Silkwave Inc — Interim / Quarterly Report 2007

Sep 12, 2007

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SOUTH CHINA HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 265)

INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2007

UNAUDITED CONSOLIDATED INTERIM RESULTS

The board of directors (the “Board”) of South China Holdings Limited (the “Company”) announces that the unaudited results of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2007 are as follows:

CONDENSED CONSOLIDATED INCOME STATEMENT

Notes Turnover 2 Cost of sales Gross profit Other operating income Selling and distribution costs Administrative expenses Reversal of impairment of trade and loans receivable Fair value gain/(loss) on financial assets at fair value through profit or loss Fair value gains on investment properties Gain on disposal of available-for-sale financial assets Gain on disposal of investment properties Excess over the cost of business combinations Gain on disposal of subsidiaries 3 Gain on dilution of subsidiary Profit from operations 2&4 Finance costs Share of profits and losses of associates Profit before tax Tax 5 Profit for the period Attributable to: Equity holders of the Company Minority interests Dividend Interim 6 Basic earnings per share attributable to equity holders of the Company 7

Six months ended 30 June 2007 2006 Unaudited Unaudited HK$’000 HK$’000 2,197,665 1,773,514 (1,916,142) (1,625,261) 281,523 148,253 10,887 13,547 (39,480) (43,955) (249,019) (202,831) 1,385 – 13,629 (6,543) 20,000 – 82,326 1,618 – 5,100 3,779 228,206 355,615 – – 3,633 480,645 147,028 (19,144) (13,048) 170,292 (2,769) 631,793 131,211 (8,510) (3,874) 623,283 127,337 466,603 96,786 156,680 30,551 623,283 127,337 25,528 – HK25.59 cent HK5.31 cent

– 1 –

CONDENSED CONSOLIDATED BALANCE SHEET

Notes Non-current assets Property, plant and equipment Investment properties Prepaid land lease payments Construction in progress 8 Convertible note 8 Interests in associates 9 Goodwill and intangible assets Biological assets Deferred tax assets Loans receivable 10 Available-for-sale financial assets Other non-current assets Total non-current assets Current assets Inventories Loans receivable 10 Trade and other receivables 11 Financial assets at fair value through profit or loss Due from related companies Advance to minority shareholders of subsidiaries Tax recoverable Pledged bank deposits Cash held on behalf of clients Cash and cash equivalent Non-current assets classified as held for sale Total current assets Current liabilities Client deposits Trade and other payables 12 Interest-bearing bank and other borrowings 13 Due to related companies Tax payable Total current liabilities Net current assets Total assets less current liabilities	30 June 2007 Unaudited HK$’000 322,887 1,004,574 24,094 24,335 408,000 537,927 8,708 65,000 6,610 7,657 20,941 47,091 2,477,824 384,778 1,212,869 836,387 148,074 1,058 1,440 8,280 18,330 489,853 387,388 3,488,457 96,924 3,585,381 506,615 1,157,648 1,624,705 228 29,944 3,319,140 266,241 2,744,065	31 December 2006 Audited HK$’000 364,321 950,618 30,955 208,737 – 310,762 22,281 65,000 9,776 5,979 60,202 47,458
		2,076,089
		361,283 207,726 521,019 132,496 306 14,403 12,960 17,630 363,372 365,891
		1,997,086 53,300
		2,050,386
		359,586 980,840 578,798 62 35,785
		1,955,071
		95,315
		2,171,404

– 2 –

Notes Non-current liabilities Interest-bearing bank and other borrowings Advances from shareholders Advances from minority shareholders of subsidiaries Provision for severance payment Deferred tax liabilities Other financial liabilities 8 Total non-current liabilities Net assets Equity Issued capital Reserves Equity attributable to equity holders of the Company Minority interests Total equity	30 June 2007 Unaudited HK$’000 101,368 17,076 60,079 32,313 144,207 72,992 428,035 2,316,030 45,584 1,626,015 1,671,599 644,431 2,316,030	31 December 2006 Audited HK$’000 188,539 21,896 53,249 32,601 139,755 –
		436,040
		1,735,364
		45,584 1,148,310
		1,193,894 541,470
		1,735,364

– 3 –

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

At 1 January 2007 Profit for the period Surplus on revaluation of land and building Disposal of available-for-sale financial assets Equity-settled share option arrangement Exchange realignment Total recognised income and expense for the period Transfer to statutory reserves Acquisition of additional interest in subsidiaries Acquisition of subsidiaries Disposal of subsidiaries Dividend paid to minority shareholders of subsidiaries At 30 June 2007 At 1 January 2006 Profit for the period Changes in fair value of available-for-sale financial assets Exchange realignment Total recognised income and expense for the period Acquisition of minority interests Acquisition of subsidiaries Capital contribution from minority shareholders of subsidiaries Transfer to statutory reserves Dividend paid to minority Shareholders of subsidiaries At 30 June 2006	Issued capital Unaudited HK$’000 45,584 – – – – – – – – – – – 45,584 45,584 – – – – – – – – – 45,584	Other reserves Unaudited HK$’000 437,431 – 3,926 (2,925) 4,144 5,957 11,102 230 – – – – 448,763 422,487 – 2,501 686 3,187 – – – 742 – 426,416	Retained profits Unaudited HK$’000 710,879 466,603 – – – – 466,603 (230) – – – – 1,177,252 504,358 96,786 – – 96,786 – – – (742) – 600,402	Attributable to equity holders of the Company Unaudited HK$’000 1,193,894 466,603 3,926 (2,925) 4,144 5,957 477,705 – – – – – 1,671,599 972,429 96,786 2,501 686 99,973 – – – – – 1,072,402	Minority interests Unaudited HK$’000 541,470 156,680 1,324 (965) 1,417 2,905 161,361 – (1,097) 1,791 (42,047) (17,047) 644,431 568,064 30,551 1,566 58 32,175 (153,326) 12,010 10,828 – (1,500) 468,251	Total equity Unaudited HK$’000 1,735,364 623,283 5,250 (3,890) 5,561 8,862 639,066 – (1,097) 1,791 (42,047) (17,047) 2,316,030 1,540,493 127,337 4,067 744 132,148 (153,326) 12,010 10,828 – (1,500) 1,540,653

