Paradise Entertainment Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

This document appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of Paradise Entertainment Limited.

(Incorporated in Bermuda with limited liability)

(Stock Code: 1180)

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE PATENT INVOLVING ISSUE OF PROMISSORY NOTE

Financial adviser to the Company

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Independent Financial Adviser to the Independent Board Committee and the Independent Shareholder

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

A letter from the board of directors of Paradise Entertainment Limited is set out on pages 3 to 10 of this circular. A letter from Nuada Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 12 to 19 of this circular.

A notice convening the SGM to be held on Monday, 13 September 2010 at Unit C, 19th Floor, Entertainment Building, 30 Queen’s Road Central, Hong Kong at 11:00 a.m., Hong Kong is set out on pages 136 to 137 of this circular.

Whether or not you intend to attend the SGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the office of the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the appointed time for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM and any adjournment thereof (as the case may be) should you so wish.

for identification purposes only

25 August 2010

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Independent Financial Adviser Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . .	20
Appendix II – Financial Information of the Patent. . . . . . . . . . . . . . . . . . . . . . .	98
Appendix III – Unaudited Pro Forma Financial Information of
the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	103
Appendix IV – Valuation Report of the Patent. . . . . . . . . . . . . . . . . . . . . . . . . . .	115
Appendix V – Letters on Projection underlying the Valuation of
Target Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	125
Appendix VI – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	128
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	136

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DEFINITIONS

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

“Acquisition Agreement” the sale and purchase agreement dated 30 July 2010 entered into between Jay Chun as vendor and Natural Noble Limited as purchaser for the acquisition of the Patent
“Acquisition” the acquisition of the Patent by the Purchaser from the Vendor subject to the terms and conditions of Acquisition Agreement
“Ample” Ample Appraisal Limited, an independent firm of qualified professional valuers
“Board” the board of Directors
“Company” Paradise Entertainment Limited, a company incorporated under the laws of Bermuda with limited liability and the shares of which are listed on the Stock Exchange (stock code: 1180)
“Completion” means completion of the Acquisition Agreement

“Conditions” the conditions precedent to the Completion which includes but not limited to those as set out in the paragraph headed “Conditions Precedent” under the section headed “The Acquisition Agreement”

“Directors” directors of the Company
“Group” the Company and its subsidiaries
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” Hong Kong Special Administrative Region of the People’s Republic of China
“Independent Board Committee” the independent committee of the Board comprising all the independent non-executive directors of the Company

“Independent Shareholders” the Shareholders, other than Jay Chun and his associates, who are entitled to vote at the SGM pursuant to the Listing Rules

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DEFINITIONS

“Latest Practicable Date” 24 August 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information herein
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Long Stop Date” 31 January 2011 or such other date as the Vendor and the Purchaser may agree
“Promissory Note” the promissory note in the principal amount of HK$250,000,000 to be issued by the Purchaser to the Vendor (or to its nominee as it may direct) as part of the consideration
“SFO” The Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“SGM” the special general meeting of the Company to be convened to approve, inter alia, the Acquisition Agreement and the transactions contemplated thereunder
“Share(s)” share(s) of the Company of HK$0.10 each “Shareholder(s)” holder(s) of the Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited “Vendor” Jay Chun, being a director and shareholder of the Company
“%” per cent.

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LETTER FROM THE BOARD

PARADISE ENTERTAINMENT LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 1180)

Directors:

Executive Directors:

Mr. Jay Chun (Chairman and Managing Director) Mr. Shan Shiyong, alias, Sin Sai Yung Dr. Ma Xianming, alias, Ma Yin Ming

Independent non-executive Directors: Mr. Frank Hu Mr. Li John Zongyang Mr. Kuan Hin Meng

Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Head office and principal place of business in Hong Kong: Unit C, 19/F., Entertainment Building, 30 Queen’s Road Central, Hong Kong 25 August 2010

To the Shareholders,

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE PATENT INVOLVING ISSUE OF PROMISSORY NOTE

INTRODUCTION

Reference is made to the announcement of the Company dated 6 August 2010. On 30 July 2010, the Company and the Vendor entered into the Acquisition Agreement pursuant to which the Vendor conditionally agreed to sell and the Purchaser conditionally agreed to purchase the Patent at the consideration of HK$280 million. The consideration for the Acquisition shall be satisfied by the Purchaser as to (i) HK$30 million in cash; and (ii) HK$250 million by the issue of the Promissory Note.

for identification purposes only

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LETTER FROM THE BOARD

Listing Rules. The Acquisition and the transactions contemplated under the Acquisition Agreement are therefore subject to approval by the Independent Sharesholders at the SGM by way of poll.

The purpose of this circular containing, among other things, (i) details of the Acquisition; (ii) financial and other information on the Group; (iii) letter from the Independent Board Committee; (iv) the letter from the independent financial adviser; and (v) the notice convening the SGM.

THE ACQUISITION AGREEMENT

Parties:

Vendors : Jay Chun, a director of the Company, holding 4.38% shareholding interest of the Company as at the Latest Practicable Date
Purchaser : Natural Noble Limited, a company incorporated under the laws of the British Virgin Islands with limited liability, is a wholly owned subsidiary of the Company.

Assets to be acquired

The asset to be acquired is the patent (the “Patent”) in relation to a betting terminal system. The patent application was filed on 24 October 2006 in Macau and grant was obtained by the Vendor on 9 April 2010 with registration number I/380 (369). The Patent is valid for 20 years up to 24 October 2026.

The Patent is a computerized system (the “System”) in relation to the operation of multi gambling games. The System allows the participants to play multiple and different live table games with real life dealers concurrently while at the same time, it is a sophisticated electronic platform which allows participants wager at the privacy of a betting terminal. The System is connected by a live table being operated by a human dealer at one end and the related terminals at the other such that participants of the game need not be physically present next to a dealing table to take part in the game who may do so by placing bets at one of the remote terminals linked to the System and installed at Casino Kam Pek Paradise in Macau. Save for the registration of the Patent, there is no other regulatory or licensing requirements in operating the System or any specific risks involved in operating the System. The Group has been providing management services to Casino Kam Pek Paradise (previously known as Casino Paradise Entertainment) since 2007. The development of the System and the installation thereof at Casino Kam Pek Paradise in Macau was aimed at increasing the revenue, the productivity of dealers and thus relieving the acute casino labour shortage in Macau and reducing the risks of human errors and fraud.

The System has been rented from the Vendor at no cost and installed in Casino Kam Pek Paradise, Macau since 2009 and contributed to a turnover of approximately HK$83,000,000 for the year ended 31 December 2009.

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LETTER FROM THE BOARD

Consideration

The total consideration for the Patent under the Acquisition is HK$280 million which will be satisfied in the following manner on Completion:

(a) as to HK$30 million payable in cash; and
(b) the remaining balance of HK$250 million shall be satisfied by the Purchaser delivering to the Vendor a duly executed Promissory Note.

The consideration for the Acquisition was arrived at based on normal commercial terms after arm’s length negotiations between the parties of the Acquisition Agreement and by reference to (a) the potential future earnings contribution to the Group from the Patent upon Completion; (b) other factors set out in the paragraph headed “Reasons for entering into the Acquisition Agreement” below; and (c) the valuation of the Patent by Ample in the amount of HK288 million on 30 June 2010. In view of the discount of the consideration for the Acquisition as compared with the preliminary valuation of the Patent, the Company is of the view that the Acquisition is beneficial to the Group.

Based on the factors mentioned above, the consideration for the Acquisition is considered by the Board as fair and reasonable and in the interests of the Group and of the Shareholders as a whole.

Terms of the Promissory Note

Issuer : The Purchaser Principal amount : HK$250 million Maturity date : The date falling the 48th month from the date of issue of the Promissory Notes
Interest rate : The Promissory Note is non-interest bearing Redemption : The Purchaser has the right to redeem the whole or any part of the outstanding principal amount of the Promissory Note at any time prior to the maturity date of the Promissory Note provided that the Purchaser shall give to the holder of the Promissory Note not less than 14 business days prior written notice (to the extent the holder being located and such notice served) specifying the date of redemption, the applicable discount rate and the amount of Promissory Note to be redeemed.

Holder of the Promissory Note shall not be entitled to request for early redemption of the whole or any part of the outstanding principal amount of the Promissory Note at any time prior to the maturity date.

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LETTER FROM THE BOARD

Early redemption of Promissory Note shall be subject to discount of the outstanding principal amount of the Promissory Note, the rate of which varies according to the period of early redemption.

Particulars of the discount are as follows:

Time period in which repayment is made

Discount rate

The 12 month period commencing on the date of the issue of the 8% Promissory Note (and, for the avoidance of doubt, excluding the first anniversary of the date of the issue of the Promissory Note)
The 12 month period commencing on the first anniversary of the 6% date of the issue of the Promissory Note (and, for the avoidance of doubt, excluding the second anniversary of the date of the issue of the Promissory Note)
The 12 month period commencing on the second anniversary of the 4% date of the issue of the Promissory Note (and, for the avoidance of doubt, excluding the third anniversary of the date of the issue of the Promissory Note)
The 12 month period commencing on the third anniversary of the 2% date of the issue of the Promissory Note (and, for the avoidance of doubt, excluding the maturity date of the Promissory Note)

Conditions Precedent

Completion is subject to the fulfillment of, inter alia, the following conditions precedent:

(a) the passing by the Independent Shareholders of all necessary resolutions at the SGM approving the Acquisition Agreement and other transactions contemplated thereunder;
(b) the Company having complied to the satisfaction of the Stock Exchange with all requirements under the Listing Rules; and
(c) an opinion issued by a firm of Macau lawyers approved by the Purchaser in relation to, inter alia, the registration of the Patent in Macau (in the form and substance to the satisfaction of the Purchaser).

The Company may waive in writing any of the conditions specified (save and except for conditions (a) and (b)) at any time. If all the conditions specified above have not been satisfied or waived before the Long Stop Date (or such later date to be agreed between the parties to the Acquisition Agreement in writing), then the Acquisition Agreement shall lapse. All rights and obligations of the parties will cease upon such termination and the parties shall have no claim against each other save for any antecedent breach.

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LETTER FROM THE BOARD

Completion

Completion shall take place on the 14th business day after the date upon which the last of the conditions precedent is satisfied or waived or such other date as the parties may mutually agree in writing.

REASON FOR THE ACQUISITION

The Company installed a computerized system to other casinos in relation to the operation of a single gambling game (the “Single Game System”) since 2006. Such Single Game System contributed to the Group’s turnover in Macau of approximately HK$2,000,000, HK$16,000,000 and HK$46,000,000 respectively for the year ended 31 December 2006, 2007 and 2008. In addition, the Company received positive response from many casino operators who inspected and played the game with the Single Game System. The trading of machines which have installed the Single Game System to Cambodia for the year ended 31 December 2008 amounted to approximately HK$3,500,000.

However, with the limited financial resources for research and development of the Single Game System, the Company has no capacity to develop other computerized game system, which requires sufficient financial support and takes a certain period of time for such development. In light of the above, the Vendor has devoted his own financial resources and manpower to develop the System since 2005 and completed the same in 2006. The Vendor has licensed the use of the System to the Company at no cost since 2009 and the System has been installed in Casino Kam Pek Paradise in Macau. The System, replaced the Single Game System and contributed to the substantial growth of the Group’s turnover of approximately from HK$46,000,000 for the year ended 31 December 2008 to HK$83,000,000 for the year ended 31 December 2009. The Patent did not contribute any turnover to the Group for the year ended 31 December 2008. As such the Patent did not contribute any profit to the Group for the year ended 31 December 2008. The net profit of the Patent before and after tax for the year ended 31 December 2009 was HK$870,442 respectively. No tax had been incurred as a subsidiary of the Company which has been providing the management services to Casino Kam Pek Paradise has an accumulated tax loss of HK$79,889,595. The Company is in the opinion that its existing casino customers at overseas and Macau should be interested to install the System in order to serve for more players at the same time.

The Company is of the view that it is beneficial to acquire the Patent due to (i) the potential business from overseas and Macau customers, who are interested in installing the System in their casinos; (ii) the increase in the number of players in the casino as a result of the installation of the System in the casino of the Company; (iii) higher betting rate as the System reduces the time for playing one single bet and/or one single game which will increase the overall number of bet made by each player; (iv) the increase of gambling amount for each player as the player could bet on different games while playing with the same machinery; (v) the uniqueness of the System which the Group is of the view that it is one of the advanced gambling systems in the industry; and (vi) the fierce competitive environment in the gambling industry in Macau. Should the Company not acquire the Patent, the Vendor may dispose of the Patent to other market participants, who may benefit from the System and become more competitive than the Company in the gambling industry.

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LETTER FROM THE BOARD

INFORMATION ON THE GROUP

The Group is principally engaged in the development, provision and sales of electronic gaming system and provision of the management services. The Group is also engaged in the research, development and sales of biopharmaceutical products.

FINANCIAL EFFECTS OF THE ACQUISITION

Assets and liabilities

As at 31 December 2009, the audited net assets of the Group amounted to approximately HK$31.73 million, equivalent to approximately 7.19 Hong Kong cents per Share, with the number of Shares of 441,487,052 for the financial year of 2009. Upon Completion, there will have (i) increase in the net intangible asset of approximately HK$168.7 million after discounting the Promissory Note to the present value and deducting the amortization of the intangible asset; and (ii) increase in the non-current liabilities of approximately HK$171 million as a result of the issuance of the Promissory Note, taking into the discount of the Promissory Note to its present value and the interest of the Promissory Note. As such, the unaudited proforma net liabilities of the Group is approximately HK$0.64 million or 0.15 Hong Kong cent per Share (with the number of Shares of 441,487,052 for the financial year of 2009) upon Completion. This represents a decrease of approximately 102.02% as compared to the audited net assets of the Group as at 31 December 2009.

Earnings

The Group recorded an audited consolidated net loss of HK$167.24 million for the year ended 31 December 2009. As the aggregate consideration for the Acquisition of HK$280 million will be satisfied by cash and promissory note, there will have (i) increase in cost of sale of approximately HK$12 million due to the amortization charge as a result of the acquisition of the Patent; and (ii) increase in interest expense of approximately HK$20 million due to the issuance of the Promissory Note. As such, the unaudited proforma net loss of the Group will approximately HK$199.8 million upon Completion. Under such circumstances, as the number of Shares of 441,487,052 for the financial year of 2009, there would be dilution effect on the loss per share from 37.88 Hong Kong cents to 45.26 Hong Kong cents.

Business Review and Future Prospect of the Group

The gaming market in Macau has experienced tremendous growth in the last few years. In 2009, there is a considerable return of visitors to Macau after the easing of credit crunch and improvement of market sentiment especially in the second half of 2009. Gaming revenue accounted for 61.7% of the Group’s total revenue in the year 2009, as compared to 43.3% in 2008. The gaming revenue has seen very strong growth, from approximately HK$95 million in 2008 to approximately HK$201 million in 2009, representing an increase of 111.6%. Net loss of gaming business for the year narrowed from approximately HK$65 million to approximately HK$4.5 million as compared to last year.

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LETTER FROM THE BOARD

Given the positive economic outlook in China, the Group anticipates the number of visitors to overseas and Macau to surge in the forthcoming years, the Acquisitions would allow the Group to assist the overseas and Macau casinos to attract more players by selling the System to them. As such, the gaming business will be the key driver of the future revenue growth of the Group.

IMPLICATIONS OF THE LISTING RULES

The Acquisition constitutes a very substantial acquisition for the Company pursuant to Rule 14.06(5) of the Listing Rules. As the Vendor is a director of the Company, the Acquisition also constitutes a connected transaction pursuant to Rule 14A.13(1)(a) of the Listing Rules. The Acquisition and the transaction contemplated under the Acquisition Agreement are therefore subject to approval by the Independent Sharesholders at the SGM by way of poll. Accordingly, the Vendor, holding 4.38% shareholding interest of the Company as at the Latest Practicable Date is required to abstain from voting at the SGM. Save for the Vendor, no directors have a material interest in the Acquisition and should abstain from voting at the board meeting and SGM.

The Company has established an Independent Board Committee and has appointed an independent financial adviser to advise the Independent Shareholders as to, inter alia, whether the terms of the Acquisition Agreement are fair and reasonable.

Save as disclosed above, to the best of the Directors’ knowledge having made all reasonable enquiries, information and belief, none of the controlling Shareholder, the Directors and the chief executives of the Company and their respective associates has any material interest in the Acquisition as at the Latest Practicable Date.

SGM

A notice convening the SGM to be held on Monday, 13 September 2010 at Unit C, 19th Floor, Entertainment Building, 30 Queen’s Road Central, Hong Kong at 11:00 a.m. is set out on pages 136 to 137 of this circular. Whether or not you intend to attend the SGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the office of the Company’s branch share registrar in Tricor Secretaries Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the appointed time for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM and any adjournment thereof (as the case may be) should you so wish.

RECOMMENDATION

The Directors are of the opinion that the terms of the Acquisition Agreement are on normal commercial terms, fair and reasonable and that the Acquisition is in the interests of the Company and the Shareholders as a whole. The Directors recommend the Independent Shareholders to vote in favour of the resolution as set out in the notice of SGM to approve, among other things, the transactions contemplated under the Acquisition Agreement at the SGM.

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LETTER FROM THE BOARD

GENERAL

Your attention is drawn to the letter from the Independent Board Committee, and the additional information set out in the appendices to this circular and the notice of SGM.

By the Order of the Board Paradise Entertainment Limited Stella Ho

Company Secretary

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

PARADISE ENTERTAINMENT LIMITED

*

(Incorporated in Bermuda with limited liability) (Stock Code: 1180)

25 August 2010

To the Independent Shareholders

Dear Sir and Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE PATENT INVOLVING ISSUE OF PROMISSORY NOTE AND NOTICE OF SGM

We refer to the circular of the Company to the Shareholders dated 25 August, 2010 (the “Circular”), of which this letter forms part. Unless the context requires otherwise, capitalized terms used in this letter will have the same meanings given to them in the Circular.

We have been authorised by the Board to form the Independent Board Committee to advise the Independent Shareholders on whether the terms of the Acquisition Agreement, the transactions contemplated therein and the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

Your attention is also drawn to the letter from the Board as set out on pages 3 to 10 of the Circular and the additional information set out in the appendices to the Circular.

Having considered, among other matters, the factors and reasons considered by the independent financial adviser, we consider that the terms of the Acquisition Agreement, the transactions contemplated therein and the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole and accordingly recommend the Independent Shareholders to vote in favour of the ordinary resolution in relation to the transactions contemplated under the Acquisition Agreement to be proposed at the SGM.

Yours faithfully, For and on behalf of The Independent Board Committee

Frank Hu	Li John Zongyang	Kuan Hin Meng
Independent non-executive	Independent non-executive	Independent non-executive
Director	Director	Director

for identification purposes only

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INDEPENDENT FINANCIAL ADVISER LETTER

The following is the full text of the letter of advice to the Independent Board Committee and the Independent Shareholders from Nuada Limited dated 25 August 2010 prepared for incorporation in this circular.

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==> picture [128 x 33] intentionally omitted <==

25 August 2010

To the Independent Board Committee and the Independent Shareholders of Paradise Entertainment Limited

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE PATENT INVOLVING ISSUE OF PROMISSORY NOTE

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Acquisition Agreement, details of which are set out in a letter from the Board (the “Letter”) contained in a circular of the Company dated 25 August 2010 (the “Circular”) to the Shareholders, of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

The Company’s announcement dated 6 August 2010 stated that Natural Noble Limited, a wholly-owned subsidiary of the Company, entered into the Acquisition Agreement to acquire from Mr. Jay Chun the Patent for a total consideration of HK$280 million which will be satisfied in the following manner on Completion:

(a) as to HK$30 million payable in cash; and
(b) the remaining balance of HK$250 million shall be satisfied by the Purchaser delivering to the Vendor a duly executed Promissory Note.

The Vendor is a Director of the Company, holding 5.1% of the interest of the Company as at the date of the Announcement. The Acquisition constitutes a very substantial acquisition for the Company pursuant to Rule 14.06(5) of the Listing Rules. As the Vendor is a Director, the Acquisition also constitutes a connected transaction pursuant to Rule 14A.13(1)(a) of the Listing Rules. The Acquisition and the transaction contemplated under the Acquisition Agreement are therefore subject to approval by the Independent Shareholders at the SGM by way of poll.

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INDEPENDENT FINANCIAL ADVISER LETTER

Mr. Frank Hu, Mr. Li John Zongyang, and Mr. Kuan Hin Meng, being the independent non-executive Directors, have been appointed by the Board to be the Independent Board Committee to advise and make recommendation to the Independent Shareholders as to how to vote at the SGM on the relevant ordinary resolutions regarding the Acquisition Agreement.

Our role as the independent financial adviser is to give our independent opinion to the Independent Board Committee and Independent Shareholders as to whether (i) the Acquisition is on normal commercial terms; and (ii) the terms of the Acquisition Agreement are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

BASIS OF OUR OPINION

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

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

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

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INDEPENDENT FINANCIAL ADVISER LETTER

1. Reasons and benefits of the Acquisition

a. Background information of the Group

The Company is a company incorporated in Bermuda with limited liability. Its securities are listed on the Main Board of the Stock Exchange of Hong Kong Limited. The Company is an investment holding company. Its subsidiaries are principally engaged in the research, development and sale of biopharmaceutical products and provision of management service, development, provision and sales of electronic gaming systems.

The table below tabulates the financial results of the Group for the two years ended 31 December 2009 as extracted from the Group’s annual report for the financial year ended 31 December 2009 (the “Annual Report”).

	For the year ended	For the year ended
	31	December
	2008	2009
	HK$’000	HK$’000
Turnover	219,329	325,224
(Loss) for the year	(99,441)	(167,239)
(Loss) per share – basic	HK(25.72) cents	HK(37.88) cents

As stated in the Annual Report, the company recorded a significant increase in revenue by 48.3% from approximately HK$219,329,000 for the year ended 31 December 2008 to approximately HK$325,224,000 for the year ended 31 December 2009. The increase in revenue was driven by strong performance in gaming business resulting from the rise in visitation to Macau.

The Group’s net loss increased by 68.2% from approximately HK$99,441,000 in 2008 to approximately HK$167,239,000 in 2009. The loss per Share was HK25.72 cents and HK37.88 cents for the two years ended 31 December 2009 respectively. As stated in the Annual Report, the main reason for the increase in the loss of the Company was mainly due to impairment charges made to certain assets of the biopharmaceutical business.

Gaming revenue accounted for 61.7% of the Group’s total revenue in the year 2009, as compared to 43.3% in 2008. The gaming revenue showed a very strong growth, from approximately HK$94,927,000 in 2008 to approximately HK$200,821,000 in 2009, representing an increase of 111.6%. Net loss of gaming business for the year narrowed from approximately HK$65,050,000 to approximately HK$4,455,000, as compared to last year.

To cope with the growing casino patronage and expansion of the gaming business, the Company will open a club house to attract more casino goers with diverse offerings and expect the gaming business will be the key driver of future revenue growth. The Directors believe that the Acquisition will provide an

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INDEPENDENT FINANCIAL ADVISER LETTER

opportunity for the Group to further improve the performance of the gaming business and broaden the income base of the Group, thereby enhancing the Group’s financial position and profitability in the future.

b. Background information of the Patent

The asset to be acquired is the Patent in relation to a betting terminal system. The patent application was filed on 24 October 2006 in Macau and grant was obtained by the Vendor on 9 April 2010 with registration number I/380 (369). The Patent is valid for 20 years up to 24 October 2026.

The Patent is a computerized system (the “System”) in relation to the operation of multi-gambling games which allows the participants to play multiple and different live table games with human dealers at the same time, it is a sophisticated electronic platform which allows participants wager at the privacy of a betting terminal. The System is connected by a live table being operated by a human dealer at one end and the related terminals at the other such that participants of the game need not be physically present next to a dealing table to take part in the game who may do so by placing bets at one of the remote terminals linked to the System and installed at Casino Kam Pek Paradise in Macau. The Group has been providing management services to Casino Kam Pek Paradise (previously known as Casino Paradise Entertainment) since 2007. The development of the System and the installation thereof at Casino Kam Pek Paradise in Macau can increase the revenue, the productivity of dealers and thus relieve the acute casino labour shortage in Macau and reduce the risks of human errors and fraud.

c. Overview of the gaming industry in Macau

Macau’s economy is mainly supported by the tourism and gaming sectors. According to the Gaming Inspection and Coordination Bureau (GICB), gross revenues from gaming and gambling activities in Macau posted growth of 66.9% year on year in the first half of the year to 85.853 billion patacas (US$10.731 billion). At the end of the second quarter of 2010, Macau had 33 casinos, 4,828 gaming tables and 14,659 slot machines. After opening of the locally-controlled casino industry to foreign competition since 2001, Macau’s economic growth largely depends on the tourism and gaming sectors and Macau becomes one of the largest gaming center in the world.

Competition in the gaming industry in Macau increased since the rights of operating casinos was opened in 2002. As there are more competitors, the competition on resources such as labour and machines will greatly affect the cost and performance of the casinos. In order to survive in the keen competition, new ideas of operating and managing the casinos, better services, diversified games

– 15 –

INDEPENDENT FINANCIAL ADVISER LETTER

and new technology are needed in order to reduce the cost and to satisfy the increasing demand by the customers. The System can help to reduce the labour cost and induce the customers to increase their consumption in the casinos, therefore can increase the profitability and competitiveness of the casinos.

As advised by the Directors, there is no other regulatory or licensing requirements in operating the System save for the registration of the Patent.

According to (i) the performance of the Group in the previous two years; (ii) the development of the gaming industry in Macau; and (iii) the increase in the revenue and the productivity of dealers by the System, we are of the view and concur with the view of the Directors that the Acquisition is in the interests of the Company and the Shareholders as a whole.

