S.A.S. Dragon Holdings Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in S.A.S. Dragon Holdings Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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(Incorporated in Bermuda with limited liability)

(Stock Code: 1184)

MAJOR TRANSACTION

Acquisition of 51% of the Issued Share Capital of Hi-Level Technology Limited

A notice convening a special general meeting of S.A.S. Dragon Holdings Limited to be held at 6th Floor, Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon, Hong Kong on 28 December 2006 at 11:00 a.m., is set out on pages 174 and 175 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the enclosed form of proxy and return it to the Company’s branch share registrar in Hong Kong, Secretaries Limited at Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong in accordance with the instructions printed thereof as soon as possible but in any event not less than 48 hours before the time appointed for the holding of such meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from subsequently attending and voting in person at the special general meeting or any adjourned meeting should you so wish.

Hong Kong, 12 December 2006

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
2. The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
3. Information of the Hi-Level Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
4. Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
5. Prospects of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
6. Financial Effect of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
7. SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
8. Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
9. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
10. Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
APPENDIX I – FINANCIAL INFORMATION ON THE GROUP . . . . . . . . . . . . . . .	17
APPENDIX II – FINANCIAL INFORMATION ON HI-LEVEL GROUP . . . . . . . . .	99
APPENDIX III – UNAUDITED PRO FORMA FINANCIAL
INFORMATION ON THE ENLARGED GROUP . . . . . . . . . . . . .	162
APPENDIX IV – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	167
NOTICE OF SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	174

– i –

DEFINITIONS

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

“Acquisition”	The acquisition of the Sale Shares by the Purchaser from
	the Vendor pursuant to the Agreement
“Agreement”	The agreement dated 15 November 2006 entered into
	between the Vendor and the Purchaser in relation to the
	acquisition of the Sale Shares
“Announcement”	The announcement dated 16 November 2006 issued by the
	Company in relation to the Acquisition
“associates”	Has the meaning ascribed to it under the Listing Rules
“Board”	The board of Directors, including independent non-executive
	Directors
“Business Day”	Any day (excluding Saturday and Sunday) on which banks
	are generally open for business in Hong Kong
“Company”	S.A.S. Dragon Holdings Limited, a limited liability company
	incorporated in Bermuda whose issued shares are listed on
	the Main Board of the Stock Exchange
“Completion”	Completion of the Agreement
“Conditions Precedent”	The conditions precedent to the Completion of the
	Agreement
“Consideration”	HK$30,000,000, being the consideration payable for the
	sale and purchase of the Sale Shares pursuant to the
	Agreement
“1st Conditions Fulfilment Date”	The date on which the Conditions Precedent (c) to (j) are
	fulfilled but in any event no later than 30 November 2006
	or such other later date as the Vendor and the Purchaser
	may agree in writing

– 1 –

DEFINITIONS

“2nd Conditions Fulfilment Date”	The date on which the Conditions Precedent (a) and (b) are
	fulfilled but in any event no later than 31 December 2006
	or such other later date as the Vendor and the Purchaser
	may agree in writing
“Directors”	The directors of the Company for the time being
“Encumbrances”	Any mortgage, charge, pledge, lien, option, restriction, right
	of first refusal, right of pre-emption, third-party right or
	interest, any other encumbrances or security interests of
	any kind, or another type of preferential arrangements
	(including, without limitation, retention arrangement) having
	similar effect
“Enlarged Group”	The Group and the Hi-Level Group
“First I-Tech Limited”	A company incorporated in the Republic of Mauritius on
	12 October 2000, and a wholly-owned subsidiary of Yuxing
	InfoTech
“GEM”	The Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	The Rules Governing the Listing of Securities on the Growth
	Enterprise Market of the Stock Exchange
“Group”	The Company and its subsidiaries
“Hi-Level Group”	Hi-Level Technology Limited and its PRC Subsidiary and
	Hong Kong Subsidiary
“Hi-Level Technology Limited”	Hi-Level Technology Limited, a limited liability company
	incorporated in Hong Kong on 15 December 2000
“Hong Kong”	The Hong Kong Special Administrative Region of the PRC
“Hong Kong Subsidiary”	Video Innovation Tech Limited, a limited liability company
	incorporated in Hong Kong on 24 October 2001 and a
	wholly owned subsidiary of Hi-Level Technology Limited
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong

– 2 –

DEFINITIONS

“Independent Third Party”	A third party who is independent of and not connected
	with the Directors, chief executive officer or substantial
	shareholders of the Company or its subsidiaries or their
	respective associates
“Minority Shareholders”	The five individual minority shareholders of Hi-Level
	Technology Limited, who in aggregate legally and
	beneficially hold 49% of the entire issued and paid up share
	capital of Hi-Level Technology Limited
“Latest Practicable Date”	7 December 2006, being the latest practicable date prior to
	the printing of this circular for ascertaining certain
	information contained in this circular
“Listing Rules”	The Rules Governing the Listing of Securities on the Stock
	Exchange
“PRC”	The People’s Republic of China, excluding, for the purpose
	of this circular, Hong Kong
“PRC Subsidiary”	Shenzhen Yangyu Technology Development Co., Ltd.（深
	圳揚煜科技開發有限公司）, a wholly-owned foreign
	enterprise established in the PRC with a registered capital
	of HK$8,000,000 on 8 September 2003 which is also a
	wholly-owned subsidiary of Hi-Level Technology Limited
“Purchaser”	S.A.S. Investment Company Limited, a company
	incorporated in Hong Kong, being a wholly-owned
	subsidiary of the Company
“Purchaser’s guarantor”	The Company
“RMB”	Renminbi yuan, the lawful currency of the PRC
“SGM”	The special general meeting of the Company to be held at
	6th Floor, Tower B, Hunghom Commercial Centre, 37 Ma
	Tau Wai Road, Hunghom, Kowloon, Hong Kong and any
	adjournment thereof, notice of which is set out on page
	174 to 175 of this circular

– 3 –

DEFINITIONS

“Sale Shares”	The 12,750,000 shares of Hi-Level Technology Limited to
	be sold by the Vendor to the Purchaser under the Agreement,
	which represent 51% of the issued share capital shares of
	Hi-Level Technology Limited
“Shares”	The shares of the Company
“Shareholders”	The shareholders of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Trade Receivables”	A list of trade receivables of Hi-Level Technology Limited
	to be delivered by the Vendor to the Purchaser on
	Completion
“Vendor”	First I-Tech Limited
“Vendor’s guarantor”	Yuxing InfoTech
“Yuxing InfoTech”	Yuxing InfoTech Holdings Limited, a company incorporated
	in Bermuda whose issued shares are listed on the GEM
“%”	Per centum

– 4 –

LETTER FROM THE BOARD

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S.A.S. Dragon Holdings Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 1184)

Executive Directors: Registered Office: Mr. Yim Yuk Lun, Stanley JP Clarendon House (Chairman and Managing Director) 2 Church Street Mr. Wong Sui Chuen Hamilton HM 11 Bermuda Non-executive Director: Dr. Chang Chu Cheng Principal Office: 6th Floor, Tower B Independent Non-executive Directors: Hunghom Commercial Centre Mr. Cheung Chi Kwan 37 Ma Tau Wai Road Mr. Liu Chun Ning, Wilfred Hunghom Dr. Lui Ming Wah SBS JP Kowloon Mr. Wong Tak Yuen, Adrian Hong Kong Hong Kong, 12 December 2006 To the Shareholders Dear Sir or Madam,

MAJOR TRANSACTION Acquisition of 51% of the Issued Share Capital of Hi-Level Technology Limited

1. INTRODUCTION

Reference is made to the Announcement of the Company dated 16 November 2006, whereby it was announced that the Purchaser, a wholly-owned subsidiary of the Company, and the Vendor entered into the Agreement on 15 November 2006, whereby the Purchaser agreed to acquire and the Vendor agreed to sell the Sale Shares, being the 51% issued share capital of Hi-Level Technology Limited. Hi-Level Technology Limited holds the entire equity interest in the PRC Subsidiary and the entire issued share capital of the Hong Kong Subsidiary. The Consideration for the sale and purchase of the Sale Shares is HK$30,000,000, which will be satisfied by way of cheque drawn by a licensed bank in Hong Kong.

– 5 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among others, (i) further details of the Acquisition; (ii) financial information on the Group and Hi-Level Group; and (iii) notice of the SGM to be convened for the purpose of considering and, if thought fit, approving (inter alia) the Agreement. The Acquisition constitutes a major transaction pursuant to Rule 14.06(3) of the Listing Rules; and based on the profit and revenue tests under Rule 14.07, the relevant percentage ratios of the Acquisition exceed 25%, therefore the Acquisition is subject to the approval of the Shareholders.

2. THE AGREEMENT

Date : 15 November 2006 Parties:– Vendor : First I-Tech Limited, a wholly-owned subsidiary of the Vendor’s guarantor. It is the legal and beneficial owner of the 51% of the entire issued and paid-up capital of HiLevel Technology Limited. Purchaser : S.A.S. Investment Company Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company. Vendor’s guarantor : Yuxing InfoTech. Purchaser’s guarantor : The Company. Minority shareholders : The minority shareholders of Hi-Level Technology Limited.

To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, the Vendor, the Vendor’s guarantor (including its ultimate beneficial owners) and the Minority Shareholders are Independent Third Parties to the Company.

Subject matter of the Agreement

Pursuant to the Agreement, the Purchaser agreed to acquire and the Vendor agreed to sell the Sale Shares, being 51% of the issued share capital of Hi-Level Technology Limited. Hi-Level Technology Limited holds the entire equity interest in the PRC Subsidiary, a wholly owned foreign enterprise established in the PRC, and the entire issued share capital of the Hong Kong Subsidiary, a limited company incorporated in Hong Kong.

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LETTER FROM THE BOARD

The Sale Shares shall be acquired by the Purchaser free from all Encumbrance and together with all rights now or hereafter attaching thereto including all rights to any dividend or other distribution declared, made or paid after the date of the Agreement.

Consideration

The Consideration for the sale and purchase of the Sale Shares is HK$30,000,000, which will be satisfied by way of cheque drawn by a licensed bank in Hong Kong and in the following manner:

(a) HK$18,000,000 on Completion to the Vendor;
(b) HK$3,000,000 on the first Business Day falling 30 days after Completion to the Vendor;
(c) HK$3,000,000 on the first Business Day falling 60 days after Completion to the Vendor;
(d) HK$3,000,000 on the first Business Day falling 90 days after Completion to the Vendor; and
(e) HK$3,000,000 on the first Business Day falling 120 days after Completion to the Vendor.

The Consideration is arrived at after arm’s length negotiations between the Purchaser and the Vendor with reference to the book value of the Hi-Level Group of approximately HK$40,472,000 as at 31 December 2005. Based on the book value of the Hi-Level Group, the Sale Shares, being 51% share interest of the Hi-Level Group, is worth HK$20,641,000. The Consideration represents a price earning ratio of 4.25 times based on the net profit of the Hi-Level Group for the year ended 31 December 2005 and the equivalent of approximately 1.45 times of the net book value of the Sale Shares.

The Group had an audited cash balance of approximately HK$101,467,000 and an unaudited cash balance of approximately HK$135,850,000 as at the date of 31 December 2005 and 30 June 2006 respectively. The Consideration will be financed by the internal resources of the Group.

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LETTER FROM THE BOARD

Conditions Precedent to the Agreement

The Agreement is conditional upon:

(a) approval of the Agreement and the transactions contemplated therein by the shareholders of the Purchaser’s guarantor in a special general meeting or by way of written shareholders’ approval by its majority shareholders in lieu of the holding of the special general meeting in accordance with the Listing Rules;
(b) approval of the Agreement and the transactions contemplated therein by the shareholders of the Vendor’s guarantor in a special general meeting or by way of written shareholders’ approval by its majority shareholders in lieu of the holding of the special general meeting in accordance with the GEM Listing Rules;
(c) all necessary approvals, permits, consents and authorization from governmental, official authorities and any third party, if any, having been obtained in connection with the transactions contemplated under the Agreement, whether pursuant to law, regulatory compliance or otherwise;
(d) no statute, regulation or decision which would prohibit, restrict or materially delay the sale and purchase transactions contemplated in the Agreement or the operation of the Hi-Level Group after Completion having been proposed, enacted or taken by any governmental or official authority;
(e) satisfactory completion by the Purchaser of due diligence on assets, accounting, financial, tax, legal and regulatory aspects of the Hi-Level Group;
(f) the warranties given by the Vendor, the Vendor’s guarantor, the Purchaser, the Purchaser’s guarantor and the Minority Shareholders in the Agreement remaining true and correct in all material respects and not misleading in any material respect at Completion as if repeated at all times between the date of the Agreement up to Completion;
(g) the Vendor having delivered a PRC legal opinion in a form satisfactory to the Purchaser with respect to the PRC Subsidiary;
(h) the Vendor having delivered a legal opinion from a Mauritius lawyer with respect to the capacity of the Vendor to enter into and be bound by this Agreement;

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LETTER FROM THE BOARD

(i) Sunplus Technology Co. Ltd., a company incorporated in Taiwan being the existing supplier of the Hi-Level Technology Limited, having entered into a distribution agreement with the Hi-Level Technology Limited prior to the signing of the Agreement for a term of not less than one year on terms similar to the terms of the previous distribution agreement; and
(j) The Vendor having delivered a shareholder resolution and a board resolution of the Hi-Level Technology Limited to the Purchaser prior to or upon the signing of the Agreement to approve the consolidation of the accounts of the Hi-level Group into the accounts of the Purchaser from 1 December 2006 onwards.

The Purchaser may at any time in its absolute discretion waive in writing any or all of the Conditions Precedent set out in (e) to (j) (or any part thereof) above and such waiver may be granted subject to such terms and conditions as are determined by the Purchaser.

Under the Agreement, the Vendor and the Purchaser shall use all reasonable endeavours to procure the fulfillment of the Condition Precedent (c) to (j) on or before 1st Conditions Fulfilment Date and the fulfillment of the Conditions Precedent (a) and (b) on or before 2nd Conditions Fulfilment Date.

If the Condition Precedent (a) is the only condition remaining unfulfilled as at 2nd Conditions Fulfilment Date, then the Purchaser shall pay to the Vendor HK$5,000,000 as compensation forthwith on the same day. If the Conditions Precedent (b) is the only condition remaining unfulfilled as at 2nd Conditions Fulfilment Date, then the Vendor shall pay to the Purchaser HK$5,000,000 as compensation forthwith on the same day.

In the event that the Conditions Precedent set out in (e) to (j) (which have not been waived by the Purchaser) have not been fulfilled on or before 1st Conditions Fulfilment Date, then the Purchaser may at its option, but without prejudice to any other right or remedy it may have, by notice to the Vendor elect to: (a) waive the conditions unfulfilled; (b) postpone the date for fulfillment of the said conditions to a date falling not more than 30 days after 1st Conditions Fulfilment Date and in any event not later than 31 December 2006; or (c) terminate the Agreement.

As at the date hereof, Hi-Level Technology Limited has already entered into a distribution agreement with Sunplus Technology Co. Ltd., an Independent Third Party of the Group, for a term of three years, therefore, Condition (i) has been fulfilled. In addition, Condition (b) has been fulfilled. With respect to Condition (j), both the Purchaser and the Vendor have agreed that the accounts of the Hi-Level Group will be consolidated into the accounts of the Purchaser with effect from 1 December 2006 or the date of Completion, whichever is later.

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LETTER FROM THE BOARD

Completion

Upon the satisfaction of the aforesaid Conditions Precedent (where appropriate, with waiver), Completion shall take place on or before the seventh Business Day after 2nd Conditions Fulfilment Date.

Upon Completion, each member of the Hi-Level Group will become a subsidiary of the Company and a member of the Group. The results of the Hi-Level Group will be consolidated into the Group’s account.

Undertaking by the Vendor’s Guarantor and the Purchaser’s Guarantor

The Vendor’s guarantor as primary obligor, and not merely as surety, unconditionally and irrevocably guarantees by way of continuing obligation to the Purchaser, the due and punctual payment of all amounts payable by the Vendor under the Agreement; and undertakes to the Purchaser to procure the performance by the Vendor of all its other obligations contained or implied in the Agreement; and such obligation shall remain in full force and effect until all of the moneys or obligations for which the Vendor is or may become liable under the Agreement have been paid, satisfied or performed.

The Purchaser’s guarantor as primary obligor, and not merely as surety, unconditionally and irrevocably guarantees by way of continuing obligation to the Vendor, the due and punctual payment of all amounts payable by the Purchaser under the Agreement; and such obligation shall remain in full force and effect until all of the moneys or obligations for which the Purchaser is or may become liable under the Agreement have been paid, satisfied or performed.

Warranties

In consideration of Purchaser and Purchaser’s guarantor agreeing to enter into the Agreement and for the purpose of inducing the Purchaser to purchase the Sale Shares, the Vendor and Vendor’s guarantor and each of the Minority Shareholders represent, warrant and undertake to the Purchaser and its successors in title that certain warranties contained in the Agreement are true and accurate in all material respects at the date of the Agreement and will continue to be so on each day up to and including the day of Completion with reference to the facts and circumstances from time to time applying.

The aggregate liability of the Vendor, the Vendor’s guarantor in respect of breach of the warranties given by them shall not exceed the total Consideration. The aggregate liability of the Minority Shareholders in respect of breach of the warranties given by them shall not exceed HK$15,000,000.

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LETTER FROM THE BOARD

Trade Receivables Warranties

On Completion, the Vendor and the Minority Shareholders shall deliver to the Purchaser Trade Receivables, which are incurred during the ordinary course of business of the Hi-Level Group. The Hi-Level Group usually allows a credit period ranging from 30 to 90 days to its trade customers. As at 31 October 2006, the Trade Receivables amounts to approximately HK$70,984,000, in which, HK$38,270,000 has been due within 30 days, HK$26,012,000 has been due 31 to 60 days, HK$5,214,000 has been due for 61 to 90 days, and HK$1,488,000 has been due for over 90 days. The Purchaser shall make reasonable effort to collect the Trade Receivables. In the event that despite the Purchaser having made reasonable effort to collect the Trade Receivables, the Trade Receivables or any part thereof shall not be collected after a period of 3 months from the Completion Date, the Purchaser shall give a written notice to the Vendor and the Minority Shareholders of such unrecovered Trade Receivables with details. The Minority Shareholders jointly and severally undertake to pay Hi-Level Technology Limited the unrecovered Trade Receivables up to the limit of HK$15,000,000. If the unrecovered Trade Receivables exceed HK$15,000,000, the Vendor undertakes to pay Hi-Level Technology Limited the equivalent value of that part of the unrecovered Trade Receivables in excess of HK$15,000,000, but only up to a maximum amount of Hk$15,000,000.

3. INFORMATION OF THE HI-LEVEL GROUP

Hi-Level Technology Limited is a company incorporated in Hong Kong with limited liability. It has an issued and paid-up capital of HK$25,000,000 comprising of 25,000,000 ordinary shares of HK$1.00 each. Prior to the Completion, the Vendor holds 51% of its entire issued share capital whilst the remaining 49% is held in aggregate by the Minority Shareholders. The principal business of Hi-Level Technology Limited includes the distribution of integrated circuits and system solution design.

In addition, Hi-Level Technology Limited holds the entire equity interest in the PRC Subsidiary and the entire issued share capital of the Hong Kong Subsidiary. The PRC Subsidiary is a wholly foreign owned enterprise established in the PRC with a registered capital of HK$8,000,000, of which HK$3,000,000 has been paid, whilst the remaining amounts of HK$3,000,000 and HK$2,000,000 are required by the relevant PRC authorities to be paid by 23 December 2006 and 28 September 2008 respectively, and such remaining amounts will be paid by Hi-Level Technology Limited. The PRC Subsidiary is principally engaged in the development and provision of integrated circuits for customers who manufacture a wide variety of products in the PRC. The Hong Kong Subsidiary is an inactive company incorporated in Hong Kong with limited liability.

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LETTER FROM THE BOARD

Financial Information of Hi-Level Group

The table below sets out the major audited figures for the three years ended 31 December 2005 and nine months ended 30 September 2006 in accordance with the Hong Kong Financial Reporting Standards.

				Nine months ended	Nine months ended
	Year	ended 31 December		30 September
	2003	2004	2005	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Turnover	237,807	444,188	667,795	459,219	600,596
Gross profit	10,047	26,880	42,319	27,601	24,886
Net Profit (loss)	2,524	9,009	13,828	7,205	(5,949)

For each of the three years ended 31 December 2005 and nine months ended 30 September 2006, the net book value of Hi-level Group were approximately HK$17,606,000, HK$26,610,000, HK$40,472,000 and HK$34,824,000 respectively.

Detailed financial information of Hi-Level Group is set out in Appendix II to this circular.

Management discussion and analysis

Turnover and gross profit margin

Turnover of Hi-Level Group refers to its income generated from distribution of integrated circuits. For each of the three years ended 31 December 2005 and nine months ended 30 September 2006, revenue were approximately HK$237,807,000, HK$444,188,000, HK$667,795,000 and HK$600,596,000 respectively. Hi-Level’s turnover have been growing at a fast pace for consecutive years mainly due to growth of number of customers and their order sizes. (Growth in 2004 and 2005 were approximately 86.78% and 52.59% respectively, growth in nine months ended 31 September 2006 was 30.79% when compared with the same period last year).

Hi-Level Group recorded gross profit margins of 4.22%, 6.05%, 6.34% and 4.14% for the three years ended 31 December 2005 and the nine months ended 30 September 2006. The growth of gross profit margins of Hi-level Group was mainly due to more volume discount from its vendors.

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LETTER FROM THE BOARD

Net profit (loss)

For the three years ended 31 December 2005, increase in net profit was mainly due to the increase in turnover and gross profit as mentioned above. For the nine months ended 30 September 2006, due to certain credit control problems, Hi-Level Group encountered two of its customers having financial problems and failing to repay the trade receivables outstanding. Hi-Level Group had made full provisions of approximately HK$12 million on such outstanding balances and incurred a net loss of HK$5,949,000. After the Acquisition, HiLevel Group will adopt the Group’s existing credit control evaluation system and procedures over the credit term and credit limit consideration processes so as to avoid the same type of problem.

Liquidity and financial resources

As at 30 September 2006, Hi-Level Group had current assets of approximately HK$212,728,000. Current assets mainly comprised trade and other receivables of approximately HK$103,990,000 and inventories of approximately HK$76,230,000. Current liabilities amounted to approximately HK$182,160,000, mainly comprising trade and other payables of approximately HK$169,985,000.

Securities on bank borrowings

As at 30 September 2006, bank borrowings were approximately HK$1,021,000, representing short-term bank loan outstanding which is secured by fixed deposits and available-for-sales investments with an aggregate carrying value of HK$11,619,000 as at 30 September 2006.

Capital structure

As at 30 September 2006, the capital structure of Hi-Level Group was mainly formed of paid-in capital and secured short-term bank loan and it’s gearing ratio was 2.93%, which is calculated based on Hi-Level Group’s bank loan of approximately HK$1,021,000 and the equity attributable to equity holders of the Hi-level Group of approximately HK$34,824,000.

Foreign exchange risk management

Hi-Level Group had limited exposure to fluctuation in foreign currencies as most of its transactions were conducted in Hong Kong and United States dollars. Exchange rates between these currencies were relatively stable during the period under review.

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LETTER FROM THE BOARD

Employee and remuneration policies

As at 30 September 2006, Hi-Level Group employed approximately 100 employees in Hong Kong and PRC. Total staff cost for the three year ended 31 December 2005 and nine months ended 31 September 2006 amounted to HK$3,367,000, HK$3,783,000, HK$6,152,000 and HK$8,325,000 respectively. They were remunerated according to their performance and working experience.

Contingent liabilities

As at 30 September 2006, Hi-Level Group did not have material contingent liabilities.

4. REASONS FOR THE ACQUISITION

The Group is principally engaged in distribution of electronic components and semiconductors products. The Vendor is an investment holding company. The Directors believe that integrating the business of the Group with that of the Hi-Level Group will not only strengthen the supplier network and customer base for the Group, but also enhancing operating efficiency and reducing operating costs by integrating the logistic functions and information systems of both parties, the result of which will allow the Group to better position itself for further expansion and to grasp business opportunities in the future. Also, the Directors are of the opinion that through the Acquisition, the Group can establish a business relationship with Sunplus Technology Co. Ltd., one of the world’s leading consumer integrated circuit design company, which is one of the immediate benefits that the Acquisition has brought to the Group.

Taken into consideration of the aforesaid, the Directors are of the view that the terms of the Agreement are fair and reasonable and are on normal commercial terms and the Acquisition contemplated under the Agreement are in the interest of the Group and the Shareholders as a whole.