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CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Net cash outflow from operating activities Net cash inflow/(outflow) from investing activities Net cash inflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash Time deposits with original maturity of less than Three months when acquired Bank overdrafts

Six months ended 30 June 2007 2006 Unaudited Unaudited HK$’000 HK$’000 (279,168) (215,269) 115,308 (157,834) 189,430 350,318 25,570 (22,785) 285,765 251,863 311,335 229,078 387,388 282,984 18,330 16,130 (94,383) (70,036) 311,335 229,078

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2007

1. Accounting policies

The unaudited condensed interim financial statements (“interim financial statements”) have been prepared in accordance with the requirements of the Rules Governing the Listing of Securities (“Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and the Hong Kong Accounting Standards (“HKAS”) No. 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants except in respect of the accounting for convertible note under HKAS 39.

During the period, the Group disposed of 51% equity interest in a subsidiary, Praise Rich Limited (“Praise Rich”) at a consideration which was wholly satisfied by receiving a convertible note of HK$408 million with a subscription right for shares exercisable anytime before the maturity date in 2012. The Group recognised that gain on disposal of the subsidiary with reference to the face value of convertible note as at the date of disposal. Under HKAS 39, the option to convert, being an embedded derivative attached to the convertible note, and the loan element of the convertible note should be carried at the fair value and amortised cost, respectively.

Had HKAS 39 been adopted, the impact on the financial statements would be as follows:

• (i) On the consolidated income statement, the gain on disposal of subsidiary would have been increased by approximately HK$1.0 billion and an imputed interest income of approximately HK$4.2 million would have been recognised for the interim period, and

• (ii) On the consolidated balance sheet, the value of the convertible note (the loan element and the embedded derivative) and the available-for-sale financial asset revaluation reserve as at 30 June 2007 would have been increased by approximately HK$2.3 billion and HK$1.3 billion respectively.

Other than as disclosed above, the accounting policies and methods of computation used in the preparation of the interim financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2006.

These interim financial statements should be read, where relevant, in conjunction with the 2006 annual financial statements of the Group.

2. Turnover and segmental information

An analysis of the Group’s consolidated turnover and contribution to profit/(loss) from operations by principal activity and geographical location for the six months ended 30 June 2007 and 2006 is as follows:

By principal activity: Trading and manufacturing Property investment and development Travel and related services Securities and financial services Media and publications Information and technology Agriculture Investment holding	Turnover Six months ended 30 June 2007 2006 Unaudited Unaudited HK$’000 HK$’000 847,517 630,557 20,043 6,648 1,087,516 917,963 120,797 78,393 93,292 98,621 27,550 39,984 950 882 – 466 2,197,665 1,773,514	Contribution to profit/ (loss) from operations Six months ended 30 June 2007 2006 Unaudited Unaudited HK$’000 HK$’000 12,304 (37,974) 32,167 8,373 17,391 11,308 43,796 9,069 (21,522) (47,607) (2,407) (4,398) (2,550) (2,374) 401,466 210,631 480,645 147,028

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By geographical location#: The People’s Republic of China (“PRC”, including Hong Kong and Macau) United States of America Europe Japan Others	Turnover Six months ended 30 June 2007 2006 Unaudited Unaudited HK$’000 HK$’000 1,421,906 1,220,386 518,203 337,724 156,263 148,165 4,685 7,402 96,608 59,837 2,197,665 1,773,514	Contribution to profit/ (loss) from operations Six months ended 30 June 2007 2006 Unaudited Unaudited HK$’000 HK$’000 466,317 190,953 11,336 (17,279) (33) (17,799) 23 (2,408) 3,002 (6,439) 480,645 147,028

# Turnover by geographical location is determined on the basis of the location where merchandise is delivered and/or service is rendered.

3.

Gain on disposal of subsidiaries

The subsidiaries disposed of were Nority International Group Limited (“NIG”) and Praise Rich. Please refer to the section headed “ MATERIAL ACQUISITIONS AND DISPOSALS ”.

4. Depreciation

Profit from operations for the period is arrived at after charging depreciation of approximately HK$27,463,000 (six months ended 30 June 2006: HK$28,880,000) in respect of the Group’s property, plant and equipment.

5. Tax

Hong Kong profits tax has been provided at the rate of 17.5% (six months ended 30 June 2006: 17.5%) on the estimated assessable profits arising in Hong Kong during the period. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

6. Interim dividend

The Board declared the payment of an interim dividend of HK1.4 cent per ordinary share, totalling HK$25,528,000 for the six months ended 30 June 2007 (six months ended 30 June 2006: Nil).

7. Basic earnings per share attributable to equity holders of the Company

The calculation of basic earnings per share is based on the profit attributable to equity holders of the Company of approximately HK$466,603,000 (six months ended 30 June 2006: HK$96,786,000) and on 1,823,401,376 shares (six months ended 30 June 2006: 1,823,401,376 shares) in issue during the period.

Diluted earnings per share is not shown, as there is no dilution effect for both periods.