2. Principal terms of the Acquisition Agreement

a. Basis of the Consideration

The Consideration is HK$280 million and was arrived at based on normal commercial terms after arm’s length negotiations between the parties of the Acquisition Agreement and by reference to (a) the potential future earnings contribution to the Group from the Patent upon Completion; (b) other factors set out in the paragraph headed “Reasons for the Acquisition” in the Letter; and (c) the preliminary valuation of the Patent by an independent valuer in the amount of HK$288 million on 30 June 2010 subject to finalization. In view of the discount of the Consideration as compared with the preliminary valuation of the Patent, the Company is of the view that the Acquisition is in the interest of the Company and the Shareholders as a whole.

As set out in the formal valuation report issued by Ample Appraisal Limited (the “Valuation Report”) which is included in Appendix IV to the Circular, the valuation of the Patent as at 30 June 2010 amounted to HK$288 million.

We have reviewed and discussed with Ample Appraisal Limited, the appraisal approaches and assumptions regarding the Valuation Report and are of view that they are reasonably prepared. Further details can be found in the paragraph headed “Valuation Report” below. Compared to the fair value the Patent which is of approximately HK$288 million as stated in the Valuation Report, the Consideration represents a discount of approximately 2.8%.

b. Payment method

Pursuant to the terms of the Acquisition Agreement, the Consideration of HK$280 million shall be settled in the following manner:

(i) as to HK$30 million payable in cash; and

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INDEPENDENT FINANCIAL ADVISER LETTER

(ii) the remaining balance of HK$250 million shall be satisfied by the Purchaser delivering to the Vendor a duly executed Promissory Note.

Promissory Note

Pursuant to the Acquisition Agreement, HK$250 million of the Consideration shall be satisfied by the issuance of the Promissory Note. The Promissory Note is of a term of 48 months with zero interest. As such, we consider that the terms are fair and reasonable as issue and repayment of the Promissory Note would not dilute the shareholding interests of the existing Shareholders.

The Purchaser has the right to redeem the whole or any part of the outstanding principal amount of the Promissory Note at any time prior to the maturity date. Early redemption of Promissory Note shall be subject to discount of the outstanding principal amount of the Promissory Note, the rate of which varies from 2% to 8% according to the period of early redemption.

Given that (i) the zero interest rate of the Promissory Note; (ii) the Promissory Note would not dilute the shareholding interests of the existing Shareholders; and (iii) the discount for early redemption, we are of the view that the payment terms of the Acquisition is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

3. Valuation Report

We reviewed the valuers’ experience in gaming industry and consider that they are qualified to provide a reliable valuation for the Acquisition.

In assessing the fairness and reasonableness of the valuation, we have studied the Valuation Methodology, basis of valuation and assumptions underlying the Valuation Report.

a. Valuation methodology

It is stated in the Valuation Report that Ample Appraisal Limited had considered three generally accepted valuation approaches, i.e. the Market-Based Approach, Income-Based approach and the Cost-Based Approach and considered to use the Income-Based Approach.

b. Patent valuation and assumptions

We have discussed with Ample Appraisal Limited regarding the valuation methodology of the valuation and the underlying assumptions of the valuation as stated in the Valuation Report. After discussion with Ample Appraisal Limited, we understand that in the process of valuing the Patent, Ample Appraisal Limited has taken into consideration the uniqueness of its operation and the industry it is

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INDEPENDENT FINANCIAL ADVISER LETTER

participating. Having considered the three general valuation methodologies, Ample Appraisal Limited believed that the Income-Based Approach would be appropriate and reasonable in the appraisal for the market value of the Patent. On the other hand, the Market-Based Approach is not appropriate as there are insufficient similar and relevant comparable intangible assets or transactions to form a reliable basis for its opinion of value. As the Patent is an intangible asset, the Cost-Based Approach is not appropriate as it cannot reflect the market value of the Patent and ignores the economic benefits of the business. Therefore, we consider the Income-Based Approach is the most appropriate valuation methodology. We also understand that the assumptions used in the valuation are all normal practice and no abnormal assumption is used.

We have discussed with Ample Appraisal Limited regarding the basis for estimating the net cash flow generated from the Patent (“Net Cash Flow”) and the determination of the discount rate adopted under the discounted cash flow method adopted in such valuation. We have been advised that the discount rate applied to the Net Cash Flow is based on a weight average cost of capital (“WACC”) which is developed through the application of the Capital Asset Pricing Model (“CAPM”), the beta, cost of equity and cost of debt. The cost of equity is estimated by using the CAPM taking into account of the risk free rate of return (based on Hong Kong Exchange Fund notes (15 years) yields as extracted from Bloomberg), the market risk premium and additional premiums (including but not limited to adjustments to the startup risk premium, renewal risk and political risk (“Additional Premium”).

Based on our review of the Valuation Report and discussion with Ample Appraisal Limited regarding, among other things, (i) the scope of work and assumptions of the valuation; (ii) the valuation basis, including the Net Cash Flow, the applied methodologies, in particular the discount rate adopted under the discounted cash flow method; and (iii) the due diligence works performed by Ample Appraisal Limited in preparing Valuation Report, we consider that the basis, assumptions and methodologies adopted by Ample Appraisal Limited in the Valuation Report appropriate. We, however, express no opinion on the actual results of the Net Cash Flow.

Having considered the above, we are of the view that the Valuation Report is well prepared and the valuation performed by Ample Appraisal Limited is fair.

4. Financial effects of the Acquisition

Upon completion of the Acquisition, as stated in the paragraph headed “Pro forma consolidated statement of financial information of the Enlarged Group” in Appendix III to the Circular, the net assets of the Group would decrease from approximately HK$31,734,000 to net liabilities of approximately HK$641,000. Regarding the loss of the Group, upon completion of the Acquisition, there would be an increase from HK$167,239,000 to HK$199,614,000.

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INDEPENDENT FINANCIAL ADVISER LETTER

By considering that (i) the System contributed a revenue of approximately HK$83 million to the Company for the year ended 31 December 2009; and (ii) the future potential of the System mentioned before, we are of the view that the Acquisition is in the interests of the Company and the Shareholders as a whole even though the net assets of the company would decrease and the loss would increase.

RECOMMENDATION

Given that (i) the Company’s revenue from gaming keeps increasing in these years; (ii) the increase in productivity of dealers, and the reduction in labour costs and risks of human errors and fraud which are expected to be contributed by the System; (iii) the continuous growth of the gaming industry in Macau; (iv) the Consideration represents a discount to the valuation of the Patent performed by Ample Appraisal Limited; (v) the expected revenue to be generated by the Patent, we are of the opinion that the terms of the Acquisition Agreement are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend, and advise the Independent Board Committee to recommend, the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Acquisition Agreement and the transaction contemplated thereunder at the SGM.

Yours faithfully, For and on behalf of Nuada Limited Kevin Chan Director

– 19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

A summary of the financial information of the Group for the three years ended 31 December 2007, 2008 and 2009 extracted from the annual reports of the Company are set out below.

CONSOLIDATED INCOME STATEMENT

TURNOVER
Cost of sales and services
Gross profit
Other operating income
Marketing, selling and distribution costs
Administrative expenses
Share-based payments
Research and development cost
Impairment loss for doubtful debts
Impairment loss on property, plant and equipment
Impairment loss on intangible assets
Impairment loss on payments for investments
Finance costs
Fair value loss on derivative financial instruments
Gain on derecognition of derivative financial
instruments
Gain on deemed disposal of a subsidiary
Loss before tax
Income tax expenses
Loss for the year
Attributable to:
Owners of the Company
Non-controlling interests
Loss per share (HK cents)
– Basic
– Diluted

For the year ended 31 December
2009
2008
2007
HK$’000
HK$’000
HK$’000
(restated)
(restated)
325,224
219,329
130,519
(227,662)
(206,323)
(110,871)
97,562
13,006
19,648
3,143
6,575
4,159
(39,234)
(32,463)
(17,732)
(93,841)
(83,683)
(67,602)
–
(1,234)
(63,674)
(2,725)
(2,699)
(2,526)
(116)
(187)
(3,689)
(10,270)
(529)
(5,336)
(66,837)
(1,059)
(9,085)
(40,074)
(6,143)
(18,524)
(18,508)
(11,657)
(3,844)
–
(3,148)
(36,817)
1,302
10,725
−
–
15,600
–
(169,598)
(96,896)
(205,022)
2,359
(2,545)
(374)
(167,239)
(99,441)
(205,396)
(167,234)
(99,441)
(205,396)
(5)
–
–
(167,239)
(99,441)
(205,396)
(37.88)
(25.72)
(60.40)
N/A
N/A
N/A

– 20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Loss for the year Other comprehensive income Net (loss) gain recognised directly in equity Exchange translation differences Total comprehensive income for the year, net of tax Total comprehensive income attributable to: Owners of the Company Non-controlling interests Loss per share (HK cents) – Basic – Diluted	For the year ended 31 December 2009 2008 2007 HK$’000 HK$’000 HK$’000 (restated) (restated) (167,239) (99,441) (205,396) (186) 8,601 9,405 (167,425) (90,840) (195,991) (167,420) (90,840) (195,991) (5) – – (167,425) (90,840) (195,991) (37.92) (23.50) (57.63) N/A N/A N/A

– 21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Non-current assets Property, plant and equipment Investment property Intangible assets Deposits paid for acquisition of non-current assets Payments for investments Deposit paid for acquisition of a subsidiary Current assets Inventories Debtors, deposits and prepayments Advances to consulting companies Bank and cash balances Current liabilities Creditors and accrued charges Amounts due to directors Amount due to a related party Other borrowings – due within one year Obligations under finance leases – due within one year Derivative financial instruments Redeemable voting preference shares Convertible loans – due within one year Current tax liabilities	As at 31 December 2009 2008 2007 HK$’000 HK$’000 HK$’000 (restated) (restated) 154,574 153,793 117,241 – – 4,850 – 78,632 79,832 – 945 15,292 – 40,074 42,478 7,800 7,800 7,800 162,374 281,244 267,493 21 193 25 32,398 35,738 46,944 – 29,071 52,083 44,853 43,954 69,402 77,272 108,956 168,454 62,710 76,573 78,531 6,508 1,550 1,411 2,106 58 60 58,515 10,029 – 249 257 242 – – 7,577 – – 13,978 – 73,933 – 2,410 2,594 3,332 132,498 164,994 105,131	As at 31 December 2009 2008 2007 HK$’000 HK$’000 HK$’000 (restated) (restated) 154,574 153,793 117,241 – – 4,850 – 78,632 79,832 – 945 15,292 – 40,074 42,478 7,800 7,800 7,800 162,374 281,244 267,493 21 193 25 32,398 35,738 46,944 – 29,071 52,083 44,853 43,954 69,402 77,272 108,956 168,454 62,710 76,573 78,531 6,508 1,550 1,411 2,106 58 60 58,515 10,029 – 249 257 242 – – 7,577 – – 13,978 – 73,933 – 2,410 2,594 3,332 132,498 164,994 105,131
		267,493
		25 46,944 52,083 69,402
		168,454
		78,531 1,411 60 – 242 7,577 13,978 – 3,332
		105,131

– 22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Net current (liabilities) assets Total assets less current liabilities Non-current liabilities Other borrowings – due after one year Obligations under finance leases – due after one year Convertible loans – due after one year Deferred tax liabilities Net assets Capital and reserves Share capital Reserves Equity attributable to owners of the Company Non-controlling interests Total equity	As at 31 December 2009 2008 2007 HK$’000 HK$’000 HK$’000 (restated) (restated) (55,226) (56,038) 63,323 107,148 225,206 330,816 9,200 39,006 – – 249 506 66,214 12,504 72,174 – 13,976 11,804 75,414 65,735 84,484 31,734 159,471 246,332 48,971 38,659 38,659 (17,287) 120,812 207,673 31,684 159,471 246,332 50 – – 31,734 159,471 246,332	As at 31 December 2009 2008 2007 HK$’000 HK$’000 HK$’000 (restated) (restated) (55,226) (56,038) 63,323 107,148 225,206 330,816 9,200 39,006 – – 249 506 66,214 12,504 72,174 – 13,976 11,804 75,414 65,735 84,484 31,734 159,471 246,332 48,971 38,659 38,659 (17,287) 120,812 207,673 31,684 159,471 246,332 50 – – 31,734 159,471 246,332
		330,816
		– 506 72,174 11,804
		84,484
		246,332

		38,659 207,673
		246,332 –
		246,332

– 23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL STATEMENTS OF THE GROUP

The following is the audited financial statements of the Group together with accompanying notes as extracted from the annual report of the Company for the year ended 31 December 2009.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2009

Notes TURNOVER 9 Cost of sales and services Gross profit Other operating income 10 Marketing, selling and distribution costs Administrative expenses Share-based payments Research and development cost Impairment loss for doubtful debts Impairment loss on property, plant and equipment Impairment loss on intangible assets Impairment loss on payments for investments Finance costs 11 Fair value loss on derivative financial instruments Gain on derecognition of derivative financial instruments Gain on deemed disposal of a subsidiary Loss before tax Income tax expenses 12 Loss for the year 13 Attributable to: Owners of the Company Non-controlling interests Loss per share (HK cents) 16 – Basic – Diluted	2009 HK$’000 325,224 (227,662) 97,562 3,143 (39,234) (93,841) – (2,725) (116) (10,270) (66,837) (40,074) (18,508) – 1,302 – (169,598) 2,359 (167,239) (167,234) (5) (167,239) (37.88) N/A	2008 HK$’000 (restated) 219,329 (206,323) 13,006 6,575 (32,463) (83,683) (1,234) (2,699) (187) (529) (1,059) (6,143) (11,657) (3,148) 10,725 15,600 (96,896) (2,545) (99,441) (99,441) – (99,441) (25.72) N/A

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Notes Loss for the year 13 Other comprehensive income Net (loss) gain recognised directly in equity Exchange translation differences Total comprehensive income for the year, net of tax Total comprehensive income attributable to: Owners of the Company Non-controlling interests Loss per share (HK cents) 16 – Basic – Diluted	2009 HK$’000 (167,239) (186) (167,425) (167,420) (5) (167,425) (37.92) N/A	2008 HK$’000 (restated) (99,441) 8,601 (90,840) (90,840) – (90,840) (23.50) N/A

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2009

Notes Non-current assets Property, plant and equipment 17 Investment property 18 Intangible assets 19 Interest in an associate 20 Deposits paid for acquisition of non-current assets Payments for investments 21 Deposit paid for acquisition of a subsidiary 22 Current assets Inventories 23 Debtors, deposits and prepayments 24 Advances to consulting companies 25 Bank and cash balances 26 Current liabilities Creditors and accrued charges 27 Amounts due to directors 42 Amount due to a related party 42 Other borrowings – due within one year 28 Obligations under finance leases – due within one year 29 Derivative financial instruments 30 Redeemable voting preference shares 31 Convertible loans – due within one year 32 Current tax liabilities Net current (liabilities) assets Total assets less current liabilities	2009 HK$’000 154,574 – – – – – 7,800 162,374 21 32,398 – 44,853 77,272 62,710 6,508 2,106 58,515 249 – – – 2,410 132,498 (55,226) 107,148	2008 HK$’000 (restated) 153,793 – 78,632 – 945 40,074 7,800 281,244 193 35,738 29,071 43,954 108,956 76,573 1,550 58 10,029 257 – – 73,933 2,594 164,994 (56,038) 225,206

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Non-current liabilities Other borrowings – due after one year 28 Obligations under finance leases – due after one year 29 Convertible loans – due after one year 32 Deferred tax liabilities 33 Net assets Capital and reserves Share capital 34 Reserves 35 Equity attributable to owners of the Company Non-controlling interests Total equity	2009 HK$’000 9,200 – 66,214 – 75,414 31,734 48,971 (17,287) 31,684 50 31,734	2008 HK$’000 (restated) 39,006 249 12,504 13,976
		65,735
		159,471

		38,659 120,812
		159,471 –
		159,471

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2009

		Attributable to own	ers of the Company	Total equity HK$’000 279,277 (32,945)
Share capital HK$’000 38,659 – 38,659 – – – – – 38,659 38,659 – 38,659 – – – – 10,312 – 10,312 48,971	Share premium HK$’000 526,753 – 526,753 – – – – – 526,753 526,753 – 526,753 – – – – 22,161 – 22,161 548,914	Special reserve Convertible loans reserve HK$’000 HK$’000 88,643 1,299 – – 88,643 1,299 – – – 2,745 – – – – – 2,745 88,643 4,044 88,643 4,044 – – 88,643 4,044 – – – – – – – 16,334 – (5,622) – (1,299) – 9,413 88,643 13,457	Option reserve Translation reserve Accumulated losses HK$’000 HK$’000 HK$’000 75,501 11,041 (462,619) – – (32,945) 75,501 11,041 (495,564) – 8,601 (99,441) – – – (4,198) – 4,198 1,234 – – (2,964) 8,601 (95,243) 72,537 19,642 (590,807) 72,537 19,642 (551,128) – – (39,679) 72,537 19,642 (590,807) – (186) (167,239) – – – (7,402) – 7,402 – – – – – – – – (2,248) (7,402) (186) (162,085) 65,135 19,456 (752,892)
				246,332 (90,840) 2,745 – 1,234
				(86,861)
				159,471

				199,150 (39,679)
				159,471 (167,430) 55 – 16,334 26,851 (3,547)
				(127,737)
				31,734

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2009

OPERATING ACTIVITIES Loss before tax Adjustments for: Finance costs Bank interest income Interest income from consulting companies Gain on derecognition of derivative financial instruments Gain on disposal of an investment property Fair value loss on derivative financial instruments Gain on deemed disposal of a subsidiary Loss on disposal of financial assets at fair value through profit or loss Impairment loss for amount due from an associate Impairment loss for amount due from a non-controlling shareholder of a subsidiary Impairment loss on property, plant and equipment Impairment loss on intangible assets Impairment loss on payments for investments Depreciation of property, plant and equipment Loss (gain) on disposal of property, plant and equipment Equity settled employee benefits Operating cash flows before movements in working capital Decrease (increase) in inventories (Increase) decrease in debtors, deposits and prepayments Decrease in advances to consulting companies Decrease in creditors and accrued charges Cash used in operations Income taxes paid NET CASH USED IN OPERATING ACTIVITIES	2009 HK$’000 (169,598) 18,508 (7) (267) (1,302) – – – – 116 55 10,270 66,837 40,074 32,307 2,606 – (401) 172 (8,780) 21,016 (15,507) (3,500) (184) (3,684)	2008 HK$’000 (restated) (96,896) 11,657 (221) (431) (10,725) (3,460) 3,148 (15,600) 487 187 – 529 1,059 6,143 29,976 (76) 1,234 (72,989) (165) 13,868 – (4,863) (64,149) (1,119) (65,268)

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

INVESTING ACTIVITIES Purchases of property, plant and equipment Proceeds from disposal of an investment property Purchases of financial assets at fair value through profit or loss Proceeds from disposal of financial assets at fair value through profit or loss Deposits paid for acquisition of non-current assets Proceeds from disposal of property, plant and equipment Interest received NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Proceeds from other borrowings raised Proceeds from issue of convertible loans Interest paid Repayment of other borrowings Convertible loan issue expenses paid Repayment of obligations under finance leases Interest in amounts due to directors Interest paid on obligations under finance leases Increase (decrease) in amount due to a related party Redemption of convertible loans NET CASH GENERATED FROM FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS, represented by Bank and cash balances	2009 HK$’000 (36,718) – – – – 9 7 (36,702) 36,028 95,000 (12,968) (7,500) – (257) 4,958 (22) 2,048 (76,000) 41,287 901 43,954 (2) 44,853 44,853	2008 HK$’000 (restated) (19,666) 8,310 (8,222) 7,735 (6,184) 1,657 221 (16,149) 50,000 16,000 (7,256) (1,899) (800) (242) 117 (37) (2) – 55,881 (25,536) 69,402 88 43,954 43,954

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR ENDED 31 DECEMBER 2007

BUSINESS REVIEW

During the year, the Group has made significant expansion in the gaming business in Macau. The LIVE Baccarat system has seen a significant increase in its installed base and has been installed in a number of casinos in Macau. The LIVE Baccarat game has seen very strong performance amongst casino goers in 2007. The turnover of gaming section increased from about HK$2,019,000 for year 2006 to about HK$16,627,000 which represents an increase of seven times. The Group foresees this momentum continuing into the future. On the other segment of the Group, the biopharmaceutical business in China continued to see sales growth of 24%, year-over-year, from about HK$91,716,000 in 2006 to a record high of about HK$113,892,000 in 2007. The China biopharmaceutical operations posted an operating loss of about HK$14,268,000 (2006: HK$12,860,000), an increase of 11% compared with that of the previous year.

Turnover and Profit

The Group reported a turnover of about HK$130,519,000 for the year ended 31 December 2007, representing an increase of 38% as compared to about HK$94,669,000 for the previous year. Overall, gross profit margin for the year ended 31 December 2007 dropped slightly from 16% to 15%, whereas operating loss of about HK$52,337,000 for 2006 increased to about HK$131,416,000 for the year ended 31 December 2007. The Group reported a loss of about HK$172,451,000 or 5.07 Hong Kong cents per share for the year ended 31 December 2007, compared to a net loss of about HK$47,704,000 or 1.65 Hong Kong cents per share for the previous year.

The loss was mainly attributed to recognition of fair value of options granted as well as changes in fair value of warrants and redeemable voting preference shares during the year. Due to increased competition in the PRC pharmaceutical market, gross margins for the year ended 31 December 2007 inevitably narrowed. However, given this competitive backdrop, the Group continued to see expansion in its biopharmaceutical sales in 2007.

Gaming Business

The gaming business of Paradise Entertainment Limited is conducted through the subsidiaries, LT Game Limited (“LT Game”) and LT (Macau) Limited (“LT Macau”) which are the signing parties to the income-sharing collaboration agreements with different casino operators in Macau.

Calendar 2007 was an exciting year for the Group, a year in which there was a significantly increase in the number of income-sharing LIVE Baccarat electronic table terminals over the previous year.

LIVE Baccarat is conducted through the proprietary electronic gaming system which combines traditional baccarat card dealing by a live casino dealer with a digital network of touch screen betting terminals. Real time images of card dealing are broadcasted to the

– 31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

screens of the betting terminals. One unique advantage of the LIVE Baccarat system is that it can largely enhance the productivity of a casino table as a dealer can serve more players with our system than a dealer at a traditional baccarat table.

In addition, the Group launched new Paradise Box electronic gaming terminal, the world’s first combined e-table and server-based slot terminal hybrid with enormous success. Paradise Box is the next-generation electronic gaming machine combining all the excitement of e-table games plus the action of server based games all combined into one machine terminal. Created to meet the ever increasing demand for more game variety on our legacy e-table terminals, Paradise Box is the first hybrid e-table/server-based game machine to be offered in the market. By combining these two leading edge platforms, Paradise Box is able to offer players the most exciting and unique game content. E-table games that will be offered include “live-dealer” baccarat, sicbo, roulette and fish-prawn-crab. In addition, the Group will offer the most exhilarating server based content games including video slot games, sports betting and other forms of stimulating Asian inspired table and slot games.

In December 2007, the Group launched Paradise Entertainment, our flagship casino venue in Macau, the largest electronic table casino in the world. This 35,000 sq. ft. e-casino locates on the third floor of Kam Pek Casino at San Kin Yip Commercial Center and adjacent to Lisboa Hotel & Casino, opposite to Wynn Resort. It offers to the mass gaming market a host of next generation electronic gaming facilities and services. In relaxed and comfort environment with LIVE baccarat and Paradise Box, e-casino gives players a completely new and unique gaming experience.

In the beginning of 2008, the Group launched Paradise Jackpot, a new specialty baccarat table game which incorporates side bet for baccarat game and jackpot feature in Macau. The Group plans to launch the widest-linked progressive jackpot system currently available today.

The number of income-sharing terminals in Macau increased to over 500 terminals by the end of 2007. The Group is confident in its ability to develop other innovative casino games for the booming Macau gaming market.

Biopharmaceutical Business

The Group’s biopharmaceutical business is conducted under LifeTec Pharmaceutical Limited (“LifeTec Pharmaceutical”). The turnover of LifeTec Pharmaceutical for the year ended 31 December 2007 increased from about HK$91,716,000 to about HK$113,892,000, representing a period-to-period rise of 24%. Gross profit for the year ended 31 December 2007 decreased by approximately 6% compared to that of the previous year. Gross profit for the year ended 31 December 2007 reduced due to the intense market competition. The cost control measures effectively reduced marketing, selling and distribution expenses from about HK$15,640,000 for previous year to about HK$11,747,000 for the year ended 31 December 2007.

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Marketing, Sales and Distribution

LifeTec Pharmaceutical adopted new initiatives to consolidate direct sales team by teaming up with renowned drug distributors. The replacement of sales agents in a number of cities resulted in a dramatic increase in sales performance. To broaden the sales base, the division introduced a wider range of generic drugs for distribution and extended the geographical span of its drug distribution business.

Research and Development

Satisfactory progress has been made in research and development projects in 2007, which has provided encouraging prospects for the following projects. Patent for Fibrocorin has been filed in the United States. Other generic drugs are ready for final SFDA approval for registration and are expected to be available for commercial production, sale and distribution in the near future.

Fibrocorin

Fibrocorin is a recombinant fusion protein and a potential new drug candidate for anti-cancer and anti-fibrosis applications. It was invented by LifeTec Pharmaceutical in conjunction with the research team of the City University of Hong Kong. Fibrocorin is a genetically engineered protein comprising an active component to alleviate fibrosis and a human immunoglobulin Fc region which extends the degradation rate. This novel recombinant protein has a more sustainable and profound treatment effect. Patent application has been filed in the United States.

Recombinant Human Augmenter for Liver Regeneration (“rhALR”)

rhALR is a revolutionary compound for the gene therapy of various kinds of liver diseases. Timely and satisfactory progress has been made in the rhALR project. Characterization and functional study of recombinant human augmenter of liver regeneration (rhALR) has been finished in year 2007. The production yield rate as well as storage condition has also been optimized in 2007. The Group has selected a better matrix in order to make the rhALR stable in storage space at 4 Degree Celsius. Several sample batches are ready for future preclinical trials.

Generic Drugs

A number of generic drugs are undergoing application procedures for production permits issued by SFDA. These generic drugs can help to better utilize the existing sales channels which have been developed through the experience in selling Wei Jia. It is expected that the commercial production approval process for these drugs will commence at the beginning of year 2009.