5. PROSPECTS OF THE ENLARGED GROUP

In dollar terms, the semiconductor industry and the mobile phone market recorded a growth of 6.6% and 7.9% respectively in 2005 (Sources: SIA and Gartner) . For 2006, the respective growths are forecast to be 8.0% and 5.0%. In view of the growing market demand of the electronic products industry, the Enlarged Group can benefit by expanding its business scale to secure a larger market share. The Acquisition is considered to be in line with the above strategy by further broadening the Enlarged Group’s product range available to its customers.

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LETTER FROM THE BOARD

6. FINANCIAL EFFECT OF THE ACQUISITION

Set out in Appendix III to this circular is the unaudited pro forma financial information on the Enlarged Group which illustrates the financial impact of the Acquisition on the assets and liabilities of the Group, assuming the Acquisition had been completed as at 30 September 2006.

Upon Completion, the Company will hold 51% issued share capital of Hi-Level Technology Limited, the financial results of Hi-Level Group will be consolidated into the Group’s financial statements.

Total assets

Based on the unaudited pro forma consolidated balance sheet of the Enlarged Group after the Acquisition, the unaudited total assets of the Group as at 30 June 2006 were approximately HK$1,138,657,000. The unaudited pro forma total assets for the Enlarged Group will be increased by approximately HK$199,224,000. The increase in total assets of the Enlarged Group was mainly attributable to (i) the inclusion of total assets of Hi-Level Group of approximately HK$216,984,000 as at 30 September 2006; (ii) the goodwill of approximately HK$12,240,000 arising from the Acquisition; and (iii) less of the Consideration payable to the Vendor.

Total liabilities

Based on the unaudited pro forma consolidated balance sheet of the Enlarged Group after the Acquisition, the unaudited total liabilities of the Group as at 30 June 2006 were approximately HK$767,000,000. The unaudited pro forma total liabilities for the Enlarged Group will be increased by HK182,160,000.

Earnings

Following the completion of the Acquisition, the Group will consolidate Hi-Level Group turnover and 51% net profit which will contribute to the Group’s turnover and net profit. As set out in the financial information of Hi-Level Group as contained in Appendix II to this circular, Hi-Level Group has been generating a steady flow of profit for the three years ended 31 December 2005. Although Hi-Level Group incurred net loss for the ninemonth ended 30 September 2006 due to a one-time provisions of approximately HK$12 million, it is expected that through effective credit evaluation control and other synergic effect, Hi-Level Group will improve its profitability in the following years.

– 15 –

LETTER FROM THE BOARD

7. SGM

A notice convening the SGM at which an ordinary resolution will be proposed to the Shareholders to consider and, if thought fit, to approve the Agreement is set out on pages 174 to 175 of this circular.

A form of proxy for use at the SGM is enclosed with 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 as soon as possible and in any event not less than 48 hours before the time appointed for holding such 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 (or any adjourned meeting thereof) should you wish to do so.

8. RECOMMENDATION

The Directors are of the opinion that the terms of the Agreement are fair and reasonable and that the resolution to be proposed at the SGM as described in this circular are in the interests of the Company and of the Shareholders as a whole. Accordingly, the Directors recommend you to vote in favour of the resolution set out in the notice of the SGM contained in this circular.

9. GENERAL

Pursuant to Rule 14.06(3) of the Listing Rules, the Acquisition contemplated under the Agreement constitutes a major transaction for the Company, and is therefore subject to the approval of the Shareholders. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, no Shareholder of the Company is required to abstain from voting.

10. ADDITIONAL INFORMATION

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

Yours faithfully,

By order of the Board

S.A.S. Dragon Holdings Limited

Yim Yuk Lun, Stanley JP Chairman and Managing Director

– 16 –

FINANCIAL INFORMATION ON THE GROUP

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APPENDIX I

A. SUMMARY OF FINANCIAL RESULTS OF THE GROUP

The following is a summary of the audited consolidated result, assets and liabilities of the Group for the three years ended 31 December 2005 which are extracted from the respective annual reports of the Company.

CONSOLIDATED INCOME STATEMENT

Turnover
Cost of sales
Gross profit
Interest income
Other income
Distribution costs
Administrative expenses
Surplus on revaluation of
investment properties
Impairment loss on investment securities
Share of results of associates
Finance costs
Gain on deemed disposal of
interest in an associate
Profit before taxation
Taxation
Profit for the year
Attributable to
Equity holders of the Company
Minority interests
Dividends paid
Earnings per share
Basic
Diluted

Year ended 31 December
2005
2004
2003
HK$’000
HK$’000
HK$’000
2,453,638
2,407,088
1,848,307
(2,286,754)
(2,250,138)
(1,727,882)
166,884
156,950
120,425
3,055
268
969
13,979
5,713
9,591
(15,494)
(14,529)
(13,666)
(93,945)
(83,190)
(73,546)
–
–
1,000
–
–
(1,991)
(263)
(89)
(259)
(23,636)
(12,867)
(10,110)
311
–
–
50,891
52,256
32,413
(8,126)
(7,929)
(5,335)
42,765
44,327
27,078
40,110
35,108
23,527
2,655
9,219
3,551
42,765
44,327
27,078
14,552
8,977
2,301
HK16.54 cents
HK14.97 cents
HK10.22 cents
N/A
HK14.97 cents
HK10.22 cents

– 17 –

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

CONSOLIDATED BALANCE SHEET

Non-current Assets Investment properties Property, plant and equipment Goodwill Interests in associates Available-for-sale investments Investments in securities Club memberships Pledged bank deposits Deferred tax assets Current Assets Inventories Trade and other receivables Bills receivable Investments in securities Taxation recoverable Pledged bank deposits Bank balances and cash Current Liabilities Trade and other payables Bills payable Taxation payable Obligations under finance leases – due within one year Bank and other borrowings – due within one year Net Current Assets	As 2005 HK$’000 78,679 116,522 1,369 521 20,270 – 3,012 23,396 – 243,769 278,617 478,215 47,720 – 1,489 63,251 101,467 970,759 158,763 97,841 2,928 166 426,694 686,392 284,367 528,136	at 31 December 2004 2003 HK$’000 HK$’000 58,000 58,000 80,431 82,596 1,369 3,040 472 561 – – 4,981 2,116 4,459 4,459 – – 165 167 149,877 150,939 255,161 217,558 409,554 464,516 42,926 – 2,602 – 723 635 78,128 38,843 44,671 28,935 833,765 750,487 183,684 174,643 66,541 49,919 7,102 3,112 219 192 329,549 348,386 587,095 576,252 246,670 174,235 396,547 325,174	at 31 December 2004 2003 HK$’000 HK$’000 58,000 58,000 80,431 82,596 1,369 3,040 472 561 – – 4,981 2,116 4,459 4,459 – – 165 167 149,877 150,939 255,161 217,558 409,554 464,516 42,926 – 2,602 – 723 635 78,128 38,843 44,671 28,935 833,765 750,487 183,684 174,643 66,541 49,919 7,102 3,112 219 192 329,549 348,386 587,095 576,252 246,670 174,235 396,547 325,174
			150,939
			217,558 464,516 – – 635 38,843 28,935
			750,487
			174,643 49,919 3,112 192 348,386
			576,252 174,235
			325,174

– 18 –

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Capital and Reserves Share capital Reserves Equity attributable to equity holders of the Company Minority interests Total Equity Non-current Liabilities Obligations under finance leases – due after one year Bank and other borrowings – due after one year Deferred tax liabilities	24,254 340,383 364,637 6,510 371,147 190 150,186 6,613 156,989 528,136 As 2005 HK$’000	24,254 23,014 315,983 280,992 340,237 304,006 6,855 11,671 347,092 316,677 356 413 43,609 5,921 5,490 3,163 49,455 9,497 396,547 325,174 at 31 December 2004 2003 HK$’000 HK$’000	24,254 23,014 315,983 280,992 340,237 304,006 6,855 11,671 347,092 316,677 356 413 43,609 5,921 5,490 3,163 49,455 9,497 396,547 325,174 at 31 December 2004 2003 HK$’000 HK$’000
			304,006 11,671
			316,677
			413 5,921 3,163
			9,497
			325,174

– 19 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

B. AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

Set out below are 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 2005.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2005

Notes Turnover 7 Cost of sales Gross profit Interest income Other income Distribution costs Administrative expenses Share of results of associates Finance costs 8 Gain on deemed disposal of interest in an associate Profit before taxation Taxation 11 Profit for the year 12 Attributable to: Equity holders of the Company Minority interests Dividends paid 13 Earnings per share 14 Basic Diluted	2005 HK$’000 2,453,638 (2,286,754) 166,884 3,055 13,979 (15,494) (93,945) (263) (23,636) 311 50,891 (8,126) 42,765 40,110 2,655 42,765 14,552 HK16.54 cents N/A	2004 HK$’000 2,407,088 (2,250,138) 156,950 268 5,713 (14,529) (83,190) (89) (12,867) – 52,256 (7,929) 44,327 35,108 9,219 44,327 8,977 HK14.97 cents HK14.97 cents

– 20 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

At 31 December 2005

Notes Non-current Assets Investment properties 15 Property, plant and equipment 16 Goodwill 17 Interests in associates 18 Available-for-sale investments 19 Investments in securities 20 Club memberships 21 Pledged bank deposits 22 Deferred tax assets 30 Current Assets Inventories 23 Trade and other receivables 24 Bills receivable 24 Investments in securities 20 Taxation recoverable Pledged bank deposits 22 Bank balances and cash 22 Current Liabilities Trade and other payables 25 Bills payable 25 Taxation payable Obligations under finance leases – due withinone year 26 Bank and other borrowings – due within one year 27 Net Current Assets	2005 HK$’000 78,679 116,522 1,369 521 20,270 – 3,012 23,396 – 243,769 278,617 478,215 47,720 – 1,489 63,251 101,467 970,759 158,763 97,841 2,928 166 426,694 686,392 284,367 528,136	2004 HK$’000 (restated) 58,000 80,431 1,369 472 – 4,981 4,459 – 165
		149,877
		255,161 409,554 42,926 2,602 723 78,128 44,671
		833,765
		183,684 66,541 7,102 219 329,549
		587,095
		246,670
		396,547

– 21 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Notes Capital and Reserves Share capital 28 Reserves Equity attributable to equity holders of the Company Minority interests Total Equity Non-current Liabilities Obligations under finance leases – due after one year 26 Bank and other borrowings – due after one year 27 Deferred tax liabilities 30	2005 HK$’000 24,254 340,383 364,637 6,510 371,147 190 150,186 6,613 156,989 528,136	2004 HK$’000 (restated) 24,254 315,983
		340,237 6,855
		347,092
		356 43,609 5,490
		49,455
		396,547

– 22 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2005

				Attributable t	o equity holde	rs of the Company	rs of the Company		Total HK$’000 315,677 (2,132
s	Share capital HK$’000 23,014 – 23,014 – – 40 1,200 – 24,254 – 24,254 – – – – – 24,254	Share premium HK$’000 – – – – – 192 10,800 – 10,992 – 10,992 – – – – – 10,992	Capital redemption reserve HK$’000 1,109 – 1,109 – – – – – 1,109 – 1,109 – – – – – 1,109	Capital reserve HK$’000 11,145 – 11,145 – – – – – 11,145 – 11,145 – – – – – 11,145	Contributed surplus HK$’000 126,087 – 126,087 – – – – (8,977) 117,110 – 117,110 – – – – (14,552) 102,558	Asset revaluation reserve HK$’000 26,281 (2,132) 24,149 – – – – – 24,149 – 24,149 150 – 150 – – 24,299	Translation A reserve HK$’000 (1,388) – (1,388) – – – – – (1,388) – (1,388) – – – – – (1,388)	ccumulated profits HK$’000 117,758 – 117,758 35,108 – – – – 152,866 (1,308) 151,558 – 40,110 40,110 – – 191,668
									313,545 44,327 (14,035 232 12,000 (8,977
									347,092 (1,308
									345,784
									150 42,765
									42,915
									(3,000 (14,552
									371,147

– 23 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The capital reserve of the Group represents the aggregate of:

(i) the reserve arising on the acquisition of shares in subsidiaries from minority shareholders pursuant to the group reorganisation prior to 1994 of HK$10,445,000; and
(ii) the differences between the nominal value of the aggregate share capital of the subsidiaries acquired pursuant to the group reorganisation in September 1994, over the nominal value of the Company’s shares issued in exchange of HK$700,000.

At 31 December 2005, the asset revaluation reserve includes an amount of HK$10,582,000 (2004: HK$10,582,000) relating to a property previously held as a leasehold property and reclassified as an investment property in 1997. The amount is frozen upon the transfer of the property to investment property until the disposal or retirement of the related asset. On the disposal or retirement of the asset, the frozen revaluation reserve will be transferred directly to accumulated profits.

The contributed surplus of the Group represents the net aggregate of:

(i) the credit arising from the reduction of nominal value of the consolidated shares from HK$1.00 each to HK$0.10 each by cancelling HK$0.90 paid up on each issued share, after a transfer of HK$10,565,000 towards the elimination of the accumulated losses of the Company as at 31 December 1997, of HK$70,510,000;
(ii) the credit arising from cancellation of the share premium account of HK$237,881,000, after a transfer of HK$180,003,000 towards the elimination of the accumulated losses of the Company as at 31 December 2002, of HK$57,878,000; and
(iii) the distribution to shareholders of HK$14,552,000 (2003 and 2004: HK$11,278,000) for the year ended 31 December 2005.

– 24 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2005

OPERATING ACTIVITIES Profit before taxation Adjustments for: Interest income Finance costs Share of results of associates Gain on deemed disposal of interest in an associate Amortisation of goodwill Release of negative goodwill to other income Depreciation and amortisation of property, plant and equipment Allowance for trade and other receivables Loss on disposal of property, plant and equipment Gain on disposal of held-for-trading investments Gain on disposal of available-for-sale investments Unrealised holding loss on other investments Operating cash flows before movements in working capital Increase in inventories (Increase) decrease in trade and other receivables Increase in bills receivable (Decrease) increase in trade and other payables Increase in bills payable Cash (used in) generated from operations Hong Kong Profits Tax paid Hong Kong Profits Tax refunded NET CASH (USED IN) FROM OPERATING ACTIVITIES	2005 HK$’000 50,891 (3,055) 23,636 263 (311) – – 8,792 9,922 32 (9,507) (300) – 80,363 (23,456) (78,583) (4,794) (24,921) 31,300 (20,091) (12,352) 574 (31,869)	2004 HK$’000 52,256 (268) 12,867 89 – 1,671 (2,035) 8,562 2,922 6 – – 1,176 77,246 (37,603) 52,040 (42,926) 9,041 16,622 74,420 (3,830) – 70,590

– 25 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of investment properties Purchase of available-for-sale investments Purchase of held-for-trading investments Increase in pledged bank deposits Investment in an associate Proceeds on disposal of held-for-trading investments Interest received Proceeds on disposal of available-for-sale investments Proceeds on disposal of property, plant and equipment Purchase of investments in securities Proceeds on disposal of investments in securities NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Bank and other borrowings raised Repayment of bank and other borrowings Interest paid Dividend paid Dividend paid to minority shareholders of a subsidiary Repayment of obligations under finance leases Interest on obligations under finance leases Proceeds from issue of shares NET CASH FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash Bank overdrafts	2005 HK$’000 (44,933) (20,679) (15,600) (15,124) (8,519) (1) 27,233 3,055 900 18 – – (73,650) 2,257,004 (2,053,067) (23,600) (14,552) (3,000) (219) (36) – 162,530 57,011 44,452 101,463 101,467 (4) 101,463	2004 HK$’000 (6,241) – – – (39,285) – – 268 – 6 (7,710) 1,067 (51,895) 2,012,356 (1,982,216) (12,821) (8,977) – (198) (46) 232 8,330 27,025 17,427 44,452 44,671 (219) 44,452

– 26 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2005

1. General

The Company is incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The addresses of the registered office and principal place of business of the Company are disclosed in the “Corporate Information” section to the annual report.

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

The Company acts as an investment holding company and the activities of its principal subsidiaries are set out in note 37.

2. Application of Hong Kong financial reporting standards/changes in accounting policies

In the current year, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (“HKFRS(s)”), Hong Kong Accounting Standards (“HKAS(s)”) and Interpretations (hereinafter collectively referred to as “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are effective for accounting periods beginning on or after 1 January 2005. The application of the new HKFRSs has resulted in a change in the presentation of the consolidated income statement, consolidated balance sheet and consolidated statement of changes in equity. In particular, the presentation of minority interests have been changed. The changes in presentation have been applied retrospectively. The adoption of the new HKFRSs has resulted in changes to the Group’s accounting policies in the following areas that have an effect on how the results for the current and prior accounting years are prepared and presented:

(i) Share-based Payment

HKFRS 2 “Share-based Payment” requires an expense to be recognised where the Group buys goods or obtains services in exchange for shares or rights over shares (“equity-settled transactions”), or in exchange for other assets equivalent in value to a given number of shares or rights over shares (“cash-settled transactions”). The principal impact of HKFRS 2 on the Group is in relation to the expensing of the fair value of share options granted to directors and employees of the Company, determined at the date of grant of the share options, over the vesting period. Prior to the application of HKFRS 2, the Group did not recognise the financial effect of these share options

– 27 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

until they were exercised. The Group has applied HKFRS 2 to share options granted on or after 1 January 2005. In relation to share options granted before 1 January 2005, the Group chooses not to apply HKFRS 2 with respect to share options granted on or before 7 November 2002 and vested before 1 January 2005. However, the Group is still required to apply HKFRS 2 retrospectively to share options that were granted after 7 November 2002 and had not yet vested on 1 January 2005. Because there were no share options outstanding at 1 January 2005, comparative figures for 2004 need not be restated.

(ii) Business Combinations

HKFRS 3 “Business Combinations” is effective for business combinations for which the agreement date is on or after 1 January 2005 and to goodwill brought forward as at that date. The principal effect of the application of HKFRS 3 to the Group is:

Goodwill

In previous years, goodwill arising on acquisitions was capitalised and amortised over its estimated useful life. The Group on 1 January 2005, eliminated the carrying amount of the related accumulated amortisation of HK$56,945,000 with a corresponding decrease in the cost of goodwill. The Group has discontinued amortising such goodwill from 1 January 2005 onwards and such goodwill will be tested for impairment at least annually. As a result of this change in accounting policy, no amortisation of goodwill has been charged in the current year. Comparative figures for 2004 have not been restated and the financial impact of which is set out in note 3.

(iii) Owner-occupied Leasehold Interest in Land

In previous years, owner-occupied leasehold land and buildings were included in property, plant and equipment and measured at cost or valuation. In the current year, the Group has applied HKAS 17 “Leases”. Under HKAS 17, the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification, unless the lease payments cannot be allocated reliably between the land and buildings elements, in which case, the entire lease is generally treated as a finance lease. Since the allocation between the land and buildings elements cannot be made reliably for the Group, the leasehold interests in land continue to be accounted for as property, plant and equipment.

– 28 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(iv) Financial Instruments

HKAS 32 “Financial Instruments: Disclosure and Presentation” requires retrospective application whereas HKAS 39 “Financial Instruments: Recognition and Measurement”, which is effective for annual periods beginning on or after 1 January 2005, generally does not permit the recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. The application of HKAS 32 has had no material impact on the results of the Group for current and prior accounting periods. The principal effects on the Group as a result of implementation of HKAS 39 are summarised below:

Classification and measurement of financial assets and financial liabilities

The Group has applied the relevant transitional provisions in HKAS 39 with respect to the classification and measurement of financial assets and financial liabilities that are within the scope of HKAS 39.

On or before 31 December 2004, the Group classified and measured its equity securities in accordance with the benchmark treatment of Statement of Standard Accounting Practice No. 24 (“SSAP 24”). Under SSAP 24, the Group’s investments in equity securities are classified as “investment securities” or “other investments” as appropriate. “Investment securities” are carried at cost less impairment losses (if any) while “other investments” are measured at fair value, with unrealised gains or losses included in profit or loss. From 1 January 2005 onwards, the Group has classified and measured its equity securities in accordance with HKAS 39. Under HKAS 39, the Group’s financial assets are classified as “financial assets at fair value through profit or loss”, “availablefor-sale financial assets” and “loans and receivables”. “Financial assets at fair value through profit or loss” and “available-for-sale financial assets” are carried at fair value, with changes in fair values recognised in profit or loss and equity, respectively. Available-for-sale equity investments that do not have quoted market prices in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost less impairment after initial recognition. “Loans and receivables” are measured at amortised cost using the effective interest method after initial recognition.

On 1 January 2005, the Group classified and measured its equity securities in accordance with the transitional provisions of HKAS 39. Investments in securities classified under non-current assets and certain club memberships (equity investments) with carrying amounts of HK$4,981,000 and HK$1,447,000, respectively, were reclassified to available-for-sale investments. Included in these available-for-sale investments was HK$3,465,000 unlisted

– 29 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

equity investments of which fair value cannot be measured reliably and was therefore stated at cost less impairment loss at subsequent balance sheet dates. The remaining HK$2,963,000 available-for-sale investments as at 1 January 2005 represented listed equity securities. An adjustment of HK$1,308,000 has been made to the Group’s accumulated profits and the financial impact on the Group is set out in note 3. Investments in securities classified under current assets with carrying amount of HK$2,602,000 was reclassified to held-fortrading investments on 1 January 2005.

Financial assets and financial liabilities other than debt and equity securities

From 1 January 2005 onwards, the Group has classified and measured its financial assets and financial liabilities other than equity securities (which were previously outside the scope of SSAP 24) in accordance with the requirements of HKAS 39. As mentioned above, the Group’s financial assets under HKAS 39 are classified as “financial assets at fair value through profit or loss”, “available-for-sale financial assets” and “loans and receivables”. The Group’s financial liabilities are carried at amortised cost using the effective interest method after initial recognition.

Derecognition

HKAS 39 provides more rigorous criteria for the derecognition of financial assets than the criteria applied in previous periods. Under HKAS 39, a financial asset is derecognised, when and only when, either the contractual rights to the asset’s cash flows expire, or the asset is transferred and the transfer qualifies for derecognition in accordance with HKAS 39. The decision as to whether a transfer qualifies for derecognition is made by applying a combination of risks and rewards and control tests. The Group has applied the relevant transitional provisions and applied the revised accounting policy prospectively to transfers of financial assets from 1 January 2005 onwards. As a result, the Group’s bills receivable discounted with full recourses which were derecognised prior to 1 January 2005 have not been restated. As at 31 December 2005, the Group’s bills receivable discounted with full recourse have not been derecognised. Instead, the related borrowings of HK$39,086,000 have been recognised on the balance sheet date as bank loans. The relevant finance costs incurred in order to obtain such borrowings are included in the carrying amount of the borrowings on initial recognition and amortised over the terms of the borrowings using the effective interest method. Previously, the difference between the carrying amount of the bills receivable and proceeds received was expensed immediately when incurred. This change in accounting policy has had no material effect on results for the current year.

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(v) Investment Properties

In previous years, the Group’s investment properties were measured at open market values under predecessor standard, with revaluation surplus or deficit credited or charged to investment property revaluation reserve unless the balance on this reserve was insufficient to cover a revaluation decrease, in which case the excess of the revaluation decrease over the balance on the investment property revaluation reserve was charged to the consolidated income statement. Where a decrease had previously been charged to the income statement and a revaluation surplus subsequently arose, that increase was credited to the income statement to the extent of the decrease previously charged.

In the current year, the Group has, for the first time, applied HKAS 40 “Investment Property”. The Group has elected to use the fair value model to account for its investment properties which requires gains or losses arising from changes in the fair value of investment properties to be recognised directly in profit or loss for the year in which they arise. The Group has applied the relevant transitional provisions in HKAS 40 and elected to apply HKAS 40 from 1 January 2005 onwards. However, since the Group did not have any investment property revaluation reserve at 1 January 2005, the adoption of HKAS 40 did not result in any transfer between the reserve accounts. This change in accounting policy has had no material effect on results for the current year.

(vi) Deferred Taxes related to Investment Properties

In previous years, deferred tax consequences in respect of revalued investment properties were assessed on the basis of the tax consequence that would follow from recovery of the carrying amount of the properties through sale in accordance with the predecessor interpretation.

In the current year, the Group has applied Hong Kong (SIC) Interpretation (“HK(SIC)-INT”) 21 “Income Taxes – Recovery of Revalued Non-Depreciable Assets” which removes the presumption that the carrying amount of investment properties is to be recovered through sale. Therefore, the deferred tax consequences of the investment properties are now assessed on the basis that reflect the tax consequences that would follow from the manner in which the Group expects to recover the property at each balance sheet date. In the absence of any specific transitional provisions in HK(SIC)-INT 21, this change in accounting policy has been applied retrospectively. Comparative figures for 2004 have been restated and the financial impact of which is set out in note 3.

