Sinopharm Tech Holdings Limited — Proxy Solicitation & Information Statement 2008

Mar 13, 2008

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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.

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

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8156)

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF GRAND PROMISE INTERNATIONAL LIMITED

APPLICATION FOR WHITEWASH WAIVER

ISSUE OF SHARES UNDER A SPECIFIC MANDATE

Financial Adviser to China Vanguard Group Limited

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

SOMERLEY LIMITED

A letter from the Board is set out on pages 10 to 45 of this circular. A letter from the Independent Board Committee is set out on pages 46 to 47 of this circular. A letter from Somerley, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 48 to 79 of this circular.

A notice convening an extraordinary general meeting of the Company to be held at Room 2201, 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong on 3 April 2008 at 10:00 a.m. is set out on pages VI-1 to VI-3 of this circular. A form of proxy for use thereat is also enclosed.

Whether or not you are able to attend the EGM, you are requested to complete the proxy form in accordance with the instructions printed thereon and return the same to the office of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Standard Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

This circular will remain on the “Latest Company Announcements” page of the GEM website at www.hkgem.com for at least 7 days from the date of its publication and on the website of the Company at www.cvg.com.hk.

* For identification purposes only

14 March 2008

CHARACTERISTICS OF GEM

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

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

The principal means of information dissemination on GEM is publication on the Internet website operated by the Stock Exchange. Listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website in order to obtain up-to-date information on GEM-listed issuers.

– i –

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
The Share Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
The Convertible Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Information on the PRC Karaoke Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Information about the Grand Promise Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
Information about the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Reasons for, and Benefits of, the Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Intention of the Vendors regarding the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Changes in Shareholding Structure of the Company. . . . . . . . . . . . . . . . . . . . . .	40
Issue of Shares under a Specific Mandate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Financial Effects of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Financial and Trading Prospects of the Enlarged Group. . . . . . . . . . . . . . . . . . .	42
Takeovers Code Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
Implications under the GEM Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43
The Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43
The EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . .	46
LETTER FROM SOMERLEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	48
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP. . . . . . . .	I-1
APPENDIX II – FINANCIAL INFORMATION OF THE GRAND
PROMISE GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
APPENDIX III – UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP . . . . . .	III-1
APPENDIX IV – MANAGEMENT DISCUSSION AND ANALYSIS . . . . . . .	IV-1
APPENDIX V – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	V-1
APPENDIX VI – NOTICE OF EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1

– ii –

DEFINITIONS

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

“Acquisition”	the acquisition of the entire issued share capital of Grand
	Promise pursuant to the terms and conditions of the Share
	Purchase Agreement
“acting in concert”	has the meaning ascribed to it in the Takeovers Code
“Announcement”	the announcement of the Company dated 17 January 2008
	in respect of the Acquisition
“Aptus”	Aptus Holdings Limited, an exempted company
	incorporated in the Cayman Islands with limited liability
	and a subsidiary of the Company, the shares of which are
	listed on GEM
“associate”	has the meaning ascribed to it under the GEM Listing
	Rules
“Best Frontier”	Best Frontier Investments Limited, a company
	incorporated in the British Virgin Islands and is owned as
	to approximately 99.89% and approximately 0.11%
	respectively by Madam Cheung Kwai Lan (the Chairman
	and executive Director) and Mr. Chan Tung Mei (an
	executive Director), who are spouse to each other
“Birdview”	Birdview Group Limited, a limited liability company
	incorporated in Hong Kong and a wholly-owned
	subsidiary of Grand Promise
“Birdview Share Charge”	the deed of share charge dated 30 November 2007 made
	by Grand Promise in favour of the Investors pursuant to
	which all of the issued and outstanding shares of
	Birdview and all proceeds deriving therefrom have been
	charged to the Investors as first priority security
“Board”	the board of Directors
“Business Day”	a day (excluding Saturdays) on which licensed banks are
	generally open for business in Hong Kong

– 1 –

DEFINITIONS

“CCD” Beijing China Culture Development Co., Ltd. ( ), a limited liability company established in the PRC and is approximately 40% owned by the MOC Market Development Center, with the remaining approximately 60% owned by five Independent Third Parties “CCD Video” Beijing China Cultural Development Video Music Culture Broadcasting Co., Ltd. ( ), a limited liability company established in the PRC, and is a wholly-owned subsidiary of CCDDT “CCDDT” China Culture Development Digital Technology Co., Ltd. ( ), a sino-foreign joint venture established in the PRC, with 49% held by Birdview and 51% held by CCD “CCDDT Group” includes CCDDT, Tian He, CCD Video and Provincial Subs “Company” China Vanguard Group Limited (formerly known as B & B Group Holdings Limited), an exempted company incorporated in the Cayman Islands with limited liability and the shares of which are listed on GEM “Completion” completion of the sale and purchase of the Sale Shares “connected person” has the meaning ascribed to it under the GEM Listing Rules “Consideration” the amount of the consideration payable by the Company to the Vendors for the purchase of the Sale Shares under the Share Purchase Agreement, being US$200,000,000 (equivalent to HK$1,560,900,000) “Consideration Shares” 2,262,173,906 new Shares to be allotted and issued by the Company to the Vendors (and/or their nominees) on Completion, credited as fully paid “controlling shareholder” has the meaning ascribed to it under the GEM Listing Rules

– 2 –

DEFINITIONS

• “Conversion Share(s)”

• new ordinary shares falling to be issued by Grand Promise upon exercise of the conversion rights under the Convertible Notes prior to Completion

• “Convertible Note Agreement” the convertible note purchase agreement dated 28 November 2007 entered into among Grand Promise, Best Frontier, Madam Cheung Kwai Lan and the Investors

• “Convertible Notes”

• collectively (a) a senior convertible redeemable note dated 30 November 2007 in the principal amount of US$25,000,000 issued by Grand Promise to Liberty Harbor and (b) a senior convertible redeemable note dated 30 November 2007 in the principal amount of US$10,000,000 issued by Grand Promise to Evolution

• “Deed of Assignment” the deed of assignment to be executed by Best Frontier and the Company on Completion, pursuant to which the Shareholder’s Loan shall be assigned to the Company

• “Deeds of Adherence” the deeds of adherence to be executed by the Company on Completion, pursuant to which the Company agrees, subject to the terms and conditions thereof, to be bound by the terms of the Convertible Notes jointly and severally (to the extent practicable) with Grand Promise

• “Director(s)” the director(s) of the Company

• “EGM” the extraordinary general meeting of the Company to be held at Room 2201, 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong on 3 April 2008 at 10:00 a.m.

• “Enlarged Group” the Group as enlarged by Grand Promise and its subsidiary

• “Escrow Agent” DB Trustees (Hong Kong) Limited or such other escrow agent mutually acceptable to the Company and the Vendors

• “Escrow Agreement” the escrow agreement in the agreed form to be entered into between the Vendors, the Company and the Escrow Agent on or prior to Completion

– 3 –

DEFINITIONS

• “Exchange Premium” in respect of each Convertible Note, the amount required to be added to the principal amount such that the total equals to the principal amount plus a yield of 7% per annum, compounded semi-annually, on such principal amount commencing on the Issuance Date (being 30 November 2007) up to and including the date of exercise of the option to exchange for the Exchange Shares

• “Exchange Share(s)”

• a maximum number of 480,687,974 new Shares falling to be allotted and issued to the Investors by the Company upon the exercise of the exchange option by the Investors after Completion, credited as fully paid. For illustration purposes, the number of Exchange Shares is calculated based on the face amount of the Convertible Notes, using the agreed fixed HK$/US$ exchange rate of 7.789 and including the Exchange Premium assuming that the Convertible Notes are exchanged on the Maturity Date (being 30 November 2012)

• “Executive” the executive director of the Corporate Finance Division of the SFC or any delegate of the executive director

• “Evolution”

• Evolution Master Fund Ltd. Spc, Segregated Portfolio M, an Asia-focused fund organized and existing under the laws of the Cayman Islands. Its investment managers are Evo Capital Management Asia Limited, a Hong Kongbased asset management company, and Evolution Capital Management LLC, a US-based investment adviser. Evo Capital Management Asia Limited is licensed under the SFO to carry on Type 9 (asset management) activities. Evolution was formed in 2002 and has offices in Hong Kong, Tokyo and Los Angeles

• “GEM” the Growth Enterprise Market of the Stock Exchange

• “GEM Listing Rules” the Rules Governing the Listing of Securities on GEM

• “Grand Promise” Grand Promise International Limited, a company incorporated in the British Virgin Islands with limited liability and is owned by the Vendors

• “Grand Promise Group” Grand Promise, Birdview, CCDDT, Tian He and CCD Video and each of their respective subsidiaries, and each a “Grand Promise Group Member”

– 4 –

DEFINITIONS

• “Group” the Company and its subsidiaries

• “HK$”

Hong Kong dollars, the lawful currency of Hong Kong

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

• “Independent Board Committee”

an independent committee of the Board comprising Mr. Zhao Zhi Ming and Mr. To Yan Ming, Edmond established to advise the Independent Shareholders in respect of the terms of the Share Purchase Agreement and all transactions contemplated thereunder and the Whitewash Waiver

• “Independent Financial Adviser” or “Somerley”

Somerley Limited, a corporation licensed to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO having CE registration number AAJ067 and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Share Purchase Agreement and all transactions contemplated thereunder and the Whitewash Waiver

• “Independent Shareholders”

Shareholders other than (i) the Vendors, their respective ultimate beneficial owners and associates and parties acting in concert with any of them; (ii) the Investors and their respective advisers; and (iii) those who are involved in, or interested in, the Share Purchase Agreement and all transactions contemplated thereunder and the Whitewash Waiver

• “Independent Third Party(ies)”

• any person(s) or company(ies) and their respective ultimate beneficial owner(s) who, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, are third parties independent of and not connected with any director, chief executive or substantial shareholder of the Company or its subsidiaries or any of their respective associates

• “Investors”

collectively, Liberty Harbor and Evolution and any permitted transferees; an “Investor” shall be construed accordingly

– 5 –

DEFINITIONS

“IP Owners”

• the owners of the intellectual property rights of karaoke programmes or other similar music products played or used in karaoke venues

• “Issue Price”

• HK$0.69 per Consideration Share or Settlement Share (as the case may be)

• “Karaoke CMS” a nationwide karaoke content management service system in the PRC

• “karaoke programme” audio and visual programme played in karaoke venues

• “Latest Practicable Date” 11 March 2008, being the latest practicable date for ascertaining information contained in this circular prior to printing

“Liberty Harbor” Liberty Harbor Master Fund I, L.P., a multi-strategy investment fund with approximately US$2.5 billion of equity capital under management that invests in markets worldwide in debt, convertible securities and equity and invests Goldman Sachs’ proprietary capital as well as capital from third party professional investors and high networth individuals. Liberty Harbor was set up in 2006 and currently has offices in New York, Toronto and Singapore. Liberty Harbor is advised by GS Investment Strategies, LLC (“ GSIS ”), a Delaware limited liability company, whose sole member is The Goldman Sachs Group, Inc (“ GSG ”), a Delaware corporation. Goldman Sachs Asset Management, L.P. (“ GSAM ”) is a Delaware limited partnership. GSG is the general partner and Goldman Sachs Global Holdings, LLC is the limited partner. GSIS and GSAM are part of the same business unit and share a common operating platform

• “Merrill Lynch”

Merrill Lynch (Asia Pacific) Limited, a corporation licensed to carry on Type 1, 4, 6 and 7 regulated activities for the purpose of the SFO and the financial adviser to the Company in respect of the Acquisition

“MOC”

Ministry of Culture of the PRC ( )

– 6 –

DEFINITIONS

“MOC Market Development Center”	Market Development Center of the Ministry of Culture ( ), a department organised
	under the MOC and owns approximately 40% of CCD
“Options”	the share options issued pursuant to the share option
	scheme of the Company adopted on 18 October 2002
“PRC”	the People’s Republic of China which, for the purposes of
	this circular, excludes Hong Kong, the Macau Special
	Administrative Region of the PRC and Taiwan
“Provincial Subs”	provincial-level subsidiaries to be established in the PRC
	by Tian He or between Tian He and strategic partners in
	which Tian He intends to hold a 100% interest or a
	majority interest; each a “Provincial Sub”
“RMB”	Renminbi, the lawful currency of the PRC
“Sale Shares”	10,000 ordinary shares of US$1.00 each in the issued
	share capital of Grand Promise, representing its entire
	issued share capital
“Settlement Shares”	20,023,192 new Shares to be allotted and issued by the
	Company to Best Frontier (and/or its nominees) on
	Completion in consideration of the assignment of the
	Shareholder’s Loan to the Company, credited as fully
	paid
“SFC”	the Securities and Futures Commission of Hong Kong
“SFO”	Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital of
	the Company
“Share Purchase Agreement”	an agreement for the sale and purchase of the Sale Shares
	entered into by the Vendors and the Company dated 17
	January 2008
“Shareholder(s)”	holder(s) of the Shares

– 7 –

DEFINITIONS

==> picture [426 x 592] intentionally omitted <==

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

|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|“Shareholder’s|Loan”|the|amount|of|HK$13,816,003|owing|to|Best|Frontier|by|
|Grand|Promise|as|at|the|date|of|the|Share|Purchase|
|Agreement|
|“Shenzhen|Huarong”|Shenzhen|Huarong|Shengshi|Investment|Co.,|Ltd.|
|(|),|a|limited|liability|
|company|established|in|Shenzhen,|the|PRC|
|“Stock|Exchange”|The|Stock|Exchange|of|Hong|Kong|Limited|
|“substantial|shareholder”|has|the|meaning|ascribed|to|it|under|the|GEM|Listing|
|Rules|
|“Takeovers|Code”|the|Hong|Kong|Code|on|Takeovers|and|Mergers|
|“Tian|He”|Beijing|Tian|He|Culture|Co.,|Ltd.|
|(|),|a|limited|liability|company|
|established in the PRC and is 50% owned by CCDDT and|
|50%|owned|by|Shenzhen|Huarong|
|“US$”|United|States|dollars,|a|lawful|currency|of|the|United|
|States|of|America|
|“Vendors”|Best|Frontier,|Mega|Capital|International|Limited,|Kiree|
|Group|Limited,|Ms.|Lo|Wai|Kwan|Anna,|Mr.|Tang|Ping|
|Fai|Rocky,|Integrated Asset|Management|(Asia)|Limited,|
|Mr.|Chan|Ka|Yin|and|Mr.|Wong|Sze|Chuen|
|“VOD|Suppliers”|video-on-demand|equipment|suppliers|
|“Warrantholder(s)”|holder(s)|of|the|Warrants|
|“Warranties”|the warranties as set out in the Share Purchase Agreement|
|“Warrants”|the|124,810,561|warrants|issued|by|the|Company|on|1|
|November 2006 entitling holders thereof to subscribe for,|
|in|aggregate,|124,810,561|Shares|at|an|initial|exercise|
|price|of|HK$1.33|per|Warrant|(subject|to|adjustment)|
|during|the|period|commencing|from|3|November|2006|to|
|2|November|2008|

----- End of picture text -----

– 8 –

DEFINITIONS

“Whitewash Waiver”

the waiver of the obligation of the Vendors to make a general offer in respect of the Shares not owned by them and parties acting in concert with any of them immediately following Completion from the Executive pursuant to Note 1 of the Notes on Dispensation from Rule 26 of the Takeovers Code

“%” per cent

For the purposes of illustration, unless otherwise specified, amounts in this circular expressed in United States dollars have been translated into Hong Kong dollars at the rate of US$1.00 = HK$7.8045.

For the purposes of illustration, certain figures in this circular have been subject to rounding adjustments.

The English translation/transliteration of the Chinese names in this circular is included for information only, and should not be regarded as the official English names of such Chinese names.

– 9 –

LETTER FROM THE BOARD

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8156)

Executive Directors: Madam Cheung Kwai Lan (Chairman) Mr. Chan Tung Mei Mr. Chan Ting Mr. Lau Hin Kun

Independent non-executive Directors: Mr. Tian He Nian Mr. Zhao Zhi Ming Mr. Zhang Xiu Fu Mr. To Yan Ming, Edmond

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business: Room 2201, 22nd Floor Hopewell Centre 183 Queen’s Road East Wanchai, Hong Kong

14 March 2008

To the Shareholders and, for information only, the Warrantholders

Dear Sir/Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF GRAND PROMISE INTERNATIONAL LIMITED

APPLICATION FOR WHITEWASH WAIVER

ISSUE OF SHARES UNDER A SPECIFIC MANDATE

INTRODUCTION

On 17 January 2008, the Board announced that the Company and the Vendors entered into the conditional Share Purchase Agreement on 17 January 2008, whereby the Company conditionally agreed to purchase and the Vendors conditionally agreed to sell the entire issued share capital of Grand Promise at a consideration of US$200,000,000 (equivalent to HK$1,560,900,000) which shall be satisfied by the allotment and issue of Consideration Shares at an issue price of HK$0.69 per Consideration Share.

* For identification purposes only

– 10 –

LETTER FROM THE BOARD

Pursuant to the Share Purchase Agreement, the Company has agreed to be bound by the terms of the Convertible Notes jointly and severally (to the extent practicable) with Grand Promise by executing the Deeds of Adherence. Furthermore, in consideration of Best Frontier assigning the Shareholder’s Loan (in the amount of HK$13,816,003) to the Company on Completion, the Company shall allot and issue 20,023,192 new Shares, being the Settlement Shares, at an issue price of HK$0.69 per Settlement Share to Best Frontier (and/or its nominee) on Completion.

As the relevant applicable percentage ratio of the Share Purchase Agreement pursuant to Rule 19.07 of the GEM Listing Rules exceeds 100%, and Best Frontier is a controlling shareholder and connected person of the Company, the Share Purchase Agreement constitutes a very substantial acquisition and connected transaction of the Company under the GEM Listing Rules and the Company is subject to the requirements of reporting, announcement and approval by the Independent Shareholders (by way of poll) at the EGM under the GEM Listing Rules.

As at the Latest Practicable Date, the Vendors and parties acting in concert with any of them held approximately 40.55% of the voting rights in the Company. The allotment and issue of the Consideration Shares (to the Vendors) and the Settlement Shares (to Best Frontier) will have the effect of increasing their holding of voting rights to approximately 82.51%, that is, by more than 2% from the lowest percentage holding of them in the 12-month period ending on and inclusive of the date of Completion and thereby exceeding the 2% creeper threshold specified in Rule 26.1(d) of the Takeovers Code. For this reason only, the Vendors have made an application to the Executive for the Whitewash Waiver from an obligation to make a general offer under Rule 26 of the Takeovers Code in respect of the Shares not owned by them and parties acting in concert with any of them immediately following Completion. The Executive has indicated that subject to the approval of the Whitewash Waiver by the Independent Shareholders (by way of poll) at the EGM, the Executive will grant the Whitewash Waiver.

The purpose of this circular is to provide you with, inter alia, (i) details of the Share Purchase Agreement; (ii) applicable information required under the Takeovers Code in respect of the Whitewash Waiver; and (iii) a notice convening the EGM which shall be convened for the purpose of considering and, if thought fit, approving the resolutions in relation to (a) the purchase of the Sale Shares pursuant to the terms of the Share Purchase Agreement and the allotment and issuance of the Consideration Shares and the Settlement Shares; (b) the execution of the Deeds of Adherence by the Company and the allotment and issuance of the Exchange Shares; and (c) the Whitewash Waiver.

– 11 –

LETTER FROM THE BOARD

THE SHARE PURCHASE AGREEMENT

Date

17 January 2008

Parties

Purchaser:

The Company (or its nominee)

Vendors:

• (i) Best Frontier, a 80.0% shareholder of Grand Promise and a connected person of the Company and owned as to approximately 99.89% by Madam Cheung Kwai Lan and approximately 0.11% by Mr. Chan Tung Mei, spouse of Madam Cheung Kwai Lan;

• (ii) Mega Capital International Limited, a 7.2% shareholder of Grand Promise and is 100% owned by Mr. Wong Soraharjo;

• (iii) Kiree Group Limited, a 3.4% shareholder of Grand Promise and is 100% owned by Mr. Lo Po Tong;

• (iv) Ms. Lo Wai Kwan Anna, a 3.0% shareholder of Grand Promise. As at the Latest Practicable Date, she has an approximate interest of 0.34% in the Company;

• (v) Mr. Tang Ping Fai Rocky, a 2.0% shareholder of Grand Promise;

• (vi) Integrated Asset Management (Asia) Limited, a 2.0% shareholder of Grand Promise and is 100% owned by Mr. Yam Tak Cheung. As at the Latest Practicable Date, Integrated Asset Management (Asia) Limited has an approximate interest of 1.97% in the Company;

• (vii) Mr. Chan Ka Yin, a 1.4% shareholder of Grand Promise and is the chief financial officer, company secretary and qualified accountant of Aptus; and

• (viii)Mr. Wong Sze Chuen, a 1.0% shareholder of Grand Promise.

Subject matter

The Company conditionally agreed to purchase and the Vendors conditionally agreed to sell, free from all encumbrances and together with all rights now or hereafter attaching to them, including all rights to any dividend or other distribution declared, made or paid on or after the date of the Share Purchase Agreement, the Sale Shares, comprising the entire issued share capital of Grand Promise.

– 12 –

LETTER FROM THE BOARD

Consideration

The Consideration for the Sale Shares amounts to US$200,000,000 (equivalent to HK$1,560,900,000) which shall be satisfied by the allotment and issue of 2,262,173,906 new Shares, being the Consideration Shares, to the Vendors (and/or their respective nominees) at an issue price of HK$0.69 per Consideration Share. In the event the Consideration is not wholly divisible by the Issue Price, the Company shall, in lieu of allotting and issuing any fractional Consideration Share, pay cash equal to the amount of such fractional Consideration Share multiplied by the Issue Price to the respective Vendors.

On Completion, the share certificates representing the Consideration Shares shall be deposited with the Escrow Agent. The Vendors shall be entitled to the return of the share certificates: (i) in relation to half of the Consideration Shares, upon expiry of the six-month lock-up period (that is, six months from Completion); and (ii) in relation to the remaining half of the Consideration Shares, upon expiry of the next six-month lock-up period (that is, 12 months from Completion), from the Escrow Agent upon the terms and conditions of the Escrow Agreement.

In addition, pursuant to the Share Purchase Agreement, the Company has agreed to be bound by the terms of the Convertible Notes jointly and severally (to the extent practicable) with Grand Promise by executing the Deeds of Adherence. Subject to applicable laws and regulations, the Convertible Notes may, at the option of the Investors, be exchangeable into a maximum number of 480,687,974 new Shares, being the Exchange Shares, at a strike price of HK$0.80 per Exchange Share, after Completion upon the terms and conditions contained therein. The strike price is calculated based on a 20% premium of the Issue Price but subject to a cap of HK$0.80 per Exchange Share. Based on the Issue Price of HK$0.69, the strike price has now been fixed at HK$0.80 per Exchange Share (being HK$0.69 multiplied by 1.2 times but subject to a cap of HK$0.80) and is not subject to any further adjustment. As at the Latest Practicable Date, the Investors did not hold any Shares.

In consideration of Best Frontier assigning the Shareholder’s Loan (in the amount of HK$13,816,003) to the Company on Completion, the Company shall allot and issue 20,023,192 new Shares, being the Settlement Shares at an issue price of HK$0.69 per Settlement Share to Best Frontier (and/or its nominee) on Completion. Grand Promise will not have any outstanding loans owed to any Vendor immediately after Completion.

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LETTER FROM THE BOARD

The Consideration was arrived at after arm’s length negotiations between the parties and is the same as the base equity price of US$200,000,000 on the basis of which Liberty Harbor and Evolution purchased the Convertible Notes issued by Grand Promise. Liberty Harbor is a multi-strategy investment fund with approximately US$2.5 billion of equity capital under management that invests in markets worldwide in debt, convertible securities and equity and invests Goldman Sachs’ proprietary capital as well as capital from third party professional investors and high networth individuals. Evolution is an Asia-focused fund organized and existing under the laws of the Cayman Islands. The strike price of the Convertible Notes is set effectively at US$240,000,000, representing a stated 20% premium over the agreed base equity price of Grand Promise of US$200,000,000.[1]

The Directors have determined the Consideration with reference to available market comparables, namely, the base equity price at which the two independent professional investors purchased the Convertible Notes, as the subject matter of the Acquisition is the same as the subject matter of the Convertible Notes and particularly in view of the proximity in time between the issue of the Convertible Notes and the Acquisition. The Investors, as professional investors, arrived at such base equity price independently. Subsequent to the issue of the Convertible Notes on 30 November 2007, there have been a number of occurrences which the Directors believe have had a positive impact on the business of the Grand Promise Group including the increase of karaoke venues connected from below 100 to over 140 in the month of December 2007. Furthermore, the Directors have also taken into account the fact that the business of the Grand Promise Group is a new business area in the PRC and has significant growth potential.

In view of the above, the Directors consider a consideration of US$200,000,000, which is the same as the base equity value price at which the Investors purchased the Convertible Notes in November 2007, to be fair and reasonable. Based on the closing price per Share of HK$0.82 quoted on the Stock Exchange on 10 January 2008 immediately prior to suspension at 3:11 p.m. on 10 January 2008, the aggregate market value of the Consideration Shares is approximately HK$1,854,982,603. The Issue Price was arrived at after arm’s length negotiations and represents:

• (i) a discount of approximately 13.8% to the closing price of HK$0.80 as quoted on the Stock Exchange as at the Latest Practicable Date;

• (ii) a discount of approximately 15.9% to the closing price of HK$0.82 per Share as quoted on the Stock Exchange on 10 January 2008, being the last trading day of the Company immediately before the date of the Share Purchase Agreement;

• (iii) a discount of approximately 7.1% to the volume-weighted average price of HK$0.7429 per Share as quoted on the Stock Exchange for the last five trading days ended 10 January 2008, being the last trading day of the Company immediately before the date of the Share Purchase Agreement;

1 The consideration of US$200,000,000 translates into a price of US$20,000 per Grand Promise share based on 10,000 issued and outstanding Grand Promise shares as at 30 November 2007, being the date of issue of the Convertible Notes. The 20% premium over the agreed based equity price of Grand Promise translates into a strike price of US$24,000 per Grand Promise share based on 10,000 issued and outstanding Grand Promise shares as at 30 November 2007, being the date of issue of the Convertible Notes.

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LETTER FROM THE BOARD

• (iv) a discount of approximately 5.7% to the volume-weighted average price of HK$0.7314 per Share as quoted on the Stock Exchange for the last ten trading days ended 10 January 2008, being the last trading day of the Company immediately before the date of the Share Purchase Agreement; and

• (v) a premium of approximately 47.4% to the audited net asset value of the Company as at 30 June 2007 of approximately HK$0.4681 per Share based on 936,079,000 Shares in issue as at 30 June 2007.

The Consideration Shares, the Settlement Shares and the Exchange Shares, when allotted and issued, shall rank pari passu in all respects with the Shares then in issue including the right to all dividends, distributions and other payments made or to be made, on the record date which falls on or after the date of such allotment and issue.

Conditions precedent

Completion is conditional upon the fulfillment or waiver of the following conditions precedent:

• (i) the purchase of the Sale Shares pursuant to the terms of the Share Purchase Agreement and allotment and issuance of the Consideration Shares and the Settlement Shares having been approved by the Independent Shareholders at the EGM;

• (ii) the execution of the Deeds of Adherence by the Company and the allotment and issuance of the Exchange Shares having been approved by the Shareholders (or, where appropriate, the Independent Shareholders) at the EGM;

• (iii) the Whitewash Waiver having been granted by the Executive in favour of the Vendors;

• (iv) the Whitewash Waiver having been approved by the Independent Shareholders at the EGM;

• (v) the GEM Listing Committee of the Stock Exchange having granted its approval for the listing of and permission to deal in the Consideration Shares, the Settlement Shares and the Exchange Shares;

• (vi) the Warranties remaining true and accurate and not misleading at Completion as if repeated at Completion and at all times between the date of the Share Purchase Agreement and Completion;

• (vii) the Company notifying the Vendors in writing that it is satisfied in reliance on the Warranties and upon inspection and investigation as to:

• (A) the respective financial, contractual, taxation and trading positions of each member of the Grand Promise Group; and

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LETTER FROM THE BOARD

• (B) the title of each member of the Grand Promise Group to their respective assets;

• (viii)all consents, approvals, licences, authorizations, and waivers to be granted by third parties (including governmental, regulatory or other official authorities) as specified in a schedule to the Share Purchase Agreement for the establishment and operation of the Karaoke CMS having been obtained in form and substance reasonably satisfactory to the Company and shall remain in full force and effect;

• (ix) there not having occurred any event or series of events since the date hereof which, individually or collectively, would have a material adverse effect on the business or financial condition or prospects of any member of the Grand Promise Group or which would materially affect the Vendors’ ability to perform their obligations under the Share Purchase Agreement or the transactions contemplated thereunder;

• (x) there not having been any fact or circumstance that would result in the Birdview Share Charge being enforced by the Investors;

• (xi) the relevant Grand Promise Group Member having entered into legally binding agreements as set out in a schedule to the Share Purchase Agreement which are necessary for the establishment and operation of the Karaoke CMS; and

• (xii) a legal opinion in form and substance reasonably satisfactory to the Company having been issued by the Company’s PRC legal advisers to the Company, at its own cost.

The conditions precedent set out in paragraphs (i) to (v) may not be waived. The Company may waive any of the conditions precedent (either in whole or in part) set out in paragraphs (vi) to (xii) at any time by notice in writing to the Vendors.

The Vendors shall use their best endeavours to procure the fulfillment of the conditions precedent as soon as practicable, and in any event on or before 21 May 2008 (or such other date as the Company and the Vendors may agree in writing).

In the event that any of the conditions precedent shall not have been fulfilled or waived on or before 21 May 2008 (or such other date as the Company and the Vendors may agree in writing) then the Company shall not be bound to proceed with the purchase of the Sale Shares and the Share Purchase Agreement shall lapse and cease to be of any effect save for certain specified provisions of the Share Purchase Agreement which shall remain in force and save in respect of claims arising out of any antecedent breach of the Share Purchase Agreement.

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LETTER FROM THE BOARD

Board composition

There will not be any change in the composition of the Board on Completion. Upon the allotment and issue of the Exchange Shares, the Investors will not have any right to appoint directors to the Board.

Lock-up undertakings

Pursuant to the Share Purchase Agreement, each of the Vendors undertakes to the Company that he/she/it will not, and will procure that its nominee(s) will not:

• (i) in respect of the Consideration Shares, for a period of six months from Completion, offer, lend, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of (either conditionally or unconditionally, or directly or indirectly, or otherwise) any of the Consideration Shares, or any interests in the Consideration Shares beneficially owned or held by it or enter into any swap, derivatives or similar agreement that transfers, in whole or in part, the economic consequences of ownership of the Consideration Shares; and

• (ii) in respect of half of the Consideration Shares, for a period of six months from the date on which the six-month period mentioned in paragraph (i) above expires, offer, lend, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of (either conditionally or unconditionally, or directly or indirectly, or otherwise) any of such Consideration Shares, or any interests in such Consideration Shares beneficially owned or held by it or enter into any swap, derivatives or similar agreement that transfers, in whole or in part, the economic consequences of ownership of such Consideration Shares.

Completion

Completion will take place on a day which is five Business Days from and excluding the day on which the last condition precedent has been fulfilled or waived, and in any event on or before 21 May 2008 (or such other date as the Company and the Vendors may agree in writing).

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LETTER FROM THE BOARD

THE CONVERTIBLE NOTES[2]

On 30 November 2007, Grand Promise issued the Convertible Notes to the Investors. Pursuant to the Share Purchase Agreement, the Company has agreed to be bound by the terms of the Convertible Notes jointly and severally (to the extent practicable) with Grand Promise by executing the Deeds of Adherence on Completion. The Deeds of Adherence will come into effect upon completion of the Share Purchase Agreement as a result of which the Company will step into the shoes of Grand Promise with respect to the Convertible Notes. Subject to applicable laws and regulations, the Convertible Notes may, at the option of the Investors, be exchangeable into Shares after Completion upon the terms and conditions contained therein.

The principal terms of the Convertible Notes are summarized as follows:

Issuer: Grand Promise

Investors and principal amount: (1) Liberty Harbor – US$25,000,000 (2) Evolution – US$10,000,000

Accretion: The principal amount of the Convertible Notes shall accrete at a yield of 7% per annum, compounded semi-annually, commencing on the date of issuance (being 30 November 2007) (“ Issuance Date ”) of the Convertible Notes up to and including the date of redemption or conversion of all or part of the Convertible Notes, as the case may be. Interest: Non-interest bearing. Default interest at the rate (“ Default Interest Rate ”) of 2% per annum, compounded semi-annually, is payable if Grand Promise fails to pay any amount payable in respect of the Convertible Notes.

Strike price: Prior to Completion, 120% of US$200,000,000 divided by the number of ordinary shares of Grand Promise in issue prior to any dilution resulting from the conversion of the Convertible Notes. Following Completion, 120% of the share price for Shares as designated in the Share Purchase Agreement but subject to a cap of HK$0.80 per Share.

Maturity date: The fifth anniversary of the Issuance Date, i.e. 30 November 2012 (“ Maturity Date ”).

2 In this section, “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the PRC, Hong Kong or New York are required or authorized by law or executive order to be closed or on which a tropical cyclone warning no.8 or above or a “black” rainstorm warning signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m. Hong Kong time.

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LETTER FROM THE BOARD

Period during which the Convertible Notes may be converted into Conversion Shares:

From the third month after the Issuance Date up to Completion or from the date on which Grand Promise issues a notice concerning the occurrence of a Change of Control Event (as defined in the Convertible Notes) but prior to Completion, the Investors have the right to convert the then outstanding principal amount of the Convertible Notes, in whole or in part, into such number of Conversion Shares equal to the outstanding principal amount of the Convertible Notes plus an accrued conversion premium divided by the strike price.

Period during which the Convertible Notes may be exchanged for Exchange Shares:

The Investors shall have the right, but not the obligation, after Completion to exchange the Convertible Notes or any unpaid portion thereof for Exchange Shares. At any time after Completion up to three months following the Issuance Date, the Investors may exercise such right if certain price triggers are met. The Investors may exercise such right at any time from the third month following the Issuance Date or if there is a Change of Control Event.

Redemption at the option of Grand Promise – Grand Promise Call Option:

If at the expiry of 18 months from the Issuance Date, the Investors have not exercised their rights to convert the Convertible Notes into shares of Grand Promise or their rights to exchange the Convertible Notes for the Shares, Grand Promise shall have the option (the “ Grand Promise Call Option ”), but not the obligation, for a period of not more than 15 Business Days commencing from the day immediately following the expiry of such 18-month period, to redeem all or part of the Convertible Notes, at the price of 130% of the principal amount of the Convertible Notes.

Grand Promise shall exercise the Grand Promise Call Option by delivering written notice to the Investors specifying that Grand Promise elects to exercise the Grand Promise Call Option. Within 10 Business Days after the Investors have received such notice from Grand Promise, the Investors shall either deliver a conversion or exchange notice with respect to all or part of the Convertible Notes, or deliver the Convertible Notes to Grand Promise and Grand Promise shall, concurrently with receipt of the Convertible Notes, pay to the Investors the amount equivalent to 130% of the principal amount of the Convertible Notes and shall cause the Convertible Notes to be cancelled.

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LETTER FROM THE BOARD

Redemption – Investor Put Option:

If at the expiry of 18 months from the Issuance Date, any Investor has not exercised its right to convert the Convertible Notes into shares of Grand Promise or its right to exchange the Convertible Notes for the Shares, such Investor shall have the option (the “ Investor Put Option ”), but not the obligation, for a period of not more than 15 Business Days commencing from the day immediately following the expiry of such 18-month period, to require Grand Promise to redeem all or part of the Convertible Notes at the price (“ Early Redemption Amount ”) of 100% of the principal amount of the Convertible Notes redeemed plus the accrued redemption premium as of the relevant date of redemption.

The Investor shall exercise the Investor Put Option by delivering written notice to Grand Promise specifying that such Investor elects to exercise the Investor Put Option and require Grand Promise to redeem the Convertible Notes. On the date specified in such written notice, which date shall not be later than 10 Business Days following the date of such notice, such Investor shall deliver the Convertible Notes to Grand Promise and Grand Promise shall, concurrently with receipt of the Convertible Notes, pay to such Investor the amount specified in the above paragraph and shall cause the Convertible Notes to be cancelled.

Redemption at the option of Grand Promise – Grand Promise Exchange Right:

Grand Promise may at any time, on one or more occasions, beginning from 180 days after the Issuance Date and prior to the Maturity Date, serve notice on the Investors (which notice shall be irrevocable except upon mutual consent of Grand Promise and the Investors) requiring the Investors to, within 10 Business Days of the date of such notice, cause the Convertible Notes or a portion thereof then remaining unpaid to be either redeemed at the Redemption Price (as defined below) or otherwise exchanged into Shares.

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LETTER FROM THE BOARD

“Redemption Price” means (i) with respect to the Maturity Date, an amount equal to 141.06% of the principal amount of the Convertible Notes, or (ii) with respect to any other date, an amount equal to the outstanding principal amount with respect to the portion of the Convertible Note being redeemed, plus the accrued amount required to be added to the principal amount so that such total equals to the principal amount plus a yield of 7% per annum, compounded semi-annually, on such principal amount commencing on the Issuance Date up to and including such date of redemption.

Investors redemption right:

Unless previously converted, redeemed or repurchased and cancelled, the Investors shall have the right, exercisable by delivery of a notice in writing to Grand Promise requiring Grand Promise to redeem, at any time during the period of 15 Business Days following:

• (i) the date that is the third anniversary of the Issuance Date;

• (ii) the occurrence of an Impairment Loss (as defined in the Convertible Notes); or

• (iii) the occurrence of an Event of Default (as defined in the Convertible Notes)

to redeem all or part of the outstanding portion of the Convertible Notes, in each case at a price equal to the Early Redemption Amount plus, in the case of a redemption taking place because of the occurrence of an Event of Default, accrued Default Interest.

Redemption for change of control:

Following the occurrence of a Change of Control Event (as defined in the Convertible Notes) of:

• (i) Grand Promise prior to Completion;

• (ii) the Company after Completion;

• (iii) Birdview or Best Frontier at any time the Convertible Notes are outstanding,

each Investor will have the right to require Grand Promise or the Company, as applicable, to redeem all or part of such Investor’s Convertible Note.

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LETTER FROM THE BOARD

Maturity:

Unless previously converted, redeemed or repurchased and cancelled as provided in the Convertible Notes, Grand Promise will redeem the Convertible Notes in US dollars on the Maturity Date in an amount equal to 141.06% of the principal amount of the Convertible Notes.

Transferability:

The Investors shall not transfer the Convertible Notes (other than to an Affiliate (as defined in the Convertible Notes) until the earlier of: (i) three months from Completion; or (ii) the date that is six months after the Issuance Date, provided that the Investors shall not transfer the Convertible Notes without first offering Grand Promise the right to redeem the Convertible Notes by giving written notice to Grand Promise.

• Ranking of the Convertible Notes:

The Convertible Notes constitute direct and unconditional, secured and unsubordinated general obligations of Grand Promise which ranks pari passu with each other and at least pari passu with all secured and unsubordinated obligations of Grand Promise and is secured by the Birdview Share Charge and, upon Completion, will rank at least pari passu with the claims of all the Company’s unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.

Negative pledge:

Grand Promise covenants to the Investors that, from the Issuance Date until all amounts owing under the Convertible Notes have been paid in full, Grand Promise shall, among other things:

• (i) not and shall cause Birdview, CCDDT and Tian He not to incur any indebtedness or obligation which ranks senior to the Convertible Notes; and

• (ii) cause the Company to covenant not to incur, at any time following Completion, any indebtedness or obligation which ranks senior to the Convertible Notes.

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LETTER FROM THE BOARD

Right of first refusal:

For so long as the amounts owing under the Convertible Notes have not been paid in full, each Investor shall have the right of first refusal to be an investor in any equity-related financings of Grand Promise, CCDDT and, following Completion, the Company, other than an issue of securities to all shareholders of Grand Promise on a pro-rata basis.

Voting rights:

The Investors will not have any right to vote in any meeting of the Company in their capacity as Investors.

Pursuant to the Convertible Notes, from the third month after the Issuance Date up to Completion, the Investors have the right to convert the Convertible Notes into ordinary shares of Grand Promise. Pursuant to an undertaking issued by the Investors to Grand Promise dated 11 January 2008, the Investors confirm that they will not exercise their rights to convert the Convertible Notes on or before Completion until the earliest of, inter alia, (a) the occurrence of any Event of Default (as defined in the Convertible Notes); (b) the Birdview Share Charge becoming enforceable; (c) the occurrence or announcement of a Change of Control Event (as defined in the Convertible Notes); and (d) 21 May 2008.

Taking into account the five-year tenure and non-interest bearing nature of the Convertible Notes and the Convertible Notes will not have any effect on the Group’s immediate cash flow position, the Directors consider the terms of the Convertible Notes to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

INFORMATION ON THE PRC KARAOKE INDUSTRY

The karaoke market

The origins of karaoke in the PRC date back to the early 1980s. Since then, the popularity of karaoke in the PRC has increased rapidly as it satisfies a demand for entertainment that has been driven by rising standards of living and growth of the PRC economy. Karaoke is presently one of the most popular forms of leisure and entertainment in the PRC.

According to government statistics and estimates, there were approximately 152,100 karaoke capable entertainment venues in the PRC in 2006. Out of the 152,100 venues, approximately 52,100 are registered as karaoke venues with entertainment venue operating permits (hereinafter referred to as “dedicated karaoke venues”), such as KTV style karaoke venues. The remaining karaoke venues are non-dedicated karaoke locations which engage in other primary business activities, such as discos, pubs, restaurants and hotels.

According to government statistics, in 2006, major developed cities in the PRC such as Beijing, Shanghai and Guangzhou have an average of over 1,000 dedicated karaoke venues. Less developed cities in the PRC each have between 300 – 800 dedicated karaoke venues. Each province in the PRC is estimated to have an average of approximately 1,680 dedicated karaoke venues.

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LETTER FROM THE BOARD

Drivers of the macro growth of the PRC karaoke market include:

• growth of the PRC economy, including its real gross domestic product (“GDP”);

• rising standards of living;

• convergence of KTV penetration rates to corresponding levels in Asia as the PRC develops and matures;

• population growth, including population increases in first-tier and mid-tier cities; and

• modernization of rural areas.

Classification of entertainment venues Dedicated karaoke venues: KTVs Other dedicated karaoke venues(3) Non-dedicated karaoke venues(4) Total Notes:	Estimated number of karaoke venues 2006(1) 2015(2) 22,000 34,060 30,100 46,651 100,000 154,918 152,100 235,629

(1) Government data

• (2) Estimates by Media Partners Asia

• (3) Other dedicated karaoke venues includes venues such as nightclubs, etc.