The Group will continue to enrich our pharmaceutical product mix by introducing more generic drugs and strengthen the distribution network in China.

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APPENDIX I

Prospects

The Group has set forth a strategic 3-point initiative to guide the operations and make the business model able to deliver strong long-term sustainable revenue growth across the e-table and specialty table game categories. First, the Group is expanding the efforts to increase the gross gaming revenues generated from existing e-table terminals already in the field by adding new value elements like increasing the next generation server based game content for the Paradise Box terminals and increasing the player enticement for the progressive side bet option. Secondly, the Group is adept to sign more lucrative profit sharing terms with the casino license partners by continuing to demonstrate even better value creation to the partners through the growth of the trademark and patent-filed LIVE Baccarat, Paradise Box and Paradise Jackpot Progressive Baccarat table game. Finally, the Group is heightening the commitment to growing the number of recurring-revenue sharing e-table terminals and specialty table games with the casino license partners through growing player demand for our trademark gaming products.

During G2E show in Las Vegas in November 2007 as well as ICE show in London in January 2008, the LIVE Baccarat System and Paradise Jackpot System are well received by the casino owners and operators around the world. This gives the Group a new exposure to expand the business into the global gaming market.

Apart from gaming business, pharmaceutical business is the main source of turnover. It is expected that the approval from SFDA for production of generic drugs will be available in the near future and in turn the turnover and product pipeline of the Group will be increased significantly.

Liquidity and Financial Resources

As at the balance sheet date, the Group’s aggregate finance leases stood at about HK$748,000 of which about HK$242,000 was payable within 12 months and about HK$506,000 was payable between 2 to 5 years. Current liabilities of the Group increased from about HK$61,468,000 to about HK$105,131,000, representing an increase of 71%. The Group’s net current assets increased from about HK$31,741,000 to about HK$63,323,000 as at the balance sheet date. The Group’s total liabilities at the balance sheet date amounted to about HK$191,218,000 (2006: HK$87,698,000). The Group’s total assets at the balance sheet date amounted to about HK$470,495,000 (2006: HK$301,716,000). Accordingly, the percentage of total liabilities to total assets as at 31 December 2007 stood at 41% which is higher than the corresponding figure of 29% as of 31 December 2006.

As at 31 December 2007, the cash on hand and available financial resources are sufficient for financing ongoing activities of the Group.

The Group’s operations are primarily based in China and the income derived and expenses incurred are denominated in Renminbi. There were no export sales in the year. On the other hand, the expenses of the headquarters are denominated in Hong Kong dollars and are financed by fund raised in Hong Kong dollar. Due to the relatively matched position in

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APPENDIX I

both Hong Kong and China and the stability of the exchange rates between Renminbi and Hong Kong dollars, the Group does not consider specific hedges for currency fluctuation necessary.

Charges on Group Assets

As at 31 December 2007, the assets of the Group which were subject to charges for securing obligations under finance lease comprised a motor vehicle with net book value amounting to about HK$869,000 (2006: HK$1,113,000).

Organization and Staff

The Group has about 273 staff in total as at the balance sheet date. The majority of the staff includes service attendants of the Group’s gaming business in Macau and sales and marketing executives of biopharmaceutical business located in China. In order to cope with the rapid growing operations of gaming business the Group is actively seeking key personnel to join the sales and marketing as well as the research and development team in Macau.

The terms of employment of the staff, executives and directors conform to normal commercial practice. Share option benefits are granted to and included in the terms of service contracts of selected senior executives of the Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR ENDED 31 DECEMBER 2008

BUSINESS REVIEW

During the year, the Group has made significant expansion in the gaming business in Macau. The gaming revenue has seen very strong growth in 2008. The turnover of gaming section increased by 470% from approximately HK$16,627,000 for the year 2007 to approximately HK$94,927,000 for the year 2008. The Group foresees this momentum will continue in the future. On the other segment of the Group, the biopharmaceutical business in China continued to see sales growth of 9%, year-over-year, from about HK$113,892,000 in 2007 to a record high of about HK$124,402,000 in 2008. The biopharmaceutical operations in the PRC posted an operating loss of about HK$10,452,000 in 2008 (2007: HK$14,268,000), a decrease of 26.7% compared with that of the previous year.

Turnover and Profit

The Group reported a turnover of about HK$219,329,000 for the year ended 31 December 2008, representing an increase of 68% as compared to about HK$130,519,000 for the previous year. Overall, net loss decreased from HK$172,451,000 for 2007 to about HK$92,707,000 or 2.40 Hong Kong cents per share for the year ended 31 December 2008, compared to a net loss of about HK$172,451,000 or 5.07 Hong Kong cents per share for the previous year.

Gaming Business

The gaming business of Paradise Entertainment Limited is conducted through the subsidiaries, LT (Macau) Limited (“LT Macau”) and LT Game Limited (“LT Game”) which are the signing parties to the income-sharing collaboration agreements with casino operators and gaming concessionaire. The signing of collaboration agreement with Sociedade De Jogos De Macau, S.A. in August 2008 demonstrates the full confidence in the gaming market of Macau.

The year 2008 was an exciting year for the Group, a year marked with the expansion of the much-anticipated Casino Kam Pek Paradise previously known as Casino Paradise Entertainment in Macau. Casino Kam Pek Paradise, the flagship casino venue at San Kin Yip Commercial Center, adjacent to Lisboa Hotel & Casino and opposite to Wynn Resort, occupies over 100,000 sq. ft.. It offers the most exhilarating e-table and stimulating and inspired traditional table games.

The Group has launched the new Paradise Box electronic gaming terminal, the world’s first combined e-table and server-based slot terminal hybrid, with enormous success. E-table games offer live-dealer with a digital network of touch screen betting terminals with real time images of card dealing being broadcasted to the screens of the betting terminals. The LIVE baccarat system can largely enhance the productivity of a casino table as a dealer can serve more players with the system than a dealer at a traditional baccarat table. The number

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

of the income-sharing terminals in Macau increased to over 500 terminals in 2008. It is anticipated that live-dealer sicbo, roulette and fish-prawn-crab games will be offered in the near future.

Biopharmaceutical Business

The Group’s biopharmaceutical business is conducted through LifeTec Pharmaceutical Limited (“LifeTec Pharmaceutical”). The turnover of LifeTec Pharmaceutical for the year ended 31 December 2008 increased from about HK$113,892,000 to about HK$124,402,000, representing a period-to-period rise of 9%. The cost control measures effectively reduced net loss for pharmaceutical section from about HK$14,268,000 for previous year to about HK$10,452,000 for the year ended 31 December 2008.

Marketing, Sales and Distribution

Based on the integrated direct sales team and other measures adopted in 2008, the Company adjusted or replaced sales agents in a number of cities with poor sales performance, and resulted in a dramatic increase in sales of Wei Jia. The distribution network of generic drugs has also been further developed, with steady growth in sales volume.

Research and Development

Wei Jia

Our Wei Jia preparation method has been awarded the invention patent certificate by the State Intellectual Property Office in 2008 for a term up to 28 March 2023, thus consolidated the leading position in the field of Hepatocyte Growth Promoting Factors.

Generic Drugs

In 2008, the Company has two generic drugs passed the technical review of the State Food and Drug Administration (“SFDA”), and expected to obtain the production approval in the near future. Other generic drugs have been submitted for the review of the SFDA, or in their final preparation stages before such submission.

Prospects

The Group has seen strong demand for the gaming system in the international market. A number of casino operators in the United States, Europe and Asia have indicated their keen interest in installing the LIVE Baccarat system in their casinos. During the year, the LIVE Baccarat system has been installed in different casinos in Asia. It presents a new driver to the future growth of the Group. To strengthen the presence in the electronic gaming industry, the Group will participate in a number of gaming trade shows to exhibit the new gaming products in Macau, the United States and Europe.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Gaming revenue from VIP and mass market table gaming operations posted a stable growth. The tightening of visa application for Mainland residents to Macau in recent months has an adverse impact on Macau’s economy, the Group considers the results in 2008 to be satisfactory among the competitors.

In view of the general economic conditions and in particular the challenges to the business, the Group strives to maintain sustainable growth of gaming revenue in Macau and expand the business into the global gaming market.

Apart from gaming section, pharmaceutical section is also the main source of turnover. It is expected that the approval from SFDA for production of generic drugs will be available in the near future and in turn the turnover and production pipeline of the Group will be increased significantly.

Liquidity and Financial Resources

As at the balance sheet date, the Group’s aggregate borrowings and finance leases stood at about HK$49,541,000 of which about HK$10,286,000 was payable within 12 months and about HK$39,255,000 was payable between 2 to 5 years. Current liabilities of the Group increased from about HK$105,131,000 to about HK$164,994,000, representing an increase of 57%. The position of the Group has changed from net current assets of about HK$63,323,000 for last year to net current liabilities of about HK$56,038,000 as at the balance sheet date. The Group’s total liabilities at the balance sheet date amounted to about HK$233,516,000 (2007: HK$191,218,000). The Group’s total assets at the balance sheet date amounted to about HK$432,666,000 (2007: HK$470,495,000). Accordingly, the percentage of total liabilities to total assets as at 31 December 2008 stood at 54% which is higher than the corresponding figure of 41% as of 31 December 2007.

As at 31 December 2008, the cash on hand and available financial resources are sufficient for financing ongoing activities of the Group.

The Group’s operations are primarily based in the PRC and Macau and the income derived and expenses incurred are denominated in Renminbi and Macau Pataca (“MOP”) respectively. On the other hand, the expenses of the headquarters are denominated in Hong Kong dollars and are financed by fund raised in Hong Kong dollars. Due to the relatively matched position among Hong Kong, Macau and the PRC and the stability of the exchange rates between Renminbi and Hong Kong dollars and between MOP and Hong Kong dollars, the Group does not consider specific hedges for currency fluctuation necessary.

Charges on Group Assets

As at 31 December 2008, the assets of the Group which were subject to charges for securing obligations under finance lease comprised a motor vehicle with net book value amounting to about HK$608,000 (2007: HK$869,000).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Organization and Staff

The Group has about 287 staff in total as at the balance sheet date. The majority of the staff includes staff of the Group’s gaming business in Macau and sales and marketing executives located in China. The Group is actively seeking key personnel to join the sales and marketing as well as the research and development team in Macau in order to cope with the rapid growing operations.

The terms of employment of the staff, executives and directors conform to normal commercial practice. Share option benefits are granted to and included in the terms of selected senior executives of the Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR ENDED 31 DECEMBER 2009

BUSINESS REVIEW

The year 2009 was an exciting year for the Group. The Group recorded a significant increase in revenue by 48.3% from approximately HK$219,329,000 for the year ended 31 December 2008 to approximately HK$325,224,000 for the year ended 31 December 2009. The increase in revenue was driven by strong performance in gaming business resulting from the rise in visitation to Macau. The Group’s net loss increased by 68.2% from approximately HK$99,441,000 in 2008 to approximately HK$167,239,000 in 2009, mainly due to impairment charges made to certain assets of the biopharmaceutical business.

Gaming Business

The gaming market in Macau has experienced tremendous growth in the last few years. In 2009, the Group saw a considerable return of visitors to Macau after the easing of credit crunch and improvement of market sentiment especially in the second half of the year. The Group’s devotion during the year in strengthening the business focus on gaming and entertainment in Macau have also effectively improved the operational efficiency.

Gaming revenue accounted for 61.7% of the Group’s total revenue in the year 2009, as compared to 43.3% in 2008. The gaming revenue has seen very strong growth, from approximately HK$94,927,000 in 2008 to approximately HK$200,821,000 in 2009, representing an increase of 111.6%. Net loss of gaming business for the year narrowed from approximately HK$65,050,000 to approximately HK$4,455,000, as compared to last year.

The Group anticipates the number of visitors to Macau and Casino Kam Pek Paradise to surge in the forthcoming years. Given the positive economic outlook in China, the strong support from Macau SAR Government and Macau’s geographical advantage, the Group expects a notable improvement in our performance in the coming years.

Biopharmaceutical Business

The revenue of biopharmaceutical business remained stable at approximately HK$124,403,000 for 2009 as compared to approximately HK$124,402,000 for 2008. Net loss increased from approximately HK$18,183,000 for 2008 to approximately HK$128,270,000 for 2009, mainly due to impairment charges being made.

While the Group has made commitments in the research and development of new drugs in the past few years, the Group experienced continued challenges in new medical development resulting from the change in market conditions and new drug developments in Mainland China. The Group has made impairment charges on the drugs which are expected to be less competitive in market and has much restricted usage together with the related assets to reposition the presence in biopharmaceutical business.

– 40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Prospects

The year 2010 is expected to be a rewarding year for the Group with more favourable economic environment and continued support from the government of the People’s Republic of China. To cope with the growing casino patronage and expansion of the gaming business, the Group will open a club house to attract more casino goers with diverse offerings. The Group is well-positioned to compete favourably and benefit from the rising performance of the gaming industry in Macau. The Group expects the gaming business will be the key driver of the future revenue growth while the biopharmaceutical business will continue to contribute stable revenue.

Liquidity and Financial Resources

As at 31 December 2009, the Group’s aggregate borrowings and finance leases stood at about HK$67,964,000 of which about HK$58,764,000 was payable within 12 months and about HK$9,200,000 was payable between 1 to 2 years. Current liabilities of the Group decreased from about HK$164,994,000 to about HK$132,498,000, representing a decrease of 19.7%. The net current liabilities of the Group decreased from about HK$56,038,000 as at 31 December 2008 to about HK$55,226,000 as at 31 December 2009. The Group’s total liabilities as at 31 December 2009 amounted to about HK$207,912,000 (2008: HK$230,729,000) and total assets amounted to about HK$239,646,000 (2008: HK$390,200,000). Accordingly, the percentage of total liabilities to total assets as at 31 December 2009 stood at 86.8% which is higher than the corresponding figure of 59.1% as of 31 December 2008.

As at 31 December 2009, the cash on hand and available financial resources were sufficient for financing ongoing activities of the Group.

Foreign Exchange Exposure

The Group’s operations are primarily based in the PRC and Macau and the income derived and expenses incurred are denominated in Renminbi (“RMB”) and Macau Pataca (“MOP”) respectively. On the other hand, expenses of the headquarters are denominated in Hong Kong dollars (“HK$”) and are financed by fund raised in Hong Kong dollars. Due to the relatively matched position among Hong Kong, Macau and the PRC and the stability of the exchange rates between RMB and HK$ and between MOP and HK$, the Group does not consider specific hedges for currency fluctuation necessary.

Charges on Group Assets

As at 31 December 2009, the assets of the Group which were subject to charges for securing obligations under finance leases comprised a motor vehicle with net book value amounting to approximately HK$348,000 (2008: HK$608,000).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Organization and Staff

The Group had about 305 (2008: 287) staff in total as at 31 December 2009. The majority of which included staff of gaming business in Macau and sales and marketing executives in China. The Group is actively seeking key personnel to join our sales and marketing teams in Macau as well as in China in order to cope with the rapid growing operations.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2009

1. GENERAL

Paradise Entertainment Limited (the “Company”) was incorporated in Bermuda as an exempted company with limited liability under the Companies Act of Bermuda. The Company’s shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The addresses of the registered office is located in Clarendon House, 2 Church Street, Hamilton HM11, Bermuda and principal place of business of the Company is located in Unit C, 19/F., Entertainment Building, 30 Queen’s Road Central, Hong Kong.

The Company is an investment holding company. The principal activities of the Group’s associate and subsidiaries (together with the Company collectively referred to as the “Group”) are set out in notes 20 and 43 respectively.

Other than those operating subsidiaries established in the People’s Republic of China (the “PRC”) and engaged in the research, development and sale of biopharmaceutical products, which functional currency is Renminbi (“RMB”), the functional currency of the Company and its subsidiaries is Hong Kong dollars (“HK$”). The consolidated financial statements are presented in Hong Kong dollars.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSS”)

In the current year, the Group has applied the following new and revised standards, amendments and interpretations (“new and revised HKFRSs”) issued by the HKICPA:

HKAS 1 (Revised 2007)	Presentation of financial statements
HKAS 23 (Revised 2007)	Borrowing costs
HKAS 32 & 1 (Amendments)	Puttable Financial Instruments and Obligations Arising on
	Liquidation
HKFRS 1 & HKAS 27 (Amendments)	Cost of an investment in a subsidiary, jointly controlled entity
	or an associate
HKFRS 2 (Amendments)	Share-based payment – vesting conditions and cancellations
HKFRS 7 (Amendments)	Improving disclosures about financial instruments
HKFRS 8	Operating segments
HK(IFRIC) – Int 9 & HKAS 39	Embedded Derivatives
(Amendments)
HK(IFRIC) – Int 13	Customer Loyalty Programmes
HK(IFRIC) – Int 15	Agreements for the Construction of Real Estate
HK(IFRIC) – Int 16	Hedges of a Net Investment in a Foreign Operation
HK(IFRIC) – Int 18	Transfers of Assets from Customers
HKFRS (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
HKFRS (Amendments)	Improvements to HKFRSs issued in 2009 in relation to the
	amendment to paragraph 80 of HKAS 39

Except as described below, the adoption of the new and revised HKFRSs has no material effect on the financial statements of the Group and the Company for the current and prior accounting periods.

(a) HKAS 1 (Revised) – Presentation of Financial Statements

The adoption of HKAS 1 (Revised 2007) makes certain changes to the format and titles of the primary financial statements and to the presentation of some items within these statements. It also gives rise to additional disclosures. The measurement and recognition of the Group’s assets, liabilities, income and expenses is unchanged. However, some items that were recognised directly in equity are now recognised in

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

other comprehensive income. HKAS 1 affects the presentation of owner changes in equity and introduces a ’Statement of comprehensive income’. Comparatives have been restated to conform with the revised standard. The Group has applied changes to its accounting polices on presentation of financial statements and segment reporting retrospectively. However, the changes to the comparatives have not affected the consolidated or company statement of financial position at 1 January 2008 and accordingly this statement are not presented.

(b) HKFRS 7 Financial instruments – Disclosures (Amendment)

The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. As the change in accounting policy only results in additional disclosures, there is no impact on earnings per share.

(c) HKFRS 8 – Operating Segment

The adoption of HKFRS 8 has not affected the identified and reportable operating segments for the Group. However, reported segment information is now based on internal management reporting information that is regularly reviewed by the chief operating decision maker. In the previous annual financial statements, segments were identified by reference to the dominant source and nature of the Group’s risks and returns. Comparatives have been restated on a basis consistent with the new standard.

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

HKFRS 1 (Revised)	First-time Adoption of Hong Kong Financial Reporting Standards 1	First-time Adoption of Hong Kong Financial Reporting Standards 1
HKFRS 1 Amendments	Amendments to HKFRS 1 First-time Adoption of Hong Kong Financial
	Reporting Standards – Additional Exemptions for First-time Adopters 2
HKFRS 1 Amendment	Amendment to HKFRS 1 _First-time Adoption of Hong _	Kong Financial
	Reporting Standards – Limited Exemption from Comparative HKFRS 7
	Disclosures for First-time Adopters 4
HKFRS 2 Amendments	Amendments to HKFRS 2 Share-based Payment – Group Cash-settled
	Share-based Payment Transactions 2
HKFRS 3 (Revised)	Business Combinations 1
HKFRS 9	Financial Instruments 6
HKAS 24 (Revised)	Related Party Disclosures 5
HKAS 27 (Revised)	Consolidated and Separate Financial Statements 1
HKAS 32 Amendment	Amendment to HKAS 32 Financial Instruments: Presentation – Classification
	of Rights Issues 3
HKAS 39 Amendment	Amendment to HKAS 39 Financial Instruments:	Recognition	and
	Measurement – Eligible Hedged Items 1
HK(IFRIC)-Int 14	Amendments to HK(IFRIC)-Int 14 Prepayments of a Minimum Funding
Amendments	Requirement 5
HK(IFRIC)-Int 17	Distributions of Non-cash Assets to Owners 1
HK(IFRIC)-Int 19	Extinguishing Financial Liabilities with Equity Instruments 4
Amendments to HKFRS	Amendments to HKFRS 5 _Non-current Assets Held for Sale _	and Discontinued
5 included in	Operations – Plan to Sell the Controlling Interest in a Subsidiary 1
Improvements to
HKFRSs issued in
October 2008
HK Interpretation 4	_Leases – Determination of the Length of Lease Term in respect of Hong _		Kong
(Revised in December	Land Leases 2
2009)

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Apart from the above, the HKICPA has issued Improvements to HKFRSs 2009 which sets out amendments to a number of HKFRSs primarily with a view to removing inconsistencies and clarifying wording. The amendments to HKFRS 2, HKAS 38, HK(IFRIC)-Int 9 and HK(IFRIC)-Int 16 are effective for annual periods beginning on or after 1 July 2009 while the amendments to HKFRS 5, HKAS 1, HKAS 7, HKAS 17, HKAS 36 and HKAS 39 are effective for annual periods beginning on or after 1 January 2010 although there are separate transitional provisions for each standard or interpretation.

1 Effective for annual periods beginning on or after 1 July 2009
2 Effective for annual periods beginning on or after 1 January 2010
3 Effective for annual periods beginning on or after 1 February 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 Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, the Group considers that except for the adoption of HKFRS 3 (Revised) and HKFRS 27 (Revised) may result in changes in accounting policies and the adoption of HKAS 24 (Revised) may affect the disclosures of related party transactions, these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

3. PRIOR PERIOD ADJUSTMENTS

During the year ended 31 December 2009, the management reviewed again the Group’s impairment assessment on the Group’s tangible and intangible assets as at 31 December 2007 and 2008. As a consequence, the management resolved to make the following adjustments, which are due to prior period errors, to the Group’s statement of financial position as at 31 December 2007 and 2008 and the results for the years ended 31 December 2007 and 2008.

The following is a summary of the effects on adjustments on:

As previously
reported
2007
Prior period
adjustments
for 2007
HK$’000
HK$’000
TURNOVER
130,519
Cost of sales and services
(110,871)
Gross profit
19,648
Other operating income
4,159
Marketing, selling and distribution costs
(17,732)
Administrative expenses
(67,602)
Share-based payments
(63,674)
Research and development cost
(2,526)
Impairment loss for doubtful debts
(3,689)
Impairment loss on property, plant and equipment
–
(5,336)
Impairment loss on intangible assets (net of reversal of
deferred tax liabilities)
–
(9,085)
Impairment loss on payments for investments
–
(18,524)
Finance costs
(3,844)
Fair value loss on derivative financial instruments
(36,817)

As restated
2007
HK$’000
130,519
(110,871)
19,648
4,159
(17,732)
(67,602)
(63,674)
(2,526)
(3,689)
(5,336)
(9,085)
(18,524)
(3,844)
(36,817)

– 45 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As previously
reported
2007
Prior period
adjustments
for 2007
HK$’000
HK$’000
Loss before tax
(172,077)
Income tax expenses
(374)
Loss for the year
(172,451)
Attributable to:
Owners of the Company
(172,451)
Non-controlling interests
–
(172,451)
Loss per share (HK cents)
– Basis (as adjusted for share consolidation
taken place in 2009)
(50.71)
– Diluted
N/A
Non-current assets
Property, plant and equipment
122,577
(5,336)
Investment property
4,850
Intangible assets
90,520
(10,688)
Interest in an associate
–
Deposits paid for acquisition of non-current assets
15,292
Payments for investments
61,002
(18,524)
Deposit paid for acquisition of a subsidiary
7,800
302,041
Current assets
Inventories
25
Debtors, deposits and prepayments
46,944
Advances to consulting companies
52,083
Bank and cash balances
69,402
168,454

As restated
2007
HK$’000
(205,022)
(374)
(205,396)
(205,396)
–
(205,396)
(60.40)
N/A
117,241
4,850
79,832
–
15,292
42,478
7,800
267,493
25
46,944
52,083
69,402
168,454

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As previously reported 2007 Prior period adjustments for 2007 HK$’000 HK$’000 Current liabilities Creditors and accrued charges 78,531 Amounts due to directors 1,411 Amount due to a related party 60 Other borrowings – due within one year – Obligations under finance leases – due within one year 242 Derivative financial instruments 7,577 Redeemable voting preference shares 13,978 Convertible loans – due within one year – Current tax liabilities 3,332 105,131 Net current assets 63,323 Total assets less current liabilities 365,364 Non-current liabilities Other borrowings – due after one year – Obligations under finance leases – due after one year 506 Convertible loans – due after one year 72,174 Deferred tax liabilities 13,407 (1,603) 86,087 Net assets 279,277 Capital and reserves Share capital 38,659 Reserves 240,618 (32,945) Equity attributable to owners of the Company 279,277 Non-controlling interests – Total equity 279,277	As restated 2007 HK$’000 78,531 1,411 60 – 242 7,577 13,978 – 3,332
	105,131
	63,323
	330,816
	– 506 72,174 11,804
	84,484
	246,332

	38,659 207,673
	246,332 –
	246,332

– 47 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As previously
reported
2008
Prior period
adjustments
for 2008
HK$’000
HK$’000
TURNOVER
219,329
Cost of sales and services
(206,323)
Gross profit
13,006
Other operating income
6,575
Marketing, selling and distribution costs
(32,463)
Administrative expenses
(83,683)
Share-based payments
(1,234)
Research and development cost
(2,699)
Impairment loss for doubtful debts
(187)
Impairment loss on property, plant and equipment
–
(529)
Impairment loss on intangible assets (net of reversal of
deferred tax liabilities and related income tax expenses)
–
(1,059)
Impairment loss on payments for investments
–
(6,143)
Finance costs
(11,657)
Fair value loss on derivative financial instruments
(3,148)
Gain on derecognition of derivative financial instruments
10,725
Gain on deemed disposal of a subsidiary
15,600
Loss before tax
(89,165)
Income tax expenses
(3,542)
997
Loss for the year
(92,707)
Attributable to:
Owners of the Company
(92,707)
Non-controlling interests
–
(92,707)
Loss per share (HK cents)
– Basis (as adjusted for share consolidation
taken place in 2009)
(23.98)
– Diluted
N/A

As restated
2008
HK$’000
219,329
(206,323)
13,006
6,575
(32,463)
(83,683)
(1,234)
(2,699)
(187)
(529)
(1,059)
(6,143)
(11,657)
(3,148)
10,725
15,600
(96,896)
(2,545)
(99,441)
(99,441)
–
(99,441)
(25.72)
N/A

– 48 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As previously
reported
2008
Prior period
adjustments
for 2007
Prior period
adjustments
for 2008
HK$’000
HK$’000
HK$’000
Non-current assets
Property, plant and equipment
159,658
(5,336)
(529)
Intangible assets
90,566
(10,688)
(1,246)
Interest in an associate
–
Deposits paid for acquisition of non-current
assets
945
Payments for investments
64,741
(18,524)
(6,143)
Deposit paid for acquisition of a subsidiary
7,800
323,710
Current assets
Inventories
193
Debtors, deposits and prepayments
35,738
Advances to consulting companies
29,071
Bank and cash balances
43,954
108,956
Current liabilities
Creditors and accrued charges
76,573
Amounts due to directors
1,550
Amount due to a related party
58
Other borrowings – due within one year
10,029
Obligations under finance leases – due
within one year
257
Convertible loans – due within one year
73,933
Current tax liabilities
2,594
164,994
Net current liabilities
(56,038)
Total assets less current liabilities
267,672
Non-current liabilities
Other borrowings – due after one year
39,006
Obligations under finance leases – due
after one year
249
Convertible loans – due after one year
12,504
Deferred tax liabilities
16,763
(1,603)
(1,184)
68,522
Net assets
199,150

As restated
2008
HK$’000
153,793
78,632
–
945
40,074
7,800
281,244
193
35,738
29,071
43,954
108,956
76,573
1,550
58
10,029
257
73,933
2,594
164,994
(56,038)
225,206
39,006
249
12,504
13,976
65,735
159,471

– 49 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As previously reported 2008 Prior period adjustments for 2007 Prior period adjustments for 2008 HK$’000 HK$’000 HK$’000 Capital and reserves Share capital 38,659 Reserves 160,491 (32,945) (6,734) Equity attributable to owners of the Company 199,150 Non-controlling interests – Total equity 199,150	As restated 2008 HK$’000 38,659 120,812
	159,471 –
	159,471

4. BASIS OF PREPARATION

The consolidated financial statements have been prepared on a going concern basis notwithstanding the Group had net current liabilities of approximately HK$55,226,000 and incurred loss of approximately HK$167,239,000 for the year then ended. In the opinion of the directors, the Group is able to maintain itself as a going concern in the coming year by taking into consideration the arrangements which include, but are not limited to, the following:

the directors anticipate that the Group will generate positive cash flows from its businesses;
the directors have implemented measures to tighten cost controls over various marketing, selling and distribution costs and administrative expenses and to improve the Group’s positive cashflow positions and operating results.
The Group has received HK$212,450,000 in respect of the subscription agreement I, II and III for convertible debentures, details please refer to note 45.

