APPENDIX II

The opinion given by the PRC Legal Adviser dated 20 August 2010 to the Group is as follows:
a. The land use rights and the building ownership rights of the property except the CIP mentioned in Note 6 are legally vested in Suzhou Hesheng;
b. All land premium has been settled in full;
c. The existing uses of the property are in compliance with its registered uses;
d. Suzhou Hesheng has the rights to legally use and occupy the property except the buildings mentioned in Note 6; however, due to portions of the property are subject to mortgages, Suzhou Hesheng cannot transfer, lease or otherwise dispose of the said portions of the property without consent from the Mortgagee; and
e. The property is not subject to other material encumbrances expect the mortgages mentioned in Note 7.
Suzhou Hesheng is a 51%-owned subsidiary of the Company.

117

PROPERTY VALUATION REPORT

APPENDIX II

VALUATION CERTIFICATE

Group III – Property leased by the Group in Canada

No. Property Description and tenure

10 Konrad Cres., The property comprises a singleMarkham, storey commercial building which Ontario, was completed in about 1997. Canada L3R 8T7 The gross floor area of the property is approximately 15,242 sq.ft. (or about 1,416 sq.m.). Pursuant to a tenancy agreement and its amendment agreement entered into between an independent thirdparty landlord and Sonavox Canada Inc. dated 23 August 2007 and 9 July 2008 respectively, the property is leased to Sonavox Canada Inc. for operation of offices, storage, light manufacturing and distribution of electronic and electrical components for a term of 5 years commencing on 1 September 2007 and expiring on 31 August 2012 at a monthly rent of CAD10,161.33 exclusive of electricity, gas, water and maintenance fees.

Market Value Particulars of in existing state occupancy as at 30 June 2010 HK$ The property is No Commercial Value occupied by the Group for office and production uses.

Note:

Pursuant to the aforesaid tenancy agreement and amendment agreement, the tenant of the property is Sonavox Canada Inc., which is a wholly-owned subsidiary of the Company.

118

PROPERTY VALUATION REPORT

APPENDIX II

VALUATION CERTIFICATE

Group IV – Property leased by the Group in the USA

Market Value Particulars of in existing state No. Property Description and tenure occupancy as at 30 June 2010 HK$ 6. 37557 Schoolcraft, The property comprises a portion of The property is No Commercial Value Livonia, office space within a row of singleoccupied by the MI 48150, storey commercial buildings which Group for office use. Michigan, were completed in about 1990s. USA The gross floor area of the property is approximately 2,500 sq.ft. (or about 232.3 sq.m.). Pursuant to a tenancy agreement entered into between an independent third-party landlord and Detroit Sonavox, Inc. dated 23 January 2008, the property is leased to Detroit Sonavox, Inc. for office/ warehouse use for a term of 3 years commencing on 1 March 2008 and expiring on 28 February 2011. The monthly rent currently paid by the Group is USD1,825 exclusive of gas, water, heat, cable, internet service, telephone, satellite and electricity fees.

Note:

Pursuant to the aforesaid tenancy agreement, the tenant of the property is Detroit Sonavox, Inc., which is a 51%-owned subsidiary of the Company.

119

PROPERTY VALUATION REPORT

APPENDIX II

VALUATION CERTIFICATE

Group V – Property leased by the Group in Germany

Market Value Particulars of in existing state No. Property Description and tenure occupancy as at 30 June 2010 HK$ 7. Three office units The property comprises 3 office The property is No Commercial Value located at units within a 3-storeys office occupied by the Industriestr. 29-31, building which was completed in Group for office and 82194 Groebenzell, about 2000. storage uses. Munich, Germany The total gross floor area (“GFA”) of the property is approximately 120.07 sq.m. (or about 1,292 sq.ft.). Pursuant to 3 tenancy agreements entered into between an independent third-party landlord and Sonavox Europe GmbH (“Sonavox Europe”), the property is lease to Sonavox Europe for office and storage uses at a total monthly rent of EUR1,926.08 inclusive of VAT all expiring in August 2010.

Note:

Pursuant to the aforesaid tenancy agreements, the tenant of the property is Sonavox Europe, which is a 51%-owned subsidiary of the Company. The details of the tenancy agreements are summarized as follows:

Unit Date of Agreement Term Office 1 22 February 2007 1 Apr 2007 – 31 Aug 2010 Office 2 3 December 2007 1 Jan 2008 – 31 Aug 2010 Storage 3 December 2008 1 Apr 2009 – 31 Aug 2010 Total:	GFA Monthly Rent in sq.m. EUR 58.66 1,068.18 36.81 658.36 24.60 199.54
	120.07 1,926.08

120

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this Response Document and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in this Response Document have been arrived at after due and careful consideration and there are no other facts not contained in this Response Document, the omission of which would make any statement in this Response Document misleading. As regards the information in this Response Document relating to the Offeror, parties acting in concert with it and the intention of the Offeror regarding the Remaining Group compiled or summarized from the Offer Document, the Directors’ responsibility is limited to the correctness and fairness of the reproduction or presentation accuracy of extracts or summaries of such information.