• (4) At least 100,000 non-dedicated karaoke venues

Media Partners Asia (hereinafter referred to as “MPA”), an Asia-based media consulting and research firm, forecasts that the number of dedicated and non-dedicated karaoke venues in the PRC could grow from 152,100 venues in 2006 to 203,544 venues by 2012 and 235,629 by 2015. MPA’s projections are based on an assumed 5% annual growth in the market commensurate with the growth of the karaoke industry in Japan, a leading karaoke market, in the early 1990s. MPA believes that PRC karaoke market growth could exceed its forecasts given the current rate of economic growth in the PRC is still near a double digit pace with per capita income and consumer expenditure continuing to increase rapidly.

According to statistics gathered from over 100 dedicated karaoke venues in six provinces, as at the end of December 2007, there was an average of approximately 44 rooms per dedicated karaoke venue. Extrapolating this room number across the PRC’s 52,100 dedicated karaoke venues, this translates into 2,292,400 karaoke rooms. Based on MPA’s forecast of 80,711 dedicated karaoke venues in 2015, this would translate into approximately 3,551,284 rooms.

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LETTER FROM THE BOARD

For comparison, according to statistics from the Japan Karaoke Operators Association, at the end of 2006, Japan had approximately 9,000 KTV venues (excluding other dedicated karaoke venues such as nightclubs), equivalent to one KTV per 14,200 people. According to statistics from the Taiwan Ministry of Economic Affairs, as at the end of 2006, there were 1,068 KTV venues in Taiwan, equivalent to one KTV per 21,300 people. According to government statistics, there were approximately 22,000 KTV venues in the PRC at the end of 2006, which translates into only one KTV per 60,000 people.

Estimated and Forecast Number of Karaoke Venues in the PRC, 2006 – 2015[(1)]

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Note:

(1) Source: MPA analysis of government data and estimates

Statistics gathered from over 100 dedicated karaoke venues in the six provinces of Shandong, Henan, Hubei, Hunan, Yunnan and Xin Jiang between 1 October 2007 and 31 December 2007 indicate that the average number of karaoke programmes played per venue is 50 karaoke programmes per day per room. For illustration purposes, based on 52,100 dedicated karaoke venues nationwide and using the aforementioned average of 44 rooms per venue and the average play frequency of 50 karaoke programmes per room per day, this is equivalent to approximately 115 million karaoke programmes played per day and approximately 42 billion karaoke programmes played per year.

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LETTER FROM THE BOARD

The entertainment industry in the PRC

In addition to intellectual property rights associated with music and lyrics, karaoke programmes containing substantial creativity from the producer also have intellectual property rights within the context of the Copyright Law of the PRC.

The industry is generally run with karaoke venues sourcing their hardware and software via VOD Suppliers. VOD Suppliers provide equipment installation services and hardware and software maintenance services. Most of the karaoke programmes stored in and played by the VOD equipment are original DVDs which are produced for restricted use at home and for personal entertainment, and not for commercial use.

Given the absence of an integrated technology system to manage and oversee matters related to copyright, IP Owners are largely unable to protect their interests to ensure proper licensing, use and payment for copyright use, particularly due to the large number of IP Owners and karaoke operators in the PRC. Government authorities and IP Owners recognise that there is a need to establish an effective and integrated management system to serve as a unified channel to resolve potential conflicts between IP Owners and karaoke operators, thereby promoting the development of the karaoke entertainment industry in the PRC.

To protect intellectual property ownership and to promote development of the karaoke industry, the PRC government has been establishing a framework of industry standards, laws and regulations, including:

• the Copyright Law of the PRC ( )

• the Regulations on the Collective Management of Copyright ( )

• the Regulations on the Administration of Entertainment Venues ( )

• the Producing Specifications of Karaoke Programmes stipulated by the MOC ( ).

The Karaoke CMS

The Karaoke CMS is an information system that connects the Karaoke CMS data center located in Beijing to karaoke venues nationwide to keep track of karaoke programmes played in these venues. The Directors believe that the Karaoke CMS is the first-of-its-kind in the PRC.

The Company expects that the Karaoke CMS will play an important role in coordinating and balancing the interests of all relevant parties involved in the PRC’s karaoke industry. The Karaoke CMS provides a mechanism to protect the rights of IP Owners, whilst also assuring that karaoke operators have legal karaoke programmes of high visual and audio quality from the Karaoke CMS. Through the Karaoke CMS, karaoke programmes played in karaoke venues can be tracked and IP Owners can utilise the Karaoke CMS data to facilitate copyright transactions.

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LETTER FROM THE BOARD

The following are important milestones for the Karaoke CMS:

Month/Year	Event
June 2006	CCDDT launched its research and development of
	the Karaoke CMS
Up to September 2006	Qingdao, Zhengzhou, Wuhan and Changsha began
	to pilot run the Karaoke CMS within karaoke
	venues in these cities
November 2006	The MOC Market Development Center exclusively
	appointed CCDDT to establish and operate the
	Karaoke CMS
January 2007	China Audio and Video Association released a
	document stating that it will be utilising the
	Karaoke CMS with regard to copyright fee
	collection in the PRC
October 2007	Pilot run in four cities was successful and approval
	is obtained to expand coverage to a total of eight
	provinces, namely, Liaoning, Jilin, Heilongjiang,
	Henan, Hunan, Sichuan, Yunnan and Xin Jiang

Main functions of the Karaoke CMS

The Karaoke CMS has two primary functions:

• (a) Copyright transaction service function – to protect IP Owners and karaoke operators

• karaoke venues will be allowed to connect to the system free of charge;

• karaoke programmes that satisfy technical standards and are granted proper authorisation can be uploaded to the Karaoke CMS; and

• IP Owners or their agents or representatives will grant the rights of use of karaoke programmes to karaoke operators, who will in turn pay copyright fees according to the frequency which the karaoke programmes are played at their venues.

• (b) Provide potential value-added services (“VAS”) for karaoke venues – such as:

• transaction e-platform, provide entertainment news, products transaction and other web-based services;

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LETTER FROM THE BOARD

• usage of karaoke venues for pay-per-view films, concerts and/or live broadcast of sports events;

• advertising service;

• usage of Karaoke CMS data for industry information related services such as studies and research, and establishment of music charts and awards; and

• promote new songs via the system, turn karaoke venues into promotion bases of new songs for record labels.

INFORMATION ABOUT THE GRAND PROMISE GROUP

General information

Grand Promise, the target company, was incorporated on 25 August 2006 in the British Virgin Islands with limited liability. As at the Latest Practicable Date, Best Frontier, a vehicle predominantly held by Madam Cheung Kwai Lan, held a 80% interest in Grand Promise with individuals and investment holding companies holding the balance of 20%.

On 16 June 2006, CCDDT, a sino-foreign equity joint venture between Birdview and CCD, was established in Beijing, the PRC. Birdview, an investment holding company incorporated in Hong Kong on 24 February 2006, is a direct wholly-owned subsidiary of Grand Promise and owns 49% of CCDDT. CCD, which is approximately 40% owned by the MOC Market Development Center, owns 51% of CCDDT.

The MOC approved the MOC Market Development Center to establish and operate a nationwide Karaoke CMS. The MOC Market Development Center has exclusively appointed CCDDT to establish and operate the Karaoke CMS for the life of the joint venture, which is 30 years.

The Karaoke CMS, which tracks karaoke programmes played nationwide, can also provide a number of value-added services such as product advertisement and promotion services. It is currently expected that the first of the potential value-added services to be provided by the Karaoke CMS is the copyright transaction settlement services conducted for IP Owners.

To the best of the Directors’ knowledge, information and belief having made reasonable enquires, China Audio and Video Association represents most of the Chinese language music and a large part of the foreign language music, including copyrights of songs from four major international record labels, Universal, Sony, EMI and Warner, and more than 80 other record labels that are well-known in the PRC, Hong Kong, Macau and Taiwan, such as EEG, Rock Records, Ocean Butterflies, HIM, Linfair Records, Forward Music and Avex. China Audio and Video Association plans to distribute karaoke programmes to authorized karaoke venues through the Karaoke CMS. China Audio and Video Association has undertaken that it will rely on the Karaoke CMS as its only channel to carry out copyright transaction settlements for karaoke venues, and that it will pay the CCDDT Group a fee.

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Through the Karaoke CMS, karaoke programme play-frequency in karaoke venues is tracked using network and information technology systems. As a result, IP Owners will be paid in proportion to the frequency that their karaoke programmes are played and karaoke venues remit payment on the basis of their karaoke programme usage. It is currently expected that copyright fees are to be charged on a fixed charge plus variable charge basis with the variable component based upon a fee per karaoke programme per play basis. It is currently expected that IP Owners who utilise the Karaoke CMS will pay a fee to the CCDDT Group. This fee is expected to be a double digit percentage of the copyright fees paid to the IP Owners who utilise the Karaoke CMS.

CCDDT will assume the role of carrying out the rollout, operation and maintenance of the Karaoke CMS nationwide. The Karaoke CMS will potentially gain access to approximately 152,100 karaoke capable entertainment venues in the PRC providing a significant potential market for value-added services through the Karaoke CMS. In the future, karaoke operators may also gain additional benefits from other value-added services to be added to the Karaoke CMS.

The corporate structures of the Grand Promise Group as at the Latest Practicable Date and after Completion are set out below:

As at the Latest Practicable Date

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After Completion

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Note:

• (1) As part of condition precedent (viii) of the Share Purchase Agreement, not less than three Provincial Subs will have to be established by Completion. As at the Latest Practicable Date, three Provincial Subs had been established.

The operating structure of the Grand Promise Group

The principal business of the Grand Promise Group will include development, rollout and operation of the Karaoke CMS including value-added services and copyright transaction settlement services.

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• It is intended that 28 more Provincial Subs will be established in the future.

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CCDDT, a sino-foreign joint venture company established in the PRC on 16 June 2006, is 49% owned by Birdview and 51% by CCD. It has a registered capital of RMB100,000,000, which has been fully paid up. Birdview and CCD have contributed RMB49,000,000 and RMB51,000,000, respectively. CCD is a limited liability company established in the PRC and is approximately 40% owned by the MOC Market Development Center, with the remaining approximately 60% owned by five other shareholders. Such shareholders and their ultimate beneficial owners are Independent Third Parties. CCDDT is responsible for the establishment, operation, maintenance and enhancement of the Karaoke CMS.

CCDDT specialises in providing technical support and services to the CCDDT Group. These services include the following:

• coordinate the work for the establishment of the Karaoke CMS;

• draft relevant technical standards and establishment plan;

• establish the system and provide technical support, maintenance and other related services;

• carry out system upgrades for future development of other value-added services; and

• provide data for the purposes of copyright transaction settlement services.

CCDDT owns 50% of Tian He, a joint venture company established in the PRC on 27 August 2007, with the remaining 50% interest held by Shenzhen Huarong, an Independent Third Party. Tian He has a registered capital of RMB100,000,000 which has been fully paid up. To the best of the Directors’ knowledge, information and belief, as part of the plan of establishment, Tian He will be setting up Provincial Subs.

Tian He is the party responsible for coordinating between the IP Owners and karaoke venues for the administration and settlement of copyright transactions. Its services include the following:

• interface with IP Owners and karaoke venues;

• provide song database to authorized karaoke venues;

• carry out copyright transaction settlement services between IP Owners and karaoke venues based on data collected on number of karaoke programmes played and distribute copyright fees collected to IP Owners;

• manage Provincial Subs; and

• develop value-added services, such as using the Karaoke CMS to advertise and promote products after obtaining appropriate government authorisation.

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The Provincial Subs under Tian He will provide the following services:

• liaise with karaoke venues and perform the daily operation of the copyright transaction settlement service;

• assist CCDDT to develop the system; and

• assist Tian He in the rollout of value-added businesses after obtaining appropriate government authorisation.

CCDDT also owns 100% of CCD Video, a limited liability company established in the PRC on 6 February 2007, whose registered capital of RMB3,000,000 had been fully contributed as at the Latest Practicable Date. CCD Video was established with the intention of editing of karaoke pragrammes to conform with PRC industry standards.

CCD Video is the editing and production arm of Grand Promise Group. Its roles are expected to include the following:

• edit karaoke programmes to ensure that content meet the PRC industry standards, in terms of video quality, and that onscreen lyrics are synchronized with music and written in simplified Chinese; and

• produce karaoke programmes.

Operations and technology

The system comprises two parts: (i) a centralized database of approved karaoke programmes; and (ii) data flow. The operational flow of these two parts is as follows:

1. Song database – karaoke programmes are uploaded to a centralized database and distributed to karaoke venues

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• karaoke programmes which comply with MOC standards will be encrypted, unified-encoded and watermarked;

• the karaoke programmes will then be uploaded to the centralized song database; and

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• karaoke venues will then obtain the karaoke programmes in two ways:

• i. VOD Suppliers will download the karaoke programmes from the centralized database and then physically deliver the karaoke programmes to karaoke venues through media such as CD-ROM or DVD ROM; or

• ii. karaoke venues will download karaoke programmes directly from the centralized database via the internet.

Karaoke programmes obtained above will be stored within a karaoke venue’s song database in its VOD system which will stream karaoke programmes to the venue’s rooms when requested. Karaoke programmes are not streamed real time from the centralized data center maintained in Beijing.

1. Data flow

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• two-way data flow between data center and karaoke venue

• i. data flow from the centralized data center to karaoke venues. Such data may include billing information and public notices, VAS related data such as entertainment news, music charts and system updates; and

• ii. data flow from karaoke venues to the centralized data center. Data can also be retrieved from karaoke venues. Typically, this data would include statistics relating to karaoke programmes played and frequency of karaoke programmes usage as well as other operational information such as connectivity status and karaoke venue occupancy rates.

• Data flow to other parties

• i. IP Owners – access data relevant to their IP to confirm copyright fee calculation; and

• ii. Tian He – statistical information for copyright fee calculation.

Each of the above mentioned parties will be assigned a security access code to access the database. Confidentiality is therefore ensured in that specific data, karaoke programmes specific or venue specific, can only be accessed by the relevant party. For example, a karaoke venue can only access data generated by itself.

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The system at the karaoke venue

Communication is established between the data center and the set-top boxes in the karaoke venues. The set-top box is integral to the data collection process at the karaoke venue. Functions include:

• i. interface between data center and VOD system;

• ii. verification and decryption of karaoke programmes selected in a karaoke room;

• iii. recording of karaoke programme play statistics;

• iv. receipt of notices and VAS information from data center; and

• v. upload karaoke programmes play statistics and operational data to data center on a real time or batch basis.

Connecting data center to karaoke venues

Most karaoke venues in the PRC are supplied and serviced by VOD Suppliers. CCDDT Group has and will continue to work with this network of VOD Suppliers as their installation force to facilitate rollout of the system across the nation reducing manpower levels otherwise required to replicate the existing infrastructure. According to CCDDT, the equipment and software of 14 major PRC karaoke VOD Suppliers covering approximately 25,400 dedicated and non-dedicated karaoke venues have already been modified to comply with the standards set up by CCDDT to interface with the Karaoke CMS.

The entire first-time installation process at a karaoke venue takes approximately two hours per venue and consists of the following:

• updating of the song database;

• updating of VOD system software with the latest version that is Karaoke CMS compatible; and

• connection and testing of the two set-top boxes (one primary and one backup).

After the karaoke venues have been connected, the VOD Suppliers will continue to provide maintenance services and deliver software and database updates as required.

Cost structure

Whilst the Karaoke CMS platform is technology based, much of the infrastructure is still based on offices and staff. Thus, the CCDDT Group’s operating costs are directly related to the scale of the geographical expansion. As the CCDDT Group expands into a province, a Provincial Sub will be established which will then require its own office and staff. It is

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currently expected that as operations of the CCDDT Group achieve critical mass, staff, rental, administration and Beijing head office costs will account for approximately 75% of recurrent operating costs. Meanwhile, the Karaoke CMS platform is a highly automated and easily scalable system. Thus, it is currently expected that the set-top box installation costs, data center and set-top box depreciation costs and system maintenance costs will account for approximately 25% of operating costs.

Fee collection

Common fee collection methodologies used internationally can generally be classified into the following four types:

• (i) determined based on the number of rooms or terminals in the venue;

• (ii) by reference to the frequency of karaoke programmes played;

• (iii) based on the square footage of the venues; and

• (iv) calculated with reference to the type of business venue.

In the PRC, reference to the frequency of the programmes played will be used. Using the statistics collected and provided by the Karaoke CMS, copyright fees can be charged and collected for IP Owners participating in the song database on a transparent basis, with IP Owners being paid in proportion to their karaoke programmes being played whilst the karaoke venues pay on the basis of their usage. It is currently expected that IP Owners who utilise the Karaoke CMS will pay a fee to the CCDDT Group. This fee is expected to be a double digit percentage of the copyright fees paid to the IP Owners who utilise the Karaoke CMS.

The rollout of the Karaoke CMS will be on a province-by-province basis. Once a certain number of venues is connected to draw data for fee sampling, all dedicated karaoke venues can be targeted for fee collection.

All dedicated karaoke venues within the province would be categorized into two categories: (i) those connected to the Karaoke CMS, and (ii) those not yet connected to the Karaoke CMS.

• For dedicated karaoke venues in a rollout province with the Karaoke CMS connected: The copyright fee calculation will be based on the actual data from that particular venue as recorded by the system. It is currently expected that copyright fees are to be charged on a fixed charge plus variable charge basis with a variable component based upon a fee per karaoke programme per play basis. Under the proposed fee structure, the maximum charge is expected to be RMB12 per room per day payable to the IP Owners but subject to downward adjustments depending on location and scale of operations of particular karaoke venues, consistent with Announcement 2006 (No. 1) by the National Copyright Administration of the People’s Republic of China issued on 9 November 2006 with regard to fee collection

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standard for the karaoke industry. The minimum charge is envisaged to be in the region of 50% of the applicable maximum charge. Further, in order to create incentives for karaoke operators to have the Karaoke CMS installed as soon as possible, it is currently intended that karaoke operators with the Karaoke CMS installed will enjoy a certain discount.

• For dedicated karaoke venues in a rollout province without the Karaoke CMS connected: These venues will be charged with reference to sampling of similar venues in its province which have the system connected. No discount will be given to venues which do not have the system connected.

• As more and more venues connect to the Karaoke CMS, the reliance on data sampling will cease as more accurate data will be created.

Business plan

As at the end of December 2007, 140 karaoke venues had been connected to the Karaoke CMS. The current data center in Beijing can support connections of up to 10,000 karaoke venues. This capacity is expandable in increments of 10,000. The installation of several increments can be completed concurrently in less than two months. The plan of implementation is set forth below:

1. in 2008, the Karaoke CMS will be rolled out to karaoke venues in a total of 25 provinces connecting to 1,500 karaoke venues. 25 Provincial Subs will be established to commence copyright transaction settlement services. As at the Latest Practicable Date, three Provincial Subs had been formed in the provinces of Henan, Yunnan and Sichuan; and

2. in 2009, it is envisaged that the rollout will extend to all 31 provinces in the PRC. This translates into the establishment of further six Provincial Subs and a total of 5,000 venues will have been connected by the end of 2009.

According to CCDDT’s business plan, fee collection in Henan, Yunnan, Sichuan, Xin Jiang, Liaoning, Hunan and Heilongjiang is scheduled to begin in the first half of 2008, while fee collection in the balance of the 25 provinces is scheduled to begin in the second half of 2008. The connected karaoke venues will pay fees based on frequency of karaoke programmes played whereas unconnected karaoke venues will be charged with reference to sampling of similar venues in its province which have been connected to the Karaoke CMS.

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RISK FACTORS

Risks Relating to the CCDDT Group’s Business

As with any project of such scale, there are always potential delays in rollout.

The Directors believe that the Karaoke CMS is the first-of-its-kind in the PRC. Consequently, this results in implementational risks associated with laying groundwork where none previously existed. Further, as with any rollout of a nationwide project of such a scale, there may be obstacles to the rollout. There can be no assurance that, in the course of implementing its business, the CCDDT Group will not experience implementational delays or operational difficulties to manage, operate and expand the business. Any inability or failure to adapt effectively to the new business and its growth, including strains on management and logistics, could result in losses or development costs that are not recovered as quickly as anticipated, if at all. These problems could have a material adverse effect on the CCDDT Group’s business, results of operations and financial condition.

The CCDDT Group is exposed to risks associated with the collection of fees and future price setting for the Karaoke CMS business.

The Karaoke CMS business is subject to risks relating to uncertain collection of fees from karaoke venues.

There are ongoing disputes between IP Owners and karaoke venues related to copyright fees on the basis that a number of karaoke venues may be using copyright material intended for private use for their commercial activities without acquiring copyright authorization and paying associated fees. Although the Karaoke CMS aims to provide a transparent and equitable basis for copyright transactions, there remains the risk that karaoke venues may continue to resist paying copyright fees to IP Owners. If karaoke venues are able to access the Karaoke CMS without paying copyright fees, the CCDDT Group would not realize the revenues associated with those services and its financial condition would be materially and adversely affected.

The Karaoke CMS business is subject to risks relating to potential changes in revenue sharing between various parties, including IP Owners, VOD Suppliers and other karaoke and music industry groups.

There may be a potential change in the revenue sharing arrangements among various parties, including IP Owners, VOD Suppliers and music industry groups (such as China Audio and Video Association, whose contract term with Tian He expires after ten years). Any change in fee structure, if unfavorable to Tian He, may affect the fee payable to the CCDDT Group, after the expiration of the contract.

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The Karaoke CMS business is subject to pricing risks.

Future pricing terms in karaoke venues will be driven by market forces. Currently, a cap on the copyright fees of RMB12 per room per day has been suggested by the National Copyright Administration of the PRC. The PRC government authority may change the policy regarding copyright fees in the future and, as a result, future revenue due to the CCDDT Group may be uncertain.

The CCDDT Group operates in a highly-regulated environment and it is affected by the development and application of regulations in the PRC.

The Karaoke CMS was developed for the purpose of protecting IP Owners’ rights as well as providing other integrated services. Although existing laws and regulations support the establishment of the Karaoke CMS business, there is no guarantee that future regulations will not change to the contrary. As a result, the performance of the CCDDT Group may be adversely affected by changes in policies and the attitude of the PRC government in respect of the protection of intellectual property rights and content management.

The CCDDT Group is exposed to information technology sector-specific risks.

The Karaoke CMS may experience system failures and service interruptions.

The CCDDT Group’s revenues are dependent on the ability of IP Owners and karaoke operators to access and conduct transactions through the Karaoke CMS technology platform. Whilst the CCDDT Group has so far not experienced system interruptions, there can be no guarantee that future interruptions will not occur. Additionally, the Karaoke CMS depends on certain third-party software and system providers for the processing and local distribution of products and services. System failures or interruptions, whether as a result of internally developed systems or third-party providers, may inconvenience IP Owners and karaoke venues, and may negatively affect the provision of Karaoke CMS services.

The computer and communications hardware and song database necessary to operate the Karaoke CMS functions are located at a single site in Beijing. These systems, operations and database could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquake and similar events. The CCDDT Group does not currently have full redundancy for all of its network and telecommunications facilities.

Joint venture partner risk.

CCDDT owns 50% of Tian He, a PRC joint venture company that will be involved in setting up Provincial Subs to carry out the implementation of the Karaoke CMS throughout the PRC. The remaining 50% of Tian He is owned by an Independent Third Party. Under the terms of its joint venture arrangement, CCDDT takes primary responsibility for project development. However, as with any joint venture, there is the potential for disputes between partners. Disputes between CCDDT and its joint venture partner could have a material adverse effect on the CCDDT Group’s operations and financial condition.

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INFORMATION ABOUT THE GROUP

Since early 2005, the Group has embarked on various acquisitions to develop its presence in the lottery-related industry and oil and natural gas related industries in the PRC. The Group is principally engaged in the research, development and application of information technology in the lottery field and the oil and gas related business in the PRC. After completion of the Acquisition, the Company will continue to operate its existing businesses along with the new business in respect of the Karaoke CMS.

REASONS FOR, AND BENEFITS OF, THE ACQUISITION

The Directors are always actively and consistently seeking new investment opportunities, with a view to increasing the value of the Group.

CCDDT has been exclusively appointed by the MOC Market Development Center to establish and operate the Karaoke CMS. The Directors believe that there are currently no international or domestic competitors engaged in the Karaoke CMS business in the PRC and that CCDDT enjoys a first mover advantage in the creation of the Karaoke CMS. The Karaoke CMS is not only a technical platform, but it is the crossroad where VOD Suppliers, karaoke venues and IP Owners meet. The Directors believe that the acquisition of Grand Promise will offer an excellent entry point for the Group to be involved in this business.

The Directors also believe that the Karaoke CMS has the potential to become a comprehensive technical platform to provide access to over 152,100 karaoke capable entertainment venues in the PRC which would represent a large and attractive market into which many value-added services could potentially be sold. The Directors believe that the Acquisition will enhance the future growth of the Group’s business activities and will enable it to maximize returns to the Shareholders. The Directors believe that tapping into this new business line will broaden the Group’s revenue base and help to diversify the overall business risks of the Group.

INTENTION OF THE VENDORS REGARDING THE GROUP

The Vendors intend that the Group will continue its existing businesses following Completion. The Vendors are optimistic about the future prospects of the entertainment industry in the PRC and thus, they intend to invest in the Company and develop the Karaoke CMS business. Save for the commencement of the Karaoke CMS business following Completion, there are currently no plans for any other material changes to the existing businesses of the Group. The Vendors have no intention to re-deploy the employees or the fixed assets of the Group other than in its ordinary course of business. It is intended that the present employees of the Group will continue to be employed by the Group upon Completion.

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CHANGES IN SHAREHOLDING STRUCTURE OF THE COMPANY

The following table illustrates the shareholding interests in the Company (i) as at the Latest Practicable Date; (ii) immediately after Completion; (iii) after Completion and allotment and issue of the Exchange Shares; and (iv) after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options:

Name of Shareholder Cheung Kwai Lan, Chairman Best Frontier (Note 1) Mega Capital International Limited (Note 2) Kiree Group Limited (Note 2) Lo Wai Kwan Anna (Note 2) Tang Ping Fai Rocky (Note 2) Integrated Asset Management (Asia) Limited (Note 2) Chan Ka Yin (Note 2) Wong Sze Chuen (Note 2) Sub-total: Vendors and their respective concert parties (Note 2) Lau Hin Kun, Director Oppenheimer Funds, Inc. (Note 3) Liberty Harbor (Note 4) Evolution (Note 4) Other public Shareholders Total Total shareholdings held by public Shareholders (Note 5)	Existing shareholding structure and as at the Latest Practicable Date Shareholding structure immediately after Completion Shareholding structure after Completion and allotment and issue of the Exchange Shares Shareholding structure after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options No. of Shares % No. of Shares % No. of Shares % No. of Shares % 2,070,000 0.22 2,070,000 0.07 2,070,000 0.06 21,066,000 (Note 6) 0.53 361,695,000 38.02 2,191,457,322 67.77 2,191,457,322 59.00 2,239,683,322 56.49 – – 162,876,520 5.03 162,876,520 4.39 162,876,520 4.11 − − 76,913,912 2.38 76,913,912 2.07 76,913,912 1.94 3,260,000 0.34 71,125,216 2.20 71,125,216 1.91 76,803,216 1.93 − − 45,243,478 1.40 45,243,478 1.22 45,243,478 1.14 18,720,000 1.97 63,963,478 1.98 63,963,478 1.72 68,159,478 1.72 − − 31,670,434 0.98 31,670,434 0.85 31,670,434 0.80 − − 22,621,738 0.70 22,621,738 0.61 22,621,738 0.57 385,745,000 40.55 2,667,942,098 82.51 2,667,942,098 71.83 2,745,038,098 69.23 575,000 0.06 575,000 0.02 575,000 0.02 3,665,000 0.09 165,000,000 17.34 165,000,000 5.10 165,000,000 4.44 187,000,000 4.72 – – – – 343,348,554 9.24 343,348,554 8.66 – – – – 137,339,420 3.70 137,339,420 3.46 400,059,210 42.05 400,059,210 12.37 400,059,210 10.77 548,593,768 13.84 951,379,210 100.00 3,233,576,308 100.00 3,714,264,282 100.00 3,964,984,840 100.00 422,039,210 44.36 1,039,473,986 32.14 1,520,161,960 40.93 1,700,570,518 42.89	Existing shareholding structure and as at the Latest Practicable Date Shareholding structure immediately after Completion Shareholding structure after Completion and allotment and issue of the Exchange Shares Shareholding structure after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options No. of Shares % No. of Shares % No. of Shares % No. of Shares % 2,070,000 0.22 2,070,000 0.07 2,070,000 0.06 21,066,000 (Note 6) 0.53 361,695,000 38.02 2,191,457,322 67.77 2,191,457,322 59.00 2,239,683,322 56.49 – – 162,876,520 5.03 162,876,520 4.39 162,876,520 4.11 − − 76,913,912 2.38 76,913,912 2.07 76,913,912 1.94 3,260,000 0.34 71,125,216 2.20 71,125,216 1.91 76,803,216 1.93 − − 45,243,478 1.40 45,243,478 1.22 45,243,478 1.14 18,720,000 1.97 63,963,478 1.98 63,963,478 1.72 68,159,478 1.72 − − 31,670,434 0.98 31,670,434 0.85 31,670,434 0.80 − − 22,621,738 0.70 22,621,738 0.61 22,621,738 0.57 385,745,000 40.55 2,667,942,098 82.51 2,667,942,098 71.83 2,745,038,098 69.23 575,000 0.06 575,000 0.02 575,000 0.02 3,665,000 0.09 165,000,000 17.34 165,000,000 5.10 165,000,000 4.44 187,000,000 4.72 – – – – 343,348,554 9.24 343,348,554 8.66 – – – – 137,339,420 3.70 137,339,420 3.46 400,059,210 42.05 400,059,210 12.37 400,059,210 10.77 548,593,768 13.84 951,379,210 100.00 3,233,576,308 100.00 3,714,264,282 100.00 3,964,984,840 100.00 422,039,210 44.36 1,039,473,986 32.14 1,520,161,960 40.93 1,700,570,518 42.89	Existing shareholding structure and as at the Latest Practicable Date Shareholding structure immediately after Completion Shareholding structure after Completion and allotment and issue of the Exchange Shares Shareholding structure after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options No. of Shares % No. of Shares % No. of Shares % No. of Shares % 2,070,000 0.22 2,070,000 0.07 2,070,000 0.06 21,066,000 (Note 6) 0.53 361,695,000 38.02 2,191,457,322 67.77 2,191,457,322 59.00 2,239,683,322 56.49 – – 162,876,520 5.03 162,876,520 4.39 162,876,520 4.11 − − 76,913,912 2.38 76,913,912 2.07 76,913,912 1.94 3,260,000 0.34 71,125,216 2.20 71,125,216 1.91 76,803,216 1.93 − − 45,243,478 1.40 45,243,478 1.22 45,243,478 1.14 18,720,000 1.97 63,963,478 1.98 63,963,478 1.72 68,159,478 1.72 − − 31,670,434 0.98 31,670,434 0.85 31,670,434 0.80 − − 22,621,738 0.70 22,621,738 0.61 22,621,738 0.57 385,745,000 40.55 2,667,942,098 82.51 2,667,942,098 71.83 2,745,038,098 69.23 575,000 0.06 575,000 0.02 575,000 0.02 3,665,000 0.09 165,000,000 17.34 165,000,000 5.10 165,000,000 4.44 187,000,000 4.72 – – – – 343,348,554 9.24 343,348,554 8.66 – – – – 137,339,420 3.70 137,339,420 3.46 400,059,210 42.05 400,059,210 12.37 400,059,210 10.77 548,593,768 13.84 951,379,210 100.00 3,233,576,308 100.00 3,714,264,282 100.00 3,964,984,840 100.00 422,039,210 44.36 1,039,473,986 32.14 1,520,161,960 40.93 1,700,570,518 42.89	Existing shareholding structure and as at the Latest Practicable Date Shareholding structure immediately after Completion Shareholding structure after Completion and allotment and issue of the Exchange Shares Shareholding structure after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options No. of Shares % No. of Shares % No. of Shares % No. of Shares % 2,070,000 0.22 2,070,000 0.07 2,070,000 0.06 21,066,000 (Note 6) 0.53 361,695,000 38.02 2,191,457,322 67.77 2,191,457,322 59.00 2,239,683,322 56.49 – – 162,876,520 5.03 162,876,520 4.39 162,876,520 4.11 − − 76,913,912 2.38 76,913,912 2.07 76,913,912 1.94 3,260,000 0.34 71,125,216 2.20 71,125,216 1.91 76,803,216 1.93 − − 45,243,478 1.40 45,243,478 1.22 45,243,478 1.14 18,720,000 1.97 63,963,478 1.98 63,963,478 1.72 68,159,478 1.72 − − 31,670,434 0.98 31,670,434 0.85 31,670,434 0.80 − − 22,621,738 0.70 22,621,738 0.61 22,621,738 0.57 385,745,000 40.55 2,667,942,098 82.51 2,667,942,098 71.83 2,745,038,098 69.23 575,000 0.06 575,000 0.02 575,000 0.02 3,665,000 0.09 165,000,000 17.34 165,000,000 5.10 165,000,000 4.44 187,000,000 4.72 – – – – 343,348,554 9.24 343,348,554 8.66 – – – – 137,339,420 3.70 137,339,420 3.46 400,059,210 42.05 400,059,210 12.37 400,059,210 10.77 548,593,768 13.84 951,379,210 100.00 3,233,576,308 100.00 3,714,264,282 100.00 3,964,984,840 100.00 422,039,210 44.36 1,039,473,986 32.14 1,520,161,960 40.93 1,700,570,518 42.89	Existing shareholding structure and as at the Latest Practicable Date Shareholding structure immediately after Completion Shareholding structure after Completion and allotment and issue of the Exchange Shares Shareholding structure after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options No. of Shares % No. of Shares % No. of Shares % No. of Shares % 2,070,000 0.22 2,070,000 0.07 2,070,000 0.06 21,066,000 (Note 6) 0.53 361,695,000 38.02 2,191,457,322 67.77 2,191,457,322 59.00 2,239,683,322 56.49 – – 162,876,520 5.03 162,876,520 4.39 162,876,520 4.11 − − 76,913,912 2.38 76,913,912 2.07 76,913,912 1.94 3,260,000 0.34 71,125,216 2.20 71,125,216 1.91 76,803,216 1.93 − − 45,243,478 1.40 45,243,478 1.22 45,243,478 1.14 18,720,000 1.97 63,963,478 1.98 63,963,478 1.72 68,159,478 1.72 − − 31,670,434 0.98 31,670,434 0.85 31,670,434 0.80 − − 22,621,738 0.70 22,621,738 0.61 22,621,738 0.57 385,745,000 40.55 2,667,942,098 82.51 2,667,942,098 71.83 2,745,038,098 69.23 575,000 0.06 575,000 0.02 575,000 0.02 3,665,000 0.09 165,000,000 17.34 165,000,000 5.10 165,000,000 4.44 187,000,000 4.72 – – – – 343,348,554 9.24 343,348,554 8.66 – – – – 137,339,420 3.70 137,339,420 3.46 400,059,210 42.05 400,059,210 12.37 400,059,210 10.77 548,593,768 13.84 951,379,210 100.00 3,233,576,308 100.00 3,714,264,282 100.00 3,964,984,840 100.00 422,039,210 44.36 1,039,473,986 32.14 1,520,161,960 40.93 1,700,570,518 42.89	Existing shareholding structure and as at the Latest Practicable Date Shareholding structure immediately after Completion Shareholding structure after Completion and allotment and issue of the Exchange Shares Shareholding structure after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options No. of Shares % No. of Shares % No. of Shares % No. of Shares % 2,070,000 0.22 2,070,000 0.07 2,070,000 0.06 21,066,000 (Note 6) 0.53 361,695,000 38.02 2,191,457,322 67.77 2,191,457,322 59.00 2,239,683,322 56.49 – – 162,876,520 5.03 162,876,520 4.39 162,876,520 4.11 − − 76,913,912 2.38 76,913,912 2.07 76,913,912 1.94 3,260,000 0.34 71,125,216 2.20 71,125,216 1.91 76,803,216 1.93 − − 45,243,478 1.40 45,243,478 1.22 45,243,478 1.14 18,720,000 1.97 63,963,478 1.98 63,963,478 1.72 68,159,478 1.72 − − 31,670,434 0.98 31,670,434 0.85 31,670,434 0.80 − − 22,621,738 0.70 22,621,738 0.61 22,621,738 0.57 385,745,000 40.55 2,667,942,098 82.51 2,667,942,098 71.83 2,745,038,098 69.23 575,000 0.06 575,000 0.02 575,000 0.02 3,665,000 0.09 165,000,000 17.34 165,000,000 5.10 165,000,000 4.44 187,000,000 4.72 – – – – 343,348,554 9.24 343,348,554 8.66 – – – – 137,339,420 3.70 137,339,420 3.46 400,059,210 42.05 400,059,210 12.37 400,059,210 10.77 548,593,768 13.84 951,379,210 100.00 3,233,576,308 100.00 3,714,264,282 100.00 3,964,984,840 100.00 422,039,210 44.36 1,039,473,986 32.14 1,520,161,960 40.93 1,700,570,518 42.89	Existing shareholding structure and as at the Latest Practicable Date Shareholding structure immediately after Completion Shareholding structure after Completion and allotment and issue of the Exchange Shares Shareholding structure after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options No. of Shares % No. of Shares % No. of Shares % No. of Shares % 2,070,000 0.22 2,070,000 0.07 2,070,000 0.06 21,066,000 (Note 6) 0.53 361,695,000 38.02 2,191,457,322 67.77 2,191,457,322 59.00 2,239,683,322 56.49 – – 162,876,520 5.03 162,876,520 4.39 162,876,520 4.11 − − 76,913,912 2.38 76,913,912 2.07 76,913,912 1.94 3,260,000 0.34 71,125,216 2.20 71,125,216 1.91 76,803,216 1.93 − − 45,243,478 1.40 45,243,478 1.22 45,243,478 1.14 18,720,000 1.97 63,963,478 1.98 63,963,478 1.72 68,159,478 1.72 − − 31,670,434 0.98 31,670,434 0.85 31,670,434 0.80 − − 22,621,738 0.70 22,621,738 0.61 22,621,738 0.57 385,745,000 40.55 2,667,942,098 82.51 2,667,942,098 71.83 2,745,038,098 69.23 575,000 0.06 575,000 0.02 575,000 0.02 3,665,000 0.09 165,000,000 17.34 165,000,000 5.10 165,000,000 4.44 187,000,000 4.72 – – – – 343,348,554 9.24 343,348,554 8.66 – – – – 137,339,420 3.70 137,339,420 3.46 400,059,210 42.05 400,059,210 12.37 400,059,210 10.77 548,593,768 13.84 951,379,210 100.00 3,233,576,308 100.00 3,714,264,282 100.00 3,964,984,840 100.00 422,039,210 44.36 1,039,473,986 32.14 1,520,161,960 40.93 1,700,570,518 42.89
	385,745,000 40.55 2,667,942,098 82.51 2,667,942,098 71.83 2,745,038,098 69.23 575,000 0.06 575,000 0.02 575,000 0.02 3,665,000 0.09 165,000,000 17.34 165,000,000 5.10 165,000,000 4.44 187,000,000 4.72 – – – – 343,348,554 9.24 343,348,554 8.66 – – – – 137,339,420 3.70 137,339,420 3.46 400,059,210 42.05 400,059,210 12.37 400,059,210 10.77 548,593,768 13.84
	951,379,210	100.00	3,233,576,308	100.00	3,714,264,282	100.00	3,964,984,840
	422,039,210	44.36	1,039,473,986	32.14	1,520,161,960	40.93	1,700,570,518

– 40 –

LETTER FROM THE BOARD

Notes:

1. Best Frontier is owned as to approximately 99.89% by Madam Cheung Kwai Lan and as to approximately 0.11% by Mr. Chan Tung Mei. Madam Cheung Kwai Lan is the spouse of Mr. Chan Tung Mei.

2. Each of the Vendors (other than Best Frontier) has confirmed that (i) it is not a connected person of the Company; (ii) its acquisition of the Company’s shares has not been financed directly or indirectly by a connected person of the Company; and (iii) it is not accustomed to taking instructions from a connected person of the Company in relation to the acquisition, disposal, voting or other disposition of the Company’s shares registered in its name or otherwise held by it. Accordingly, the Vendors (other than Best Frontier) will be treated as members of the public under the GEM Listing Rules and their shareholdings will be counted towards the public float.

3. After Completion, Oppenheimer Funds, Inc. will cease to be a substantial shareholder of the Company and its shareholding will be counted towards the public float.

4. After Completion and allotment and issue of the Exchange Shares, the shareholdings of Liberty Harbor and Evolution will be counted towards the public float. For illustration purposes, please note that the number of Exchange Shares to be allotted and issued to Liberty Harbor and Evolution is calculated based on the face amount of the Convertible Notes using the agreed fixed HK$/US$ exchange rate of 7.789 and including the Exchange Premium assuming that the Convertible Notes are exchanged on the Maturity Date.

5. The aggregation of the asterisked shareholdings represents the total shareholding of all public Shareholders.

6. The 21,066,000 Shares which will be held by Madam Cheung Kwai Lan includes 6,240,000 Shares which will be held by each of Mr. Chan Tung Mei, her spouse, and Mr. Chan Ting, her son, assuming full conversion of the Options held by them.

ISSUE OF SHARES UNDER A SPECIFIC MANDATE

The Consideration Shares, the Settlement Shares and the Exchange Shares will be issued under a specific mandate. An application will be made to the Stock Exchange for the listing of and permission to deal in the Consideration Shares, the Settlement Shares and the Exchange Shares.

FINANCIAL EFFECTS OF THE ACQUISITION

Upon Completion, Grand Promise will become a wholly-owned subsidiary of the Company and its assets and liabilities will be included in the Company’s consolidated balance sheet, and CCDDT will be accounted for as a jointly controlled entity and will be proportionately consolidated into the Group’s financial statements.

As set out in Appendix III to this circular, the unaudited pro forma consolidated net loss of the Enlarged Group for the year ended 30 June 2007 assuming the Acquisition had been completed on 30 June 2007 would be approximately HK$134,883,000.

As set out in Appendix III to this circular, the unaudited pro forma consolidated net assets of the Enlarged Group as at 30 June 2007 assuming the Acquisition had been completed on 30 June 2007 would be approximately HK$2,049,891,000.

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LETTER FROM THE BOARD

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Company has diversified from predominantly being a producer and distributor of bee and natural products into two large fast growing industries, namely the lottery-related and the oil and gas-related sectors in the PRC. Now, via the Acquisition of Grand Promise, the Company plans to expand into, in the Directors’ opinion, a third large and fast growing industry, that is, the karaoke industry.