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. Summary of the effects of the changes in accounting policies

The effects of the changes in the accounting policies described in note 2 above are a decrease in amortisation of goodwill (included in administrative expenses) of HK$1,369,000 (2004: Nil), which resulted in an increase in profit for the year by the same amount.

The cumulative effects of the application of the new HKFRSs on 31 December 2004 and 1 January 2005 are summarised below:

As at 31 December 2004 (originally stated) HK$’000 Impact of HKAS 39 Available-for-sale investments – Investments in securities (non-current assets) 4,981 Held-for-trading investments – Investments in securities (current assets) 2,602 Club memberships 4,459 Impact of HK(SIC)-INT 21 Deferred tax liabilities (3,358) Total effects on assets and liabilities 8,684 Accumulated profits 152,866 Asset revaluation reserve 26,281 Total effects on equity 179,147	Adjustments HK$’000 – – – – – (2,132) (2,132) – (2,132) (2,132)	As at 31 December 2004 (restated) HK$’000 – 4,981 – 2,602 4,459 (5,490) 6,552 152,866 24,149 177,015	Adjustments HK$’000 5,120 (4,981) 2,602 (2,602) (1,447) – (1,308) (1,308) – (1,308)	As at 1 January 2005 (restated) HK$’000 5,120 – 2,602 – 3,012 (5,490) 5,244 151,558 24,149 175,707

The effects of the application of the new HKFRSs to the Group’s equity on 1 January 2004 are a decrease of asset revaluation reserve of HK$2,132,000 as a result of adoption of HK(SIC) – INT 21.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

HKAS 1 (Amendment) Capital disclosures [1] HKAS 19 (Amendment) Actuarial gains and losses, group plans and disclosures [2] HKAS 21 (Amendment) Net investment in a foreign operation [2] HKAS 39 (Amendment) Cash flow hedge accounting of forecast intragroup transactions [2] HKAS 39 (Amendment) The fair value option [2] HKAS 39 & HKFRS 4 Financial guarantee contracts [2] (Amendments) HKFRS 6 Exploration for and evaluation of mineral resources [2] HKFRS 7 Financial instruments: Disclosures [1] HK(IFRIC) – INT 4 Determining whether an arrangement contains a lease [2] HK(IFRIC) – INT 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds [2] HK(IFRIC) – INT 6 Liabilities arising from participating in a specific market – waste electrical and electronic equipment [3] HK(IFRIC) – INT 7 Applying the restatement approach under HKAS 29 Financial Reporting in Hyperinflationary Economies [4]

1 Effective for annual periods beginning on or after 1 January 2007.

2 Effective for annual periods beginning on or after 1 January 2006.

3 Effective for annual periods beginning on or after 1 December 2005.

4 Effective for annual periods beginning on or after 1 March 2006.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. Significant accounting policies

The consolidated financial statements have been prepared on the historical cost basis, except for the investment properties, certain leasehold land and buildings and certain financial instruments, which are measured at revalued amounts or 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 (the “Listing Rules”) and by the Hong Kong Companies Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries.

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

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

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

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority 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 minority’s interest 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.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Goodwill

Goodwill arising on acquisitions prior to 1 January 2005

Goodwill arising on an acquisition of a subsidiary for which the agreement date is before 1 January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of the relevant subsidiary at the date of acquisition.

For previously capitalised goodwill arising on acquisitions prior to 1 January 2001, the Group has discontinued amortisation from 1 January 2005 onwards, and such goodwill is tested for impairment annually, and whenever there is an indication that the cash generating unit to which the goodwill relates may be impaired.

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

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

On subsequent disposal of a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Interests in associates

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes in equity of the associates, less any identified impairment loss. When the

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

Revenue recognition

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

Sales of goods are recognised when goods are delivered and title has passed.

Rental income, including rentals invoiced in advance from properties let under operating leases, are 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.

Commission income is recognised on an accrual basis when the Group’s entitlement to payment has been established.

Investment properties

Investment property, which is property held to earn rentals and for capital appreciation, is stated at its fair value at the balance sheet date. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 income statement in the year in which the asset is derecognised.

Property, plant and equipment

Property, plant and equipment are stated at cost or valuation less subsequent accumulated depreciation and amortisation and accumulated impairment losses.

Certain of the Group’s leasehold land and buildings were revalued at 31 December 1994. The surplus arising on revaluation of these properties was credited to asset revaluation reserve. Advantage has been taken of the transitional relief provided by paragraph 80A of HKAS 16 “Property, Plant and Equipment” from the requirement to make regular revaluations of the Group’s land and buildings which had been carried at revalued amounts prior to 30 September 1995, and accordingly no further revaluation of land and buildings is carried out. Prior to 30 September 1995, the revaluation increase arising on the revaluation of these assets was credited to the revaluation reserve. Any future decreases in value of these assets will be dealt with as an expense to the extent that they exceed the balance, if any, on the revaluation reserve relating to a previous revaluation of the same asset. On the subsequent sale or retirement of a revalued asset, the corresponding revaluation surplus is transferred to accumulated profits.

Depreciation is provided to write off the cost or valuation of items of property, plant and equipment over their estimated useful lives 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 dereognised.

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight line basis over the lease term.

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 balance sheet 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. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight line basis.

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 its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise.

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 Company (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Retirement benefit costs

Payments to defined contribution retirement benefits scheme are charged as an expense as they fall due.

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 balance sheet date.

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.

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the 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.

Club memberships

Club memberships are carried at cost less any subsequent accumulated impairment losses.

Club memberships are tested for impairment annually by comparing their carrying amounts with their recoverable amounts, irrespective of whether there is any indication that they may be impaired. If the recoverable amount of club memberships is estimated to be less than its carrying amount, the carrying amount of the club memberships is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

When an impairment loss subsequently reverses, the carrying amount of club memberships 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 that club memberships in prior years.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method for electronic products and the weighted average cost method for other inventories.

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Financial instruments

Financial assets and financial liabilities are recognised on the consolidated balance sheet 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 and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. 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. The accounting policies adopted in respect of each category of financial assets are set out below.

Financial assets at fair value through profit or loss

The Group’s financial assets at fair value through profit or loss represent financial assets held-for-trading. At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss 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

– 41 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the other categories. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss. Any impairment losses on available-for-sale financial assets are recognised in profit or loss. Impairment losses on available-for-sale equity investments will not reverse in subsequent periods.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

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.

Financial liabilities

The Group’s financial liabilities including trade and other payables, bills payable, bank and other borrowings and obligations under finance leases are subsequently measured at amortised cost, using the effective interest rate method.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derecognition

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

For financial liabilities, they are removed from the Group’s consolidated balance sheet when, and only when, it is extinguished (i.e. 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 received or receivable is recognised in profit or loss.

Impairment losses (other than goodwill and club memberships)

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as a revaluation decrease under that standard.

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

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Equity-settled share-based payment transactions

The financial impact of share options granted prior to 1 January 2005 is not recorded in the Group’s consolidated balance sheet until such time as the options are exercised, and no charge is recognised in the consolidated income statement in respect of the value of options granted in the year. Upon the exercise of these share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which lapse, expire or are cancelled prior to their exercise date are deleted from the register of outstanding options.

5. Key sources of estimation uncertainty

The Group makes estimates and assumptions concerning the future. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

Investment properties

The investment properties of the Group were stated at fair value in accordance with the accounting policy stated in note 4. The fair value of the investment properties are determined by the directors of the Company with reference to the property valuation performed by an independent firm of professional property valuers, Savills Valuation and Professional Services Limited (“Savills”). The fair value of investment properties at the balance sheet date is set out in note 15. Such valuations were based on certain assumptions, which are subject to uncertainty and might materially differ from the actual results. In making the judgement, consideration has been given to assumptions that are mainly based on market conditions existing at the balance sheet date. These estimates are regularly compared to actual market data and actual transactions entered into by the Group.

Allowance for trade and other receivables

The assessment of the allowance for trade and other receivables 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 of each customer. If the financial conditions of customers of the Group were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. As at 31 December 2005, the carrying value trade and other receivables (net of allowance) is HK$478,215,000 (2004: HK$409,554,000).

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. Financial risk management objectives and policies

The Group’s major financial instruments include available-for-sale investments, trade and other receivables, bills receivable, pledged bank deposits, bank balances, trade and other payables, bills payable, bank borrowings and obligations under finance leases. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and 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.

Credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31 December 2005 is the carrying amounts of trade and other receivables and bills receivable as stated in the consolidated balance sheet. In order to minimise the credit risk, the management of the Group reviews the recoverable amount of each individual trade receivable at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

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

The Group has no significant concentration of credit risk, with exposure spread over a number of counterparties and customers.

Currency risk

The Group mainly operates in Hong Kong, the People’s Republic of China (the “PRC”) and Taiwan and exposure in exchange rate risks arises from fluctuations in the United State dollar, Hong Kong dollar and Renminbi exchange rates. The Group does not have an existing foreign exchange policy to minimise the currency risk.

Interest rate risk

The Group’s cash flow interest rate risks mainly relates to variable interest rate borrowings. The Group currently does not have any interest rate hedging policy. The directors monitor the Group’s exposure on ongoing basis and will consider hedging interest rate risk should the need arises.

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. Turnover and business and geographical segments

Turnover represents the net amounts received and receivable for goods sold by the Group to outside customers, less returns and allowances.

Business segments

For management purposes, the Group’s operations are organised into two operating divisions namely distribution of electronic goods and distribution of sports products. These divisions are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below.

2005

TURNOVER External sales RESULT Segment result Interest income Unallocated corporate expenses Unallocated corporate income Finance costs Share of results of associates Gain on deemed disposal of interest in an associate Profit before taxation Taxation Profit for the year	Distribution of electronic products HK$’000 2,354,442 58,574 2,998 (263) 311	Distribution of sports products HK$’000 99,196 7,994 57 – –	Consolidated HK$’000 2,453,638 66,568 3,055 (8,329) 13,185 (23,636) (263) 311 50,891 (8,126) 42,765

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

	Distribution	Distribution	Distribution	Distribution	Distribution
	of electronic				of sports
		products			products	Consolidated
		HK$’000			HK$’000	HK$’000
CONSOLIDATED BALANCE SHEET
ASSETS
Segment assets	1,049,758				50,252	1,100,010
Interests in associates			521		–	521
Unallocated corporate assets						113,997
Total assets						1,214,528

LIABILITIES
Segment liabilities		242,561			12,185	254,746
Unallocated corporate liabilities						588,635
Total liabilities						843,381

Distribution			Distribution
of	electronic		of	sports
	products		products		Others	Consolidated
	HK$’000		HK$’000		HK$’000	HK$’000
OTHER INFORMATION
Capital additions	32,485			7,225	25,902	65,612
Depreciation and amortisation
of property, plant and
equipment	7,310			477	1,005	8,792
Loss on disposal of property,
plant and equipment		32		–	–	32
Allowance for trade and other
receivables	9,502			420	–	9,922

– 47 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

2004
Distribution
of electronic
products
HK$’000
TURNOVER
External sales
2,313,346
RESULT
Segment result
62,505
Interest income
268
Unallocated corporate expenses
Release of negative goodwill
2,035
Unallocated corporate income
Finance costs
Share of results of associates
(89)
Profit before taxation
Taxation
Profit for the year
Distribution
of electronic
products
HK$’000
CONSOLIDATED BALANCE SHEET
ASSETS
Segment assets
877,350
Interests in associates
472
Unallocated corporate assets
Total assets
LIABILITIES
Segment liabilities
239,533
Unallocated corporate liabilities
Total liabilities

Distribution
of sports
products
Consolidated
HK$’000
HK$’000
93,742
2,407,088
8,296
70,801
–
268
(9,093)
–
2,035
1,201
(12,867)
–
(89)
52,256
(7,929)
44,327
Distribution
of sports
products
Consolidated
HK$’000
HK$’000
35,404
912,754
–
472
70,416
983,642
9,405
248,938
387,612
636,550

– 48 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	Distribution	Distribution
	of electronic	of sports
	products	products	Others	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
OTHER INFORMATION
Capital additions	1,572	2,169	2,668	6,409
Amortisation of goodwill	302	1,369	–	1,671
Depreciation and amortisation
of property, plant and
equipment	5,028	139	3,395	8,562
Loss on disposal of property,
plant and equipment	6	–	–	6
Unrealised holding loss on other
investments	–	–	1,176	1,176
Allowance for trade and other
receivables	2,922	–	–	2,922

Geographical segments

The Group’s operations are located in Hong Kong, the PRC and Taiwan. The Group’s distribution of electronic goods is carried out in Hong Kong, the PRC and Taiwan. Distribution of sports products is carried out in Hong Kong and the PRC.

The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods:

Hong Kong The PRC Taiwan Others	Sales revenue by geographical market 2005 2004 HK$’000 HK$’000 773,497 678,507 1,422,565 1,359,608 221,135 339,878 36,441 29,095 2,453,638 2,407,088	Sales revenue by geographical market 2005 2004 HK$’000 HK$’000 773,497 678,507 1,422,565 1,359,608 221,135 339,878 36,441 29,095 2,453,638 2,407,088
		2,407,088

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

Hong Kong The PRC Taiwan Others	Carrying amount of segment assets 2005 2004 HK$’000 HK$’000 642,389 554,520 481,716 311,656 59,022 87,010 31,401 30,291 1,214,528 983,477	Additions to property, plant and equipment and investment properties 2005 2004 HK$’000 HK$’000 33,552 5,556 31,995 388 – – 65 465 65,612 6,409	Additions to property, plant and equipment and investment properties 2005 2004 HK$’000 HK$’000 33,552 5,556 31,995 388 – – 65 465 65,612 6,409
			6,409

8. Finance Costs

Interest on: – bank and other borrowings wholly repayable within five years – bank borrowings not wholly repayable mwithin five years – obligations under finance leases	2005 HK$’000 18,640 4,960 36 23,636	2004 HK$’000 12,698 123 46
		12,867

– 50 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

9. Directors’ remunerations

The remuneration paid or payable to each of the 10 (2004: 10) directors were as follows:

2005

Fees Other emoluments Salaries and other benefits Retirement benefits scheme contributions Performance related incentive payments (note) Total emoluments 2004	Yim Yuk Lun, Stanley HK$’000 – 3,877 118 1,755 5,750	Wong Sui Chuen HK$’000 78 362 – – 440	Cheung Yuk Kuen HK$’000 – 332 11 310 653	Dr. Chang Chu Cheng HK$’000 – – – – –	Dr. Lui Ming Wah,J.P HK$’000 50 – – – 50	Chang Ping Kin HK$’000 95 – – – 95	Wong Tak Yuen, Adrian HK$’000 50 – – – 50	Liu Chun Ning, Wilfred HK$’000 – – – – –	Cheung Chi Kwan HK$’000 200 – – – 200	Lau Ping Cheung HK$’000 100 – – – 100	Total HK$’000 573 4,571 129 2,065
											7,338

Fees Other emoluments Salaries and other benefits Retirement benefits scheme contributions Performance related incentive payments (note) Total emoluments	Yim Yuk Lun, Stanley HK$’000 – 3,589 111 1,176 4,876	Wong Sui Chuen HK$’000 74 390 – – 464	Cheung Yuk Kuen HK$’000 – 189 10 340 539	Dr. Chang Chu Cheng HK$’000 – – – – –	Dr. Lui Ming Wah,J.P HK$’000 50 – – – 50	Chang Ping Kin HK$’000 – 60 – – 60	Wong Tak Yuen, Adrian HK$’000 50 – – – 50	Liu Chun Ning, Wilfred HK$’000 – – – – –	Cheung Chi Kwan HK$’000 – – – – –	Lau Ping Cheung HK$’000 – 185 4 100 289	Total HK$’000 174 4,413 125 1,616
											6,328

Note: Performance related incentive payments were determined with reference to the Group’s operating results, individual performance and comparable market statistics.

During the years ended 31 December 2005 and 2004, no emoluments were paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office. In addition, during the years ended 31 December 2005 and 2004, no directors waived any emoluments.

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

10. Employees’ remunerations

Of the five highest paid individuals in the Group, one (2004: one) was a director of the Company whose remunerations are set out in note 9 above. The remuneration of the remaining four (2004: four) individuals are as follows:

Salaries and other benefits Performance related incentive payments Retirement benefits scheme contributions Taxation The charge comprises: Hong Kong Profits Tax Current year Under(over)provision in prior years Deferred taxation_(note 30)_	2005 HK$’000 2,952 1,549 112 4,613 2005 HK$’000 6,718 120 6,838 1,288 8,126	2004 HK$’000 2,778 750 112 3,640 2004 HK$’000 8,059 (327) 7,732 197 7,929

11. Taxation

Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profit for the year.

Under Decree-Law no. 58/99/M, Macau companies incorporated under the law (“58/99/M Companies”) are exempted from Macau complementary tax (Macau income tax) as long as the 58/99/M companies do not sell its products to any Macau resident companies.

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

Profit before taxation Tax at Hong Kong Profits Tax rate of 17.5% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Under(over)provision in prior years Tax effect of tax losses/other deferred tax assets not recognised Utilisation of tax losses/other deferred tax assets previously not recognised Effect of tax exemption granted to Macau subsidiaries Tax charge for the year	2005 HK$’000 50,891 8,906 1,383 (143) 120 2,127 (1,945) (2,322) 8,126	2004 HK$’000 52,256 9,145 851 (742) (327) 941 (871) (1,068) 7,929

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. Profit for the year

Profit for the year has been arrived at after charging: Staff costs, including directors’ remunerations – salaries and other benefits – performance related incentive payments – retirement benefits scheme contributions, net of forfeited contributions of HK$197,000 (2004: HK$106,000) Amortisation of goodwill (included in administrative expenses) Auditors’ remuneration Depreciation and amortisation of property, plant and equipment Allowance for trade and other receivables Loss on disposal of property, plant and equipment Net foreign exchange losses Unrealised holding loss on other investments and after crediting: Gain on disposal of held-for-trading investments Gain on disposal of available-for-sale investments Rental income from properties, net of outgoings of HK$25,000 (2004: HK$28,000) Release of negative goodwill to other income	2005 HK$’000 39,842 2,065 1,181 43,088 – 1,166 8,792 9,922 32 1,574 – 9,507 300 2,886 –	2004 HK$’000 35,534 1,616 1,245
		38,395 1,671 836 8,562 2,922 6 294 1,176 – – 968 2,035

– 54 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

13. Dividends paid

2005 interim dividend of HK2.0 cents (2004: HK1.8 cents) per share 2004 final dividend of HK4.0 cents (2003: HK2.0 cents) per share	2005 HK$’000 4,851 9,701 14,552	2004 HK$’000 4,366 4,611
		8,977

A final dividend of HK5.0 cents (2004: HK4.0 cents) per share has been proposed by the board of directors and is subject to approval by the shareholders in the forthcoming annual general meeting.

14. Earnings per share

The calculation of the basic and diluted earnings per share for the year is based on the following data:

Earnings for the purposes of basic and diluted earnings per share – profit attributable to equity holders of the Company Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares in respect of share options Weighted average number of ordinary shares for the purposes of diluted earnings per share	2005 HK$’000 40,110 Number of shares 242,540,720	2004 HK$’000 35,108

		Number of shares 234,503,562

		8,034
		234,511,596

– 55 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

No diluted earnings per share has been presented for the year ended 31 December 2005 as the Company had no potential ordinary shares outstanding during the year.

15. Investment properties

FAIR VALUE At 1 January 2004 and 1 January 2005 Additions At 31 December 2005	HK$’000 58,000 20,679
	78,679

The fair value of the Group’s investment properties at 31 December 2005 have been arrived at on the basis of a valuation carried out on that date by Savills. Savills are members of the Institute of Valuers, and have appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation, which conforms to International Valuation Standards, was arrived at by reference to market evidence of transaction prices for similar properties.

All of the Group’s investment properties have been pledged to secure banking facilities granted to the Group.

The investment properties are held under medium term leases in Hong Kong and rented out under operating leases.

– 56 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. Property, plant and equipment

COST OR VALUATION At 1 January 2004 Additions Disposals At 31 December 2004 Additions Disposals At 31 December 2005 Comprising: At cost At valuation – 1994 DEPRECIATION AND AMORTISATION At 1 January 2004 Provided for the year Eliminated on disposals At 31 December 2004 Provided for the year Eliminated on disposals At 31 December 2005 CARRYING VALUES At 31 December 2005 At 31 December 2004	Leasehold land and buildings HK$’000 86,816 2,175 – 88,991 35,507 – 124,498 79,148 45,350 124,498 19,372 2,575 – 21,947 2,663 – 24,610 99,888 67,044	Leasehold improve- ments HK$’000 17,808 756 – 18,564 1,334 – 19,898 19,898 – 19,898 9,976 2,843 – 12,819 2,834 – 15,653 4,245 5,745	Furniture and fixtures HK$’000 10,867 1,091 (15) 11,943 2,325 (13) 14,255 14,255 – 14,255 8,980 830 (6) 9,804 995 (12) 10,787 3,468 2,139	Office equipment HK$’000 11,054 2,016 (4) 13,066 2,087 (27) 15,126 15,126 – 15,126 8,206 1,435 (1) 9,640 1,392 (22) 11,010 4,116 3,426	Motor vehicles and vessel HK$’000 12,397 371 – 12,768 3,680 (454) 15,994 15,994 – 15,994 9,812 879 – 10,691 908 (410) 11,189 4,805 2,077	Total HK$’000 138,942 6,409 (19) 145,332 44,933 (494) 189,771 144,421 45,350 189,771 56,346 8,562 (7) 64,901 8,792 (444) 73,249 116,522 80,431

– 57 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

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 term of the relevant lease or 25 years
Leasehold improvements	Over the term of the relevant lease
Others	5 years

The carrying values of leasehold land and buildings held by the Group at the balance sheet date comprise:

Land and buildings held in Hong Kong under medium term leases Land and buildings held in Hong Kong under long term leases Buildings held in the PRC under long term leases	2005 HK$’000 62,219 672 36,997 99,888	2004 HK$’000 57,917 700 8,427
		67,044

If leasehold land and buildings had not been revalued, they would have been included in these financial statements at historical cost less accumulated depreciation and amortisation at HK$87,607,000 (2004: HK$55,456,000).

At 31 December 2005, the carrying value of motor vehicles and vessel included an amount of HK$415,000 (2004: HK$630,000) in respect of assets held under finance leases.

– 58 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

17. Goodwill

COST At 1 January 2004 and 1 January 2005 Elimination of accumulated amortisation upon the application of HKFRS 3 At 31 December 2005 AMORTISATION At 1 January 2004 Amortisation for the year At 1 January 2005 Elimination of accumulated amortisation upon the application of HKFRS 3 At 31 December 2005 CARRYING VALUES At 31 December 2005 At 31 December 2004	HK$’000 58,314 (56,945) 1,369 55,274 1,671 56,945 (56,945) – 1,369 1,369

Until 31 December 2004, goodwill had been amortised over its estimated useful life, ranging from 2 to 10 years.

The carrying values of goodwill had been allocated to one individual cash generating unit namely distribution of sports products (“CGU”), including two subsidiaries engaged in the distribution of sports products.

– 59 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The recoverable amount of the CGU has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a five-year period using a steady 5% growth rate, and discount rate of 5%. This growth rate is based on the relevant industry growth forecasts and does not exceed the average long-term growth rate for the relevant industry. Another key assumption for the value in use calculation is the budgeted gross margin, which is determined based on the unit’s past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of the CGU to exceed the aggregate recoverable amount of the CGU.

For the year ended 31 December 2005, management of the Group determines that there is no impairment of the CGU containing goodwill.

18. Interests in associates

Cost of unlisted investments in associates Share of post-acquisition losses	2005 HK$’000 943 (422) 521	2004 HK$’000 942 (470) 472

– 60 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Particulars of the Group’s associates at 31 December 2005 are as follows:

				Proportion of
	Form of	Place of		issued share
	business	incorporation/	Class of	capital held
Name of associate	structure	operations	shares held	by the Group	Principal activities
				%
Bestime Technology	Incorporated	Hong Kong	Ordinary	30	Trading of electronic
Development Limited					products
Now Electron Inc.	Incorporated	Republic of	Ordinary	29	Trading of electronic
		Korea			products
Ocean Bright	Incorporated	Hong Kong	Ordinary	30	Trading of electronic
Technology Limited					products
Vantage Technology	Incorporated	Hong Kong	Ordinary	24	Manufacturing of
Limited					paper products

The summarised financial information in respect of the Group’s associates is set out below:

Total assets Total liabilities Net assets Group’s share of net assets of associates Revenue Loss for the year Group’s share of results of associates for the year	2005 HK$’000 40,800 (39,127) 1,673 521 34,010 (1,077) (263)	2004 HK$’000 34,692 (33,593) 1,099 472 28,652 (174) (89)

– 61 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

19. Available-for-sale investments

Available-for-sale investments as at 31 December 2005 comprise:

AT FAIR VALUE Investments in overseas listed equity securities Investments in unlisted equity securities in Hong Kong AT COST Investments in unlisted equity securities in Republic of Korea (the “Korea”)	2005 HK$’000 208 4,462 15,600
	20,270

At 31 December 2005, all available-for-sale investments are stated at fair value, except for those unlisted equity securities in the Korea of which their fair values cannot be measured reliably. Fair values of those investments have been determined by reference to bid prices quoted in active markets.