8. Construction in progress, Convertible note and Other financial liabilities

During the period, 51% of Praise Rich’s 80% interest in a property development project situated in a prime commercial area in the city of Shenyang, the PRC, to build a landmark commercial complex was injected into a related company of the Group, South China Land Limited (“SCL”, formerly known as Capital Publications Limited), at a consideration of HK$408 million. SCL is a company listed on the GEM Board of the Stock Exchange. The consideration was satisfied by a non-interest bearing convertible note with face value of HK$408 million carrying a right to subscribe for the shares in SCL at HK$0.075 per share exercisable any time before the maturity date in 2012. Simultaneously, the Group granted a land appreciation tax indemnity to SCL.

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The transactions resulted in a reduction in the Construction in progress, and also two new items namely Convertible note and Other financial liabilities being recognized on the Consolidated Balance Sheet. Please refer to the section headed “ MATERIAL ACQUISITIONS AND DISPOSALS ”.

9.

Interests in associates

The amounts included advances to an affiliated company indirectly held by the Company and details are as follows:

	Proportion of	Advances
	issued capital	from the	Guarantees
Name of	held indirectly	Group as at	given by
affiliated company	by the Company	30 June 2007	the Group
		HK$’000	HK$’000
Firm Wise Investment Limited (“FWIL”)(note)	30%	213,067	210,000

Note: The advances and guarantees given were used to finance a property development project in Hong Kong. The advances are unsecured, interest bearing at 0.5% per annum, repayable on demand and subordinated to the bank loans of the affiliated company. The guarantees given is to be matured in November 2010 of which approximately HK$196,082,000 were utilized as at 30 June 2007.

The following details have been extracted from the unaudited financial statements of the Group’s significant associate, FWIL:

	As at	30	June 2007
			HK$’000
Assets			1,696,203
Liabilities			(1,476,356)

10. Loans receivable

Included in loans receivable of which HK$828,337,000 are loans receivable on Initial Public Offer financing activities.

11. Trade receivables

Trade receivables of approximately HK$664,966,000 (31 December 2006: HK$379,024,000) are stated net of impairment for trade receivables, substantially with an aging within 6 months.

Impairment is recognised when there is objective evidence that the Group will not be able to collect the amounts due according to the original terms of the receivables.

12. Trade payables

Trade payables of approximately HK$807,160,000 (31 December 2006: HK$684,948,000) are substantially with an aging within 6 months.

13. Interest-bearing bank and other borrowings

Included in interest-bearing bank and other borrowings of which HK$828,710,000 are interest-bearing bank and other borrowings on Initial Public Offer financing activities.

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MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW

The Group recorded turnover of HK$2.2 billion and profit for the period of HK$623.3 million, representing an increase of approximately 24% in turnover, and approximately 4 times the profit as compared to the corresponding period in 2006.

Trading and Manufacturing

The segment recorded a 34% growth in turnover to HK$847.5 million and a profit of HK$12.3 million as compared to a loss of HK$38.0 million for the corresponding period in 2006.

Both the manufacturing of toys and shoes performed well in the first half of the year that substantially accounted for the growth in turnover and profit for the period. Orders for some hot promotional toy products increased together with the launch of movies in the spring season. Similarly, orders for both new and existing shoe items raised significantly early this year. These two manufacturing units turned around the historical low seasonal first-half-year negative result to profit for the trading and manufacturing segment.

During the period, the Group disposed of NIG, a subsidiary listed on the Stock Exchange engaging in manufacturing of athletes and leisure shoes, to an independent third party and realised a gain on disposal of approximately HK$55.3 million. The Group maintained 35% interest in a subsidiary and the main shoe manufacturing company of NIG.

Property Investment and Development

Our rental portfolio reported a rental profit of HK$12.2 million and a revaluation gain of HK$20.0 million. Most of our investment properties had double-digit growth in rental income on renewal of tenancies, in particular for some quality commercial units.

Rental income rose also accounted for the contribution from our PRC properties after increasing the controlling stake in a joint venture that holds a sizable site in the prime retail district in Nanjing done last year. The properties in Nanjing region generated satisfactory rental profit for the first half of the year.

Travel and Related Services

The air ticketing sale business under Fourseas group outperformed the market with an overall growth of about 18% in turnover as compared with Hong Kong’s air travel that recorded a strong 14% growth in the first half of the year. Despite the strong growth in turnover, Fourseas group successfully managed to control overheads by streamlining operations. Hence there was no significant increase in cost of operations.

The improved performances resulted in a bottom line of HK$17.4 million before tax and finance costs, an increase of 54% compared with the corresponding period in 2006. Fourseas group is further consolidating its position as a leading wholesale air ticketing sales agent in the Hong Kong market with continued growth in its market share.

– 9 –

Securities and Financial Services

The securities and financial services segment reported substantial increase in turnover to HK$120.8 million and a profit of HK$43.8 million, representing 54% and 4 times growth in turnover and profit respectively.

Commission income from securities and commodities broking as well as margin financing activities benefited from high trading volume of daily stock turnover. The money lending personal loan business also improved steadily with lower delinquency rate amidst stable economy.

During the period, the Group recognised gain on disposal of available-for-sale financial assets and fair value gain on overall financial assets at fair value through profit and loss of HK$82.3 million and HK$13.6 million respectively.

Media and Publications

Consistent efforts have been made in terms of divesting several loss making magazines and tightening cost measures in both Hong Kong and the PRC in order to reduce the loss from our media arm. As a result, turnover dropped slightly from HK$98.6 million to HK$93.2 million while loss cut down from HK$47.6 million to HK$21.5 million as compared with the same period last year.