With regard to prospects, the Company offers vertically integrated software, hardware and related services to the traditional welfare lottery segment in the PRC in return for a share of lottery revenues. This allows the Group to participate in the rapid growth in the PRC lottery sector. It is the Company’s objective to continue to build on the existing products and to further develop in the area of POS machines as well as to continue to expand geographically.

On the oil side, the Company is concentrating on moving to commercial production at its Xin Jiang Oilfield. On the natural gas side, the Company intends to scale up operation at its two natural gas joint ventures in the Hunan province. The short term objective is to continue the expansion of the pipeline network of the Changde Huayou Gas Co., Limited (city level natural gas pipeline project) with a view to extending its reach to about 4,000 more commercial, industrial, welfare establishments and residential users in the city before the end of this fiscal year to take advantage of the fast growing demand in the city of Changde. As for the Hunan Huayou Natural Gas Transportation and Distribution Company Limited (provincial level natural gas pipeline project), it is the Company’s aim to further expand the existing pipelines to branch out to at least one more city-level gas distribution station before the end of the fiscal year to increase the sale of natural gas.

At the same time, the Company has always been actively seeking attractive new investment opportunities. The Company believes the acquisition of Grand Promise will enhance the future growth of the Group’s business activities and enable it to maximize returns to the Shareholders. The tapping into of this new business line will also broaden the Group’s revenue base and help to diversify the overall business risks of the Group.

The Company believes that the Karaoke CMS has the potential to become a comprehensive technical platform to provide value-added services and access to over 152,100 karaoke capable entertainment venues in the PRC which is a large and attractive market. As outlined in “Information about the Grand Promise Group – Business Plan”, it is planned that the Karaoke CMS will have established operations in 25 provinces by the end of 2008 and all 31 of the PRC’s provinces by the end of 2009.

TAKEOVERS CODE IMPLICATIONS

As at the Latest Practicable Date, the Vendors and parties acting in concert with any of them held approximately 40.55% of the voting rights in the Company. The allotment and issue of the Consideration Shares (to the Vendors) and the Settlement Shares (to Best Frontier) will have the effect of increasing their holding of voting rights to approximately 82.51%, that is, by more than 2% from the lowest percentage holding of them in the 12-month period ending on and inclusive of the date of Completion and thereby exceeding the 2% creeper threshold specified in Rule 26.1(d) of the Takeovers Code. For this reason only, the Vendors have made

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LETTER FROM THE BOARD

an application to the Executive for the Whitewash Waiver from an obligation to make a general offer under Rule 26 of the Takeovers Code in respect of the Shares not owned by them and parties acting in concert with any of them immediately following Completion. The Executive has indicated that subject to the approval of the Whitewash Waiver by the Independent Shareholders (by way of poll) at the EGM, the Executive will grant the Whitewash Waiver. The Whitewash Waiver, if granted and approved, will have the effect of allowing the Vendors and parties acting in concert with them to increase their voting rights in the Company but without incurring further obligation under Rule 26 of the Takeovers Code. The Vendors and parties acting in concert with any of them have not acquired or disposed of any voting rights in the Company in the six months prior to 17 January 2008 (being the date of the Announcement) and up to and including the Latest Practicable Date.

IMPLICATIONS UNDER THE GEM LISTING RULES

Best Frontier, one of the Vendors, is a controlling shareholder and connected person of the Company, and has an approximate interest of 38.02% in the Company. Best Frontier is owned as to approximately 99.89% by Madam Cheung Kwai Lan (the Chairman and executive Director) and approximately 0.11% by Mr. Chan Tung Mei (an executive Director). As at the Latest Practicable Date, Madam Cheung Kwai Lan had an approximate interest of 38.24% in the Company which includes an approximate interest of 38.02% held by Best Frontier and an approximate interest of 0.22% held in her own name.

As the relevant applicable percentage ratio of the Share Purchase Agreement pursuant to Rule 19.07 of the GEM Listing Rules exceeds 100%, and Best Frontier is a controlling shareholder and connected person of the Company, the Share Purchase Agreement constitutes a very substantial acquisition and connected transaction of the Company under the GEM Listing Rules and the Company is subject to the requirements of reporting, announcement and approval by the Independent Shareholders (by way of poll) at the EGM under the GEM Listing Rules.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising Mr. Zhao Zhi Ming and Mr. To Yan Ming, Edmond has been established to advise the Independent Shareholders as to whether or not the terms of the Share Purchase Agreement, the issue of the Consideration Shares, the Settlement Shares and the Exchange Shares, the Deeds of Adherence and the Whitewash Waiver are fair and reasonable, on normal commercial terms and in the interests of the Company and the Independent Shareholders as a whole. Mr. Tian He Nian, an independent non-executive Director, has refrained from sitting on the Independent Board Committee as he is also an independent non-executive director of CCDDT, a Grand Promise Group Member. Mr. Zhang Xiu Fu, an independent non-executive Director, is not sitting on the Independent Board Committee as he was only appointed with effect from 25 January 2008, after the establishment of the Independent Board Committee. Somerley has been appointed to advise the Independent Board Committee and Independent Shareholders. The Independent Board Committee has approved the appointment of the Independent Financial Adviser.

– 43 –

LETTER FROM THE BOARD

THE EGM

The EGM will be held at Room 2201, 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong on 3 April 2008 at 10:00 a.m. or any adjournments thereof, for the purpose of considering and, if thought fit, passing the resolutions to approve, among other matters, (a) the purchase of the Sale Shares pursuant to the terms of the Share Purchase Agreement and the allotment and issuance of the Consideration Shares and the Settlement Shares; (b) the execution of the Deeds of Adherence by the Company and the allotment and issuance of the Exchange Shares; and (c) the Whitewash Waiver. A notice convening the EGM is set out on pages VI-1 to VI-3 of this circular.

As Shareholders other than the Independent Shareholders, who in aggregate are interested in and are entitled to exercise control over the voting rights of 385,745,000 Shares, representing approximately 40.55% of the issued share capital of the Company as at the Latest Practicable Date, are interested in the Share Purchase Agreement, they will abstain from voting at the EGM on the relevant resolution(s) regarding the Share Purchase Agreement and the transactions contemplated thereunder including the proposed allotment and issue of the Consideration Shares and the Settlement Shares and the Whitewash Waiver. For the avoidance of doubt, on allotment and issue of the Exchange Shares to the Investors, they will be counted towards the public float of the Company.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM, you are requested to complete the proxy form in accordance with the instructions printed thereon and return the same to the office of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Standard Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

RECOMMENDATION

The Directors consider that (a) the purchase of the Sale Shares pursuant to the terms of the Share Purchase Agreement and the allotment and issuance of the Consideration Shares and the Settlement Shares; (b) the execution of the Deeds of Adherence by the Company and the allotment and issuance of the Exchange Shares; and (c) the Whitewash Waiver, and the transactions contemplated under the Share Purchase Agreement are fair and reasonable, on normal commercial terms and are in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to be proposed at the EGM.

– 44 –

LETTER FROM THE BOARD

The Independent Board Committee, having taken into account the advice of Somerley, the Independent Financial Adviser, considers that (a) the purchase of the Sale Shares pursuant to the terms of the Share Purchase Agreement and the allotment and issuance of the Consideration Shares and the Settlement Shares; (b) the execution of the Deeds of Adherence by the Company and the allotment and issuance of the Exchange Shares; and (c) the Whitewash Waiver, and the transactions contemplated under the Share Purchase Agreement are fair and reasonable, on normal commercial terms and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM.

ADDITIONAL INFORMATION

The letter from the Independent Board Committee containing its recommendation is set out on pages 46 to 47 of this circular. The letter from Somerley containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders is set out on pages 48 to 79 of this circular.

Your attention is drawn to the letters from the Independent Board Committee and Somerley, and the information set out in the appendices of this circular.

Yours faithfully, For and on behalf of

China Vanguard Group Limited Lau Hin Kun Executive Director

– 45 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8156)

14 March 2008

To the Independent Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF GRAND PROMISE INTERNATIONAL LIMITED

APPLICATION FOR WHITEWASH WAIVER

ISSUE OF SHARES UNDER A SPECIFIC MANDATE

We refer to the circular of the Company dated 14 March 2008 (the “Circular”) to the Shareholders, of which this letter forms part. Capitalized terms used herein have the same meanings as defined in the Circular unless otherwise specified.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders in respect of (a) the purchase of the Sale Shares pursuant to the terms of the Share Purchase Agreement and the allotment and issuance of the Consideration Shares and the Settlement Shares; (b) the execution of the Deeds of Adherence by the Company and the allotment and issuance of the Exchange Shares; and (c) the Whitewash Waiver, details of which are set out in the Letter from the Board in the Circular.

We wish to draw your attention to the “Letter From Somerley” containing advice to us regarding whether (a) the purchase of the Sale Shares pursuant to the terms of the Share Purchase Agreement and the allotment and issuance of the Consideration Shares and the Settlement Shares; (b) the execution of the Deeds of Adherence by the Company and the allotment and issuance of the Exchange Shares; and (c) the Whitewash Waiver, and the transactions contemplated under the Share Purchase Agreement are fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole as set out on pages 48 to 79 of the Circular. Having considered the advice given by Somerley and the principal factors and reasons taken into consideration by them in arriving at their advice, we are of the opinion that (a) the purchase of the Sale Shares pursuant to the terms of the Share Purchase Agreement and the allotment and issuance of the Consideration Shares and the Settlement Shares; (b) the execution of the Deeds of Adherence by the Company and the

* For identification purposes only

– 46 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

allotment and issuance of the Exchange Shares; and (c) the Whitewash Waiver, and the transactions contemplated under the Share Purchase Agreement are fair and reasonable, on normal commercial terms and are in the interests of the Company and the Shareholders as a whole and as far as the Independent Shareholders are concerned. We therefore recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve (a) the purchase of the Sale Shares pursuant to the terms of the Share Purchase Agreement and the allotment and issuance of the Consideration Shares and the Settlement Shares; (b) the execution of the Deeds of Adherence by the Company and the allotment and issuance of the Exchange Shares; and (c) the Whitewash Waiver, and the transactions contemplated under the Share Purchase Agreement.

Yours faithfully, For and on behalf of Independent Board Committee Zhao Zhi Ming To Yan Ming, Edmond Independent non-executive Directors

– 47 –

LETTER FROM SOMERLEY

The following is the letter of advice from Somerley to the Independent Board Committee and the Independent Shareholders which has been prepared for the purpose of inclusion in this circular:

==> picture [40 x 41] intentionally omitted <==

SOMERLEY LIMITED

10th Floor The Hong Kong Club Building 3A Chater Road Central Hong Kong

14 March 2008

To: The Independent Board Committee and the Independent Shareholders

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF GRAND PROMISE INTERNATIONAL LIMITED

APPLICATION FOR WHITEWASH WAIVER

ISSUE OF SHARES UNDER A SPECIFIC MANDATE

INTRODUCTION

We refer to our appointment to act as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in connection with the Company’s proposed acquisition of the entire issued share capital of Grand Promise and all transactions contemplated under the Acquisition including the application for the Whitewash Waiver. Details of the Acquisition and the application for the Whitewash Waiver are contained in the circular of the Company to the Shareholders dated 14 March 2008 (the “Circular”), of which this letter forms part. Unless the context otherwise requires, capitalised terms used in this letter have the same meanings as those defined in the Circular.

The Acquisition constitutes a very substantial acquisition for the Company under the GEM Listing Rules. Best Frontier, one of the Vendors, held approximately 38.02% of the existing issued share capital of the Company as at the Latest Practicable Date. Being a substantial shareholder of the Company, Best Frontier is a connected person of the Company under the GEM Listing Rules and the Acquisition therefore constitutes a connected transaction for the Company. The Acquisition and the allotment and issue of the Consideration Shares and the Settlement Shares under a specific mandate requires the Independent Shareholders’ approval.

– 48 –

LETTER FROM SOMERLEY

Immediately following completion of the Acquisition, the interests of the Vendors and their respective concert parties in the Company will increase from approximately 40.55% to approximately 82.51%. Such an increase is more than 2% from the lowest percentage holding of the Vendors and their respective concert parties in the twelve months period ending on and inclusive of the date of Completion and therefore will exceed the 2% creeper threshold specified in the Takeovers Code. The Vendors have therefore made an application to the Executive for the Whitewash Waiver from an obligation to make a general offer under Rule 26 of the Takeovers Code in respect of the Shares not owned by the Vendors and their respective concert parties immediately following Completion. The Executive has indicated that it will grant the Whitewash Waiver to the Vendors subject to the approval of the Independent Shareholders of the Whitewash Waiver at the EGM on a vote taken by poll.

Shareholders other than the Independent Shareholders will abstain from voting on the relevant resolutions to be proposed at the EGM regarding the Share Purchase Agreement and the transactions contemplated thereunder including the proposed allotment and issue of the Consideration Shares and the Settlement Shares and the application for the Whitewash Waiver.

The Independent Board Committee, comprising two independent non-executive Directors, namely Messrs. Zhao Zhi Ming and To Yan Ming, Edmond, has been established to consider whether the terms of the Share Purchase Agreement, the issue of the Consideration Shares, the Settlement Shares and the Exchange Shares, the Deeds of Adherence and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned, whether the Acquisition is in the interests of the Company and the Shareholders as a whole and to make recommendations to the Independent Shareholders on how to vote on the relevant resolutions to be proposed at the EGM. Mr. Tian He Nian, an independent non-executive Director, has refrained from serving on the Independent Board Committee as he is also an independent non-executive director of CCDDT, a Grand Promise Group Member. Mr. Zhang Xiu Fu, an independent non-executive Director, is not sitting on the Independent Board Committee as he was only appointed with effect from 25 January 2008 after the establishment of the Independent Board Committee. We, Somerley, have been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

We, Somerley, are not associated with the Company or its substantial shareholders or any party acting, or presumed to be acting in concert with any of them and, accordingly, are considered suitable to give independent advice on the Acquisition and the Whitewash Waiver. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees or benefits from the Company or its substantial shareholders or any party acting, or presumed to be acting in concert with any of them.

In formulating our opinion, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Company and have assumed that the information and facts provided and opinions expressed to us are true, accurate and complete and will remain so up to the time of the EGM. We have also sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed to us. We have relied on such information and consider that the information we have received is sufficient for us to reach an informed view and have no reason to believe that any material information has been withheld, or to doubt the truth, accuracy or completeness of the information provided. We have not, however, conducted any independent investigation into the business and affairs of the Group, nor have we carried out any independent verification of the information supplied.

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PRINCIPAL FACTORS AND REASONS TAKEN INTO ACCOUNT

In arriving at our opinion on the terms of the Acquisition and the Whitewash Waiver, we have taken into consideration the following principal factors and reasons:

I. BACKGROUND TO AND REASONS FOR THE ACQUISITION

(a) Information on the Group

(i) Business and history of the Group

The Group was founded by Madam Cheung Kwai Lan and Mr. Chan Tung Mei in 1999. Since the Group’s listing on the GEM in November 2002, the Group has principally been engaged in the manufacture and distribution of natural health food, drinks and daily care products in the PRC and Hong Kong. In August 2004, the Company acquired 60.0% of the then issued share capital of Aptus which became a subsidiary of the Group specialising in the edible oil trading and natural resources industry. As at the Latest Practicable Date, Aptus was owned as to approximately 57.2% by the Company.

In 2006, the Group further diversified its business from being a natural products manufacturer and distributor into the PRC lottery-related and oil and gas related industries. In January 2006, Aptus acquired an effective 56.0% profit sharing right in an oilfield in Xin Jiang, the PRC. The Group took its first step into the PRC lottery-related industry in March 2006 by acquiring a 51.0% stake in Shenzhen Bozone IT Co. Limited which is principally engaged in the research and development and application of information technology in the lottery field.

To further strengthen the Group’s PRC gas related businesses, the Group invested in two joint ventures in the PRC. In July 2006, Aptus entered into two agreements to make capital injections into Changde Huayou Gas Co., Limited (“Changde Huayou”), which constructs and operates a gas pipeline distribution network to residential, commercial and industrial customers in Changde City, and to Hunan Huayou Natural Gas Transportation & Distribution Company Limited (“Hunan Huayou”), which constructed its own natural gas pipeline extending from Changsha City to Changde City, in return for a 48.3% and a 33.0% equity interest in these two joint ventures respectively.

To focus on the development of lottery-related and oil and gas related businesses in the PRC, the Group pared down its natural products activities by selling off its 20.8% stake in Your Mart Co., Limited which was a joint venture engaged in the distribution and retail of consumable goods in April 2006. The Group further disposed of its 55% interest in Wuhu Bee & Bee Natural Food Company Limited and its 100% interest in Zhuhai Free Trade Zone Bee & Bee Natural Food Company Limited in September 2006. The disposals allowed the Group to focus its

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resources on investments in research and development and application of information technology in the lottery field, and the oil and gas related businesses in the PRC which the Group believes to have better potential.

(ii) Financial information on the Group

Profit and loss

Below are summaries of the audited results of the Group for the three years ended 30 June 2007 and the unaudited results for the six months periods ended 31 December 2007 and 2006:

				**Six months **	ended 31
	**Year **	ended 30 June		December
	2005	2006	2007	2006	2007
	(audited)	(audited)	(audited)	(unaudited)	(unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	189,131	81,608	91,461	35,356	75,136
Profit/(loss) before
income tax	39,697	(51,645)	(102,039)	(47,997)	(28,933)
Profit/(loss) for the
year/period	30,611	(58,362)	(103,481)	(48,421)	(29,931)
Profit/(loss)
attributable to
equity holders of
the Company	31,685	(39,908)	(72,521)	(26,924)	(31,233)
Dividend per Share	HK2 cents	HK0.5cent	–	–	–

For the year ended 30 June 2006, revenue of the Group dropped significantly by about 56.9% to HK$81.6 million from HK$189.1 million. Such a decrease was caused by the poor performance of edible oil trading operations and the natural food, drinks and daily care products division resulting from difficult business conditions.

A severe market environment for edible oil trading operations, the Group’s refocusing of business from natural products to the oil and gas related industries and the lottery-related business in the PRC, the newly acquired Xin Jiang oilfield yet to make any contribution and a loss resulting from the disposal of an associate of HK$13.1 million engaging in consumer and consumable goods retailing business combined to result in profit attributable to equity holders of the Company dropping significantly. Share award expenses of HK$36.1 million and share option expenses of HK$39.4 million in relation to the issue of the Shares and Options further detracted from the bottom line. Mainly for these reasons, the Group recorded a loss attributable to equity holders of the Company of HK$39.9 million for the year ended 30 June 2006.

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For the year ended 30 June 2007, the financial performance of the Group improved. Revenue jumped by 12.1% to HK$91.5 million which was mainly due to the Group’s investment in the PRC lottery-related industry, the edible oil trading business as well as the maiden contribution from gas related businesses. Despite the increase in turnover, the loss attributable to equity holders of the Company deteriorated by 81.7% to HK$72.5 million. Such a loss was mainly attributable to share option expenses of HK$83.3 million, legal and professional fees of HK$13.4 million incurred in relation to the Group’s investment in natural gas pipeline distribution project and HK$19.9 million for imputed finance charges associated with the convertible bonds issued by Aptus in November 2006.

The Group recorded a growth in revenue and a reduction in loss for the period approximately 112.5% and 38.2% respectively for the six months period ended 31 December 2007 when compared to the corresponding period in 2006. The improvement in revenue was mainly contributed by the PRC lotteryrelated and gas related businesses. However, the Group’s PRC lottery-related business recorded a 15% decrease in profit from operations of HK$4.3 million, when compared to the corresponding period in 2006. Such a reduction was mainly due to a drop in sales of lottery equipment. For the gas related business, the development of the two natural gas joint ventures had contributed HK$31.5 million for the six months period ended 31 December 2007, representing approximately 42.0% of the Group’s total revenue. Changde Huayou has completed 636 kilometres of city-level pipelines connecting approximately 125 commercial users, 7 industrial users, 75 public welfare establishments and 45,000 residential users. Hunan Huayou has finished construction of its main pipeline branching out to 7 city-level gas distribution stations in the province of Hunan.

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Balance sheet

The following are statements of the audited and unaudited assets and liabilities of the Group as at 30 June 2007 and as at 31 December 2007 respectively:

Non-current assets Property, plant and equipment Goodwill Other intangible assets Interest in associates Prepaid lease payments Construction in progress Deferred tax assets Current assets Inventories Trade and other receivables and prepayments Prepaid lease payments – current portion Pledged bank deposits Bank balances and cash Current liabilities Trade and other payables Tax liabilities Bank and other borrowings – due within one year Net current assets Total assets less current liabilities Non-current liabilities Bank and other borrowings Convertible bonds Net assets	As at 30 June 2007 (audited) HK$’000 235,697 280,689 2,603 238 12,496 14,004 –	As at 31 December 2007 (unaudited) HK$’000 250,308 280,689 1,265 2,081 24,757 2,664 1,337
	545,727 6,536 89,656 380 5,000 204,722 306,294 57,528 1,422 5,617 64,567 241,727 787,454 106,105 243,144 349,249	563,101
		6,997 114,376 395 5,000 171,935
		298,703
		54,559 1,319 18,978
		74,856
		223,847
		786,948
		99,636 257,344
		356,980
	438,205	429,968

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Capital and reserves Share capital Reserves Equity attributable to equity holders of the Company Minority interests Total equity	As at 30 June 2007 (audited) HK$’000 9,361 416,336	As at 31 December 2007 (unaudited) HK$’000 9,444 406,907
	425,697 12,508	416,351 13,617
	438,205	429,968

Property, plant and equipment

Property, plant and equipment accounted for approximately 28% of the Group’s total assets as at 30 June 2007 and were mainly composed of natural gas distribution network of HK$154.0 million, leasehold land and buildings located in the PRC of HK$18.1 million and plant and machinery of HK$38.7 million.

Goodwill

The goodwill arose from the Group’s acquisition of subsidiaries or jointly controlled entities. Goodwill of HK$145.8 million was recorded during the year ended 30 June 2007, which arose from the acquisition of jointlycontrolled entities in the PRC gas industry and the increase of equity interest in Aptus.

Trade and other receivables and prepayments

As at 30 June 2007, trade and other receivables and prepayments mainly included prepayments for the drilling operation of Xin Jiang oilfield in the PRC of approximately HK$30.0 million and trade receivables of HK$10.9 million.

Bank balances and cash and borrowings

As at 30 June 2007, there were bank balances and cash of HK$204.7 million and pledged bank deposit of HK$5 million. Out of the total borrowings of HK$111.7 million, HK$74.7 million were bank loans with interest rates ranging from 4.8% to 6.7% per annum. As at 31 December 2007, there were bank balances and cash of HK$171.9 million and pledged bank deposit of

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HK$5 million. Out of the total borrowings of HK$118.6 million, HK$74.1 million were bank loans with interest rates ranging from 4.8% to 7.05% per annum. The additional borrowings were used to finance development of the PRC oil and natural gas pipeline businesses.

Convertible bonds

The non-current liability component of the convertible bonds amounted to HK$243.1 million as at 30 June 2007. The convertible bonds were issued by Aptus in November 2006 with a principal amount of HK$234 million and bear interest at 5% per annum. The bondholders may exercise the right to convert at any time from 1 January 2007 up to 11 November 2011. In the event that the convertible bonds have not been converted or early redeemed, they will be redeemed at 150.15% of their principal amount on 21 November 2011. The difference between the carrying value of the non-current liability portion of the convertible bonds and the principal amount represents the equity component of the convertible bonds and the accrual of the effective interest. The accrual of effective interest for the six months period ended 31 December 2007 brought the non-current liability component of the convertible bonds to HK$257.3 million as at that date.

(b) Reasons for the Acquisition

As discussed above under the paragraph headed “Business and history of the Group”, we observe that the Directors have been actively and consistently seeking new investment opportunities.

The Directors believe that the acquisition of Grand Promise will offer an excellent entry point for the Group to be involved in the operation of the Karaoke CMS in the PRC. To the best knowledge of the Directors, there are currently no international or domestic competitors engaged in the Karaoke CMS business in the PRC, and the Directors envisage that CCDDT can enjoy a first mover advantage in the creation of the Karaoke CMS. Besides broadening the Group’s revenue base, tapping into this new business line will also help to diversify the overall business risks of the Group. Furthermore, the Directors consider Grand Promise Group has an unique advantage through the development and ownership of the Karaoke CMS and the resultant network of karaoke venues and owners of the intellectual property rights. The Company believes that the Karaoke CMS has the potential to become a comprehensive technical platform to provide access to over 150,000 karaoke capable entertainment venues in the PRC which would represent a large and attractive market. The rollout of the platform and value-added services nationwide is expected to generate strong Renminbi denominated cashflow to the Group.

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II. THE ACQUISITION

(a) Business and structure of Grand Promise Group

Set out below is the corporate structure of Grand Promise Group as at the Latest Practicable Date:

==> picture [361 x 263] intentionally omitted <==

Note:

As a condition precedent to the Share Purchase Agreement, not less than three Provincial Subs will have to be established by Completion. As at the Latest Practicable Date, such condition had been fulfilled and three Provincial Subs had been established.

Grand Promise was incorporated on 25 August 2006 in the British Virgin Islands with limited liability. As at the Latest Practicable Date, Best Frontier held a 80% interest in Grand Promise. Other Vendors (except Best Frontier), comprising individuals and investment holding companies, held a 20% aggregate interest in Grand Promise.

Birdview, an investment holding company incorporated in Hong Kong on 24 February 2006, is a direct wholly-owned subsidiary of Grand Promise.

MOC approved the MOC Market Development Center to establish and operate a nationwide Karaoke CMS. The MOC Market Development Center has exclusively appointed CCDDT to establish and operate the Karaoke CMS for the life of the joint venture, which is 30 years.

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CCDDT, a sino-foreign joint venture company established in the PRC on 16 June 2006, is 49% owned by Birdview and 51% by CCD. CCD is a limited liability company established in the PRC and is approximately 40% owned by the MOC Market Development Center, with the remaining approximately 60% owned by five Independent Third Parties. CCDDT is responsible for the establishment, operation, maintenance and enhancement of the Karaoke CMS.

Karaoke CMS is an information system that connects CCDDT’s Karaoke CMS data centre in Beijing to karaoke venues nationwide to keep track of karaoke programmes played in all these venues. This information system can be utilised (i) to carry out a copyright transaction service function to protect IP Owners and karaoke operators’ interest; and (ii) to provide potential value-added services for karaoke venues (including product advertisement and promotion services). According to the Regulations on the Administration of Entertainment Venues, only legal copies and versions of karaoke programmes are to be used in PRC entertainment venues, ie. the karaoke programmes used must be published by those publishers which have been permitted to do so under the law or which are imported under legal permission and do not contain any prohibited contents. The Karaoke CMS will involve a song database which is used to store legal copies and versions of karaoke programmes. The song database will be maintained by CCDDT.

Each participating karaoke venue will have installed the song database maintained by CCDDT. Karaoke programme files will be stored in the VOD equipment located at the venue which will stream karaoke programmes to the venue’s rooms when requested. Karaoke programmes are not streamed real time from the centralised data centre in Beijing. Additional software and two set-top boxes will also be installed for the purpose of tracking and communication. Details of the information such as which karaoke programme is played at each participating karaoke venue would be captured and transferred to the Karaoke CMS data centre in Beijing on a real time or batch basis.

The rollout of the Karaoke CMS will be on a province-by-province basis. Once a certain number of venues is connected to draw data for fee sampling, all dedicated karaoke venues can be targeted for fee collection.

In a rollout province, CCDDT Group facilitates the payment of copyright fees by karaoke venues to IP Owners. For venues connected to Karaoke CMS, copyright fees charged will be based on a fixed plus a variable charge basis with the variable component based upon a fee per karaoke programme per play basis, with a proposed maximum charge of RMB12 per room per day subject to downward adjustments depending on location and scale of operations of particular karaoke venues (as announced by the National Copyright Administration of the People’s Republic of China in Announcement 2006 (No.1) on 9 November 2006). It is currently expected that the minimum charge will be in the region of a 50% discount on the applicable maximum charge. For venues not connected to the Karaoke CMS, copyright fees will be charged via the sampling method. It is currently intended that karaoke operators connected to the Karaoke CMS will enjoy a certain discount to encourage connection to the Karaoke CMS. Regardless of whether karaoke venues in a rollout province are connected or not, IP Owners will be facilitated by the

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CCDDT Group to receive copyright fees. Thus, IP Owners will pay the CCDDT Group a fee for successful collection of copyright fees from all these karaoke venues.

In order to install the approved song database to all existing and future karaoke venues, CCDDT will be leveraging on the VOD Supplier’s network to have the new song database, software and set-top box installed nationwide. The VOD Suppliers will install a new version of the VOD system software which is Karaoke CMS compatible. All existing VOD Suppliers should ensure that their equipment is compatible and conforms with the standards of the set-top boxes provided by CCDDT. Currently, fourteen major VOD Suppliers covering approximately 25,400 dedicated and non-dedicated karaoke venues are already working with CCDDT in rolling out the Karaoke CMS.

CCDDT owns 50% of Tian He, a joint venture company established in the PRC on 27 August 2007, with the remaining 50% interest held by Shenzhen Huarong, an Independent Third Party. To the best of the Directors’ knowledge, information and belief, as part of the plan of establishment, Tian He will be setting up Provincial Subs. As at the Latest Practicable Date, three Provincial Subs had been established. Tian He will use the Karaoke CMS to carry out copyright transaction settlement services for IP Owners. To the best of the Directors knowledge, information and belief having made reasonable enquiries, China Audio and Video Association (“CAVA”) represents most of the Chinese language music and a large part of the foreign language music, including copyrights of songs from the four major international record labels, namely Universal, Sony, EMI and Warner, and more than 80 other record labels well-known in the PRC, Hong Kong, Macau and Taiwan, such as EEG, Rock Records, Ocean Butterflies, HIM, Linfair Records, Forward Music and Avex. CAVA has undertaken that it will rely on the Karaoke CMS as its only channel to carry out copyright transaction settlements for karaoke venues, and that they will pay the CCDDT Group a fee for this service.

CCDDT also owns 100% of CCD Video, a limited liability company established in the PRC on 6 February 2007. CCD Video was established with the intention to carry out re-editing of karaoke programmes to ensure the contents meet the PRC industry standards and to produce karaoke programmes. As at the Latest Practicable Date, Grand Promise had contributed a total of RMB49 million to CCDDT (via Birdview) in the form of registered capital.

As at the end of December 2007, there were 140 karaoke venues in six provinces which had been connected to the Karaoke CMS. The current data centre in Beijing can support connections of up to 10,000 karaoke venues. CCDDT expects to rollout the Karaoke CMS system in 25 provinces in 2008 and it is envisaged that the rollout will extend to all 31 provinces in the PRC in 2009. Details of the rollout plan of Karaoke CMS are set out under the paragraph headed “Business plan” in the “Letter from the Board”.

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The Group has been involved in the PRC lottery-related industry since March 2006 and has acquired knowledge of IT platform technology, which is applicable to the Karaoke CMS. In addition, the management of Grand Promise including Madam Cheung Kwai Lan and Mr. Chan Ting who have participated and will continue participating in the development of the Karaoke CMS, are also directors of the Company. The Company currently intends to retain all management and key staff of CCDDT in running the operation of the Karaoke CMS after the Acquisition. The Directors believe that the management of Grand Promise Group would have sufficient knowledge and experience in running the Karaoke CMS.

(b) Financial information of Grand Promise Group

(i) Past performance of Grand Promise Group

Based on the audited combined financial statements of Grand Promise Group prepared in accordance with Hong Kong Financial Reporting Standards as set out in Appendix II to the Circular, the combined revenue and net loss of Grand Promise Group for the period from its date of incorporation on 25 August 2006 to 30 June 2007 and for the four months period from 1 July 2007 to 31 October 2007 are as follows:

		From	From
	**25 **	August 2006	1 July 2007 to 31
	to 30 June 2007		October 2007
		(audited)	(audited)
		HK$’000	HK$’000
Revenue		11	21
Net loss for the period		(4,752)	(2,672)

Grand Promise holds its principal jointly controlled entity, CCDDT, through its wholly-owned subsidiary, Birdview. CCDDT commenced operations in October 2006 and only minimal revenue was recorded up to October 2007. Loss for the period mainly consists of pre-operating expenses incurred in establishing the Karaoke CMS network which mainly include staff costs, depreciation expenses on machinery and equipment and travelling expenses. The Directors expect that the rollout of the Karaoke CMS network nationwide in 2008 will generate strong Renminbi denominated cashflow to Grand Promise.

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(ii) Financial position of Grand Promise Group

Set out below is a summary of the audited combined balance sheets of Grand Promise Group as at 31 October 2007:

Non-current assets Property, plant and equipment Intangible assets Current assets Inventories Deposits and prepayments Other receivables Amount due from a shareholder of a jointly controlled entity Available-for-sale equity investments Bank balances and cash Current liabilities Trade creditors Accruals Other payables Amount due to a director Amount due to a shareholder of a jointly controlled entity Amount due to a shareholder Net current liabilities Net liabilities Capital and reserves Share capital Reserves

As at 31 October 2007 (audited) HK$’000 6,939 621 7,560 47 1,627 478 25,371 409 13,016 40,948 80 157 112 10 4,975 48,516 53,850 (12,902) (5,342) 78 (5,420) (5,342)

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Property, plant and equipment

As at 31 October 2007, the major class of asset of Grand Promise Group was machinery and equipment of approximately HK$6.9 million which accounted for about 14.1% of its total assets. The machinery and equipment were mainly facilities supporting the Karaoke CMS network.

Intangible assets

Intangible assets of approximately HK$0.6 million as at 31 October 2007 mainly represented the capitalisation of Karaoke CMS development cost of approximately HK$0.4 million including depreciation expense and staff salaries and allowances.

Cash and borrowings

As at 31 October 2007, there were cash and bank balances of approximately HK$13.0 million and no bank borrowings.

Amount due to a shareholder

Grand Promise Group recorded an amount due to a shareholder of HK$48.5 million as at 31 October 2007. In November 2007, Grand Promise issued the Convertible Notes part of the proceeds of which were used to repay part of the outstanding Shareholder’s Loan due to Best Frontier. Pursuant to the Share Purchase Agreement, Best Frontier will assign the Shareholder’s Loan at its face value of HK$13.82 million to the Company upon Completion.

(c) Principal terms of the Share Purchase Agreement

(i) Assets to be purchased

Pursuant to the Share Purchase Agreement, the Company conditionally agreed to purchase and the Vendor conditionally agreed to sell the Sale Shares, free from all encumbrances and together with all rights now or hereafter attaching to them, including all rights to any dividend or other distribution declared, made or paid on or after the date of the Share Purchase Agreement. The Sale Shares comprise the entire issued share capital of Grand Promise. Best Frontier, one of the Vendors, would also assign the Shareholder’s Loan to the Company on Completion at its face value.

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(ii) Consideration

The consideration for the Sale Shares of US$200 million is determined by making reference to available market comparables, namely, the base equity price at which the two independent professional investors purchased the Convertible Notes, particularly in view of the subject matter of the Acquisition being the same as the subject matter of the Convertible Note and the proximity in time between the issue of the Convertible Notes and the date of the Share Purchase Agreement. The Investors, as professional investors, arrived at such base equity price independently. The Consideration was negotiated between the Vendors and the Company on an arm’s length basis and is the same as the base equity price of US$200 million on the basis of which Liberty Harbor and Evolution purchased the Convertible Notes. The relations between the base equity price of US$200 million, the conversion price for the Conversion Shares and the exchange price for the Exchange Shares is discussed under the paragraph headed “Deeds of Adherence” set out below.

We have discussed with Evolution, one of the Investors, the bases upon which it purchased the Convertible Notes at an implied base equity price of Grand Promise of US$200 million and we understand that they have considered, among other things, the business plan of CCDDT, the rollout schedule, the proposed fee structure and the potential growth of the karaoke industry in the PRC which in our view, should also be applicable to the Company’s analysis of the Acquisition.

We understand that in addition to having reference to available market comparables, being the implied base equity price at which the Investors purchased the Convertible Notes, the Directors also had regard to other factors including (i) the arrangements with CAVA, the organisation representing most of the Chinese language music and a large part of the foreign music played in karaokes. CAVA has undertaken to rely on the Karaoke CMS as their only channel to carry out copyright transaction settlements for karaoke venues; (ii) the proposed fee structure of up to RMB12 per room per day; and (iii) the absence of international or domestic competitors engaged in the Karaoke CMS business in the PRC which gives the CCDDT Group a first mover advantage in what they believe is a large and attractive industry. In light of these three factors, the CCDDT Group is likely to become a market leader in this industry as the Karaoke CMS could secure a good portion of the copyright transaction settlement flow in this industry. We have also reviewed market data for the karaoke business in the PRC with MPA. We have discussed with them the prospects for karaoke industry in the PRC and concur with their positive assessment. We believe that it is reasonable for the Directors to have regard to these factors in their determination of the Consideration.

We are advised by the Directors that to the best of their knowledge, the Karaoke CMS is the first-of-its-kind in the PRC. MPA has also confirmed to us that due to the uniqueness of the business model of the CCDDT Group, there are no “true” comparables in the PRC market. We are unable to identify another comparable companies engaging in businesses similar to CCDDT.

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Consideration Shares

Pursuant to the Acquisition, the Company will acquire the entire issued share capital of Grand Promise for an aggregate consideration of US$200 million (equivalent to HK$1,560,900,000) by the allotment and issue of 2,262,173,906 new Shares to the Vendors (and/or their respective nominees) at an issue price of HK$0.69 each.

Settlement Shares

In consideration of Best Frontier assigning the Shareholder’s Loan at its face value (in the amount of HK$13.82 million) to the Company on Completion, the Company shall allot and issue 20,023,192 new Shares to Best Frontier (and/or its nominee) at an issue price of HK$0.69 each.

(a) Comparison with net assets and earnings

The Consideration represents a premium of approximately HK$1,552.4 million over Grand Promise Group’s adjusted net asset value of approximately HK$8.48 million as at 31 October 2007, calculated by adding back the Shareholder’s Loan of approximately HK$13.82 million to be assigned to the Company upon Completion to its net liabilities of approximately HK$5.34 million as at 31 October 2007. To satisfy the Consideration of US$200 million, the Company will issue the Consideration Shares at the issue price of HK$0.69 per Share.

The issue price of HK$0.69 per Consideration Share represents:

• (1) a premium of approximately 316.9% over the latest published audited consolidated net tangible assets of the Company of approximately HK$0.1655 per Share as at 30 June 2007;

• (2) a premium of approximately 47.4% over the latest published audited consolidated net assets of the Company of approximately HK$0.4681 per Share as at 30 June 2007;

• (3) a premium of approximately 340.3% over the unaudited consolidated net tangible assets of the Company of approximately HK$0.1567 per Share as at 31 December 2007; and

• (4) a premium of approximately 51.5% over the unaudited consolidated net assets of the Company of approximately HK$0.4553 per Share as at 31 December 2007.

Grand Promise Group recorded a net loss of approximately HK$4.8 million and HK$2.7 million for the period from its incorporation date 25 August 2006 to 30 June 2007 and the four months period from 1 July 2007 to 31 October 2007 respectively.

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Since CCDDT, a jointly controlled entity of Grand Promise Group, was established in June 2006 and only commenced operations in October 2006, we consider it inappropriate to assess the Consideration by making reference solely to past performance of such a short history and which was distorted by start-up costs.

Both the consideration for the Acquisition and the issue price of the Consideration Shares represent significant premium to the underlying assets such securities represent. Such significant premia represent, in our view, the confidence of each of the Company and the Vendors in the future prospects of the Enlarged Group after Completion.

(b) Methods of funding

The Consideration will be satisfied entirely by the allotment and issue of the Consideration Shares. This is favourable to the Company in that it enables the Group to tap into a new business which the Directors believe has a promising future without a large outlay of cash. Such method of funding also results in lower financial risks to the Group, avoiding an increase in leverage compared to seeking external financing for the Acquisition. For an expansion of a permanent nature such as the Acquisition, we consider that it is prudent for the Group to utilise permanent equity capital to avoid creating a substantial financial burden from repayment of interests and borrowings.

(c) Lock-up undertaking

On Completion, the Consideration Shares shall be held in escrow by the Escrow Agent. The Vendors shall be entitled to the return of the Consideration Shares from the Escrow Agent upon the terms and conditions of the Escrow Agreement: (i) in relation to half of the Consideration Shares (“First Consideration Shares”) after six months from Completion; and (ii) in relation to the remaining half of the Consideration Shares (“Second Consideration Shares”) after twelve months from Completion.

Pursuant to the Share Purchase Agreement, each of the Vendors undertakes to the Company that each of them will not, and will procure that its nominees, will not offer, lend, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of (either conditionally or unconditionally, or directly or indirectly, or otherwise) any of the Consideration Shares, or any interests in such Consideration Shares beneficially owned or held by it or enter into any swap, derivatives or similar agreement that transfers, in whole or in part, the economic consequences of ownership of the First Consideration Shares and the Second Consideration Shares for a period of six months and twelve months from Completion respectively.

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We consider the lock-up undertaking further demonstrates Best Frontier’s commitment to the Company, and the confidence of the Vendors in the Enlarged Group’s future growth and prospects. We are also of the view that the lock-up undertaking would be in the interests of the Company since it would avoid the Consideration Shares flooding the market which may exert pressure on the price performance of the Shares.

(iii) Conditions precedent to the Acquisition

The Acquisition is conditional upon, among other things: the fulfillment of (i) the purchase of the Sale Shares pursuant to the terms of the Share Purchase Agreement and allotment and issuance of the Consideration Shares and the Settlement Shares having been approved by the Independent Shareholders at the EGM; (ii) the execution of the Deeds of Adherence by the Company and the allotment and issuance of the Exchange Shares having been approved by the Shareholders (or, where appropriate, the Independent Shareholders) at the EGM; (iii) the Whitewash Waiver having been granted by the Executive in favour of the Vendors; (iv) the Whitewash Waiver having been approved by the Independent Shareholders at the EGM; (v) the GEM Listing Committee of the Stock Exchange having granted its approval for the listing of and permission to deal in the Consideration Shares, Settlement Shares and the Exchange Shares; (vi) a legal opinion in form and substance reasonably satisfactory to the Company having been issued by the Company’s PRC legal advisers to the Company; and (vii) there not having been any fact or circumstance that would result in the Birdview Share Charge being enforced by the Investors. Details of the Birdview Share Charge are discussed under the paragraph headed “Deeds of Adherence” below.

As at the Latest Practicable Date, none of the above conditions has been fulfilled.

(d) Deeds of Adherence

On 30 November 2007, Grand Promise issued the Convertible Notes to the Investors. Pursuant to the Share Purchase Agreement, the Company has agreed to be bound by the terms of the Convertible Notes jointly and severally (to the extent practicable) with Grand Promise by executing the Deeds of Adherence on Completion. The Deeds of Adherence will come into effect upon completion of the Share Purchase Agreement. Subject to applicable laws and regulations, the Convertible Notes may, at the option of the Investors, be exchangeable into a maximum number of 480,687,974 new Shares, at a strike price of HK$0.80 per Exchange Share, after Completion upon the terms and conditions contained therein. Pursuant to the Convertible Notes, the strike price is calculated based on a 20% premium of the Issue Price of HK$0.69 per Consideration Share, but subject to a cap of HK$0.80 per Exchange Share.