The above unlisted securities in the Korea represent investments in unlisted equity securities issued by a private entity which are measured at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that their fair values cannot be measured reliably.

– 62 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. Investments in securities

Investments in securities as at 31 December 2004 are set out below. Upon the application of HKAS 39 on 1 January 2005, investments in securities were reclassified to appropriate categories under HKAS 39.

	2004
Investment securities HK$’000 – 1,516 600 2,116 291 – 2,116 2,116	Other investments HK$’000 2,602 – 2,865 5,467 2,602 2,602 2,865 5,467	Total HK$’000 2,602 1,516 3,465
		7,583

		2,893

		2,602 4,981
		7,583

– 63 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21. Club memberships

Club memberships, at cost Hong Kong Outside Hong Kong	2005 HK$’000 – 3,012 3,012	2004 HK$’000 1,447 3,012
		4,459

The directors are of the opinion that the club memberships are at least their carrying amounts by reference to bid prices quoted in active market.

22. Pledged bank deposits and bank balances and cash

The pledged bank deposits represent amount pledged to banks to secure banking facilities granted to the Group. Deposits amounting to HK$23,396,000 (2004: Nil) are with maturities more than one year from the balance sheet date and are therefore classified as non-current assets.

The pledged bank deposits and bank balances carry fixed interest rate of 3.5% (2004: 1.5%) and variable interest rate of average 0.9% (2004: 0.3%) per annum, respectively. The pledged bank deposits will be released upon the settlement of relevant bank borrowings. The fair values of the pledged bank deposits and bank balances at 31 December 2005 approximate their corresponding carrying amounts.

23. Inventories

	2005	2004
	HK$’000	HK$’000
Finished goods	278,617	255,161

– 64 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

24. Trade and other receivables and bills receivable

Trade receivables Other receivables Total trade and other receivables Bills receivable	2005 HK$’000 447,829 30,386 478,215 47,720	2004 HK$’000 380,892 28,662
		409,554

		42,926

The Group allows a credit period ranged from 30 days to 120 days to its trade customers.

An aged analysis of trade and bills receivables by due date is as follows:

Current Within 30 days More than 30 days and within 60 days More than 60 days and within 90 days More than 90 days	2005 HK$’000 325,380 100,964 31,047 10,076 28,082 495,549	2004 HK$’000 268,433 65,427 27,155 11,190 51,613
		423,818

The fair values of the Group’s trade and other receivables and bills receivable at 31 December 2005 approximates their corresponding carrying amounts.

– 65 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. Trade and other payables and bills payable

Trade payables Other payables Trade and other payables Bills payable	2005 HK$’000 133,997 24,766 158,763 97,841	2004 HK$’000 160,259 23,425
		183,684

		66,541

An aged analysis of trade and bills payables by due date is as follows:

Current Within 30 days More than 30 days and within 60 days More than 60 days and within 90 days More than 90 days	2005 HK$’000 193,045 28,420 6,567 3,272 534 231,838	2004 HK$’000 169,381 37,164 16,521 1,830 1,904
		226,800

The fair values of the Group’s trade and other payables and bills payable at 31 December 2005 approximates their corresponding carrying amounts.

– 66 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

26. Obligations under finance leases

Amounts payable under finance leases: Within one year More than one year, but not exceeding two years More than two years, but not exceeding three years More than three years, but not exceeding four years More than four years, but not exceeding five years _Less:_Future finance charges Present value of finance leases _Less:_Amount due for settlement within one year shown under current liabilities Amount due for settlement after one year	Minimum lease payments 2005 2004 HK$’000 HK$’000 181 277 148 181 57 148 6 57 – 6 392 669 (36) (94) 356 575	Present value of minimum lease payments 2005 2004 HK$’000 HK$’000 166 219 134 166 50 134 6 50 – 6 356 575 (166) (219) 190 356

It is the Group’s policy to lease certain of its motor vehicles under finance leases. The average lease term is four years. The average effective borrowing rate is 3% (2004: 3%). The leases are paid on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The Group’s obligations under finance leases are denominated in Hong Kong dollars and are secured by the lessor’s charge over the leased assets.

– 67 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The fair value of the Group’s finance leases obligations, determined based on the present value of the estimated future cash flows discounted using the prevailing market rate at the balance sheet date approximates their carrying amounts.

27. Bank and other borrowings

2005
HK$’000
Bank and other borrowings comprise:
Bank loans
269,059
Bank import loans
307,817
Bank overdrafts
4
Other loan
–
576,880
Analysed as:
Secured
539,729
Unsecured
37,151
576,880
The bank and other borrowings are repayable as follows:
Within one year or on demand
426,694
More than one year, but not exceeding two years
13,725
More than two years, but not exceeding five years
124,251
More than five years
12,210
576,880
_Less:_Amount due within one year shown
under current liabilities
(426,694)
Amount due after one year
150,186

2004
HK$’000
139,486
230,453
219
3,000
373,158
354,818
18,340
373,158
329,549
10,905
30,748
1,956
373,158
(329,549)
43,609

– 68 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

At 31 December 2005, all of the bank and other borrowings are variable-rate borrowings which carry interest ranging from London Inter Bank Offering Rate (“LIBOR”) plus 1% to 2.25% or Hong Kong Inter Bank Offering Rate (“HIBOR”) plus 1% to 2.25% (2004: LIBOR plus 1.5% to 2.5% or HIBOR plus 1% to 2.5%).

The Group’s borrowings denominated in the currencies other than the functional currency of the respective entity are set out below:

2005 HK$’000 United State dollars 488,240 28. Share capital Number of ordinary shares Ordinary shares of HK$0.10 each Authorised: At 1 January 2004, 31 December 2004 and 31 December 2005 1,454,000,000 Issued and fully paid: At 1 January 2004 230,140,720 Exercise of share options 400,000 Exercise of convertible notes_(note)_ 12,000,000 At 31 December 2004 and 31 December 2005 242,540,720	2004 HK$’000 214,007

	Amount HK$’000 145,400

	23,014 40 1,200
	24,254

– 69 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Number of non-redeemable convertible preference shares Non-redeemable convertible preference shares of HK$0.10 each Authorised: At 1 January 2004, 31 December 2004 and 31 December 2005 46,000,000 Issued and fully paid: At 1 January 2004, 31 December 2004 and 31 December 2005 –	Amount HK$’000 4,600

	–

Note: On 18 May 2004, the Group entered into a conditional sale and purchase agreement with certain directors of RSL Electronic Company Limited (formerly known as RDL Electronic Company Limited) (“RSL Electronic”) and Mega Partner Electronic (Macao Commercial Offshore) Limited (formerly known as RDL Electronic (Macao Commercial Offshore) Limited) (“Mega Partner”), subsidiaries of the Company to purchase the remaining 30% issued share capital of each of RSL Electronic and Mega Partner at a total consideration of HK$12,000,000, which was settled by the issue of 1% non-redeemable convertible notes with principal amounts of HK$12,000,000 (the “Convertible Notes”).

The acquisition was completed on 1 September 2004. On the same date, the Convertible Notes were fully converted into ordinary shares of HK$0.10 each of the Company at conversion price of HK$1.00 each. The new issued shares rank pari passu with the existing shares in all respects.

29. Share-based payment transactions

Details of the equity-settled share option schemes adopted by the members of the Group are as follows:

(a) Pursuant to a resolution passed on 17 September 1994, the Company adopted a share option scheme (the “Initial Share Option Scheme”) for recognition of past services contributed by the eligible directors and employees, and expired on 16 September 2004. Under the Initial Share Option Scheme, the Board of Directors of the Company may at their discretion grant options to directors and full-time employees of the Company and its subsidiaries, to subscribe for shares in the Company.

– 70 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Company has, in accordance with Chapter 17 of the Listing Rules, terminated the Initial Share Option Scheme and adopted a new share option scheme, as approved by the shareholders of the Company at a special general meeting held on 28 June 2002 (the “New Share Option Scheme”) for recognition of past services contributed by, and giving incentives to the eligible directors and employees.

Upon termination of the Initial Share Option Scheme, no further options may be offered thereunder. However, in respect of the outstanding options, the provisions of the Initial Share Option Scheme shall remain in force. All the options granted under the Initial Share Option Scheme were either exercised or expired during the year ended 31 December 2004.

The following table discloses details of the Company’s options under the Initial Share Option Scheme held by employees (including directors) and movements in such holdings during the year ended 31 December 2004:

Exercise Outstanding Date of price Vesting Exercisable at grant per share period period 1.1.2004 HK$ 29.9.1997 3.80 – 29.9.1997 – 1,000,000 16.9.2004 4.5.2000 0.59 4.5.2000 – 4.5.2002 – 200,000 3.5.2002 3.5.2004 17.6.2000 0.57 17.6.2000 – 17.6.2002 – 200,000 16.6.2002 16.6.2004 1,400,000	Exercised during the year – (200,000) (200,000) (400,000)	Expired Outstanding during at the year 31.12.2004 (1,000,000) – – – – – (1,000,000) –	Expired Outstanding during at the year 31.12.2004 (1,000,000) – – – – – (1,000,000) –
			–

Details of the share options held by the directors included in the above table are as follows:

Exercise Outstanding Date of price Vesting Exercisable at grant per share period period 1.1.2004 HK$ 29.9.1997 3.80 – 29.9.1997 – 1,000,000 16.9.2004 17.6.2000 0.57 17.6.2000 – 17.6.2002 – 100,000 16.6.2002 16.6.2004 1,100,000	Exercised during the year – (100,000) (100,000)	Expired Outstanding during at the year 31.12.2004 (1,000,000) – – – (1,000,000) –	Expired Outstanding during at the year 31.12.2004 (1,000,000) – – – (1,000,000) –
			–

– 71 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

For the year ended 31 December 2004, total consideration received from the above person taking up the options granted amounted to HK$232,000.

(b) According to the New Share Option Scheme, the Board of Directors of the Company may at their discretion grant options to any director, executive and employee of each member of the Group to subscribe for shares in the Company for a consideration of HK$1 for each lot of share options granted. Share options granted should be accepted within 28 days from the date of grant. The Board may at its absolute discretion determine the period during which a share option may be exercised, such period should expire no later than 10 years from the date of grant. There is no minimum period that a Grantee must hold an option before it can be exercised. The Board may also provides restrictions on the exercise of a share option during the period a share option may be exercised. The exercise price is determined by the Board of Directors of the Company, and shall be at least the highest of: (i) the closing price of the Company’s shares on the date of grant; (ii) the average closing price of the Company’s shares for the five business days immediately preceding the date of grant; and (iii) the nominal value of the share.

The maximum number of shares in respect of which options may be granted under the New Share Option Scheme and any other share option schemes of the Company shall not exceed 10% (or such higher percentage as may be allowed under the Listing Rules) of the total number of shares in issue as at the date of adoption of the New Share Option Scheme.

The maximum number of shares issued and to be issued upon exercise of the options granted to each individual under the New Share Option Scheme and any other share option schemes (including both exercised, cancelled and outstanding options) in any 12-month period shall not exceed 1% of the total number of shares in issue.

No options have been granted under the New Share Option Scheme since its adoption.

– 72 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. Deferred taxation

The followings are the major deferred tax liabilities (assets) recognised by the Group and movements thereon during the current and prior accounting periods:

At 1 January 2004 as originally stated Effect of changes in accounting policies At 1 January 2004 as restated Charge (credit) for the year At 31 December 2004 Charge (credit) for the year At 31 December 2005	Accelerated tax depreciation HK$’000 459 – 459 44 503 1,244 1,747	Revaluation of properties HK$’000 2,990 2,132 5,122 – 5,122 – 5,122	Tax losses HK$’000 (27) – (27) (11) (38) (47) (85)	Other deferred tax assets HK$’000 (426) – (426) 164 (262) 91 (171)	Total HK$’000 2,996 2,132
					5,128 197
					5,325 1,288
					6,613

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

Deferred tax liabilities Deferred tax assets	2005 HK$’000 6,613 – 6,613	2004 HK$’000 5,490 (165
		5,325

– 73 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

At 31 December 2005, the Group had unused tax losses of HK$83,864,000 (2004: HK$92,012,000) available for offset against future profits. A deferred tax asset has been recognised in respect of HK$487,000 (2004: HK$217,000) of such losses. No deferred tax asset has been recognised in respect of the remaining HK$83,377,000 (2004: HK$91,795,000) due to the unpredictability of future profit streams. The unrecognised tax losses may be carried forward indefinitely.

At 31 December 2005, the Group had deductible temporary differences of HK$18,649,000 (2004: HK$9,712,000). A deferred tax asset has been recognised in respect of HK$977,000 (2004: HK$1,497,000) of such deductible temporary differences. No deferred tax asset has been recognised in respect of the remaining HK$17,672,000 (2004: HK$8,215,000) due to it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

31. Retirement benefits scheme

The Group participates in both a defined contribution retirement benefits scheme which is registered under the Occupational Retirement Scheme Ordinance (the “ORSO Scheme”) and a Mandatory Provident Fund Scheme (the “MPF Scheme”) established under the Mandatory Provident Fund Ordinance in December 2000. The assets of the schemes are held separately from those of the Group, in funds under the control of trustees. Employees who were members of the ORSO Scheme prior to the establishment of the MPF Scheme were offered a choice of staying within the ORSO Scheme, or switching to the MPF Scheme, whereas all new employees joining the Group on or after 1 December 2000 are required to join the MPF Scheme.

The retirement benefits cost of the ORSO Scheme and MPF Scheme charged to consolidated income statement represents contributions payable to the funds by the Group at rates specified in the rules of the schemes. Where there are employees who leave the ORSO Scheme prior to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions.

At 31 December 2005, the total amount of forfeited contributions, which arose upon employees leaving the ORSO Scheme and which are available to reduce the contributions payable in the future years, was HK$67,000 (2004: HK$85,000).

Under the MPF Scheme, no forfeited contributions are available to reduce the contributions payable in the future years.

– 74 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

32. Contingent liabilities

At 31 December 2004, the Group had contingent liabilities in respect of bills discounted with recourse amounted to HK$21,642,000.

33. Pledge of assets

At 31 December 2005, the following assets were pledged by the Group to banks in order to secure general banking facilities granted by these banks to the Group:

(a) investment properties and leasehold land and buildings with net book values of HK$78,679,000 (2004: HK$58,000,000) and HK$89,553,000 (2004: HK$62,036,000), respectively;
(b) bank deposits of HK$86,647,000 (2004: HK$78,128,000);
(c) trade receivables of HK$156,026,000 (2004: HK$73,122,000);
(d) available-for-sale investments of HK$2,865,000 (2004: other investments of HK$2,865,000); and
(e) inventories of HK$70,075,000 (2004: Nil).

At 31 December 2004, the Group had pledged all assets of certain subsidiaries with aggregate value of HK$176,905,000 to banks to secure general banking facilities granted by these banks to the Group, which was released during the year.

34. Operating lease arrangements

The Group as lessee

Minimum lease payments paid under operating leases in respect of rented premises: Related parties Outsiders	2005 HK$’000 698 1,265 1,963	2004 HK$’000 790 1,153
		1,943

– 75 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

At the balance sheet date, 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	2005 HK$’000 1,011 465 1,476	2004 HK$’000 333 –
		333

Operating lease payments represent rentals payable by the Group for certain of its office and warehouse. Leases are negotiated for an average term of one year with fixed rental.

The Group as lessor

Property rental income earned during the year was HK$2,911,000 (2004: HK$996,000). The properties held have committed tenants for the next two (2004: two) years.

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year inclusive	2005 HK$’000 2,859 493 3,352	2004 HK$’000 2,280 2,033
		4,313

– 76 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

35. Connected and related party transactions and balances

(i) Connected parties

During the year, the Group had significant transactions and balances with related parties, some of which are also deemed to be connected parties pursuant to the Listing Rules. The significant transactions during the year and balances at the balance sheet date with related parties in which certain directors of the Company have beneficial interests, are as follows:

(a) Transactions

Interested Nature of Name of party director transactions Hon Hai Precision – Purchases of Industry Co., Ltd. electronic products (“Hon Hai”) Sales of electronic (note)_and products its subsidiaries Commission received by the Group United Dynamic Yim Yuk Lun, Rental expenses paid Limited Stanley by the Group (b) _Balances Name of party Nature of transactions Hon Hai_(note)_and its Balance at 31 December subsidiaries – trade receivables – trade payables	2005 HK$’000 92,499 178,891 126 440 2005 HK$’000 54,128 29,250	2004 HK$’000 76,783 178,514 625 496

		2004 HK$’000 38,221 25,471

Note: Hon Hai is a substantial shareholder of the Company.

– 77 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(ii) Related parties, other than connected parties

The significant transactions with related parties, other than connected parties, during the year, and significant balances with them at the balance sheet date, are as follows:

(a) Transactions

Name of party	Nature of transactions	2005	2004
		HK$’000	HK$’000
Varitronix International	Purchases of electronic products	716	961
Limited_(note)_and its	Sales of electronic products	33,330	72,906
subsidiaries	Rental expenses paid by the Group	258	294
Associates:
Bestime Technology	Sales of electronic products	938	12,299
Development Limited	Purchases of electronic products	12,889	70
Ocean Bright Technology	Sales of electronic products	–	13,154
Limited	Purchases of electronic products	11,907	708
	Services fee paid by the Group	–	438
Now Electron Inc.	Sales of electronic products	6,240	3,493

– 78 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Balances
Name of party	Nature of transactions	2005	2004
		HK$’000	HK$’000
Varitronix International	Balance at 31 December
Limited_(note)_	– trade receivables	1,683	1,098
and its subsidiaries	– trade payables	331	–
Associates:
Bestime Technology	Balance at 31 December
Development Limited	– trade receivables	854	14,747
Ocean Bright Technology	Balance at 31 December
Limited	– trade receivables	771	15,799
	– trade payables	688	–
Now Electron Inc.	Balance at 31 December
	– trade receivables	1,298	755
Vantage Technology Limited	Balance at 31 December
	– other receivables	5,999	–

Note: Dr. Chang Chu Cheng, a director of the Company, has beneficial interest in the company.

– 79 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

36. Balance sheet of the company

The balance sheet of the Company at 31 December 2005 is as follows:

Non-current assets Investments in subsidiaries Current assets Other receivables Amounts due from subsidiaries Bank balances Current liabilities Other payables Amounts due to subsidiaries Bank overdraft Net current assets Capital and reserves Share capital Reserves_(note)_	2005 HK$’000 33,645 226 278,805 74 279,105 236 82,819 – 83,055 196,050 229,695 24,254 205,441 229,695	2004 HK$’000 33,645
		218 244,364 17
		244,599
		324 33,140 143
		33,607
		210,992
		244,637

		24,254 220,383
		244,637

– 80 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Note:

At 1 January 2004 Issue of shares on exercise of share options Issue of shares on exercise of convertible notes Loss for the year Dividend paid At 31 December 2004 Loss for the year Dividend paid At 31 December 2005	Share premium HK$’000 – 192 10,800 – – 10,992 – – 10,992	Capital redemption reserve HK$’000 1,109 – – – – 1,109 – – 1,109	Contributed Accumulated surplus losses HK$’000 HK$’000 218,364 (663) – – – – – (442) (8,977) – 209,387 (1,105) – (390) (14,552) – 194,835 (1,495)	Total HK$’000 218,810 192 10,800 (442) (8,977) 220,383 (390) (14,552) 205,441

37. Particulars of principal subsidiaries

Particulars of the Company’s principal subsidiaries at 31 December 2005 are as follows:

Proportion Nominal value of issued Place of of issued share capital incorporation/ and paid up held by Name of subsidiary operations share capital the Company Principal activities % Dragon Trading Limited British Virgin Ordinary 100 Investment holding Islands US$40,000 Golf Specialists Pacific Hong Kong Ordinary 100 Distribution of golf Limited HK$4 products Golf Specialists Pacific Hong Kong Ordinary 100 Distribution of golf (China) Limited HK$100 products Non-voting 100 deferred* HK$1,000,000 Grant Square Investment Hong Kong Ordinary 100 Holding a motor vehicle Limited HK$10,000

– 81 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

			Proportion
		Nominal value	of issued
	Place of	of issued	share capital
	incorporation/	and paid up	held by
Name of subsidiary	operations	share capital	the Company	Principal activities
			%
Green Classic Investment	Hong Kong	Ordinary	100	Investment holding
Limited		HK$2
HAS Electronic Company	Hong Kong	Ordinary	85	Distribution of electronic
Limited		HK$1,000,000		products
Manfield Venture	British Virgin	Ordinary	100	Investment holding
Corporation	Islands	US$1
Mega Partner Electronic	Macau	Ordinary	100	Inactive_(note i)_
(Macao Commercial		MOP100,000
Offshore) Limited
(formerly known
as RDL Electronic
(Macao Commercial
Offshore) Limited)
RSL Electronic Company	Hong Kong	Ordinary	100	Distribution of electronic
Limited (formerly		HK$5,000,000		products
known as RDL
Electronic Company
Limited)
RSL Microelectronics	Hong Kong	Ordinary	100	Distribution of electronic
Company Limited		HK$500,000		products
(formerly known as
RDL Microelectronics
Company Limited and
Dragon State Limited)
S.A.S. (China)	Hong Kong	Ordinary	100	Distribution of electronic
Development Company		HK$1,000,000		products
Limited
S.A.S. Electronic	Hong Kong	Ordinary	100	Distribution of electronic
Company Limited		HK$1,000,000		products
S.A.S. Enterprises	Hong Kong	Ordinary	100	Distribution of electronic
Company Limited		HK$100		products
		Non-voting	100
		deferred*
		HK$1,000,000

– 82 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

			Proportion
		Nominal value	of issued
	Place of	of issued	share capital
	incorporation/	and paid up	held by
Name of subsidiary	operations	share capital	the Company	Principal activities
			%
S.A.S. Investment	Hong Kong	Ordinary	100	Property and
Company Limited		HK$100		investment holding
		Non-voting	100
		deferred*
		HK$1,000,000
SMartech Electronic	Hong Kong	Ordinary	70	Distribution of electronic
Company Limited		HK$1,000,000		products
Smart-tech Electronic	Macau	Ordinary	100	Inactive_(note ii)_
(Macao Commercial		MOP100,000
Offshore) Limited
Sportline Limited	Hong Kong	Ordinary	100	Distribution of sports
		HK$200,000		products
時毅電子（深圳）	The PRC	HK$1,000,000	100	Distribution of
有限公司**				electronic products

The non-voting deferred shares practically carry no rights to dividends or to receive notice of or to attend or vote at any general meetings of the company or to participate in any distribution on winding up.
** Foreign-owned wholesaling enterprise

Notes:

(i) The company has ceased its operations since November 2005.
(ii) The company has ceased its operations since December 2005.

With the exception of Dragon Trading Limited and S.A.S. Investment Company Limited, all the subsidiaries are indirectly held.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results or assets and liabilities of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

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

– 83 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

C. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2006

Set out below are the unaudited financial statements of the Group together with accompanying notes as extracted from the interim report of the Company for the six months ended 30 June 2006.