Information and Technology

For IT segment, the same efforts as for our media operations on cutting administrative expenses and streamlining operations over the past 12 months. The segment’s turnover dropped over 31%, but loss was reduced by 45% from HK$4.4 million for the corresponding period in 2006 to HK$2.4 million in the period under review.

Agriculture

The agriculture business reported a loss of HK$2.6 million over the period as compared with a loss of HK$2.4 million for the first half of 2006. Operations remain stable while the business unit is still in its investment period.

LIQUIDITY AND FINANCIAL RESOURCES

As at 30 June 2007, the Group had a current ratio of 1.08 and a gearing ratio of 4.4% (31 December 2006: 1.05 and 10.9% respectively). The gearing ratio is computed on comparing the Group’s total long-term bank and other borrowings of HK$101.4 million to total equity of HK$2,316.0 million. The Group’s operations and investments continue to be financed by internal resources and bank borrowings.

– 10 –

EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES AND RELATED HEDGES

As at 30 June 2007, the Group had no significant exposure to fluctuations in foreign exchange rates and any related hedges.

CAPITAL STRUCTURE

On 5 September 2007, South China (China) Limited (“SCC”, formerly known as South China Industries Limited, a 74.79% owned subsidiary of the Company with its shares listed on the Main Board of Stock Exchange), issued 530,334,742 bonus warrants (“Warrants”) which entitle the holders to subscribe in cash for ordinary shares of HK$0.02 each in SCC at a subscription price of HK$0.40 per share (subject to adjustment) and are exerciseable on or before 6 September 2010. The Warrants are issued to the shareholders of SCC whose names appear on the register of members of SCC on 29 August 2007 on the basis of one Warrant for every five ordinary shares of SCC held.

Save for the above, the Group had no debt securities or other capital instruments as at 30 June 2007 and as at the date of this report.

MATERIAL ACQUISITIONS AND DISPOSALS

During the period, the Group had the following material acquisitions and disposals:

In January 2007, the Group disposed of its entire 95.35% interest in NIG to an independent third party at a consideration of HK$105.4 million. At the same time, the Group acquired 100% interest in Nority (BVI) Limited (together with its loan due to NIG) and 35% interest in Nority Limited, wholly owned subsidiaries of NIG, at considerations of HK$75.6 million and HK$3.5 million respectively. Details of the transactions were set out in the circular of the Company dated 18 December 2006.

In March 2007, the Group disposed of 51% interest in Praise Rich and assigned a debt owed by the same of approximately HK$47.7 million to SCL, a related company of the Group, at a consideration of HK$408 million. The consideration was satisfied by a non-interest bearing convertible note with face value of HK$408 million carrying a right to subscribe for shares in SCL at HK$0.075 per share exercisable anytime before the maturity date in 2012. Under this transaction, the Group also granted a land appreciation tax indemnity to SCL and guarantees for certain existing and proposed loan facilities of Praise Rich or its subsidiaries as set out in the section headed “ PLEDGES OF ASSETS, CONTINGENT LIABILITIES AND COMMITMENTS ”. Details of the transaction were set out in the circular of the Company dated 12 February 2007.

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POST BALANCE SHEET EVENTS

In July 2007, the Group disposed of the remaining 49% interest in Praise Rich and assigned a debt owed by the same of approximately HK$45.8 million to SCL at a consideration of HK$392 million. The consideration was satisfied by a non-interest bearing convertible note with face value of HK$392 million carrying a right to subscribe for shares in SCL at HK$0.075 per share exercisable any time before the maturity date in 2012. Under this transaction, the Group also granted an additional land appreciation tax indemnity to SCL. Details of the transaction were set out in the circular of the Company dated 13 June 2007.

In August 2007, the Company through its wholly owned subsidiaries acquired from SCC the entire of its interest in travel and information technology businesses at a consideration of HK$122.1 million. In exchange, the Company through its wholly owned subsidiaries disposed of its entire interest in certain investment properties located in Hong Kong and the berths and membership debentures of a golf and country club at Sai Kung, Hong Kong to SCC at the same amount of consideration of HK$122.1 million. Details of the transactions were set out in the circular of the Company dated 25 July 2007.

PLEDGES OF ASSETS, CONTINGENT LIABILITIES AND COMMITMENTS

As part of the terms for the sale of the 51% interest in Praise Rich in March 2007, the Group continues to grant the guarantee in favour of a bank to secure the loan facility of HK$80 million of a subsidiary of Praise Rich. Such loan facility will expire in June 2009. The Group also undertook to provide a guarantee for three years from March 2007 to secure the due and punctual performance of the obligations of Praise Rich and any of its subsidiaries under a proposed loan facility of up to HK$500 million.

Save for the above, there was no material change in the Group’s pledges of assets and contingent liabilities as compared to the most recent published annual report.

EMPLOYEES

As at 30 June 2007, the total number of employees of the Group was approximately 29,050. Performance of the staff is normally reviewed on an annual basis with adjustment compatible to the market. There is no material change in the information as compared to the most recently published annual report.

PROSPECTS

Trading and Manufacturing

The current environment facing toy manufacturers in Southern China is certainly at its most challenging chapter in history. Adverse trends in currency and all the cost factors will continue to affect manufacturers in Mainland. The current quality and product recall issues facing China as a whole will certainly deter and defer customers ordering sentiment in the short run. However, we believe retailers should have less appetite to drive prices down by using less than reliable manufacturers. In the long run, this will undoubtedly lead to price adjustments, which in turn will drive growth with reputable and sizeable manufacturers. We trust the long-standing reputation as market leader of both our principal manufacturing subsidiaries, Wah Shing Toys and the award-winning shoe operation in Tianjin in terms of reliability and quality, will give the Group a unique position to flourish despite the harsh and deteriorating conditions for the years ahead.