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The principal terms of the Convertible Notes are summarised as follows:

Issuer: Grand Promise Investors and principal amount: (1) Liberty Harbor – US$25,000,000 (2) Evolution – US$10,000,000 Accretion: The principal amount of the Convertible Notes shall accrete at a yield of 7% per annum, compounded semi-annually, commencing on the date of issuance (being 30 November 2007) (“ Issuance Date ”) of the Convertible Notes up to and including the date of redemption or conversion of all or part of the Convertible Notes, as the case may be. Interest: Non-interest bearing. Default interest at the rate of 2% per annum, compounded semiannually, is payable if Grand Promise fails to pay any amount payable in respect of the Convertible Notes. Strike price: Prior to Completion, 120% of US$200 million divided by the number of ordinary shares of Grand Promise in issue prior to any dilution resulting from the conversion of the Convertible Notes. Following Completion, 120% of the share price for Shares as designated in the Share Purchase Agreement but subject to a cap of HK$0.80 per Share. Maturity date: The fifth anniversary of the Issuance Date, i.e. 30 November 2012 (“ Maturity Date ”) Maturity: Unless previously converted, redeemed or repurchased and cancelled as provided in the Convertible Notes, Grand Promise will redeem the Convertible Notes in US dollars on the Maturity Date in an amount equal to 141.06% of the principal amount of the Convertible Notes.

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Under the terms of Convertible Notes purchased by Liberty Harbor and Evolution, the agreed base equity price of Grand Promise is US$200 million which is equal to the Consideration of the Sale Shares. Pursuant to the Convertible Notes, from the third month after the Issuance Date up to Completion, the Investors have the right to convert the Convertible Notes into ordinary shares of Grand Promise. The conversion is effectively based on value of Grand Promise of US$240 million, representing a stated 20% premium over the agreed base equity price of Grand Promise of US$200 million. Pursuant to an undertaking issued by the Investors to Grand Promise dated 11 January 2008, the Investors confirm that they will not exercise their rights to convert the Convertible Notes on or before Completion until the earliest of, inter alia, (a) the occurrence of any Event of Default (as defined in the Convertible Notes); (b) the Birdview Share Charge becoming enforceable; (c) the occurrence or announcement of a Change of Control Event (as defined in the Convertible Notes); and (d) 21 May 2008.

Pursuant to the Convertible Notes, the conversion price is equivalent to 120% of the merger price, i.e., the price per ordinary share of Grand Promise that values it at US$200 million based on the number of its ordinary shares then in issue prior to the issuance of the Convertible Notes. As at the date of the Convertible Note Agreement, Grand Promise had a total of 10,000 outstanding ordinary shares, equivalent to a merger price of US$20,000 per share of Grand Promise. The conversion price would amount to US$24,000 per Conversion Share if the Investors exercise their conversion rights before Completion. Should the Investors choose to exercise their conversion rights after Completion and convert into the shares of the Company, the exchange price would be equivalent to the quotient of the conversion price of US$24,000 divided by the merger exchange ratio (being the quotient of the merger price of US$20,000 divided by the issue price of the Consideration Shares of HK$0.69 each), but subject to a cap of HK$0.80 per Exchange Share.

To secure the obligations of Grand Promise under the Convertible Notes, Grand Promise, in favour of the Investors, has agreed to create a security interest over (i) all the issued and outstanding shares of Birdview of which Grand Promise is the legal and beneficial owner and; (ii) all proceeds deriving from such Birdview shares, including all dividends or other distributions and all sale proceeds. The Birdview Share Charge shall become enforceable by the Investors upon occurrence of certain events, including:

• (a) Grand Promise fails to pay any principal (including any accretion) on the Convertible Notes or any other amount which is payable thereunder;

• (b) Grand Promise fails to convert, or fails to cause the Company to exchange the Convertible Notes or portion thereof into the Exchange Shares;

• (c) any Grand Promise Group Member or the Company commences any case, proceeding or other action under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganisation or relief of debtors, seeking to have an order for relief entered with respect to it, or

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seeking to adjudicate it bankrupt or insolvent, or seeking reorganisation, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debt, or seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets;

• (d) any transaction as a result of which the shareholders of the Company, Grand Promise, Birdview or Best Frontier, beneficially owned more than 50% of the voting shares of such entity, immediately following the consummation of such transaction own less than 50% of the voting shares of the surviving entity in such transaction or the single largest shareholder of the Company, Grand Promise, Birdview or Best Frontier ceases to be the single largest shareholder of the Company, Grand Promise, Birdview or Best Frontier as applicable, immediately following the consummation of such transaction except for the change of shareholders of Grand Promise pursuant to the Acquisition (“Change of Control”).

One of the Impairment Loss events set out in the Convertible Notes that would give the Investors an early redemption right is if the revenues received by the CCDDT Group from fees due and payable by karaoke venues in respect of their participation in the Karaoke CMS as confirmed in writing by Grand Promise’s independent auditor having failed to reach RMB7.5 million by the date that is the earlier of (i) six months after the commencement of fee collection in relation to the Karaoke CMS, and (ii) 30 September 2008.

Details of the redemption rights under the Convertible Notes are set out in the “Letter from the Board”.

The Investors have paid the consideration of US$35 million for the Convertible Notes at completion of the Convertible Note Agreement in November 2007. The first tranche of proceeds amounting to 15% of the principal amount, has been released to Grand Promise. The second tranche of proceeds amounting to 35% of the principal amount would be released after completion of the Acquisition and the third tranche of proceeds amounting to 50% of the principal amount would be released upon the occurrence of the earlier of (i) 180 days following the completion date of Convertible Note Agreement or (ii) the receipt of revenue from the CCDDT Group exceeding RMB7.5 million.

(e) Outlook of karaoke business in the PRC

Karaoke was first brought into the PRC market in the 1980s. With the drivers of the industry being the growing PRC economy, the rising standards of living, the growing population and the modernisation of rural areas, the karaoke business developed rapidly in the PRC. According to the statistics and research released by the PRC Government, it is estimated there were approximately 150,000 karaoke venues across the PRC as at the end of 2006 and MPA forecasts that the number of karaoke venues in the PRC will increase at an annual growth rate of 5% and exceed 235,000 by 2015.

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The PRC Government has been establishing a series of industry standards, laws and regulations to protect intellectual property ownership in the karaoke industry and to promote development of the karaoke industry, which include the “Regulations on the Administration of Entertainment Venues and the Producing Specifications of Karaoke Programmes”, “the Copyright Law of the PRC” and “the Regulations on the Collective Management of Copyright”. Under the current regulation of the karaoke industry in the PRC, only legal copies and versions of karaoke programmes are to be used in PRC entertainment venues.

III. THE ISSUE PRICE FOR THE SHARES

(i) Comparison of the issue price for the Consideration Shares and the Settlement Shares with market prices

The issue price of HK$0.69 per Consideration Share and per Settlement Share represents:

• (1) a discount of approximately 15.9% to the closing price of HK$0.82 per Share as quoted on the Stock Exchange on 10 January 2008, being the last trading day immediately preceding the date of the Share Purchase Agreement;

• (2) a discount of approximately 7.1% to the volume-weighted average price of the Shares of HK$0.7429 per Share as quoted on the Stock Exchange for the last five trading days up to and including 10 January 2008;

• (3) a discount of approximately 5.7% to the volume-weighted average price of the Shares of HK$0.7314 per Share as quoted on the Stock Exchange for the last ten trading days up to and including 10 January 2008;

• (4) a premium of approximately 47.4% over the audited net asset value of the Company as at 30 June 2007 of approximately HK$0.4681 per Share based on 936,079,000 Shares in issue as at 30 June 2007;

• (5) a premium of approximately 51.5% over the unaudited net asset value of the Company as at 31 December 2007 of approximately HK$0.4553 per Share based on 944,379,000 Shares in issue as at 31 December 2007; and

• (6) a discount of approximately 13.8% to the closing price of the Shares of HK$0.80 as at the Latest Practicable Date.

(ii) Comparison of the issue price for the Exchange Shares with market prices

The issue price of HK$0.80 per Exchange Share, which is equal to the strike price for the Convertible Notes, represents:

• (1) a discount of approximately 2.4% to the closing price of HK$0.82 per Share as quoted on the Stock Exchange on 10 January 2008, being the last trading day immediately preceding the date of the Share Purchase Agreement;

• (2) a premium of approximately 7.7% over the volume-weighted average price of the Shares of HK$0.7429 per Share as quoted on the Stock Exchange for the last five trading days up to and including 10 January 2008;

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• (3) a premium of approximately 9.4% over the volume-weighted average price of the Shares of HK$0.7314 per Share as quoted on the Stock Exchange for the last ten trading days up to and including 10 January 2008;

• (4) a premium of approximately 70.9% over the audited net asset value of the Company as at 30 June 2007 of approximately HK$0.4681 per Share based on 936,079,000 Shares in issue as at 30 June 2007;

• (5) a premium of approximately 75.7% over the unaudited net asset value of the Company as at 31 December 2007 of approximately HK$0.4553 per Share based on 944,379,000 Shares in issue as at 31 December 2007; and

• (6) no premium or discount to the closing price of the Shares of HK$0.80 as at the Latest Practicable Date.

The charts below show the daily closing prices and trading volume of the Shares traded on the Stock Exchange from 1 January 2007 up to and including the Latest Practicable Date (the “Review Period”):

==> picture [38 x 167] intentionally omitted <==

==> picture [32 x 158] intentionally omitted <==

Source: Bloomberg

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During the Review Period, the Shares traded in the range of HK$0.32 per Share to HK$0.86 per Share. The average closing prices of the Shares for the Review Period was HK$0.61 per Share, which is lower than the issue price of the Consideration Shares and the Settlement Shares of HK$0.69. The average daily trading volume of Shares was approximately 4 million, representing approximately 0.9% and 0.4% of the number of issued Shares in public hands and the total number of issued Shares respectively as at the Latest Practicable Date.

Following the publication of the Company’s second quarter results for the six months period ended 31 December 2006 on 14 February 2007 with a net loss of approximately HK$48.4 million compared to a net profit of HK$9.6 million for the corresponding period in prior year, the share price of the Company dropped by 4.3% to HK$0.44 on 15 February 2007.

On 15 May 2007, the Company announced its third quarter results for the nine months period ended 31 March 2007 with a net loss of approximately HK$80.8 million compared to a net profit of HK$9.7 million for the corresponding period in prior year. The share price of the Company dropped by 2.3% to HK$0.425 on 16 May 2007 from HK$0.435 on 15 May 2007.

The share price of the Company surged by 102.4% from HK$0.425 on 16 May 2007 to HK$0.86 on 14 June 2007 and later dropped to HK$0.59 on 23 July 2007. During the same period, the Hang Seng China Enterprise Index (“HSCE Index”) increased by 23.1% as compared to 38.8% upward movement of the market price of the Shares.

The global stock markets were then affected by the turmoil in the credit markets. The HSCE Index dropped by approximately 18.4% from 13,480.72 on 24 July 2007 to 11,002.52 on 17 August 2007. During the same period, the closing price of the Shares fell by approximately 25.4% from HK$0.61 to HK$0.455.

In line with the recovery of stock markets generally, the HSCE Index increased by 51.3% from 11,002.52 on 17 August 2007 to 16,644.49 on 27 September 2007. The closing price of the Shares rose by 36.3% from HK$0.455 to HK$0.62 during the same period.

On 27 September 2007, the Company announced its annual results for the financial year ended 30 June 2007 with the loss further deteriorating to approximately HK$103.5 million when compared to a loss of HK$58.4 million for the previous financial year. The market had no strong response to the financial results and the share price of the Company remained at HK$0.62 on 28 September 2007.

From 29 September 2007 to 10 November 2007, the closing price of the Shares ranged between HK$0.57 and HK$0.75. The Hong Kong stock market continued to be affected by the aftermath of the U.S. sub-prime crisis. The HSCE Index dropped by approximately 30.5% from 20,164.22 on 1 November 2007 to 14,016.12 on 16 January 2007. During the same period, the closing price of the Shares increased by approximately 12.3% from HK$0.73 to HK$0.82.

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After the Company announced the Acquisition on 17 January 2008, the Share price rose by 1.2% to HK$0.83 on 18 January 2008. On 11 February 2008, the Company announced its interim results for the six months period ended 31 December 2007 showing a net loss of approximately HK$29.9 million representing a reduction in net loss of approximately 38.2% when compared to the corresponding period in prior year. The share price of the Company dropped by 1.3% to HK$0.76 on 12 February 2007 from HK$0.77 on 11 February 2007. During the period from 21 January 2008 and up to the Latest Practicable Date, the Shares closed between HK$0.67 and HK$0.80 at an average of HK$0.75.

IV. EFFECT OF THE ACQUISITION

(a) Dilution of existing public Shareholders’ holdings

The following table illustrates the shareholding interests in the Company (i) as at the Latest Practicable Date; (ii) immediately after Completion; (iii) after Completion and allotment and issue of the Exchange Shares; and (iv) after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options:

Name of Shareholder Cheung Kwai Lan Best Frontier Mega Capital International Limited Kiree Group Limited Lo Wai Kwan Anna Tang Ping Fai Rocky Integrated Asset Management (Asia) Limited Chan Ka Yin Wong Sze Chuen Sub-total: Vendors and their respective concert parties Lau Hin Kun Oppenheimer Funds, Inc. Liberty Harbor Evolution Other public Shareholders Total Total Shares held by public Shareholders	Existing shareholding structure and as at the Latest Practicable Date No. of Shares % 2,070,000 0.22 361,695,000 38.02 – – – – 3,260,000 0.34 – – 18,720,000 1.97 – – – –	Existing shareholding structure and as at the Latest Practicable Date No. of Shares % 2,070,000 0.22 361,695,000 38.02 – – – – 3,260,000 0.34 – – 18,720,000 1.97 – – – –	Shareholding structure immediately after Completion No. of Shares % 2,070,000 0.07 2,191,457,322 67.77 162,876,520 5.03 76,913,912 2.38 71,125,216 2.20 45,243,478 1.40 63,963,478 1.98 31,670,434 0.98 22,621,738 0.70	Shareholding structure immediately after Completion No. of Shares % 2,070,000 0.07 2,191,457,322 67.77 162,876,520 5.03 76,913,912 2.38 71,125,216 2.20 45,243,478 1.40 63,963,478 1.98 31,670,434 0.98 22,621,738 0.70	Shareholding structure after Completion and allotment and issue of the Exchange Shares No. of Shares % 2,070,000 0.06 2,191,457,322 59.0 162,876,520 4.39 76,913,912 2.07 71,125,216 1.91 45,243,478 1.22 63,963,478 1.72 31,670,434 0.85 22,621,738 0.61	Shareholding structure after Completion and allotment and issue of the Exchange Shares No. of Shares % 2,070,000 0.06 2,191,457,322 59.0 162,876,520 4.39 76,913,912 2.07 71,125,216 1.91 45,243,478 1.22 63,963,478 1.72 31,670,434 0.85 22,621,738 0.61	Shareholding structure after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options No. of Shares % 21,066,000 0.53 2,239,683,322 56.49 162,876,520 4.11 76,913,912 1.94 76,803,216 1.93 45,243,478 1.14 68,159,478 1.72 31,670,434 0.80 22,621,738 0.57	Shareholding structure after Completion and allotment and issue of the Exchange Shares and assuming full conversion of all outstanding Warrants and Options No. of Shares % 21,066,000 0.53 2,239,683,322 56.49 162,876,520 4.11 76,913,912 1.94 76,803,216 1.93 45,243,478 1.14 68,159,478 1.72 31,670,434 0.80 22,621,738 0.57
	385,745,000 575,000 165,000,000 – – 400,059,210	40.55 0.06 17.34 – – 42.05	2,667,942,089 575,000 165,000,000 – – 400,059,210	82.51 0.02 5.10 – – 12.37	2,667,942,089 575,000 165,000,000 343,348,554 137,339,420 400,059,210	71.83 0.02 4.44 9.24 3.70 10.77	2,745,038,098 3,665,000 187,000,000 343,348,554 137,339,420 548,593,768	69.23 0.09 4.72 8.66 3.46 13.84
	951,379,210 422,039,210	100 44.36	3,233,576,308 1,039,473,986	100 32.14	3,714,264,282 1,520,161,960	100 40.93	3,964,984,840 1,700,570,518	100
								42.89

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The interest of the existing public Shareholders (excluding the Vendors, Madam Cheung Kwai Lan, Oppenheimer Funds, Inc. and Mr. Lau Hin Kun) will be diluted from approximately 42.05% to approximately 12.37% immediately upon issue of the Consideration Shares and Settlement Shares under the Acquisition. The holdings of the existing public Shareholders will be further diluted to 10.77% after Completion and the issue of the Exchange Shares. We consider the level of dilution to the existing public Shareholders significant. Having taken into account the benefits of the Acquisition mentioned above, we are of the view that the level of dilution is acceptable.

Each of the Vendors (other than Best Frontier) has confirmed that (i) it is not a connected person of the Company; (ii) its acquisition of the Company’s shares has not been financed directly or indirectly by a connected person of the Company; and (iii) it is not accustomed to taking instructions from a connected person of the Company in relation to the acquisition, disposal, voting or other disposition of the Company’s shares registered in its name or otherwise held by it. Accordingly, each of the Vendors (other than Best Frontier) will be treated as member of the public under the GEM Listing Rules and their shareholdings will be counted towards the public float. After Completion, Oppenheimer Funds, Inc. will cease to be a substantial shareholder of the Company and its shareholding will be counted towards the public float. After Completion and allotment and issue of the Exchange Shares, the shareholdings of Liberty Harbor and Evolution will be counted towards the public float. Accordingly, it is not expected that a public float problem would be created by the issuance of the Consideration Shares, the Settlement Shares and the Exchange Shares.

(b) Financial effects of the Acquisition on the Group

Upon Completion, Grand Promise will become a wholly-owned subsidiary of the Company and its assets and liabilities will be included in the Company’s consolidated balance sheet, and CCDDT will be accounted for as a jointly controlled entity and will be proportionately consolidated into the Group’s financial statements.

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(i) Net assets

Audited consolidated net assets of the Group as at 30 June 2007 Proforma combined net assets of the Enlarged Group as at 30 June 2007 Audited consolidated net tangible assets of the Group as at 30 June 2007 Proforma combined net tangible liabilities of the Enlarged Group as at 30 June 2007 Decrease in combined net tangible assets	HK$ million 438 2,050 155 (71) (226)	Per Share HK$ 0.47 0.63 0.17 (0.02) (0.19)

As set out in Appendix III to the Circular, after completion of the Acquisition, the proforma combined net assets of the Enlarged Group (based on the respective balance sheets of the Group as at 30 June 2007 and that of Grand Promise Group as at 30 June 2007 respectively) will be approximately HK$2,050 million, representing an increase of approximately HK$1,612 million from the audited consolidated net assets of the Group of HK$438 million as at the 30 June 2007. On such basis, an estimated goodwill of approximately HK$1,838 million will arise being the difference between the fair value of the identified assets, liabilities and contingent liabilities of Grand Promise as at 30 June 2007 and the cost of Acquisition. The proforma combined net tangible liabilities of the Enlarged Group will be approximately HK$71 million, representing a reduction in net tangible asset value of HK$0.19 per Share. In view of the promising future of Grand Promise Group which is currently at its infant stage, we do not consider the immediate reduction in net tangible asset value of the Enlarged Group to be a material adverse factor.

The actual amount of goodwill which arises from the Acquisition would be determined on the date of completion of the Acquisition. Since the fair value of Grand Promise at Completion may be substantially different from its fair value as at 30 June 2007, the actual goodwill arising from the Acquisition may be different from the estimated goodwill. The amount of goodwill will be maintained as an intangible asset in the consolidated balance sheet of the Group and subject to regular impairment assessment. Any impairment loss would be recognised as an expense in the Group’s profit and loss accounts.

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(ii) Earnings

Upon Completion, the Group shall be entitled to consolidate 100% of the earnings of Grand Promise Group. Grand Promise is currently in its infant stage of business and recorded a net loss of HK$2.7 million for the four months period ended 31 October 2007. After commencement of the commercial rolling out of the Karaoke CMS nationwide in 2008, all the fees earned by Grand Promise Group will be consolidated into the profit and loss account of the Enlarged Group.

Upon Completion, the Group would be bound by the terms of the Convertible Notes and has to accrue interest expense under the effective interest calculation according to the Hong Kong Financial Reporting Standards.

Goodwill recognised as a result of the Acquisition would be subject to annual impairment review. In the event that any impairment loss on goodwill is identified, such loss will be recognised in the income statement in the period such loss is identified.

(iii) Gearing and working capital

The Group’s gearing ratio (defined as total borrowings divided by total assets) as at 30 June 2007 was 41.65%. Based on the proforma balance sheet as set out in Appendix III to the Circular, the gearing ratio of the Enlarged Group would be 20.47% upon Completion. The significant improvement in gearing is attributable to the allotment and issue of the Consideration Shares and the Settlement Shares which enlarge the equity base of the Group. The lower gearing should assist in improving the Enlarged Group’s credit rating and its cost of borrowing.

Based on the consolidated cash flow statements of Grand Promise Group as set out in Appendix II to the Circular, Grand Promise Group has yet to generate any cash inflow from operating activities for the period ended 31 October 2007. In view of the current cash balance of Grand Promise of HK$13.0 million, the proceeds raised from the issue of Convertible Notes and the rolling out of Karaoke CMS nationwide in 2008, Grand Promise Group should be able to finance its operations independently from its own cashflow after Completion. Since the Consideration is to be satisfied by the issue of Consideration Shares, it would have no material impact on the Group’s working capital.

Since the Convertible Notes are non-interesting bearing, the Convertible Notes will have no effect on the Group’s immediate cash flow position. Having considered the growing penetration rate and the expected nationwide rollout plan of Karaoke CMS, the Group should be able to generate sufficient cash flow to redeem the Convertible Notes upon maturity. Should the Investors exercise the conversion right, the equity base of the Group will be enlarged and hence the Group’s gearing would be improved. The first tranche of the Convertible Notes proceeds, amounting to 15%

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of the principal amount of the Convertible Notes, has been released to Grand Promise. The cash inflow of the second and third tranche of the proceeds shall be released at the relevant time as discussed under the paragraph headed “Deeds of Adherence” above and would improve the Group’s working capital and liquidity accordingly.

(iv) Management of the Group

There will not be any change in the composition of the Board on Completion. Upon the allotment and issue of the Exchange Shares, the Investors will not have any right to appoint directors to the Board.

V. RISK FACTORS

The Independent Shareholders may wish to bear in mind the following risk factors when considering the Acquisition:

(i) Difficulty of collection of copyright fees

Owners of the intellectual property rights may have disputes with karaoke venues on copyright fees as many of these karaoke venues are using copyright material intended for private use for their commercial activities without acquiring proper authorisation. Karaoke venues may resist paying copyright fees to IP Owners through CCDDT Group.

(ii) Change in fee structure

There may be a potential change in fee structure between various parties, including IP Owners and VOD Suppliers after the ten years contract term with CAVA expires. The change in fee structure may affect the fee payable to the CCDDT Group after the expiration of the contract.

(iii) Uncertainty on the pricing of future contracts

Future pricing terms in karaoke venues will be driven by market forces. Currently, an upper limit on the copyright fees for the karaoke programme has been announced by the National Copyright Authority of the PRC. The government authority may change the policy on the copyright fees in the future and the revenue of the future Karaoke CMS operation is uncertain.

(iv) Regulatory considerations

The Karaoke CMS was developed for protecting intellectual property rights as well as providing other value added services. The performance of the CCDDT Group may be adversely affected by future change in policies and attitude of the PRC Government in respect of the protection of intellectual property rights.

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VI. WHITEWASH WAIVER

Immediately following completion of the Acquisition, the shareholding of the Vendors and their respective concert parties in the Company will increase from approximately 40.55% to approximately 82.51%. Under Rule 26.1 of the Takeovers Code, the Vendors are required to make a mandatory general offer for all the issued Shares not owned by them and their respective concert parties immediately following Completion unless the Whitewash Waiver is obtained. In this regard, the Vendors have made an application to the Executive for the Whitewash Waiver which is subject to the approval of the Independent Shareholders on a vote by poll.

As the Acquisition is conditional on, among other things, the approval of the Whitewash Waiver by the Independent Shareholders at the EGM, if the Whitewash Waiver is not approved, the Acquisition will not proceed and no general offer obligation will be triggered. In the event the Acquisition cannot proceed, the Group and the Shareholders will not be able to enjoy the benefits that would arise from the Acquisition, in particular, the entry into a promising business in the PRC as discussed above.

Shareholders should note that after completion of the Acquisition, the Vendors and parties acting in concert with any of them will hold approximately 82.51% of the issued ordinary share capital of the Company. As such, any further acquisition of voting rights in the Company by the Vendors and parties acting in concert with any of them would not be subject to any further obligation to make a general offer under the Takeovers Code.

DISCUSSION AND ANALYSIS

The Group’s principal business has been the manufacture and distribution of natural health products, the operating environment for which remains tough, with competition becoming stiffer. The Directors consider that continuing to invest in the natural food, drinks and daily care products segment will not be in the interests of the Company and the Company has been scaling down such business and has expanded into the lottery-related field and oil and gas related businesses in the PRC in recent years.

Commercially, the Acquisition will provide the Group with the opportunity to participate in the Karaoke CMS business in the PRC which has promising growth prospects in light of the PRC Government’s growing protection of intellectual property rights. Grand Promise Group made a loss for its initial period of operation but this is to be expected with a start-up. The MOC Market Development Center has exclusively appointed CCDDT to establish and operate the Karaoke CMS, and hence, the Directors believe that CCDDT can enjoy first mover advantages and that future entrants, if any, would likely find it more difficult to enter the market. The Acquisition will broaden the Group’s revenue base and we consider that the commercial logic for the Acquisition is sound.

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LETTER FROM SOMERLEY

The Consideration was determined by making reference to the base equity price at which the two independent professional investors purchased the Convertible Notes. The Investors have been given the flexibility to redeem the Convertible Notes, but they also have to pay a 20% premium over the agreed base equity price of Grand Promise of US$200 million in case they choose to convert. We consider the Consideration reflects a fair measure of value for Grand Promise. The Shareholder’s Loan is to be assigned to the Group at its face value upon Completion.

The Consideration of US$200 million will be settled by the allotment and issue of 2,262,173,906 Consideration Shares at HK$0.69 each. Given the existing financial position of the Group, this settlement method of the Consideration is the only viable way for the Group to acquire a significant business without stretching its financial position. The issue price of the Consideration Shares represents a discount to the recent average market prices, but a premium over the net tangible asset value per Share. Given the thin trading of the Shares in the market, the market price of the Shares may not fully reflect the fundamentals of the Group. A discount to recent market price is justified given the magnitude of the issue and the lock-up restriction on the Consideration Shares and the benefits of the Acquisition.

The percentage interest in the Company of the existing public Shareholders (excluding the Vendors, Madam Cheung Kwai Lan, Oppenheimer Funds, Inc. and Mr. Lau Hin Kun) will be diluted from approximately 42.05% to approximately 12.37% after completion of the Acquisition. This is significant but we regard such dilution as inevitable in the case of a substantial acquisition being made without incurring significant borrowings or other liabilities to pay the Consideration. However, they will participate in a much larger business with a significantly greater revenue base which is likely to lead to more consistent liquidity of the Shares in due course.

The Acquisition will result in the interest of the Vendors and their respective concert parties be increased from approximately 40.55% to approximately 82.51%, thereby incurring an obligation to make a general offer for the Shares. The Vendors have applied for the Whitewash Waiver, which is subject to the Independent Shareholders’ approval. If the Whitewash Waiver is not obtained, the Acquisition will not proceed. Given the benefits of the Acquisition, it is in the interests of the Independent Shareholders that the Whitewash Waiver be granted to the Vendors.

The Acquisition would lower the Group’s net tangible assets by approximately HK$226 million. However, the accumulated loss of Grand Promise is expected in a start up. Once the Karaoke CMS is launched commercially, the Directors expect Grand Promise would generate strong cash flow to the Group. The issue of Consideration Shares, the Settlement Shares and the Exchange Shares would enlarge the issued capital and provide a prudent method of funding for the Acquisition.

The Karaoke CMS business carries risks, particularly as to the collection of copyright fees from karaoke venues for the IP Owners and the potential change in future fees to the CCDDT Group. However, we consider that these are normal commercial risks for this particular type of business.

– 78 –

LETTER FROM SOMERLEY

OPINION

Having taken into account the above factors and reasons, we consider that the terms of the Share Purchase Agreement, the issue of the Consideration Shares, the Settlement Shares and the Exchange Shares, the Deeds of Adherence and the Whitewash Waiver are fair and reasonable and on normal commercial terms so far as the Independent Shareholders are concerned and the Share Purchase Agreement, the issue of the Consideration Shares, the Settlement Shares and the Exchange Shares, the Deeds of Adherence and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole. We do not consider the Acquisition is in the ordinary and usual course of business of the Company, but this does not affect our view that it is in the interests of the Company and the Shareholders.

Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, that the Independent Shareholders vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Share Purchase Agreement, the issue of the Consideration Shares, the Settlement Shares and the Exchange Shares, the Deeds of Adherence and the Whitewash Waiver.

Yours faithfully, for and on behalf of SOMERLEY LIMITED M. N. Sabine Chairman

– 79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. THREE YEARS FINANCIAL SUMMARY

Set out below is a summary of the audited financial information on the Group for the years ended 30 June 2007, 30 June 2006 and 30 June 2005, extracted from the respective annual reports of the Company. The audited financial statements of the Group for the years ended 30 June 2007, 30 June 2006 and 30 June 2005 were audited by W.H. Tang & Partners CPA Limited and the relevant auditor’s reports did not contain any qualification. There are no extraordinary and exceptional items in the audited financial statements of the Group for each of the three years ended 30 June 2007.

RESULTS

Continuing operations Revenue Cost of sales Gross profit Other revenue Selling and distribution costs Administrative expenses Gain on disposal of subsidiaries Gain on partial disposal of subsidiary Loss on disposal of an associate Loss on disposal of a jointly controlled entity Finance costs Share of results of associates (Loss) profit before income tax Income tax expenses (Loss) profit for the year from continuing operations Discontinued operations Profit for the year from discontinued operations (Loss) profit for the year Attributable to: Equity holders of the Company Minority interests	2007 HK$’000 88,246 (63,410)	2006 HK$’000 (restated)* 42,995 (37,332)	2005 HK$’000 189,131 (142,875) 46,256 5,112 (12,747) (18,884) 6,945 – – (2,789) (1,849) 17,653 39,697 (9,086) 30,611 – 30,611 31,685 (1,074) 30,611
	24,836 5,908 (4,972) (134,223) 30,635 – – – (24,526) – (102,342) (1,411) (103,753) 272	5,663 1,930 (2,844) (110,112) – 32,349 (13,106) – (2,701) 18,830 (69,991) (5,410) (75,401) 17,039	46,256 5,112 (12,747 (18,884 6,945 – – (2,789 (1,849 17,653
			39,697 (9,086
			30,611
			–
	(103,481)	(58,362)
	(72,521) (30,960)	(39,908) (18,454)	31,685 (1,074
	(103,481)	(58,362)

• Certain comparative figures have been reclassified to conform with the presentation in year 2007.

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

DIVIDENDS Interim dividend (2007: Nil, 2006: HK0.5 cent per share and 2005: HK0.5 cent per share) Final dividend (2007: Nil, 2006: Nil and 2005: HK1.5 cents per share) ASSETS AND LIABILITIES Total assets Total liabilities Minority interest Equity attributable to equity holders of the Company	2007 HK$’000 – – – 852,021 413,816 12,508 425,697	2006 HK$’000 (restated)* 3,049 – 3,049 519,414 65,563 55,893 397,958	2005 HK$’000 2,411 7,232
			9,643
			248,351 77,580 10,129
			160,642

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

B. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 30 JUNE 2007

Set out below is the audited consolidated income statement of the Group for the year ended 30 June 2007 and the consolidated balance sheet as at 30 June 2007 of the Group together with the comparative audited figures for the corresponding period in 2006 and the relevant notes to the accounts as extracted from the audited financial statements of the Group for the year ended 30 June 2007.

Consolidated Income Statement

For the year ended 30 June 2007

Notes Continuing operations Revenue 7 Cost of sales Gross profit Other revenue 7 Selling and distribution costs Administrative expenses Gain on disposal of subsidiaries Gain on partial disposal of subsidiary Loss on disposal of an associate Finance costs 8 Share of results of associates Loss before income tax 9 Income tax expenses 12 Loss for the year from continuing operations Discontinued operations Profit for the year from discontinued operations 13 Loss for the year Attributable to: Equity holders of the Company Minority interests Loss per share 15 From continuing and discontinued operations Basic From continuing operations Basic	2007 HK$’000 88,246 (63,410)	2006 HK$’000 (restated) 42,995 (37,332) 5,663 1,930 (2,844) (110,112) – 32,349 (13,106) (2,701) 18,830 (69,991) (5,410) (75,401) 17,039 (58,362) (39,908) (18,454) (58,362) (HK7.47 cents) (HK10.66 cents)
	24,836 5,908 (4,972) (134,223) 30,635 – – (24,526) – (102,342) (1,411) (103,753) 272	5,663 1,930 (2,844 (110,112 – 32,349 (13,106 (2,701 18,830
		(69,991 (5,410
		(75,401
		17,039
	(103,481)
	(72,521) (30,960)	(39,908 (18,454
	(103,481) (HK7.75 cents) (HK7.78 cents)

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 30 June 2007

Notes Non-current assets Property, plant and equipment 16 Goodwill 17 Other intangible assets 18 Interest in associates 19 Prepaid lease payments 20 Construction in progress 21 Deposits made on acquisition of property, plant and equipment Current assets Inventories 22 Trade and other receivables and prepayments 23 Prepaid lease payments – current portion 20 Pledged bank deposits Bank balances and cash Current liabilities Trade and other payables 24 Tax liabilities Bank and other borrowings – due within one year 25 Net current assets Total assets less current liabilities Non-current liabilities Bank and other borrowings 25 Convertible bonds 26 Net assets Capital and reserves Share capital 27 Reserves Equity attributable to equity holders of the Company Minority interests Total equity	2007 HK$’000 235,697 280,689 2,603 238 12,496 14,004 –	2006 HK$’000 17,588 135,061 6,586 238 – – 3,756
	545,727 6,536 89,656 380 5,000 204,722 306,294 57,528 1,422 5,617 64,567 241,727 787,454 106,105 243,144 349,249	163,229
		7,436 90,458 – 13,308 244,983
		356,185
		30,459 99 12,505
		43,063
		313,122
		476,351
		22,500 –
		22,500
	438,205	453,851
	9,361 416,336 425,697 12,508	6,241 391,717
		397,958 55,893
	438,205	453,851

– I-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 30 June 2007

At 1 July 2005 Acquisition of subsidiaries Exchange differences arising from acquisition of subsidiaries Capital contribution from minority shareholders Partial disposal of subsidiaries Shares issued on share award scheme Placing of shares Shares issued pursuant to sale and purchase agreement Recognition of equity- settled share based payments Shares issued on exercise of options Net loss for the year Dividends paid At 30 June 2006 At 1 July 2006 Bonus issue Recognition of equity- settled share based payments Acquisition of jointly controlled entities Capital contribution from minority shareholders Recognition of equity components of convertible bonds Disposal of subsidiaries Dividends paid to minority shareholders of subsidiaries Reduction on minority holding Exchange differences on translation of financial statement of overseas operations Net loss for the year At 30 June 2007			Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company
	Share capital HK$’000 4,821 – – – – 488 680 241 – 11 – –	Share premium HK$’000 80,825 – – – – – 139,147 69,715 – 317 – –	Convertible bonds reserve HK$’000 – – – – – – – – – – – –	Employee share-based compensation reserve HK$’000 – – – – – 35,572 – – – – – –	Share option reserve HK$’000 – – – – – – – – 39,399 – – –	Translation reserve HK$’000 – – 1,935 – – – – – – – – –	Special reserve HK$’000 (1) – – – – – – – – – – –	Retained profits/ (accumulated losses) HK$’000 74,997 – – – – – – – – – (39,908) (10,281)	Total HK$’000 160,642 – 1,935 – – 36,060 139,827 69,956 39,399 328 (39,908) (10,281)	Minority interests HK$’000 10,129 50,917 284 12,791 226 – – – – – (18,454) –	Total HK$’000 170,771 50,917 2,219 12,791 226 36,060 139,827 69,956 39,399 328 (58,362 (10,281
	6,241	290,004	–	35,572	39,399	1,935	(1)	24,808	397,958	55,893	453,851
	6,241 3,120 – – – – – – – – –	290,004 (3,120) – – – – – – – – –	– – – – – 10,712 – – – – –	35,572 – – – – – – – – – –	39,399 – 83,347 – – – – – – – –	1,935 – – – – – – – – 6,201 –	(1) – – – – – – – – – –	24,808 – – – – – – – – – (72,521)	397,958 – 83,347 – – 10,712 – – – 6,201 (72,521)	55,893 – – 737 3,162 – (7,381) (10,117) (452) 1,626 (30,960)	453,851 – 83,347 737 3,162 10,712 (7,381 (10,117 (452 7,827 (103,481
	9,361	286,884	10,712	35,572	122,746	8,136	(1)	(47,713)	425,697	12,508	438,205

– I-5 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 30 June 2007

Notes OPERATING ACTIVITIES Loss for the year Adjustment for: Income tax expenses Interest income Interest expenses Depreciation of property, plant and equipment Provision of deposits made on acquisitions of property, plant and equipment Provision for doubtful debts Loss on disposal of property, plant and equipment Impairment of goodwill Share of results of associates Gain on partial disposal of a subsidiary Gain on disposal of subsidiaries Amortization of prepaid lease payment Loss on disposal of an associate Share option expenses Share award expenses Amortization of other intangible assets Operating cash flows before movements in working capital (Increase)/decrease in inventories Increase in trade and other receivables and prepayments Increase/(decrease) in trade and other payables Cash used in operations Tax paid NET CASH USED IN OPERATING ACTIVITIES	2007 HK$’000 (103,481)	2006 HK$’000 (58,362) 6,717 (1,868) 3,005 1,428 133 429 387 3,361 (18,830) (32,349) – – 13,106 39,399 36,060 437 (6,947) 2,476 (9,421) (15,791) (29,683) (1,956) (31,639)
	1,442 (2,460) 24,537 10,670 – – 70 145 – – (30,635) 152 – 83,347 – 1,848 (14,365) (1,712) (872) 16,264 (685) (1,623) (2,308)	6,717 (1,868 3,005 1,428 133 429 387 3,361 (18,830 (32,349 – – 13,106 39,399 36,060 437
		(6,947 2,476 (9,421 (15,791
		(29,683 (1,956
		(31,639

– I-6 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes INVESTING ACTIVITIES Interest received Purchases of property, plant and equipment Purchases of other intangible assets Purchases of construction in progress Decrease in pledged bank deposits Cash consideration on acquisition of jointly controlled entities 29 Cash consideration on acquisition of subsidiaries 29 Reduction on minority shareholding Acquisition of investment in an associate Proceeds from disposal of property, plant and equipment Proceeds from disposal of subsidiaries 29 Proceeds from partial disposal of a subsidiary Proceeds from sale of an associate Purchases of prepaid lease payments NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Interest paid Issue of shares Dividend paid Net (repayment) raising of borrowing Capital contribution from minority interests Proceeds from issue of convertible bonds Dividends paid to minority shareholders of subsidiaries NET CASH FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT END OF THE YEAR, represented by Bank balances and cash (Note) Note: Bank balances and cash contains both HK$ and RMB Amount of the RMB included is	2007 HK$’000 2,484 (46,620) – (5,871) 8,308 (120,902) – (96,773) – 21 31,219 – – (99)	2006 HK$’000 1,842 (5,513) (1,665) – 18,453 – (23,093) – (22,887) 30 – 32,575 24,199 – 23,941 (1,590) 140,155 (10,281) 3,943 12,791 – – 145,018 137,320 105,597 2,066 244,983 2006 RMB’000 180,256
	(228,233) (4,464) – – (39,354) 3,162 234,000 (10,117) 183,227 (47,314) 244,983 7,053	23,941
		(1,590 140,155 (10,281 3,943 12,791 – –
		145,018
		137,320 105,597 2,066
	204,722 2007 RMB’000 170,508

– I-7 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended 30 June 2007

1. GENERAL INFORMATION

The Company was incorporated in the Cayman Islands as an exempted company with limited liability and its shares are listed on the Growth Enterprise Market (the “GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The principal place of business of the Company is located at Room 2201, 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

The consolidated financial statements are presented in Hong Kong dollars, being the measurement currency of the Company and its subsidiaries (the “Group”).

The principal activities of the Company is investment holding. The activities of its principal subsidiaries and jointly controlled entities are set out in notes 39 and 40 respectively.

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 and amended Hong Kong Financial Reporting Standards (HKFRSs), Hong Kong Accounting Standards (“HKASs”) and Interpretations (“INTs”) (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 July 2006. The application of the new HKFRSs has no material affect on how the results for the current and prior accounting periods are prepared and presented. Accordingly, no prior years adjustment has been required.

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

HKAS 1 (Amendment)	Capital disclosures1
HKAS 23 (Revised)	Borrowing costs2
HKFRS 7	Financial instruments: Disclosures1
HKFRS 8	Operating segments2
HK(IFRIC)-INT 10	Interim financial reporting and impairment3
HK(IFRIC)-INT 11	HKFRS 2 – Group and treasury share transactions4
HK(IFRIC)-INT 12	Service concession arrangements5

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

• 2 Effective for annual periods beginning on or after 1 January 2009

• 3 Effective for annual periods beginning on or after 1 November 2006

• 4 Effective for annual periods beginning on or after 1 March 2007

• 5 Effective for annual periods beginning on or after 1 January 2008

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have 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 consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA as well as the disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange Hong Kong Limited.

– I-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Basis of consolidation

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

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 the subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All material 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.

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under Hong Kong Financial Reporting Standard (“HKFRS”) 3 “Business Combinations” are recognized at their fair values at the acquisition date.

Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in profit or loss.

The interest of minority shareholders in the acquiree initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized.

Interest in jointly controlled entities

Joint venture arrangements that involve the establishment of a separated entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entities.

The Group recognizes its interests in jointly controlled entities using proportionate consolidation. The Group’s share of each of the assets, liabilities, income and expenses of the jointly controlled entities are combined with the Group’s similar line items, line by line, in the consolidated financial statements.