CONDENSED CONSOLIDATED INCOME STATEMENT

Notes Turnover 4 Cost of sales Gross profit Interest income Other income Distribution costs Administrative expenses Finance costs Impairment loss on available-for-sale investments 5 Share of results of associates Profit before taxation Taxation 6 Profit for the period 7 Attributable to: Equity holders of the Company Minority interests Dividend paid 8 Earnings per share – Basic_(HK cents) _9	For the six ended 30 2006 (Unaudited) HK$’000 1,080,393 (1,002,158) 78,235 2,441 2,916 (7,292) (37,814) (15,625) (7,800) 30 15,091 (2,454) 12,637 10,766 1,871 12,637 12,127 4.44	months June 2005 (Unaudited) HK$’000 1,047,900 (971,623) 76,277 937 2,962 (7,506) (42,593) (9,306) – (30) 20,741 (2,279) 18,462 17,323 1,139 18,462 9,701 7.14

– 84 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

CONDENSED CONSOLIDATED BALANCE SHEET

Notes Non-Current Assets Investment properties Property, plant and equipment Goodwill Interests in associates Available-for-sale investments 5 Club memberships Pledged bank deposits Current Assets Inventories Trade and other receivables 10 Bills receivable 10 Investments held for trading Taxation recoverable Pledged bank deposits Bank balances and cash Current Liabilities Trade and other payables 11 Bills payable 11 Taxation payable Obligations under finance leases – due within one year Bank and other borrowings – due within one year Net Current Assets	30 June 31 December 2006 2005 (Unaudited) (Audited) HK$’000 HK$’000 78,679 78,679 120,414 116,522 1,369 1,369 551 521 12,470 20,270 3,012 3,012 23,396 23,396 239,891 243,769 288,441 278,617 379,359 478,215 33,258 47,720 1,254 – 879 1,489 59,725 63,251 135,850 101,467 898,766 970,759 148,634 158,763 63,381 97,841 3,127 2,928 111 166 411,678 426,694 626,931 686,392 271,835 284,367 511,726 528,136	30 June 31 December 2006 2005 (Unaudited) (Audited) HK$’000 HK$’000 78,679 78,679 120,414 116,522 1,369 1,369 551 521 12,470 20,270 3,012 3,012 23,396 23,396 239,891 243,769 288,441 278,617 379,359 478,215 33,258 47,720 1,254 – 879 1,489 59,725 63,251 135,850 101,467 898,766 970,759 148,634 158,763 63,381 97,841 3,127 2,928 111 166 411,678 426,694 626,931 686,392 271,835 284,367 511,726 528,136
		243,769
		278,617 478,215 47,720 – 1,489 63,251 101,467
		970,759
		158,763 97,841 2,928 166 426,694
		686,392
		284,367
		528,136

– 85 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Capital and Reserves Share capital Reserves Equity attributable to equity holders of the Company Minority interests Total Equity Non-Current Liabilities Obligation under finance leases – due after one year Bank and other borrowings – due after one year Deferred tax liabilities Notes	24,254 24,254 339,022 340,383 363,276 364,637 8,381 6,510 371,657 371,147 111 190 133,345 150,186 6,613 6,613 140,069 156,989 511,726 528,136 30 June 31 December 2006 2005 (Unaudited) (Audited) HK$’000 HK$’000	24,254 24,254 339,022 340,383 363,276 364,637 8,381 6,510 371,657 371,147 111 190 133,345 150,186 6,613 6,613 140,069 156,989 511,726 528,136 30 June 31 December 2006 2005 (Unaudited) (Audited) HK$’000 HK$’000
		364,637 6,510
		371,147
		190 150,186 6,613
		156,989
		528,136

– 86 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to equity holders of	Attributable to equity holders of	Attributable to equity holders of	the Company	the Company		Total HK$’000 347,092 (1,308
Share capital HK$’000 24,254 – 24,254 – – 24,254 24,254 – – 24,254	Share premium HK$’000 10,992 – 10,992 – – 10,992 10,992 – – 10,992	Capital redemption reserve HK$’000 1,109 – 1,109 – – 1,109 1,109 – – 1,109	Capital reserve HK$’000 11,145 – 11,145 – – 11,145 11,145 – – 11,145	Contributed surplus HK$’000 117,110 – 117,110 – (9,701) 107,409 102,558 – (12,127) 90,431	Asset revaluation reserve HK$’000 24,149 – 24,149 – – 24,149 24,299 – – 24,299	Translation reserve HK$’000 (1,388) – (1,388) – – (1,388) (1,388) – – (1,388)	Acc- umulated profit HK$’000 152,866 (1,308) 151,558 17,323 – 168,881 191,668 10,766 – 202,434
								345,784 18,462 (9,701
								354,545

								371,147 2,637 (12,127
								371,657

– 87 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Net cash from (used in) operating activities Net cash used in investing activities Net cash (used in) from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Analysis of the balances of cash and cash equivalents Bank balances and cash Bank overdrafts	For the six ended 30 2006 (Unaudited) HK$’000 97,389 (3,264) (59,738) 34,387 101,463 135,850 135,850 – 135,850	months June 2005 (Unaudited) HK$’000 (72,318) (50,638) 139,585 16,629 44,452 61,081 65,219 (4,138) 61,081

– 88 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“Listing Rules”) and Hong Kong Accounting Standards (“HKAS”) 34 “Interim Financial Reporting”, issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

2. Principal accounting policies

The condensed consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments, which are measured at fair values, as appropriate.

The accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2005.

In the current period, the Group has applied, for the first time, a number of new standards, amendments and interpretations (hereinafter collectively referred to as “new HKFRSs”), issued by the HKICPA, that are effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of these new HKFRSs did not have any material impact on how the financial statements of the Group are prepared and presented for the current or prior accounting period.

– 89 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. Potential impact of new standards not yet effective

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

HKAS 1 (Amendment) Capital Disclosures [1] HKFRS 7 Financial Instruments: Disclosures [1] HK(IFRIC) – INT 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies [2] HK(IFRIC) – INT 8 Scope of HKFRS 2 [3] HK(IFRIC) – INT 9 Reassessment of Embedded Derivatives [4]

1 Effective for annual periods beginning on or after 1 January 2007.

2 Effective for annual periods beginning on or after 1 March 2006.

3 Effective for annual periods beginning on or after 1 May 2006.

4 Effective for annual periods beginning on or after 1 June 2006.

4. Segment information

The turnover and contributions to profit of the Group for the six months ended 30 June 2006, analyzed by business segments and by geographical segments, are as follows:

Business segments

For management purposes, the Group’s operations are organized into two operating division namely distribution of electronic components and semiconductors products and distribution of sports products. These divisions are the basis on which the Group reports its primary segmental information.

– 90 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Segment information about these businesses is presented as follows:

Distribution of: Electronic components and semiconductors products Sports products Interest income Unallocated corporate expenses Unallocated corporate income Finance costs Impairment loss on available-for-sale investments Share of results of associates Profit before taxation Taxation Profit for the period	For the six months ended 30 June Turnover Results 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 1,067,047 1,001,589 37,480 25,195 13,346 46,311 443 4,407 1,080,393 1,047,900 37,923 29,602 2,441 937 (4,512) (4,582) 2,634 4,120 (15,625) (9,306) (7,800) – 30 (30) 15,091 20,741 (2,454) (2,279) 12,637 18,462

Geographical segments

The Group’s operations are located in the People’s Republic of China excluding Hong Kong and Taiwan regions (the “PRC”), Hong Kong and Taiwan. The Group’s distribution of electronic components and semiconductors products is mainly carried out in the PRC, Hong Kong and Taiwan. Distribution of sports products is mainly carried out in the PRC and Hong Kong.

– 91 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods:

The PRC Hong Kong Taiwan Others	For the six ended 30 2006 HK$’000 647,864 309,493 106,543 16,493 1,080,393	months June 2005 HK$’000 642,864 289,490 97,140 18,406
		1,047,900

5. Impairment loss on available-for-sale investments

The Group’s available-for-sale investments consist of certain long-term investments in unlisted equity securities issued by a private entity, which is a Korean-based OLED producer. In view of the uncertain market situation, the Directors have reassessed the expected future cashflows to be generated and have recognized an impairment loss of HK$7,800,000 against half of its carrying amount at 30 June 2006.

6. Taxation

	For the six months
	ended 30 June
	2006	2005
	HK$’000 HK$’000
Hong Kong Profits Tax	2,454	2,279

Hong Kong Profits Tax is calculated at 17.5% (2005: 17.5%) of the estimated assessable profit for period. Overseas taxation is calculated at the rates prevailing in the relevant jurisdictions.

No provision for deferred taxation has been made for the period ended 30 June 2006 as the effect of all temporary differences is not material.

– 92 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. Profit for the period

For the six months ended 30 June 2006 2005 HK$’000 HK$’000 Profit for the period has been arrived at after charging: Depreciation 5,106 4,281

8. Dividend paid For the six months ended 30 June 2006 2005 HK$’000 HK$’000 Final dividend in respect of the previous financial year, paid during the period, of HK5 cents per share (2005: HK4 cents) 12,127 9,701

9. Earnings per share

The calculation of basic earnings per share for the six months ended 30 June 2006 is based on the profit for the period attributable to equity holders of the Company of approximately HK$10,766,000 (2005: HK$17,323,000) and weighted average number of 242,540,720 shares (2005: 242,540,720 shares) in issued during the period.

No diluted earnings per share has been presented for both periods as the Company had no potential ordinary shares outstanding during the six months ended 30 June 2006 and 2005.

– 93 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

10. Trade and other receivables and bills receivable

An aged analysis of trade and bills receivables by due dates is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days Trade receivables and bills receivable Other receivables	30 June 31 December 2006 2005 HK$’000 HK$’000 295,569 426,344 17,837 31,047 13,966 10,076 43,888 28,082 371,260 495,549 41,357 30,386 412,617 525,935	30 June 31 December 2006 2005 HK$’000 HK$’000 295,569 426,344 17,837 31,047 13,966 10,076 43,888 28,082 371,260 495,549 41,357 30,386 412,617 525,935
		525,935

The Group allows a credit period ranged from 30 days to 120 days to its trade customers.

11. Trade and other payables and bills payable

An aged analysis of trade and bills payables by due date is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days Trade payables and bills payable Other payables	30 June 31 December 2006 2005 HK$’000 HK$’000 165,923 221,465 2,453 6,567 3,524 3,272 7,122 534 179,022 231,838 32,993 24,766 212,015 256,604	30 June 31 December 2006 2005 HK$’000 HK$’000 165,923 221,465 2,453 6,567 3,524 3,272 7,122 534 179,022 231,838 32,993 24,766 212,015 256,604
		231,838 24,766
		256,604

– 94 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. Connected and related party transactions and balances

(I) Connected parties

During the period, the Group had significant transactions and balances with related parties, some of which are also deemed to be connected parties pursuant to the Listing Rules. The significant transactions during the period and balances at the balance sheet date with related parties in which certain directors of the Company have beneficial interests, are as follows:

(a) Transactions

Interested
Name of party
director
Nature of transactions
Hon Hai Precision
–
Purchases of electronic
Industry Co Ltd
products_(note ii)
(“Hon Hai”)(note i)
and its subsidiaries
Sales of electronic
products(note ii)
Commission received by
the Group(note ii)
United Dynamic
Yim Yuk Lun,
Rental expenses paid by
Limited
Stanley_JP
the Group_(note iii)
(b)
_Balances
Name of party
Nature of transactions
Hon Hai_(note i)_and
Balance
its subsidiaries
– trade receivables
– trade payables

For the six months
ended 30 June
2006
2005
HK$’000
HK$’000
18,993
41,095
93,731
81,584
–
126
–
240
30 June
31 December
2006
2005
HK$’000
HK$’000
46,272
54,128
8,556
29,250

– 95 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes:

i. Hon Hai is a substantial shareholder of the Company. ii. The transactions were carried out at terms determined and agreed by both parties. iii. The rentals were charged at terms determined and agreed by both parties.

(II) Related parties, other than connected parties

The significant transactions with related parties, other than connected parties, during the period, and significant balances with them at the balance sheet date, are as follows:

(a) Transactions

		For the six months	For the six months	For the six months
		ended 30 June
Name of party	Nature of transactions	2006		2005
		HK$’000	HK$’000
Varitronix	Purchases of electronic	414		205
International Ltd	products_(note ii)_
_(note i)_and its	Sales of electronic	27,530	13,668
subsidiaries	products_(note ii)_
	Rental expenses paid by	129		147
	the Group_(note ii)_
Associates:
Bestime Technology	Sales of electronic	152		619
Development Ltd	products_(note ii)_
	Purchases of electronic	–		6,105
	products_(note ii)_
Ocean Bright	Purchases of electronic	–		4,212
Technology	products_(note ii)_
Ltd
Now Electron Inc	Sales of electronic	4,755		2,966
	products_(note ii)_

– 96 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Balances
		30 June 31 December
Name of party	Nature of transactions	2006	2005
		HK$’000	HK$’000
Varitronix International	Balance
Ltd_(note i)_and its	– trade receivables	6,515	1,683
subsidiaries	– trade payables	110	331
Associates:
Bestime Technology	Balance
Development Ltd	– trade receivables	646	854
Ocean Bright	Balance
Technology Ltd	– trade receivables	–	771
	– trade payables	688	688
Now Electron Inc	Balance
	– trade receivables	1,363	1,298
Vantage Technology	Balance
Ltd	– other receivables	5,999	5,999

Notes:

i. Dr. Chang Chu Cheng, a director of the Company, has beneficial interest in the company.
ii. The transaction was carried out at terms determined and agreed by both parties.

– 97 –

FINANCIAL INFORMATION ON THE GROUP

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Copy From IR
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APPENDIX I

D. INDEBTEDNESS

As at the close of business on 31 October 2006, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding bank borrowings of approximately HK$573.5 million, comprising secured bank borrowings of approximately HK$553.1 million and unsecured banks borrowings of approximately HK$20.4 million. The secured bank borrowings are secured by bank deposits, properties, availablefor-sale investments, inventories and trade receivables with aggregate carrying amount of approximately HK$473.5 million of the Enlarged Group. In addition, the Enlarged Group had outstanding obligations under finance leases at that date of approximately HK$0.2 million.

1. Contingent liabilities and guarantees

As at 31 October 2006, the Enlarged Group has no contingent liabilities and guarantees.

2. Disclaimer

Save as disclosed above, the Enlarged Group did not have any loan capital issued and outstanding or agreed to be issued, any loan capital, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges or loans or acceptance credits or hire purchase commitments, guarantees and other material contingent liabilities as at the close of business on 31 October 2006.

3. No material adverse change

Save as disclosed herein, the Directors have confirmed that there has not been any material change in the indebtedness and contingent liabilities of the Enlarged Group since 31 October 2006.

E. WORKING CAPITAL

The Directors are of the opinion that, following completion of the Acquisition, taking into account the financial resources available to the Enlarged Group, including the internally generated funds and the present available banking facilities, the Enlarged Group will have sufficient working capital for its present requirements for the 12 months period from the date of Circular.

F. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005, being the date to which the latest published audited consolidated financial statements of the Company were made up.

– 98 –

APPENDIX II

FINANCIAL INFORMATION ON HI-LEVEL GROUP

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==> picture [80 x 38] intentionally omitted <==

12 December, 2006

The Directors S.A.S. Dragon Holdings Limited

Dear Sirs,

We set out below our report on the financial information (“Financial Information”) regarding Hi-Level Technology Limited (“Hi-Level”) and its subsidiaries (hereinafter collectively referred to as “Hi-Level Group”) for each of the three years ended 31 December, 2005 and the nine months ended 30 September, 2006 (the “Relevant Periods”) for inclusion in the circular of S.A.S. Dragon Holdings Limited (the “Company”) dated 12 December, 2006 in connection with the proposed acquisition of the entire interests in Hi-Level (the “Circular”).

Hi-Level was incorporated in Hong Kong as a private limited company on 15 December, 2000. The principal activity of Hi-Level is trading of integrated circuits and investment holding.

As at the date of this report, the particulars of Hi-Level’s subsidiaries, all of which are directly wholly-owned by Hi-Level, are as follows:

Place and date of incorporation or Paid up registration/ issued share/
Name of subsidiary establishment registered capital Principal activities
Video Innovation Tech Limited 捷成科技有限公司 (formerly known as Yangson Electronics Limited 揚笙電子有限公司 ) (“Video Innovation”)*
深圳揚煜科技開發有限公司（「深圳揚煜」）[**]
- HK$500,000 Trading of integrated circuits
Hong Kong 24 October, 2001
Peoples’ Republic HK$3,000,000 Provision of research of China, other than and marketing services Hong Kong (the “PRC”)
8 September, 2003
Limited liability company
** Foreign owned enterprise

– 99 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

We have acted as auditors of financial statements of Hi-Level and Video Innovation for each of the two years ended 31 December, 2004 while the financial statements of Hi-Level and Video Innovation for the year ended 31 December, 2005 were audited by CCIF CPA Limited, certified public accountants in Hong Kong.

The statutory financial statements of 深圳揚煜 were prepared in accordance with the relevant accounting principles and financial regulations applicable in the PRC. Yongming Certified Public Accountants Company Limited Shenzhen 深圳市永明會計師事務所有限責任公司, certified public accountants in the PRC, are the statutory auditors of 深圳揚煜 for each of the three years ended 31 December, 2005.

The audited consolidated financial statements of Hi-Level Group for the three years ended 31 December, 2005 were prepared in accordance with the Hong Kong Financial Reporting Standards. We have audited the consolidated financial statements of Hi-Level Group for the nine months ended 30 September, 2006 in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). These consolidated financial statements for the Relevant Periods are collectively referred to as the Underlying Financial Statements.

The Financial Information of Hi-Level Group for the Relevant Periods has been prepared from the Underlying Financial Statements for the purpose of preparing our report for inclusion in the Circular. No adjustment was deemed necessary to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

We have examined the Underlying Financial Statements for the Relevant Periods in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the directors of those companies who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereon gives, for the purposes of this report, a true and fair view of the state of affairs of Hi-Level Group and of Hi-Level as at 31 December, 2003, 2004 and 2005 and 30 September, 2006 and of the consolidated results and cash flows of the Hi-Level Group for each of the three years ended 31 December, 2005 and the nine months ended 30 September, 2006.

– 100 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

The comparative consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement of Hi-Level Group for the nine months ended 30 September, 2005 together with the notes thereon have been extracted from Hi-Level Group’s consolidated financial information for the same period (the “30 September, 2005 Financial Information”) which was prepared by the directors of Hi-Level solely for the purpose of this report. We have reviewed the 30 September, 2005 Financial Information in accordance with the Statement of Auditing Standards 700 “Engagements to Review Interim Financial Reports” issued by the HKICPA. Our review consisted principally of making enquiries of Hi-Level Group’s management and applying analytical procedures to the 30 September, 2005 Financial Information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the 30 September, 2005 Financial Information.

On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the 30 September, 2005 Financial Information.

– 101 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

A. FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENTS

NOTES Turnover 7 Cost of sales Gross profit Interest income Other income Distribution costs Administrative and other expenses Finance costs 8 Gain on disposal of a subsidiary Profit (loss) before taxation 9 Taxation 11 Profit (loss) for the year/period Earnings (loss) per share – basic 12	Year ended 31 December, 2003 2004 2005 HK$’000 HK$’000 HK$’000 237,807 444,188 667,795 (227,760) (417,308) (625,476) 10,047 26,880 42,319 174 36 437 269 103 108 (527) (7,083) (14,148) (7,023) (8,590) (10,960) (510) (307) (623) 761 – – 3,191 11,039 17,133 (667) (2,030) (3,305) 2,524 9,009 13,828 HK$0.12 HK$0.36 HK$0.55	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited) 459,219 600,596 (431,618) (575,710) 27,601 24,886 227 606 105 183 (11,501) (4,150) (7,122) (27,005) (395) (663) – – 8,915 (6,143) (1,710) 194 7,205 (5,949) HK$0.29 HK$(0.24)

– 102 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

CONSOLIDATED BALANCE SHEETS

NOTES NON-CURRENT ASSETS Property, plant and equipment 13 Intangible assets 14 Available-for-sale investments 16 Investments in securities 17 Golf club membership 18 CURRENT ASSETS Inventories 19 Trade and other receivables 20 Available-for-sale investments 16 Amount due from a fellow subsidiary 21 Amount due from a shareholder 21 Amount due from a related company 23 Pledged bank deposits 24 Bank balances and cash 25	As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 102 575 807 1,516 – – 828 588 – – 2,466 2,152 4,100 6,100 – – – 266 – – 4,202 6,941 4,101 4,256 13,384 15,044 35,628 76,230 25,035 38,913 83,915 103,990 – – 3,900 4,233 3,357 1,777 6,807 34 – – – 212 1,134 974 3,882 917 17,600 5,500 5,500 5,500 16,560 43,546 53,295 21,612 77,070 105,754 192,927 212,728	As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 102 575 807 1,516 – – 828 588 – – 2,466 2,152 4,100 6,100 – – – 266 – – 4,202 6,941 4,101 4,256 13,384 15,044 35,628 76,230 25,035 38,913 83,915 103,990 – – 3,900 4,233 3,357 1,777 6,807 34 – – – 212 1,134 974 3,882 917 17,600 5,500 5,500 5,500 16,560 43,546 53,295 21,612 77,070 105,754 192,927 212,728
		4,256
		76,230 103,990 4,233 34 212 917 5,500 21,612
		212,728

– 103 –

APPENDIX II

FINANCIAL INFORMATION ON HI-LEVEL GROUP

CURRENT LIABILITIES Trade and other payables 26 Amount due to a director 27 Amount due to ultimate holding company 28 Taxation payable Secured bank borrowings 29 NET CURRENT ASSETS CAPITAL AND RESERVES Share capital 30 Reserves Equity attributable to equity holders of the parent NOTES	52,470 81,827 145,131 169,985 – – 10,000 10,000 10,299 104 107 30 100 1,558 1,318 1,124 797 2,596 – 1,021 63,666 86,085 156,556 182,160 13,404 19,669 36,371 30,568 17,606 26,610 40,472 34,824 15,000 15,000 25,000 25,000 2,606 11,610 15,472 9,824 17,606 26,610 40,472 34,824 As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000	52,470 81,827 145,131 169,985 – – 10,000 10,000 10,299 104 107 30 100 1,558 1,318 1,124 797 2,596 – 1,021 63,666 86,085 156,556 182,160 13,404 19,669 36,371 30,568 17,606 26,610 40,472 34,824 15,000 15,000 25,000 25,000 2,606 11,610 15,472 9,824 17,606 26,610 40,472 34,824 As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000
		182,160
		30,568
		34,824

		25,000 9,824
		34,824

– 104 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

BALANCE SHEET

NOTES NON-CURRENT ASSETS Property, plant and equipment 13 Intangible assets 14 Interests in subsidiaries 15 Available-for-sale investments 16 Investments in securities 17 Golf club membership 18 CURRENT ASSETS Inventories 19 Trade and other receivables 20 Available-for-sale investments 16 Amount due from a fellow subsidiary 21 Amounts due from subsidiaries 22 Amount due from a shareholder 21 Amount due from a related company 23 Pledged bank deposits 24 Bank balances and cash 25	As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 95 93 304 729 – – 828 588 1,500 3,500 1,100 1,100 – – 2,466 2,152 4,100 6,100 – – – 266 – – 5,695 9,959 4,698 4,569 13,384 15,044 35,628 76,230 24,980 38,811 83,825 103,661 – – 3,900 4,233 3,357 1,777 6,807 34 263 174 199 838 – – – 212 1,134 974 3,882 917 17,600 5,500 5,500 5,500 15,672 41,771 52,488 20,634 76,390 104,051 192,229 212,259	As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 95 93 304 729 – – 828 588 1,500 3,500 1,100 1,100 – – 2,466 2,152 4,100 6,100 – – – 266 – – 5,695 9,959 4,698 4,569 13,384 15,044 35,628 76,230 24,980 38,811 83,825 103,661 – – 3,900 4,233 3,357 1,777 6,807 34 263 174 199 838 – – – 212 1,134 974 3,882 917 17,600 5,500 5,500 5,500 15,672 41,771 52,488 20,634 76,390 104,051 192,229 212,259
		4,569
		76,230 103,661 4,233 34 838 212 917 5,500 20,634
		212,259

– 105 –

APPENDIX II

FINANCIAL INFORMATION ON HI-LEVEL GROUP

CURRENT LIABILITIES Trade and other payables 26 Amount due to a director 27 Amount due to a subsidiary 22 Amount due to ultimate holding company 28 Taxation payable Secured bank borrowings 29 NET CURRENT ASSETS CAPITAL AND RESERVE Share capital 30 Reserves 31 NOTES	52,369 81,740 144,854 169,379 – – 10,000 10,000 – 150 – – 10,299 104 107 30 100 1,557 1,318 1,125 797 2,596 – 1,021 63,565 86,147 156,279 181,555 12,825 17,904 35,950 30,704 18,520 27,863 40,648 35,273 15,000 15,000 25,000 25,000 3,520 12,863 15,648 10,273 18,520 27,863 40,648 35,273 As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000	52,369 81,740 144,854 169,379 – – 10,000 10,000 – 150 – – 10,299 104 107 30 100 1,557 1,318 1,125 797 2,596 – 1,021 63,565 86,147 156,279 181,555 12,825 17,904 35,950 30,704 18,520 27,863 40,648 35,273 15,000 15,000 25,000 25,000 3,520 12,863 15,648 10,273 18,520 27,863 40,648 35,273 As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000
		181,555
		30,704
		35,273