On the basis that the continuing availability of the financial supports provided by independent third parties and the implementation of other measures with a view to improve its working capital and net financial position, the directors consider that the Group will have sufficient working capital to meet its financial obligations as and when they fall due for the next twelve months from 31 December 2009. Accordingly, the directors are satisfied that it is appropriate to prepare these consolidated financial statements on a going concern basis. The consolidated financial statements do not include any adjustments relating to the carrying amount and reclassification of assets and liabilities that might be necessary should the Group be unable to continue as a going concern.

5. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the historical cost basis except for the certain financial instruments, which are measured at fair values, as explained in the accounting policies set out below.

The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance.

(a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

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

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Non-controlling interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the non-controlling interests in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

(b) Investments in associates

An associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associates, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

(c) Revenue recognition

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

Revenue from gaming operations, representing the net gaming wins, is recognised when the relevant services have been rendered and is measured at the entitlement of economic inflows of the Group from the business.

Revenue from the sales of goods is recognised when the goods are delivered and the title has passed.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

(d) Property, plant and equipment

Property, plant and equipment including land and buildings held for use in the production or supply of goods or services, or for administrative purposes are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

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.

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

(e) 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 fair value of investment properties are included in profit or loss for the period in which they arise.

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

(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 the consolidated income statement on a straight-line basis over the term of the relevant lease.

The Group as lessee

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss.

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease.

(g) Leasehold land and building

The land and building elements of a lease of land and building are considered separately for the purpose of lease classification, unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire lease is generally treated as a finance lease and accounted for as property, plant and equipment.

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(h) Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each of the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the end of the 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 retranslation of monetary items, are recognised in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of the Company’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financial statements. Exchange differences arising on the retranslation of non-monetary items carried at fair value, are included in profit or loss for the period.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. HK$) at the rate of exchange prevailing at the end of the reporting period, and their income and expenses are translated at the average exchange rates for the year. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

(i) Borrowing costs

All borrowing costs are recognised as and included in finance costs in the consolidated income statement in the period in which they are incurred.

(j) Retirement benefit costs

Payments to the Mandatory Provident Fund Scheme and stated-managed retirement benefit schemes are charged as an expense when employees have rendered service entitling them to the contributions.

(k) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, 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.

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

(l) Intangible assets

Intangible assets acquired separately

Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives.

Gains or losses arising from derecognition of an intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement when the asset is derecognised.

(m) Research and development expenditure

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

(n) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

(o) Financial instruments

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

Financial assets

The Group’s financial assets are classified into financial assets at fair value through profit or loss (“FVTPL”) and loans and receivables. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

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

Interest income is recognised on an effective interest basis for debt instruments.

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial assets at fair value through profit or loss

Financial assets at FVTPL has two subcategories, including financial assets held for trading.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling in the near future; or
it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

At each of the end of the reporting period subsequent to initial recognition, financial assets at FVTPL are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each of the end of the reporting period subsequent to initial recognition, loans and receivables (including debtors, deposits, advances to consulting companies and bank and cash balances) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

Impairment loss on financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each of the end of the reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

For all of the Group’s financial assets, objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as trade debtors, 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 as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, 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 the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade debtors, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

recognised in profit or loss. When a trade debtor is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

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

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into other financial liabilities.

Effective interest method

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

Interest expense is recognised on an effective interest basis.

Other financial liabilities

Other financial liabilities including creditors and accrued charges, amounts due to directors, amount due to a related party, other borrowings and obligations under finance leases are subsequently measured at amortised cost, using the effective interest method.

Convertible loans

Convertible loans issued by the Group that contain both the liability and conversion option components are classified separately into respective items on initial recognition. Conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is classified as an equity instrument.

On initial recognition, the fair value of the liability component is determined using the prevailing market interest of similar non-convertible debts. The difference between the gross proceeds of the issue of the convertible loans and the fair value assigned to the liability component, representing the conversion option for the holder to convert the convertible loans into equity, is included in equity (convertible loans reserve).

In subsequent periods, the liability component of the convertible loans is carried at amortised cost using the effective interest method. The equity component, representing the option to convert the liability component into ordinary shares of the Company, will remain in convertible loans reserve until the embedded option is exercised (in which case the balance stated in convertible loans reserve will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in convertible loans reserve will be released to the accumulated losses. No gain or loss is recognised in profit or loss upon conversion or expiration of the option.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Transaction costs that relate to the issue of the convertible loans are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are charged directly to equity. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible loans using the effective interest method.

Redeemable voting preference shares

Redeemable voting preference shares which entitle the holder to convert the preference shares into equity instruments, other than into a fixed number of equity instruments at a fixed conversion price, are regarded as combined instruments consist of a liability and a derivative component. At the date of issue, the fair value of the derivative component, is determined using an option pricing model; and this amount is carried as a derivative liability until extinguished on conversion or redemption. The remainder of the proceeds is allocated to the liability component and is carried as a liability at amortised cost using the effective interest method until extinguished on conversion or redemption. The derivative component is measured at fair value with gains and losses recognised in the consolidated income statement.

Transaction costs are apportioned between the liability and derivative components of the redeemable voting preference shares based on the allocation of proceeds to the liability and derivative components on initial recognition.

Equity instruments

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

Derivative financial instruments

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each of the end of the reporting period. The resulting gain or loss is recognised in profit or loss immediately.

Derecognition

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

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Share-based payment transactions

Equity-settled share-based payment transactions

Share options granted to directors and employees

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period with a corresponding increase in equity (option reserve).

At each of the end of the reporting period, the Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the estimates during the vesting period, if any, is recognised in profit or loss, with a corresponding adjustment to option reserve.

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At the time when the share options are exercised, the amount previously recognised in option reserve will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in option reserve will be transferred to accumulated losses.

Share options granted to consultants

Share options granted in exchange for services are measured at the fair values of the goods or services received. The fair values of the services received are recognised as expenses, with a corresponding increase in equity (option reserve), when the counterparties render services, unless the services qualify for recognition as assets.

(p) Impairment losses on tangible and intangible assets

At each of the end of the reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. In addition, intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

6. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 5, the directors of the Company are required to make judgements, 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 may differ from these estimates.

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

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

(a) Estimated useful lives and impairment loss for property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and identified impairment losses. The estimation of useful lives impacts the level of annual depreciation expenses recorded. Property, plant and equipment are evaluated for possible impairment on a specific asset basis or in groups of similar assets, as applicable. This process requires management’s estimate of future cash flows generated by each assets or group of assets. For any instance where this evaluation process indicates impairment, the relevant asset’s carrying amount is written down to the recoverable amount and the amount of the write-down is charged against the consolidated income statement.

(b) Impairment loss for intangible assets, payments for investments and deposit paid for acquisition of a subsidiary

In connection with the carrying amount of intangible assets, payments for investments and deposit paid for acquisition of a subsidiary, the Group performs ongoing evaluation of status of the underlying drug projects concerned. Sensitivity analysis has been carried out on its assumptions regarding future market shares and anticipated margins on these drugs and gaming projects independently and the Group believes

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

that adequate provision for impairment was made on the carrying amount of intangible assets, payments for investments and acquisition of a subsidiary. The situation will be closely monitored, and adjustments will be made in future periods, if future market activity indicates that such adjustments are appropriate.

(c) Impairment loss for debtors and deposits

The policy for making impairment loss on debtors and deposits of the Group is based on the evaluation of collectability and aging analysis of accounts and on management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each debtor. If the financial conditions of debtors of the Group were to deteriorate, resulting in an impairment of their ability to make payments, additional impairment loss may be required.

(d) Fair value of derivative financial instruments

As disclosed in note 30 and 31, the fair values of the derivative component of the redeemable voting preference shares and warrants at respective measurement dates were determined using option pricing models. Application of option pricing models requires the Group to estimate the prominent factors affecting the fair value, including but not limited to, the expected life of the derivative instruments, the expected volatility of the market price of the underlying assets and the potential dilution therein.

Where the estimation on the abovementioned factors is different from those previously estimated, such differences will impact the fair value gain or loss of the derivative financial instruments in the period in which such determination is made.

(e) Share-based payment expenses

The fair value of the share options granted to the directors, employees and consultants determined at the date of grant of the respective share options is expensed over the vesting period, with a corresponding adjustment to the Group’s option reserve. In assessing the fair value of the share options, the generally accepted option pricing models were used to calculate the fair value of the share options. The option pricing models require the input of subjective assumptions, including the expected dividend yield and expected life of options. Any changes in these assumptions can significantly affect the estimate of the fair value of the share options.

7. 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 capital structure of the Group consists of debt, which includes the other borrowings and convertible loans as disclosed in notes 28 and 32 respectively, bank and cash balances and equity of the Company, comprising issued share capital disclosed in note 34 and reserves as disclosed in consolidated statement of changes in equity. The management reviews the capital structure by considering the cost of capital and the risks associated with each class of capital. In view of this, the Group will balance its overall capital structure through the payment of dividends, new share issues as well as raise of new borrowings or repayment of existing borrowings. The Group’s approach to capital management remains unchanged throughout the year.

8. FINANCIAL RISK MANAGEMENT

A. Financial risk, management objectives and policies

The Group’s major financial instruments include debtors; deposits; advances to consulting companies; bank and cash balances; creditors and accrued charges; amounts due to directors; amount due to a related party; other borrowings; obligations under finance leases and convertible loans. Details of the 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.

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Market risk

(a) Currency risk

Currency risk refers to the risk that movement in foreign currency rate which will affect the Group’s financial results and its cashflow. The management considers the Group does not expose to significant foreign currency risk as majority of its operations and transactions are denominated in the functional currencies of the group entity. The Group currently does not have a foreign currency hedging policy in respect of foreign currency transactions, assets and liabilities. However, the Group monitors its foreign currency exposure and will consider hedging significant foreign currency exposure should the need arise.

(b) Interest rate risk

The Group’s exposure to interest-rate risk arises from its bank deposits, other borrowings, obligations under finance leases and convertible loans. The bank deposits bear interests at variable rates varied with the prevailing market condition. The other borrowings, obligations under finance leases and convertible loans bear interests at fixed rates and therefore expose the Group to fair value interest rate risks.

The Group’s result is not sensitive to changes in interest rate as the Group’s borrowings are at fixed interest rates and the interest income generated from bank deposits is insignificant.

(c) Other price risk

The Group is exposed to equity price risk through its investments in listed equity securities. The Group’s equity price risk is mainly concentrated on equity instruments operating in gaming industry sector quoted in the Stock Exchange. In addition, the Group monitors the price risk exposure and will consider hedging the risk exposure should the need arise.

Credit risk

The carrying amounts of bank and cash balances, debtors, deposits and advances to consulting companies included in the consolidated statement of financial position represents the Group’s maximum exposure to credit risk in relation to the Group’s financial assets.

The Group has no significant concentrations of credit risk.

The credit quality of the counterparties in respect of debtors and deposits, is assessed by taking into account their financial position, credit history and other factors. Given the constant repayment history, the directors are of the opinion that the risk of default by these counterparties is low.

The credit risk on bank and cash balances is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies and the PRC large state-controlled banks.

In view of advances to consulting companies, the Group performs ongoing credit evaluations of consulting companies’ financial conditions. After the end of the reporting period, most advances to consulting companies have been repaid on demand, there is no significant exposure to the credit risk as regards advances to consulting companies.

Liquidity risk

The Group is exposed to liquidity risk as at 31 December 2009 as its financial assets due within one year was less than its financial liabilities due within one year. At 31 December 2009, the Group had net current liabilities of approximately HK$55,226,000. The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and long term.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table details the Group’s remaining contractual maturity for is 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.

At 31 December 2009 Creditors and accrued charges Amount due to directors Amount due to a related party Other borrowings Obligations under finance leases Convertible loans At 31 December 2008 Creditors and accrued charges Amount due to directors Amount due to a related party Other borrowings Obligations under finance leases Convertible loans	Less than 1 year HK$’000 62,710 6,508 2,106 64,598 256 6,320 142,498 76,573 1,550 58 15,718 279 81,320 175,498	Between 1 and 2 years HK$’000 – – – 9,836 – 6,320 16,156 – – – 35,718 256 1,315 37,289	Between 2 and 5 years Total undiscounted cash flow HK$’000 HK$’000 – 62,710 – 6,508 – 2,106 – 74,434 – 256 91,640 104,280 91,640 250,294 – 76,573 – 1,550 – 58 10,836 62,272 – 535 21,120 103,755 31,956 244,743	Between 2 and 5 years Total undiscounted cash flow HK$’000 HK$’000 – 62,710 – 6,508 – 2,106 – 74,434 – 256 91,640 104,280 91,640 250,294 – 76,573 – 1,550 – 58 10,836 62,272 – 535 21,120 103,755 31,956 244,743
				250,294

				76,573 1,550 58 62,272 535 103,755
				244,743

B. Fair value of financial assets and financial liabilities

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

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices and ask prices, respectively;
the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions; and
the fair value of derivative instruments in calculated using quoted prices. Where such prices are not available, use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives.

The carrying amounts of financial assets and financial liabilities (excluding liability component of convertible loans) reported in the consolidated statement of financial position approximate their carrying amounts due to their immediate or short-term maturities.

The directors consider that the carrying amounts of liability component of convertible loans recorded at amortised cost in the consolidated financial statements approximate their fair values because of the borrowing rate currently available for convertible loans with similar terms and maturities.

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C. Categories of financial instruments

Financial assets Loans and receivables – debtors and deposits – advances to consulting companies – bank and cash balances Financial liabilities Other financial liabilities measured at amortised cost – creditors and accrued charges – amounts due to directors – amounts due to a related party – other borrowings – obligations under finance leases Convertible loans	2009 HK$’000 30,851 – 44,853 75,704 62,710 6,508 2,106 67,715 249 66,214 205,502	2008 HK$’000 35,384 29,071 43,954
		108,409

		76,573 1,550 58 49,035 506 86,437
		214,159

9. TURNOVER AND SEGMENT INFORMATION

For management purpose, the Group is organised into business units based on their products and services, and has two reportable operating segments as follows:

Biopharmaceutical – Research, development and sale of biopharmaceutical products Gaming – Provision of management services, development, provision and sales of electronic gaming system

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit and loss which in certain respects, as explained in the table below, is measured differently from operating profit or loss in the consolidated financial statements. Group financing (including finance costs) are managed on a group basis and are not allocated to operating segments.

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following tables present revenue and profit information regarding the Group’s operating segments for the year ended 31 December 2009 and 2008, respectively.

(a) Business segments

For the year ended 31 December 2009

Revenue Revenue from external customers Segment results Unallocated operating income Unallocated corporate expenses Finance costs Gain on derecognition of derivative financial instruments Loss before tax Income tax expenses Loss for the year	Biophar- maceutical HK$’000 124,403 (128,270)	Gaming HK$’000 200,821 (4,455)	Others HK$’000 – 2,251	Total HK$’000 325,224 (130,474) – (21,918) (18,508) 1,302 (169,598) 2,359 (167,239)

– 63 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2009

Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Other information Capital expenditures Depreciation of property, plant and equipment Impairment loss on property, plant and equipment Impairment loss on intangible assets Impairment loss on payments for investments Impairment loss for amount due from an associate	Biophar- maceutical HK$’000 25,452 42,808 488 7,121 10,270 66,837 40,074 –	Gaming HK$’000 199,268 64,701 45,474 24,744 – – – –	Others HK$’000 961 47 15 442 – – – 116	Total HK$’000 225,681 13,965
				239,646

				107,556 100,356
				207,912

				45,977 32,307 10,270 66,837 40,074 116

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the year ended 31 December 2008

Revenue Revenue from external customers Segment results Unallocated operating income Unallocated corporate expenses Finance costs Fair value loss on derivative financial instruments Gain on derecognition of derivative financial instruments Gain on deemed disposal of a subsidiary Gain on disposal of an investment property Loss before tax Income tax expenses Loss for the year	Biophar- maceutical HK$’000 (restated) 124,402 (18,183)	Gaming HK$’000 94,927 (65,050)	Others HK$’000 – 2,387	Total HK$’000 (restated) 219,329

				(80,846) 202 (31,232) (11,657) (3,148) 10,725 15,600 3,460
				(96,896) (2,545)
				(99,441)

As at 31 December 2008

Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities	Biophar- maceutical HK$’000 (restated) 186,407 54,150	Gaming HK$’000 138,352 37,018	Others HK$’000 1,016 52	Total HK$’000 (restated) 325,775 64,425
				390,200

				91,220 139,509
				230,729

– 65 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

	Biophar-
	maceutical	Gaming	Others	Un-allocated	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(restated)				(restated)
Other information
Capital expenditure	30	66,784	–	108	66,922
Depreciation of property,
plant and equipment	6,927	22,533	119	397	29,976
Gain on disposal of
property, plant and
equipment	76	–	–	–	76
Gain on disposal of an
investment property	–	–	–	3,460	3,460
Loss on disposal of
financial assets at fair
value through profit or
loss	–	–	–	487	487
Impairment loss on
property, plant and
equipment	529	–	–	–	529
Impairment loss on
intangible assets	1,059	–	–	–	1,059
Impairment loss on
payments for
investments	6,143	–	–	–	6,143
Impairment loss for
amount due from an
associate	–	–	–	187	187
Share-based payments	–	–	–	1,234	1,234

(b) Geographical segments

The PRC and Hong Kong Macau	Revenue 2009 2008 HK$’000 HK$’000 124,403 124,402 200,821 94,927 325,224 219,329	Total assets 2009 2008 HK$’000 HK$’000 (restated) 40,715 131,475 198,931 258,725 239,646 390,200	Capital expenditure 2009 2008 HK$’000 HK$’000 503 10,762 45,474 56,160 45,977 66,922	Capital expenditure 2009 2008 HK$’000 HK$’000 503 10,762 45,474 56,160 45,977 66,922
				66,922

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. OTHER OPERATING INCOME

Bank interest income Interest income from consulting companies Gain on disposal of property, plant and equipment Gain on disposal of an investment property Rental income Net exchange gains Sundry income	2009 HK$’000 7 267 – – 720 110 2,039 3,143	2008 HK$’000 221 431 76 3,460 720 70 1,597
		6,575

11. FINANCE COSTS

Interests on: Other borrowings wholly repayable within five years Obligations under finance leases wholly repayable within five years Bank overdraft Effective interests on: Convertible loans (note 32) Redeemable voting preference shares (note 31)	2009 HK$’000 8,069 22 44 10,373 – 18,508	2008 HK$’000 3,160 37 4 6,834 1,622
		11,657

12. INCOME TAX EXPENSES

Current tax – current year Deferred tax – attributable to a change in tax rate (note 33)	2009 HK$’000 – (2,359) (2,359)	2008 HK$’000 (restated) 186 2,359
		2,545

(i) Hong Kong Profits Tax

No provision for Hong Kong Profits Tax had been made as the Group did not generate any assessable profits in Hong Kong during both years.

(ii) PRC Enterprise Income Tax

On 16 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation Regulation of the New Law. Under the New Law and Implementation Regulation, the Enterprise Income Tax rate of the Group’s subsidiaries in the PRC was reduced from 33% to 25% from 1 January 2008 onwards. The Company and certain subsidiaries which are enjoying the tax holiday will continue until expiry while the preferential tax rates disclosed below will continue after the New Law.

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to the notice issued by the PRC tax authorities, the applicables tax rate of the Company’s subsidiary, Hainan Kangwei Medicine Co., Ltd. (“Hainan Kangwei”) for 2008, 2009, 2010 and 2011 is 18%, 20%, 22% and 24% respectively. Hainan Kangwei is subjected to PRC Enterprise Income Tax rate of 25% commencing from 1 January 2012.

For other operating subsidiaries established in the PRC, PRC Enterprise Income Tax is calculated at the rate of 25% (2008: 25%) prevailing in the PRC during both years with certain tax preference.

No provision for PRC Enterprise Income Tax had been made as the Group’s subsidiaries either were enjoying tax holiday or did not generate any assessable profits during both years.

(iii) Overseas income tax

Tax charge on assessable profits elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretation and practices in respect thereof.

The charge for the year can be reconciled to the loss before tax per consolidated income statement is as follows:

Loss before tax Tax at PRC Enterprise Income Tax rate of 25% (2008: 25%) Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of tax losses not recognised Utilisation of tax loss previously not recognised (Reversal of) increase in deferred tax liabilities resulting from an increase in applicable tax rate Tax effect of different tax rates of subsidiaries operating in other jurisdiction Income tax expenses	2009 HK$’000 (169,598) (42,400) 33,965 (349) 3,280 763 (2,359) 4,741 (2,359)	2008 HK$’000 (restated) (96,896) (24,224) 15,302 (545) 4 – 2,359 9,649 2,545

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. LOSS FOR THE YEAR

Loss for the year has been arrived at after charging: Auditors’ remuneration Cost of inventories recognised as expenses Depreciation of property, plant and equipment Direct operating expenses in respect of an investment property that did not generate rental income Loss on disposal of financial assets at fair value through profit or loss Operating lease rentals paid in respect of rented premises Impairment loss on property, plant and equipment (note) Impairment loss on intangible assets (note) Impairment loss on payments for investments (note) Impairment loss for amount due from an associate Impairment loss for amount due from a non-controlling shareholder of a subsidiary Staff costs – Directors’ emoluments (note 14) – Other staffs – Salaries and other benefits – Equity settled share-based payments (note 36) – Retirement benefits scheme contributions Total staff costs	2009 HK$’000 700 112,514 32,307 61 – 5,363 10,270 66,837 40,074 116 55	2008 HK$’000 (restated) 700 122,008 29,976 42 487 4,567 529 1,059 6,143 187 – 8,448 34,749 702 556 44,455
	6,690 30,297 – 645
	37,632

Note:

Impairment loss in connection with the Group’s biopharmaceutical business

The management had conducted a thorough review on the Group’s biopharmaceutical business. Based on the result of the review, the management resolved to make full impairment loss of approximately HK$66,837,000, HK$40,074,000 and HK$10,270,000 to the Group’s intangible assets, payments for investments and property, plant and equipment as at 31 December 2009 and fully reversed the related deferred tax liabilities of approximately HK$13,976,000 (note 33) as at 31 December 2009.

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments

The emoluments of each director were as follows:

Year ended 31 December 2009

Name Executive directors Mr. Jay Chun Mr. Shan Shiyong, alias, Sin Sai Yung Dr. Ma Xianming, alias, Ma Yin Ming Independent non-executive directors Mr. Frank Hu Mr. Li John Zongyang Mr. Hu Wenxiang Total	Fees HK$’000 – – – 120 120 120 360	Salaries and other benefits Accommodation benefits Share-based payments Retirement benefits scheme contributions HK$’000 HK$’000 HK$’000 HK$’000 2,268 1,440 – 12 2,400 – – 4 206 – – – – – – – – – – – – – – – 4,874 1,440 – 16	Total HK$’000 3,720 2,404 206 120 120 120
			6,690

The emoluments of each director were as follows:

Year ended 31 December 2008

Name Executive directors Mr. Jay Chun Mr. Shan Shiyong, alias, Sin Sai Yung Dr. Ma Xianming, alias, Ma Yin Ming Mr. Law Wing Kit, Stephen (note a) Mr. Park Aaron Changmin (note b) Independent non-executive directors Mr. Frank Hu Ms. Ma Shiwei (note c) Mr. Li John Zongyang Mr. Hu Wenxiang (note d) Total	Fees HK$’000 – – – – – 120 107 120 13 360	Salaries and other benefits Accommodation benefits Shared-based payments Retirement benefits scheme contributions HK$’000 HK$’000 HK$’000 HK$’000 2,268 1,233 – 12 2,400 – – – 203 – – – 560 – 375 – 880 – 157 – – – – – – – – – – – – – – – – – 6,311 1,233 532 12	Total HK$’000 3,513 2,400 203 935 1,037 120 107 120 13
			8,448

– 70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) Resigned on 7 August 2008
(b) Resigned on 1 December 2008
(c) Resigned on 21 November 2008
(d) Appointed on 21 November 2008

No director waived or agreed to waive any emoluments during two years ended 31 December 2009 and 2008.