– 12 –

In addition, we are striving further efforts in the one-stop chain of toy manufacturing by investing into research and development and new technology that leading to our ability to offer original design manufacturer (ODM) business opportunities in the near coming future.

Property Investment and Development

We expect our Hong Kong portfolio to continue to appreciate and the Group may consider divesting in the coming twelve months.

Management believes that the recent acquisition of equity stake in each and every one of our Nanjing’s property portfolio will prove to be a key strategic move for the company in the years to come. Not only do we expect to improve existing rental income drastically over the next few years, we are also confident in unlocking the high development value of potential retail sites in our accumulated land bank.

On a similar scale, the Group currently controls sizable industrial use land bank in Tianjin. Based on our experience with commercializing industrial site in city centre in Nanjing, management believes there is further redevelopment potential of our Tianjin property portfolio which we will explore in the near future.

The transfer of the 80% equity interest in the property development project of a prime retail shopping complex in Shenyang to a related company listed on the GEM Board, SCL has fully completed in July 2007. The project is to build a landmark shopping centre in the central commercial district of Shenyang with gross retail rental floor area of approximately 117,200 square metres. As at the balance sheet date, the Group held a non-interest bearing convertible note in the principal amount of HK$408 million (as shown on the consolidated balance sheet) due in 2012 carrying a right to subscribe for SCL shares at HK$0.075 per share before maturity. Upon the conversion of the convertible note, the Group may hold up to 75% of SCL.

On top of the ongoing development at Shenyang, SCL will commence construction work for the 400,000 square metres property project located at the Tianjin-Bohai region in the second half of this year.

The Group is still actively seeking appropriate land parcels in Tianjin-Bohai, Chongqing, Shenyang and other rapid development region in the Mainland.

Travel and Related Services

The strong economy and increasing air traffic are all positive factors for Fourseas group entering the second half of the year. Fourseas group will look to continue to build upon the positive results from the first half of the year and actively look for tourism related investment opportunities in China.

– 13 –

Securities and Financial Services

We expect the broking business will remain strong in the second half of the year with the Central government policy to allow the Mainlanders to invest in the Hong Kong stock market. We strive to explore more business opportunities in the PRC market and to pursue acquisitions in the coming year as suitable opportunities arise.

Media and Publications

Management will continue to focus the performance of individual magazines, enhance their contents and income while monitoring cost controls consciously. We will be looking to achieve breakeven for the whole of the second half year.

Information and Technology

The information and technology operation will further expand in the provision of services and software development. We are still investigating the possibility of a listing on the London’s Alternative Investment Market and other similar exchange.

Agriculture

As of third quarter 2007, we have negotiated further acreage to total 60,000 mu (40 million square metres) of a forestry plantation project in Chongqing. We are looking to expand acreage in Jiangsu, Hebei and other provinces. Management’s focus will be on multiplying the successful pig rearing model in Hebei as well as exploring a new revenue source in agricultural wholesale markets.

OTHER INFORMATION

INTERIM DIVIDEND

The Board declared an interim dividend of HK1.4 cent (2006: Nil) per share, totalling approximately HK$25,528,000 (2006: Nil) for the six months ended 30 June 2007 to the shareholders whose names appear on the register of members of the Company on 12 October 2007. The interim dividend will be paid on or about 23 October 2007.

CLOSURE OF REGISTER FOR ENTITLEMENT TO INTERIM DIVIDEND

The register of members of the Company will be closed from 11 October 2007 to 12 October 2007, both days inclusive, during which period no share transfers will be registered. To qualify for the interim dividend, all transfers accompanied by the relevant share certificates of the Company, must be lodged for registration with the Company’s Share Registrar, Union Registrars Limited not later than 4:00 p.m. on 10 October 2007. The address of the Share Registrar is currently located at Room 1803, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong will, as from 1 October 2007 be changed to Rooms 1901-02 Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong .

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DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at 30 June 2007, the interests and short positions of the directors and chief executives of the Company in the shares, underlying shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) set out in Appendix 10 of the Listing Rules, were as follows:–

(a) Long positions in ordinary shares of the Company:

Number of Shares held, capacity and nature of interest

				Approximate
				percentage of
		Interest of		the Company’s
	Beneficial	controlled		issued
Name of Director	owner	corporations	Total	share capital
Ng Hung Sang (“Mr. Ng”)	71,652,200	1,272,529,612	1,344,181,812	73.72%
			(Note a)
Richard Howard	–	487,949,760	487,949,760	26.76%
Gorges (“Mr. Gorges”)			(Note a)
Cheung Choi Ngor	–	487,949,760	487,949,760	26.76%
(“Ms. Cheung”)			(Note a)

(b) Long positions in ordinary shares of associated corporations:

1. Interests in shares

• (i) South China Financial Holdings Limited (“SCFH”) (Note b)

			Approximate
			percentage of
			the associated
		Number of	corporation’s
	Capacity and	ordinary	issued
Name of Director	nature of interest	shares held	share capital
Mr. Ng	Interest of controlled	3,660,502,500	73.08%
	corporations	(Note c)
Mr. Gorges	Beneficial owner	12,174,000	0.24%

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(ii) SCC (Note d)

			Approximate
			percentage of
			the associated
		Number of	corporation’s
	Capacity and	ordinary	issued
Name of Director	nature of interest	shares held	share capital
Mr. Ng	Interest of controlled	396,641,357	74.79%
	corporations	(Note e)