		25,000 10,273
		35,273

– 106 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

At 1 January, 2003 Exchange difference arising on translation of foreign operations recognised directly in equity Profit for the year Total recognised income and expenses for the year Released on disposal of a subsidiary Bonus shares issued Issue of shares At 31 December, 2003 Exchange difference arising on translation of foreign operations recognised directly in equity Profit for the year Total recognised income and expenses for the year At 31 December, 2004 Exchange difference arising on translation of foreign operations recognised directly in equity Profit for the year Total recognised income and expenses for the year Bonus shares issued At 31 December, 2005	Share capital HK$’000 10,000 – – – – 1,700 3,300 15,000 – – – 15,000 – – – 10,000 25,000	Attributable to Translation reserve HK$’000 – (2) – (2) 1 – – (1) (5) – (5) (6) 34 – 34 – 28	equity holders of the parent Investment revaluation Retained reserve profits HK$’000 HK$’000 – 1,783 – – – 2,524 – 2,524 – – – (1,700) – – – 2,607 – – – 9,009 – 9,009 – 11,616 – – – 13,828 – 13,828 – (10,000) – 15,444	Total HK$’000 11,783 (2) 2,524 2,522 1 – 3,300 17,606 (5) 9,009 9,004 26,610 34 13,828 13,862 – 40,472

– 107 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

At 1 January, 2006 Exchange difference arising on translation of foreign operations Increase in fair values of available-for-sale investments Net income recognised directly in equity Loss for the period Total recognised income and expenses for the period At 30 September, 2006 Unaudited At 1 January, 2005 Exchange difference arising on translation of foreign operations recognised directly in equity Profit for the period Total recognised income and expenses for the period Bonus shares issued At 31 September, 2005	25,000 – – – – – 25,000 15,000 – – – 10,000 25,000 Share capital HK$’000	28 82 – 82 – 82 110 (6) 7 – 7 – 1 Attributable to Translation reserve HK$’000	– 15,444 – – 219 – 219 – – (5,949) 219 (5,949) 219 9,495 – 11,616 – – – 7,205 – 7,205 – (10,000) – 8,821 equity holders of the parent Investment revaluation Retained reserve profits HK$’000 HK$’000	40,472 82 219 301 (5,949) (5,648) 34,824 26,610 7 7,205 7,212 – 33,822 Total HK$’000

– 108 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

CONSOLIDATED CASH FLOW STATEMENTS

NOTE OPERATING ACTIVITIES Profit (loss) before taxation Adjustments for: Finance costs Interest income Dividend income Depreciation of property, plant and equipment Amortisation of intangible assets Allowance for inventories Gain on disposal of a subsidiary Loss on disposal of property, plant and equipment Impairment loss on trade receivables Operating cash flows before movements in working capital Increase in inventories Increase in trade and other receivables (Increase) decrease in amount due from a fellow subsidiary Increase in amount due from a shareholder Increase in trade and other payables Cash generated from (used in) operations Income tax paid NET CASH GENERATED FROM (USED IN) OPERATING ACTIVITIES	Year ended 31 December, 2003 2004 2005 HK$’000 HK$’000 HK$’000 3,191 11,039 17,133 510 307 623 (174) (36) (437) – (20) (40) 92 100 257 – – 134 74 41 678 (761) – – 2 10 – – 1,671 605 2,934 13,112 18,953 (8,165) (1,701) (21,262) (17,725) (16,088) (45,607) (815) 1,580 (5,030) – – – 26,084 29,357 63,304 2,313 26,260 10,358 (876) (572) (3,545) 1,437 25,688 6,813	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited) 8,915 (6,143) 395 663 (227) (606) (40) (40) 183 335 53 240 – 1,521 – – – – – 12,075 9,279 8,045 (9,683) (42,123) (35,427) (32,150) 456 6,773 – (212) 4,310 24,854 (31,065) (34,813) (165) – (31,230) (34,813)

– 109 –

APPENDIX II

FINANCIAL INFORMATION ON HI-LEVEL GROUP

INVESTING ACTIVITIES Purchase of property, plant and equipment Interest received Proceeds from disposal of available-for-sale investments Dividend received Purchase of intangible assets (Increase) decrease in pledged bank deposits Purchase of investments in securities Purchase of golf club membership Repayment from (advance to) a related company Proceeds on disposal of a subsidiary 32 Proceeds on disposal of property, plant and equipment NET CASH (USED IN) FROM INVESTING ACTIVITIES NOTE	(123) (583) (481) 174 36 437 – – – – 20 40 – – (962) (17,600) 12,100 – – (2,000) – – (266) – 1,496 160 (2,908) 19 539 – 2 – – (16,032) 10,006 (3,874) Year ended 31 December, 2003 2004 2005 HK$’000 HK$’000 HK$’000	(311) (1,031) 227 606 – 200 40 40 (962) – (780) – – – – – (3,736) 2,965 – – – – (5,522) 2,780 Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited)

– 110 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

FINANCING ACTIVITIES New bank borrowings raised Repayments of bank borrowings Interest paid Advance from (repayment to) ultimate holding company Advance from a director Proceeds from issue of shares Repayment to immediate holding company Dividends paid NET CASH FROM (USED IN) FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR/PERIOD Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD, represented by bank balances and cash	Year 2003 HK$’000 798 – (510) 10,299 – 3,300 (255) (245) 13,387 (1,208) 17,768 – 16,560	ended 31 December, 2004 2005 HK$’000 HK$’000 2,702 – (903) (2,596) (307) (623) (10,195) 3 – 10,000 – – – – – – (8,703) 6,784 26,991 9,723 16,560 43,546 (5) 26 43,546 53,295	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited) – 3,000 (2,241) (1,979) (395) (663) 3 (77) 10,000 – – – – – – – 7,367 281 (29,385) (31,752) 43,546 53,295 6 69 14,167 21,612

– 111 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

NOTES TO THE FINANCIAL INFORMATION

1. General Information

Hi-Level is a private limited company incorporated in Hong Kong. Its ultimate holding company is Yuxing InfoTech Holdings Limited (“Yuxing InfoTech”), a company incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Growth Enterprise Market of The Stock Exchange of Hong Kong Limited. The address of the registered office and principal place of business of Hi-Level is Unit 1809, 18/F., Tower III, Enterprise Square, 9 Sheung Yuet Road, Kowloon Bay, Kowloon, Hong Kong.

Hi-Level is principally engaged in the trading of integrated circuits and investment holding. The principal activities of its subsidiaries are set out in note 15.

The functional currency of Hi-Level is United States dollars. However, the Financial Information is presented in Hong Kong dollars so as to be in line with the presentation currency of the Company.

2. Application of Hong Kong financial reporting standards/changes in accounting policies

For the year ended 31 December, 2005, Hi-Level Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (“HKFRS(s)”), Hong Kong Accounting Standards (HKAS(s)”) and Interpretations (“INT(s)”) (hereinafter collectively referred to as “new HKFRS(s)”) issued by the HKICPA that are effective for accounting periods beginning on or after 1 January, 2005. The application of the new HKFRSs has resulted in a change in the presentation of the income statement, balance sheet and statement of changes in equity. The changes in presentation have been applied retrospectively.

The adoption of the new HKFRSs has also resulted in changes to Hi-Level Group’s accounting policies in the following areas:

Financial Instruments

Hi-Level Group has applied HKAS 32 “Financial Instruments: Disclosures and Presentation” and HKAS 39 “Financial Instruments: Recognition and Measurement”. HKAS 32 requires retrospective application. HKAS 39, which is effective for annual periods beginning on or after 1 January, 2005, generally does not permit the recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. The application of HKAS 32 has had no material impact on how the financial instruments of Hi-Level Group are presented for current and prior accounting periods. The principal effects resulting from the implementation of HKAS 39 are summarised below.

– 112 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

Classification and measurement of financial assets and financial liabilities

Hi-Level Group has applied the relevant transitional provisions in HKAS 39 with respect to classification and measurement of financial assets and financial liabilities that are within the scope of HKAS 39.

By 31 December, 2004, Hi-Level Group classified and measured its investments in debt and equity securities in accordance with the benchmark treatment of Statement of Standard Accounting Practice (“SSAP”) 24 “Accounting for Investments in Securities” issued by the HKICPA. Under SSAP 24, Hi-Level’s investments in debt and equity securities are classified as “investments in securities”. “Investments in securities” are carried at cost less impairment losses (if any) while “Other Investments” are measured at fair value, with unrealised gains or losses included in the income statement.

From 1 January, 2005 onwards, Hi-Level Group has reclassified and measured its investments in debt and equity securities in accordance with HKAS 39. Under HKAS 39, financial assets are classified as “financial assets at fair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables”, or “held-to-maturity financial assets”. The classification depends on the purpose for which the assets are acquired. “Financial assets at fair value through profit or loss” and “available-for-sale financial assets” are carried at fair value, with changes in fair values recognised in profit or loss and equity, respectively. Available-for-sale equity investments that do not have quoted market prices in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost less impairment after initial recognition. “Loans and receivables” and “held-to-maturity financial assets” are measured at amortised cost using the effective interest method after initial recognition.

– 113 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

On 1 January, 2005, Hi-Level Group classified and measured its investments in debt and equity securities in accordance with the transitional provisions of HKAS 39 (see Note 3 for financial impact).

Financial assets and financial liabilities other than debt and equity securities

From 1 January, 2005 onwards, Hi-Level Group classified and measured its financial assets and financial liabilities other than debt and equity securities (which were previously outside the scope of SSAP 24 issued by the HKICPA.) in accordance with the requirements of HKAS 39. Financial assets are classified as “financial assets at fair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables” or “held-to-maturity financial assets”. Financial liabilities are generally classified as “financial liabilities at fair value through profit or loss” or “other financial liabilities”. Financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value being recognised in the income statement directly. Other financial liabilities are carried at amortised cost using the effective interest method after initial recognition. The adoption of HKAS 39 has had no material effect on the results of Hi-Level Group for current and prior accounting periods.

During the nine months ended 30 September, 2006, the Hi-Level Group has applied, for the first time, a number of new standard, amendments and interpretations (“New Standards ”) issued by the HKICPA, which are either effective for accounting periods beginning on or after 1 December, 2005 or 1 January, 2006. The adoption of the New Standards had no material effect on how the results for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

– 114 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

3. Summary of the effects of the changes in accounting policies

The cumulative effects of the application of the new HKFRSs on 1 January, 2005 are summarised below:

As at 31 December, 2004 (originally stated) HK$’000 Balance sheet items Available-for-sale investments – Golf club membership 266 Investments in securities 6,100 Total effect on assets and liabilities 6,366	Impacts of HKAS 39 HK$’000 6,366 (266) (6,100) –	As at 1 January, 2005 (restated) HK$’000 6,366 – –
		6,366

At the date of this report, the HKICPA issued the following new standard, interpretation and amendments that are not yet effective. Hi-Level Group has not early applied these new standard, interpretation or amendments but the directors of Hi-Level do not expect that they will have a material impact on how the results of operations and financial position of HiLevel Group.

HKAS 1 (Amendment) Capital Disclosures [1] HKFRS 7 Financial Instruments: Disclosures [1] HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies [2] HK(IFRIC)-Int 8 Scope of HKFRS 2 [3] HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives [4] HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment [5]

1 Effective for annual periods beginning on or after 1 January, 2007

2 Effective for annual periods beginning on or after 1 March, 2006

3 Effective for annual periods beginning on or after 1 May, 2006

4 Effective for annual periods beginning on or after 1 June, 2006

5 Effective for annual periods beginning on or after 1 November, 2006

– 115 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

4. Significant accounting policies

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

The Financial Information has been prepared in accordance with the following accounting policies which are in conformity with HKFRSs issued by the HKICPA. In addition, the Financial Information include applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Companies Ordinance. The Financial Information has been prepared using accounting policies which are materially consistent with those used by the Company. The principal accounting policies adopted are as follows:

Basis of consolidation

The Financial Information incorporates the financial information of Hi-Level and entities controlled by Hi-Level. Control is achieved where Hi-Level has the power to govern the financial and operating policy of an entity so as to obtain benefits from its activities.

Inter-company transactions, balances and unrealised gains on transactions between group enterprises are eliminated on consolidation and unrealised loss is also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by other members of Hi-Level Group.

Revenue recognition

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

Sales of goods are recognised when goods are delivered and title has passed.

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 discounts the estimated future cash receipts throughout the expected life of the financial asset to that asset’s net carrying amount.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.

– 116 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

Property, plant and equipment

Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

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

Intangible assets

On initial recognition, intangible assets acquired separately and from business combinations are recognised at cost and at fair value respectively. After initial recognition, intangible assets 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.

Intangible assets with finite useful lives are tested for impairment when there is an indication that an asset may be impaired (see the accounting policies in respect of impairment losses below).

– 117 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

Research and development expenditures

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

An internally-generated intangible asset arising from development expenditure is recognised only if it is anticipated that the development costs incurred on a clearlydefined project will be recovered through future commercial activity. The resultant asset is amortised on a straight-line basis over its useful life, and carried at cost less subsequent accumulated amortisation and any accumulated impairment losses.

Where no internally-generated intangible asset can be recognised, development expenditure is charged to the consolidated income statement in the year/period in which it is incurred.

Investments in subsidiaries

Investments in subsidiaries are included in Hi-Level’s balance sheet at cost, less any identified impairment losses.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present locations and condition. Cost is calculated using the weighted average method.

Net realisable value represents the estimated selling prices less all estimated costs to be incurred in marketing, selling and distribution.

– 118 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

Leasing

The Group as lessee

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

Foreign currencies

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in the consolidated income statement in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the consolidated income statement for the period except for differences arising on the retranslation of nonmonetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

– 119 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

For the purposes of presenting the Financial Information, the assets and liabilities of Hi-Level Group’s foreign operations are translated into the presentation currency of Hi-Level (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year/period, unless exchange rates fluctuate significantly during the year/period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in consolidated income statement in the year/period in which the foreign operation is disposed of.

Borrowing costs

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

Retirement benefit costs

Payments to defined contribution retirement benefits scheme and Mandatory Provident Fund Scheme are charged as an expense as they fall due.

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/period. 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 income statement items that are never taxable or deductible. Hi-Level Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

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APPENDIX II

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 the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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

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

Financial instruments

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FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

Financial assets

Hi-Level Group’s and Hi-Level’s financial assets are classified as loans and receivables and available-for-sale financial assets. 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 market place. The accounting policies adopted in respect of each category of financial assets are set out below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and other receivables, amount due from a fellow subsidiary, amounts due from subsidiaries, amount due from a shareholder, amount due from a related company, pledged bank deposits and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in the income statement 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. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are not classified as loans and receivables. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in the consolidated income statement. Any impairment losses on available-forsale financial assets are recognised in the consolidated income statement. Impairment losses on available-for-sale equity investments will not be reversed in the consolidated income statements in subsequent periods.

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APPENDIX II

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in the consolidated income statement when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not be reversed in subsequent periods.

Financial liabilities and equity

An equity instrument is any contract that evidences a residual interest in the assets of Hi-Level Group after deducting all of its liabilities. Hi-Level Group’s financial liabilities are classified under other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Other financial liabilities

Other financial liabilities including trade and other payables, amount due to a director, amount due to a subsidiary, amount due to ultimate holding company and secured bank borrowings are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

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

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FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

Derecognition

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

For financial liabilities, they are removed from Hi-Level Group’s balance sheet when, and only when, it is extinguished (i.e. 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 or payable is recognised in the consolidated income statement.

Impairment losses

At each balance sheet date, Hi-Level 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. 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, such 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.

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APPENDIX II

5. Key sources of estimation uncertainty

In the process of applying Hi-Level’s accounting policies which are described in note 4, Hi-Level’s management makes various estimates based on past experience, expectations of the future and other information. The key sources of estimation uncertainty that can significantly affect the amounts recognised in the Financial Information are disclosed below:

Estimated impairment loss on trade receivables

Management regularly reviews the recoverability and/or ageing of the trade receivables. Appropriate impairment for estimated irrecoverable amounts is recognised in the income statement when there is objective evidence that the asset is impaired.

In determining whether impairment for bad and doubtful debts is required, Hi-Level Group takes into consideration the ageing status and likelihood of collection. Specific allowance is only made for receivables that are unlikely to be collected and is recognised on the difference between the estimated future cash flow expected to receive discounted using the original effective interest rate and its carrying value.

Allowance on inventories

Hi-Level Group has the operational procedures to put in place to monitor the risk of inventories as majority of working capital is devoted to inventories and the nature of inventories are subject to obsolescence. Management reviews the movement of inventory on a periodic basis for those inventories. This involves comparing the carrying value of the aged inventory items with the respective net realisable value. Management estimates the net realisable value based on primarily on the latest invoice prices and current market conditions. The purpose is to ascertain whether allowance is required to be made in the financial statement for obsolete and slow-moving items. In addition, physical count on all inventories is carried out on a periodic basis in order to determine whether allowance need to be made in respect of any obsolete and defective inventories identified. In this regard, the directors of Hi-Level Group are satisfied that this risk is minimal and adequate allowance for obsolete and slowmoving inventories has been made in the Financial Information.

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APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

6. Financial risk management objectives and policies

Hi-Level Group’s major financial instruments include trade and other receivables, amount due from a fellow subsidiary, amount due from a shareholder, amount due from a related company, pledged bank deposits, bank balances, trade and other payables, amount due to a director, amount due to ultimate holding company, amount due to a related company and secured bank borrowings. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Currency risk

At 30 September, 2006, trade and other receivables of approximately HK$104 million, trade and other payables of approximately HK$166 million and bank balance and cash of approximately HK$12 million of Hi-Level Group are denominated in currencies other than the functional currencies of the relevant group companies. HiLevel Group currently does not have a foreign currency hedging policy. However, management monitors foreign exchange exposure closely and will consider the usage of hedging instruments when the need arises.

(ii) Interest rate risk

Hi-Level Group’s exposure to changes in interest rates is mainly attributable to its pledged bank deposits, bank balances and secured bank borrowings. Pledged bank deposits at fixed rates expose Hi-Level Group to fair value interest-rate risk whereas bank balances and secured bank borrowings at variable rates expose Hi-Level Group to cash flow interest-rate risk. Details of the Hi-Level Group’s secured bank borrowings are disclosed in note 29.

Hi-Level Group currently does not have an interest rate hedging policy. However, management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise.

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APPENDIX II

FINANCIAL INFORMATION ON HI-LEVEL GROUP

(iii) Credit risk

Hi-Level Group’s maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations as at the balance sheet dates in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. In order to minimise the credit risk, management of Hi-Level Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts.

In addition, Hi-Level Group reviews the recoverable amount of each individual receivable at each balance sheet date to ensure that adequate impairment losses are recognised for irrecoverable amounts. In this regard, the directors of Hi-Level Group consider that the Hi-Level Group’s exposure to bad debts is minimal.

The credit risk on pledged bank deposits and balances is limited because the counterparties are banks with good reputation.

Hi-Level Group has no significant concentration of credit risk, with exposure spread over a number of counterparties.

(iv) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Hi-Level Group maintains the flexibility in funding by arranging banking facilities. Besides, Hi-Level Group has continued to tighten cost controls over operating costs to improve the cash flows, profitability and operations of Hi-Level Group. The directors believe that Hi-Level Group will have sufficient working capital for its future operational requests.

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FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

7. Turnover and segment information

Turnover represents the amount received and receivable for goods sold exclusive of value added taxes, less returns and allowances, to outsiders customers during the Relevant Periods.

Business segments

Hi-Level Group is principally engaged in the trading of integrated circuits. No business segments analysis is presented for the Relevant Periods as the directors consider that Hi-Level Group operates in a single business segment.

Geographical segments

Over 90% of the assets of Hi-Level Group are located in the PRC. The following table provides an analysis of Hi-Level Group’s sales and contribution to operating results by geographical segments based on customers’ location, irrespective of the origin of the goods.

Year ended 31 December, 2003

TURNOVER External sales RESULT Segment results Unallocated corporate income Unallocated corporate expenses Finance costs Gain on disposal of subsidiary Profit before taxation Taxation Profit for the year	Hong Kong HK$’000 97,481 5,289	PRC HK$’000 139,019 4,122	Others HK$’000 1,307 109	Total HK$’000 237,807 9,520 443 (7,023) (510) 761 3,191 (667) 2,524

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FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

BALANCE SHEET Assets Segment assets 7,056 15,893 211 Unallocated corporate assets Liabilities Unallocated corporate liabilities Other information Capital additions 50 73 – Depreciation of property, plant and equipment 86 6 – Year ended 31 December, 2003 – continued Hong Kong PRC Others HK$’000 HK$’000 HK$’000	23,160 58,112 Total HK$’000
	81,272

	63,666

	123 92

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FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

Year ended 31 December, 2004 Hong Kong HK$’000 TURNOVER External sales 142,250 RESULT Segment results 4,261 Unallocated corporate income Unallocated corporate expenses Finance costs Profit before taxation Taxation Profit for the year BALANCE SHEET Assets Segment assets 10,911 Unallocated corporate assets Liabilities Unallocated corporate liabilities Other information Capital additions 75 Depreciation of property, plant and equipment 67 Impairment loss on trade receivables 1,307	PRC HK$’000 298,912 13,327 23,298 508 33 364	Others HK$’000 3,026 176 61 – – –	Total HK$’000 444,188 17,764 139 (6,557) (307) 11,039 (2,030) 9,009 34,270 78,425 112,695 86,085 583 100 1,671

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APPENDIX II

FINANCIAL INFORMATION ON HI-LEVEL GROUP

Year ended 31 December, 2005 Hong Kong HK$’000 TURNOVER External sales 207,656 RESULT Segment results 7,921 Unallocated corporate income Unallocated corporate expenses Finance costs Profit before taxation Taxation Profit for the year BALANCE SHEET Assets Segment assets 7,486 Unallocated corporate assets Liabilities Unallocated corporate liabilities Other information Capital additions 1,257 Depreciation and amortisation 218 Impairment loss on trade receivables 15	PRC HK$’000 457,714 19,485 64,398 186 173 590	Others HK$’000 2,425 160 28 – – –	Total HK$’000 667,795 27,566 545 (10,355) (623) 17,133 (3,305) 13,828 71,912 125,116 197,028 156,556 1,443 391 605

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FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

Nine months period ended 30 September, 2005

TURNOVER External sales RESULT Segment results Unallocated corporate income Unallocated corporate expenses Finance costs Profit before taxation Taxation Profit for the period	Hong Kong HK$’000 (unaudited) 167,353 4,587	PRC HK$’000 (unaudited) 289,693 11,415	Others HK$’000 (unaudited) 2,173 98	Total HK$’000 (unaudited) 459,219 16,100 332 (7,122) (395) 8,915 (1,710) 7,205

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FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

Nine months period ended 30 September, 2006

Hong Kong HK$’000 TURNOVER External sales 108,492 RESULT Segment results 4,714 Unallocated corporate income Unallocated corporate expenses Finance costs Loss before taxation Taxation Loss for the period BALANCE SHEET Assets Segment assets 24,495 Unallocated corporate assets Liabilities Unallocated corporate liabilities Other information Capital additions 611 Depreciation and amortisation 426 Impairment loss on trade receivables 650	PRC HK$’000 491,214 3,857 74,309 420 149 11,425	Others HK$’000 890 90 – – – –	Total HK$’000 600,596 8,661 789 (14,930) (663) (6,143) 194 (5,949) 98,804 118,180 216,984 182,160 1,031 575 12,075

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APPENDIX II

FINANCIAL INFORMATION ON HI-LEVEL GROUP

8. Finance Costs

Year 2003 HK$’000 Interest on bank borrowings wholly repayable within five years 4 Interest on amount due to ultimate holding company 506 Charges on deposits pledged by a fellow subsidiary for Hi-Level Group’s borrowings – Interest on amount due to a director – 510	ended 31 December, 2004 2005 HK$’000 HK$’000 52 83 76 – 179 292 – 248 307 623	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited) 79 112 – 86 148 172 168 293 395 663	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited) 79 112 – 86 148 172 168 293 395 663
			663

– 134 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

9. Profit (loss) before taxation

Year ended 31 December,
2003
2004
2005
HK$’000
HK$’000
HK$’000
Profit (loss) before taxation
has been arrived at
after charging:
Staff costs, including
directors’ emoluments
– salaries and other benefits
3,308
3,624
5,879
– performance related
incentive payments
–
–
–
– retirement benefits
scheme contributions
59
159
273
Total staff costs
3,367
3,783
6,152
Auditors’ remuneration
32
131
184
Depreciation of property,
plant and equipment
92
100
257
Impairment loss on
trade receivables
–
1,671
605
Allowance for inventories
74
41
678
Loss on disposal of property,
plant and equipment
2
10
–
Research and development
expenses
392
12
600
Amortisation of
intangible assets
–
–
134
Cost of inventories
recognised as expenses
227,686
417,267
624,798
and after crediting:
Dividend income
–
(20)
(40)

Nine months ended
30 September,
2005
2006
HK$’000
HK$’000
(unaudited)
4,356
7,673
–
355
56
297
4,412
8,325
54
180
183
335
–
12,075
–
1,521
–
–
600
2,000
53
240
431,618
574,189
(40)
(40)

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APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

10. Directors’ emoluments and employees’ remunerations

(a) Directors’ emoluments

The remuneration paid or payable to each of the directors was as follows:

Year ended 31 December, 2003

Mr. Chen Fu Rong HK$’000 Fees – Other emoluments Salaries and other benefits – Retirement benefits scheme contributions – Performance related incentive payments (note) – Total emoluments –	Mr. Wang Mr. Shi Au Zhong Guang Rong HK$’000 HK$’000 – – – – – – – – – –	Mr. Wei Wei HK$’000 – 285 – – 285	Mr. Chang Mr. Fan Wei Hua Kuo Chiang HK$’000 HK$’000 – – 16 – – – – – 16 –	Total HK$’000 – 301 – –
				301

Year ended 31 December, 2004

Mr. Chen Fu Rong HK$’000 Fees – Other emoluments Salaries and other benefits – Retirement benefits scheme contributions – Performance related incentive payments (note) – Total emoluments –	Mr. Wang Mr. Shi Au Zhong Guang Rong HK$’000 HK$’000 – – – – – – – – – –	Mr. Wei Wei HK$’000 – 240 – – 240	Mr. Chang Wei Hua HK$’000 – – – – –	Total HK$’000 – 240 – –
				240

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FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

Nine months ended 30 September, 2005

Mr. Chen Mr. Wang Mr. Shi Fu Rong Au Zhong Guang Rong HK$’000 HK$’000 HK$’000 Fees – – – Other emoluments Salaries and other benefits – – – Retirement benefits scheme contributions – – – Performance related incentive payments (note) – – – Total emoluments – – – Year ended 31 December, 2005 Mr. Chen Mr. Wang Mr. Shi Fu Rong Au Zhong Guang Rong HK$’000 HK$’000 HK$’000 Fees – – – Other emoluments Salaries and other benefits – – – Retirement benefits scheme contributions – – – Performance related incentive payments (note) – – – Total emoluments – – –	Mr. Wei Wei HK$’000 – 180 – – 180 Mr. Wei Wei HK$’000 – 240 – – 240	Mr. Chang Wei Hua HK$’000 – 225 5 – 230 Mr. Chang Wei Hua HK$’000 – 360 8 – 368	Total HK$’000 – 405 5 –
			410

			Total HK$’000 – 600 8 –
			608

– 137 –

APPENDIX II

FINANCIAL INFORMATION ON HI-LEVEL GROUP

Nine months ended 30 September, 2006

Mr. Chen Fu Rong HK$’000 Fees – Other emoluments Salaries and other benefits – Retirement benefits scheme contributions – Performance related incentive payments (note) – Total emoluments –	Mr. Wang Mr. Shi Au Zhong Guang Rong HK$’000 HK$’000 – – – – – – – – – –	Mr. Wei Wei HK$’000 – 180 – 200 380	Mr. Chang Wei Hua HK$’000 – 450 9 155 614	Total HK$’000 – 630 9 355
				994

Note: Performance related incentive payments were determined with reference to Hi-Level Group’s operating results and individual performance and comparable market statistics.