Any goodwill arising on the acquisition of the Group’s interest in a jointly controlled entity is accounted for in accordance with the Group’s accounting policy for goodwill arising on the acquisition of a subsidiary.

Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment is recognized immediately in profit or loss.

When a group entity transacts with a jointly controlled entity of the Group, unrealized profits or losses are eliminated to the extent to the Group’s interest in the jointly controlled entity, except to the extent that unrealized losses provided evidence of an impairment of the asset transferred, in which case the full amount of losses is recognized.

– I-9 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Goodwill

Goodwill arising on an acquisition of a subsidiary for which the agreement date is before 1 July 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 or associate at the date of acquisition.

For previously capitalized goodwill arising on acquisitions, the Group has discontinued amortization from 1 July 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.

Goodwill arising on an acquisition of a subsidiary or a jointly controlled entity for which the agreement date is on or after 1 July 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalized goodwill arising on an acquisition of a subsidiary or a jointly controlled entity 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 cash-generating 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 recognized directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of subsidiaries or a jointly controlled entity, the attributable amount of goodwill capitalized is included in the determination of the amount of profit or loss on disposal.

Investment in associates

The results and assets and liabilities of associates are incorporated in the consolidated 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 associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. An additional share of losses is provided for and a liability is recognized 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 sold and services provided in the normal course of business, net of discounts and sales related taxes.

Revenue from sales of gas and gas appliances are recognized when goods are delivered and title has passed.

– I-10 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Gas transportation revenue and gas connection fee income are recognized when the corresponding services are performed.

Sales of goods are recognized when goods are delivered and title has been passed.

Revenue from the provision of lottery-related hardware and software systems is recognized when the services are rendered.

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.

Property, plant and equipment

Property, plant and equipment, comprising leasehold land and buildings, furniture, fixtures and equipment, motor vehicles, computers equipment, gas distribution network, gas storage equipment and other equipment are stated at cost less accumulated depreciation and any identified impairment losses. The cost of an item of property, plant and equipments comprises its purchase price and any directly attributable costs of bringing the property, plant and equipment to its working condition and location for its intended use. Expenditure incurred after property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the property, plant and equipment, the expenditure is capitalized as an additional cost of that property plant and equipment.

Property, plant and equipment are depreciated at rates sufficient to write off their cost less accumulated impairment losses over their estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Leasehold land and buildings	3%-5% or over the lease term but limited to 15 years
Furniture, fixtures and equipment	7%-25%
Computer equipment	20%-25%
Plant and machinery	3%-12%
Motor vehicles	6%-20%
Gas distribution network	5%-10%
Gas storage equipment	5%-31%

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued used 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 derecognized.

Construction in progress

Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purposes. Construction in progress is carried at cost less any recognized impairment loss. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost, which comprises all costs of purchase and, where applicable other costs that has been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realizable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

– I-11 –

FINANCIAL INFORMATION OF 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 lease is recognized in the consolidated income statement on a straightline 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 recognized as an expenses on a straight-line basis over the lease term.

The Group as lessee

Rentals payable under operating leases are charged to profit and 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 recognized as reduction of rental expense over the lease term on a straight-line basis.

Leasehold land and building

Land and building elements of a lease of land and building are considered separately for the purposes of lease classification, leasehold land which title is not expected to pass to the lessee by the end of the lease term is classified as an operating lease unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire lease is classified as a finance lease.

Impairment losses on assets other than goodwill

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 recognized 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. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

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 recognized for the asset in prior years. A reversal of an impairment loss is recognized 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.

Intangible assets

Intangible assets acquired separately are capitalised at cost and those acquired from a business combination are capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against the profit in the year in which the expenditure is incurred.

Useful lives of acquired intangible assets are assessed to be either finite or indefinite. Intangible assets with finite useful lives are stated at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets with indefinite useful lives are stated at cost less any subsequent accumulated impairment losses.

Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives.

– I-12 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Intangible assets are tested for impairment annually either individually or at the cash-generating unit level. Useful lives are also examined on an annual basis and, where applicable, adjustments are made on a prospective basis.

As intangible asset is derecognized on disposal or no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of the intangible asset, calculated as the difference between the net disposal proceeds and the carrying amount of the intangible asset, is recognized in the income statement in the year the intangible asset is derecognized.

Patents

Cost incurred on the acquisition of patents are capitalised in the consolidated balance sheet and stated at cost. Patents are not revalued as there is no active market for these assets.

Technical know-how

Acquired technical know-how is stated at cost less amortization and any identified impairment losses.

Computer software in lottery systems

Costs incurred on the acquisition of computer software in lottery systems are capitalized in the consolidated balance sheet at cost less amortization and any identified impairment losses.

Research and development expenditures

Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development expenditure is recognized only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortized on a straight line basis over its useful life.

Where no internally-generated intangible asset can be recognised, development cost is charged to profit or loss in the year in which it is incurred.

Impairment

Intangible assets with indefinite useful lives 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 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 recognized as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimated 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 recognized for the asset in prior years.

Intangible assets with finite useful lives are tested for impairment when there is an indication that an asset may be impaired.

Financial instruments

Financial assets and financial liabilities are recognized on the balance sheet when a Group entity becomes a party to the contractual provisions of the instruments. 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 recognized immediately in profit or loss.

– I-13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial assets

The Group’s financial assets are classified into one of the four categories, including financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognized and derecognized 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

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading and those designated at fair value through profit or loss on initial recognition. 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 recognized directly in profit or loss in the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and other receivables, deposits and loan receivables) are carried at amortized cost using the effective interest method, less any identified impairment losses. An impairment loss is recognized in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ 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 recognized, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

Available-for-sale financial assets

Available-for-sale financial assets are investments in unlisted equity securities which are intended to be held for a continuing strategic or long term purpose and are stated at fair value, except for those equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any accumulated identified losses.

In respect of available-for-sale financial assets carried at fair value, the gains or losses arising from changes in the fair value of an investment are dealt with as movements in the investment revaluation reserve, until the investment is sold, collected, or otherwise disposed of, or until the investment is determined to be impaired, the cumulative gain or loss derived from the investment recognized in the investment revaluation reserve, together with the amount of any further impairment, is charged to the income statement in the year in which the impairment arises.

In respect of available-for-sale financial assets carried at cost less any accumulated impairment losses, when there is objective evidence that an impairment loss has been incurred on an investment, the carrying amount of the investment should be reduced to the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset and the amount of the impairment is charged to the income statement in the year in which it arises. Impairment losses recognised shall not be reversed 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.

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

– I-14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Borrowings

Interest-bearing bank loans and other loans are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest method. Any difference between the proceeds (net of transaction cost and the settlement or redemption of borrowings) is recognized over the terms of the borrowings in accordance with the Group’s accounting policy for borrowing costs.

Convertible bonds

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

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

In subsequent periods, the liability component of the convertible bonds is carried at amortized cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of the Company, will remain in convertible bonds reserve until the conversion option is exercised (in which case the balance stated in convertible bonds reserve will be transferred to premium). Where the option remains unexercised at the expiry date, the balance stated in convertible bonds reserve will be released to the retained earnings. No gain or loss is recognized in profit or loss upon conversion or expiration of the option.

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

Other financial liabilities

Other financial liabilities including accounts payables, accrued liabilities and other payables are subsequently measured at amortized cost, using the effective interest rate method.

Equity instruments

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

Derecognition

Financial assets are derecognized 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 recognized in profit or loss.

Financial liabilities, are derecognized from the Group’s consolidated balance sheet when the obligation specified in the relevant contract is discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid or payable is recognised in profit or loss.

– I-15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 net profit as reported in the 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 the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are recognized 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 recognized if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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

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 profit 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 realized. Deferred tax is charged or credited in the 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.

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.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognized in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of the Group’s net investment in a foreign operation, in which case, such exchange differences are recognized in equity in the consolidated financial statements. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non- monetary items in respect of which gains and losses are recognized directly in equity, in which cases, the exchange differences are also recognized directly in equity.

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 exchange translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

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

– I-16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheet, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognized when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognized for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the income statement.

Employee benefits

(a) Retirement benefits schemes

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the Group’s subsidiary that operated in the People’s Republic of China and Singapore are required to participate in a central pension scheme operated by the local municipal government and Central Provident Fund Scheme, respectively. These subsidiaries are required to contribute pension, based on a certain percentage of their payroll costs, to the pension schemes. The contributions are charged to income statement as they become payable in accordance with the rules of the pension schemes.

(b) Share option schemes

The Company operates share option schemes for the purpose of providing incentives and rewards to eligible participant who, in the sole discretion of the Board, have contributed or may contribute to the Group. Upon the exercise of share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over nominal value of the 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 are cancelled prior to their exercise date, or which lapse, are deleted from the register of outstanding options.

(c) Share award scheme

The Group also grants employees and consultants (but not directors) shares of the Company at nil consideration under its share award scheme. Under the share award scheme, the awarded shares are newly issued at par value. The fair value of the employees’ and consultants’ services received in exchange for the grant of shares newly issued is recognized as staff costs in the income statement with a corresponding increase in an employee share-based compensation reserve under equity.

– I-17 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Retirement benefit costs

Payments to state-managed retirement benefits scheme and the defined contribution schemes are charged as expense as they fall due.

Dividends

Dividends proposed or declared after the balance sheet date is not recognized as a liability at the balance sheet date.

Equity-settled share-based payment transactions

Share options granted to directors, employees or other eligible participants of the Company.

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

At the time when the share options are exercised, the amount previously recognized in share option reserve will be transferred to share premium. When the share options are forfeited or are still not exercised at the expiry date, the amount previously recognized in share option reserve will be transferred to retained earnings.

Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of that asset.

All other borrowing costs are charged to the income statement in the year in which they are incurred.

Discontinued operations

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. It also occurs when the operation is abandoned.

Where an operation is classified as discontinued, a single amount is presented on the face of the income statement, which comprises:

• the post-tax profit or loss of the discontinued operation; and

• the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or on the disposal, of the assets or disposal group(s) constituting the discontinued operation.

– I-18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Group’s accounting policies which are described in Note 3, management has made the following judgments that have significant effect on the amounts recognized in the financial statements. The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are also discussed below:

Depreciation of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, after taking into account of their estimated residual value. The determination of the useful lives and residual values involve management’s estimation. The Group assesses annually the residual value and the useful life of the property, plant and equipment and if the expectation differs from the original estimate, such a difference may impact the depreciation in the year and the estimate will be changed in the future period.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cashgenerating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Where the actual cash flows are less than expected, a material impairment loss may arise. As at 30 June 2007, the carrying amount of goodwill is HK$280,689,000 (2006: HK$135,061,000). Details of the recoverable amount calculation are disclosed in note 17.

Amortization of other intangible assets

Other intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. The determination of useful lives and residual values involve management’s estimation. The Group assesses annually the useful life of other intangible assets and if the expectation differs from the original estimate, such a difference may impact the amortization in the year and the estimate will be changed in the future period.

Income tax expenses

As at 30 June 2007, no deferred tax asset was recognized in the Group’s consolidated balance sheet in relation to the estimated unused tax losses of approximately HK$42,276,000 (2006: HK$37,084,000) due to the unpredictability of future profit streams. The realisability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are more than expected, a material recognition of deferred tax asset may arise, which would be recognized in the income statement for the period in which such recognition takes place.

Share option benefit expenses

The share option benefit expense is subject to the limitations of the Black-Scholes option pricing model and the uncertainty in estimates used by management in the assumptions. The estimates include limited early exercise behavior, expected interval and frequency of open exercise periods in the share option life, and other relevant parameters of the share option model (see note 28 for the estimates).

The number of options to be vested at the end of vesting period involves management estimation. Should the number of options being vested at the end of vesting period be changed, there would be material changes in the amount of share option benefits recognized in the consolidated income statement and share option reserve.

– I-19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s major financial instruments include trade receivables, prepayments, deposits and other receivables, accounts payables, other payables and 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. 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 30 June 2007 in relation to each class of recognized financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. In order to minimize the credit risk, the management of the Group has closely monitoring the recoverability of the financial assets. In addition, the Group reviews the recoverable amount of each individual financial asset 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.

Foreign currency risk

For the year ended 30 June 2007, the Group’s trade transactions are denominated in Renminbi, Hong Kong Dollars and Singaporean Dollars. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

Interest rate risk

The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s interest bearing borrowings.

Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of borrowings. The Group’s exposure to liquidity risk is minimal.

– I-20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. SEGMENT INFORMATION

a. Business segments

Revenue Segment results Unallocated income Unallocated expenses Finance costs Gain on disposal of subsidiairies (Loss) profit before taxation Income tax expenses (Loss) profit for the year					Year ende	d 30 June 2	007
			**Continuing **	operations			Total HK$’000 88,246	Disco	ntinued operations
	Distribution of natural supplementary products HK$’000 2,279 (664)	Provision of lottery- related hardware and software systems HK$’000 28,283 9,510	Sales and distribution of edible oil HK$’000 42,912 123	Oil mining HK$’000 – (1,187)	Gas related HK$’000 14,743 (1,922)	Others HK$’000 29 (505)		Manufacturing and distribution of honey mead HK$’000 929	Operation of restaurant HK$’000 2,286	Consolidated HK$’000 91,461
							5,355 15,658 (129,464) (24,526) 30,635 (102,342) (1,411)	421 – – (11) – 410 (31)	(107) – – – – (107) –	5,669 15,658 (129,464 (24,537 30,635
										(102,039 (1,442
							(103,753)	379	(107)	(103,481

Revenue Segment results Unallocated income Unallocated expenses Share of results of associates Finance costs (Loss) profit before taxation Income tax expenses (Loss) profit for the year					Year ende	d 30 June 2	006
			**Continuing **	operations				Disco	ntinued operations
	Distribution of natural supplementary products HK$’000 1,321 (16,577)	Provision of lottery- related hardware and software systems HK$’000 10,854 1,501	Sales and distribution of edible oil HK$’000 30,820 (90)	Oil mining HK$’000 – (470)	Gas related HK$’000 – –	Others HK$’000 – –	Total HK$’000 42,995	Manufacturing and distribution of honey mead HK$’000 38,613	Operation of restaurant HK$’000 –	Consolidated HK$’000 81,608
							(15,636) 33,000 (103,484) 18,830 (2,701) (69,991) (5,410)	19,107 – – – (304) 18,803 (1,307)	(457) – – – – (457) –	3,014 33,000 (103,484 18,830 (3,005
										(51,645 (6,717
							(75,401)	17,496	(457)	(58,362

– I-21 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Year ended 30 June 2007

	Year ended 30 June 2007	Year ended 30 June 2007
Distribution of natural supplementary products Provision of lottery- related hardware and software systems Sales and distribution of edible oil Oil mining Gas related Others HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 66,084 75,538 1,442 30,419 265,122 3,959 Unallocated assets Total assets LIABILITIES Segment liabilities 882 39,258 531 1,233 104,709 530 Unallocated liabilities Total liabilities	Distribution of natural pplementary products Provision of lottery- related hardware and software systems Sales and distribution of edible oil Oil mining Gas related Others HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 66,084 75,538 1,442 30,419 265,122 3,959	Consolidated HK$’000 442,564 409,457
		852,021
		147,143 266,673
		413,816

Other information

Depreciation of property, plant and equipment Amortization of prepaid lease payments Capital expenditure Other non-cash expenses Impairment of goodwill Amortization of other intangible assets			**Continuing **	operations			Total HK$’000 10,316 152 46,056 103,203 145 1,848	Disc	ontinued operations	ontinued operations
	Distribution of natural supplementary products HK$’000 688 – 839 – 145 –	Provision of lottery- related hardware and software systems HK$’000 5,188 – 41,474 – – 1,848	Sales and distribution of edible oil HK$’000 – – – – – –	Oil mining HK$’000 – – – – – –	Gas related HK$’000 4,194 152 1,650 – – –	Others HK$’000 246 – 2,093 103,203 – –		Manufacturing and distribution of honey mead HK$’000 – – – – – –	Operation of restaurant HK$’000 354 – 564 – – –	Consolidated HK$’000 10,670
										152
										46,620
										103,203
										145
										1,848

– I-22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Year ended 30 June 2006

	Year ended 30 June 2006	Year ended 30 June 2006
Distribution of natural supplementary products Provision of lottery- related hardware and software systems Sales and distribution of edible oil Oil mining Gas related Others HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 274,964 44,458 1,298 41,912 – – Unallocated assets Total assets LIABILITIES Segment liabilities 5,374 22,919 519 661 – – Unallocated liabilities Total liabilities	Distribution of natural pplementary products Provision of lottery- related hardware and software systems Sales and distribution of edible oil Oil mining Gas related Others HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 274,964 44,458 1,298 41,912 – –	Consolidated HK$’000 362,632 156,782
		519,414
		29,473 36,090
		65,563

Other information

Depreciation of property plant and equipment Impairment losses on goodwill Capital expenditure Other non-cash expenses Loss on disposal of property, plant and equipment Amortization of other intangible assets			**Continuing **	operations			Total HK$’000 989 3,361 3,592 75,459 55 437	Disc	ontinued operations	ontinued operations
	Distribution of natural supplementary products HK$’000 561 – 2,282 – 55 –	Provision of lottery- related hardware and software systems HK$’000 387 – 171 – – 437	Sales and distribution of edible oil HK$’000 – 3,361 – – – –	Oil mining HK$’000 15 – – – – –	Gas related HK$’000 – – – – – –	Others HK$’000 26 – 1,139 75,459 – –		Manufacturing and distribution of honey mead HK$’000 439 – 23 – 332 –	Operation of restaurant HK$’000 – – 1,898 – – –	Consolidated HK$’000 1,428
										3,361
										5,513
										75,459
										387
										437

– I-23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

b. Geographical market segments

A summary of the geographical segments is set out as follows:

Geographical market Segment revenue: PRC Hong Kong South East Asia Europe Total Segment results: PRC Hong Kong South East Asia Europe Unallocated income Unallocated expenses Finance costs Gain on disposal of subsidiaries Share of results of associates Loss before income tax Income tax expenses Loss for the year	2007 HK$’000 44,471 2,279 44,518 680	2006 HK$’000 66,497 1,270 30,204 616	Elimination 2007 2006 HK$’000 HK$’000 (487) (16,979) – – – – – –	Elimination 2007 2006 HK$’000 HK$’000 (487) (16,979) – – – – – –	Consolidated 2007 2006 HK$’000 HK$’000 43,984 49,518 2,279 1,270 44,518 30,204 680 616 91,461 81,608 6,317 19,782 (664) (16,221) 14 (88) 2 (2) 15,658 33,000 (129,464) (103,941) (24,537) (3,005) 30,635 – – 18,830 (102,039) (51,645) (1,442) (6,717) (103,481) (58,362)	Consolidated 2007 2006 HK$’000 HK$’000 43,984 49,518 2,279 1,270 44,518 30,204 680 616 91,461 81,608 6,317 19,782 (664) (16,221) 14 (88) 2 (2) 15,658 33,000 (129,464) (103,941) (24,537) (3,005) 30,635 – – 18,830 (102,039) (51,645) (1,442) (6,717) (103,481) (58,362)
	91,948	98,587	(487)	(16,979)	91,461 6,317 (664) 14 2 15,658 (129,464) (24,537) 30,635 – (102,039) (1,442)	81,608
						19,782 (16,221 (88 (2 33,000 (103,941 (3,005 – 18,830
						(51,645 (6,717
					(103,481)

– I-24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. REVENUE AND OTHER REVENUE

The principal activities of the Group are (i) the distribution of natural supplementary products, (ii) provision of lottery-related hardware and software systems, (iii) the sales and distribution of edible oil, (iv) mining operation of Xin Jiang Oilfield, and (v) sales of gas and gas appliances, provision of gas transportation services and installation services for gas connected.

Revenue represents invoiced value of sales, net of returns, discounts allowed or sales taxes where applicable.

Revenue recognized during the year is as follows:

Continuing operations Revenue Distribution of natural supplementary products Provision of lottery-related hardware and software systems Sales and distribution of edible oil Gas related Sales of goods Discontinued operations Manufacturing and distribution of honey mead Operation of restaurant Continuing operations Other revenue Interest income Others Discontinued operations Others FINANCE COSTS Continuing operations 2007 2006 HK$’000 HK$’000 Interest on borrowings wholly repayable within five years 2,736 2,701 Interest on borrowings wholly repayable after five years 1,934 – Interest on convertible bonds 19,856 – 24,526 2,701		2007 HK$’000 2,279 28,283 42,912 14,743 29		2006 HK$’000 1,321 10,854 30,820 – –
		88,246 929 2,286 3,215		42,995
				38,613 –
				38,613
		91,461		81,608
		2,460 3,448 5,908 3		1,868 62
				1,930
				3
		5,911 Discontinued 2007 HK$’000 11 – – 11	1,933 operations 2006 HK$’000 304 – –	1,933
			304

8. FINANCE COSTS

– I-25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. LOSS BEFORE INCOME TAX

Loss before income tax has been arrived at after charging (crediting): Staff costs (excluding directors’ emoluments – note 10): Wages and salaries Retirement benefits scheme contributions Total staff costs Auditors’ remuneration Amortization of other intangible assets Depreciation of property, plant and equipment (Note 1) Provision of deposits made on acquisition of property, plant and equipment Operating lease rentals in respect of land and building Cost of inventories recognized as expenses Loss on disposal of property, plant and equipment Loss on disposal of an associate Bad debts Provision for doubtful debts Share option expenses Impairment of goodwill Net foreign exchange gains	Continuing operations 2007 2006 HK$’000 HK$’000 13,428 7,110 217 180 13,645 7,290 968 628 1,801 437 10,316 1,313 – – 1,872 1,393 63,410 34,178 70 55 – 13,106 74 – – 429 83,347 39,399 145 3,361 (5,805) (2,110)	Discontinued 2007 HK$’000 664 – 664 – – 354 – – 1,062 – – – – – – –	operations 2006 HK$’000 428 155
			583
			2 – 115 133 306 14,463 332 – – – – – –

Note 1: For the year ended 30 June 2007, cost of inventories included approximately of HK$2,380,000 relating to depreciation expenses, which amount is also included in the respective total amounts disclosed separately above in the note 9 for each of these types.

– I-26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ emoluments

Emoluments paid or payable to each of the 8 (2006: 11) directors of the Company during the year were as follows:

For the year ended 30 June 2007

Executive Directors: Cheung Kwai Lan Chan Ting Chan Tung Mei Lau Hin Kun Independent Non-executive Directors: Tian He Nian Zhao Zhi Ming To Yan Ming, Edmond Non-executive Director: Shaw Kyle Arnold Junior (Note 6)	Fees HK$’000 102 102 78 78 117 117 125 25 744	Salaries and other emoluments HK$’000 1,950 1,300 650 312 – – – – 4,212	Contribution to retirement benefits scheme HK$’000 – 20 – 16 – – – – 36	Total HK$’000 2,052 1,422 728 406 117 117 125 25
				4,992

For the year ended 30 June 2006

Executive Directors: Cheung Kwai Lan Chan Ting Chan Tung Mei Lau Hin Kun Independent Non-executive Directors: Professor Peter Chin Wan Fung (Note 1) Tian He Nian Du Ying Min (Note 2) Tsui Wing Tak (Note 3) Zhao Zhi Ming (Note 4) To Yan Ming, Edmond (Note 5) Non-executive Director: Shaw Kyle Arnold Junior	Fees HK$’000 102 102 78 74 31 117 39 38 78 59 78 796	Salaries and other emoluments HK$’000 1,950 1,300 650 258 – – – – – – – 4,158	Contribution to retirement benefits scheme HK$’000 – 16 – 12 – – – – – – – 28	Total HK$’000 2,052 1,418 728 344 31 117 39 38 78 59 78
				4,982

– I-27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

1. resigned on 25 November 2005

2. resigned on 30 December 2005

3. resigned on 11 January 2006

4. appointed on 30 December 2005

5. appointed on 11 January 2006

6. retired on 24 October 2006

(b) Senior management emoluments

Of the five individuals whose emoluments were the highest in the Group for the year include two (2006: three) Directors whose emoluments are set out in the above. The emoluments payable to the remaining three (2006: two) individual during the year as follows:

Salaries, allowances and other benefits Contributions to retirement benefits scheme	2007 HK$’000 4,756 36 4,792	2006 HK$’000 2,133 23
		2,156

The emoluments fell with the following bands:

	2007	2006
	No. of	No. of
	individuals	individuals
Emoluments bands
Nil – HK$1,000,000	1	1
HK$1,000,001 – HK$2,000,000	1	1
HK$2,000,001 – HK$3,000,000	1	–

During the year ended 30 June 2007, no emoluments have been paid by the Group to the two Directors (2006: three Directors) or the three (2006: two) highest paid individuals as an inducement to join the Group, or as compensation for loss of office.

11. STAFF COSTS (INCLUDING DIRECTORS’ EMOLUMENTS)

Wages and salaries Pension cost – defined contribution plans	2007 HK$’000 19,048 253 19,301	2006 HK$’000 12,492 363
		12,855

– I-28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. INCOME TAX EXPENSES

The charge comprises: Current year Hong Kong Profits Tax Other jurisdictions Over-provisions in prior years Hong Kong Profits Tax Other jurisdictions Share of taxation charge of an associate Income tax expenses charged for the year	Continuing operations 2007 2006 HK$’000 HK$’000 – – 1,411 120	Continuing operations 2007 2006 HK$’000 HK$’000 – – 1,411 120	Discontinued operations 2007 2006 HK$’000 HK$’000 – – 31 1,307	Discontinued operations 2007 2006 HK$’000 HK$’000 – – 31 1,307	Consolidated 2007 2006 HK$’000 HK$’000 – – 1,442 1,427 1,442 1,427 – – – (127) – (127) – 5,417 1,442 6,717	Consolidated 2007 2006 HK$’000 HK$’000 – – 1,442 1,427 1,442 1,427 – – – (127) – (127) – 5,417 1,442 6,717
	1,411 – – – –	120 – (127) (127) 5,417	31 – – – –	1,307 – – – –	1,442 – – – –	1,427
						– (127
						(127
						5,417
	1,411	5,410	31	1,307	1,442

The Group did not derive any assessable profits in Hong Kong and thus no provision for Hong Kong Profits Tax has been made during the year ended 30 June 2007. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

Pursuant to the relevant laws and regulations in the PRC, the Group’s certain PRC subsidiaries are entitled to exemption from the PRC income tax for two years commencing from their first profit-making year of operation and thereafter, these PRC subsidiaries will be entitled to a 50% relief from PRC income tax for the following three years.

Income tax expenses on overseas profits have been calculated on the estimated assessable profit for the year at the rates of income tax prevailing in Singapore in which the subsidiaries of the Group operate.

– I-29 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Reconciliation between accounting loss and tax charge at applicable tax rate is as follows:

Loss before income tax: Continuing operations Discontinued operations Tax at the Hong Kong Profits Tax rate of 17.5% (2006: 17.5%) Tax effect of sharing result of associates Tax effect of expenses that are not deductible for tax purposes Tax effect of income that is not taxable for tax purposes Tax effect of tax losses not recognized Tax effect of utilization of tax losses previously not recognized Effect of different tax rates of subsidiaries operating in other jurisdictions Tax effect of over-provision in prior years Income tax expenses	2007 HK$’000 (102,342) 303 (102,039)	2006 HK$’000 (69,991) 18,346 (51,645) (9,038) 5,417 22,531 (8,379) 1,751 (239) (5,199) (127) 6,717
	(17,858) – 33,820 (14,908) 5,268 (1,413) (3,467) –	(9,038 5,417 22,531 (8,379 1,751 (239 (5,199 (127
	1,442

At the balance sheet date, the subsidiaries have unused tax losses of approximately HK$42,276,000 (2006: HK$37,084,000) available for offset against future profits. No deferred tax asset has been recognized in respect of the unused tax losses due to the unpredictability of future profits streams in the subsidiaries. Deductible temporary differences have not been recognized in these financial statements owing to the absence of objective evidence in respect of the availability of sufficient taxable profits that are expected to arise to offset against the deductible temporary differences. Included in unused estimated tax losses are losses of approximately HK$11,705,000 (2006: HK$4,793,000) that will expire within 2 to 4 years from the year origination. Other losses may be carried forward indefinitely.

The components of unrecognized deductible (taxable) temporary differences are as follows:

Deductible temporary differences: Unutilised tax losses Other Taxable temporary differences: Accelerated tax allowances Other	2007 HK$’000 42,276 8,513 (1,065) – 49,724	2006 HK$’000 37,084 6,630 (1,320) (228) 42,166

– I-30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. DISCONTINUED OPERATIONS

In September 2006, the Group ceased its manufacturing and sales of honey mead business by disposal of interest in the subsidiaries, Wuhu Bee & Bee Natural Food Company Limited and Zhuhai Free Trade Zone Bee & Bee Natural Food Company Limited. The proceeds of sales substantially exceeded the carrying amount of the related net assets of the subsidiaries and, accordingly, no impairment losses were recognized on the reclassification of these operations as held for sale.

In addition, in April 2007, the Group disposed one of its subsidiaries, La Cucina Italian (Macau) Limited, a restaurant operated in Macau. Details of the assets and liabilities disposed of are disclosed in note 29.

Profit for the year from discontinued operations Revenue – manufacturing and sales of honey mead – operation of a restaurant Expenses – manufacturing and sales of honey mead – operation of a restaurant Profit before tax Income tax expenses Profit for the year from discontinued operations Cash flows from discontinued operations Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Net cash flows	2007 HK$’000 929 2,286	2006 HK$’000 38,613 –
	3,215 (518) (2,394) (2,912) 303 (31)	38,613
		(19,810 (457
		(20,267
		18,346 (1,307
	272	17,039
	5,139 (561) (1,356)	29,110 (1,918 (6,521
	3,222	20,671

14. DIVIDENDS

											2007	2006
											HK$’000	HK$’000
Nil	interim	dividend	(2006:	HK0.5	cent	per	share	on	609,872,807	shares)	–	3,049

The Directors do not recommend the payment of any dividend for the year ended 30 June 2007.

– I-31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. LOSS PER SHARE

For continuing and discontinued operations

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

Loss for the purposes of basic loss per share Number of shares Weighted average number of ordinary shares for the purpose of basic loss per share	2007 HK$’000 (72,521) ’000 936,079	2006 HK$’000 (39,908) ’000 534,223

No diluted loss per share has been presented in both years, as the outstanding share options and convertible bonds of the Company are anti-dilutive since their exercise or concession would result in a decrease in loss per share.

From continuing operations

The calculation of the basic loss per shares from continuing operations attributable to the ordinary equity share holders of the parent is based on the following data:

Loss for the year attributable to equity holders of the parent Less: Profit for the year from discontinued operations Loss for the purpose of basic loss per share from continuing operations	2007 HK$’000 (72,521) 272 (72,793)	2006 HK$’000 (39,908) 17,039 (56,947)

The denominators used are the same as those detailed above for basic loss per share.

From discontinued operations

Earnings per share for the discontinued operations is HK0.03 cents per share (2006: HK3.19 cents per share), based on the profit for the year from the discontinued operations of approximately HK$272,000 (2006: HK$17,039,000) and the denominators detailed above for basic loss per share.

– I-32 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

16. PROPERTY, PLANT AND EQUIPMENT

COST At 1 July 2005 Exchange realignment Additions Acquired on acquisition of subsidiairies Disposal At 30 June 2006 and At 1 July 2006 Exchange realignment Additions Acquired on acquisition of jointly controlled entities Disposal of subsidiaries Disposal At 30 June 2007 DEPRECIATION At 1 July 2005 Exchange realignment Charged for the year Elimiated on disposals At 30 June 2006 and At 1 July 2006 Exchange realignment Charged for the year Disposal of subsidiaries Eliminated on disposals At 30 June 2007 NET BOOK VALUES At 30 June 2007 At 30 June 2006	Leasehold land and buildings d HK$’000 – – 359 6,019 –	Gas istribution network HK$’000 – – – – –	Gas storage equipment HK$’000 – – – – –	Furniture, fixtures and equipment HK$’000 532 6 535 603 –	Plant and machinery Leasehold improvement HK$’000 HK$’000 3,251 519 95 – 516 1,547 – – (523) –	Plant and machinery Leasehold improvement HK$’000 HK$’000 3,251 519 95 – 516 1,547 – – (523) –	Motor vehicles HK$’000 857 8 2,502 255 (345)	Computer equipment HK$’000 – – 54 3,644 –	Total HK$’000 5,159 109 5,513 10,521 (868)
	6,378 617 781 11,100 – – 18,876 – – 106 – 106 6 633 – – 745	– 3,431 – 153,943 – – 157,374 – – – – – – 3,332 – – 3,332	– 219 – 9,822 – – 10,041 – – – – – – 280 – – 280	1,676 159 886 5,190 (629) (22) 7,260 253 4 146 – 403 2 553 (236) (12) 710	3,339 29 42,100 – (2,845) – 42,623 1,007 29 351 (188) 1,199 1 3,927 (1,188) – 3,939	2,066 – 1,154 – (2,112) – 1,108 187 – 253 – 440 – 395 (283) – 552	3,277 61 1,552 1,488 (284) (99) 5,995 383 3 318 (260) 444 2 752 (168) (18) 1,012	3,698 211 147 – – – 4,056 – – 254 – 254 14 798 – – 1,066	20,434 4,727 46,620 181,543 (5,870) (121)
									247,333
									1,830 36 1,428 (448)
									2,846 25 10,670 (1,875) (30)
									11,636
	18,131 6,272	154,042 –	9,761 –	6,550 1,273	38,684 2,140	556 1,626	4,983 2,833	2,990 3,444	235,697
									17,588

The leasehold land and buildings of the subsidiary is located in PRC and held under medium lease term. The Group has pledged land and buildings having a net book value of approximately HK$5,834,000 (2006: HK$5,918,000) to secure general banking facilities granted to the subsidiary. In additions, gas distribution network of the Group’s jointly controlled entity with a net book value of approximately HK$113,432,000 has been pledged to secure general banking facilities granted to the Group’s jointly controlled entity.

At 30 June 2007, none of the Group’s property, plant and equipment was held under finance lease (2006: HK$Nil).

– I-33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. GOODWILL

COST At 1 July 2005 Elimination of accumulated amortization upon the application of HKFRS 3 Arising on acquisition of subsidiaries At 30 June 2006 and at 1 July 2006 Arising on acquisition of jointly controlled entities Arising on increase of equity interest in subsidiaries At 30 June 2007 AMORTIZATION At 1 July 2005 Elimination of accumulated amortization upon the application of HKFRS 3 At 30 June 2006, 1 July 2006 and 30 June 2007 IMPAIRMENT At 1 July 2005 Impairment loss recognized for the year At 30 June 2006 and at 1 July 2006 Impairment loss recognized for the year At 30 June 2007 CARRYING VALUES At 30 June 2007 At 30 June 2006

HK$’000 13,305 (1,075) 126,192 138,422 49,454 96,319 284,195 1,075 (1,075) – – (3,361) (3,361) (145) (3,506) 280,689 135,061

The Group tests goodwill annually for impairment in the financial year in which the acquisition takes place, or more frequently if there is indications that goodwill might be impaired.

For the year ended 30 June 2007, addition of goodwill was arisen from acquisition of jointly-controlled entities, Changde Huayou Gas Co., Limited and Hunan Huayou Natural Gas Transportation and Distribution Company Limited of approximately HK$26,227,000 and HK$23,227,000 respectively. In addition goodwill of approximately HK$96,174,000 was mainly arisen from the increase of equity interest in Aptus Holdings Limited.

The recoverable amounts of cash generating units (“CGUs”) are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the year. Management estimates discount rates of 5% using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

The value in use calculations is derived from cash flow projections based on the most recent financial budgets approved by management for the next 5 years. Cash flows beyond that 5 year period have been extrapolated using a steady growth rate of 7% per annum, which is based on industry growth forecasts. The directors of the Company considered no impairment loss is necessary at 30 June 2007.

– I-34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. OTHER INTANGIBLE ASSETS

COST At 1 July 2005 Additions Acquired on acquisition At 30 June 2006 and 1 July 2006 Exchange realignment Disposal of subsidiaries At 30 June 2007 AMORTIZATION At 1 July 2005 Charge for the year At 30 June 2006 and at 1 July 2006 Exchange realignment Disposal of subsidiaries Charge for the year At 30 June 2007 CARRYING VALUES At 30 June 2007 At 30 June 2006	Patent HK$’000 – 1,665 714	Computer software in lottery systems HK$’000 – – 4,644	Technical know-how HK$’000 519 – –	Total HK$’000 519 1,665 5,358 7,542 269 (2,898) 4,913 519 437 956 25 (519) 1,848 2,310 2,603 6,586
	2,379 – (2,379) – – – – – – – –	4,644 269 – 4,913 – 437 437 25 – 1,848 2,310	519 – (519) – 519 – 519 – (519) – –	7,542
				269 (2,898
				4,913
				519 437
				956
				25 (519 1,848
				2,310
	– 2,379	2,603 4,207	– –

The above intangible assets other than patents have definite useful lives. Such intangible assets are amortized on a straight-line basis over the following periods:

Computer software in lottery systems 5 years Technical know-how 3 years

– I-35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. INTEREST IN ASSOCIATES

2007 2006 HK$’000 HK$’000 Cost of unlisted investment 238 43,125 Share of post-acquisition profits – 24,494 238 67,619 Disposals during the year – (67,381 238 238 Name of company Form of business structure Place of incorporation/ operation Class of shares held Proportion of nominal value of issued share capital held by the Group Nature of business (Shenzhen Bozone Technology Services Co. Ltd.) Incorporated PRC Registered capital 24.99% Provision of lottery-related hardware and software systems	2007 HK$’000 238 –	2006 HK$’000 43,125 24,494
	238 –	67,619 (67,381
		238

The Group acquired a 51% stake in Shenzhen Bozone IT Co., Limited which in turn held a 49% stake in (Shenzhen Bozone Technology Services Co. Ltd.) which became an associate company of the Group. The associate was inactive and under deregistration process in the PRC. Loss for the year was amounted to HK$2,000.

20. PREPAID LEASE PAYMENTS

Acquisition of jointly controlled entities Exchange realignment Additions Less: Charged to consolidated income statement for the year At 30 June 2007 Analysis for reporting purposes: Non-current portion Current portion At 30 June 2007	2007 HK$’000 12,645 284 99	2006 HK$’000 – – –
	13,028 (152)	– –
	12,876	–
	12,496 380	– –
	12,876	–

The amount represented medium-term land use rights situated in the PRC and premises under operating leases in the PRC.

– I-36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. CONSTRUCTION IN PROGRESS

Acquisition of jointly controlled entities Exchange realignment Additions At 30 June 2007	2007 HK$’000 7,956 177 5,871 14,004	2006 HK$’000 – – –
		–

22. INVENTORIES

Raw materials and consumables Work in progress Finished goods	2007 HK$’000 6,150 – 386 6,536	2006 HK$’000 2,401 832 4,203
		7,436

All inventories are stated at cost.

23. TRADE AND OTHER RECEIVABLES AND PREPAYMENTS

Trade receivables Other receivables and prepayments	2007 HK$’000 10,861 78,795 89,656	2006 HK$’000 5,760 84,698
		90,458

Payment terms with customers are mainly on credit together with deposits. Invoices are normally payable within 90 days of issuance. The following is an aged analysis of trade receivables at the balance sheet dates:

0 to 30 days 31 to 60 days 61 to 365 days Over 1 year	2007 HK$’000 2,934 1,893 5,696 338 10,861	2006 HK$’000 1,241 96 3,804 619
		5,760

Included in other receivables and prepayments are prepayments for the drilling operation of Xin Jiang Oilfield in the PRC of approximately HK$30,000,000 (2006: HK$29,000,000).

The fair value of the Group’s trade and other receivables and prepayments at 30 June 2007 was approximate to the corresponding carrying amount.

– I-37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. TRADE AND OTHER PAYABLES

Trade payables Other payables	2007 HK$’000 10,536 46,992 57,528	2006 HK$’000 1,350 29,109
		30,459

The following is an aged analysis of trade payables at the balance sheet dates:

0 to 30 days 31 to 120 days 121 to 180 days 181 to 365 days Over 1 year	2007 HK$’000 1,662 1,040 2,986 3,981 867 10,536	2006 HK$’000 1,150 87 – – 113
		1,350

The fair value of the Group’s trade and other payables at 30 June 2007 was approximate to the corresponding carrying amount.

25. BANK AND OTHER BORROWINGS

Other loan, unsecured (note a) Other loan, unsecured (note b) Bank loans, secured (note c) Bank loan, unsecured (note d)	2007 HK$’000 16,500 20,551 57,724 16,947 111,722	2006 HK$’000 22,500 8,427 4,078 –
		35,005

The Group’s borrowings are repayable as follows:

On demand or within one year More than one year, but not exceeding two years Two to five years Over five years Less: Amount due within one year shown under current liabilities Amount due after one year	2007 HK$’000 5,617 28,031 63,307 14,767	2006 HK$’000 12,505 22,500 – –
	111,722 (5,617)	35,005 (12,505
	106,105	22,500

The fair value of the Group’s borrowings at 30 June 2007 was approximate to the corresponding carrying amount.

– I-38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

• a. Borrowings of approximately HK$16,500,000 is interest bearing at 2% over prime rate, unsecured and not repayable in next twelve months.

• b. Borrowings of approximately HK$2,857,000 is unsecured, bears interest at prime rate and not repayable in next twelve months.

Borrowings of approximately HK$17,694,000 is unsecured, interest charged at 2.55% per annum and has fixed repayment term.

• c. Borrowings of approximately of HK$54,232,000 is secured by gas network of a jointly controlled entity, interest charged at 5.5 – 5.7% per annum and have fixed repayment terms.

Borrowings of approximately of HK$3,492,000 is secured by leasehold properties of a subsidiary and interest charged at 6.732% per annum and will be fully repaid in next financial year.

• d. Borrowings of approximately HK$16,947,000 is unsecured, interest charged at 4.8% per annum and has fixed repayment term.

The details of the Group’s borrowings which are denominated in foreign currencies are set out as below:

At 30 June 2007 At 30 June 2006	RMB HK$’000 equivalent 92,365
	4,078

26. CONVERTIBLE BONDS

On 22 November 2006, the subsidiary of the Company, Aptus Holdings Limited (“Aptus”) issued convertible bonds due on 21 November 2011 with a principal amount of HK$234 million, which is interest-bearing at 5% per annum from and including 21 May 2008. The convertible bonds were issued for the purpose of the acquisition of a 48.33% equity interest in Changde Huayou Gas Co Limited (“Changde Joint Venture”), 33% equity interest in the Hunan Huayou Natural Gas Transportation & Distribution Company Limited (“Hunan Joint Venture”) and general working capital purposes.

On or at any time after 21 November 2008 and prior to 11 November 2011, Aptus may redeem the convertible bonds in whole but not in part, together with the interest accrued to the redemption date.