• (iii) South China Financial Credits Limited (“SCFC”) (Note f)

			Approximate
			percentage of
			the associated
		Number of	corporation’s
	Capacity and	ordinary	issued
Name of Director	nature of interest	shares held	share capital
Mr. Ng Yuk Fung, Peter	Beneficial owner	250,000	0.59%

• (iv) Prime Prospects Limited (“Prime Prospects”) (formerly known as “The Express News Limited”) (Note g)

			Approximate
			percentage of
			the associated
		Number of	corporation’s
	Capacity and	ordinary	issued
Name of Director	nature of interest	shares held	share capital
Mr. Ng	Interest of a controlled	30	30%
	corporation	(Note h)

– 16 –

2. Interests in underlying shares of SCFH

			Approximate
		Number of	percentage of
Name of Director	Capacity	underlying shares*	shareholding
Mr. Gorges	Beneficial owner	30,000,000	0.60%
Ms. Cheung	Beneficial owner	30,000,000	0.60%
Mr. Ng Yuk Fung, Peter	Beneficial owner	50,000,000	1.00%

• Represents underlying shares subject to share options granted to the Directors, details of which are as follows:

		Subscription	Subscription	No. of share
Name of Director	Date of grant	price per share		options granted	Exercise period
Mr. Gorges	16/03/2006		HK$0.128	10,000,000	16/03/2007 – 15/03/2009
				10,000,000	16/03/2008 – 15/03/2010
				10,000,000	16/03/2009 – 15/03/2011
Ms. Cheung	16/03/2006		HK$0.128	10,000,000	16/03/2007 – 15/03/2009
				10,000,000	16/03/2008 – 15/03/2010
				10,000,000	16/03/2009 – 15/03/2011
Mr. Ng Yuk Fung, Peter	16/03/2006		HK$0.128	10,000,000	16/03/2007 – 15/03/2009
				10,000,000	16/03/2008 – 15/03/2010
				10,000,000	16/03/2009 – 15/03/2011
	26/04/2006		HK$0.128	6,666,667	26/04/2007 – 25/04/2009
				6,666,667	26/04/2008 – 25/04/2010
				6,666,666	26/04/2009 – 25/04/2011

Notes:

• (a) The 1,272,529,612 shares of the Company held by Mr. Ng through controlled corporations referred to above include 371,864,000 shares held by Parkfield Holdings Limited (“Parkfield”), 396,050,252 shares held by Fung Shing Group Limited (“Fung Shing”), 16,665,600 shares held by Ronastar Investments Limited (“Ronastar”), 237,303,360 shares held by Bannock Investment Limited (“Bannock”) and 250,646,400 shares held by Earntrade Investments Limited (“Earntrade”). Parkfield, Fung Shing and Ronastar are all wholly-owned by Mr. Ng. Bannock is a wholly-owned subsidiary of Earntrade which is owned as to 60% by Mr. Ng, 20% by Ms. Cheung and 20% by Mr. Gorges, all of whom are considered as parties to an agreement to which Section 317 of the SFO applies. As such, Mr. Ng, Ms. Cheung and Mr. Gorges are deemed to have an interest in 487,949,760 shares, which are being held by both Bannock and Earntrade.

• (b) The Company owns approximately 73.08% of the issued share capital of SCFH.

• (c) The 3,660,502,500 shares of SCFH are held by certain wholly-owned subsidiaries of the Company. By virtue of the interests in the shares of the Company in relation to which Mr. Ng has a duty of disclosure under the SFO in the issued share capital of the Company as described in Note (a) above and as a Director, Mr. Ng is taken to have a duty of disclosure in relation to the said shares of SCF under the SFO.

– 17 –

• (d) SCC is a 74.79% owned subsidiary of the Company.

• (e) The 396,641,357 shares of SCC are held by certain wholly-owned subsidiaries of the Company. Subsequent to 30 June 2007, each of the issued and unissued shares of HK$0.10 each in the capital of SCC were subdivided into 5 shares of HK$0.02 each with effect from 22 August 2007. By virtue of the interests in the shares of the Company in relation to which Mr. Ng has a duty of disclosure under the SFO in the issued share capital of the Company as described in Note (a) above and as a Director, Mr. Ng is taken to have a duty of disclosure in relation to the said shares of SCC under the SFO.

• (f) SCFC is a 98.36% owned subsidiary of SCFH.

• (g) Prime Prospects is a 70% owned subsidiary of the Company.

• (h) Mr. Ng and his family, through a company wholly-owned and controlled by them, have interests in 30 shares of Prime Prospects.

Save as disclosed above, none of the directors or chief executive of the Company had, as at 30 June 2007, any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

INFORMATION ON SHARE OPTIONS SCHEMES

The directors and employees of the Company and its subsidiaries are entitled to participate in share option schemes operated by the Company and its subsidiaries.

Scheme of the Company

The Company adopted a share option scheme on 31 May 2002. No share option has been granted or is outstanding under the scheme of the Company since its adoption.

Scheme of SCC

SCC adopted a share option scheme on 31 May 2002. No share option has been granted or is outstanding under the scheme of SCC since its adoption.

– 18 –

Scheme of SCFH

SCFH adopted a share option scheme on 31 May 2002 and became effective on 28 June 2002.