Employees’ emoluments

The five highest paid individuals in the Group during the year included two (2008: four) directors whose emoluments are reflected in the analysis presented above. The emoluments of remaining three (2008: one) individual are set out below:

Salaries and other benefits Retirement benefit scheme contributions	2009 HK$’000 2,355 12 2,367	2008 HK$’000 1,200 –
		1,200

Their emoluments were within the following band:

	2009	2008
	Number of	Number of
	individuals	individuals
0 to HK$1,000,000	2	–
HK$1,000,001 to HK$1,500,000	1	1

During two years ended 31 December 2009 and 2008, no emoluments were paid by the Group to any of the directors or the highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

15. DIVIDENDS

No dividend was paid or proposed during 2009, nor has any dividend been proposed since the end of the reporting period (2008: nil).

16. LOSS PER SHARE

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

										2009	2008	2007
										HK$’000	HK$’000	HK$’000
											(restated)	(restated)
Loss
Loss	for	the	purpose	of	calculating	basic	loss	per	share	(167,239)	(99,441)	(205,396)

– 71 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Number of shares Issued ordinary shares at 1 January Effect of issue of shares on placement Effect of conversion of convertible loans Effect of exercise of share options Effect of exercise of warrants Share consolidation (note 34) Weighted average number of ordinary shares for the purpose of calculating basic loss per share	2009 3,865,897,919 – 548,972,603 – – (3,973,383,470) 441,487,052	2008 (restated) 3,865,897,919 – – – – (3,479,308,128) 386,589,791	2007 (restated) 3,038,297,919 11,506,849 143,013,698 95,435,890 112,328,767 (3,060,524,811) 340,058,312

As the effects of all potential ordinary shares are anti-dilutive for the years ended 31 December 2009 and 2008, no diluted loss per share was presented for both years.

17. PROPERTY, PLANT AND EQUIPMENT

Cost At 1 January 2008 Additions Disposals Exchange realignment At 31 December 2008 Additions Disposals Exchange realignment At 31 December 2009 Depreciation and impairment loss At 1 January 2008, as restated Provided for the year Disposals Impairment loss Exchange realignment At 31 December 2008, as restated Provided for the year Disposals Impairment loss At 31 December 2009 Carrying values At 31 December 2009 At 31 December 2008, as restated	Leasehold land and buildings Leasehold improvements HK$’000 HK$’000 (restated) 1,300 40,001 – 27,971 – (280) – 134 1,300 67,826 – 38,541 – (180) – – 1,300 106,187 306 936 25 8,458 – (280) – 29 – 36 331 9,179 25 6,201 – (176) – 492 356 15,696 944 90,491 969 58,647	Plant and machinery HK$’000 (restated) 91,119 29,360 (1,785) 2,096 120,790 7,052 (4,377) (4) 123,461 19,338 19,814 (503) 500 530 39,679 23,643 (2,065) 9,778 71,035 52,426 81,111	Furniture, fixtures and office equipment HK$’000 4,601 9,591 (862) 37 13,367 384 (837) – 12,914 2,046 970 (563) – 28 2,481 1,787 (538) – 3,730 9,184 10,886	Motor vehicles HK$’000 4,685 – – 86 4,771 – – – 4,771 1,839 709 – – 43 2,591 651 – – 3,242 1,529 2,180	Total HK$’000 (restated) 141,706 66,922 (2,927) 2,353 208,054 45,977 (5,394) (4) 248,633 24,465 29,976 (1,346) 529 637 54,261 32,307 (2,779) 10,270 94,059 154,574 153,793

– 72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The above items of property, plant and equipment are depreciated on a straight-line basis, at the following rates per annum:

Leasehold land and buildings	Over the remaining terms of the leases
Leasehold improvements	20% or over the remaining terms of the leases
Plant and machinery	10-20%
Furniture, fixtures and office equipment	15-20%
Motor vehicles	10-20%

The Group’s leasehold land and buildings represents property situated in Hong Kong held under long lease.

At 31 December 2009, the carrying amount of the motor vehicles held by the Group under finance leases amounted to approximately HK$348,000 (2008: HK$608,000).

18. INVESTMENT PROPERTY

At 1 January Disposal At 31 December	2009 HK$’000 – – –	2008 HK$’000 4,850 (4,850)
		–

The Group’s investment property was situated in Hong Kong and was held under long lease and was disposal in 2008.

All of the Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes are measured using fair value model and are classified and accounted for as investment property.

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. INTANGIBLE ASSETS

Cost At 1 January 2008 Exchange realignment Reversal of deferred tax liabilities initially recognised (note 33) At 31 December 2008 Exchange realignment Reversal of deferred tax liabilities initially recognised (note 33) At 31 December 2009 Amortisation and impairment At 1 January 2008 Impairment loss At 31 December 2008 Impairment loss At 31 December 2009 Carrying amount At 31 December 2009 At 31 December 2008	Patents HK$’000 4,705 – – 4,705 – – 4,705 4,705 – 4,705 – 4,705 – –	Beneficial rights to drugs under development HK$’000 (restated) 90,520 46 (187) 90,379 (178) (11,617) 78,584 10,688 1,059 11,747 66,837 78,584 – 78,632	Total HK$’000 (restated) 95,225 46 (187) 95,084 (178) (11,617) 83,289 15,393 1,059 16,452 66,837 83,289 – 78,632

Patents represent the exclusive rights to use certain technologies acquired for the manufacture of certain biopharmaceutical products. The patent was fully amortised in prior years.

Beneficial rights to drugs under development represent the costs incurred by the Group in acquiring certain know-how and technologies in drugs, which were under development by the Group since acquisition. As detailed in note 3 to the financial statements, the Group considered the recoverable amounts of these intangible assets and provision for impairment is recognised for the year ended 31 December 2007, 2008 and 2009.

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. INTEREST IN AN ASSOCIATE

Cost of investment in an associate, unlisted Share of post-acquisition losses and reserves Amount due from an associate Less: Impairment loss for amount due from an associate	2009 HK$’000 21,672 (21,672) – 9,301 9,301 (9,301) –	2008 HK$’000 21,672 (21,672) – 9,185 9,185 (9,185) –

Particulars of the Group’s associate as at 31 December 2009 are as follows:

	Form of			Issued and	Proportion of	Proportion of
Name of	business	Place of	Principal place	fully paid		ownership
associate	structure	incorporation	of operation	share capital		interest	Principal activities
LT3000	Incorporated	British Virgin	Hong Kong	3,023,314		47.47%	Development and
Online		Islands		ordinary				trading of
Limited				shares of				computer
				US$0.1 each				hardware			and
								software		and
								provision			of
								business
								consultancy
The amount due from an associate is unsecured, interest-free and has no fixed terms of repayment.
Summarised financial information in respect			of the Group’s associate is set		out	below:
						2009					2008
						HK$’000			HK$’000
At 31 December
Total assets						4,531					4,717
Total liabilities						(11,231)				(11,101)
Net liabilities						(6,700)					(6,384)

Group’s share	of associate’s net assets					–					–

Year ended 31 December
Total revenue						13					8

Total loss for	the year					(314)					(439)

The Group has not recognised loss for the year amounting to approximately HK$149,000 (2008: HK$208,000) for the Group’s associate. The accumulated losses not recognised were approximately HK$2,084,000 (2008: HK$1,935,000).

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. PAYMENTS FOR INVESTMENTS

Deposits paid for the acquisition of beneficial rights to drugs under development Consultancy fees for soliciting the drugs under development projects capitalised Less: Accumulated impairment losses	2009 HK$’000 63,385 1,356 64,741 (64,741) –	2008 HK$’000 (restated) 63,385 1,356 64,741 (24,667) 40,074	1/1/2008 HK$’000 (restated) 59,724 1,278 61,002 (18,524) 42,478

Payments for investments represent deposits paid for the rights to drugs under the Group’s biopharmaceutical business and relevant consultancy fees capitalised under the development stage of those drugs.

As detailed in note 3 to the financial statement, the Group considered the recoverable amounts of these payments for investments and provision for impairment is recognised for the year ended 31 December 2007, 2008 and 2009.

22. DEPOSIT PAID FOR ACQUISITION OF A SUBSIDIARY

On 10 August 2007, LifeTec (Holdings) Limited (“LifeTec Holdings”), a wholly-owned subsidiary of the Company, entered into a conditional sale and purchase agreement with an independent third party for the acquisition of 80% equity interest in Shanghai Chengyou Network Technology Co., Ltd. (“Shanghai Chengyou”) at a cash consideration of HK$12,800,000. Shanghai Chengyou is a domestic enterprise with limited liability established in the PRC and engaged in the development of electronic trading platform. The amount of HK$7,800,000 as at 31 December 2009 and 2008 represents the deposit paid by the Group for the acquisition. Such deposit is secured by 49% equity interest in Shanghai Chengyou.

As of the date on which the consolidated financial statements are being approved by the directors, the consideration and payment mechanism in respect of the transactions are still under negotiation and not yet concluded.

23. INVENTORIES

Finished goods DEBTORS, DEPOSITS AND PREPAYMENTS Trade debtors Less: Accumulated impairment loss Other debtors, deposits and prepayments	2009 HK$’000 21 2009 HK$’000 32,719 (10,301) 22,418 9,980 32,398	2008 HK$’000 193 2008 HK$’000 29,812 (10,301) 19,511 16,227 35,738

24. DEBTORS, DEPOSITS AND PREPAYMENTS

– 76 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group normally allows a credit period of 30 days and 90 to 180 days to its gaming partners and trade debtors respectively. The credit policy is consistent with the gaming and biopharmaceutical industry practice in Macau and the PRC respectively.

An ageing analysis of the trade debtors net of impairment loss recognised at the end of the reporting period is as follows:

Within 30 days 31-60 days 61-90 days 91-180 days 181-365 days	2009 HK$’000 15,232 5,907 1,279 – – 22,418	2008 HK$’000 7,642 4,160 1,486 5,004 1,219
		19,511

The movement in the impairment loss for trade debtors is as follows:

Balance at the beginning of the year Impairment loss recognised in consolidated income statement Balance at the end of the year	2009 HK$’000 10,301 – 10,301	2008 HK$’000 10,301 –
		10,301

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

As of 31 December 2009, no trade debtors (2008: approximately HK$1,219,000) were past due but not impaired. An ageing analysis of these trade receivables is as follows:

181 – 365 days	2009 HK$’000 –	2008 HK$’000 1,219

Trade debtors that were past due but not impaired related to a number of customers that are the major biopharmaceutical providers in the PRC and have a good track record with the Group. Based on past experience, the management believes that no impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable.

25. ADVANCES TO CONSULTING COMPANIES

The amount represents the outstanding receivables from four consulting companies established in the PRC as at 31 December 2008. Pursuant to the agreements entered into between these consulting companies and Shanghai Youheng Biotechnology Limited (“Youheng”), a subsidiary of the Company, Youheng has appointed these consulting companies to:

(a) Solicit potential biopharmaceutical investments projects in the PRC and to provide consultancy services to the related investments for a service fee of 3% on the amount to be invested in the projects by Youheng; and

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Make payment of earnest money for potential investment projects or cost of investment on behalf of the Group after obtaining the approval from Youheng.

26. BANK AND CASH BALANCES

Cash at bank (note) Cash chips in hand Cash in hand	2009 HK$’000 9,943 16,455 18,455 44,853	2008 HK$’000 9,219 24,249 10,486
		43,954

Note: The bank balances carry interest at prevailing market rate for both years.

As at 31 December 2009, the bank and cash balances of the Group denominated in RMB amounted to approximately HK$3,698,000 (2008: HK$1,694,000), which is not freely convertible in the international market and its exchange rate is determined by the Government of the PRC.

27. CREDITORS AND ACCRUED CHARGES

An ageing analysis of trade creditors, based on the date of receipt of goods is as follows:

Within 30 days 31 – 60 days 61 – 90 days 91 – 180 days More than 365 days Trade creditors Other creditors and accrued charges Value added tax payable	2009 HK$’000 7,356 2,713 3,605 5,703 249 19,626 34,671 8,413 62,710	2008 HK$’000 12,476 5,332 7,684 12,901 202
		38,595 29,923 8,055
		76,573

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. OTHER BORROWINGS

Unsecured Carrying amount repayable: On demand or within one year More than one year but not exceeding two years More than two years but not more than five years Less: Amounts due within one year (shown under current liabilities) Amounts due after one year	2009 HK$’000 67,715 58,515 9,200 – 67,715 (58,515) 9,200	2008 HK$’000 49,035 10,029 29,805 9,201 49,035 (10,029) 39,006

Other borrowings are denominated in Hong Kong dollars and are loans from independent third parties which bear at fixed interest rates ranging from 2% to 18% (2008: 15% to 18%) per annum.

29. OBLIGATIONS UNDER FINANCE LEASES

Within one year More than one year, but not exceeding two years More than two year, but not exceeding five years Less: Future finance charges Present value of lease obligations Less: Amount due for settlement within one year (shown under current liabilities) Amount due for settlement after one year	Minimum lease payments 2009 2008 HK$’000 HK$’000 256 279 – 256 – – 256 535 (7) (29) 249 506	Present value of minimum lease payments 2009 2008 HK$’000 HK$’000 249 257 – 249 – – 249 506 N/A N/A 249 506 (249) (257) – 249

It is the Group’s policy to lease certain of its motor vehicles under finance leases. The average lease term is 4.5 years (2008: 4.5 years). As at 31 December 2009, the effective borrowing rate was 7.1% (2008: 7.1%). Interest rates are fixed at the contract dates. The leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. At the end of the lease term, the Group has the option to purchase the motor vehicles at nominal prices.

All obligations under finance leases are denominated in Hong Kong dollars.

The Group’s obligations under finance leases are secured by the lessor’s charge over the leased asset and the personal guarantee executed by a director of the Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. DERIVATIVE FINANCIAL INSTRUMENTS

During the year ended 31 December 2008, 100,000,000 warrants with carrying amount of HK$2,213,000 had not been exercised up to 2 April 2008. A gain on derecognition of warrants of HK$2,213,000 was recognised to the consolidated income statement.

On 10 March 2008, the Company and Global Markets Inc Limited (“GMI”) entered into a conditional placing agreement in respect of the placement of 115,976,938 warrants at an issue price of HK$0.01 per warrant. These warrants confer the right to subscribe for ordinary shares of the Company of HK$0.01 each, at an exercise price of HK$0.19 per ordinary shares of the Company, subject to adjustment. Upon full exercise of these warrants, an aggregate of 115,976,938 ordinary of the Company of HK$0.01 each would be issued. On 18 August 2008, the Company and GMI entered into a cancellation agreement to cancel the placement of 115,976,938 warrants.

31. REDEEMABLE VOTING PERFORMANCE SHARE

Pursuant to a subscription agreement dated 1 December 2006, LT Game Limited (“LT Game”), a subsidiary of the Company, issued 900 redeemable voting preference shares of US$1.00 each (the “Preference Shares”) to an independent third party (the “Subscriber”) at a subscription price of US$2,222.22 each. Total subscription price amounting to US$2,000,000 (equivalent to HK$15,600,000) (the “Subscription Price”) was paid by the Subscriber in cash on 1 December 2006.

The Preference Shares rank pari passu in all respects with the existing ordinary shares of LT Game.

If LT Game reports net profit before tax of less than HK$32 million for the financial year ended 31 December 2007, the holder of the Preference Shares shall be entitled to redeem the Preference Shares at the Subscription Price at any time between the date of issue of the audited financial statements of LT Game for the year ended 31 December 2007 and the date falling 6 months after the date of issue of the audited financial statements of LT Game for the year ended 31 December 2007 (the “Conversion Date”).

Unless previously redeemed, each Preference Shares shall automatically be converted into an ordinary shares of LT Game on the Conversion Date.

The fair value of the derivative component, representing the embedded redemption option entitled to the holders of the Preference Shares, was estimated at the issuance using an option pricing model and the change in fair value of that component is recognised in the consolidated income statement. The residual amount is assigned as the liability component.

The fair values of the derivatives financial instruments are determined using the generally accepted option pricing models. The significant inputs into the models were as follows:

	Derivative component of
	redeemable preference shares
	2008
Share price of underlying shares	HK$7,812
Exercise price	HK$17,333
Expected volatility	54.97%
Expected life	123 days
Risk-free rate	1.22%
Expected dividend yield	–

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The movement of the derivative and liability components of the preference Shares during the year is set out below:

Derivative component At beginning of the year Fair value loss Derecognised during the year (note) At end of the year Liability component At beginning of the year Interest charged for the year (note 11) Converted into ordinary shares of LT Game (note 40) At end of the year	2009 HK$’000 – – – – 2009 HK$’000 – – – –	2008 HK$’000 5,364 3,148 (8,512) – 2008 HK$’000 13,978 1,622 (15,600) –

Note:

On 25 October 2008, the Preference Shares were automatically converted into 900 new ordinary shares of LT Game of US$1 each. A gain on derecognition of derivative component of HK$8,512,000 was recognised to the consolidated income statement during the year ended 31 December 2008.

During the year ended 31 December 2008, the interest charged is calculated by applying an effective interest rate of 14.75% to the liability component.

32. CONVERTIBLE LOANS

Pursuant to a subscription agreement dated 22 October 2007, the Company issued convertible notes with principal value of HK$76,000,000 on 7 November 2007 (“CN1”). The holder of CN1 is entitled to convert any part of the principal amount in whole or in multiples of HK$1,000,000 into new ordinary shares of the Company, at a conversion price of HK$0.20 each and at any time between the date of issue of CN1 and 31 December 2009. If CN1 are not converted before 31 December 2009, they will be redeemed at par on 31 December 2009. CN1 bears interests at 7% per annum payable quarterly on or before the fifth business day of January, April, July and October in each year until their settlement date. Details of CN1 are provided in the Company’s announcement dated 23 October 2007.

Pursuant to a redemption agreement entered with the CN1 holder dated 28 November 2008, CN1 was early redeemed by the Company on 20 February 2009.

Pursuant to a subscription agreement dated 25 November 2008, the Company issued convertible notes with principal value of HK$16,000,000 on 22 December 2008 (“CN2”) to Kelton Capital Group Limited (“Kelton Group”). Kelton Group is entitled to convert the principal amount in whole or in part of HK$16,000,000 into new ordinary shares of the Company, at a conversion price of HK$0.32 each and at any time between the 1 March 2009 and 31 December 2013. If CN2 are not converted before 31 December 2013, they will be redeemed at par on 31 December 2013. CN2 bears interests at 8% per annum payable quarterly on or before the fifth business day of January, April, July and October in each year until their settlement date. Details of CN2 are provided in the Company’s announcement dated 27 November 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to a subscription agreement dated 25 November 2008, the Company issued convertible notes with principal value of HK$96,000,000 on 20 February 2009 (“CN3”) to Right Choice Securities Limited (“Right Choice”). Right Choice is entitled to convert the principal amount in whole or in part of HK$96,000,000 into new ordinary shares of the Company, at a conversion price of HK$0.32 each and at any time between the 20 February 2009 and 31 December 2013. If CN3 are not converted before 31 December 2013, they will be redeemed at par on 31 December 2013. CN3 bears interests at 8% per annum payable quarterly on or before the fifth business day of January, April, July and October in each year until their settlement date. Details of CN3 are provided in the Company’s announcement dated 27 November 2008.

The net proceeds received from the issue of CN1, CN2 and CN3 have been split between the liability components and equity components, as follows:

Nominal values of convertible loan notes issued Transaction costs Equity component Liability component at date of issue Liability component at 1 January 2008 Liability component at date of issue Interest charged (note 11) Repayment during the year Liability component at 31 December 2008 and 1 January 2009 Liability component at date of issue Interest charged (note 11) Repayment during the year Converted into ordinary shares of the Company Liability component at 31 December 2009	CN1 HK$’000 76,000 (3,800) (1,299) 70,901 72,174 – 6,785 (5,026) 73,933 – 1,720 (75,653) – –	CN2 HK$’000 16,000 (800) (2,745) 12,455 – 12,455 49 – 12,504 – 1,510 (1,153) (3,907) 8,954	CN3 HK$’000 96,000 (828) (16,507) 78,665 – – – – – 78,665 7,143 (5,604) (22,944) 57,260	Total HK$’000 188,000 (5,428) (20,551) 162,021 72,174 12,455 6,834 (5,026) 86,437 78,665 10,373 (82,410) (26,851) 66,214

The interest charged for the year for CN1, CN2 and CN3 are calculated by applying effective interest rates of 9.30%, 14.01% and 13.00% (2008: 9.30% and 14.35%) respectively to the liability components since the loan notes were issued.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. DEFERRED TAX LIABILITIES

The following are the major deferred tax liabilities recognised by the Group:

At 1 January 2008 Reversal due to impairment loss on intangible assets – initial recognition (note 19) Effect of change in tax rate (note 12) At 31 December 2008 and 1 January 2009 Reversal due to impairment loss on intangible assets – initial recognition (note 19) – change of tax rate (note 12) At 31 December 2009		Intangible assets HK$’000 (restated) 11,804 (187) 2,359 13,976 (11,617) (2,359) (13,976) –

At 31 December 2009, the Group has unused tax losses of approximately HK$138,574,000 (2008: HK$141,626,000) available to offset against future taxable profits. No deferred tax asset has been recognised in respect of such losses and other temporary differences due to the unpredictability of future profit streams. Included in unrecognised tax losses are losses of approximately HK$47,837,000 (2008: HK$50,888,000) that will be expired from 2009 to 2012. Other losses and temporary differences may be carried forward indefinitely.

34. SHARE CAPITAL

Number of shares of HK$0.01 each 2009 2008 ’000 ’000 Authorised: At beginning of the year 10,000,000 10,000,000 Share consolidation (note) (10,000,000) – Capital increase (note) – – At end of the year – 10,000,000 Issued and fully paid: At beginning of the year 3,865,898 3,865,898 Issue of shares on conversion of convertible loans (note 32) 1,031,250 – Share consolidation (note) (4,897,148) – At end of the year – 3,865,898	Number of shares of HK$0.1 each 2009 2008 ’000 ’000 – – 1,000,000 – 9,000,000 – 10,000,000 – – – – – 489,715 – 489,715 –	Share capital 2009 2008 HK$’000 HK$’000 100,000 – – – 900,000 – 1,000,000 100,000 38,659 38,659 10,312 – – – 48,971 38,659	Share capital 2009 2008 HK$’000 HK$’000 100,000 – – – 900,000 – 1,000,000 100,000 38,659 38,659 10,312 – – – 48,971 38,659
			100,000

			38,659 – –
			38,659

Note: Pursuant to the resolutions passed at the special general meeting held on 29 September 2009, ten shares of HK$0.01 each of the issued and unissued share capital of the Company were consolidated into one share of HK$0.10 and the authorized share capital of the Company were increased from HK$100,000,000 divided into 10,000,000,000 shares (or 1,000,000,000 consolidated shares) to HK$1,000,000,000 divided into 100,000,000,000 shares (or 10,000,000,000 consolidated shares). The

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

capital increase and the share consolidation became effective on 29 September 2009 and 30 September 2009 respectively. After the capital reorganization, the authorized share capital of the Company became HK$1,000,000,000 divided into 10,000,000,000 shares of HK$0.10 each.

35. RESERVES

(i) Share premium account

Share premium represents premium arising from the issue of shares at a price in excess of their par value per share and is not distributable but may be applied in paying up unissued shares of the Company to be issued to the shareholders of the Company as fully paid bonus shares or in providing for the premiums payable on repurchase of shares.

(ii) Special reserve represents the aggregate of:

The difference between the nominal amount of the share capital issued by the Company and the aggregate of the nominal amount of the issued share capital and the share premium account of LifeTec Holdings, the subsidiary which was acquired by the Company pursuant to the group reorganization in 1996, and
The effects of the capital reduction, share premium cancellation and elimination of accumulated losses, took place in 1999.

(iii) Convertible loans reserve

The convertible loans reserve represents the value of the unexercised equity component of convertible notes issued by the Company recognised in accordance with the accounting policy adopted for convertible loans in note 5(o).

(iv) Option reserve

The option reserve represents the fair value of the actual or estimated number of unexercised share options granted to employees and consultants of the Group recognised in accordance with the accounting policy adopted for equity-settled share-based payments in note 5(o).

(v) Translation reserve

The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 5(o).

36. SHARE-BASED PAYMENTS

Equity-settled share option schemes

Pursuant to the share option scheme adopted by the Company on 15 July 2002 (the “Old Scheme”) the Company may grant options to the directors and employees of the Group; any supplier of goods or services to the Group; any customer of the Group; any adviser or consultant of the Group; any person or entity that provides research, development or other technological support to the Group; or any shareholders of the Group (collectively referred to as the “Eligible Participants”), at the exercise price determined by the directors of the Company, and will not be less than the highest of (i) the closing price of the Company’s shares on the date of grant; (ii) the average closing price of the shares for the five business days immediately preceding the date of grant; and (iii) the nominal value of the shares on the offer date. Options granted under the Old Scheme may be exercised at any time from the date of grant of the share option to the fifth anniversary of the date of grant.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Old Scheme expired on 14 July 2007 and was replaced by the existing share option scheme which was adopted by the Company on 30 July 2007 (the “New Scheme”) for the purpose of providing incentives or rewards to the Eligible Participants for the contribution to the success of the Group’s operations. All outstanding options granted under the Old Scheme continue to valid and exercisable in accordance with the terms of the Old Scheme. The New Scheme will expire on 29 July 2017.