The holder(s) of the convertible bonds may exercise the right at any time from 1 January 2007 up to close of business on 11 November 2011 or, if the convertible bonds shall have been called for redemption before 21 November 2011, up to the close of business on a date no later than 7 business days prior to the date fixed for redemption thereof. The initial conversion price will be HK$2.4 per Aptus share, subject to adjustment upon occurrence of certain prescribed dilution events.

On each of 21 November 2008, 21 November 2009 and 21 November 2010 (each a “Put Option Date”), each bondholder will have the right to require Aptus to redeem in whole or in part of the convertible bonds of such bond holders on the Put Option Date together with interest accrued to the Put Option Date.

Unless previously redeemed converted or purchased and cancelled, the convertible bonds will be redeemed at 150.15% of their principal amount on 21 November 2011.

Further details of the convertible bonds can also be found in the joint announcement made by Aptus and the Company dated 9 November 2006.

– I-39 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The fair value of the liability component of the convertible bonds is estimated by computing the present value of all future cash flows discounted using prevailing market rate of interest for similar instrument with a similar credit rating and with consideration of the convertible bonds. The residual amount, representing the value of the equity component is credited to a Aptus’ reserve account.

The Directors had assessed the fair values of the early redemption rights and considered the fair value is insignificant.

The convertible bonds have been spilt between the liability and equity components as follows:

Nominal value of convertible bonds issued Equity component Liability component at the issuance date Imputed finance cost Non-current liability component as at the balance sheet date SHARE CAPITAL Note Authorized: At 1 July 2006 and 30 June 2007, shares of HK$0.01 each Issued and fully paid: At 1 July 2005, shares of HK$0.01 each Issue of shares pursuant to placing and subscription agreement Shares issued on exercise of options Shares issued on Share Award Scheme Shares issued pursuant to sale and purchase agreement At 30 June 2006, shares of HK$0.01 each Bonus issue on 1 November 2006 (a) At 30 June 2007, shares of HK$0.01 each	2007 HK$’000 234,000 (10,712)	2006 HK$’000 – –
	223,288 19,856	– –
	243,144 Number of shares ’000 20,000,000	–
		HK$’000 200,000
	482,130 68,000 1,070 48,730 24,123 624,053 312,026	4,821 680 11 488 241
		6,241 3,120
	936,079	9,361

27. SHARE CAPITAL

Note:

a. A bonus issue of shares to those shareholders whose names appeared in the register of members of the Company on 24 October 2006 was made by capitalization of the share premium account, on the basis of one new share of HK$0.01 each for two existing shares then held. A total of 312,026,403 bonus shares were issued.

– I-40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. SHARE-BASED PAYMENT TRANSACTIONS

Pre-IPO Share Option Scheme

As at 30 June 2007, 40,000,000 options were granted under the Pre-IPO Share Option Scheme of which 37,000,000 options had been exercised and 3,000,000 options had been lapsed.

Share Option Scheme

The Company has adopted a share option scheme (the “Share Option Scheme”), under which the Directors may, at its discretion, invite any persons belonging to any of the following classes of participants, to take up options to subscribe for the shares in the Company:

• (a) any employees (whether full-time or part-time) of the Company, any of its subsidiaries or any entity (the “Invested Entity”) in which the Group holds any equity interest, including any executive director of the Company, any of such subsidiaries or any Invested Entity;

• (b) any Non-executive Directors (including Independent Non-executive Directors) of the Company, any of its subsidiaries or any Invested Entity;

• (c) any supplier of goods or services to any member of the Group or any Invested Entity;

• (d) any customer of the Group or any Invested Entity;

• (e) any person or entity that provides research, development, or other technological support to the Group or any Invested Entity; and

• (f) any shareholder of any member of the Group or any Invested Entity or any holder of any securities issued by any member of the Group or any Invested Entity.

The Share Option Scheme will remain valid for a period of 10 years commencing from 18 October 2002. The exercise price of the share options is determinable by the Directors, and may not be less than the highest of:

• (i) the closing price of the shares of the Company as stated in the Stock Exchange’s daily quotation sheets on the date of grant, which must be a business day;

• (ii) the average closing price of the shares of the Company as stated in the Stock Exchange’s daily quotation sheets for the five business days immediately preceding the date of grant; and

• (iii) the nominal value of a share of the Company.

– I-41 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

On 23 November 2006, 62,400,000 share options were granted to 7 directors and 15 eligible participants, which entitled them to subscribe for a total of 62,400,000 ordinary shares of the Company. There were 80,010,000 outstanding share options brought forward from 1 July 2006, out of which 1,200,000 share options have been lapsed. Thus there were a total of 141,210,000 share options outstanding as at 30 June 2007.

2007

			Number of				Number of
			share				share
			options at	Granted	Exercised	Lapsed	options at	Exercise
	Date of	Exercise	1 July	during the	during the	during the	30 June	period of
Categories of grantees	grant	price	2006	year	year	year	2007	share options
		HK$	’000	’000	’000	’000	’000
Cheung Kwai Lan	23/11/06	0.62	–	1,560	–	–	1,560	23/11/2006 –
								17/10/2012
	23/11/06	0.62	–	1,560	–	–	1,560	23/5/2007 –
								17/10/2012
	23/11/06	0.62	–	3,120	–	–	3,120	23/11/2007 –
								17/10/2012
Chan Tung Mei	23/11/06	0.62	–	1,560	–	–	1,560	23/11/2006 –
								17/10/2012
	23/11/06	0.62	–	1,560	–	–	1,560	23/5/2007 –
								17/10/2012
	23/11/06	0.62	–	3,120	–	–	3,120	23/11/2007 –
								17/10/2012
Chan Ting	23/11/06	0.62	–	1,560	–	–	1,560	23/11/2006 –
								17/10/2012
	23/11/06	0.62	–	1,560	–	–	1,560	23/5/2007 –
								17/10/2012
	23/11/06	0.62	–	3,120	–	–	3,120	23/11/2007 –
								17/10/2012
Lau Hin Kun	18/8/2004	0.427	1,600	–	–	–	1,600	19/8/2004 –
		(adjusted)						17/10/2012
	23/11/2006	0.62	–	350	–	–	350	23/11/2006 –
								17/10/2012
	23/11/2006	0.62	–	350	–	–	350	23/5/2007 –
								17/10/2012
	23/11/2006	0.62	–	700	–	–	700	23/11/2007 –
								17/10/2012
Tian He Nian	23/11/2006	0.62	–	260	–	–	260	23/11/2006 –
								17/10/2012
	23/11/2006	0.62	–	260	–	–	260	23/5/2007 –
								17/10/2012
	23/11/2006	0.62	–	530	–	–	530	23/11/2007 –
								17/10/2012
Zhao Zhi Ming	23/11/2006	0.62	–	260	–	–	260	23/11/2006 –
								17/10/2012
	23/11/2006	0.62	–	260	–	–	260	23/5/2007 –
								17/10/2012
	23/11/2006	0.62	–	530	–	–	530	23/11/2007 –
								17/10/2012
To Yan Ming, Edmond	23/11/2006	0.62	–	260	–	–	260	23/11/2006 –
								17/10/2012
	23/11/2006	0.62	–	260	–	–	260	23/5/2007 –
								17/10/2012
	23/11/2006	0.62	–	530	–	–	530	23/11/2007 –
								17/10/2012

– I-42 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Categories of grantees Date of grant Exercise price HK$ Shaw Kyle Arnold Junior 19/10/2004 0.433 (adjusted) Eligible participants 18/8/2004 0.427 (adjusted) Eligible participants 22/3/2006 1.90 (adjusted) Eligible participants 23/11/2006 0.62 Total	Number of share options at 1 July 2006 ’000 1,200 37,000 40,210 – 80,010	Granted during the year ’000 – – – 39,130 62,400	Exercised during the year ’000 – – – – –	Lapsed during the year ’000 (1,200) – – – (1,200)	Number of share options at 30 June 2007 Exercise period of share options ’000 – 20/10/2004 – 17/10/2012 37,000 19/8/2004 – 17/10/2012 40,210 22/3/2006 – 22/3/2008 39,130 23/11/2006 – 17/10/2012 141,210

The closing prices of the Company’s shares on 18 August 2004, 19 October 2004, 22 March 2006 and 23 November 2006, the dates of grant of the share options, were HK$0.64 (adjusted to HK$0.427 due to issue of bonus shares on 1 November 2006), HK$0.65 (adjusted to HK$0.433 due to issue of bonus shares on 1 November 2006), HK$2.90 (adjusted to HK$1.933 due to issue of bonus shares on November 2006) and HK$0.63, respectively.

The exercise in full of the share options would, under the present capital structure of the Company, result in the issue of 141,210,000 additional ordinary shares of the Company at additional share capital of HK$1,412,000 and share premium of HK$130,157,100.

At 30 June 2007, the number of the shares in respect of which option had been granted and remained outstanding under the scheme was 15.09% (2006: restated to 8.55% due to issue of bonus share) of the shares of the Company in issue at that date.

A nominal consideration of HK$1 or RMB1 is payable on acceptance of each grant. Total consideration received during the year from eligible participants for taking up the options granted amounted to HK$22.

The maximum number of shares of the Company which may be issued upon exercise of all the outstanding options granted and yet to be issued under the Pre-IPO Share Option Scheme, the Share Option Scheme or any other schemes must not, in aggregate, exceed 30% of the shares of the Company in issue from time to time.

The maximum number of shares which may be granted under the Pre-IPO Share Option Scheme of the Company must not exceed 40,000,000 shares, being 10% of the issued share capital as at the listing of the Company’s shares on GEM on 12 November 2002.

The maximum number of shares issued and to be issued on the exercise of options granted and to be granted to each eligible participant (included both exercised and outstanding options) in any 12-month period must not exceed 1% of the total issued share capital of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholder’s approval in a general meeting.

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

– I-43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2006

Categories of grantees Date of grant Exercise price HK$ Lau Hin Kun 18/8/2004 0.64 Shaw Kyle Arnold Junior 19/10/2004 0.65 Eligible participants 18/8/2004 0.64 Eligible participants 22/3/2006 2.85 Total	Number of share options at 1 July 2005 ’000 1,600 1,200 37,200 – 40,000	Granted during the year ’000 – – – 40,210 40,210	Exercised during the year ’000 – – (200) – (200)	Number of share options at 30 June 2006 Exercise period of share options ’000 1,600 19/8/2004 – 17/10/2012 1,200 20/10/2004 – 17/10/2012 37,000 19/8/2004 – 17/10/2012 40,210 22/3/2006 – 22/3/2008 80,010

During the year ended 30 June 2007, options were granted on 23 November 2006. The estimated fair value of the options granted is approximately HK$11,282,000.

These fair values were calculated by using the Black-Scholes Option Pricing Model. The inputs into the model were as follows:

		**Share **	**option grant **	date
	22 March
	2006		23 November 2006
Share price on grant date
(HK$)	2.90	0.70	0.70	0.70	0.70
Exercise price (HK$)	2.85	0.62	0.62	0.62	0.62
Expected volatility	83.83%	74.67%	74.67%	74.67%	74.67%
Expected life	2 years	1 year	2 years	2.5 years	3 years
Risk-free rate	4%	3.66%	3.68%	3.69%	3.709%
Expected dividend yield	0.69%	0%	0%	0%	0%

Expected volatility for the options granted 22 March 2006 and 23 November 2006 was determined by using the historical volatility of the Company’s share price over the previous 2 years and 1 to 3 years respectively. The expected life used in the model has been adjusted, based on the management’s best estimate, for the effects on non transferability, exercise restrictions and behavioural considerations.

The Group recognized the total expenses of approximately HK$28,434,000 for the year ended 30 June 2007 (2006: HK$16,192,000) in relation to share options granted by the Company.

In addition, the Group recognized share option expenses of its subsidiary, Aptus Holdings Limited of approximately HK$54,913,000 (2006: HK$23,207,000) into the consolidated income statement.

29. NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT

Acquisition of jointly controlled entities

On 6 February 2007, the Group acquired a 48.33% equity interest in Changde Joint Venture and 33% equity interest in Hunan Joint Venture at a cash consideration of approximately HK$131,066,000 and HK$79,211,000 respectively.

– I-44 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Set out below is the details of Changde Joint Venture and Hunan Joint Venture upon completion of the acquisition and goodwill of approximately HK$26,227,000 and HK$23,227,000 was recorded in these transactions.

NET ASSETS ACQUIRED Property, plant and equipment Prepaid lease payments Inventories Construction in progress Accounts receivables Deposits, prepayments and other receivables Bank balances and cash Accounts payables Accruals and others payables Tax payable Borrowings Minority interests Goodwill on acquisition Total consideration SATISFIED BY Cash consideration Net cash outflow arising on acquisition: Cash consideration Bank balances and cash acquired Net outflow of cash and cash equivalents in respect of the acquisition of jointly controlled entities	Changde Joint Venture HK$’000 66,857 12,645 1,966 7,956 429 3,617 63,336 (6,205) (3,100) (1,568) (40,357) (737)	Hunan Joint Venture HK$’000 114,686 – 1,878 – – 503 26,039 (12,048) (1,750) (5) (73,319) –	Total HK$’000 181,543 12,645 3,844 7,956 429 4,120 89,375 (18,253) (4,850) (1,573) (113,676) (737) 160,823 49,454 210,277 210,277 (210,277) 89,375 (120,902)
	104,839 26,227	55,984 23,227	160,823 49,454
	131,066 131,066	79,211 79,211
	(131,066) 63,336	(79,211) 26,039	(210,277 89,375
	(67,730)	(53,172)

The acquiree’s carrying amount of net assets before combination approximates to its fair values. Accordingly, no fair value adjustments are required. Changde Joint Venture contributed to the Group’s profit before taxation by approximately HK$1,348,000 between the date of acquisition and the balance sheet date. Hunan Joint Venture contributed to the Group’s loss before taxation of HK$5,204,000 between the date of acquisition and the balance sheet date.

Disposal of subsidiaries

For the year ended 30 June 2007, the Group discontinued its business of (i) manufacturing and sales of honey mead and (ii) operations of a restaurant. The subsidiaries disposed were Wuhu Bee & Bee Natural Food Company Limited (“Wuhu B&B”), Zhuhai Free Trade Zone Bee & Bee Natural Food Company Limited (“Zhuhai B&B”) and La Cucina Italian (Macau) Limited (“La Cucina”).

– I-45 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

In additions, the Company disposed Shenzhen Bozone Mobile Technology IT Co., Limited (“Bozone Mobile”) and Guangzhou Latech Computer Technology Co., Limited (“GZ Latech”) to streamline the Group’s structure.

Property, plant and equipment Deposits Technical know-how Inventories Accounts receivables Deposits, prepayments and other receivables Bank balances and cash Accounts payables Accruals and other payables Tax payable Net assets (liabilities) Less: Minority interests Less: Release of translation reserve Net amount of assets (liabilities) Gain (loss) on disposal Total consideration Satisfied by: Cash Net cash inflow arising on disposal: Cash consideration Bank balances and cash disposed of	Wuhu B&B and Zhuhai B&B HK$’000 1,825 3,756 – 2,096 1,087 172 47,237 – (2,829) (84)	GZ Latech HK$’000 25 – – 2,904 – 2,874 33 – (1,142) –	La Cucina HK$’000 2,109 – – 114 – 146 461 – (3,370) –	Bozone Mobile HK$’000 35 – 2,379 1,429 54 1,961 208 (180) (5,508) –	Total HK$’000 3,994 3,756 2,379 6,543 1,141 5,153 47,939 (180) (12,849) (84) 57,792 (7,381) 50,411 (1,888) 48,523 30,635 79,158 79,158 79,158 (47,939) 31,219
	53,260 (4,760) 48,500 (1,773) 46,727 29,273	4,694 (2,300) 2,394 (115) 2,279 864	(540) – (540) – (540) 555	378 (321) 57 – 57 (57)	57,792 (7,381
					50,411 (1,888
					48,523 30,635
	76,000 76,000	3,143 3,143	15 15	– –
	76,000 (47,237)	3,143 (33)	15 (461)	– (208)	79,158 (47,939
	28,763	3,110	(446)	(208)

Acquisition of subsidiaries

For the year ended 30 June 2006, the Group acquired 70% equity interest in CNPC Huayou Cu Energy Investment Co. Ltd. (“CNPC Huayou”) (via Aptus Holdings Limited) and Shenzhen Bozone IT Co. Ltd. and its subsidiaries and an associate (“Bozone”) at a consideration of approximately HK$29,000,000 and HK$101,726,000, respectively. For the acquisition of CNPC Huayou, the Group has paid cash consideration of HK$5,000,000 and issued 20,000,000 ordinary shares of its subsidiary, Aptus Holdings Limited (“Aptus”) of HK$0.01 per share for the acquisition. The closing price of Aptus share as at 11 January 2006, the completion date of the transaction was HK$1.20 and non-cash consideration of HK$24,000,000 for this

– I-46 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

acquisition transaction was resulted. The registered capital of CNPC Huayou is RMB100,000,000 (equivalent to approximately HK$97,087,000) and RMB15,950,000 (equivalent to approximately HK$15,485,000) has been paid up by minority interest and considered as the capital contributed by minority interest upon the completion of aforesaid acquisition. Accordingly, the Group has to further invest RMB70,000,000 (equivalent to approximately HK$67,961,000) into CNPC Huayou and during the year, the Group has invested RMB31,099,000 (equivalent to approximately HK$30,000,000). The total consideration for the acquisition transaction is HK$96,961,000, which has been partially settled by issuance of the Company’s shares of HK$24,000,000 and cash of HK$35,000,000 as of the balance sheet date.

For the acquisition of Bozone, the Group has paid cash consideration of approximately HK$31,770,000 and issued 24,122,807 ordinary shares of the Company of HK$0.01 per share for the acquisition. The closing price of the Company’s share as at 22 March 2006, the completion date of the transaction was HK$2.90 and non-cash consideration of approximately HK$69,956,000 for this acquisition transaction was resulted.

The net assets were stated as follows:

Property, plant and equipment Technical know-how Investment in an associate Inventories Trade receivables Deposits and prepayments Amount due from shareholders Bank balances and cash Trade payables Amount due to a director Amount due to shareholders Taxation Bank loan Other loan Accruals and other payable Minority interests Acquisition on goodwill Total consideration Satisfied by: Cash consideration Shares allotted Net cash outflow arising on acquisition: Cash consideration Bank and cash acquired Net outflow of cash and cash equivalent in respect of the acquisition of subsidiaries	Bozone HK$’000 10,394 5,358 238 4,174 10,414 3,407 743 13,658 (3,745) (4,036) (807) (189) (3,544) (971) (15,033) (12,766)	CNPC Huayou HK$’000 127 – – – – 11,856 – 19 – – – – – – (612) (38,151)	Total HK$’000 10,521 5,358 238 4,174 10,414 15,263 743 13,677 (3,745) (4,036) (807) (189) (3,544) (971) (15,645) (50,917) (19,466) 126,192 106,726 36,770 69,956 106,726 (36,770) 13,677 (23,093)
	7,295 94,431	(26,761) 31,761	(19,466 126,192
	101,726	5,000
	31,770 69,956	(Note) 5,000 –	36,770 69,956
	101,726	5,000
	(31,770) 13,658	(5,000) 19	(36,770 13,677
	(18,112)	(4,981)

– I-47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note:

Consideration for acquisition of CNPC Huayou was included the allotment of 20,000,000 ordinary shares in Aptus Holdings Limited of HK$0.01 par values. Fair value of the shares allotted at the acquisition date was HK$1.20.

The acquirees’ carrying amount of net assets before combination approximates to its fair value. Accordingly, no fair value adjustments are required. CNPC Huayou contributed to the Group’s loss before taxation of approximately HK$463,000 between the date of acquisition and the balance sheet date.

Shenzhen Bozone IT Co. Limited contributed approximately HK$10,854,000 revenue and HK$1,501,000 to the Group’s loss before income tax for the period between the date of acquisition and the balance sheet date.

Major non-cash transactions

• (a) During the year, the Group incurred share option expenses of approximately HK$83,347,000.

• (b) During the year, the Group incurred imputed interest on convertible bonds of approximately HK$19,856,000.

30. CONTINGENT LIABILITIES

The Company provided corporate guarantees to the extent of approximately HK$26,500,000 (2006: HK$42,500,000) to banks and financial institution to secure general banking facilities granted to certain subsidiaries.

The total facilities utilised by the Group at 30 June 2007 amounted to approximately HK$16,500,000 (2006: HK$26,578,000).

31. OPERATING LEASE COMMITMENTS

The Group as lesser

As at 30 June 2007, the Group had commitments for future minimum lease payments in respect of rented premises under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	2007 HK$’000 2,149 2,797 4,946	2006 HK$’000 1,824 41
		1,865

Operating lease payments represent rentals payable by the Group for certain of its office properties.

– I-48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group as lessor

As at 30 June 2007, the Group had contracted with tenants for the following 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	2007 HK$’000 129 246 375	2006 HK$’000 – –
		–

Leases are negotiated for an average term of 3 years.

32. CAPITAL COMMITMENTS

Capital expenditure in respect of the acquisition of property, plant and equipment – authorized but not contracted for – contracted for but not provided in the financial statements Capital expenditure in respect of the capital injection to a subsidiary – authorized but not contracted for	2007 HK$’000 – –	2006 HK$’000 – 559
	– 39,956	559 37,768
	39,956	38,327

33. RETIREMENT BENEFITS SCHEME

With the introduction of Mandatory Provident Fund Scheme (the “MPF Scheme”) in December 2000 in Hong Kong, the Group has arranged its employees in Hong Kong to join the MPF Scheme. The retirement benefits scheme contributions charged to the consolidated income statement represents contributions payable to the MPF Scheme by the Group at rates specified in the rules of the MPF Scheme.

The total cost charged to the consolidated income statement of HK$253,000 (2006: HK$207,000) represents contributions payable to the MPF Scheme in respect of the current accounting year.

The employees employed in the PRC subsidiaries are members of the state-managed retirement benefits schemes operated by the PRC government. The PRC subsidiaries are required to contribute a certain percentage of their payroll to the retirement benefits schemes to fund the benefits. The only obligation of the Group with respect to the retirement benefits schemes is to make the required contributions under the schemes.

The employees employed in the Singapore subsidiary are members of the Central Provident Fund Scheme. The Singapore subsidiary is required to contribute pension, based on a certain percentage of their payroll, to the Central Provident Fund Scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefits scheme is to make the required contributions under the scheme.

– I-49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. PROVISION FOR LONG SERVICE PAYMENTS

Under the Hong Kong Employment Ordinance, the Group is obliged to make lump sum payments on cessation of employment in certain circumstances to certain employees who have completed at least five years of service with the Group. The amount payable is dependent on the employee’s final salary and years of service, and is reduced by entitlements accrued under the Group’s retirement plan that are attributable to contributions made by the Group. The Group does not set aside any assets to fund any remaining obligations.

The Group had no significant provision for long service payments at 30 June 2007 (2006: Nil).

35. PLEDGE OF ASSETS

At 30 June 2007, the Group has pledged its bank deposits of approximately HK$5,000,000 (2006: HK$13,308,000) and leasehold property at net book value of approximately HK$5,834,000 (2006: HK$5,918,000) approximately as securities for the general banking facilities granted to the Group. As at 30 June 2007, the 100% of the issued share capital of Good United Management Limited (“GUM”), a subsidiary of the Company, was pledged in favors of the holder(s) of the convertible bonds issued by Aptus on 22 November 2006. GUM held 70% equity interest in CNPC Huayou Cu Energy Investment Co. Limited, which owned profit sharing rights on Xin Jiang Oilfield. In addition, borrowings of approximately HK$54,232,000 has been secured by gas network of a jointly controlled entity, Hunan Joint Venture.

36. SHARE AWARD SCHEME

On 24 January 2005, the Company adopted a share award scheme for employees and consultants, excluding executive directors and chief executive, of the Group for the purpose of recognizing the contributions of certain employees and consultants of the Group to the growth of the Group, by rewarding them with opportunities to obtain an ownership interest in the Company and to further motivate them and give an incentive to these persons to continue to contribute to the Group’s long term success and prosperity. Under the scheme, following the making of an award to employees and consultants, the relevant newly issued shares vest over a period of time provided that the employees and consultants continue to contribute to the Group at the relevant time and satisfies any other conditions specified at the time the award is made. The maximum aggregate number of shares that can be awarded under the scheme is limited to 20% of the issued share capital of the Company and no cash consideration should be paid for the shares allotted under the share award scheme.

A summary of movements in shares held under the share award scheme during the year is as follows:

Beginning of year Shares granted during the year Awards of vested shares to employees and consultants End of year Fair value of shares held as at 30 June Fair value of shares awarded to employees and consultants during the year Amounts recognized in the consolidated balance sheet as prepaid expenses Amounts recognized in the consolidated income statement as staff cost	2007 Number of shares ’000 – – – – 2007 HK$’000 – – – –	2006 Number of shares ’000 – 48,730 (48,730) – 2006 HK$’000 N/A 36,060 – 36,060

The fair value of shares under the share award scheme is measured by the last 14 days of trading average of the quoted market price of the Shares on the Stock Exchange before the date of grant.

– I-50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. COMPARATIVE FIGURES

Certain comparative figures have been restated to conform with current year’s presentation.

38. RELATED PARTY TRANSACTIONS

Compensation of directors and key management personnel

The remuneration of directors and other members of key management during the year was as follows:

Short-term benefits Post-employment benefits	2007 HK$’000 11,277 108 11,385	2006 HK$’000 8,486 84
		8,570

The remuneration of directors and key management personnel is determined by the remuneration committee having regard to the performance of individuals and market trends.

39. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY

Details of the subsidiaries at 30 June 2007 are as follows:

		Class of shares held/	Percentage of equity	Percentage of equity
	Place of	Issued and fully paid	interest attributable
	incorporation/	up shares/	to the Company
Name of company	operation	registered capital	Direct	Indirect	Principal activities
Precise Result Profits Limited	British Virgin Islands	Ordinary share US$1	–	100%	Investment holding
Aptus Holdings Limited	Cayman Islands	Ordinary shares	–	57.23%	Investment holding
		HK$16,978,814
China Success Enterprises Limited	British Virgin Islands	Ordinary shares	100%	–	Investment holding
		US$2,000
Loyalion Limited	Hong Kong	Ordinary shares	–	100%	Distribution of natural
		HK$1,000			supplementary products
					and investment holding
B & B International Marketing (HK)	Hong Kong	Ordinary shares HK$2	–	100%	Distribution of natural
Limited					supplementary products
B & B International Marketing	British Virgin Islands	Ordinary share US$1	–	100%	Investment holding
Limited
B & B Winery Limited	Hong Kong	Ordinary shares	–	100%	Investment holding
		HK$1,000
B & B Enterprises Limited	Hong Kong	Ordinary shares	–	100%	Investment holding
		HK$100

– I-51 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

==> picture [406 x 510] intentionally omitted <==

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

||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Class|of|shares|held/|Percentage|of|equity|
|Place|of|Issued|and|fully|paid|interest|attributable|
|incorporation/|up|shares/|to|the|Company|
|Name|of|company|operation|registered|capital|Direct|Indirect|Principal|activities|
|Natural|Lives|Company|Limited|Hong|Kong|Ordinary|shares|–|60%|Distribution|of|natural|
|HK$500,000|supplementary|products|
|B|&|B|Group|Holdings|Limited|Hong|Kong|Ordinary|share|HK$1|–|100%|Investment|holding|
|Rain|International|Company|Limited|Hong|Kong|Ordinary|shares|–|100%|Distribution|of|natural|
|HK$1,000,000|supplementary|products|
|Step|Gain|Limited|British|Virgin|Islands|Ordinary|shares|–|100%|Investment|holding|
|US$10|
|PRC|Registered|capital|–|100%|Animal|feed|
|#|HK$3,400,000|(|
|(Shuang|Liao|City|Step|Gain|)|
|Technology|Limited†)|
|Greatest|Luck|Limited|British|Virgin|Islands|Ordinary|share|US$1|–|100%|Investment|holding|
|PRC|Registered|capital|100%|–|Investment|holding|
|#|US$6,000,000|
|(B|&|B|(Shenzhen)|Limited|[†]|)|
|Ace|Bingo|Group|Limited|British|Virgin|Islands|Ordinary|share|US$1|–|100%|Investment|holding|
|Cheerfull|Group|Holdings|Limited|British|Virgin|Islands|Ordinary|share|–|51%|Investment|holding|
|US$50,000|
|PRC|Registered|capital|–|51%|Provision|of|lottery-related|
|#|RMB10,000,000|hardware|and|software|
|(Shenzhen|Bozone|IT|Co.|Limited|[†]|)|systems|
|PRC|Registered|capital|–|50.49%|Provision|of|lottery-related|
|#|RMB1,000,000|hardware|and|software|
|(Shenzhen|Longjiang|Fengcai|IT|Co.|systems|
|Limited|[†]|)|
|PRC|Registered|capital|–|33.15%|Provision|of|lottery-related|
|#|RMB500,000|hardware|and|software|
|(Harbin|Longjiang|Fengcai|systems|
|Technology|Co.|Limited|[†]|)|

----- End of picture text -----

• The statutory financial year end date of these subsidiaries is 31 December

• For identification only

– I-52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

40. INVESTMENTS IN JOINTLY CONTROLLED ENTITIES

At 30 June 2007, the Group had interests in the following significant jointly controlled entities:

							Proportion of
							Nominal value
				Form of	Place of		of registered
				business	establishment/		capital held by
Name of entity				structure	and operations	Class of capital	the Group	Principal activities
							%
(a)	Jointly controlled entities:
	Changde Huayou Gas			Sino-foreign	PRC	Registered	48.33%	Development and
		Co., Limited		equity joint				management of
				venture				natural gas pipelines and
								distribution
								facilities in PRC
	Hunan Huayou Natural			Sino-foreign	PRC	Registered	33%	Construction and
		Gas Transportation &		equity joint				development of
		Distribution Company		venture				natural gas
		Limited						pipeline and
								related consultation
								services
(b)	Principal subsidiary of
	a jointly controlled entity:
	Linli Huayou Gas Co.,			Limited liability	PRC	Registered	33.83%	Distribution of
		Limited		company				natural gas

Note:

• (a) The Group holds 48.33% of the issued capital of Changde Joint Venture and 33% of the issued capital of Hunan Joint Venture. Pursuant to the shareholder’s agreement in relation to the acquisition of Changde Joint Venture and Hunan Joint Venture, each shareholder has a veto right relating to certain financial and operating decisions, and is therefore considered as having joint control over Changde Joint Venture and Hunan Joint Venture.

– I-53 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following amounts represent the Group’s proportionate share of the assets, liabilities, revenue and expenses of the jointly controlled entities and are included in the consolidated balance sheet and consolidated income statements as a result of proportionate consolidation:

Current assets Non-current assets Current liabilities Non-current liabilities Minority interests Revenue Expenses Minority interests Loss for the period	2007 HK$’000 55,654 209,468 17,961 86,748 750 Date of acquisition to 30 June 2007* HK$’000 14,743 (19,057) (3) (4,317)	2006 HK$’000 –
		–
		–
		–
		–
		2006 HK$’000 – – –
		–

• The dates of acquisition of Hunan Joint Venture and Changde Joint Venture are 5 February 2007 and 6 February 2007, respectively.

– I-54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C. UNAUDITED FINANCIAL INFORMATION OF THE GROUP FOR THE THREE MONTHS AND SIX MONTHS ENDED 31 DECEMBER 2007

Set out below is the unaudited consolidated financial statements of the Group for the three months and six months ended 31 December 2007, together with the comparative unaudited figures for the corresponding period in 2006 and the relevant notes to the account as extracted from the interim report of the Company for the six months ended 31 December 2007. There are no extraordinary and exceptional items in the unaudited consolidated financial statements of the Group for the six months ended 31 December 2007.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the three months and six months ended 31 December 2007

Notes Continuing operations Revenue 2 Cost of sales Gross profit Other revenue Selling and distribution costs Administrative expenses Loss from continuing operations 4 Finance costs Loss on deemed disposal of a subsidiary of a jointly controlled entity Share of results of an associate Loss before income tax Income tax expenses 5 Loss for the period from continuing operations Discontinued operations Profit for the period from discontinued operations Loss for the period Attributable to: Equity holders of the Company Minority interests Loss per share 7 From continuing and discontinued operations: Basic From continuing operations: Basic	Three months ended 31 December 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) 34,053 12,442 (22,093) (3,804)	Three months ended 31 December 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) 34,053 12,442 (22,093) (3,804)	Six months ended 31 December 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) 75,136 34,427 (50,629) (23,332) 24,507 11,095 1,828 1,622 (7,758) (1,441) (29,807) (84,533) (11,230) (73,257) (17,713) (4,113) (7) – 17 – (28,933) (77,370) (998) (393) (29,931) (77,763) – 29,342 (29,931) (48,421) (31,233) (26,924) 1,302 (21,497) (29,931) (48,421) (HK3.33 cents) (HK2.88 cents) (HK3.33 cents) (HK6.01 cents)	Six months ended 31 December 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) 75,136 34,427 (50,629) (23,332) 24,507 11,095 1,828 1,622 (7,758) (1,441) (29,807) (84,533) (11,230) (73,257) (17,713) (4,113) (7) – 17 – (28,933) (77,370) (998) (393) (29,931) (77,763) – 29,342 (29,931) (48,421) (31,233) (26,924) 1,302 (21,497) (29,931) (48,421) (HK3.33 cents) (HK2.88 cents) (HK3.33 cents) (HK6.01 cents)
	11,960 1,377 (4,587) (10,238) (1,488) (9,864) – 6 (11,346) (182) (11,528) –	8,638 1,004 (370) (45,809) (36,537) (3,511) – – (40,048) (393) (40,441) –	24,507 1,828 (7,758) (29,807) (11,230) (17,713) (7) 17 (28,933) (998) (29,931) –	11,095 1,622 (1,441 (84,533
				(73,257 (4,113 – –
				(77,370 (393
				(77,763 29,342
	(11,528)	(40,441)	(29,931)
	(11,784) 256	(30,447) (9,994)	(31,233) 1,302	(26,924 (21,497
	(11,528) (HK1.26 cents) (HK1.26 cents)	(40,441) (HK3.25 cents) (HK3.25 cents)	(29,931) (HK3.33 cents) (HK3.33 cents)

– I-55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

As at 31 December 2007

Notes NON-CURRENT ASSETS Property, plant and equipment Goodwill Other intangible assets Interest in associates Prepaid lease payments Construction in progress Deferred tax assets CURRENT ASSETS Inventories Trade and other receivables and prepayments 8 Prepaid lease payments – current portion Pledged bank deposits Bank balances and cash CURRENT LIABILITIES Trade and other payables 9 Tax liabilities Bank and other borrowings – due within one year NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank and other borrowings Convertible bonds 10 NET ASSETS CAPITAL AND RESERVES Share capital 11 Reserves Equity attributable to equity holders of the Company Minority interests TOTAL EQUITY	31 December 2007 HK$’000 (Unaudited) 250,308 280,689 1,265 2,081 24,757 2,664 1,337	30 June 2007 HK$’000 (Audited) 235,697 280,689 2,603 238 12,496 14,004 –
	563,101 6,997 114,376 395 5,000 171,935 298,703 54,559 1,319 18,978 74,856 223,847 786,948 99,636 257,344 356,980	545,727
		6,536 89,656 380 5,000 204,722
		306,294
		57,528 1,422 5,617
		64,567
		241,727
		787,454
		106,105 243,144
		349,249
	429,968	438,205
	9,444 406,907 416,351 13,617	9,361 416,336
		425,697 12,508
	429,968	438,205

– I-56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 31 December 2007

Net cash outflow from operating activities Net cash outflow from investing activities Net cash inflow from financing activities Net decrease in cash and cash equivalents Effect of foreign exchange rates changes Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period	Six months ended 31 December 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) (19,785) (12,208) (29,838) (310,527) 6,419 224,379 (43,204) (98,356) 10,417 808 204,722 244,983 171,935 147,435

– I-57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 December 2007

Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234	Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234	Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234	Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234	Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234	Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234	Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234	Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234	Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234	Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234	Share capital Share premium Equity component of convertible bonds Employee share- based compensation reserve Share option reserve Translation reserve Special reserve Retained profits/ (accumulated losses) Minority interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 July 2007 9,361 286,884 10,712 35,572 122,746 8,136 (1) (47,713) 12,508 438,205 Exchange differences arising from translation of financial statements of overseas operations – – – – – 9,652 – – 556 10,208 Share issued on exercise of options 83 3,615 – – – – – – – 3,698 Deemed disposal of a subsidiary of a jointly controlled entity – – – – – – – – (749) (749) Recognition of equity- settled share based payments – – – – 8,537 – – – – 8,537 Net (loss)/profit for the period – – – – – – – (31,233) 1,302 (29,931) At 31 December 2007 9,444 290,499 10,712 35,572 131,283 17,788 (1) (78,946) 13,617 429,968 At 1 July 2006 6,241 290,004 – 35,572 39,399 1,935 (1) 24,808 55,893 453,851 Issue of bonus shares 3,120 (3,120) – – – – – – – – Exchange differences arising from translation of financial statements of overseas operations – – – – – 803 – – – 803 Issue of convertible bonds – – 10,712 – – – – – – 10,712 Recognition of equity- settled share based payments – – – – 56,441 – – – – 56,441 Disposal of minority interest – – – – – – – – (4,815) (4,815) Dividend paid to minority interest – – – – – – – – (6,337) (6,337) Net loss for the period – – – – – – – (26,924) (21,497) (48,421) At 31 December 2006 9,361 286,884 10,712 35,572 95,840 2,738 (1) (2,116) 23,244 462,234
										429,968
	6,241 3,120 – – – – – –	290,004 (3,120) – – – – – –	– – – 10,712 – – – –	35,572 – – – – – – –	39,399 – – – 56,441 – – –	1,935 – 803 – – – – –	(1) – – – – – – –	24,808 – – – – – – (26,924)	55,893 – – – – (4,815) (6,337) (21,497)	453,851 – 803 10,712 56,441 (4,815) (6,337) (48,421)
	9,361	286,884	10,712	35,572	95,840	2,738	(1)	(2,116)	23,244	462,234

– I-58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 31 December 2007

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

The unaudited consolidated results have been prepared in accordance with accounting principles generally accepted in Hong Kong which include Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Rules Governing the Listing of Securities on the Growth Enterprises Market of the Stock Exchange of Hong Kong.

The unaudited consolidated results have been prepared under the historical cost convention, except for certain financial instruments which are measured at fair values.

The accounting policies and methods of computation used in the preparation of these unaudited consolidated results are consistent with those applied in the annual financial statements for the year ended 30 June 2007.

2. REVENUE

The principal activities of the Group are (i) the distribution of natural supplementary products, (ii) the provision of lottery-related hardware and software systems, (iii) the sales and distribution of edible oil, and (iv) the sales of gas and gas appliances, provision of gas transportation services and installation services for gas connection.

Revenue represents invoiced value of sales, net of returns, discounts allowed or sales taxes where applicable.

3. SEGMENT INFORMATION

a. Business segments

sup Revenue Segment results Unallocated income Unallocated expenses Finance costs Loss before income tax Income tax expenses Loss for the period			Six months ended 31 December 2007	Six months ended 31 December 2007	Six months ended 31 December 2007
	Distribution of natural plementary products HK$’000 (Unaudited) 1,266 (2,697)	Provision of lottery- related hardware and software systems HK$’000 (Unaudited) 17,647 4,342	Sales and distribution of edible oil HK$’000 (Unaudited) 24,678 (1)	Oil mining HK$’000 (Unaudited) – (513)	Gas related HK$’000 (Unaudited) 31,522 1,843	Others HK$’000 (Unaudited) 23 (163)	Total HK$’000 (Unaudited) 75,136
							2,811 936 (14,967) (17,713)
							(28,933) (998)
							(29,931)

– I-59 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

s Revenue Segment results Unallocated income Unallocated expenses Finance costs Gain on disposal of manufacturing and distribution of honey mead operations Profit/(loss) before income tax Income tax expenses Profit/(loss) for the period			Six **Continuing **	months ended operations	31 December 20	06	Discontinued operations
	Distribution of natural upplementary products HK$’000 (Unaudited) 1,431	Provision of lottery- related hardware and software systems HK$’000 (Unaudited) 14,433 5,111	Sales and distribution of edible oil HK$’000 (Unaudited) 17,431 98	Oil mining HK$’000 (Unaudited) – (396)	Other activities HK$’000 (Unaudited) 1,132 (586)	Sub-total Manufacturing and distribution of honey mead HK$’000 HK$’000 (Unaudited) (Unaudited) 34,427 929 5,556 422 339 – (79,152) – (4,113) (11) – 28,962 (77,370) 29,373 (393) (31)		Total HK$’000 (Unaudited) 35,356 5,978 339 (79,152 (4,124 28,962 (47,997 (424
	1,329						422 – – (11) 28,962
							29,373 (31)
						(77,763)	29,342	(48,421

b. Geographical market segments

A summary of the geographical segments is set out as follows:

Six months ended 31 December Elimination Consolidated 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Geographical market Segment revenue: Continuing operations PRC 49,192 14,435 – – 49,192 14,435 Hong Kong 1,266 1,431 – – 1,266 1,431 South East Asia 24,678 16,761 – – 24,678 16,761 Europe – 670 – – – 670 Macau – 1,130 – – – 1,130 Sub-total 75,136 34,427 – – 75,136 34,427 Discontinued operations PRC – 1,416 – (487) – 929 Total 75,136 35,843 – (487) 75,136 35,356	Six months ended 31 December Elimination Consolidated 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Geographical market Segment revenue: Continuing operations PRC 49,192 14,435 – – 49,192 14,435 Hong Kong 1,266 1,431 – – 1,266 1,431 South East Asia 24,678 16,761 – – 24,678 16,761 Europe – 670 – – – 670 Macau – 1,130 – – – 1,130 Sub-total 75,136 34,427 – – 75,136 34,427 Discontinued operations PRC – 1,416 – (487) – 929 Total 75,136 35,843 – (487) 75,136 35,356	Six months ended 31 December Elimination Consolidated 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Geographical market Segment revenue: Continuing operations PRC 49,192 14,435 – – 49,192 14,435 Hong Kong 1,266 1,431 – – 1,266 1,431 South East Asia 24,678 16,761 – – 24,678 16,761 Europe – 670 – – – 670 Macau – 1,130 – – – 1,130 Sub-total 75,136 34,427 – – 75,136 34,427 Discontinued operations PRC – 1,416 – (487) – 929 Total 75,136 35,843 – (487) 75,136 35,356	Six months ended 31 December Elimination Consolidated 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Geographical market Segment revenue: Continuing operations PRC 49,192 14,435 – – 49,192 14,435 Hong Kong 1,266 1,431 – – 1,266 1,431 South East Asia 24,678 16,761 – – 24,678 16,761 Europe – 670 – – – 670 Macau – 1,130 – – – 1,130 Sub-total 75,136 34,427 – – 75,136 34,427 Discontinued operations PRC – 1,416 – (487) – 929 Total 75,136 35,843 – (487) 75,136 35,356	Six months ended 31 December Elimination Consolidated 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Geographical market Segment revenue: Continuing operations PRC 49,192 14,435 – – 49,192 14,435 Hong Kong 1,266 1,431 – – 1,266 1,431 South East Asia 24,678 16,761 – – 24,678 16,761 Europe – 670 – – – 670 Macau – 1,130 – – – 1,130 Sub-total 75,136 34,427 – – 75,136 34,427 Discontinued operations PRC – 1,416 – (487) – 929 Total 75,136 35,843 – (487) 75,136 35,356	Six months ended 31 December Elimination Consolidated 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Geographical market Segment revenue: Continuing operations PRC 49,192 14,435 – – 49,192 14,435 Hong Kong 1,266 1,431 – – 1,266 1,431 South East Asia 24,678 16,761 – – 24,678 16,761 Europe – 670 – – – 670 Macau – 1,130 – – – 1,130 Sub-total 75,136 34,427 – – 75,136 34,427 Discontinued operations PRC – 1,416 – (487) – 929 Total 75,136 35,843 – (487) 75,136 35,356	Six months ended 31 December Elimination Consolidated 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Geographical market Segment revenue: Continuing operations PRC 49,192 14,435 – – 49,192 14,435 Hong Kong 1,266 1,431 – – 1,266 1,431 South East Asia 24,678 16,761 – – 24,678 16,761 Europe – 670 – – – 670 Macau – 1,130 – – – 1,130 Sub-total 75,136 34,427 – – 75,136 34,427 Discontinued operations PRC – 1,416 – (487) – 929 Total 75,136 35,843 – (487) 75,136 35,356
	75,136 – 75,136	34,427 1,416 35,843	– – –	– (487) (487)	75,136 – 75,136	34,427
						929
						35,356

– I-60 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		**Six months ended 31 **	**Six months ended 31 **	**Six months ended 31 **	December	December
			Elimination			Consolidated
	2007	2006	2007		2006	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)
Segment results:
Continuing operations
PRC						5,509	4,475
Hong Kong						(2,697)	1,330
South East Asia						(1)	72
Europe						–	3
Macau						–	(346)
Discontinued operations
PRC						–	421
Unallocated income						936	339
Unallocated expenses						(14,967)	(79,129)
Finance costs						(17,713)	(4,124)
Gain on disposal of
manufacturing and
distribution of honey
mead operations						–	28,962
Loss before income tax						(28,933)	(47,997)
Income tax expenses						(998)	(424)
Loss for the period						(29,931)	(48,421)

4. LOSS FROM OPERATIONS

Loss from operations has been arrived at after charging/(crediting):

	**Six months **	ended
	31 December
	2007	2006
	HK$’000	HK$’000
	(Unaudited)	(Unaudited)
Amortization of technical know-how	1,409	887
Depreciation of property, plant and equipment	14,004	1,479
Interest on borrowings	3,513	1,173
Interest on convertible bonds	14,200	2,951
Interest income	(994)	(1,203)

5. INCOME TAX EXPENSES

No provision for Hong Kong profits tax has been made as the Group did not have any assessable profits arising in Hong Kong for the three months and six months ended 31 December 2007 (three months and six months ended 31 December 2006: Nil).