(b) Employees’ remunerations

Of the five highest paid individuals in Hi-Level Group for the Relevant Periods, one was a director of Hi-Level whose remunerations are set out in note 10(a) above. The emoluments of the remaining four individuals are as follows:

Year ended 31 December, 2003 2004 2005 HK$’000 HK$’000 HK$’000 Employees: Salaries and other benefits 2,109 1,932 2,002 Performance related incentive payments – 293 502 Retirement benefits scheme contributions 19 24 20 2,128 2,249 2,524	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited) 1,386 1,644 151 200 23 18 1,560 1,862	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited) 1,386 1,644 151 200 23 18 1,560 1,862
		1,862

Note: Performance related incentive payments were determined with reference to Hi-Level Group’s operating results and individual performance and comparable market statistics.

– 138 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

During the Relevant Periods, the emoluments of each of the above employees were under HK$1,000,000 per annum.

During the Relevant Periods, no emoluments were paid by the Hi-Level Group to any of its the directors or the five highest paid individuals (including directors and employees) as an inducement to join or upon joining the Hi-Level Group or as compensation for loss of office. In addition, no directors waived any emoluments during the Relevant Periods.

11. Taxation

Year 2003 HK$’000 The charge (credit) comprises: Hong Kong Profit Tax – current year 680 – overprovision in prior years (13) 667	ended 31 December, 2004 2005 HK$’000 HK$’000 2,030 3,305 – – 2,030 3,305	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited) 1,710 – – (194) 1,710 (194)

Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profit for the Relevant Periods.

Taxation in other jurisdiction is calculated at the rates prevailing in the jurisdiction. Pursuant to the relevant laws and regulations in the PRC, Hi-Level Group’s PRC subsidiary is exempted from PRC income tax for two years starting from its first profit making year, followed by a 50% reduction for the next consecutive three years. No provision for PRC income tax has been made in the financial statements as the PRC subsidiary has no assessable profit during the Relevant Periods.

– 139 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

The tax expense (credit) for the Relevant Periods can be reconciled to the profit (loss) before taxation per the consolidated income statements as follows:

Profit (loss) before taxation Tax at the applicable rate of 17.5% Tax effect of income not taxable for tax purpose Tax effect of expenses not deductible for tax purpose Tax effect of tax losses not recognised Overprovision in prior years Others Taxation charge (credit)	Year 2003 HK$’000 3,191 558 (267) 134 255 (13) – 667	ended 31 December, 2004 2005 HK$’000 HK$’000 11,039 17,133 1,932 2,998 (9) (95) 107 322 – – – – – 80 2,030 3,305	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited) 8,915 (6,143 1,560 (1,075 (7) (8 157 230 – 853 – (194 – – 1,710 (194	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 (unaudited) 8,915 (6,143 1,560 (1,075 (7) (8 157 230 – 853 – (194 – – 1,710 (194
				(1,075 (8 230 853 (194 –
				(194

Hi-Level Group has unutilised tax losses at the respective balance sheet dates are as follows:

Unutilised tax losses

– – – – 4,874

Hi-Level Group has no unutilised tax loss as at 31 December, 2003 as the only subsidiary with tax losses was disposed of in 2003. No deferred tax asset has been recognised in respect of unutilised tax losses as at 30 September, 2006 due to the unpredictability of future profit streams.

12. Earnings per share

The calculation of the basic earnings per share for the Relevant Periods is based on the profit (loss) attributable to equity holders of the Company for the Relevant Periods and weighted average number of ordinary shares adjusted for bonus issue during the Relevant Periods as follows:

				Nine months ended	Nine months ended
	Year	ended 31 December,		30 September,
	2003	2004	2005	2005	2006
	’000	’000	’000	’000	’000
Weighted average number
of shares	21,821	25,000	25,000	25,000	25,000

– 140 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

No diluted earnings per share have been presented as Hi-Level does not have any dilutive potential ordinary shares throughout the Relevant Periods.

13. Property, plant and equipment

Leasehold improvement HK$’000 HI-LEVEL GROUP COST At 1 January, 2003 – Additions – Disposals – Disposal of a subsidiary – At 31 December, 2003 – Additions 471 Disposals – At 31 December, 2004 471 Additions – Exchange realignment 10 At 31 December, 2005 481 Additions 413 Exchange realignment 12 At 30 September, 2006 906 ACCUMULATED DEPRECIATION At 1 January, 2003 – Provided for the year – Eliminated on disposals – Eliminated on disposal of a subsidiary – At 31 December, 2003 – Provided for the year 26 Eliminated on disposals –	Furniture and fixtures HK$’000 28 – – (4) 24 – – 24 9 – 33 – – 33 16 8 – – 24 – –	Motor vehicles HK$’000 – – – – – – – – 168 – 168 – 4 172 – – – – – – –	Office equipment HK$’000 265 123 (10) (92) 286 112 (15) 383 304 1 688 618 2 1,308 107 84 (6) (1) 184 74 (5)	Total HK$’000 293 123 (10) (96) 310 583 (15) 878 481 11 1,370 1,031 18 2,419 123 92 (6) (1) 208 100 (5)

– 141 –

APPENDIX II

FINANCIAL INFORMATION ON HI-LEVEL GROUP

At 31 December, 2004 26 Provided for the year 158 Exchange realignment 3 At 31 December, 2005 187 Provided for the period 146 Exchange realignment 5 At 30 September, 2006 338 CARRYING VALUES At 30 September, 2006 568 At 31 December, 2005 294 At 31 December, 2004 445 At 31 December, 2003 – Leasehold improvement HK$’000	24 3 – 27 2 – 29 4 6 – – Furniture and fixtures HK$’000	– 6 – 6 1 – 7 165 162 – – Motor vehicles HK$’000	253 90 – 343 186 – 529 779 345 130 102 Office equipment HK$’000	303 257 3 Total HK$’000
				563 335 5
				903
				1,516

				807

				575

				102

– 142 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

HI-LEVEL COST At 1 January, 2003 Additions Disposals At 31 December, 2003 Additions Disposals At 31 December, 2004 Additions At 31 December, 2005 Additions At 30 September, 2006 ACCUMULATED DEPRECIATION At 1 January, 2003 Provided for the year Eliminated on disposals At 31 December, 2003 Provided for the year Eliminated on disposals At 31 December, 2004 Provided for the year At 31 December, 2005 Provided for the period At 30 September, 2006	Furniture and fixtures HK$’000 24 – – 24 – – 24 9 33 – 33 16 8 – 24 – – 24 3 27 2 29	Office equipment HK$’000 226 50 (10) 266 75 (15) 326 286 612 611 1,223 100 78 (7) 171 67 (5) 233 81 314 184 498	Total HK$’000 250 50 (10) 290 75 (15) 350 295 645 611 1,256 116 86 (7) 195 67 (5) 257 84 341 186 527

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FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

CARRYING VALUES At 30 September, 2006 At 31 December, 2005 At 31 December, 2004 At 31 December, 2003	Furniture and fixtures HK$’000 4 6 – –	Office equipment HK$’000 725 298 93 95	Total HK$’000 729

			304

			93

			95

Depreciation is provided to write off the cost of items of property, plant and equipment on a straight-line basis over their estimated useful life as follows:

Leasehold improvement	3 years or over the term of the lease, if shorter
Furniture and fixtures	3 years
Motor vehicles	3 years
Office equipment	3 years

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FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

14. Intangible Assets

	Film	and musical
	recording rights
		HK$’000
HI-LEVELGROUP AND HI-LEVEL
COST
At 1 January, 2003, 2004 and 2005		–
Additions		962
At 31 December, 2005 and 30 September, 2006		962
ACCUMULATED AMORTISATION
At 1 January, 2003, 2004 and 2005		–
Provided for the year		134
At 31 December, 2005 and 2006		134
Provided for the period		240
At 30 September, 2006		374
CARRYING VALUES
At 30 September, 2006		588

At 31 December, 2005		828

At 31 December, 2004		–

At 31 December, 2003		–

The above intangible assets have definite useful life. Such intangible assets are amortised on a straight-line basis over 3 years.

– 145 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

15. Investments in Subsidiaries

HI-LEVEL

Unlisted shares, at cost Less:_Impairment loss recognised(Note)_	As 2003 HK$’000 1,500 – 1,500	As at at 31 December, 30 September, 2004 2005 2006 HK$’000 HK$’000 HK$’000 3,500 3,500 3,500 – (2,400) (2,400) 3,500 1,100 1,100

Details of Hi-Level’s subsidiaries as at 30 September, 2006 are as follows:

		Issued and
	Place and date of	fully paid	Attributable
	incorporation	share capital/	equity interest
Name of subsidiary	establishment	registered capital	of the Group	Principal activities
Video Innovation	Hong Kong	HK$500,000	100%	Trading of
	24 October, 2001			integrated circuits
深圳揚煜	PRC	HK$3,000,000	100%	Provision of research
	8 September, 2003			and marketing
				services

Note : The impairment loss recognised was estimated by the directors of Hi-Level with reference to the carrying value of the investments at the respective balance sheet dates.

– 146 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

16. Available-for-sale investments

Available-for-sale investments at 31 December, 2005 and 30 September, 2006 comprise:

	As at	As at
	31 December,	30 September,
	2005	2006
	HK$’000	HK$’000
HI-LEVELGROUP AND HI-LEVEL
Unlisted quoted investment funds in Hong Kong	5,900	6,119
Unlisted equity listed in Hong Kong	200	–
	6,100	6,119
Golf club membership	266	266
	6,366	6,385
Carrying amount analysed for reporting purposes as:
Current	3,900	4,233
Non-current	2,466	2,152
	6,366	6,385

At 31 December, 2005 and 30 September, 2006, all unlisted quoted investment funds are stated at fair value. Fair values of the investments have been determined by reference to bid prices quoted in active markets.

The above unlisted investment represents investment in unlisted equity securities issued by private entity incorporated in Hong Kong. They are measured at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so significant that the directors of Hi-Level are of the opinion that their fair values cannot be measured reliably.

Golf club membership is measured at cost less impairment at each balance sheet date.

– 147 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

17. Investments in securities

Investments in securities at 31 December, 2003 and 2004 are set out below.

HI-LEVELGROUP AND HI-LEVEL Quoted investment funds in Hong Kong Unlisted equity securities in Hong Kong Market value of quoted investment funds	As at 31 December, 2003 2004 HK$’000 HK$’000 3,900 5,900 200 200 4,100 6,100 3,900 5,900	As at 31 December, 2003 2004 HK$’000 HK$’000 3,900 5,900 200 200 4,100 6,100 3,900 5,900
		6,100
		5,900

18. Golf club membership

	As at 31	December,
	2003	2004
	HK$’000	HK$’000
HI-LEVELGROUP AND HI-LEVEL
Golf club membership, at cost in the PRC	–	266

Upon the application of HKAS 39 on 1 January, 2005, golf club membership was reclassified to appropriate category under HKAS 39 (see Note 3 for details) .

19. Inventories

						As at
		As	at 31 December,		30 September,
	2003		2004	2005		2006
	HK$’000		HK$’000	HK$’000		HK$’000
HI-LEVEL GROUP
AND HI-LEVEL
Finished goods	13,384		15,044	35,628		76,230

Inventories represent finished goods during the Relevant Periods carried at:
Net realisable value	1,853		2,127	3,968		27,699

– 148 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

20. Trade and other receivables

Hi-Level Group’s policy is to allow an average credit period ranged from 30 days to 120 days to its trade customers.

Aged analysis of trade receivables at the respective balance sheet dates are as follows:

HI-LEVEL GROUP 0 – 30 days 31 – 60 days 61 – 90 days Over 90 days Other receivables HI-LEVEL	As 2003 HK$’000 15,881 1,413 3,062 2,804 23,160 1,875 25,035	As at at 31 December, 30 September, 2004 2005 2006 HK$’000 HK$’000 HK$’000 19,317 36,303 72,753 7,971 27,840 16,506 2,148 2,326 6,216 4,834 5,443 3,329 34,270 71,912 98,804 4,643 12,003 5,186 38,913 83,915 103,990	As at at 31 December, 30 September, 2004 2005 2006 HK$’000 HK$’000 HK$’000 19,317 36,303 72,753 7,971 27,840 16,506 2,148 2,326 6,216 4,834 5,443 3,329 34,270 71,912 98,804 4,643 12,003 5,186 38,913 83,915 103,990	As at at 31 December, 30 September, 2004 2005 2006 HK$’000 HK$’000 HK$’000 19,317 36,303 72,753 7,971 27,840 16,506 2,148 2,326 6,216 4,834 5,443 3,329 34,270 71,912 98,804 4,643 12,003 5,186 38,913 83,915 103,990
				98,804 5,186
				103,990


0 – 30 days 31 – 60 days 61 – 90 days Over 90 days Other receivables	15,881 1,413 3,062 2,804 23,160 1,820 24,980	19,317 7,971 2,148 4,834 34,270 4,541 38,811	36,303 27,840 2,326 5,443 71,912 11,913 83,825	72,753 16,506 6,216 3,329
				98,804 4,857
				103,661

The fair values of Hi-Level Group’s and Hi-Level’s trade and other receivables at 31 December, 2005 and 30 September, 2006 approximate their corresponding carrying amounts.

– 149 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

21. Amount due from a fellow subsidiary/a shareholder

HI-LEVEL GROUP AND HI-LEVEL

The amounts due from a fellow subsidiary/a shareholder are unsecured, interest free and repayable on demand.

Aged analysis of amount due from a fellow subsidiary with trade nature at the respective balance sheet dates are as follows:

HI-LEVEL GROUP AND HI-LEVEL 0 - 30 days 31 - 60 days 61 - 90 days Over 90 days Others	As 2003 HK$’000 2,557 763 - - 3,320 37 3,357	at 31 December, 2004 HK$’000 734 370 673 - 1,777 - 1,777	As at 30 September, 2005 2006 HK$’000 HK$’000 2,489 - 2,664 - 718 - 936 - 6,807 - - 34 6,807 34	As at 30 September, 2005 2006 HK$’000 HK$’000 2,489 - 2,664 - 718 - 936 - 6,807 - - 34 6,807 34
				- 34
				34

The fair values of the amounts at 31 December, 2005 and 30 September, 2006 approximate their corresponding carrying amounts.

22. Amounts due from (to) subsidiaries

HI-LEVEL

The amounts are unsecured, interest free and repayable on demand. The fair values of the amounts at 31 December, 2005 and 30 September, 2006 approximate their corresponding carrying amounts.

– 150 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

23. Amount due from a related company

HI-LEVEL GROUP AND HI-LEVEL

Name of related party Shenzhen Sijingsi Electronics Limited (“Shenzhen Sijingsi”) (Note) Maximum balance outstanding Shenzhen Sijingsi	As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 1,134 974 3,882 917 For the nine months ended For the year ended 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 2,380 1,134 4,005 5,201

Note:

Mr. Wei Wei, a director and a shareholder of Hi-Level, is a director of Shenzhen Sijingsi. The amount is unsecured, interest free and repayable on demand. The fair values of the amount at 31 December, 2005 and 30 September, 2006 approximate their corresponding carrying amounts.

24. Pledged bank deposits

The amount represents deposits pledged to banks to secure banking facilities granted to Hi-Level Group. The deposits have been pledged to secure short-term bank borrowings and are therefore classified as current assets.

The deposits carry fixed interest rate of 3.5% per annum during the Relevant Periods. The pledged bank deposits will be released upon the settlement of relevant bank borrowings. The fair values of the amounts at 31 December, 2005 and 30 September, 2006 approximate their corresponding carrying amounts.

– 151 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

25. Bank balances and cash

Bank balances and cash comprises bank balances and cash held by Hi-Level Group and Hi-Level and short-term deposits that are interest-bearing at market interest rates. All bank deposits are with maturity of three months or less. The bank deposits carries interest ranging from 2.75% to 3% per annum during the Relevant Periods. The fair values of the amounts at 31 December, 2005 and 30 September, 2006 approximate their corresponding carrying amounts.

26. Trade and other payables

Aged analysis of trade payables at the respective balance sheet dates are as follows:

HI-LEVEL GROUP 0 – 30 days 31 – 60 days 61 – 90 days Over 90 days Other payables HI-LEVEL	As 2003 HK$’000 34,330 16,390 906 – 51,626 844 52,470	As at at 31 December, 30 September, 2004 2005 2006 HK$’000 HK$’000 HK$’000 40,823 80,399 61,577 40,363 57,075 39,103 – – 10,509 – 15 46,620 81,186 137,489 157,809 641 7,642 12,176 81,827 145,131 169,985	As at at 31 December, 30 September, 2004 2005 2006 HK$’000 HK$’000 HK$’000 40,823 80,399 61,577 40,363 57,075 39,103 – – 10,509 – 15 46,620 81,186 137,489 157,809 641 7,642 12,176 81,827 145,131 169,985	As at at 31 December, 30 September, 2004 2005 2006 HK$’000 HK$’000 HK$’000 40,823 80,399 61,577 40,363 57,075 39,103 – – 10,509 – 15 46,620 81,186 137,489 157,809 641 7,642 12,176 81,827 145,131 169,985
				157,809 12,176
				169,985


0 – 90 days 31 – 60 days 61 – 90 days Over 90 days Other payables	34,330 16,390 906 – 51,626 743 52,369	40,823 40,363 – – 81,186 554 81,740	80,399 57,075 – 15 137,489 7,365 144,854	61,577 39,103 10,509 46,620
				157,809 11,570
				169,379

The fair values of Hi-Level Group’s and Hi-Level’s trade and other payables at 31 December, 2005 and 30 September, 2006 approximate their corresponding carrying amounts.

– 152 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

27. Amount due to a director

HI-LEVEL GROUP AND HI-LEVEL

The amount is unsecured, carries interest at 4% per annum and is repayable on demand. The fair values of the amount at 31 December, 2005 and 30 September, 2006 approximate the corresponding carrying amounts.

28. Amount due to ultimate holding company

HI-LEVEL GROUP AND HI-LEVEL

The amount is unsecured, carries interest at 5% per annum and is repayable on demand. The fair values of the amount at 31 December, 2005 and 30 September, 2006 approximate its corresponding carrying amounts.

29. Secured bank borrowings

				As at
		As at 31 December,		30 September,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
HI-LEVEL GROUP
AND HI-LEVEL
Secured short-term
bank borrowings,
in Hong Kong Dollars	797	2,596	–	1,021

The effective interest rates (which are also equal to contracted interest rates) on HiLevel Group’s borrowings are calculated based on Hong Kong Dollars Prime Rate less 0.5% during the Relevant Periods as follows:

				Nine months	ended	ended
	Year	ended 31 December,		30 September,
	2003	2004	2005	2005		2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Effective interest rate:
variable-rate borrowings	5%	5%	5%	5%		4.75%

– 153 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

The above borrowings are secured by certain properties and bank deposits of Yuxing Technology Company Limited (“Yuxing Technology”), a fellow subsidiary of Hi-Level. An interest at 5% per annum is payable by Hi-Level to Yuxing Technology calculated based on the pledged deposits of Yuxing Technology for providing security to Hi-Level.

Certain bank facilities are secured by way of corporate guarantee of ultimate holding company, Yuxing InfoTech.

The fair values of the above Hi-Level Group’s borrowings, estimated by discounting their future cash flows at the prevailing market borrowing rates at 31 December, 2005 and 30 September, 2006, approximate the corresponding carrying amounts.

Details of the securities for the above bank borrowings are set out in note 34.

30. Share Capital

HI-LEVEL

Ordinary shares of HK$1 each

Notes Authorised: At 1 January, 2003 Increase (i) At 31 December, 2003 and 31 December, 2004 Increase (iii) At 31 December, 2005 and 30 September, 2006 Issued and fully paid: At 1 January, 2003 Bonus shares issued (i) Issue of shares (ii) At 31 December, 2003 and 31 December, 2004 Bonus shares issued (iii) At 31 December, 2005 and 30 September, 2006	Number of shares ’000 10,000 10,000 20,000 5,000 25,000 10,000 1,700 3,300 15,000 10,000 25,000	Amount HK$’000 10,000 10,000
		20,000 5,000
		25,000

		10,000 1,700 3,300
		15,000 10,000
		25,000

– 154 –

APPENDIX II

FINANCIAL INFORMATION ON HI-LEVEL GROUP

Notes:

(i) Pursuant to resolutions passed in the special general meeting held on 31 July, 2003, the authorised share capital was increased from HK$10,000,000 to HK$20,000,000 by creation of 10,000,000 ordinary shares of HK$1 each. On the same date, a bonus issue of 1,700,000 shares of HK$1 each were issued and allotted by capitalising an amount of HK$1,700,000 in Hi-Level’s retained profits.
(ii) On 31 July, 2003, 3,300,000 shares of HK$1 each were issued and allotted for cash at HK$1 per share.
(iii) Pursuant to resolutions passed in the special general meeting held on 4 July, 2005, the authorised share capital was increased from HK$20,000,000 to HK$25,000,000 by creation of 5,000,000 ordinary shares of HK$1 each. On the same date, a bonus issue of 10,000,000 shares of HK$1 each were issued and allotted by capitalizing an amount of HK$10,000,000 in Hi-Level’s retained profits.

All these shares rank pari passu in all respects with other shares in issue.