Initially, the total number of shares in respect of which options may be granted under the New Scheme must not in aggregate exceed 10% of the shares in issue as at 30 July 2007, being the date of adoption of the New Scheme, without prior approval from the Company’s shareholders. The total number of shares issued and to be issued upon exercise of the options granted to each Eligible Participant in any twelve-month period is limited to 1% of the shares of the Company in issued at any time. Any further grant of shares options in excess of this limit is subject to shareholders’ approval in a general meeting.

Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time or with an aggregate value (based on the price of the Company’s shares at the date of the grant) in excess of HK$5 million, within any twelve-month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within 21 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the directors, and commences after a certain vesting period and ends on a date which is not later than ten years from the date of the offer of the share options or the expiry date of the New Scheme, if earlier.

The exercise price of the share options is determinable by the directors, but may not be less than the highest of (i) the Stock Exchange closing price of the Company’ shares on the date of the offer of the share options; (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of the Company’s shares on the date of the offer.

Share options do not confer rights on the holder to dividends or to vote at shareholders’ meetings.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of the movements in the Company’s share options during the year ended 31 December 2009 are as follows:

Old scheme

Number of share options	Number of share options	Number of share options
Outstanding at 1 January 2009 (note) 190,000 1,000,000 2,000,000 740,000 900,000 2,500,000 28,000,000 24,300,000 59,630,000 1.6570	Lapsed during the year – (1,000,000) (2,000,000) (250,000) (350,000) (2,500,000) – – (6,100,000) 1.9380	Outstanding at 31 December 2009 190,000 – – 490,000 550,000 – 28,000,000 24,300,000
		53,530,000

		53,530,000

		1.6249

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

New scheme

Number of share options	Number of share options	Number of share options
Outstanding at 1 January 2009 (note) 3,600,000 200,000 1,500,000 22,800,000 28,100,000 1.8700	Lapsed during the year – – (1,500,000) – (1,500,000) 3.0700	Outstanding at 31 December 2009 3,600,000 200,000 – 22,800,000
		26,600,000

		26,600,000

		1.8020

– 87 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Details of the movements in the Company’s share options during the year ended 31 December 2008 are as follows:

Old scheme

Number of share options	Number of share options	Number of share options
Outstanding at 1 January 2008 (restated) 350,000 190,000 2,000,000 2,000,000 790,000 950,000 2,337,500 2,500,000 28,000,000 24,300,000 63,417,500 1.6370	Lapsed during the year (restated) (350,000) – (1,000,000) – (50,000) (50,000) (2,337,500) – – – (3,787,500) 1.3270	Outstanding at 31 December 2008 (restated) – 190,000 1,000,000 2,000,000 740,000 900,000 – 2,500,000 28,000,000 24,300,000
		59,630,000

		59,630,000

		1.6570

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

New scheme

	Number of share options	Number of share options
Outstanding at 1 January 2008 (restated) 1,000,000 1,000,000 – 3,600,000 200,000 1,500,000 22,800,000 30,100,000 1.9500	Granted during the year (restated) – – 850,000 – – – – 850,000 1.9000	Lapsed during the year (restated) (1,000,000) (1,000,000) (850,000) – – – – (2,850,000) 2.7210	Outstanding At 31 December 2008 (restated) – – – 3,600,000 200,000 1,500,000 22,800,000
			28,100,000

			28,100,000

			1.8700

Note: On 29 September 2009, every ten shares of HK$0.01 each in the issued and unissued share capital of the Company were consolidated into one share of HK$0.10.

No share option granted was exercised during the year ended 31 December 2009 and 2008.

The share options outstanding at the end of the year have a weighted average remaining contractual life of 1.93 years (2008: 3.12 years)

No equity-settled employees benefit (including directors’ emoluments) was recognised for the year ended 31 December 2009 (2008: HK$1,234,000).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Share options were granted to certain consultants pursuant to the consultancy agreements entered into between LifeTec Holdings, and each of the consultants for a period of five years commencing from the respective dates of the consultancy agreements as consideration for the below services to be provided by these consultants.

(a) Identify potential strategic investors and financial investors for the Group;
(b) Assist the Group in negotiating with the potential strategic investors and financial investors;
(c) Provide consultancy services in relation to the development of the gaming business of the Group; and
(d) Carry out other duties as appropriate and as agreed with LifeTec Holdings.

During the years ended 31 December 2008, share option was granted by the Company on the below grant dates. The estimated fair values of the share options on those dates are determined using the Blackscholes model or Binomial models when appropriate. The respective fair values and significant inputs to the models are as follows:

For the year ended 31 December 2008

New Scheme

	Share option grant date
	5 May 2008
	(restated)
Fair value at the grant date	HK$157,000
Number of share options granted	850,000
Share price at the grant date	HK$0.980
Exercise price	HK$1.900
Expected volatility	96.4%
Expected life	1 year
Risk free rate	1.2%
Expected dividend yield	–

Expected volatility was determined by calculating the historical volatility of the Company’s share price over the 250 days immediate before each grant date. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of the non-transferability, exercise restrictions and behavioral considerations. The risk-free rate is based on the annual yield of Hong Kong Exchange-Fund Note for corresponding expected life at the grant date.

Total consideration received during the year ended 31 December 2008 from directors, employees and consultants for accepting the options granted amounted to HK$1.

37. CONTINGENT LIABILITIES

On 15 September 1999, LifeTec Enterprise Limited (“LifeTec Enterprise”), a subsidiary of the Company, was named as a defendant in a High Court action in respect of an alleged failure to repay a loan in amount of HK$20,000,000. The plaintiff took out an application for summary judgement under Order 14 of the Rules of the High Court on 6 October 1999 and in the hearing of the application on 25 October 1999, LifeTec Enterprise was given unconditional leave to defend the plaintiff’s claim in the above action. LifeTec Enterprise filed its Defense on 8 November 1999. The plaintiff should have filed its reply, if any, 14 days thereafter, but LifeTec Enterprise had not received any reply from the plaintiff and the time for the plaintiff to file the same has long expired and the pleadings should be deemed to be closed. The directors believe that there is no ground for the above claim and it will not have any material adverse impact on the Group’s operations.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. OPERATING LEASE COMMITMENTS

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

Within one year In the second to fifth year inclusive More than five years	2009 HK$’000 6,143 6,620 373 13,136	2008 HK$’000 9,451 16,850 –
		26,301

Leases relate to directors’ quarters, warehouse facilities and office premises and are negotiated for average terms of one to six (2008: one to four) years and rentals are fixed throughout the terms of respective leases.

39. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in the consolidated financial statements in respect of: Acquisition of a subsidiary Acquisition of the beneficial rights to drugs under development (note) Acquisition of property, plant and equipment Establishment of jointly controlled entities	2009 HK$’000 5,000 – 1,241 – 6,241	2008 HK$’000 5,000 5,679 5,149 971
		16,799

Note:

The Group obtained supplementary agreements from the counter parties to waive the capital commitments for the acquisition of the beneficial rights to drugs under development.

40. GAIN ON DEEMED DISPOSAL OF A SUBSIDIARY

As set out in note 31, on 25 October 2008, the Preference Shares were automatically converted into 900 new ordinary shares of US$1 each of LT Game, a wholly-owned subsidiary of the Company (“Automatic Conversion”). The issuance of new ordinary shares of LT Game represents approximately 22% of the existing issued share capital of LT Game and 18% of the issued share capital of LT Game as enlarged by the Automatic Conversion. The Subscriber is an independent third party. As a result of the issuance of new ordinary shares of LT Game, the Group’s shareholding in LT Game has been diluted to 82% and resulted in a gain of approximately HK$15,600,000 is recognised in the consolidated income statement for the year ended 31 December 2008.

41. RETIREMENT BENEFITS SCHEMES

The Group operates a Mandatory Provident Fund Scheme for all qualifying employees in Hong Kong. The assets of the scheme are held separately from those of the Group, in funds under the control of trustees. The Group contributes 5% of relevant payroll costs to the scheme, which contribution is matched by employees.

As stipulated by the rules and regulations in the PRC, the Group contributes to the retirement funds scheme managed by local social security bureau in the PRC. The Company contributes a certain percentage of the basic salaries of its employees to the retirement plan to fund the benefits.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The only obligation of the Group with respect to these retirement benefit schemes is to make the specified contributions. During the year ended 31 December 2009, the total retirement benefits scheme contributions charged to the consolidated income statement amounted to approximately HK$661,000 (2008: HK$568,000).

42. RELATED PARTY TRANSACTIONS

In addition to those related party transactions and balances disclosed elsewhere in the consolidated financial statements, the Group had the following transactions with its related parties during the year:

Consultancy fees paid to (note a & b) Salaries and allowances paid to (notes b & c) Amount due from (note d & e) Amount(s) due to (note c & d)	Directors 2009 2008 HK$’000 HK$’000 – – – – – – 6,508 1,550	Associate 2009 2008 HK$’000 HK$’000 – – – – 9,301 9,185 – –	Related 2009 HK$’000 221 1,200 – 2,106	party 2008 HK$’000 534 1,200

				–

				58

Notes:

(a) The related party is the son of a director, Mr. Shan Shiyong, alias, Sin Sai Yung.
(b) The transactions were charged at predetermined amounts agreed between the parties involved.
(c) The related party is the spouse of a director, Mr. Jay Chun.
(d) The amounts due are unsecured, interest free and have no fixed terms of repayment.
(e) Approximately HK$116,000 (2008: HK$187,000) impairment has been made for the year for the amount due from an associate as set out in note 13.
(f) The Group’s obligations under finance leases as set out in note 29 are secured by the personal guarantee executed by a director, Mr. Jay Chun.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

43. SUBSIDIARIES

Particulars of the Group’ subsidiaries as at 31 December 2009 are as follows:

Name of subsidiary
Place of
incorporation/
registration
Issued and
fully paid
share
capital/
registered
capital
Class of
share
Anica Limited
British Virgin
Islands
US$50,000
Ordinary
Assets Manager
Enterprises Limited
Hong Kong
HK$100
Ordinary
Beijing Bafang Liyuan
Science and Technology
Co., Ltd. (note b)
PRC
US$140,000
Registered
Capital
CTI Limited
Hong Kong
HK$10
Ordinary
Gold Corner International
Limited
British Virgin
Islands
US$1
Ordinary
Gold Eagle Technology
Limited
British Virgin
Islands
US$1
Ordinary
Golden Butterfly
Investments Limited
British Virgin
Islands
US$100
Ordinary
Hainan Kangwei Medicine
Co., Ltd. (note a)
PRC
RMB2,000,000
Registered
capital
Hop Fu (Hong Kong)
Trading Company
Limited
Hong Kong
HK$10,000
Ordinary
LGH Limited
British Virgin
Islands
US$1
Ordinary
LifeTec Enterprise Limited
Hong Kong
HK$100
Ordinary
LifeTec Group (China)
Limited
British Virgin
Islands
US$1
Ordinary
LifeTec (Holdings)
Limited
British Virgin
Islands
HK$141,176
Ordinary
LifeTec Pharmaceutical
Limited
British Virgin
Islands
US$1
Ordinary
LT Card Limited
British Virgin
Islands
US$1
Ordinary
LT Capital Limited
British Virgin
Islands
US$1
Ordinary
LT Cosmos Limited
British Virgin
Islands
US$1
Ordinary
LT Finance Limited
British Virgin
Islands
US$1
Ordinary
LT Fortune Limited
Macau
MOP25,000
Ordinary

Proportion of ownership interest
Principal activities
Group’s
effective
interest
Held by
the
Company
Held by
subsidiaries
100%
–
100%
Research and
development of
biopharmaceutical
products
100%
–
100%
Inactive
95%
–
100%
Inactive
70%
–
70%
Inactive
100%
–
100%
Investment holding
100%
–
100%
Inactive
95%
–
95%
Investment holding
98.5%
–
100%
Trading of
biopharmaceutical
products
100%
–
100%
Inactive
100%
–
100%
Research and
development of
biopharmaceutical
products
100%
–
100%
Provision of
management
services
100%
–
100%
Inactive
100%
100%
–
Investment holding
100%
–
100%
Investment holding
100%
–
100%
Investment holding
100%
–
100%
Development of
membership card
services
100%
–
100%
Investment holding
100%
–
100%
Investment holding
100%
–
100%
Inactive

– 93 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Name of subsidiary
Place of
incorporation/
registration
Issued and
fully paid
share
capital/
registered
capital
Class of
share
LT Game Limited
British Virgin
Islands
US$5,000
Ordinary
LT Global Limited
Macau
MOP25,000
Ordinary
LT (Macau) Limited
Macau
MOP1,000,000
Ordinary
LT Union Limited
British Virgin
Islands
US$1
Ordinary
Master Mind Technology
Limited
British Virgin
Islands
US$1
Ordinary
Shanghai Youheng
Biotechnology Limited
(note b)
PRC
HK$5,600,000
Registered
capital
Sino Flow Investments
Limited
British Virgin
Islands
US$1
Ordinary
Sunny Link Trading
Limited
Hong Kong
HK$2
Ordinary
Weihai Genen Biotech
Limited (note b)
PRC
US$2,000,000
Registered
capital
Yip Hing Toys
Manufactory Limited
Hong Kong
HK$100,000
Ordinary
Zhuhai Caijing Software
Technology Co., Ltd.
(note b)
PRC
RMB500,000
Registered
capital

Proportion of ownership interest
Principal activities
Group’s
effective
interest
Held by
the
Company
Held by
subsidiaries
82%
–
82%
Development of
electronic gaming
system
100%
–
100%
Inactive
100%
–
100%
Provision of
management
service and
operation of
electronic gaming
system
100%
–
100%
Investment holding
100%
–
100%
Research and
development of
biopharmaceutical
products
95%
–
100%
Research and
development of
biopharmaceutical
products
100%
–
100%
Inactive
100%
–
100%
Inactive
100%
–
100%
Research and
development of
biopharmaceutical
products
100%
–
100%
Inactive
100%
–
100%
Inactive

Notes:

(a) The subsidiary is established in the PRC as a domestic enterprise.
(b) The subsidiaries are established in the PRC as wholly owned foreign enterprises.
(c) Apart from Hainan Kangwei, Shanghai Youheng Biotechnology Limited and Weihai Genen Biotech Limited which carry out their principal activities in the PRC; and LT Game and LT Macau which carry out their principal activities in Macau, the principal activities of the remaining subsidiaries are carried out in Hong Kong.

44. MAJOR NON-CASH TRANSACTION

Included in the additions in property, plant and equipment of approximately HK$8,314,000 (2008: HK$26,725,000) was settled through the advances to consulting companies during the year ended 31 December 2009.

– 94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

45. EVENTS AFTER THE REPORTING PERIOD

(a) On 20 January 2010, the Company entered into subscription agreements with three independent third parties. Pursuant to the subscription agreements I, II and III, the Company agreed to issue and the independent third parties agreed to subscribe the Company’s convertible debentures in an aggregate principal amount of HK$116,000,000, US$85,500,000 (or approximately HK$662,625,000) and US$1,000,000 (or approximately HK$7,750,000) respectively.

The subscriptions were approved by the Company’s shareholders at a special general meeting held on 1 April 2010. The subscriptions for agreement I and III were completed on 14 April 2010 and 20 April 2010 respectively. For the subscription agreement II, the Company has received a partial payment for HK$88,700,000 and agreed the subscription shall be completed on or before 21 October 2010.

Details of the above are set out in the Company’s circular dated 16 March 2010 and announcements dated 21 January 2010, 1 March 2010, 1 April 2010, 21 April 2010 and 23 April 2010.

(b) On 30 March 2010, in connection with the Company’s convertible debentures in an aggregate amount of HK$112 million (the “Existing Convertible Debentures”), the Company executed the Supplemental Instruments to vary and amend the terms and conditions of the Existing Convertible Debentures by providing for early redemption of the Existing Convertible Debentures at the discretion of the Company.

Details of the above are set out in the Company’s announcement dated 30 March 2010.

(c) On 16 April 2010, the Company refunded the Earnest Money, together with interest thereon at the agreed rate of 8% per annum calculated from 11 January 2010 to 16 April 2010, to C Y Foundation Group Limited (“C Y Foundation”) in connection with the Subscription Agreement entered into between the Company and C Y Foundation. Following the aforesaid refund, neither party has any claim or liability arising from the termination of the Subscription Agreement.

Details of the above are set out in the Company’s circular dated 11 September 2009 and announcements dated 31 December 2009, 11 January 2010 and 19 April 2010.

– 95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

46. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

Non-current asset Investments in subsidiaries Current assets Other debtors, deposits and prepayments Bank and cash balances Current liabilities Other creditors and accrued charges Amounts due to directors Other borrowings – due within one year Convertible loans – due within one year Net current liabilities Total assets less current liabilities Non-current liabilities Convertible loans – due after one year Net assets Capital and reserves Share capital Reserves Total equity	2009 HK$’000 510,348 154 5 159 2,560 713 21,689 – 24,962 (24,803) 485,545 66,214 419,331 48,971 370,360 419,331	2008 HK$’000 499,882 89 6 95 792 847 – 73,933 75,572 (75,477) 424,405 12,504 411,901 38,659 373,242 411,901

– 96 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. INDEBTEDNESS

As at 30 June 2010, the Group had outstanding indebtedness comprising guaranteed and secured, and unguaranteed and unsecured indebtedness of HK$114,676 and HK$167,839,905 respectively. The indebtedness comprised as follows:–

The Group had outstanding unguaranteed and unsecured borrowings amounting to approximately HK$15,251,894. In addition, the Group had outstanding, as at 30 June 2010, guaranteed and secured obligations under finance leases of HK$114,676 and unguaranteed and unsecured obligation under finance lease of HK$3,290,978.
The Group had outstanding unguaranteed and unsecured convertible debentures amounting to approximately HK$145,446,321. All of the convertible debentures are due on 2014.
The Group had amounts due to directors and a related company of approximately HK$1,744,581 and HK$2,106,131, respectively. The amounts due to directors and the related company were unguaranteed, unsecured, interest-free and repayable on demand.

As at 30 June 2010, the Group had capital commitments and operating lease commitments of approximately HK$7,042,220 and HK$9,832,224 respectively. As of the same date, the Group had contingent liabilities of HK$20,000,000.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have outstanding at the close of business on 30 June 2010 any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, obligations under finance lease contracts, liabilities under acceptances (other than normal trade bills) or acceptable credits, debentures, mortgages, charges, finance lease or hire purchases commitments, guarantees or contingent liabilities.

2. WORKING CAPITAL

The Directors are of the opinion that taking into account its presently available financial resources and the available banking facilities, including internally generated funds and the promissory note, the Group after the acquisition of the patent will have sufficient working capital for its normal business for at least the next 12 months from the date of this circular in the absence of unforeseen circumstances.

3. MATERIAL CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position or prospect of the Group since 31 December 2009, the date to which the latest published audited financial statements of the Group were made up.

– 97 –

FINANCIAL INFORMATION OF THE PATENT

APPENDIX II

1. INCOME STATEMENT OF THE PATENT

Notes Turnover 1 Cost of sales 2 Gross Profit Other operating income Marketing and selling expenses 2 Administrative expenses 2 Net profit for the year 3	For the six months ended 30 June For the year ended 31 December 2009 2010 2009 HK$’000 HK$’000 HK$’000 41,324 40,533 82,648 (21,884) (24,422) (48,404) 19,440 16,111 34,244 252 197 445 (5,118) (2,308) (4,027) (13,859) (13,883) (29,791) 715 117 871

The income statement of the Patent (the “Statement”) for the year ended 31 December 2009 set out above has been prepared by the Directors based on the Group’s turnover and expenses attributable to the Patent for the year. The accounting policies adopted by the Directors in the preparation of the Statement are consistent with those adopted by the Group in all material aspects.

Notes:

The vendor has licensed the use of the System to the Company at no cost since 2009 and the System has been installed in Casino Kam Pek Paradise in Macau. The System, replaced the Single Game System and contributed to the Group’s turnover of approximately HK$83 million for the year ended 31 December 2009. The Patent did not contribute any turnover to the Group for the year ended 31 December 2008 and 2007. The Patent has not been used by any parties before 2009. The net profit before and after tax for the year ended 31 December 2009 were HK$0.8 million. The revenue of the Patent amounting to approximately HK$83 million is extracted from the accounting books and records of the gambling business of the Group.
For the purpose of preparing the Statement, the cost of sales, the marketing and selling expenses and administrative expenses of the Patent are extracted from the accounting books and records of the gambling business of the Group.
No tax had been incurred as a subsidiary of the Company which has been providing the management services to Casino Kam Pek Paradise has an accumulated tax loss of HK$78 million.

– 98 –

FINANCIAL INFORMATION OF THE PATENT

APPENDIX II

MANAGEMENT DISCUSSION AND ANALYSIS

Turnover and operating profit deriving from the patent

The Company has replaced the single game machinery by installing the multi-gaming machinery with the system of the patent in 2009. Turnover deriving from the multi-gaming machinery during the financial year in 2009 was HK$83 million. Net profit from the multi-gaming machinery during the financial year in 2009 was HK$0.87 million.

For the six months ended 30 June 2010, turnover deriving from the multi-gaming machinery was approximately HK$41.3 million and net profit after tax was approximately HK$0.72 million.

Liquidity, financial resources and gearing

No borrowing has been made for the patent as at 31 December 2009

Capital commitment

No capital commitment for the patent has been made as at 31 December 2009.

Contingent liabilities

There are no contingent liabilities for the patent as at 31 December 2009.

Charge on the patent

No charge has been made on the patent as at 31 December 2009.

Business prospect of the patent

The Company has received enquiries relating to the acquisition of the multi-gaming machinery from overseas casinos since its installation of the multi-gaming machinery with the system of the patent in 2009. The trading of the multi-gaming machinery with the system of the patent should contribute to the turnover and operating profit of the Group.

Save for the trading of the multi-gaming machinery, the Company could own the patent upon the completion of its acquisition and remain competitive in the gaming industry instead of allowing the Vendor to dispose the patent to other competitors in the gaming industry.

– 99 –

FINANCIAL INFORMATION OF THE PATENT

APPENDIX II

2. REPORT ON THE UNAUDITED INCOME STATEMENT OF THE PATENT

The following is the text of a report received from the auditors of the Company, Dominic K. F. Chan & Co, Certified Public Accountants, Hong Kong, addressed to the director of the Company and prepared for the sole purpose of inclusion in this circular.

==> picture [345 x 61] intentionally omitted <==

25 August 2010

The Directors Paradise Entertainment Limited Unit C, 19/F., Entertainment Building 30 Queen’s Road Central Hong Kong

Dear Sirs,

REPORT ON THE UNAUDITED INCOME STATEMENT OF THE PATENT

Introduction

In accordance with the instructions of the directors of Paradise Entertainment Limited (the “Company”), we have performed the procedures enumerated below in respect of the unaudited income statement of the Patent (as defined in the Circular) (the “Statement”) set out in Section 1 of Appendix II of the Company’s circular dated 25 August 2010 (the “Circular”).

Procedures

Our engagement was undertaken in accordance with Hong Kong Standard on Related Services 4400, “Engagements to Perform Agreed-Upon Procedures Regarding Financial Information” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

The Procedures were performed solely to assist the directors of the Company to evaluate and consider whether the Statement, which was prepared by the directors of the Company, is mathematically accurate.

– 100 –

FINANCIAL INFORMATION OF THE PATENT

APPENDIX II

Accordingly, we have performed the following procedures:

We had been advised that the vendor has licensed the use of the System to the Company at no cost since 2009 and the System has been installed in Casino Kam Pek Paradise in Macau. The System, replaced the Single Game System and contributed to the Group’s turnover of approximately HK$83 million for the year ended 31 December 2009. The Patent did not contribute any turnover to the Group for the year ended 31 December 2008 and 2007. The net profit before and after tax for the year ended 31 December 2009 were HK$0.8 million respectively. The patent revenue for the year represented the Group’s revenue generated from the gaming business bearing the Patent as extracted from the accounting books and records of the Group. We have obtained the basis of extraction from the Group’s gaming businesses. We have checked the mathematical accuracy of the calculation from the basis of extraction.
For the purpose of preparing the Statement, the Directors have derived the Patent Costs and Expenses over the aggregate costs and expenses generated by the Group from the gaming business from its accounting books and records. These costs and expenses are directly attributed to the Patent. We have obtained the basis of allocation and have checked the mathematical accuracy of the calculation from the basis of allocation.
We had been advised by the director that no tax had been incurred as a subsidiary of the Company which has been providing the management services to Casino Kam Pek Paradise has an accumulated tax loss of HK$78 million. We obtained the management account of the said subsidiary to check the existence of the accumulated tax loss.

We report our findings below:

With respect to item 1, we found that the revenue as shown in the Income Statement has been calculated on the aforesaid basis, and was mathematically accurate.
With respect to item 2, we found that the cost and expenses as shown in the Income Statement has been calculated on the aforesaid basis, and was mathematically accurate.
With respect to item 3, we found that the tax loss existed.

Because the above procedures do not constitute an assurance engagement made in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements, we do not express any assurance on the Income Statement. There is no assurance as to the genuineness, accuracy and completeness of the amounts shown in the Income Statement. Further, we make no comment as to the appropriateness of the assumptions and methods of calculations adopted by the Company in arriving at the amounts shown in the Income

– 101 –

FINANCIAL INFORMATION OF THE PATENT

APPENDIX II

Statement. Premised on the foregoing, we consider that the Income Statement has been prepared by the directors of the Company using accounting policies which are materially consistent with those of the Company.

Had we performed additional procedures or had we performed an assurance engagement of the financial statements in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by HKICPA. Other matters might have come to out attention that would have been reported to you.

We consent to a copy of this report being made available to The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). However, for the avoidance of doubt, all duties and liabilities (including without limitation, those arising from negligence) to third parties, including the Stock Exchange, are specifically disclaimed. Our report is solely for the purpose set forth in the second paragraph under the section headed “Procedures” in this report and for your information and is not to be used for any other purpose or (subject to the foregoing) to be distributed to any other parties without our prior written consent. This report related only to the matters specified above and does not extend to any financial statements of the Company, taken as a whole.