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

– I-61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. DIVIDEND

The Board does not recommend the payment of any dividend for the three months and six months ended 31 December 2007 (three months and six months ended 31 December 2006: Nil).

7. LOSS PER SHARE

From continuing and discontinued operations

The calculation of the basic loss per share attributable to the ordinary equity holders of the Company is based on the following data:

Loss

Loss for the purposes of basic loss per share Number of shares Weighted average number of ordinary shares for the purposes of basic loss per share Effect of dilutive potential ordinary shares: Share options Weighted average number of ordinary shares for the purposes of diluted (loss)/earnings per share	Three months ended 31 December 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) (11,784) (30,447) Three months ended 31 December 2007 2006 ’000 ’000 (Unaudited) (Unaudited) 937,596 936,079 19,012 17,150 956,608 953,229	Six months ended 31 December 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) (31,233) (26,924) Six months ended 31 December 2007 2006 ’000 ’000 (Unaudited) (Unaudited) 938,591 936,079 23,790 26,923 962,381 963,002

No diluted loss per share has been presented in both periods, as the outstanding share options of the Company are anti-dilutive since their exercise would result in a decrease in loss per share.

– I-62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

From continuing operations

The calculation of the basic loss per share from continuing operations attributable to the ordinary equity holders of the Company is based on the following data:

Loss figures are calculated as follows:

Loss for the period attributable to equity holders of the Company Less: Profit for the period from discontinued operations Loss for the purposes of basic loss per share from continuing operations	Three months ended 31 December 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) (11,784) (30,447) – – (11,784) (30,447)	Six months ended 31 December 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) (31,233) (26,924) – 29,342 (31,233) (56,266)

The denominators used are the same as those detailed above for the basic loss per share.

No diluted loss per share has been presented in both periods as the outstanding share options of the Company are anti-dilutive since their exercise would result in a decrease in loss per share.

From discontinued operations

Basic earnings per share for the discontinued operations is HKnil cent per share and HKnil cent per share respectively for the three months and six months ended 31 December 2007 (three months and six months ended 31 December 2006: HKnil cent per share and HK3.13 cents per share) and diluted earnings per share for the discontinued operations is HKnil cent per share and HKnil cent per share respectively for the three months and six months ended 31 December 2007 (three months and six months ended 31 December 2006: HKnil cent per share and HK3.05 cents per share), based on the profit for the period from the discontinued operations of HK$nil and HK$nil for the three months and six months ended 31 December 2007 (three months and six months ended 31 December 2006: HK$nil and HK$29,342,000 respectively) and the denominators detailed above for both basic and diluted (loss)/earnings per share.

– I-63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. TRADE RECEIVABLES

Payment terms with customer are mainly on credit together with deposits. Invoices are normally payable within 90 days of issuance.

An aged analysis of the Group’s trade receivables at the balance sheet dates, is as follows:

31 December 2007 HK$’000 (Unaudited) 0 to 30 days 2,979 31 to 60 days 1,354 61 to 365 days 1,197 Over 1 year 441 5,971	30 June 2007 HK$’000 (Audited) 2,934 1,893 5,696 338 10,861

9. TRADE PAYABLES

An aged analysis of the Group’s trade payables at the balance sheet dates, is as follows:

31 December 2007 HK$’000 (Unaudited) 0 to 30 days – 31 to 120 days 4,504 121 to 180 days 2,583 181 to 365 days 1,329 Over 1 year – 8,416	30 June 2007 HK$’000 (Audited) 1,662 1,040 2,986 3,981 867 10,536

10. CONVERTIBLE BONDS

On 22 November 2006, the Company’s non wholly-owned subsidiary, Aptus Holdings Limited (“Aptus”), issued convertible bonds due on 21 November 2011 with a principal amount of HK$234,000,000, which is interest-bearing at 5% per annum from and including 21 May 2008. The convertible bonds were issued for the purpose of the acquisition of a 48.33% equity interest in Changde Huayou Gas Co., Ltd., 33% equity interest in the Hunan Huayou Natural Gas Transportation & Distribution Company Limited and general working capital purposes.

Unless previously redeemed, converted or purchased and cancelled, the convertible bonds will be redeemed at 150.15% of their principal amount on 21 November 2011.

The fair value of the liability component of the convertible bonds is estimated by computing the present value of all future cash flows discounted using prevailing market rate of interest for similar instrument with a similar credit rating and with consideration of the convertible bonds. The residual amount, representing the value of the equity component, is credited to Aptus’ reserve account.

– I-64 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The convertible bonds have been split between the liability and equity components as follows:

31 December 2007 HK$’000 (Unaudited) Nominal value of convertible bonds issued 234,000 Equity component (10,712) Liability component at the issuance date 223,288 Imputed finance cost 34,056 Non-current liability component as at the balance sheet date 257,344	30 June 2007 HK$’000 (Audited) 234,000 (10,712) 223,288 19,856 243,144

11. SHARE CAPITAL

Authorized: 20,000,000,000 (30 June 2007: 20,000,000,000) ordinary shares of HK$0.01 each Issued and fully paid: 944,379,000 (30 June 2007: 936,079,000) ordinary shares of HK$0.01 each	31 December 2007 HK$’000 (Unaudited) 200,000 9,444	30 June 2007 HK$’000 (Audited) 200,000 9,361

Share options

At 31 December 2007, the Company had outstanding share options entitling the holders to subscribe for 132,910,000 shares in the Company.

Warrants

On 1 November 2006, a bonus issue of 124,810,561 warrants was made on the basis of one warrant for every five issued shares held on 24 October 2006. Each warrant entitles its holder to subscribe in cash at a price of HK$1.33 for one share of the Company at any time from 3 November 2006 to 2 November 2008, both days inclusive. No warrant was exercised during the period and exercise in full of these warrants would result in the issue of 124,810,561 additional shares of HK$0.01 each.

– I-65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. PLEDGE OF ASSETS

At 31 December 2007, the Group has pledged its bank deposits of approximately HK$5,000,000 (30 June 2007: approximately HK$5,000,000) to a bank to secure the general banking facilities granted to the Group.

As at 31 December 2007 and up to the date of this interim report issued, the 100% of the issued share capital of Good United Management Limited (“GUM”), a wholly-owned subsidiary of Aptus, was pledged in favour of the holder(s) of the convertible bonds issued by Aptus on 22 November 2006, GUM held 70% equity interests in CNPC Huayou Cu Energy Investment Co., Ltd., which owned profit sharing rights on Xin Jiang Oilfield. In addition, borrowings of approximately HK$56,447,000 (30 June 2007: approximately HK$54,232,000) has been secured by gas network of a jointly controlled entity, Hunan Huayou Natural Gas Transportation & Distribution Company Limited.

13. OPERATING LEASES COMMITMENTS

The Group as lesser

At 31 December 2007, the Group was committed to make the following future minimum lease payments under non-cancellable operating leases which fall due as follows:

31 December 2007 HK$’000 (Unaudited) Within one year 2,936 In the second to fifth year inclusive 3,213 6,149	30 June 2007 HK$’000 (Audited) 2,149 2,797 4,946

Operating lease payments represent rentals payable by the Group for certain of its office properties.

The Group as lessor

At 31 December 2007, the Group had contracted with tenants for the following minimum lease payments under non-cancellable operating leases in respect of rented premises which fall due as follows:

31 December 2007 HK$’000 (Unaudited) Within one year 237 In the second to fifth year inclusive – 237	30 June 2007 HK$’000 (Audited) 129 246 375

Leases are negotiated for an average term of 3 years.

– I-66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. CAPITAL COMMITMENTS

	31 December	30 June
	2007	2007
	HK$’000	HK$’000
	(Unaudited)	(Audited)
Capital expenditure in respect of the investment in a subsidiary
– authorized but not contracted for	41,588	39,956

15. EVENTS AFTER THE BALANCE SHEET DATE

Pursuant to an announcement dated 17 January 2008, on 17 January 2008, the Company entered into a conditional Share Purchase Agreement with a related party, pursuant to which the Group will acquire the entire issued share capital of Grand Promise International Limited (“Grand Promise”) at a consideration of approximately HK$1,560,900,000 to the Vendors, which shall be satisfied by the allotment and issue of 2,262,173,906 new shares of the Company.

Grand Promise, via its subsidiary, Birdview Group Limited, holds a 49% interest in China Culture Development Digital Technology Co., Ltd. (“CCDDT”), a sino-foreign joint venture company established in the People’s Republic of China (“PRC”). Ministry of Culture of the PRC (“MOC”), the government authority which supervises and regulates the cultural and arts industries in the PRC, approved the MOC Market Development Center to establish and operate a nationwide karaoke content management service system in the PRC (“Karaoke CMS”). The MOC Market Development Center has exclusively appointed CCDDT to establish and operate the Karaoke CMS. Karaoke CMS is an information system that connects the Karaoke CMS data center to karaoke venues to keep track of karaoke music videos played in these venues. This information system could also be utilised to facilitate the provision of product advertisement and promotion services and to carry out copyright transaction settlement services.

The transaction will be put forth for approval by the Company’s shareholders at an extraordinary general meeting to be held.

For further details on this acquisition, please refer to the announcement of the Company dated 17 January 2008.

– I-67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

D. INDEBTEDNESS

As at 31 January 2008, the Enlarged Group had secured borrowings and other borrowings of approximately HK$666,023,000 comprising:

• (a) Secured bank borrowings of approximately HK$77,004,000

• (b) Unsecured borrowings of approximately HK$58,675,000

• (c) Liability component of convertible bonds of approximately HK$530,344,000.

The Enlarged Group’s secured borrowings are secured by gas network of a jointly controlled entity.

Save as aforesaid and apart from intra-group liabilities, the Enlarged Group did not have any outstanding mortgages, charges, debentures, loan capital, debt securities, loans, bank overdraft or other similar indebtedness, financial lease or hire purchase commitments, liabilities under acceptances or acceptance credits or guarantees or other material contingent liabilities as at 31 January 2008.

E. WORKING CAPITAL

The Directors are of the opinion that, taking into account the cash flows generated from the operating activities and the financial resources available to the Enlarged Group including internally generated funds, the Enlarged Group has sufficient working capital, in the absence of unforeseen circumstances, for its present requirements, that is for at least the next 12 months from the date of this circular.

F. MATERIAL CHANGE

Save for the Share Purchase Agreement as disclosed in this Circular, the Directors were not aware of any material change in the financial or trading position or outlook of the Group since 30 June 2007, being the date to which the latest published audited accounts of the Group were made, to the Latest Practicable Date.

– I-68 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

The following is the text of a report received from W.H. Tang & Partners CPA Limited, for the purpose of incorporation in this circular.

==> picture [233 x 76] intentionally omitted <==

==> picture [66 x 44] intentionally omitted <==

14 March 2008

The Directors

China Vanguard Group Limited

Room 2201, 22nd Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong Dear Sirs,

We set out below our report on the financial information regarding Grand Promise International Limited (“Grand Promise”) and its subsidiary (hereinafter collectively referred to as the “Grand Promise Group”) for the periods from 25 August 2006 (date of incorporation) to 30 June 2007 and 1 July 2007 to 31 October 2007 (the “Relevant Periods”), for inclusion in the circular issued by dated 14 March 2008 (the “Circular”) in connection with the very substantial acquisition of entire issued share capital of Grand Promise.

Grand Promise was incorporated in the British Virgin Islands with limited liability on 25 August 2006 and acts as an investment holding company. As at the date of this report, Grand Promise had 100% direct equity interest in Birdview Group Limited, a company incorporated in Hong Kong with limited liability and 49% indirect equity interest in a jointly controlled entity, (China Culture Development Digital Technology Co., Ltd.), a sino-foreign equity joint venture incorporated in the People’s of Republic of China (the “PRC”), The jointly controlled entity is engaged in the business of development of the Karaoke CMS in the PRC.

The combined financial statements of Grand Promise for the Relevant Periods were prepared in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). We have carried out an independent audit on the financial statements of Grand Promise for the Relevant Periods in accordance with the Hong Kong Standards on Auditing issued by the HKICPA.

– II-1 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

Respective responsibilities of directors and reporting accountants

The financial information as set out on pages II-3 to II-20 (“Financial Information”) have been prepared based on the audited financial statements for the Relevant Periods.

The directors of Grand Promise are responsible for preparing the Financial Information, which gives a true and fair view. In preparing the Financial Information, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our examination, on the financial information and to report our opinion to you.

Basis of opinion and review work performed

For the financial information for the Relevant Periods, we examined the financial statements of the Grand Promise Group and carried out such additional procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

Opinion

In our opinion, the financial information for the Relevant Periods, for the purpose of this report, gives a true and fair view of the state of affairs of the Grand Promise Group as at 31 October 2007 and of the results of the Grand Promise Group for the Relevant Periods.

Yours faithfully, W.H. Tang & Partners CPA Limited Certified Public Accountants Hong Kong

– II-2 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

I. FINANCIAL INFORMATION

(a) Combined income statement

Notes Revenue 5 Cost of sales Gross (loss) profit Other revenue 6 Selling expenses Administrative expenses Finance costs 7 Loss before taxation 8 Income tax expenses 9 Loss for the period	1 July 2007 to 31 October 2007 HK$’000 21 (22)	25 August 2006 to 30 June 2007 HK$’000 11 (9) 2 320 322 (711) (4,362) (1) (4,752) – (4,752)
	(1) 32 31 (626) (2,077) – (2,672) –	2
		320
		322 (711 (4,362 (1
		(4,752 –
	(2,672)

– II-3 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

(b) Combined balance sheet

Notes Non-current assets Property, plant and equipment 10 Intangible assets 11 Current assets Inventories 12 Deposits and prepayments Other receivables Amount due from a shareholder of a jointly controlled entity 13 Available-for-sale equity investments 14 Bank balances and cash Current liabilities Trade creditors Accruals Other payables Amount due to a director 15 Amount due to a shareholder of a jointly controlled entity Amount due to a shareholder 16 Net current liabilities Capital and reserves Share capital 17 Reserves	31 October 2007 HK$’000 6,939 621	30 June 2007 HK$’000 7,190 248 7,438 46 209 502 24,915 – 11,935 37,607 335 29 13 10 – 48,393 48,780 (11,173) (3,735) 78 (3,813) (3,735)
	7,560 47 1,627 478 25,371 409 13,016 40,948 80 157 112 10 4,975 48,516 53,850 (12,902)	7,438
		46 209 502 24,915 – 11,935
		37,607
		335 29 13 10 – 48,393
		48,780
		(11,173
	(5,342)
	78 (5,420)	78 (3,813
	(5,342)

– II-4 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

(c) Combined statement of changes in equity

Issue of shares Exchange differences arising from translation of financial statements of overseas operations Loss for the period At 30 June 2007 and At 1 July 2007 Changes in fair values of available-for-sale equity investments Exchange differences arising from translation of financial statements of overseas operations Loss for the period At 31 October 2007	Share capital HK$’000 78 – –	Translation reserve Available- for-sale equity investments revaluation reserve Accumulated loss HK$’000 HK$’000 HK$’000 – – – 939 – – – – (4,752)	Translation reserve Available- for-sale equity investments revaluation reserve Accumulated loss HK$’000 HK$’000 HK$’000 – – – 939 – – – – (4,752)	Translation reserve Available- for-sale equity investments revaluation reserve Accumulated loss HK$’000 HK$’000 HK$’000 – – – 939 – – – – (4,752)	Total HK$’000 78 939 (4,752) (3,735) 268 797 (2,672) (5,342)
	78 – – –	939 – 797 –	– 268 – –	(4,752) – – (2,672)	(3,735 268 797 (2,672
	78	1,736	268	(7,424)

– II-5 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

(d) Combined cash flow statement

OPERATING ACTIVITIES Loss before taxation Adjustments for: Depreciation of property, plant and equipment Interest income Interest expenses Operating cash flows before movements in working capital Increase in inventories Increase in deposits and prepayments Decrease (Increase) in other receivables (Decrease) Increase in trade creditors Increase in accruals Increase in other payables Cash used in operations NET CASH USED IN OPERATING ACTIVITIES INVESTING ACTIVITIES Interest received Available-for-sale equity investments Purchases of property, plant and equipment Acquisition of intangible assets NET CASH USED IN INVESTING ACTIVITIES	1 July 2007 to 31 October 2007 HK$’000 (2,672) 511 (32) –	25 August 2006 to 30 June 2007 HK$’000 (4,752) 633 (320) 1 (4,438) (46) (209) (502) 335 29 13 (4,818) (4,818) 320 – (7,823) (248) (7,751)
	(2,193) (1) (1,418) 24 (255) 128 99 (3,616) (3,616) 32 (409) (129) (373) (879)	(4,438 (46 (209 (502 335 29 13
		(4,818
		(4,818
		320 – (7,823 (248
		(7,751

– II-6 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

FINANCING ACTIVITIES Interest paid Issue of shares Amount due to a director Amount due to a shareholder Amount due from a shareholder of a jointly controlled entity Amount due to a shareholder of a jointly controlled equity NET CASH FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD, represented by bank balances and cash	1 July 2007 to 31 October 2007 HK$’000 – – – 123 (456) 4,975	25 August 2006 to 30 June 2007 HK$’000 (1) 78 10 48,393 (24,915) – 23,565 10,996 – 939 11,935
	4,642 147 11,935 934	23,565
		10,996 – 939
	13,016

– II-7 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

II. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

Grand Promise is a private limited company incorporated in the British Virgin Islands. The registered address of Grand Promise is located at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands and principal place of business of Grand Promise is located at Room 1609A, 16/F., Nan Fung Centre, 264-298 Castle Peak Road, Tsuen Wan, N.T.

The combined financial statements are presented in Hong Kong dollars, being the measurement currency of Grand Promise .

The principal activities of Grand Promise and its subsidiary are investment holding.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation

The financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (HKFRSs), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (HKASs) and interpretations (hereinafter collectively referred to as “HKFRS”) issued by the Hong Kong Institutes of Certified Public Accountants (HKICPA), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance.

Grand Promise has not adopted any new standard or interpretation that is not yet effective for the current accounting period.

The principal accounting policies adopted by Grand Promise are as follows:

Basis of accounting

The combined financial statements have been prepared under the historical cost convention. The preparation of combined financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying Grand Promise’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 3 to the financial statements.

Basis of combination

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

The results of subsidiaries acquired or disposed of during the period are included in the combined income statement from the date of incorporation or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of the subsidiaries to bring their accounting policies into line with those used by other members of the Grand Promise Group.

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

– II-8 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

Revenue

Revenue is recognized when it is probable that the economic benefits will flow to Grand Promise and when the revenue and costs, if applicable, can be measured reliably and on the following bases:

Services income is recognized when the corresponding services are performed.

Interest income from bank deposits is accrued on a time apportionment basis on the principal outstanding and at the interest rate applicable.

Income tax expenses

Current tax is the expected tax payable on the taxable income for the period, using tax rate enacted or substantively enacted at the balance sheet period, and any adjustment to tax payable in respect of previous year.

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.

Deferred tax liabilities are generally recognized for all taxable temporary difference. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences, tax losses and credits can be utilised.

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.

Depreciation is provided to write off the cost of assets over their estimated useful lives and after taking into account their estimated residual value, using the straight-line method, at the following rates per annum:

Office equipment 18-33.3% per annum Motor vehicle 18% per annum

An item of property, plant and equipment is derecognized 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 combined income statement in the period in which the item is derecognized.

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. Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognized in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of the Grand Promise Group’s net investment in a foreign operation, in which case, such exchange differences are recognized in equity in the combined financial statements. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences

– II-9 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in equity, in which cases, the exchange differences are also recognized directly in equity. For the purposes of presenting the combined financial statements, the assets and liabilities of the Grand Promise Group’s foreign operations are translated into the presentation currency of Grand Promise (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 recognized as a separate component of equity (the exchange translation reserve). Such exchange differences are recognized in profit or loss in the period in which the foreign operation is disposed of.

Related parties

Related parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

Intangible assets

Research and Development

Expenditure on research activities is recognized as an expense in the period in which it incurred. Expenditure on development activities is capitalized if the product or process is technically and commercially feasible and the Grand Promise Group has sufficient resources and the intention to complete development. The expenditure capitalized includes the costs of materials, direct labour and an appropriate proportion of overheads. Capitalized development costs are stated at cost less accumulated amortization and impairment losses. Other development expenditure is recognized as an expense in the period in which it is incurred.

Golf club membership

Golf club membership is capitalized in initial recognition and measured at cost less impairment loss subsequently.

Amortization

Amortization of intangible assets with infinite useful lives is charged to profit and loss on a straight-line basis over the assets’ estimated useful lives. Intangible assets are not amortized while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortization of intangible assets with finite lives.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is calculated using the average-costs method.

Employee benefits

Retirement benefits schemes

The Grand Promise Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Grand Promise Group in an independently administered fund. The Grand Promise Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

– II-10 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

Retirement benefit costs

Payments to state-managed retirement benefits scheme and the defined contribution schemes are charged as expense as they fall due.

Provision, contingent liabilities and contingent assets

Provisions are recognized when Grand Promise has a present legal or obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate amount can be made. Where Grand Promise expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of Grand Promise . It can also be a present obligation arising from past events that is not recognized because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognized but is disclosed in the notes to the financial statements. When a change in probability of an outflow occurs so that outflow is probable, they will then be recognized as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of Grand Promise. Contingent assets are not recognized but are disclosed in the notes to the financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognized.

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.

Rentals payable under operating leases are charged to profit and 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 recognized as reduction of rental expense over the lease term on a straight-line basis.

Cash equivalents

Cash equivalents represent short-term highly liquid investments which are readily convertible into known amounts of cash and which are within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advance.

Borrowing costs

All borrowing costs are expensed when they are incurred.

Interest in jointly controlled entities

Joint venture arrangements that involve the establishment of a separated entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entities. The Grand Promise Group recognizes its interests in jointly controlled entities using proportionate consolidation. The Grand Promise Group’s share of each of the assets, liabilities, income and expenses of the jointly controlled entities are combined with the Grand Promise Group’s similar line items, line by line, in the combined financial statements.

– II-11 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

Financial instruments

Financial assets and financial liabilities are recognized on the balance sheet when an entity becomes a party to the contractual provisions of the instruments. 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 recognized immediately in profit or loss.

Financial assets

Grand Promise’s financial assets are classified into one of the four categories, including financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognized and derecognized 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 the relevant 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 are carried at amortized cost using the effective interest method, less any identified impairment losses. An impairment loss is recognized in the income statement when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ 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 recognized, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity securities that are designated as available for sale or are not classified in any of the other two categories. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognized as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

When the fair value of unlisted equity securities cannot be reliably measured because (i) the variability in the range of reasonable fair value estimates is significant for that investment or (ii) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

Financial liabilities and equity

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

An equity instrument is any contract that evidences a residual interest in the assets of Grand Promise after deducting all of its liabilities. Grand Promise’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

– II-12 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

Other financial liabilities

Other financial liabilities including trade creditors, accruals, other payables, amount due to a director and loan from a shareholder are subsequently measured at amortized cost, using the effective interest rate method.

Equity instruments

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

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the entity’s accounting policies, which are described in Note 2 to the financial statements, management has made the following judgments that have significant effect on the amounts recognized in the financial statements. The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are also discussed below.

Fair value estimation

The carrying amounts of Grand Promise’s financial assets which mainly include bank balances and cash, amount due from a shareholder of jointly controlled entity, inventories, deposits and prepayments and financial liabilities, which mainly include trade creditors, accruals, other payables, amount due to a director and loan from a shareholder, were approximate to their fair values.

Depreciation of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, after taking into account of their estimated residual value. The determination of the useful lives and residual values involve management’s estimation. Grand Promise assesses annually the residual value and the useful life of the property, plant and equipment and if the expectation differs from the original estimate, such a difference may impact the depreciation in the year and the estimate will be changed in the future period.

Amortization of development costs

Amortization of capitalized development costs is subject to the annual review by the management to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset.

4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Grand Promise’s major financial instruments include trade debtors and accrued charges. 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.

Interest rate risk

In the opinion of the director, the Grand Promise Group does not exposure to any significant interest rate risk.

Credit risk

In the opinion of the director, the Grand Promise Group has no significant concentrations of credit risk. Credit risk on accounts receivables is managed and stringent follow-up by the management.

Liquidity risk

In the opinion of the directors, the Grand Promise Group does not expose to liquidity risk, as the operation of the Grand Promise Group have been financially supporting by the shareholder.

– II-13 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

Foreign currency risk

Grand Promise mainly operates in the PRC with most of the transactions denominated and settled in Renminbi (“RMB”). Most of Grand Promise’s monetary assets and liabilities are also denominated in RMB. Therefore, Grand Promise considers it has no significant foreign exchange risk.

5. REVENUE

Revenue represents the invoiced value of services provided to customers during the period.

Revenue for the period is comprised of: Services income 6. OTHER REVENUE Other revenue for the period is comprised of: Interest income 7. FINANCE COSTS Interest 8. LOSS BEFORE TAXATION Loss before taxation has been arrived at after charging: Directors’ remuneration Auditors’ remuneration Staff costs and benefits: Salaries and allowances Retirement benefits contributions Depreciation of property, plant and equipment Cost of inventories recognized as expenses Net foreign exchange losses	1 July 2007 to 31 October 2007 HK$’000 21 1 July 2007 to 31 October 2007 HK$’000 32 1 July 2007 to 31 October 2007 HK$’000 – 1 July 2007 to 31 October 2007 HK$’000 12 – 748 56 476 22 53	25 August 2006 to 30 June 2007 HK$’000 11
		25 August 2006 to 30 June 2007 HK$’000 320
		25 August 2006 to 30 June 2007 HK$’000 1
		25 August 2006 to 30 June 2007 HK$’000 64 – 998 56 576 10 819

– II-14 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

9. INCOME TAX EXPENSES

The Grand Promise Group did not derive any assessable profits in Hong Kong and thus no provision for Hong Kong Profits Tax has been made during the period ended 30 June 2007 and 31 October 2007 respectively. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

Reconciliation between accounting loss and tax charge at applicable tax rate is as follows:

Loss before taxation At Hong Kong Statutory Tax Rate Tax effect of expenses not deducted Tax effect for tax loss not previously recognized Effect of different tax rates of jointly controlled entities operating in other jurisdictions	1 July 2007 to 31 October 2007 HK$’000 (2,672)	25 August 2006 to 30 June 2007 HK$’000 (4,752
	(468) 81 730 (343)	(832 47 1,480 (695
	–	–

At the balance sheet date, the Grand Promise Group has unused tax losses of approximately HK$6,693,000 available for offset against future profits. No deferred tax asset has been recognized in respect of the unused tax losses due to the uncertainty of future profits streams. Unused losses that will expire in 5 years from the year of origination.

10. PROPERTY, PLANT AND EQUIPMENT

COST Additions as at 30 June 2007 and 1 July 2007 Additions Exchange realignment At 31 October 2007 DEPRECIATION Provided for the period as at 30 June 2007 and 1 July 2007 Provided for the period Exchange realignment At 31 October 2007 NET BOOK VALUES At 31 October 2007 At 30 June 2007	Machinery and equipment HK$’000 7,711 129 141	Motor vehicle HK$’000 112 – 2	Total HK$’000 7,823 129 143
	7,981 616 504 11 1,131	114 17 7 1 25	8,095
			633 511 12
			1,156
	6,850 7,095	89 95	6,939
			7,190

Property, plant and equipment of the Grand Promise Group are located in the PRC.

– II-15 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

11. INTANGIBLE ASSETS

Development costs Golf club membership Exchange realignment	31 October 2007 HK$’000 392 224 5 621	30 June 2007 HK$’000 248 – –
		248

Research and development costs represent the cost incurred in modification of Karaoke CMS.

During the period, the following expenses were capitalized into research and development costs:

Depreciation Salaries and allowances Exchange realignment	1 July 2007 to 31 October 2007 HK$’000 92 300 5 397	25 August 2006 to 30 June 2007 HK$’000 57 191 –
		248

12. INVENTORIES

Packing materials and consumables Exchange realignment	31 October 2007 HK$’000 46 1 47	30 June 2007 HK$’000 46 –
		46

All the inventories are stated at cost.

13. AMOUNT DUE FROM A SHAREHOLDER OF A JOINTLY CONTROLLED ENTITY

The amount represent the unpaid capital from a shareholder of a jointly control entity, as the documents for injection of capital in the jointly controlled entity is in still in process, the amount will be fully settled within next twelve months.

14. AVAILABLE-FOR-SALE EQUITY INVESTMENTS

								**31 **	October 2007	30 June 2007
									HK$’000	HK$’000
Listed	investments	in	the	PRC	at	fair	values		409	–

During the period, the net fair value gain of the Grand Promise Group’s available-for-sale equity investments recognized directly in equity amounted to HK$268,000.

– II-16 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

The above investments consist of investments in equity securities, which were designated as available-for-sale financial assets and have no fixed maturity date.

The fair values of listed equity investments were based on quoted market prices.

15. AMOUNT DUE TO A DIRECTOR

31 October 2007 HK$’000 CHAN Ting 10 The amount is unsecured, interest free and has no fixed repayment term. AMOUNT DUE TO A SHAREHOLDER 31 October 2007 HK$’000 Best Frontier Investments Limited 48,516 The amount is unsecured, interest free and has no fixed repayment term. SHARE CAPITAL 31 October 2007 HK$’000 Authorized: 50,000 ordinary shares of US$1.00 (HK$7.8) each 390 Issued and fully paid: 10,000 ordinary shares of US$1.00 (HK$7.8) each 78	30 June 2007 HK$’000 10
	30 June 2007 HK$’000 48,393
	30 June 2007 HK$’000 390
	78

16. AMOUNT DUE TO A SHAREHOLDER

17. SHARE CAPITAL

18. CASH AND CASH EQUIVALENTS

Deposits with banks and securities dealers Cash in hand Exchange realignment Cash and cash equivalents in the balance sheet and cash flow statement	31 October 2007 HK$’000 12,791 17 208 13,016	30 June 2007 HK$’000 11,931 4 –
		11,935

Included in cash and cash equivalents in the balance sheet are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

**31 **	October 2007	30 June 2007
	HK$’000	HK$’000
	12,732	11,613

Renminbi

– II-17 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

19. INVESTMENTS IN JOINTLY CONTROLLED ENTITY

At 31 October 2007, the Grand Promise Group has interests in the following significant jointly controlled entities:

				Proportion
				of nominal
				value of
		Place of		registered
		establishment/		capital held
	Form of business	and	Class of	by the Grand
Name of entity	structure	operations	capital	Promise Group	Principal activities
(a) Jointly controlled entity (China Culture	Sino-foreign equity joint	PRC	Registered	49%	Development of karaoke content
Development Digital	venture				management
Technology Co., Ltd.					system
“CCDDT”)
(b) Principal subsidiary of
the jointly controlled entity (Beijing China	Limited liability company	PRC	Registered	49%	Video and music production
Cultural Development
Video Music Culture
Broadcasting Co., Ltd.
“CCD Video”)
(c) Jointly controlled entity of
the jointly controlled entity	Limited liability	PRC	Registered	24.5%	Information
(Beijing Tian He Culture	company				technology
Co., Ltd. “Tian He”)

Note:

The Grand Promise Group holds 49% of the issued capital of CCDDT. Pursuant to the shareholders’ agreement in relation to the incorporation of CCDDT, each shareholder has a veto right relating to certain financial and operating decisions, and is therefore considered as having joint control over the entity.

CCDDT holds 50% of the issued capital of Tian He. Pursuant to the shareholders’ agreement in relation to the incorporation of Tian He, each shareholder has a veto right relating to certain financial and operating decisions, and is therefore considered as having joint control over the entity.

The following amounts represent the Grand Promise Group’s proportionate share of the assets, liabilities, revenue and expenses of the jointly controlled entity and are included in the combined balance sheet and combined income statements as a result of proportionate consolidation.

Current assets Non-current assets Current liabilities Non-current liabilities	31 October 2007 HK$’000 40,858 7,560 5,247 –	30 June 2007 HK$’000 37,251
		7,438
		373
		–

– II-18 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

Revenue Expenses Loss for the period	1 July 2007 to 31 October 2007 HK$’000 53 (2,263) (2,210)	Date of incorporation to 30 June 2007 HK$’000 239 (4,722)
		(4,483)

20. PARTICULARS OF SUBSIDIARY

Particulars of Grand Promise’s principal subsidiary as at 31 October 2007 are as follows:

			Place of	Issued and fully	Percentage of	Percentage of
			incorporation/	paid up up share/	equity attributable		Principal
Name of company			operation	registered capital	**to the **	Company	activities
					Directly	Indirectly
Birdview	Group Limited		Hong Kong	Ordinary share	100%	–	Investment
				HK$1			holding

21. COMMITMENTS UNDER OPERATING LEASES

The Grand Promise Group

	1 July 2007	25 August 2006
	to	to
	31 October 2007	30 June 2007
	HK$’000	HK$’000
Minimum lease payments under operating leases
recognized in income statement for the period	190	384

At the ending of Relevant Periods, Grand Promise Group had outstanding commitments under non-cancelable operating leases, which fall due as follows:

Within one year One to two years Two to five years	31 October 2007 HK$’000 415 419 345 1,179	30 June 2007 HK$’000 198 – –
		198

Grand Promise did not have any significant lease commitment as at 31 October 2007.

– II-19 –

APPENDIX II FINANCIAL INFORMATION OF THE GRAND PROMISE GROUP

22. CAPITAL COMMITMENT

The Grand Promise Group

	31 October 2007	30 June 2007
	HK$’000	HK$’000
Capital expenditure in respect of the investment in
a jointly controlled entity	25,381	–

Grand Promise did not have any significant capital commitment as at 31 October 2007.

23. RELATED PARTY TRANSACTIONS

(a) Key management personnel remuneration

Remuneration for key management personnel of the Grand Promise Group, including amounts paid to Grand Promise’s directors is as follows:

			1 July 2007 to	25 August 2006 to
			31 October 2007	30 June 2007
			HK$’000	HK$’000
Short-term	employee	benefits	12	64

Balances with related parties were disclosed in Note 15 and 16 to the financial statement.

24. CONTINGENT LIABILITIES

The Grand Promise Group and Grand Promise did not have any significant contingent liabilities as at 31 October 2007.

25. SUBSEQUENT EVENT

On 30 November 2007, Grand Promise issued convertible notes of approximately HK$273,000,000 (US$35,000,000). The convertible notes are secured by personal guarantee of a director of Grand Promise and the Birdview Share Charge.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Grand Promise has been prepared in respect of any period subsequent to 31 October 2007.

– II-20 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The following is the text of a report received from W.H. Tang & Partners CPA Limited, for the purpose of incorporation in this circular.

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14 March 2008

The Directors

China Vanguard Group Limited

Unit 2201, 22/F. Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of China Vanguard Group Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), and Grand Promise International Limited and its subsidiary (hereinafter collectively referred to as the “Grand Promise Group”), comprising the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated cash flow statement of the Enlarged Group (the “Unaudited Pro Forma Financial Information”), as set out in Appendix III entitled “Unaudited Pro Forma Financial Information of the Enlarged Group” to the circular dated 14 March 2008 (the “Circular”). The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the Acquisition (as defined in the Circular) might have affected the financial information presented in the Circular. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in Appendix III of the Circular.

Respective responsibilities of the directors of the Company and the reporting accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with Rule 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM 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 Rule 7.31 of the GEM 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.

– III-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Basis of opinion

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

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 7.31 of the GEM Listing Rules.

The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only, based on the judgments and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position or the results or cash flows of:

• the Enlarged Group had the Acquisition actually completed at the dates indicated therein; or

• the Enlarged Group at any future date or for any future periods.

Opinion

In our opinion:

• a. the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

• b. such basis is consistent with the accounting policies of the Group; and

• c. the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 7.31 of the GEM Listing Rules.

Yours faithfully,

W.H. Tang & Partners CPA Limited Certified Public Accountants Hong Kong

– III-2 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

PRO FORMA FINANCIAL INFORMATION

1. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP

The following table is an illustrative unaudited pro forma consolidated balance sheet of the Enlarged Group, which has been prepared on the basis set out below for the purpose of illustration as if the Acquisition had been completed on 30 June 2007.

The unaudited pro forma consolidated balance sheet of the Enlarged Group is prepared as if the Acquisition has been completed on 30 June 2007 and is based on the audited balance sheet of Grand Promise Group as at 30 June 2007 as extracted from the accountant’s report of Grand Promise Group set out in Appendix II to this circular, and the audited consolidated balance sheet of the Group as at 30 June 2007, and after making certain pro forma adjustments as set out below.

The unaudited pro forma balance sheet of the Enlarged Group has been prepared to provide the unaudited pro forma financial information of the Enlarged Group as if the Acquisition had been completed on 30 June 2007. As it has been prepared for illustrative purpose only and because of its nature, it may not given a true picture of the results of the Enlarged Group as at 30 June 2007 in respect of which it is prepared or for any future financial date.

Pro Forma Consolidated Balance Sheet

Non-current assets Property, plant and equipment Goodwill Other intangible assets Interest in associates Prepaid lease payments Construction in progress Current assets Inventories Trade and other receivables and prepayments Prepaid lease payments – current portion Pledged bank deposits Amount due from a shareholder of a jointly controlled entity Bank balances and cash	The Group as at 30 June 2007 HK$’000 235,697 280,689 2,603 238 12,496 14,004	Grand Promise Group as at 30 June 2007 Pro forma adjustments Notes HK$’000 HK$’000 7,190 – 1,837,635 1 & 6 248 – – –	Pro forma balance HK$’000 242,887 2,118,324 2,851 238 12,496 14,004
	545,727 6,536 89,656 380 5,000 – 204,722 306,294	7,438 46 711 – – 24,915 11,935 37,607	2,390,800
			6,582 90,367 380 5,000 24,915 216,657
			343,901

– III-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Current liabilities Trade and other payables Amount due to a director Amount due to a shareholder Tax liabilities Bank and other borrowings – due within one year Net current assets (liabilities) Total assets less current liabilities Non-current liabilities Bank and other borrowings Convertible bonds Capital and reserves Share capital Reserves Equity attributable to equity holders of the Company Minority interests	The Group as at 30 June 2007 HK$’000 57,528 – – 1,422 5,617	Grand Promise Group as at 30 June 2007 Pro forma adjustments Notes HK$’000 HK$’000 377 31,000 3 10 48,393 (13,816) 5 – –	Pro forma balance HK$’000 88,905 10 34,577 1,422 5,617
	64,567 241,727 787,454 106,105 243,144 349,249	48,780 (11,173) (3,735) – – 205,030 4 –	130,531
			213,370
			2,604,170
			106,105 448,174
			554,279
	438,205	(3,735)	2,049,891
	9,361 416,336 425,697 12,508	78 22,744 4 (3,813) 1,592,677 3 & 4 (3,735) –	32,183 2,005,200
			2,037,383 12,508
	438,205	(3,735)	2,049,891

Notes:

1. The existing HKFRSs requires the consideration Shares be recorded in the financial statements at their fair values at the completion date of the Acquisition and all their fair values of identifiable assets and liabilities (including intangible assets and contingent liabilities) be assessed at the completion date of the Acquisition. Hence, any changes in their fair values will be assessed at the completion date of the Acquisition. The difference between the cost of the Acquisition and the net attributable fair value of the identifiable assets and liabilities so recognized will be accounted for as goodwill, or negative goodwill, if any, as the case may be. If the fair values of the Consideration Shares increased, the cost of the Acquisition would also increase, thereby resulting in goodwill. If the fair values of the Consideration Shares decrease, the cost of the Acquisition would also decrease, thereby resulting in negative goodwill.

– III-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Any goodwill arising from the Acquisition will be recognized as an asset at cost, subject to annual impairment review in subsequent year and any impairment will have to be recognized as an expense in the income statement in the year it arises. If the net fair value of all identifiable assets and liabilities (including intangible assets and contingent liabilities) exceeds the cost of Acquisition, the net fair value will have to be reassessed and any excess remaining will be credited to the income statement as “other revenue” in the year of the Acquisition after assessment.