Particulars and movements of the outstanding share options granted under the scheme of SCFH during the six months ended 30 June 2007 were as follows:–

Name or category of participant Directors of the Company Mr. Gorges Ms. Cheung Mr. Ng Yuk Fung, Peter Sub-total			Number of share options	Number of share options		Outstanding Date of as at grant of Exercise period Subscription 30/06/2007 share options of share options price per share (note a) (note b) HK$ 10,000,000 16/03/2006 16/03/2007 to 15/03/2009 0.128 10,000,000 16/03/2006 16/03/2008 to 15/03/2010 0.128 10,000,000 16/03/2006 16/03/2009 to 15/03/2011 0.128 10,000,000 16/03/2006 16/03/2007 to 15/03/2009 0.128 10,000,000 16/03/2006 16/03/2008 to 15/03/2010 0.128 10,000,000 16/03/2006 16/03/2009 to 15/03/2011 0.128 10,000,000 16/03/2006 16/03/2007 to 15/03/2009 0.128 10,000,000 16/03/2006 16/03/2008 to 15/03/2010 0.128 10,000,000 16/03/2006 16/03/2009 to 15/03/2011 0.128 6,666,667 26/04/2006 26/04/2007 to 25/04/2009 0.128 6,666,667 26/04/2006 26/04/2008 to 25/04/2010 0.128 6,666,666 26/04/2006 26/04/2009 to 25/04/2011 0.128 110,000,000	Price of SCFH’s shares(note c)
	Outstanding as at 01/01/2007 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 6,666,667 6,666,667 6,666,666 110,000,000	Granted during the period – – – – – – – – – – – – –	Exercised during the period – – – – – – – – – – – – –	Lapsed during the period – – – – – – – – – – – – –	Cancelled during the period – – – – – – – – – – – – –		Immediately Immediately preceding preceding the grant the exercise date of date of share share options options HK$ HK$ per share per share 0.104 N/A 0.104 N/A 0.104 N/A 0.104 N/A 0.104 N/A 0.104 N/A 0.104 N/A 0.104 N/A 0.104 N/A 0.110 N/A 0.110 N/A 0.110 N/A

– 19 –

Name or category of participant Employees of the Group Sub-total Total	Outstanding as at 01/01/2007 36,000,000 36,000,000 36,000,000 6,666,667 6,666,667 6,666,666 – – – – – – – – – – – – 128,000,000 238,000,000			Number of share options	Number of share options	Number of share options	Outstanding Date of Subscription as at grant of Exercise period price per 30 June 2007 share options of share options share (note a) (note b) HK$ 23,000,000 16/03/2006 16/03/2007 – 15/03/2009 0.128 27,000,000 16/03/2006 16/03/2008 – 15/03/2010 0.128 27,000,000 16/03/2006 16/03/2009 – 15/03/2011 0.128 6,666,667 26/04/2006 26/04/2007 – 25/04/2009 0.128 6,666,667 26/04/2006 26/04/2008 – 25/04/2010 0.128 6,666,666 26/04/2006 26/04/2009 – 25/04/2011 0.128 16,666,667 16/02/2007 16/02/2008 -15/02/2010 0.128 16,666,667 16/02/2007 16/02/2009 -15/02/2011 0.128 16,666,666 16/02/2007 16/02/2010 -15/02/2012 0.128 32,166,661 12/04/2007 12/04/2008 -11/04/2010 0.161 32,166,661 12/04/2007 12/04/2009 -11/04/2011 0.161 32,166,678 12/04/2007 12/04/2010 -11/04/2012 0.161 1,000,000 17/04/2007 17/04/2008 -16/04/2010 0.161 1,000,000 17/04/2007 17/04/2009 -16/04/2011 0.161 1,000,000 17/04/2007 17/04/2010 -16/04/2012 0.161 1,666,667 23/04/2007 23/04/2008 -22/04/2010 0.161 1,666,667 23/04/2007 23/04/2009 -22/04/2011 0.161 1,666,666 23/04/2007 23/04/2010 -22/04/2012 0.161 251,500,000 361,500,000	Price of SCFH’s shares(note c)
			Granted during the period – – – – – – 16,666,667 16,666,667 16,666,666 32,166,661 32,166,661 32,166,678 1,000,000 1,000,000 1,000,000 1,666,667 1,666,667 1,666,666 154,500,000 154,500,000	Exercised during the period (4,000,000) – – – – – – – – – – – – – – – – – (4,000,000) (4,000,000)	Lapsed during the period (9,000,000) (9,000,000) (9,000,000) – – – – – – – – – – – – – – – (27,000,000) (27,000,000)	Cancelled during the period – – – – – – – – – – – – – – – – – – – –		Immediately Immediately preceding preceding the grant the exercise date of date of share share options options HK$ HK$ Per share Per share 0.104 0.182 0.104 N/A 0.104 N/A 0.110 N/A 0.110 N/A 0.110 N/A 0.090 N/A 0.090 N/A 0.090 N/A 0.156 N/A 0.156 N/A 0.156 N/A 0.148 N/A 0.148 N/A 0.148 N/A 0.136 N/A 0.136 N/A 0.136 N/A

– 20 –

Notes:

• (a) All share options granted are subject to a vesting period and becoming exercisable in the following manner:

From the date of grant of share options	Exercisable percentage
	%
Within 12 months	Nil
13th month – 36th month	331/3
25th month – 48th month	331/3
37th month – 60th month	331/3

The unexercised share options of each exercise period shall lapse at the end of the respective exercise period.

• (b) The subscription price of the shares of SCFH is subject to adjustment in the case of rights or bonus issues, or other alteration in the capital structure of SCFH.

• (c) The price of SCFH’s shares disclosed as immediately preceding the grant date of the share options is the closing price of the shares on the Stock Exchange on the trading day immediately prior to the date of the grant of the share options. The price of SCFH’s shares disclosed immediately preceding the exercise date of the share options is the weighted average of the closing prices of the shares on the Stock Exchange immediately before the date on which the options were exercised.