Yours faithfully

Dominic K.F. Chan & Co., Certified Public Accountants

– 102 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1. INTRODUCTION

The unaudited pro forma financial information of the Group and the Patent (“the Enlarged Group”), comprising the unaudited pro forma consolidated statement of comprehensive income, the unaudited pro forma consolidated statement of financial position and the unaudited pro forma consolidated cash flow statement of the Enlarged Group (the “Pro Forma Financial Information”), has been prepared by the Directors to illustrate the effect of the Acquisition.

The Pro Forma Financial Information should be read in conjunction with the financial information of the Group as set out in Appendix I and other financial information included elsewhere in this circular. The Pro Forma Financial Information does not take account of any trading or other transactions subsequent to the dates of the respective financial statements of the companies comprising the Enlarged Group included in the Pro Forma Financial Information.

2. PRO FORMA CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF THE ENLARGED GROUP

The following is the unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group as if the Acquisition had been completed on 1 January 2009. The unaudited pro forma consolidated statement of comprehensive income has been prepared based on the audited consolidated income statement of the Group for the year ended 31 December 2009 as set out in Appendix I to this circular, after incorporating the pro forma adjustments as described in the accompanying notes to illustrate the effect of the Acquisition.

– 103 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The unaudited pro forma consolidated statement of comprehensive income has been prepared for illustrative purposes only, based on the judgments and assumptions of the Directors, and, because of its hypothetical nature, it may not give a true picture of the results of the Enlarged Group for the year ended 31 December 2009 or any future periods.

The Group
Year ended
31 December
2009
Pro forma
adjustments
HK$’000
HK$’000
(Audited)
(Unaudited)
Notes
Turnover
325,224
–
Cost of sales and services
(227,662)
(12,048)
2.2
Gross profit
97,562
(12,048)
Other operating income
3,143
–
Marketing, selling and distribution
costs
(39,234)
–
Administrative expenses
(93,841)
–
Research and development cost
(2,725)
–
Impairment loss for doubtful debts
(116)
–
Impairment loss on property, plant and
equipment
(10,270)
–
Impairment loss on intangible assets
(66,837)
–
Impairment loss on payment for
investments
(40,074)
–
Finance costs
(18,508)
(20,327)
2.3
Gain on derecognition of derivative
financial instruments
1,302
–
Loss before tax
(169,598)
(32,375)
Income tax expense
2,359
–
Loss for the year
(167,239)
(32,375)
Other comprehensive income
Net loss recognised directly in
equity
Exchange translation differences
(186)
–
Total comprehensive income for the
year, net of tax
(167,425)
(32,375)

Pro forma
Enlarged
Group
HK$’000
(Unaudited)
325,224
(239,710)
85,514
3,143
(39,234)
(93,841)
(2,725)
(116)
(10,270)
(66,837)
(40,074)
(38,835)
1,302
(201,973)
2,359
(199,614)
(186)
(199,800)

– 104 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes to the unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group:

2.1 The adjustments reflect the inclusion of the turnover and expenses as if the Acquisition had been completed on 1 January 2009.
2.2 Subsequent to 31 December 2009, the Group entered into the Acquisition Agreement to acquire a patent. The adjustment reflects the estimated amortization charge of the aforesaid patent based on the fair value of $180 million and based on the estimated useful lives of 15 years of the respective patent, as if the Acquisition Agreement had been completed on 1 January 2009. This adjustment is expected to have a continuing effect on the Enlarged Group.
2.3 This represents the imputed interest to be expensed by issuance of promissory note. Assuming the promissory note was issued on 1 January 2009, the adjustment of approximately HK$20 million represents the imputed interest to be expensed by the Group for the year ended 31 December 2009. For the purpose of preparing the unaudited pro forma consolidated statement of comprehensive income, the imputed interest expense has been computed on the assumption that the principal amount of the promissory notes were approximately HK$151 million (note 3.3). This adjustment is expected to have a continuing effect on the Enlarged Group.

– 105 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

3. PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSTION OF THE ENLARGED GROUP

The following is the unaudited pro forma consolidated statement of financial position of the Enlarged Group as if the Acquisition had been completed on 31 December 2009. The unaudited pro forma consolidated statement of financial position has been prepared based on the audited statement of financial position of the Group as at 31 December 2009 as set out in Appendix I to this circular, after incorporating the pro forma adjustments as described in the accompanying notes to illustrate the effect of the Acquisition. The unaudited pro forma consolidated statement of financial position has been prepared for illustrative purposes only, based on the judgments and assumptions of the Directors, and, because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group as at 31 December 2009 or any future date.

The Group Year ended 31 December 2009 HK$’000 (Audited) Non-current assets Property, plant and equipment 154,574 Intangible asset – Deposit paid for acquisition of a subsidiary 7,800 162,374 Current assets Inventories 21 Debtors, deposits and prepayments 32,398 Bank and cash balances 44,853 77,272	Pro forma adjustments HK$’000 (Unaudited) Notes – 180,714 3.3 (12,048) 2.2 168,666 – 168,666 – – (30,000) 3.3 (30,000)	Pro forma Enlarged Group HK$’000 (Unaudited) 154,574 168,666 7,800


		331,040
		21 32,398 14,853
		47,272

– 106 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group Year ended 31 December 2009 HK$’000 (Audited) Current liabilities Creditors and accrued charges 62,710 Amount due to directors 6,508 Amount due to a related party 2,106 Other borrowings – due within one year 58,515 Obligations under finance leases – due within one year 249 Current tax liabilities 2,410 132,498 Net current liabilities (55,226) Total assets less current liabilities 107,148 Non-current liabilities Other borrowings – due after one year 9,200 Convertible loans – due after one year 66,214 Promissory Note – 75,414 Net assets (liabilities) 31,734 Capital and reserves Share capital 48,971 Reserves (17,287) Equity attributable to owners of the Company 31,684 Non-controlling interests 50 Total equity 31,734	Pro forma adjustments HK$’000 (Unaudited) Notes – – – – – – – (30,000) 138,666 – 150,714 3.3 20,327 2.3 171,041 171,041 (32,375) – (32,375) (32,375) – (32,375)	Pro forma Enlarged Group HK$’000 (Unaudited) 62,710 6,508 2,106 58,515 249 2,410 132,498 (85,226) 245,814 9,200 66,214 171,041 246,455 (641) 48,971 (49,662) (691) 50 (641)

– 107 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes to the unaudited pro forma consolidated statement of financial position of the Enlarged Group:

3.1 The adjustments reflect the inclusion of the assets and liabilities as if the Acquisition had been completed at the period reported on.
3.2 Subsequent to 31 December 2009, the Group entered into the Acquisition Agreement to acquire a patent at a consideration of HK$280 million to be satisfied as to HK$30 million in cash and HK$250 million by the issue of promissory note.
3.3 The adjustments reflect:
(i) settlement of the Consideration of HK$280 million in the following manner:
- (a) HK$30 million had been paid in cash by the Purchaser to the Vendor at Completion;
- (b) the balance of promissory note HK$250 million had been satisfied by the Purchaser procuring the Company to issue the Promissory Note to the Vendor at Completion.

For the purpose of the preparation of the unaudited pro forma consolidated statement of financial position, the 48 months non-interest bearing Promissory Note has been discounted to the present value of HK$151 million by using a discount rate at 13.49% per annum. Such discount rate is determined by an independent valuer and with reference to the Company’s historical borrowing rate as at 1 January 2009. This adjustment is expected to have a continuing effect on the Enlarged Group. It has been further assumed that the estimated costs directly attributable to the Acquisition of HK$30 million were paid by the Group from internal resources of the Group on 31 December 2009, and the Promissory Note were issued on 1 January 2009.

Since the actual dates of settlement of the Consideration and the estimated costs directly attributable to the Acquisition would be different from the assumptions used in the preparation of the unaudited pro forma consolidated statement of financial position presented above, the actual financial position arising from the Acquisition might be materially different from the financial position shown in this Appendix.

– 108 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

4. PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE ENLARGED GROUP

The following is the unaudited pro forma consolidated cash flow statement of the Enlarged Group as if the Acquisition had been completed on 1 January 2009. The unaudited pro forma consolidated cash flow statement has been prepared based on the audited consolidated cash flow statement of the Group for the year ended 31 December 2009 as set out in Appendix I to this circular, after incorporating the pro forma adjustments as described in the accompanying notes to illustrate the effect of the Acquisition.

The unaudited pro forma consolidated cash flow statement has been prepared for illustrative purposes only, based on the judgments and assumptions of the Directors, and, because of its hypothetical nature, it may not give a true picture of the cash flows of the Enlarged Group for the year ended 31 December 2009 or any future periods.

The Group Year ended 31 December 2009 Pro forma adjustments HK$’000 HK$’000 (Audited) (Unaudited) OPERATING ACTIVITIES Loss before tax (169,598) (32,375) Adjustments for: Finance costs 18,508 20,327 Bank interest income (7) – Interest income from consulting companies (267) – Gain on derecognition of derivative financial instruments (1,302) – Impairment loss for amount due from an associate 116 – Impairment loss for amount due from a non-controlling shareholder of a subsidiary 55 – Impairment loss on property, plant and equipment 10,270 – Impairment loss on intangible assets 66,837 – Impairment loss on payments for investments 40,074 – Depreciation of property, plant and equipment 32,307 – Amortisation of intangible asset – 12,048 Loss on disposal of property, plant and equipment 2,606 –	Notes 2.2/3.3/4.2 3.3/4.2 3.3/4.2	Pro forma Enlarged Group HK$’000 (Unaudited) (201,973) 38,835 (7) (267) (1,302) 116 55 10,270 66,837 40,074 32,307 12,048 2,606

– 109 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group
Year ended
31 December
2009
Pro forma
adjustments
HK$’000
HK$’000
(Audited)
(Unaudited)
Notes
Operating cash flows before
movements in working capital
(401)
–
Decrease in inventories
172
–
Increase in debtors, deposits and
prepayments
(8,780)
–
Decrease in advances to consulting
companies
21,016
–
Decrease in creditors and accrued
charges
(15,507)
–
Cash used in operations
(3,500)
–
Income taxes paid
(184)
–
NET CASH USED IN OPERATING
ACTIVITIES
(3,684)
–
INVESTING ACTIVITIES
Purchases of property, plant and
equipment
(36,718)
–
Purchases of intangible assets
–
(180,714)
3.3/4.2
Proceeds from disposal of property,
plant and equipment
9
–
Interest received
7
–
NET CASH USED IN INVESTING
ACTIVITIES
(36,702)
(180,714)

Pro forma
Enlarged
Group
HK$’000
(Unaudited)
(401)
172
(8,780)
21,016
(15,507)
(3,500)
(184)
(3,684)
(36,718)
(180,714)
9
7
(217,416)

– 110 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group
Year ended
31 December
2009
Pro forma
adjustments
HK$’000
HK$’000
(Audited)
(Unaudited)
Notes
FINANCING ACTIVITIES
Proceeds from other borrowings raised
36,028
–
Proceeds from issue of convertible
loans
95,000
–
Proceeds from issue of promissory
note
–
150,714
3.3/4.2
Interest paid
(12,968)
–
Repayment of other borrowings
(7,500)
–
Repayment of obligations under
finance leases
(257)
–
Interest in amounts due to directors
4,958
–
Interest paid on obligations under
finance leases
(22)
–
Increase in amount due to a related
party
2,048
–
Redemption of convertible loans
(76,000)
–
NET CASH GENERATED FROM
FINANCING ACTIVITIES
41,287
150,714
NET INCREASE IN CASH AND
CASH EQUIVALENTS
901
(30,000)
3.3/4.2
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THE YEAR
43,954
–
EFFECT OF FOREIGN
EXCHANGE RATE CHANGES
(2)
–
CASH AND CASH EQUIVALENTS
AT END OF THE YEAR
44,853
(30,000)
ANALYSIS OF THE BALANCE OF
CASH AND CASH
EQUIVALENTS, represented by
Bank and cash balances
44,853
(30,000)

Pro forma
Enlarged
Group
HK$’000
(Unaudited)
36,028
95,000
150,714
(12,968)
(7,500)
(257)
4,958
(22)
2,048
(76,000)
192,001
(29,099)
43,954
(2)
14,853
14,853

– 111 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes to the unaudited pro forma consolidated cash flow statement of the Enlarged Group:

4.1 The adjustments reflect the inclusion of the cash flows as if the Acquisition had been completed on 1 January 2009.
4.2 The adjustments reflect the cash flow effect from the Acquisition as if the Acquisition had been completed on 1 January 2009. The net cash outflow represents payment of the cash element of the Consideration and the estimated costs directly attributable to the Acquisition of approximately HK$30 million. This adjustments are not expected to have a continuing effect on the Enlarged Group.

– 112 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

5. ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

==> picture [345 x 60] intentionally omitted <==

25 August 2010

The Directors Paradise Entertainment Limited Unit C, 19/F., Entertainment Building 30 Queen’s Road Central Hong Kong

TO THE DIRECTORS OF PARADISE ENTERTAINMENT LIMITED

We report on the unaudited pro forma financial information of Paradise Entertainment Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the acquisition of the patent might have affected the financial information presented, for inclusion in Appendix III of the Circular dated 25 August 2010 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out on pages 103 and 112 to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 113 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Basis of opinion

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

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The unaudited pro forma financial information is for illustrative purpose only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of the financial position of the Group as at 31 December 2009 or any future date.

Opinion

In our opinion:

a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Group; and
c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Dominic K.F. Chan & Co.

Certified Public Accountants

Hong Kong, 25 August 2010

– 114 –

VALUATION REPORT OF THE PATENT

APPENDIX IV

The following is the text of a letter prepared for the purpose of incorporation in this circular received from Ample Appraisal Limited, an independent valuer, in connection with its valuation as at 30 June 2010 of the market value of a Patent.

==> picture [164 x 57] intentionally omitted <==

Ample Appraisal Limited

Unit A, 14/F, Two Chinachem Plaza 135 Des Voeux Road Central, Central, Hong Kong Tel: (852) 2545-3065 Fax: (852) 2545-3267 Website:www.amplecap.com

25 August 2010

The Board of Directors Paradise Entertainment Limited Unit C, 19/F, Entertainment Building, 30 Queen’s Road Central, Hong Kong

Dear Sir/Madam,

Re: Valuation of Market Value of Patent

In accordance with the instructions from Paradise Entertainment Limited (hereinafter referred to as the “Company”) for us to conduct a valuation of the market value of the patent (the “Patent”) held by Mr. Jay Chan, the Chairman of the Company, we are pleased to report that we have made relevant enquiries and obtained other information which we considered were relevant for the purpose of providing you with our opinion of the market value of the Patent as at 30 June 2010 (hereinafter referred to as the “Date of Valuation”).

This report states the purpose and basis of valuation, scope of work, an overview of the Company, major assumptions, valuation methodology, limiting conditions, and presents our opinion of value.

This report has been prepared in accordance with the guidelines set by the International Valuation Standards published by the International Valuation Standards Committee.

1. PURPOSE OF VALUATION

This report is prepared solely for the use of the directors and management of the Company. The Company is a public company listed on the Main Board of the Stock Exchange of Hong Kong Limited. In addition, Ample Appraisal Limited (“Ample Appraisal”) acknowledges that this report may be made available to the Company for public inspection purpose.

– 115 –

VALUATION REPORT OF THE PATENT

APPENDIX IV

Ample Appraisal assumes no responsibility whatsoever to any person other than the Company in respect of, or arising out of, the contents of this report. If others choose to rely in any way on the contents of this report they do so entirely at their own risk.

2. SCOPE OF WORK

Our valuation conclusion is based on the assumptions stated herein and on information provided by the management of the Company and/or its representative (together the “Management”).

In preparing this report, we have had discussions with the Management and the Company in relation to the development and prospect of the gaming industry in Macau, and the development, operations and other relevant information of the Company. As part of our analysis, we have reviewed such financial information and other pertinent data concerning the Company provided to us by the Management and the Company and have considered such information and data as attainable and reasonable.

We have no reason to believe that any material facts have been withheld from us, however, we do not warrant that our investigations have revealed all of the matters which an audit or more extensive examination might disclose.

We do not express an opinion as to whether the actual results of the business operation of the Company will approximate those projected because assumptions regarding future events by their nature are not capable of independent substantiation.

3. ECONOMIC OVERVIEW

3.1 General Economy of Macau

Macau’s Gross Domestic Product (GDP) amounted to 47.4 billion Macau Patacas (US$ 5.93 billion) in the first quarter of 2010, down 3.2% from the previous quarter. GDP for the first quarter of 2010 expanded by 30.1% in real terms, up from the 27.4% growth in the fourth quarter of 2009.

The gaming and tourism sector in Macau saw vibrant growth in the first quarter of 2010, with gross gaming revenue (excluding gratuities) soaring by 57.1% year-on-year in nominal terms, and total visitor spending (excluding gaming expenses) rising further from a 0.8% increase in the fourth quarter of 2009 to 14.3%; decline in merchandise exports tapered off from 41.8% in the previous quarter to 12.8%; however, gross fixed capital formation shrank continuously to post a decrease of 38.9%.

The GDP for the first quarter of 2010 was the highest among China’s four World Trade Organization (WTO) economies. First-quarter real GDP growth year-on-year stood at 11.9% in the mainland, 12.3% in Taiwan and 8.2% in Hong Kong. And the growth is highest since the first quarter of 2008, when GDP was up 32.2% year-on-year. In the fourth quarter of last year, GDP grew 27.4%.

– 116 –

VALUATION REPORT OF THE PATENT

APPENDIX IV

Figure 1 – Macau’s Expenditure-based Gross Domestic Product 2006-2010Q1 (In 10[9] Macau Patacus (MOP))

==> picture [399 x 214] intentionally omitted <==

----- Start of picture text -----

60
50
40
30
20 Expenditure based GDP,
at current prices Gross
Domestic Product (GDP)
10
(billion MOP)
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2006 2007 2008 2009 2010
Source: The Statistics and Census Service (DSEC)
----- End of picture text -----

4. INDUSTRY OVERVIEW

4.1 Gaming Industry of Macau

Macau’s economy enjoyed strong growth, largely on the back of its expanding tourism and gaming sectors, prior to a recent slowdown during the global economic crisis. After opening up its locally-controlled casino industry to foreign competition in 2001, the territory attracted tens of billions of dollars in foreign investment, transforming Macau into the world’s largest gaming center.

According to the Gaming Inspection and Coordination Bureau (GICB), gross revenues from gaming and gambling activities in Macau posted growth of 66.9% year on year in the first half of the year to 85.853 billion Macau Patacas (US$10.731 billion).

According to the Wall Street Journal, between January and March of 2010, Macau’s total gaming receipts -those generated by casinos, dog and horse races and a string of lotteries – reached 41.25 billion Macau Patacas (US$ 5.16 billion). The gross gaming receipts in the first quarter – excluding tips – soaring by 57.1% year-on-year in nominal terms.

At the end of the first quarter of 2010, Macau had 33 casinos, 20 of which were managed by Sociedade de Jogos de Macau, with a total of 4,811 gaming tables and 14,503 slot machines.

Macau’s gross gambling revenue in June 2010 jumped 65% from a year earlier but fell 20% from May 2010’s record high, likely because the soccer World Cup suppressed high-stakes gambling, according to analysts.

– 117 –

VALUATION REPORT OF THE PATENT

APPENDIX IV

June 2010 revenue totaled 13.6 billion Macau Patacus (US$1.7 billion) compared with 17.1 billion Macau Patacus recorded in May 2010, according to data from GICB.

Macau’s gaming revenue is likely to rise 30% in 2010 roughly doubling his previous forecast, according to the director of GICB.

5. THE COMPANY

The Company and its subsidiaries has engaged in the development, provision and sales of electronic gaming system and provision of the management services. The Company is also engaged in the research, development and sales of biopharmaceutical products.

The live table game is one of the most popular table games in the Asia region among the high-medium-low stakes players and is the most important table game in a casino’s product mix special in Macau. Introduced in 2006, live table game is one of the world’s most technically advanced live table game systems featuring smart shoe technology with a live dealer dealing the live table game which players (up to 250 players) can bet on betting terminals.

With live table game, the operator is benefited from the elimination of chip fraud and the minimization of disputes among players. It can generate multiple reports and provide precise player rating data. It is simple for staff to operate & manage. For the players, with the speed and accuracy of electronic play, and the individual player terminals with touch-screen functionality can ensure the players a comfortable, safe and private game.

6. INTANGIBLE ASSET

The International Valuation Standards define intangible assets as: “assets that manifest themselves by their economic properties; they do not have physical substance; they grant rights and privileges to their own; and usually generate income for their owner. Intangible assets can be categorized as arising from: Patents; relationships; grouped intangibles; or intellectual property”. Moreover, an intangible asset can also be defined as “a claim to future benefits that does not have a physical or financial embodiment.”

– 118 –

VALUATION REPORT OF THE PATENT

APPENDIX IV

7. PATENT

A patent is a set of exclusive rights granted by a state (national government) to an inventor or their assignee for a limited period of time in exchange for a public disclosure of an invention. The term patent usually refers to a right granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof. Examples of particular species of patents for inventions include biological patents, business method patents, chemical patents and software patents.

8. BASIS OF VALUATION

For the purpose of preparing valuation for financial reporting purposes, we observe and follow the definition and standard laid down by the International Valuation Standard. Our valuation is based on going concern premise and conducted on a market value basis. Market value is defined as “the amount for which an asset could be exchanged, or a liability settled between knowledgeable, willing parties in an arm’s length transaction”.

9. INVESTIGATION AND ANALYSIS

Our investigation included discussions with members of the Management in relation to the development and prospect of the gaming industry in Macau, and the development, operations and other relevant information of the Company. In addition, we have made relevant inquiries and obtained further information and statistical figures regarding the futures markets industry from external public sources as we considered necessary for the purpose of the valuation. As part of our analysis, we have reviewed such financial information and other pertinent data concerning the Company provided to us by the Management and had considered such information and data as attainable and reasonable. We have also consulted other sources of financial and business information.

The valuation of the Patent requires consideration of all pertinent factors, which may or may not affect the operation of the business and its ability to generate future investment returns. The factors considered in our valuation include, but are not necessarily limited to, the following:

The nature and prospect of the Company;
The financial condition of the Company;
The economic outlook in general and the specific economic environment and market elements affecting the business, industry and market;
The business risk of the Company such as the ability in maintaining competent technical and professional personnel; and
Investment returns and market transactions of entities engaged in similar lines of business.

– 119 –

VALUATION REPORT OF THE PATENT

APPENDIX IV

10. VALUATION METHODOLOGY

There are generally three accepted approaches to obtain the market value of the Patent, namely the Market-Based Approach, Income-Based Approach and Cost-Based Approach. Each of these approaches is appropriate in one or more circumstances, and sometimes, two or more approaches may be used together. Whether to adopt a particular approach will be determined by the most commonly adopted practice in valuing intangible asset that are similar in nature.

10.1 Market-Based Approach

The Market-Based Approach values an intangible asset by comparing prices at which other intangible assets in a similar nature changed hands in arm’s length transactions. The underlying theory of this approach is that one would not pay more than one would have to for an equally desirable alternative. By adopting this approach, the valuer will first look for valuation indication of prices of other similar intangible asset in companies that have been sold recently.

The right transactions employed in analyzing indications of values need to be sold at an arm’s length basis, assuming that the buyers and sellers are well informed and have no special motivations or compulsions to buy or to sell.

10.2 Income-Based Approach

The Income-Based Approach focuses on the economic benefits due to the income producing capability of the intangible asset. The underlying theory of this approach is that the value of an intangible asset can be measured by the present worth of the economic benefits to be received over the useful life of the intangible asset. Based on this valuation principle, the Income-Based Approach estimates the future economic benefits and discounts them to their present values using a discount rate for the risks associated with realizing those benefits.

Alternatively, this present value can be calculated by capitalizing the economic benefits to be received in the next period at an appropriate capitalization rate. This is subject to the assumption that the intangible asset will continue to maintain stable economic benefits and growth rate.

10.3 Cost-Based Approach

The Cost-Based Approach values an intangible asset by aggregating the costs of developing the asset to its current condition, or replacing that asset.

– 120 –

VALUATION REPORT OF THE PATENT

APPENDIX IV

11. PATENT VALUATION

The Patent titled “Gaming Terminal and System” was granted by the Macao Economic Services (MES) on 9 April 2010. The patent provides a type of gaming terminal and the methodology of using such terminal. The invention patent number is I/380 (369). The applicant and inventor was Mr. Jay Chun. The validity of the Patent is 20 years from the filing date of 24 October 2006 and the expiry date is 24 October 2026. According to the Company, they will renew the Patent registration. The expected useful patent life is assumed to be 15 years.

In the process of valuing the Patent, we have taken into account of the uniqueness of its operation and the industry it is participating. The Cost-Based Approach is not adopted because it cannot reflect the market value of the Patent. The Market-Based Approach is not adopted because there are insufficient similar and relevant comparable intangible assets. We have therefore considered the adoption of Income-Based Approach in arriving at the market value of the Patent.

Under the Income-Based Approach, we have adopted the excess earning method in particular to obtain the value of the Patent in present value term. This method looks at the current value of the tangible assets and other intangible assets employed as the benchmark for an estimated rate of return. This is used to calculate the profits that are required in order to induce investors to invest into those tangible and other intangible assets. Any return over and above those profits required in order to induce investment is considered to be the excess return attributable to the Patent.

In calculating the discount rate, we first obtained the weighted average cost of equity (“WACC”) of the Company, which was calculated by the formula below:

WACC = We x Re + Wd x Rd x (1 – Tc) In which

Re = Cost of equity; Rd = Cost of debt;

We = Weight of equity value to enterprise value;

Wd = Weight of debt value to enterprise value; and

Tc = Corporate tax rate.

The cost of equity was calculated by using the following formula:

Re = Rf + � x Market Risk Premium + Other Risk Premium

In which

Re = Cost of equity; Rf = Risk-free rate; and � = Beta coefficient.