31. Reserves

HI-LEVEL At 1 January, 2003 Bonus shares issued Profit for the year At 31 December, 2003 Profit for the year At 31 December, 2004 Bonus shares issued Profit for the year At 31 December, 2005 Increase in fair values of available-for-sale investments Loss for the period At 30 September, 2006	Investment revaluation reserve HK$’000 – – – – – – – – – 219 – 219	Retained profits HK$’000 2,595 (1,700) 2,625 3,520 9,343 12,863 (10,000) 12,785 15,648 – (5,594) 10,054	Total HK$’000 2,595 (1,700) 2,625 3,520 9,343 12,863 (10,000) 12,785 15,648 219 (5,594) 10,273

– 155 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

32. Disposal of a subsidiary

Net liabilities disposed of: Property, plant and equipment Inventories Bank balances and cash Trade and other payables Translation reserve released Gain on disposal of a subsidiary Total consideration Satisfied by: Cash consideration received Other receivables Analysis of net cash inflow of cash and cash equivalents in connection with the disposal of a subsidiary: Cash consideration received Bank balances and cash disposed of	Year ended 31 December, 2003 2004 2005 HK$’000 HK$’000 HK$’000 95 – – 457 – – 75 – – (756) – – (129) – – 1 – – (128) – – 761 – – 633 – – 94 – – 539 – – 633 – – 94 – – (75) – – 19 – –	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –	Nine months ended 30 September, 2005 2006 HK$’000 HK$’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –
			– –
			– –
			–

			– –
			–

			– –
			–

The subsidiary disposed of during the year ended 31 December, 2003 did not have any significant impact on Hi-Level Group’s cash flows, turnover and operating results.

– 156 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

33. Share option schemes

Pursuant to the share option schemes of Yuxing InfoTech, adopted on 18 January, 2000 (the “Previous Scheme”) and 18 May, 2003 (the “Existing Scheme”), the board of directors of Yuxing InfoTech may grant options to eligible employees (“Participants”), including directors of Yuxing InfoTech and its subsidiaries, to subscribe for shares in Yuxing InfoTech subject to the terms of the Schemes. The Previous Scheme, originally expiring on 31 January, 2010, was early terminated on 18 May, 2003, but its terms remain in full force and effect in respect of the outstanding options previously granted.

An offer of the share options shall be deemed to have been accepted by way of consideration of HK$1.00 payable by the Participants within 21 days from the date of offer of the share options. The exercise price of the share options is determined by the directors of Yuxing InfoTech, and will not be less than the higher of the closing price of the shares of Yuxing InfoTech on the date of grant, the average closing price of the shares of Yuxing InfoTech of the five business days immediately preceding the date of grant and the nominal value of the shares of Yuxing InfoTech.

On 28 November, 2000, 1,000,000 share options of Yuxing InfoTech (with exercise price of HK$0.95, exercisable during the period from 28 November, 2001 to 27 November, 2005) were granted to a director of Hi-Level, Mr. Wang An Zong under the Previous Scheme. Mr. Wang did not exercise any of such options and the options lapsed on 27 November, 2005.

No share options have been granted to the directors of Hi-Level and other employees of Hi-Level Group since the date of adoption of the Existing Scheme.

– 157 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

34. Pledge of assets

At the balance sheet dates, the following assets were pledged to banks to secure general banking facilities granted to Hi-Level Group and Hi-Level:

HI-LEVEL GROUP AND HI-LEVEL Bank deposits Available-for-sale investments Investments in securities	As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 17,600 5,500 5,500 5,500 – – 5,900 6,119 3,900 5,900 – – 21,500 11,400 11,400 11,619	As at As at 31 December, 30 September, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 17,600 5,500 5,500 5,500 – – 5,900 6,119 3,900 5,900 – – 21,500 11,400 11,400 11,619
		11,619

35. Operating lease

Hi-Level Group as lessee

				Nine months	ended
	Year	ended 31 December,		30 September,
	2003	2004	2005	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Minimum leases payments
paid under operating leases
in respect of land and
buildings	90	485	76	64	655

– 158 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

At the respective balance sheet dates, Hi-Level Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

					As at
		As at	31 December,		30 September,
	2003		2004	2005	2006
	HK$’000		HK$’000	HK$’000	HK$’000
Within one year	–		542	41	707

Operating lease payments represent rentals payable by Hi-Level Group for certain of its offices and warehouses. Leases are negotiated for an average term of 1 year with fixed rentals.

36. Retirement benefits plans

Hi-Level operates a Mandatory Provident Fund Scheme (“MPF Scheme”) for all qualifying employees in Hong Kong. The assets of the schemes are held separately from those of Hi-Level, in funds under the control of trustees. Hi-Level and the employee each contribute 5% of relevant payroll costs to the MPF Scheme.

深圳揚煜 is required to make contributions to state-managed retirement benefit schemes operated by the PRC government based on a certain percentage of the monthly payroll costs of the PRC employees. 深圳揚煜 has no other obligations under the statemanaged retirement benefit schemes in the PRC other than the contribution payable.

– 159 –

APPENDIX II FINANCIAL INFORMATION ON HI-LEVEL GROUP

37. Related party disclosures

(a) Hi-Level Group had the following significant transactions with related parties during the Relevant Periods:

					Nine months	ended
Name of		Year	ended 31 December,		30 September,
related parties	Nature of transaction	2003	2004	2005	2005	2006
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
Director:
Mr. Chang Wei Hua	Interest expenses paid	–	–	248	168		293
Ultimate holding company:
Yuxing Info Tech	Interest expenses paid	506	76	–	–		86
Fellow subsidiary:
Yuxing Technology	Sales of goods	9,889	8,754	14,270	1,077	2,199
Company Limited	Administrative services	1,200	1,167	774	774		432
	fee paid
	Charges on pledged
	deposits paid	–	179	292	148		172
Sheng Bang Qiang	Research and development
Dian Electronics	fees paid
(Shenzhen) Co., Ltd.		–	–	–	–	2,000

Hi-Level and Beijing Golden-Yuxing Electronics and Technology Co., Ltd. (“Golden Yuxing”), a wholly-owned subsidiary of Yuxing Info Tech, entered into a memorandum dated 20 July, 2005 that Golden Yuxing appointed Hi-Level to act as its agent to supply decoding IC to its designated customers in accordance with its instructions from time to time. The aforesaid arrangement was commenced on 1 July, 2004 and shall continue until terminated by either party serving the other not less than 3 months’ notice in writing. The aforesaid arrangement has been terminated in March 2006.

– 160 –

FINANCIAL INFORMATION ON HI-LEVEL GROUP

APPENDIX II

The above transactions were carried out at terms as determined and agreed by the relevant parties.

Details of balances with related parties at the respective balance sheet dates are set out in the balance sheets and in notes 21 to 23, 27 and 28.

Details of securities given by a fellow subsidiary and corporate guarantee provided by ultimate holding company for certain bank facilities of Hi-Level are set out in note 29.

(b) Details of compensation of directors of Hi-Level Group for the Relevant Periods are set out in note 10.

B. Subsequent financial statements

No audited financial statements of Hi-Level or any of its subsidiaries have been issued subsequent to 30 September, 2006.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

– 161 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

1. INTRODUCTION TO THE UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The following is the unaudited pro forma statement of assets and liabilities of the Enlarged Group prepared in accordance with paragraph 29 of Chapter 4 of the Listing Rules for the purpose of illustrating the effect of the Acquisition on the financial position of the Enlarged Group as at 30 June, 2006. As it is prepared for illustrative purpose only, and because of its nature, it may not give a true picture of the financial position of the Enlarged Group following Completion of the Acquisition.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group is prepared based on the unaudited consolidated balance sheet of the Group as at 30 June, 2006 extracted from the published interim report of the Group as set out in Appendix I to this circular and the audited balance sheet of the Hi-Level Group as at 30 September, 2006 as extracted from the accountants’ report set out in Appendix II to this circular as if the Acquisition had been completed on 30 September, 2006, after making certain pro forma adjustments that are (i) directly attributable to the transactions; and (ii) factually supportable, as summarised in the accompanying notes.

2. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

Non-current assets Investment properties Property, plant & equipment Goodwill Investment in associates Available-for-sale investments Intangible assets Club memberships Pledged bank deposit	The Group As at 30 June 2006 HK$’000 (unaudited) 78,679 120,414 1,369 551 12,470 – 3,012 23,396 239,891	Hi-Level Group As at 30 September 2006 HK$’000 (audited) – 1,516 – – 2,152 588 – – 4,256	Pro forma Combined Adjustment Notes HK$’000 HK$’000 (unaudited) 78,679 121,930 1,369 12,240 (1) 551 14,622 588 3,012 23,396 244,147	The Enlarged Group Pro forma Total HK$’000 (unaudited) 78,679 121,930 13,609 551 14,622 588 3,012 23,396
				256,387

– 162 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX III

Current assets Inventories Trade and other receivables Available-for-sale investments Bills receivable Investments held for trading Amount due from a fellow subsidiary Amount due from a shareholder Amount due from a related company Taxation recoverable Pledged bank deposits Bank balances and cash Current liabilities Trade and other payables Bills payable Amount due to a director Amount due to ultimate holding company Taxation payable Obligations under finance leases – due within one year Bank borrowings – due within one year Net current assets Total assets less current liabilities	288,441 379,359 – 33,258 1,254 – – – 879 59,725 135,850 898,766 148,634 63,381 – – 3,127 111 411,678 626,931 271,835 511,726 The Group As at 30 June 2006 HK$’000 (unaudited)	76,230 103,990 4,233 – – 34 212 917 – 5,500 21,612 212,728 169,985 – 10,000 30 1,124 – 1,021 182,160 30,568 34,824 Hi-Level Group As at 30 September 2006 HK$’000 (audited)	364,671 483,349 1,163 (2) 4,233 33,258 1,254 34 (34) (2) 212 (212) (2) 917 (917) (2) 879 65,225 157,462 (30,000) (1) 1,111,494 318,619 10,030 (2) 63,381 10,000 (10,000) (2) 30 (30) (2) 4,251 111 412,699 809,091 302,403 546,550 Pro forma Combined Adjustment Notes HK$’000 HK$’000 (unaudited)	364,671 484,512 4,233 33,258 1,254 – – – 879 65,225 127,462 The Enlarged Group Pro forma Total HK$’000 (unaudited)
				1,081,494 328,649 63,381 – – 4,251 111 412,699
				809,091 272,403
				528,790

– 163 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

Non-current liabilities Obligations under finance leases – due over one year Bank borrowings – due over one year Deferred tax liabilities	111 133,345 6,613 140,069 371,657 The Group As at 30 June 2006 HK$’000 (unaudited)	– – – – 34,824 Hi-Level Group As at 30 September 2006 HK$’000 (audited)	111 133,345 6,613 140,069 406,481 Pro forma Combined Adjustment Notes HK$’000 HK$’000 (unaudited)	111 133,345 6,613 The Enlarged Group Pro forma Total HK$’000 (unaudited)
				140,069
				388,721

3. NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

(1) The adjustment reflects goodwill of approximately HK$12,240,000, arising from the excess of the consideration payable by the Company of HK$30,000,000 in cash, over the net assets attributable to 51% equity interest in Hi-Level Group of approximately HK$17,760,000 as if the Acquisition had been completed at 30 September, 2006. It is assumed that the fair values of the assets and liabilities of Hi-Level Group approximate to the carrying values as at 30 September, 2006.
(2) Certain balances of Hi-Level Group were reclassified for consistency of the Group’s presentation.

– 164 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

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

The following is the text of an accountants’ report dated 12 December, 2006, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountant, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, in respect of the unaudited pro forma financial information of the Enlarged Group.

Accountants’ report on unaudited pro forma financial information to the directors of S.A.S. Dragon Holdings Limited

We report on the unaudited pro forma financial information of S.A.S. Dragon Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) and Hi-Level Technology Limited and its subsidiaries (together with the Group hereinafter collectively referred to as the “Enlarged Group”) set out in Appendix III (the “Unaudited Pro Forma Financial Information”) to the circular dated 12 December, 2006 (the “Circular”) in connection with the proposed acquisition of 51% equity interest in Hi-Level Technology Limited (the “Acquisition”), which has been prepared by the directors of the Company (the “Directors”) for illustrative purposes only, to provide information about how the Acquisition might have affected the financial information presented. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on page 162 of the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the Directors 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.

– 165 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

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. 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 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 judgments and assumptions of the Directors, 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 30 June, 2006 or any future date.

Opinion

In our opinion:

a) the Unaudited Pro Forma Financial Information has been properly compiled by the Directors 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.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

12 December, 2006

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GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company.

The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquires, that to the best of their knowledge and belief, opinions expressed in this circular by the Directors have been arrived at after due and careful consideration and there are no other facts not contained in this circular the omission of which would make any statement herein misleading.

2. DIRECTORS’ DISCLOSURE OF INTERESTS

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

Long positions

Ordinary shares of HK$0.10 each of the Company

Name of directors Capacity Yim Yuk Lun, Stanley_JP_ Beneficial owner Held by controlled corporation_(Note)_ Wong Sui Chuen Beneficial owner	Number of issued ordinary shares held 8,094,000 63,771,400 71,865,400 462,000	Percentage of issued share capital of the Company 3.34% 26.29%
		29.63%

		0.19%

Note: These shares are held by a unit trust whose trustee is Unimicro Limited, a company incorporated in the British Virgin Islands, of which Mr. Yim Yuk Lun, Stanley JP is also a director. All units in the unit trust are beneficially owned by a discretionary trust established by Mr. Yim Yuk Lun, Stanley JP , the beneficiaries of which include the spouse and issues of Mr. Yim Yuk Lun, Stanley JP .

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APPENDIX IV

GENERAL INFORMATION

As at the Latest Practicable Date, save as disclosed above and other than certain nominee shares in subsidiaries held by certain Directors in trust for the Company, none of the directors and chief executive of the Company had any interests and short positions 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) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the Securities and Futures Ordinance (including interests and short positions which he was taken or deemed to have under such provisions of the Securities and Futures Ordinance) or were required, pursuant to Section 352 of the Securities and Futures Ordinance, to be entered in the register referred to therein or were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any assets which have been, since 31 December 2005, being the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group.

3. SUBSTANTIAL SHAREHOLDERS’ DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, so far as was known to any director or chief executive of the Company, the following persons (other than a director or the chief executive of the Company) had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance, or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

(i) Long positions in shares of the Company

Ordinary shares of HK$0.10 each of the Company

		Number of	Percentage of the
		issued ordinary	issued share capital
Name of shareholders	Capacity	shares held	of the Company
Hon Hai Precision Industry	Held by controlled	46,000,000	18.97%
Co Ltd (“Hon Hai”)	corporation_(Note)_
Foxconn Holding	Beneficial owner	46,000,000	18.97%
Limited (“Foxconn”)

Note: Hon Hai owns 100% interest in Foxconn and is accordingly deemed to be interested in those ordinary shares of the Company beneficially owned by Foxconn.

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GENERAL INFORMATION

APPENDIX IV

(ii) Long positions in shares of the subsidiaries of the Company

		Number of	Percentage of
		shares held	issued share capital
Name of subsidiary of	Name of	as at the Latest	of the subsidiary
the Company	shareholder	Practicable Date	of the Company
SMartech Electronic Co., Ltd.	Wang Jin	290,000	29%
HAS Electronic Co., Ltd.	Chan Yuk Yee	150,000	15%

Save as disclosed herein, as at the Latest Practicable Date, so far as was known to any director or chief executive of the Company, no persons (other than a director or the chief executive of the Company) had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance, or who were, directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

4. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business of the Enlarged Group) have been entered into by the Company and/or member(s) of the Enlarged Group within two years immediately preceding the date of this circular which are or may be material:

(a) the Agreement;
(b) An agreement dated 6 September 2005 between S.A.S. Investment and ShenZhen Zhongtiejian Investment Co., Ltd to acquire 28th Floor, Noble Center located at Junction of Jintian Road and Futiansan Road, Futian Central District, Shenzhen, China with a total construction area of 1,878.23 square metre for a total consideration of RMB29,914,509 (equivalent to approximately HK$28.76 million); and
(c) A shareholders’ agreement dated 28 November 2006 between S.A.S Investment, Ample Pacific Limited, Mr. Chung Shun Ming, Mr. Kwok Siu Kwan, Ditec Company Limited and Mr. Yeung Chi Hung regarding the formation of a joint venture company in Hong Kong named as Kitronix Limited. S.A.S. Investment has injected HK$13,000,000 into Kitronix Limited.

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GENERAL INFORMATION

APPENDIX IV

5. LITIGATION AND CLAIMS

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation or arbitration of material importance to the Enlarged Group and so far as the Directors are aware, no litigation or claims of material importance are pending or threatened by or against any member of the Enlarged Group.

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any proposed service agreement with any member of the Group which would not expire or was not determinable by the Group within one year without payment of compensation (other than statutory compensation).

7. DIRECTORS’ INTERESTS IN CONTRACTS AND IN COMPETING BUSINESS

So far as the Directors are aware, as at the Latest Practicable Date:

(a) none of the Directors or their associates had any direct or indirect interest in any assets which had been, since 31 December 2005 (being the date to which the latest published audited financial statements of the Group were made up), acquired or disposed of by or leased to or were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group; and
(b) none of the Directors or their associates was materially interested in any contract or arrangement entered into by any member of the Enlarged Group and subsisting as at the Latest Practicable Date which was significant in relation to the business of the Enlarged Group. As at the Latest Practicable Date, none of the Directors and their respective associates had interests in a business, apart from the business of the Enlarged Group, which would compete or would likely compete, either directly or indirectly, with the business of the Enlarged Group.

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GENERAL INFORMATION

APPENDIX IV

8. PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is required under the Listing Rules or any other applicable laws, rules or regulations or unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of the meeting; or
(b) by at least three Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy for the time being entitled to vote at the meeting; or
(c) by a Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by poxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or
(d) by a Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right; or
(e) if required by the rules of the Designated Stock Exchange, by any Director or Directors who, individually or collectively, hold proxies in respect of shares representing five per cent. (5%) or more of the total voting rights at such meeting.

A demand by a person as proxy for a Shareholder or in the case of a Shareholder being a corporation by its duly authorized representative shall be deemed to be the same as a demand by the Shareholder.

Subject to any special rights or restrictions as to voting attached to any Shares by or in accordance with the bye-laws of the Company, at any general meeting on a show of hands, every Shareholder who is present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy shall (save as provided otherwise in the bye-laws of the Company) have one vote. On a poll, every Shareholder present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative), or by proxy shall have one vote for every fully-paid Share of which he is the holder (but so that no amount paid or credited as paid up on a share in advance of calls or installments shall be treated for the foregoing purposes as paid on the Share). A person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses in the same way.

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GENERAL INFORMATION

APPENDIX IV

9. CONSENT AND EXPERT

Deloitte Touche Tohmatsu has given and has not withdrawn its written consent to the issue of this circular with references to its name in context in which they appear in this circular.

10. QUALIFICATION OF EXPERT

Deloitte Touche Tohmatsu is an independent Certified Public Accountant. Deloitte Touche Tohmatsu has confirmed to the Company that as at the Latest Practicable Date, Deloitte Touche Tohmatsu did not have any issued share capital of the Company, any shareholding interest, directly or indirectly, in any member of the Group nor the right (whether legally enforceable or not) to subscribe for or to nominate any person to subscribe for securities in any member of the Group.

Deloitte Touche Tohmatsu did not have any direct or indirect interest in any assets which have, since 31 December 2005, being the date of the latest published audited accounts of the Company, been acquired or disposed of by, or leased to, or are proposed to be acquired or disposed of by, or leased to, any member of the Company.

Deloitte Touche Tohmastu was not materially interested in any contract or arrangement entered into by any member of the Company which contract or arrangement is subsisting as at the date of this circular and which is significant in relation to the business of the Company taken as a whole.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection by the Shareholders during normal business hours at the principal office of the Company at 6th Floor, Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon Hong Kong on weekdays other than public holidays up to and including 27 December, 2006;

(a) the memorandum of association and bye-laws of the Company;
(b) the annual reports of the Company for each of the two years ended 31 December 2005;
(c) the interim report of the Company for the six months ended 30 June 2006;
(d) the material contracts referred to in paragraph 4 of this Appendix;
(e) the accountants’ report on Hi-Level Technology Limited prepared by Deloitte Touche Tohmatsu for the period from 31 December 2003 to 31 December 2005 and the nine months ended 30 September 2006 as set out in Appendix II to this circular;

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GENERAL INFORMATION

APPENDIX IV

(f) the report issued by Deloitte Touche Tohmatsu in connection with the pro forma statement of the assets and liabilities of the Enlarged Group as set out in Appendix III to this circular;
(g) the letter of consent referred to in paragraph 9 of this Appendix; and
(h) the statement issued by Deloitte Touche Tohmatsu in connection with the sufficiency of working capital referred to in paragraph E of Appendix I.

13. MISCELLANEOUS

(a) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. The principal office of the Company is at 6th Floor, Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon, Hong Kong.
(b) The qualified accountant and the secretary of the Company is Mr. Wong Wai Tai, he is an associate member of the Hong Kong Institute of Certified Public Accountants.
(c) The Company’s share registrar is Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.
(d) This circular has been prepared in both English and Chinese. In the case of any discrepancy, the English text shall prevail over the Chinese text.

– 173 –

NOTICE OF SGM

==> picture [68 x 58] intentionally omitted <==

S.A.S. Dragon Holdings Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 1184)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the special meeting of S.A.S. Dragon Holdings Limited (the “ Company ”) will be held at 6th Floor, Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon, Hong Kong on 28 December 2006 at 11:00 a.m. for the purpose of considering, and if thought fit, passing the following resolution as Ordinary Resolution:

ORDINARY RESOLUTION

“ THAT

(a) the agreement dated 15 November 2006 (the “ Agreement ”) entered into between the Company and First I-Tech Limited in relation to the acquisition of a 51% issued share capital of Hi-Level Technology Limited, a copy of which has been produced to this meeting marked “A” and signed by the Chairman of this meeting for identification purpose, be and is hereby approved, ratified and confirmed; and
(b) Any of the directors of the Company be and is hereby authorized to do on behalf of the Company whatever they may consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation and completion of the Agreement and the transactions contemplated therein.”

By Order of the Board Yim Yuk Lun, Stanley JP Chairman and Managing Director

Hong Kong, 12 December 2006

Registered office: Principal place of business Clarendon House in Hong Kong: 2 Church Street 6th Floor, Tower B Hamilton HM 11 Hunghom Commercial Centre Bermuda 37 Ma Tau Wai Road Hunghom Kowloon Hong Kong

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NOTICE OF SGM

Notes:

Any member entitled to attend and vote at the meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member may appoint a proxy in respect of part only of his holding of shares in the Company. A proxy need not be a member of the Company.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was duly authorized to sign such instrument of proxy on behalf of the corporation without further evidence of the fact.
The instrument appointing a proxy and (if required by the board of directors of the Company) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of the meeting or adjourned meeting, not less than twenty-four (24) hours before the time appointed for the taking of the poll and in default the instrument of proxy shall not be treated as valid.
Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.
Where there are joint holders of any share any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at the meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.
A form of proxy for use at the special general meeting is enclosed herewith.

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AI assistant

S.A.S. Dragon Holdings Limited — Proxy Solicitation & Information Statement 2006

49752_rns_2006-12-12_29b1d6fb-89ee-43ff-a49c-9c40222a4e22.pdf

S.A.S. Dragon Holdings Limited

MAJOR TRANSACTION

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

S.A.S. Dragon Holdings Limited

MAJOR TRANSACTION Acquisition of 51% of the Issued Share Capital of Hi-Level Technology Limited

1. INTRODUCTION

LETTER FROM THE BOARD

2. THE AGREEMENT

Subject matter of the Agreement

LETTER FROM THE BOARD

Consideration

LETTER FROM THE BOARD

Conditions Precedent to the Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Completion

Undertaking by the Vendor’s Guarantor and the Purchaser’s Guarantor

Warranties

LETTER FROM THE BOARD

Trade Receivables Warranties

3. INFORMATION OF THE HI-LEVEL GROUP

LETTER FROM THE BOARD

Financial Information of Hi-Level Group

Management discussion and analysis

Turnover and gross profit margin

LETTER FROM THE BOARD

Net profit (loss)

Liquidity and financial resources

Securities on bank borrowings

Capital structure

Foreign exchange risk management

LETTER FROM THE BOARD

Employee and remuneration policies

Contingent liabilities

4. REASONS FOR THE ACQUISITION

5. PROSPECTS OF THE ENLARGED GROUP

LETTER FROM THE BOARD

6. FINANCIAL EFFECT OF THE ACQUISITION

Total assets

Total liabilities

Earnings

LETTER FROM THE BOARD

7. SGM

8. RECOMMENDATION

9. GENERAL

10. ADDITIONAL INFORMATION

S.A.S. Dragon Holdings Limited

APPENDIX I

A. SUMMARY OF FINANCIAL RESULTS OF THE GROUP

CONSOLIDATED INCOME STATEMENT

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

CONSOLIDATED BALANCE SHEET

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

B. AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

CONSOLIDATED INCOME STATEMENT

APPENDIX I

CONSOLIDATED BALANCE SHEET

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. General

2. Application of Hong Kong financial reporting standards/changes in accounting policies

(i) Share-based Payment

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(ii) Business Combinations

S.A.S. Dragon Holdings Limited Proxy Solicitation & Information Statement 2006