The fair value of the share options granted during the period was HK$17,418,773 of which the SCFH Group recognized a share option expense of HK$5,561,038 during the period ended 30 June 2007.

The fair value of equity-settled share options granted during the period was estimated as at the date of grant using a binomial model, taking into account the terms and conditions upon which the options was granted. The following table lists the inputs to the model used for the six months ended 30 June 2007:

	16 February	12 April	17 April	23 April
Date of grant	2007	2007	2007	2007
Dividend yield_(%)_	0	0	0	0
Average expected volatility_(%)_	75.65	78.04	78.28	78.23
Average historical volatility_(%)_	75.65	78.04	78.28	78.23
Average risk-free interest rate_(%)_	4.144	4.036	4.081	3.981
Expected life of option_(year)_	3-5	3-5	3-5	3-5
Closing share price_(HK$)_	0.092	0.161	0.138	0.138

The expected life of the options is based on the contractual life and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the options granted was incorporated into the measurement of fair value.

– 21 –

Scheme of NIG

NIG adopted a share option scheme on 10 June 2003. Under the scheme of NIG, the directors of NIG may, in their absolute discretion, grant share options to the eligible participants to subscribe for shares in NIG. NIG ceased to be a subsidiary of the Company on 5 January 2007. No option was granted or was outstanding under the scheme of NIG up to and including 5 January 2007.

Save as disclosed above, none of the directors or chief executives of the Company had, as at 30 June 2007, any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS OR SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

As at 30 June 2007, other than the interest and short positions of the directors and chief executives of the Company as disclosed above, the following persons had interest and short positions in the shares and underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of SFO:–

Long positions in the Shares

			Approximate
	Number		percentage of the
	of ordinary	Capacity and	Company’s issued
Name of Shareholder	Shares held	nature of interest	share capital
Earntrade	487,949,760	Beneficial owner	26.76%
	(Note)	and interest of a
		controlled corporation
Bannock	237,303,360	Beneficial owner	13.01%
	(Note)		(Note)
Parkfield	371,864,000	Beneficial owner	20.39%
Fung Shing	396,050,252	Beneficial owner	21.72%

Note:

Bannock is a wholly-owned subsidiary of Earntrade. The 487,949,760 shares in the Company held by Earntrade include 237,303,360 shares held by Bannock directly.

Save as disclosed above, as at 30 June 2007, the Company had not been notified by any other persons (other than the directors or chief executives of the Company) who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO.

– 22 –

CODE ON CORPORATE GOVERNANCE PRACTICES

The Company complied with the Code on Corporate Governance Practices (the “CG Code”) of the Listing Rules throughout the six months ended 30 June 2007 with exception to code provision A.4.1 that non-executive directors of the Company were not appointed for a specific term and to code provision A.4.2 that the Articles of Association of the Company did not provide that (a) every director, including those appointed for a specific term, should be subject to retirement by rotation at least once every three years; and (b) all directors appointed to fill a casual vacancy should be subject to election by shareholders at the first general meeting of the Company after their appointment.

In order to comply with the code provision A.4.2 of CG Code, a special resolution was passed at the annual general meeting of the Company on 22 May 2007 to amend the Articles of Association of the Company, inter alia, to the effect that every director, including those appointed for a specific term, should be subject to retirement by rotation at least once every three years and all newly appointed directors should be subject to re-election by shareholders at the first general meeting of the Company after their appointment.

As all non-executive directors of the Company are subject to the retirement and rotation requirements in accordance with the Company’s Articles of Association, the Board considers that sufficient measures have been taken to ensure that the Company’s corporate governance practices are no less exacting than code provision A.4.1 of the CG Code of the Listing Rules.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the period ended 30 June 2007, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the listed securities of the Company.

AUDIT COMMITTEE

The Company has established an audit committee with written terms of reference in compliance with the Listing Rules. The principal duties of the audit committee include the review of the Group’s audit plan and process with the Auditors, the independence of the Auditors, the Group’s financial statements and system of internal control. The audit committee comprises three independent non-executive directors namely Mr. Cheng Hong Kei (Committee Chairman), Mr. David John Blackett and Mrs. Tse Wong Siu Yin, Elizabeth and one non-executive director namely Mr. David Michael Norman.

The Group’s unaudited results for the six months ended 30 June 2007 have been reviewed by the audit committee, which was of the opinion that such results have been prepared in accordance with HKAS except the accounting for convertible note under HKAS 39 and that adequate disclosures have been made.

The management considered that the application of cost method on this transaction better reflects the true financial position of the Group before and after the exercise of the convertible note. The main purpose of the Group to dispose of the interest in Praise Rich to SCL was to transfer the assets of the Group to a related company. Nevertheless, the Audit Committee would normally encourage a full adoption of HKAS 39 on this transaction.

– 23 –

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code as the code of conduct regarding directors’ securities transactions. All directors have confirmed, following specific enquiry by the Company, their compliance with the required standards of dealings and the code of conduct regarding directors’ securities transaction adopted by the Company throughout the period.

On behalf of the Board Ng Hung Sang Chairman

Hong Kong, 5 September 2007

As at the date of this report, the Board comprises (1) Mr. Ng Hung Sang, Mr. Richard Howard Gorges, Ms. Cheung Choi Ngor and Mr. Ng Yuk Fung Peter as executive directors; (2) Mr. David Michael Norman and Ms. Ng Yuk Mui, Jessica as non-executive directors; and (3) Mr. David John Blackett, Mrs. Tse Wong Siu Yin, Elizabeth and Mr. Cheng Hong Kei as independent non-executive directors.

– 24 –