The discount rate in valuing the Patent was obtained by the following formula:

Discount rate = WACC + Additional Premium For Intangible Asset

– 121 –

APPENDIX IV

VALUATION REPORT OF THE PATENT

By adopting 2.39% as the risk-free rate, 14.63% as the market risk premium, 0.64 as the beta estimate of the Company, 4.22% as the other risk premium which comprised of the country risk premium of 0.23% and the size premium of 3.99%, we arrived at 16.01% of cost of equity. Typically, intangible assets are not financed with debt. With reference to the financial information of the patent, there is not any interest-bearing debt. We adopted 0% as the weight of debt. As the weight of equity was 100%, the WACC was actually the cost of equity. Furthermore, we adopted 10.00% as the additional premium for intangible asset. Hence, the discount rate applied to the valuation of Patent was 26.01% as at the Date of Valuation.

12. MAJOR ASSUMPTIONS

We have adopted certain specific assumptions in our valuation and the major ones are as follows:

All relevant legal approvals and business certificates or licenses to operate the business in the localities in which the Company operates or intends to operate would be officially obtained and renewable upon expiry;
The projections outlined in the financial information provided are reasonable, reflecting market conditions and economic fundamentals, and will be materialized;
There will be sufficient supply of technical staff in the industry in which the Company operates, and the Company will retain competent management, key personnel and technical staff to support its ongoing operations and developments;
There will be no major change in the current taxation laws in the localities in which the Company operates or intends to operate and that the rates of tax payable shall remain unchanged and that all applicable laws and regulations will be complied with;
There will be no major change in the political, legal, economic or financial conditions in the localities in which the Company operates or intends to operate, which would adversely affect the revenues attributable to and profitability of the Company;
Interest rates and exchange rates in the localities for the operation of the Company will not differ materially from those presently prevailing;
The growth rate of revenue generated by each live table game machine is 20% for year 2010 to 2013, 4.9% for year 2014 to 2020, and 2.7% for year 2021 to 2025;
There will be 600 new live table game machines in total to be installed in the casino in the coming years, in which 150 new live table game machines will be installed in year 2011, 200 new live table game machines will be installed in year 2010; and 250 new live table game machines will be installed in year 2013.

– 122 –

VALUATION REPORT OF THE PATENT

APPENDIX IV

13. INFORMATION REVIEWED

Our opinion requires consideration of relevant factors affecting the market value of the Patent. The factors considered included, but were not necessarily limited to, the following:

Financial statements of the Company;
Financial forecast of the Company;
Historical information of the Company;
Market trends of the industry and other dependent industries;
Registrations of the Patent and related documents;
General descriptions in relation to the Company; and
Economics outlook in Macau.

We have discussed the details with the Management. We have also conducted research from various sources to verify the reasonableness and fairness of information provided and we believe that such information is reasonable and reliable. We had assumed the accuracy of information provided and relied to a considerable extent on such information in arriving at our opinion.

14. LIMITING CONDITIONS

The valuation reflects facts and conditions existing at the Date of Valuation. Subsequent events have not been considered and we are not required to update our report for such events and conditions.

To the best of our knowledge, all data set forth in this report are reasonable and accurately determined. The data, opinions, or estimates identified as being furnished by others that have been used in formulating this analysis are gathered from reliable sources; yet, no guarantee is made nor liability assumed for their accuracy.

We have relied to a considerable extent on information provided by the Management in arriving at our opinion of value. We are not in the position to verify the accuracy of all information provided to us. However, we have had no reason to doubt the truth and accuracy of the information provided to us and to doubt that any material facts have been omitted from the information provided. No responsibilities for the operation and financial information that have not been provided to us are accepted.

We have not investigated the title to or any legal liabilities of the Patent and have assumed no responsibility for the title to the Patent appraised.

– 123 –

VALUATION REPORT OF THE PATENT

APPENDIX IV

We would particularly point out that our valuation was based on the information such as the projections made by the Company, company background, business nature and market share of the Company provided to us.

Our conclusion of the market value was derived from generally accepted valuation procedures and practices that rely substantially on the use of various assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained.

We assume no responsibility whatsoever to any person other than the directors and management of the Company in respect of, or arising out of, the content of this report. If others choose to rely in any way on the contents of this report, they do so entirely on their own risk.

15. REMARKS

Unless otherwise stated, all monetary amounts stated in this valuation report are in Hong Kong Dollar (HK$).

We hereby confirm that we have neither present nor prospective interests in the Company and its holding companies, subsidiaries and associated companies, or the values reported herein.

16. OPINION OF VALUE

Based on the investigation and analysis stated above and on the valuation method employed, in our opinion, the market value of the Patent as at the Date of Valuation, is reasonably stated as HK$288,000,000 (HONG KONG DOLLARS TWO HUNDRED AND EIGHTY EIGHT MILLION ONLY) .

Yours faithfully, For and on behalf of

AMPLE APPRAISAL LIMITED

Kelvin Luk Johnny Law Kwan Hoi Cheung MIBA CPA, CPA (Aust) CFA Senior Vice President Senior Vice President Vice President

Note:

Mr. Kelvin Luk is the Senior Vice President of Ample Appraisal Limited. He is the member of Institute of Business Appraisers. He has more than 5 years of experience in intangible assets valuation such as patent, trademark, copyright, customer list. He has also over 5 years of valuation experience in gaming industry in Macau, PRC, Hong Kong, and Cambodia. He also specializes in various types of financial instruments valuations such as share options, convertible bonds, preference shares etc.

Mr. Johnny Law, CPA CPA (Aust.) has conducted business valuation in Great China since 2005 among which includes a gaming business in Macau listed in Hong Kong. He possesses in excess of 6 years experience in the finance and business valuation industry, he has involved in the appraisal and evaluation of financial structured products and intangible assets.

Mr. Kwan Hoi Cheung, CFA has over 10 years of experience in equity analysis and business valuation work, specializing in the valuation of businesses, intangible assets, financial instruments, plant and machinery and various other assets and instruments.

– 124 –

APPENDIX V LETTERS ON PROJECTION UNDERLYING THE VALUATION OF TARGET GROUP

Set out below are the texts of the letters from Dominic K.F. Chan & Co. and Donvex Capital Limited in connection with the cash flow forecasts underlying the valuation report on the Patent dated 30 June 2010 prepared by Ample Appraisal Limited for the purpose of inclusion in this circular.

REPORT FROM DOMINIC K.F. CHAN & CO.

==> picture [418 x 64] intentionally omitted <==

25 August 2010

Board of Directors Paradise Entertainment Limited Unit C, 19/F., Entertainment Building 30 Queen’s Road Central, Hong Kong

Dear Sirs,

LETTER OF COMFORT

We have examined the accounting policies adopted and calculations of the underlying profit forecast (the “ Underlying Forecast ”) to the business valuation dated 30 June 2010 prepared by Ample Appraisal Ltd. (the “ Valuer ”) in respect of the valuation on the Patent (the “ Patent ”).

Responsibilities

The directors of the Company are solely responsible for the preparation of the Underlying Forecast including the assumptions, for the purpose of business valuation of the Patent based on present value method. The Underlying Forecast has been prepared using a set of assumptions (the “ Assumptions ”) that include hypothetical assumptions about future events and management’s actions that are not necessarily expected to occur. Even if the events anticipated occur, actual results are still likely to be different from the Underlying Forecast and the variation may be material. The Directors are responsible for the reasonableness and validity of the assumptions.

It is our responsibility to form an opinion, based on our work on the Underlying Forecast and to report our opinion solely to you, as a body, solely for the purpose of reporting under Rule 14.62(2) of Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and for no other purpose. We have not reviewed, considered or conducted any work on the reasonableness and the validity of the assumptions

– 125 –

LETTERS ON PROJECTION UNDERLYING THE VALUATION OF TARGET GROUP

APPENDIX V

and express no opinion on the reasonableness and validity of the Assumptions on which the Underlying Forecast is based. We accept no responsibility to any other person in respect of, arising out of or in connection with our work.

Summary of our work

We conducted our work in accordance with the Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Review of Historical Financial Information” with reference to the procedures under Auditing Guideline 3.341 “Accountants Report on Profits Forecasts”, issued by the Hong Kong Institute of Certified Public Accountants. We examined the consistency of accounting policies adopted and the arithmetical accuracy of the Underlying Forecast. Our work has been undertaken solely to assist the Directors in evaluating whether the Underlying Forecast, so far as the accounting policies and calculations are concerned, has been properly compiled in accordance with the Assumptions made by the Directors. Our work does not constitute any valuation of the Patent.

Opinion

In our opinion, so far as the accounting policies and calculations are concerned, the Underlying Forecast has been properly compiled in accordance with the Assumptions made by the Directors as set out in Appendix IV and V of the Circular and is presented on a basis consistent in all material aspects with the accounting policies currently adopted by the Company.

Yours faithfully,

Dominic K.F. Chan & Co

Certified Public Accountants

– 126 –

LETTERS ON PROJECTION UNDERLYING THE VALUATION OF TARGET GROUP

APPENDIX V

REPORT FROM DONVEX CAPITAL LIMITED

==> picture [122 x 75] intentionally omitted <==

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

25 August 2010

The Board of Directors

Paradise Entertainment Limited

Unit C, 19/F, Entertainment Building, 30 Queen’s Road Central, Hong Kong

Dear Sirs,

We refer to the valuation dated 30 June 2010 prepared by the Ample Appraisal Limited (the “Valuers”) in relation to the appraisal of the market value of the patent (the “Valuation”). As stated in the valuation report from the Valuer, the Valuation has been arrived at and based on the income approach, which takes into account the cash flow projection of the business relating to the Patent for the period from 2010 to 2025 (the “Projection”). As such, the Projection is regarded as a profit forecast under Rule 14.61 of the Listing Rules. Terms used in this letter have the same meanings as defined elsewhere in the circular dated 25 August 2010 (the “Circular”), of which this letter forms part, unless the context requires otherwise.

We have reviewed the Projection upon which the Valuation has been made, and have discussed with you and the Valuer the information and documents provided by you, which formed part of the bases and assumptions upon which the Projection have been made. We have also considered, and relied upon, the letter addressed to the Board from Dominic K.F. Chan & Co., as set out in Appendix IV to the Circular regarding the calculations for the Projection also have been made.

On the basis of the foregoing, we are satisfied that the Projection for which you as the directors of the Company are solely responsible, have been made after due and careful enquiry.

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

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GENERAL INFORMATION

APPENDIX VI

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this document is accurate and complete in all material respects and are not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

1. DISCLOSURE OF DIRECTORS’ INTERESTS IN SHARES

As at the Latest Practicable Date, other interests and short positions, if any, of each directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) which were required to be notified to the Company and pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such director or chief executive was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules (the “Model Code”), were as follows:

(i) Long positions in the ordinary Shares of HK$0.10 each in the Company

					Interests in
					shares
			Interests in		(underlying
	Name of		shares (other		shares	Total interests	Approximate
	company/		than pursuant		pursuant to	in Shares/	aggregate
	associated	Capacity/Nature	to equity		equity	underlying	percentage of
Name of directors	corporation	of interests	derivatives)(1)(4)	derivatives)(1)(4)		Shares(1)(4)	interests
Mr. Jay Chun	Company	Beneficial owner	1,241,600			43,048,800	4.38%
	Company	Interest of controlled	41,807,200(2)		–
		corporation
Mr. Shan Shiyong	Company	Interest of controlled	36,075,800(3)		–	36,075,800	3.67%
alias, Sin Sai Yung		corporation
Dr. Ma Xianming,		Beneficial owner	672,200		190,000	862,200	0.09%
alias, Ma Yin Ming

Notes:

(1) All interests in shares stated above represent long positions.
(2) These shares were held by August Profit Investments Limited, a company which is wholly owned by Mr. Jay Chun.
(3) These shares were held by Best Top Offshore Limited, a company which is wholly owned by Mr. Shan Shiyong, alias, Sin Sai Yung.
(4) On 29 September 2009, every ten shares of HK$0.01 each in the issued and unissued share capital of the Company were consolidated into one share of HK$0.10.

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GENERAL INFORMATION

APPENDIX VI

Save as disclosed above, as at the Latest Practicable Date, as far as the Directors are aware, none of the Directors and chief executive officer had any other interests, long positions or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

(ii) Share Options Held by Directors

The share option scheme of the Company adopted on 15 July 2002 (the “Old Share Option Scheme”) expired on 14 July 2007. On 30 July 2007, the Company adopted a new share option scheme (the “Existing Share Option Scheme”) as a result of the expiration of the Old Share Option Scheme.

A summary of the movements in share options granted to directors under both the Old Share Option Scheme and the Existing Share Option Scheme during the year is as follows:

Name of Director Date of grant Exercisable period Exercise Price (HK$) Old Share Option Scheme Ma Xianming alias, Ma Yin Ming 30.11.2006 30.11.2006 to 29.11.2011 0.95	Number of Share Options
	Outstanding at 1.1.2009 Granted during the year Lapsed during the year Outstanding at 31.12.2009 190,000 – – 190,000

Existing Share Option Scheme

There were no options granted to existing directors under the Existing Share Option Scheme during the year. No value (2008: HK$157,000) has been charged to the consolidated income statement in respect of the value of options granted to directors during the year ended 31 December 2009.

Note: On 29 September 2009, every ten shares of HK$0.01 each in the issued and unissued share capital of the Company were consolidated into one share of HK$0.10.

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GENERAL INFORMATION

APPENDIX VI

(iii) Directors’ Rights to Acquire Shares or Debentures

Apart from the share option schemes disclosed under the section headed “Share Options Held by Directors” above, at no time during the year ended 31 December 2009 was the Company or any of its subsidiaries a party to any arrangements to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. In addition, none of the Directors, or their spouse or children under the age of 18 had any right to subscribe for the securities of the Company or had exercised any such right during the year

(iv) Convertible Securities, Warrants, or Similar Rights

Other than the share option schemes disclosed under the section headed “Share Options Held by Directors”, the Company has not issued convertible loans during the year. Save as disclosed, the Company had no outstanding convertible securities or other similar rights as at 31 December 2009.

SUBSTANTIAL SHAREHOLDERS

So far as is known to the Directors, the interests and short positions of the persons or corporations, other than Directors and chief executive of the Company, in the Shares or underlying shares of the Company which have been disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO and as recorded in the register required to be kept by the Company under section 336 of the SFO, or who was interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group were as follows:

(i) Long position in shares of the Company

		Approximate
		Percentage of
	Total interests	the issued
Name	in Shares(1)(2)	share capital
August Profit Investments Limited (3)	41,807,200	4.25%
Best Top Offshore Limited (4)	36,075,800	3.67%
Notes:

(1) All interests in shares stated above represent long positions.
(2) On 29 September 2009, every ten shares of HK$0.01 each in the issued and unissued share capital of the Company were consolidated into one share of HK$0.10.
(3) August Profit Investments Limited is a company wholly owned by Mr. Jay Chun, a director of the Company and the sole director of August Project Investments Limited.
(4) Best Top Offshore Limited is a company wholly owned by Mr. Shan Shiyong, alias, Sin Sai Yung, a director of the Company and the sole director of Best Top Offshore Limited.

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GENERAL INFORMATION

APPENDIX VI

Save as disclosed above, as at the Latest Practicable Date, the Company had not been notified of any other person who was interested in or had a short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO and as recorded in the register required to be kept by the Company under section 336 of the SFO.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or proposed to enter, into a service contract with any member of the Group (excluding contracts expiring or determinable by relevant member of the Group within one year without payment of compensation, other than statutory compensation).

5. DIRECTORS’ INTERESTS IN ASSETS / CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date,

(i) On 30 July 2010, the Vendor (Mr. Jay Chun, being a Director of the Company) entered into the Acquisition Agreement with the Purchaser (a wholly owned subsidiary of the Company) in relation to the sale of Patent by the Vendor to the Purchaser for the Consideration of HK$280 million, which shall be satisfied as to HK$30 million in cash and HK$250 million by way of Promissory Note. The Patent is in relation to a betting terminal system, an application thereof was filed on 24 October 2006 in Macau and the grant thereof was obtained by the Vendor on 9 April 2010. The Patent is valid for 20 years up to 24 December 2006. Mr. Jay Chun has material interest in the Acquisition Agreement.
(ii) Save for the above, as the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets (since 31 December 2009, being the date to which the latest published audited consolidated accounts of the Group were made up), which had been acquired or disposed of by, or leased to the Company or any member of the Group (including any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2009, being the date to which the latest published audited consolidated accounts of the Group were made up), or were proposed to be acquired or disposed of by, or leased to, the Company or any member of the Group (including any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2009, being the date to which the latest audited consolidated accounts of the Group were made up); and
(iii) None of the Directors was materially interested in any contract or arrangement entered into by the Company or any member of the Group (including any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2009, being the date to which the latest audited consolidated accounts of the Group were made

– 131 –

GENERAL INFORMATION

APPENDIX VI

up) which contract or arrangement was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group (including any company which will become subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2009, being the date to which the latest audited consolidated accounts of the Group were made up).

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business which competed or was likely to compete, either directly or indirectly, with the business of the Group.

7. MATERIAL CONTRACTS

Set out below are the material contracts (not being contracts entered into in the ordinary course of business) entered into by any member of the Group within the two years immediately preceding the Latest Practicable Date:

(1) On 20 January 2010, the Company entered into subscription agreements with three independent third parties. Pursuant to the subscription agreements, the Company agreed to issue and the independent third parties agreed to subscribe for the Company’s convertible debentures in an aggregate principal amount of HK$116,000,000, US$85,500,000 (equivalent to approximately HK$662,625,000) and US$1,000,000 (equivalent to HK$7,750,000) respectively;
(2) On 30 March 2010, in connection with the Company’s convertible debentures in an aggregate amount of HK$112 million (the “Existing Convertible Debentures”), the Company executed the Supplemental Instruments to vary and amend the terms and conditions of the Existing Convertible Debentures by providing for early redemption of the Existing Convertible Debentures at the discretion of the Company;
3(a) On 21 August 2009, the Company entered into Subscription Agreement with C Y Foundation Group Limited (“C Y Foundation”) whereby the Company agreed to issue and C Y Foundation agreed to subscribe the New Convertible Notes in an aggregate principal amount of HK$20 million;
3(b) On 16 April 2010, the Company refunded the Earnest Money, together with interest thereon at the agreed rate of 8% per annum calculated from 11 January 2010 to 16 April 2010, to C Y Foundation in connection with the Subscription Agreement entered into between the Company and C Y Foundation. Following the aforesaid refund, neither party has any claim or liability arising from the termination of the Subscription Agreement;

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GENERAL INFORMATION

APPENDIX VI

(4) The Sale and Purchases Agreement dated 30 July 2010 entered into between the Vendor and the Company in relation to the Acquisition.

8. LITIGATION

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

9. QUALIFICATION OF EXPERTS AND CONSENTS

The following sets out the qualifications of the experts who have given opinions or advice in this circular:

Name Qualification Donvex Capital Limited A licensed corporation registered under the SFO which engages in Type 6 (advising on corporate finance) regulated activities under the SFO

Nuada Limited A licensed corporation registered under the SFO which engages in Type 6 (advising on corporate finance) regulated activities under the SFO Dominic K. F. Chan & Co Certified Public Accountants Ample Appraisal Limited Independent Qualified Valuer

As at the Latest Practicable Date, each of above experts:

(a) did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group;
(b) did not have any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2009, being the date up to which the latest published financial statements of the Group were made; and
(c) has given and has not withdrawn its written consent to the issue of this circular with the inclusion of and references to its name, letter and/or report in the form and context in which they respectively appear.

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GENERAL INFORMATION

APPENDIX VI

10. GENERAL

(a) The registered office of the Company is situated at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda and its principal place of business in Hong Kong is Unit C, 19/F., Entertainment Building, 30 Queen’s Road Central, Hong Kong
(b) The Company’s Hong Kong share registrar and transfer office is Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.
(c) The Chief Financial Officer and Company Secretary of the Company is Ms Ho Suet Man Stella who is an associate member of Hong Kong Institute of Certified Public Accountants.
(d) The English text of this circular shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s head office and principal place of business in Hong Kong at Unit C, 19/F., Entertainment Building, 30 Queen’s Road Central, Hong Kong during normal business hours on any week day (except public holidays) from the date of this circular up to and including 13 September 2010 and will also be available for inspection at the SGM:

(a) the Acquisition Agreement;
(b) the memorandum of association and bye-laws of the Company;
(c) the the annual reports of the Company each of the two financial years ended 31 December 2009;
(d) the material contracts referred to in the section headed “Material contracts” in this appendix;
(e) the Independent Financial Adviser Letter as set out in Appendix I to this circular;
(f) the Financial Information of the Patent as set out in Appendix II to this circular;
(g) the Unaudited Pro Forma Financial Information of the Group after the acquisition of the Patent as set out in Appendix III to this circular;
(h) the letter from the Independent Board Committee, the text of which is set out on page 11 of this circular;

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GENERAL INFORMATION

APPENDIX VI

(i) the valuation report of Ample Appraisal Limited as set out in Appendix IV to this circular;
(j) the written consents referred to in the section headed “Experts and consents” in this appendix; and
(k) this circular

– 135 –

NOTICE OF SGM

PARADISE ENTERTAINMENT LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 1180)

NOTICE IS HEREBY GIVEN that an SGM of Paradise Entertainment Limited (the “Company”) will be held at Unit C, 19th Floor, Entertainment Building, 30 Queen’s Road Central, Hong Kong on Monday, 13 September 2010 at 11:00 a.m. for the following purposes:

ORDINARY RESOLUTIONS

“ THAT :
(a) the sale and purchase agreement (the “Agreement”) (a copy of which has been produced to the SGM marked “A” and signed by the chairman of the SGM for the purpose of identification) dated 30 July 2010 and entered into between the Company as purchaser, Jay Chun (the “Vendor”) as vendor in relation to the sale and purchase of a patent registered in Macau (the particulars of which are described in the Company’s circular dated 25 August 2010), at a consideration of HK$280,000,000, to be satisfied by cash and the issue of promissory note, and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified;
(b) the issue of promissory note (the “Promissory Note”) in the principal amount of HK$250,000,000 of the Company to the Vendor in accordance with the Agreement be and is hereby approved;
(c) the allotment and the issue of the Promissory Note from time to time upon the exercise of the executed rights attached to the Promissory Note; and
(d) any one or more of the directors (the “Directors”) of the Company be and is/ are hereby authorised to take all steps he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Agreement and the transactions contemplated thereunder, including but not limited to the issue of the Promissory Note.”

By the Order of the Board Paradise Entertainment Limited Stella Ho

Company Secretary

Hong Kong, 25 August, 2010

for identification purposes only

– 136 –

NOTICE OF SGM

Notes:

Full name(s) and address to be inserted in BLOCK CAPITALS .
Please insert the number of shares registered in your name(s); if no number is inserted, this form of proxy will be deemed to relate to all the shares in the capital of the Company registered in your name(s).
Full name and address to be inserted in BLOCK CAPITALS. IF NOT COMPLETED, THE CHAIRMAN OF THE MEETING WILL ACT AS YOUR PROXY .
A member entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and, on a poll, vote on his/her behalf. A proxy need not be a member of the Company.
In order to be valid, this form of proxy together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority, must be deposited at the branch share registrars of the Company in Hong Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
In the case of joint holders of any share, any one of such persons may vote at the said meeting, either personally or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holders is present at the said meeting, personally or by proxy, that one of the said persons so present whose name stands first on the register of members in respect of such share shall alone be entitled to vote in respect thereof.
The proxy need not be a member of the Company but must attend the meeting in person to represent you.
Any alterations made to this form of proxy must be initialled.

– 137 –

AI assistant

Paradise Entertainment Limited — Proxy Solicitation & Information Statement 2010

49748_rns_2010-08-25_f6569db0-d28a-4d12-84c8-51daf289541a.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

PARADISE ENTERTAINMENT LIMITED

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE PATENT INVOLVING ISSUE OF PROMISSORY NOTE

Financial adviser to the Company

CONTENTS

DEFINITIONS

PARADISE ENTERTAINMENT LIMITED

Directors:

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE PATENT INVOLVING ISSUE OF PROMISSORY NOTE

INTRODUCTION

THE ACQUISITION AGREEMENT

Parties:

Assets to be acquired

Consideration

Terms of the Promissory Note

Time period in which repayment is made

Discount rate

Conditions Precedent

Completion

REASON FOR THE ACQUISITION

INFORMATION ON THE GROUP

FINANCIAL EFFECTS OF THE ACQUISITION

Assets and liabilities

Earnings

Business Review and Future Prospect of the Group

LETTER FROM THE BOARD

IMPLICATIONS OF THE LISTING RULES

SGM

RECOMMENDATION

LETTER FROM THE BOARD

GENERAL

By the Order of the Board Paradise Entertainment Limited Stella Ho

PARADISE ENTERTAINMENT LIMITED

*

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE PATENT INVOLVING ISSUE OF PROMISSORY NOTE AND NOTICE OF SGM

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE PATENT INVOLVING ISSUE OF PROMISSORY NOTE

INTRODUCTION

INDEPENDENT FINANCIAL ADVISER LETTER

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Reasons and benefits of the Acquisition

a. Background information of the Group

b. Background information of the Patent

c. Overview of the gaming industry in Macau

2. Principal terms of the Acquisition Agreement

a. Basis of the Consideration

b. Payment method

Promissory Note

3. Valuation Report

a. Valuation methodology

b. Patent valuation and assumptions

4. Financial effects of the Acquisition

RECOMMENDATION

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

2. AUDITED FINANCIAL STATEMENTS OF THE GROUP

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR ENDED 31 DECEMBER 2007

BUSINESS REVIEW

Turnover and Profit

Gaming Business

APPENDIX I

Biopharmaceutical Business

Marketing, Sales and Distribution

Research and Development

Fibrocorin

Recombinant Human Augmenter for Liver Regeneration (“rhALR”)

Generic Drugs

Prospects

Liquidity and Financial Resources

Charges on Group Assets

Paradise Entertainment Limited Proxy Solicitation & Information Statement 2010