2. SHARE CAPITAL

As at the Latest Practicable Date, the Company had an authorised ordinary share capital of HK$200,000,000 divided into 20,000,000,000 ordinary shares of HK$0.01 each. As at the Latest Practicable Date, the Company had outstanding Convertible Bonds in the principal amount of US$5,000,000 and outstanding Options with 6,000,000 Option Shares to be issued upon the exercise thereof. Save for the aforesaid, there was no outstanding options, derivatives, warrants or any securities which are convertible or exchangeable into Shares. The authorised and issued Shares as at the Latest Practicable Date were as follows:

Authorised Shares: 20,000,000,000 Shares as at the Latest Practicable Date Issued and fully paid Shares: 325,089,974 Shares as at 31 December 2009 325,089,974 Shares as at the Latest Practicable Date	HK$ 200,000,000

	3,250,899.74

	3,250,899.74

All Shares in issue rank pari passu in all respects with each other including rights to dividends, voting and return of capital. The Company has not issued any Shares since 31 December 2009, the date to which the latest audited financial statements of the Company were made up.

3. INTERESTS OF DIRECTORS IN THE COMPANY

As at the Latest Practicable Date, none of the Directors had any interests in the Relevant Securities.

121

GENERAL INFORMATION

APPENDIX III

4. INTERESTS IN THE OFFEROR

As at the Latest Practicable Date, none of the Company nor any of its Directors have any interest in the equity share capital or any convertible securities, warrants, options or derivatives of the Offeror, and no such person (including the Company) had dealt in the equity share capital or any convertible securities, warrants, options or derivatives of the Offeror during the Relevant Period.

5. INTERESTS AND DEALINGS IN SECURITIES OF THE COMPANY

Save for the transactions contemplated under the SP Agreement, none of the Directors have dealt for value in any Relevant Securities during the Relevant Period.

As at the Latest Practicable Date,

(a) no Relevant Securities was owned or controlled by a subsidiary of the Company or by a pension fund (if any) of any member of the Group or by an adviser to the Company as specified in class (2) of the definition of associate under the Takeovers Code or by the Independent Financial Adviser or any of its associates (as defined in the Takeovers Code), and no such person had dealt in the Relevant Securities during the Offer Period and ending with the Latest Practicable Date;
(b) no Relevant Securities was managed on a discretionary basis by fund managers connected with the Company, and no such person had dealt in the Relevant Securities during the Offer Period and ending with the Latest Practicable Date;
(c) no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate under the Takeovers Code, and no such person had dealt in the Relevant Securities during the Offer Period and ending with the Latest Practicable Date; and
(d) none of the Company or any of its Directors has borrowed or lent any Relevant Securities during the Relevant Period.

122

GENERAL INFORMATION

APPENDIX III

6. OTHER INTERESTS OF THE DIRECTORS

As at the Latest Practicable Date:

(a) no benefit (other than statutory compensation) had been given to any Director as compensation for loss of office or otherwise in connection with the Offers;
(b) save for the SP Agreement, where SP Completion has taken place on 16 July 2010, in which Mr. Yang Ching Yau and Mr. Yang Tsu Ying are interested through their respective beneficial interests in Newood, no material contracts had been entered into by the Offeror in which any Director has a material personal interest; and
(c) there was no agreement or arrangement between any Director and any other person which is conditional on or dependent upon the outcome of the Offers or otherwise connected with the Offers.

7. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group or any associated company of the Group:

(a) which (including both continuous and fixed term contracts) have been entered into or amended within 6 months prior to 16 July 2010;
(b) which are continuous contracts with a notice period of 12 months or more; or
(c) which are fixed term contracts with more than 12 months to run irrespective of the notice period.

8. EXPERTS AND CONSENTS

The qualifications of the experts who have given their opinion in this Response Document are as follows:

Name	Qualification
Goldin Financial Limited	corporation licensed under the SFO permitted to engage
	in type 6 (advising on corporate finance) regulated
	activity
Guangdong Jiang Shan Hong Law	the PRC legal adviser
Firm (the “PRC Legal Adviser”)
BMI Appraisals Limited	Professional valuer

Each of the Independent Financial Adviser, the PRC Legal Adviser and BMI Appraisals Limited has given and has not withdrawn their respective written consents to the issue of this Response Document with the inclusion herein of their respective letters (as the case may be) and references to their respective names included herein in the form and context in which they are included.

123

GENERAL INFORMATION

APPENDIX III

9. LITIGATION AND CLAIMS

As at the Latest Practicable Date, neither the Company nor any other member of the Group was engaged in any litigations or claims and no litigations or claims of material importance is pending or threatened against the Company or any member of the Group.

10. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business carried on or intended to be carried on by the Company or any of its subsidiaries) have been entered into by the members of the Group within the date two years immediately preceding the date of the Joint Announcement and up to the Latest Practicable Date:

(a) the Indigo Agreement;
(b) the Taraki Agreement;
(c) the agreement dated 12 November 2009 entered into between (i) 蘇州和盛實業有限公司 (Suzhou Hesheng Industrial Co., Ltd.), a company established in the PRC and a non-whollyowned subsidiary of the Company; and (ii) 蘇州市蠡口建築安裝實業有限公司(Suzhou City Likou Construction Installation Industrial Co., Ltd.) in relation to the construction works to be conducted at 蘇州相城區北橋街道靈峰村 (Ling Feng Village, Bei Qiao Jie Road, Xiangcheng District, Suzhou) for the construction of warehouse and three blocks of factory buildings (to be referred to as warehouse and factory buildings No. 4 to 6, Phase II) at a consideration of RMB15,265,422.71; and
(d) the agreement dated 5 November 2009 entered into between (i) 蘇州上聲科技有限公司 (Suzhou Shangsheng Technology Co. Ltd.), a company established in the PRC and a nonwholly-owned subsidiary of the Company (“Shangsheng Technology”); and (ii) 上聲電子(蘇州工業園區)有限公司 (Shangsheng Electronics (Suzhou Industrial Park) Company Limited), a company established in the PRC and is owned by each of Mr. Yang Tsu Ying and Mr. Yang Ching Yau (both being executive Directors) as to 5% and 90% respectively (“Shangsheng Electronics”) in relation to the acquisition of certain machinery from Shangsheng Electronics by Shangsheng Technology with an aggregate cash consideration of approximately RMB3,553,000.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection (i) on the website of the Securities and Futures Commission at www.sfc.hk and (ii) the Company’s website at www.sonavox.com.hk during the period from the date of this Response Document onwards for so long as the Offers remains open for acceptance:-

(i) the memorandum and articles of association of the Company;
(ii) the annual reports of the Company for the two years ended 31 December 2009;
(iii) the interim report of the Company for the six months ended 30 June 2010;

124

GENERAL INFORMATION

APPENDIX III

(iv) the material contracts referred to in the paragraph headed “Material Contracts” above;
(v) the letter from the Board, the text of which is set out on pages 6 to 11 of this Response Document;
(vi) the letter from the Independent Board Committee, the text of which is set out on page 12 of this Response Document;
(vii) the letter from the Independent Financial Adviser, the text of which is set out on pages 13 to 29 of this Response Document;
(viii) the valuation certificates and property valuation report issued by BMI Appraisals Limited, the text of which is set out in Appendix II to this Response Document;
(ix) the PRC legal opinion issued by the PRC Legal Adviser, which is referred to in the property valuation report as set out in Appendix II to this Response Document; and
(x) the written consents from the Independent Financial Adviser, the PRC Legal Adviser and BMI Appraisals Limited as referred to in the paragraph headed “Experts and consents” above.

125

AI assistant

KOALA Financial Group Limited — Proxy Solicitation & Information Statement 2010

51341_rns_2010-08-27_2f806120-64fd-416d-b45e-7801ddf9d316.pdf

Financial adviser to

CHARACTERISTICS OF GEM

CONTENTS

EXPECTED TIMETABLE

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

INTRODUCTION

LETTER FROM THE BOARD

UNCONDITIONAL MANDATORY CASH OFFERS

Principal terms of the Offers

LETTER FROM THE BOARD

The CB Offer

The Option Offer

INFORMATION ON THE OFFEROR AND MR. CHAN

LETTER FROM THE BOARD

INFORMATION ON THE GROUP

OFFEROR’S INTENTION ON THE REMAINING GROUP

LETTER FROM THE BOARD

PROPOSED CHANGE OF BOARD COMPOSITION

MAINTAINING THE LISTING STATUS OF THE COMPANY

RECOMMENDATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

THE INDEPENDENT BOARD COMMITTEE

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR ADVICE

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background information and prospect of the Group

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Information of the Offeror, its intention regarding the Group and prospects of the Group

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Principal terms of the Offers

Share price performance

Table 2: Historical trading volume of the Shares

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Comparison of the Share Offer Price

RECOMMENDATIONS

1. The Share Offer

2. The CB Offer

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. The Option Offer

1. FINANCIAL SUMMARY

RESULTS

2. AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2009

Consolidated Statement of Comprehensive Income

APPENDIX I

Consolidated Statement of Financial Position

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Statement of Financial Position

Consolidated Statement of Changes in Equity

APPENDIX I

(a) Statutory reserves

(b) Merger reserve

Consolidated Statement of Cash Flows

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements

1. GENERAL INFORMATION

2. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

(a) Adoption of new/revised HKFRSs

HKAS 1 (Revised), “Presentation of Financial Statements”

HKAS 23 (Revised), “Borrowing Costs”

HKFRS 8, “Operating Segments”

HKFRS 7 (Amendment), “Improving Disclosures about Financial Instruments”

(b) New/revised HKFRSs that have been issued but are not yet effective

3. PRIOR PERIOD ADJUSTMENTS

Consolidated Statement of Comprehensive Income for the year ended 31 December 2008

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Statement of Financial Position

KOALA Financial Group Limited Proxy Solicitation & Information Statement 2010