1. Upon completion of the Acquisition, the Company will apply the purchase method to account for the acquisition in the consolidated accounts of the Enlarged Group. In applying the purchase method, the identifiable assets and liabilities of Grand Promise will be accounted for on the balance sheet of the Enlarged Group at their fair value at the completion date. Any goodwill or negative goodwill arising on the acquisition will be determined as the excess or deficit of the purchase consideration incurred by the Group over the Group’s interests in their fair value of Grand Promise at the completion date.

For the purpose of preparing the unaudited pro forma balance sheet of the Enlarged Group, the fair value of Grand Promise as at 30 June 2007 are applied in calculating the estimated goodwill arising from the Acquisition. Since the fair value of Grand Promise at the completion date may be substantially different from their fair values as at 30 June 2007, the actual goodwill arising from the acquisition may be different from the estimated goodwill as shown above.

1. The adjusted reflects legal and professional fee and printing charges accrued for the acquisition of approximately HK$31,000,000 in respect of the Acquisition.

2. The adjustment reflects the Acquisition at the purchase price of approximately HK$1,847,716,000, which will be satisfied by the allotment and issue of 2,282,197,098 Consideration Shares credited as fully paid and issue of convertible notes of approximately HK$273,000,000. The Consideration Shares are recorded at the agreed issue price of HK$0.69 per share. However, the existing HKFRSs requires the consideration Shares be recorded in the financial statements at their fair value at the completion date of the Acquisition as discussed in note 1 above. Issuance of the convertible notes for the Acquisition was separated into liability component of approximately HK$205,030,000 and equity component of approximately HK$67,970,000.

3. The adjustments reflect the Acquisition on the Shareholder’s loan of approximately of HK$13,816,003 in respect of the Acquisition.

5. The adjustment reflects goodwill arising from the acquisition amounting to approximately HK$1,837,635,000.

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

The following table is an illustrative pro forma consolidated income statement of the Enlarged Group which has been prepared on the basis set out below for the purpose of illustration as if the Acquisition had been completed on 1 July 2006.

The pro forma consolidated income statement of the Enlarged Group is prepared as if the Acquisition has been commenced on 1 July 2006 and is based on the audited income statement of Grand Promise Group for the period from 25 August 2006 (date of incorporation) to 30 June 2007 as extracted from the accountant’s report of Grand Promise Group as set out in Appendix II to this circular, and the audited consolidated income statement of the Group for the year ended 30 June 2007, and after making certain pro forma adjustments as set out below.

The pro forma consolidated income statement of the Enlarged Group has been prepared to provide the pro forma financial information of the Enlarged Group as if the Acquisition had been completed on 1 July 2006. As it has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the results of the Enlarged Group for the financial period in respect of which it is prepared or for any future financial periods.

– III-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Proforma Consolidated Income Statement

Continuing operations Revenue Cost of sales Gross profit Other revenue Selling and distribution expenses Administrative expenses Gain on disposal of subsidiaries Finance costs Loss before income tax Income tax expenses Loss for the year/period from continuing operations Discontinued operations Profit for the year/period from discontinued operations Loss for the year	The Group Year ended 30 June 2007 HK$’000 88,246 (63,410)	Grand Promise Group Period ended 30 June 2007 Pro forma adjustments Notes HK$’000 HK$’000 11 (9)	Pro forma balance HK$’000 88,257 (63,419) 24,838 6,228 (5,683) (138,585) 30,635 (51,177) (133,744) (1,411) (135,155) 272 (134,883)
	24,836 5,908 (4,972) (134,223) 30,635 (24,526) (102,342) (1,411) (103,753) 272	2 320 (711) (4,362) – (1) (26,650) 3 (4,752) – (4,752) −	24,838 6,228 (5,683 (138,585 30,635 (51,177
			(133,744 (1,411
			(135,155 272
	(103,481)	(4,752)

Notes to the unaudited pro-forma consolidated income statement:

1. Income statement of the Group for the year ended 30 June 2007 was extracted from the audited consolidated financial statements of the Group for the year ended 30 June 2007.

2. Combined income statement of Grand Promise for the period from 25 August 2006 (date of incorporation) to 30 June 2007 was extracted from the accountants’ report of Grand promise as set out in Appendix II to this circular.

3. Adjustment is made to reflect the imputed interest expenses for the liability component of the Convertible Notes of HK$205,000,000 which were assumed issued on 1 July 2006. The interest expense is calculated on 13% per annum based on HK$205,000,000.

4. Pro forma adjustments set out in Note 3 above is expected to have continuing effect.

– III-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

3. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE ENLARGED GROUP

The following table is an illustrative unaudited pro forma consolidated cash flow statement of the Enlarged Group which has been prepared on the basis set out below for the purpose of illustration as if the Acquisition had been completed on 1 July 2006.

The unaudited pro forma consolidated cash flow statement of the Enlarged Group is prepared as if the Acquisition has been completed on 1 July 2006 and the audited consolidated cash flow statement of the Group as at 30 June 2007, and after making certain pro forma adjustments as set out below.

The unaudited pro forma cash flow statement of the Enlarged Group has been prepared to provide the unaudited pro forma financial information of the Enlarged Group as if the Acquisition had been completed on 1 July 2006. As it has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the results of the Enlarged Group as at 1 July 2006 in respect of which it is prepared or for any future financial periods.

Pro forma Consolidated Cash Flow Statement

		Grand
		Promise
		Group
	The Group	Period
	Year ended	ended
	30 June	30 June	Pro forma		Pro forma
	2007	2007	adjustments	Notes	balance
	HK$’000	HK$’000	HK$’000		HK$’000
Operating activities
Loss for the year/period	(103,481)	(4,752)	(26,650)	1	(134,883)
Adjustments for:
Income tax expenses	1,442	–			1,442
Interest income	(2,460)	(320)			(2,780)
Interest expenses	24,537	1	26,650	1	51,188
Depreciation of property,
plant and equipment	10,670	633			11,303
Loss on disposal of
property plant and
equipment	70	–			70
Impairment of goodwill	145	–			145
Gain on disposal of
subsidiaries	(30,635)	–			(30,635)
Amortization of prepaid
lease payment	152	–			152
Share option expenses	83,347	–			83,347
Amortization of other
intangible assets	1,848	–			1,848

– III-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Operating cash flows before movements in working capital Increase in inventories Increase in trade and other receivables and prepayments Increase in trade and other payables Cash from (used in) operations Tax paid Net cash from (used in) operating activities Investing activities Interest received Purchases of property, plant and equipment Acquisition of intangible assets Purchases of construction in progress Decrease in pledged bank deposits Cash consideration on acquisition of jointly controlled entities Reduction on minority shareholding Proceeds from disposal of property, plant and equipment Proceeds from disposal of subsidiaries Purchases of prepaid leases payment Net cash used in investing activities	The Group Year ended 30 June 2007 HK$’000 (14,365) (1,712) (872) 16,264	Grand Promise Group Period ended 30 June 2007 Pro forma adjustments Notes HK$’000 HK$’000 (4,438) (46) (711) 377 26,650 1	Pro forma balance HK$’000 (18,803) (1,758) (1,583) 43,291 21,147 (1,623) 19,524 2,804 (54,443) (248) (5,871) 8,308 (120,902) (96,773) 21 31,219 (99) (235,984)
	(685) (1,623) (2,308) 2,484 (46,620) – (5,871) 8,308 (120,902) (96,773) 21 31,219 (99) (228,233)	(4,818) – (4,818) 320 (7,823) (248) – – – – – – – (7,751)	21,147 (1,623
			19,524
			2,804 (54,443 (248 (5,871 8,308 (120,902 (96,773 21 31,219 (99
			(235,984

– III-8 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Financing activities Interest paid Issue of shares Amount due to director Amount due to a shareholder Amount due from a shareholder of a jointly controlled entity Net repayment of borrowing Capital contribution from minority interests Proceeds from issue of convertible notes Dividend paid to minority shareholders of subsidiaries Net cash from financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of the year/period Effect of foreign exchange rate changes Cash and cash equivalents at end of the year/period, represented by bank balances and cash	The Group Year ended 30 June 2007 HK$’000 (4,464) – – – – (39,354) 3,162 234,000 (10,117)	Grand Promise Group Period ended 30 June 2007 Pro forma adjustments Notes HK$’000 HK$’000 (1) (26,650) 1 78 10 48,393 (24,915) – – – –	Pro forma balance HK$’000 (31,115) 78 10 48,393 (24,915) (39,354) 3,162 234,000 (10,117) 180,142 (36,318) 244,983 7,992 216,657
	183,227 (47,314) 244,983 7,053	23,565 10,996 – 939	180,142
			(36,318 244,983 7,992
	204,722	11,935

Notes to the unaudited pro-forma consolidated cash flow statement:

1. Adjustment is made to reflect the imputed interest expenses for the liability component of the Convertible Notes of HK$205,000,000 which were assumed issued on 1 July 2006. The interest expense is calculated on 13% per annum based on HK$205,000,000.

– III-9 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

A. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

Financial performance for the period from 1 July 2007 to 31 December 2007

For the six months ended 31 December 2007, the Group’s unaudited consolidated revenue was approximately HK$75,136,000, which represented an increase of approximately 118.2% as compared to approximately HK$34,427,000 (excluding the revenue from discontinued operations of approximately HK$929,000) for the six months ended 31 December 2006. The increase was mainly due to the contributions from Changde Huayou Gas Co., Ltd (“Changde Joint Venture”) and Hunan Huayou Natural Gas Transportation & Distribution Limited (“Hunan Joint Venture”), which were approximately HK$31,522,000. In addition, there were greater contributions from the China lottery-related operation from Zhejiang Province as compared with the previous corresponding period.

The gross profit for the six months ended 31 December 2007 increased by approximately 1.2 times to approximately HK$24,507,000 (2006: approximately HK$11,095,000). Approximately HK$14,745,000 of gross profit was generated by the lottery-related operations and approximately HK$9,177,000 of gross profit was generated by the oil and gas operations. Overall, gross profit ratio remained fairly stable at approximately 32% for the current period and corresponding period.

Net loss attributable to shareholders for the six months ended 31 December 2007 was approximately HK$31,233,000 (2006: approximately HK$26,924,000). There was an approximate 16% increase in the net loss attributable to shareholders over the last corresponding period. The bulk of this increase in net loss was due to the lack of profit from the discontinued operations. In the current period we had no profit contribution from discontinued operations against HK$29,342,000 in the previous corresponding period. During the period under review, there was approximately HK$8,537,000 (2006: approximately HK$56,441,000) in share option expenses charged to the profit and loss, an approximately 84.9% decrease as compared to the last corresponding period. Factoring out the share option expenses, net loss for the current period was approximately HK$22,696,000 against a net profit of approximately HK$175,000 after factoring out both share option expenses and profit from the discontinued operations in the previous corresponding period.

Liquidity, financial resources and capital structure

As at 31 December 2007, the Group enjoyed a healthy financial position, with cash and bank balances of approximately HK$176,935,000 (30 June 2007: approximately HK$209,722,000). Net asset value per share was approximately HK$0.46 (30 June 2007: approximately HK$0.47), and current assets stood at approximately HK$298,703,000 (30 June 2007: approximately HK$306,294,000). The gearing ratio was 17.4% as at 31 December 2007 (30 June 2007: 14.7%). Gearing ratio is calculated as current liabilities divided by shareholders’ funds.

– IV-1 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

The Group’s sales and purchase are transacted mainly in Renminbi, Hong Kong Dollars, Singaporean Dollars and US Dollars and the books are recorded in Hong Kong dollars. The exchange rate fluctuation between these currencies have not been material. The foreign exchange risk was very low and no hedging was undertaken.

Capital structure

During the six months ended 31 December 2007, 8,300,000 shares were issued due to the exercises of share options under existing share option scheme.

Contingent liabilities

The Group did not have any contingent liabilities as at 31 December 2007 (30 June 2007: Nil).

Charges on the Group assets

As at 31 December 2007 the Group has pledged its bank deposits of approximately HK$5,000,000 (30 June 2007: approximately HK$5,000,000) to a bank to secure the general banking facilities granted to the Group.

As at 31 December 2007 and up to the date of this circular, the 100% of the issued share capital of Good United Management Limited (“GUM”), a wholly-owned subsidiary of the Company’s non wholly-owned subsidiary, Aptus, was pledged in favour of the holder(s) of the convertible bonds issued by Aptus on 22 November 2006. GUM held 70% equity interest in CNPC Huayou Cu Energy Investment Co., Limited (“CNPC Huayou”), which owned profit sharing rights on Xin Jiang Oilfield. In addition, borrowings of approximately HK$56,447,000 (30 June 2007: approximately HK$54,232,000) had been secured by gas network of jointly controlled entity, Hunan Joint Venture.

Commitments

The Group had capital commitments of approximately HK$41,588,000 and operating leases commitments (i) as lesser of approximately HK$6,149,000 and (ii) as lessor of approximately HK$237,000 as at 31 December 2007 (30 June 2007: approximately HK$39,956,000, approximately HK$4,946,000 and approximately HK$375,000 respectively).

Significant investments and acquisitions

The Group did not make any material acquisition or disposal of subsidiaries and affiliated companies during the six months ended 31 December 2007.

Employees

The Group employed 131 employees as at 31 December 2007. Employees’ remuneration is in line with market conditions, working experience and performance. In addition to basic salaries and provident fund contributions, the Group also offers medical benefit and training programs.

– IV-2 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Financial performance for the year from 1 July 2006 to 30 June 2007

For the year ended 30 June 2007, the Group recorded a turnover (including discontinued operations) of approximately HK$91,461,000 representing an increase of approximately 12% as compared to approximately HK$81,608,000 for the year ended 30 June 2006. The increase of turnover was mainly attributed to the increase in revenues from the lottery-related business and edible oil trading business as well as the maiden contributions from the gas-related business shared from Changde Joint Venture and Hunan Joint Venture.

The Group recorded a net loss attributable to shareholders after minorities of HK$72,521,000 for the year ended 30 June 2007 against a net loss of HK$39,908,000 for the previous corresponding year. This year’s loss increased by HK$32,613,000 compared to the previous corresponding year, the difference can be explained almost entirely as follows: (i) a HK$43,948,000 increase in share option expenses, from HK$39,399,000 for the year ended 30 June 2006 to HK$83,347,000 for the year ended 30 June 2007; (ii) the HK$13,351,000 charge for legal and professional fee related to the investment in Changde Joint Venture and Hunan Joint Venture; (iii) the maiden HK$19,856,000 expenses for the imputed finance charges associated with the convertible bond issued by Aptus; and (iv) no share award expenses this year against HK$36,060,000 previously.

Liquidity, financial resources and capital structure

Liquidity and financial resources

As at 30 June 2007, shareholders’ funds amounted to approximately HK$438,205,000 (2006: HK$453,851,000). Current assets amounted to approximately HK$306,294,000 (2006: HK$356,185,000), mainly comprising of cash and bank balances. The Group had current liabilities amounting to approximately HK$64,567,000 (2006: HK$43,063,000), mainly comprising of trade and other payables and bank borrowings. The Group’s bank borrowings amounted to approximately HK$74,671,000 (2006: HK$4,078,000) for the year ended 30 June 2007. The Group financed its operations primarily with internally generated cash flows and bank borrowings. The net asset value per share of the Company was approximately HK$0.47 (2006: HK$0.48 (restated due to issue of bonus shares)). The gearing ratio was 14.73% (2006: 9.49%) on the basis of current liabilities divided by shareholders’ funds.

Capital Structure

Bonus Share Issue

On 1 November 2006, a bonus issue of 312,026,403 shares was made on the basis of one bonus share for every two existing shares held on the 24 October 2006.

– IV-3 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Bonus Warrant Issue

On 1 November 2006, a bonus issue of 124,810,561 warrants was made on the basis of one warrant for every five issued shares held on 24 October 2006. Each warrant entitles its holder to subscribe in cash at a price of HK$1.33 for one share of the Company at any time from 3 November 2006 to 2 November 2008, both days inclusive. No warrant was exercised during the period and exercise in full of these warrants would result in the issue of 124,810,561 additional shares of HK$0.01 each.

Contingent liabilities

As at 30 June 2007, the Group did not have any material contingent liabilities.

Charges on Group assets

As at 30 June 2007, the Group has pledged its bank deposits of approximately HK$5,000,000 (2006: HK$13,308,000) and leasehold property at net book value of approximately HK$5,834,000 (2006: HK$5,918,000) to banks to secure the general banking facilities granted to the Group.

In addition, borrowings of approximately HK$54,232,000 has been secured by a gas network of a jointly controlled entity, Hunan Joint Venture.

As at 30 June 2007 the 100% of the issued share capital of GUM, a wholly-owned subsidiary of the Company’s non wholly-owned subsidiary, Aptus, was pledged in favour of the holder(s) of the convertible bonds issued by Aptus on 22 November 2006. GUM held 70% equity interests in CNPC Huayou, which owned profit sharing rights on Xin Jiang Oilfield.

Commitments

The Group had capital commitment of approximately HK$39,956,000 (2006: HK$38,327,000) and operating lease commitments of approximately HK$4,946,000 (2006: HK$1,865,000) as lesser and of approximately HK$375,000 (2006: Nil) as lessor as at 30 June 2007.

Significant investments, material acquisitions and disposals

For the year ended 30 June 2007, the Group has completed the acquisition of 48.33% equity interest in Changde Joint Venture and of 33% equity interest in Hunan Joint Venture. In February 2007, the certificates of approval for Aptus’ investment in Changde Joint Venture and Hunan Joint Venture and the updated business licenses of these two Joint Ventures were obtained.

On 7 September 2006, the Group has completed the disposal of our 55% interest in Wuhu Bee & Bee Natural Food Company Limited and 100% interest in Zhuhai Free Trade Zone Bee & Bee Natural Food Company Limited. During the year, the Group also disposed Guangzhou

– IV-4 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Latech Computer Technology Company Limited, Jinan Weita Technology Company Limited and La Cucina Italian (Macau) Limited to streamline the business of the Group.

Employees

As at 30 June 2007, the Group employed 25 staff in Hong Kong, 2 staff in Singapore and 87 staff in the PRC. Staff costs excluding directors’ remuneration amounted to approximately HK$14,309,000 (2006: HK$7,873,000). Employee remuneration is determined by reference to market terms and the performance, qualification and experience of individual employees. In addition to basic salaries and provident fund contributions, the Group also offers medical benefits and training programs. Share options may be granted to employees based on performance evaluation in order to provide incentives and rewards.

Financial performance for the year from 1 July 2005 to 30 June 2006

For the year ended 30 June 2006, the Group recorded a turnover of approximately HK$81,608,000 representing a decrease of approximately 56.85% as compared to approximately HK$189,131,000 for the year ended 30 June 2005. The significant decrease in turnover was due to poor performance at the Group’s edible oil trading operations and natural products division as a result of continued difficult business conditions.

The Group recorded a net loss attributable to shareholders after minorities of HK$39,908,000 for the year ended 30 June 2006 against a net profit of HK$31,685,000 for the corresponding year in 2005. The difference can be explained as follows: (i) a HK$19,932,000 reduction in gross profit due to difficult operating conditions; (ii) share award expenses of HK$36,060,000; (iii) share option expenses of HK$39,399,000; and (iv) loss on disposal of an associate of HK$13,106,000. Helping offset some of this was HK$32,349,000 in gains on the partial disposal of Aptus shares by the Group.

Liquidity, financial resources and capital structure

Liquidity and financial resources

As at 30 June 2006, shareholders’ funds amounted to approximately HK$453,851,000 (2005: HK$170,771,000). Current assets amounted to approximately HK$356,185,000 (2005: HK$197,932,000), mainly comprising of cash and bank balances. The Group had current liabilities amounting to approximately HK$43,063,000 (2005: HK$72,863,000), mainly comprising of trade and other payables and bank borrowings. The Group’s bank borrowings amounted to approximately HK$4,078,000 (2005: HK$56,439,000) for the year ended 30 June 2006. The Group financed its operations primarily with internally generated cash flows, bank borrowings and the placement of shares. The net asset value per share of the Company was approximately HK$0.73 (2005: HK$0.35). The gearing ratio was 9.49% (2005: 42.67%) on the basis of current liabilities divided by shareholders’ funds.

Capital Structure

For the year ended 30 June 2006, 870,000 shares and 200,000 shares were issued due to the exercise of pre-IPO share options under the pre-IPO Share Option Scheme and share

– IV-5 –

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS

options under the existing Share Option Scheme. In addition, 68,000,000 shares were placed on 26 January 2006 to raise approximately HK$140,000,000. Besides, 48,730,000 shares were issued pursuant to the Share Award Scheme of the Company during the year. Furthermore, 24,122,807 shares were issued to acquire the 51% interest in Cheerfull Group Holdings Limited (“Cheerfull”) (which holds 100% of Shenzhen Bozone IT Co., Limited (“Bozone”)).

Contingent liabilities

As at 30 June 2006, the Group did not have any material contingent liabilities.

Charges on Group assets

As at 30 June 2006, the Group pledged its bank deposits of approximately HK$13,308,000 (2005: HK$31,761,000) and leasehold property at net book value of approximately HK$5,918,000 (2005: Nil) to banks to secure the general banking facilities granted to the Group.

Commitments

The Group had capital commitment of approximately HK$38,327,000 (2005: HK$61,453,000) and operating lease commitments of approximately HK$1,865,000 (2005: HK$719,000) as lesser as at 30 June 2006.

Significant investments, material acquisitions and disposals

For the year ended 30 June 2006, the Group acquired a 51% equity interest in Cheerfull which through its 100% wholly-owned subsidiary, Bozone, is principally engaged in the research and development and application of information technology in the lottery field. This includes application software development and production of large online lottery systems and multi-platform wagering systems, integration of online lottery networks, network security system solutions, wagering terminals, operational solutions and operational consultation services.

The Group also acquired a 70% equity interest of CNPC Huayou for the year ended 30 June 2006. CNPC Huayou has profit sharing rights to an oilfield development project located in Feng Cheng, Xin Jiang, the People’s Republic of China.

Employees

As at 30 June 2006, the Group employed 28 staff in Hong Kong, 2 staff in Singapore and 149 staff in the PRC. Staff costs excluding directors’ remuneration amounted to approximately HK$7,873,000 (2005: HK$4,274,000). Employee remuneration is determined by reference to market terms and the performance, qualification and experience of individual employees. In addition to basic salaries and provident fund contributions, the Group also offers medical benefits and training programs. Share options may be granted to employees based on performance evaluation in order to provide incentives and rewards.

– IV-6 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Financial performance for the year from 1 July 2004 to 30 June 2005

For the year ended 30 June 2005, the Group recorded a turnover of approximately HK$189,131,000 representing a decrease of approximately 1.99% as compared to approximately HK$192,971,000 for the year ended 30 June 2004. The slight reduction in turnover was due to keen competition.

The Group recorded a net profit attributable to shareholders after minorities of HK$31,685,000 for the year ended 30 June 2005 against a net profit of HK$29,013,000 for the corresponding year in 2004, an increase of approximately 9.2%.

Liquidity, financial resources and capital structure

Liquidity and financial resources

As at 30 June 2005, shareholders’ funds amounted to approximately HK$160,642,000 (2004: HK$137,466,000). Current assets amounted to approximately HK$197,932,000 (2004: HK$179,555,000), mainly comprising of cash and bank balances. The Group had current liabilities amounted to approximately HK$72,863,000 (2004: HK$42,101,000), mainly comprising of trade and other payables and bank borrowings. The Group’s bank borrowings amounted to approximately HK$56,439,000 (2004: HK$33,207,000) for the year ended 30 June 2005. The Group financed its operations primarily with internally generated cash flows and the bank borrowings. The net asset value per share of the Company was approximately HK$0.35 (2004: HK$0.30). The gearing ratio was 42.67% (2004: 29.59%) on the basis of current liabilities divided by shareholders’ funds.

Capital Structure

For the year ended 30 June 2005, 800,000 shares were issued due to the exercises of pre-IPO share options.

Contingent liabilities

As at 30 June 2005, the Group did not have any material contingent liabilities.

Charges on Group assets

As at 30 June 2005, the Group pledged its bank deposits of approximately HK$31,761,000 (2004: HK$21,135,000) to banks to secure the general banking facilities granted to the Group.

Commitments

The Group had capital commitment of approximately HK$61,453,000 (2004: HK$71,837,000) and operating lease commitments of approximately HK$719,000 (2004: HK$1,552,000) as lesser as at 30 June 2005.

– IV-7 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Significant investments, material acquisitions and disposals

For the year ended 30 June 2005, the Group disposed 75% equity interest of Top Entrepreneur Profits Limited to Aptus at a consideration of HK$4,000,000 (the “Disposal”). The consideration was satisfied by the allotment and issue of shares at HK$0.021 per share of Aptus. Besides, the Group also subscribed for 738,095,238 new Aptus shares at approximately HK$0.021 per share (the “Subscription”). After the completion of the Disposal and the Subscription, Aptus became an indirect non wholly-owned subsidiary of the Group. The Group also disposed certain of its subsidiaries for the year ended 30 June 2005 and gave rise to a gain of approximately HK$2,902,000.

Employees

As at 30 June 2005, the Group employed 18 staff in Hong Kong, 2 staff in Singapore and 64 staff in the PRC. Staff cost excluding directors’ remuneration amounted to approximately HK$4,274,000 (2004: HK$3,715,000). Employee remuneration is determined by reference to market terms and the performance, qualification and experience of individual employees. In addition to basic salaries and provident fund contributions, the Group also offers medical benefits and training programs. Share options may be granted to employees based on performance evaluation in order to provide incentives and rewards.

B. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GRAND PROMISE GROUP

Background information of Grand Promise Group

The Grand Promise Group’s main business is to develop, operate and maintain the Karaoke CMS in the PRC. MOC, the PRC government authority which supervises and regulates the cultural and arts industries ( ) in the PRC, approved the MOC Market Development Center to establish and operate a nationwide Karaoke CMS. The MOC Market Development Center has exclusively appointed CCDDT to establish and operate the Karaoke CMS for the life of the joint venture, which is for a period of 30 years. Karaoke CMS is an information system that connects the Karaoke CMS data center in Beijing to karaoke venues to keep track of karaoke programmes played in these venues. This information system could also be utilised to facilitate the provision of product advertisement and promotion services and to carry out copyright transaction settlement services.

For the period commencing from 25 August 2006 to 30 June 2007

Financial Information of Grand Promise Group

According to the audited combined financial statements of Grand Promise Group (for the period commencing from 25 Aug 2006 (being the date of incorporation of Grand Promise) to 30 June 2007), turnover of approximately HK$11,000 was recorded. The net loss for the period was approximately HK$4,752,000. Given the loss status of the enterprise, no tax was payable during the relevant period.

– IV-8 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

As the Karaoke CMS is at its beginning stage, the turnover of the Grand Promise Group is expected to grow significantly in the coming years when the rollout plan is completed.

Liquidity, financial resources and capital structure

The total assets of the Grand Promise Group as at 30 June 2007 were approximately HK$45,045,000. The Grand Promise Group has current assets of approximately HK$37,607,000, mainly comprising of amount due from a shareholder of a jointly controlled entity and cash and bank balances. The Grand Promise Group has current liabilities of approximately HK$48,780,000, mainly comprising of a shareholder’s loan. During the relevant period, the Grand Promise Group financed its operations primarily with the shareholder’s loan. The Grand Promise Group did not have any bank borrowings as at 30 June 2007. No gearing was calculated as there was shareholders’ deficit as at 30 June 2007.

Contingent liabilities

As at 30 June 2007, there were no material contingent liabilities in the Grand Promise Group.

Charges on assets of Grand Promise Group

As at 30 June 2007, there were no charges on the assets of the Grand Promise Group.

Commitments

The Grand Promise Group have no capital commitment but operating lease commitment of approximately HK$198,000 as at 30 June 2007.

Significant investments and acquisitions

During the relevant period, Grand Promise acquired 100% interest in Birdview Group Limited which in turn acquired 49% in a jointly control entity, CCDDT, which is responsible for the establishment, operation, maintenance and enhancement of the Karaoke CMS. There was no disposal of subsidiaries or affiliated companies during the relevant period.

CCDDT was exclusively appointed by the MOC Market Development Center to establish and operate the Karaoke CMS for the life of the joint venture, which is for a period of 30 years. Karaoke CMS is an information system that connects the Karaoke CMS data center to karaoke venues to keep track of karaoke programmes played in these venues. This information system could also be utilised to facilitate the provision of product advertisement and promotion services and to carry out copyright transaction settlement services.

As the Karaoke CMS is at its beginning stage, the turnover of the Grand Promise Group is expected to grow significantly in the coming years when the roll out plan is completed.

– IV-9 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Employees

As at 30 June 2007, the Grand Promise Group employed 2 staff in Hong Kong and 80 staff in the PRC. During the relevant period, staff costs excluding directors’ remuneration amounted to approximately HK$1,054,000 and directors’ remuneration amounted to approximately HK$64,000. Employee remuneration is determined with reference to market conditions and the performance, qualification and experience of individual employees. In addition to basic salaries and pension fund contributions, the Grand Promise Group also offered medical benefits and training programs during the relevant period.

Exposure to fluctuations in exchange rates and any related hedges

The Grand Promise Group’s sales and purchase are transacted mainly in Renminbi and Hong Kong Dollars and the books are recorded in Hong Kong dollars. The exchange rate fluctuation between these currencies has not been material. The foreign exchange risk was very low and no hedging was undertaken.

For the period commencing from 1 July 2007 to 31 October 2007

Financial Information of Grand Promise Group

For the period from 1 July 2007 to 31 October 2007, the Grand Promise Group recorded a turnover of approximately HK$21,000 and a net loss of approximately HK$2,672,000.

As the Karaoke CMS is at its beginning stage, the turnover of the Grand Promise Group is expected to grow significantly in the coming years when the roll out plan is completed. However , the number of karaoke venues joining the platform increased from 62 to 66.

Liquidity, financial resources and capital structure

The total assets of the Grand Promise Group as at 31 October 2007 were approximately HK$48,508,000 The Grand Promise Group has current assets of approximately HK$40,948,000, mainly comprising of amount due from a shareholder of a jointly controlled entity and cash and bank balances. The Grand Promise Group has current liabilities of approximately HK$53,850,000, mainly comprising of a shareholder’s loan. During the relevant period, the Grand Promise Group financed its operations primarily with the shareholder’s loan and capital contribution from the shareholder of a jointly controlled entity, Tian He. The Grand Promise Group did not have any bank borrowings as at 31 October 2007. No gearing was calculated as there was shareholders’ deficit as at 31 October 2007.

Contingent liabilities

As at 31 October 2007, there were no material contingent liabilities in the Grand Promise Group.

Charges on assets of Grand Promise Group

As at 31 October 2007, there were no charges on the assets of the Grand Promise Group.

– IV-10 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Commitments

The Grand Promise Group had capital commitment of approximately HK$25,381,000 and operating lease commitment of approximately of HK$1,179,000 as at 31 October 2007.

Significant investments and acquisitions

During the relevant period, CCDDT contributed RMB3,000,000 and RMB15,000,000 to establish CCD Video and Tian He, respectively. CCD Video was established with an intention to carry out re-editing of karaoke programmes such that the karaoke programmes will conform with relevant industry standards of the PRC. Tian He was established to administer and arrange for the settlement of copyright transactions between the IP Owners and karaoke venues. As CCD Video is at its initial stage, only minimal turnover was recorded. As for Tian He, no turnover was recorded as it has not yet commenced the operation of providing copyright transaction settlement services for IP Owners. Tian He will be setting up Provincial Subs for carrying out the daily operation of the copyright transaction settlement services. For each Provincial Sub, Tian He intends to hold a majority interest. Tian He will use the Karaoke CMS to advertise, promote products and carry out copyright transactions settlement services. There was no disposal of subsidiaries or affiliated companies during the relevant period.

Employees

As at 31 October 2007, the Grand Promise Group employed 2 staff in Hong Kong and 114 staff in the PRC. During the relevant period, staff costs excluding directors’ remuneration amounted to approximately HK$804,000 and directors’ remuneration amounted to approximately HK$12,000. Employee remuneration is determined with reference to market conditions and the performance, qualification and experience of individual employees. In addition to basic salaries and pension fund contributions, the Grand Promise Group also offers medical benefits and training programs during the relevant period.

Exposure to fluctuations in exchange rates and any related hedges

The Grand Promise Group’s sales and purchase are transacted mainly in Renminbi and Hong Kong Dollars and the books are recorded in Hong Kong dollars. The exchange rate fluctuation between these currencies has not been material. The foreign exchange risk was very low and no hedging was undertaken.

– IV-11 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purposes of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:

• (a) the information contained in this circular is accurate and complete in all material respects and not misleading;

• (b) there are no other matters or facts the omission of which would make any statement in this circular misleading; and

• (c) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

2. SHARE CAPITAL OF THE COMPANY

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

Authorised Share Capital: 20,000,000,000 Shares Issued and Fully Paid-up Share Capital: 951,379,210 Shares as at the Latest Practicable Date 2,282,197,098 new Shares (being the Consideration Shares and Settlement Shares) to be issued upon Completion 480,687,974 new Shares (being the maximum number of Exchange Shares) falling to be issued upon the exercise of the exchange option by the Investors after Completion 250,720,561 new Shares to be issued assuming full conversion of all outstanding Warrants and Options 3,964,984,843

HK$ 200,000,000 9,513,792.10 22,821,970.98 4,806,879.74 2,507,205.61

39,649,848.43

– V-1 –

APPENDIX V

GENERAL INFORMATION

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

15,300,000 Shares have been issued by the Company since 30 June 2007, being the end of the last financial year of the Company, up to the Latest Practicable Date.

There were 125,910,000 Options and 124,810,561 Warrants outstanding as at the Latest Practicable Date. Save as disclosed above, there were no other options, warrants and conversion rights affecting the Shares as at the Latest Practicable Date.

3. DISCLOSURE OF INTERESTS IN SHARES, UNDERLYING SHARES AND DEBENTURES

(i) Interest of Directors and chief executives of the Company

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives 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 SFO) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

(a) Long positions in the Shares

Number of Shares held

		**Number of **	Shares held
					Approximate
	Interest in				percentage
	controlled	Beneficial	Family	Total	of
Name of Directors	corporation	owner	interest	interest	shareholding
Cheung Kwai Lan	2,191,457,322	2,070,000	–	2,193,527,322	230.56%
	(Note 1)	(Note 2)			(Note 4)
Chan Tung Mei	–	–	2,193,527,322	2,193,527,322	230.56%
			(Note 3)		(Note 4)
Lau Hin Kun	–	575,000	–	575,000	0.06%

Notes:

1. Under the SFO, Madam Cheung Kwai Lan is deemed to be interested in all the Shares held by Best Frontier as Best Frontier is held as to approximately 99.89% by her and approximately 0.11% by Mr. Chan Tung Mei, her spouse. Best Frontier holds 361,695,000 Shares and upon Completion 1,829,762,322 new Shares will be allotted and issued to Best Frontier.

2. 2,070,000 Shares are held by Madam Cheung Kwai Lan in her own name.

3. Under the SFO, Mr. Chan Tung Mei is deemed to be interested in all the Shares held by Madam Cheung Kwai Lan as he is her spouse.

4. Immediately after Completion, the shareholding interests deemed to be held by Madam Cheung Kwai Lan and Mr. Chan Tung Mei in the Company will be diluted to approximately 67.84%.

– V-2 –

GENERAL INFORMATION

APPENDIX V

• (b) Interests in shares of an associated corporation of the Company

		Number of shares held	Number of shares held
	Name of	Interest in				Approximate
	associated	controlled				percentage of
Name of Directors	corporation	corporation	Family interest		Total interest	shareholding
Cheung Kwai Lan	Aptus	971,746,428		–	971,746,428	57.20%
		(Note 1)
Chan Tung Mei	Aptus	–	971,746,428		971,746,428	57.20%
			_(Note _	1)

Note:

1. As at the Latest Practicable Date, Best Frontier was interested in approximately 38.02% of the issued share capital of the Company which in turn indirectly held 971,746,428 shares of Aptus.

2. (c) Options of the Company

The Company adopted a share option scheme on 18 October 2002 (the “Share Option Scheme”) under which the Board may, at its discretion, invite any person who satisfies the criteria of the Share Option Scheme, to take up Options to subscribe for Shares.

The Share Option Scheme will remain valid for a period of 10 years commencing from 18 October 2002.

			Number of Options
			and number of
			Shares entitled
			pursuant to full
			exercise of the
			Options held as at
			the Latest
Name of Directors	Capacity	Date of Grant	Practicable Date
Cheung Kwai Lan	Beneficial owner	23/11/2006	6,240,000
Chan Tung Mei	Beneficial owner	23/11/2006	6,240,000
Chan Ting	Beneficial owner	23/11/2006	6,240,000
Lau Hin Kun	Beneficial owner	18/8/2004	1,600,000
	Beneficial owner	23/11/2006	1,400,000
Tian He Nian	Beneficial owner	23/11/2006	1,050,000
Zhao Zhi Ming	Beneficial owner	23/11/2006	1,050,000
To Yan Ming, Edmond	Beneficial owner	23/11/2006	1,050,000

– V-3 –

GENERAL INFORMATION

APPENDIX V

• (d) Long positions in underlying Shares

By an announcement dated 29 September 2006, the Board announced, among other things, that it had resolved to propose to issue Warrants to qualifying Shareholders on the basis of one Warrant for every five then existing Shares. The Warrants are exercisable at an initial exercise price of HK$1.33 per Warrant for a subscription period of two years, i.e. up to and including 2 November 2008. The Warrants were issued to the qualifying Shareholders on 1 November 2006. Each Warrant entitles the holder thereof to subscribe for one Share. For further details, please refer to the circular of the Company dated 6 October 2006.

		Number of Warrants
		and number of Shares
		entitled pursuant to the
		full exercise of the
		Warrants held as at the
Name of Directors	Capacity	Latest Practicable Date
Cheung Kwai Lan	Beneficial owner	276,000
Lau Hin Kun	Beneficial owner	90,000

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, chief executives of the Company or their associates (as defined in the GEM Listing Rules) had any interests or short positions in any Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange.

(ii) Interests of Substantial Shareholders

As at the Latest Practicable Date, so far as is known to the Directors or chief executives of the Company, the following substantial shareholders of the Company (other than a Director or chief executive of the Company) had, or was deemed or taken to have, an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, and recorded

– V-4 –

APPENDIX V

GENERAL INFORMATION

in the register required to be kept under section 336 of the SFO, 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 meeting of the Enlarged Group:

(a) Long positions in the Shares

			Approximate
		Number of	percentage of
Name of Shareholders	Capacity	Shares held	shareholding
Best Frontier	Beneficial owner	2,191,457,322	230.35%
		(Note 1)
Oppenheimer International	Investment manager	165,000,000	17.34%
Small Company Fund		(Note 2)
Oppenheimer Funds, Inc.	Investment manager	165,000,000	17.34%
		(Note 2)
Haven Associates Limited	Interest in controlled	69,900,000	7.35%
	corporation	(Note 3)
Shaw Kyle Arnold Junior	Interest in controlled	69,900,000	7.35%
	corporation	(Note 3)
Mega Capital International	Beneficial owner	162,876,520	17.12%
Limited		(Note 4)	(Note 8)
Wong Sorahardjo	Interest in controlled	162,876,520	17.12%
	corporation	(Note 4)	(Note 8)
Kiree Group Limited	Beneficial owner	76,913,912	8.08%
		(Note 5)	(Note 8)
Lo Po Tong	Interest in controlled	76,913,912	8.08%
	corporation	(Note 5)	(Note 8)
Lo Wai Kwan Anna	Beneficial owner	71,125,216	7.48%
		(Note 6)	(Note 8)
Integrated Asset Management	Beneficial owner	63,963,478	6.72%
(Asia) Limited		(Note 7)	(Note 8)
Yam Tak Cheung	Interest in controlled	63,963,478	6.72%
	corporation	(Note 7)	(Note 8)

Notes:

1. As at the Latest Practicable Date, Best Frontier held 361,695,000 Shares. Upon Completion, 1,829,762,322 new Shares will be allotted and issued to Best Frontier.

2. Oppenheimer International Small Company Fund is managed by Oppenheimer Funds, Inc.

3. The 69,900,000 Shares represent:

4. (a) 1,545,000 Shares beneficially owned by Shaw, Kwei & Partners (Asia) Ltd.

5. (b) 36,930,000 Shares beneficially owned by China Value Investment Limited which is wholly-owned by Asian Value Investment Fund L.P. (AVIF, L.P.), a limited liability partnership, whose general partner Shaw, Kwei & Partners (Asia) Ltd. (having a 1% interest in AVIF, L.P.) is deemed under the SFO to have interest in the same 36,930,000 Shares.

6. (c) 31,425,000 Shares beneficially owned by Javelin Capital Holdings Limited which is wholly-owned by Asian Value Investment Fund II, L.P. (AVIF II, L.P.), a limited liability partnership, whose general partner SKP Capital Limited (having a 1.19% interest in AVIF II, L.P.) is deemed under the SFO to have interest in the same 31,425,000 Shares.

– V-5 –

APPENDIX V

GENERAL INFORMATION

• (d) Haven Associates Limited, a company controlled by Mr. Shaw Kyle Arnold Junior, is the controlling shareholder of Shaw, Kwei & Partners (Asia) Ltd. and SKP Capital Limited.

• Mega Capital International Limited is 100% owned by Mr. Wong Soraharjo. Accordingly, Mr. Wong Soraharjo is deemed to be interested in the Shares held by Mega Capital International Limited. Pursuant to the Share Purchase Agreement, 162,876,520 new Shares will be allotted and issued to Mega Capital International Limited on Completion.

• Kiree Group Limited is 100% owned by Mr. Lo Po Tong. Accordingly, Mr. Lo Po Tong is deemed to be interested in the Shares held by Kiree Group Limited. Pursuant to the Share Purchase Agreement, 76,913,912 new Shares will be allotted and issued to Kiree Group Limited on Completion.

• Ms. Lo Wai Kwan Anna is interested in 3,260,000 Shares. Pursuant to the Share Purchase Agreement, 67,865,216 new Shares will be allotted and issued to Ms. Lo Wai Kwan Anna on Completion.

• Integrated Asset Management (Asia) Limited is 100% owned by Mr. Yam Tak Cheung. Accordingly, Mr. Yam Tak Cheung is deemed to be interested in the Shares held by Integrated Asset Management (Asia) Limited. Integrated Asset Management (Asia) Limited is interested in 18,720,000 Shares. Pursuant to the Share Purchase Agreement, 45,243,478 new Shares will be allotted and issued to Integrated Asset Management (Asia) Limited on Completion.

• Immediately after Completion, their respective shareholding interests will be diluted to below 5%.

• (b) Options of the Company

			Number of Options
			and number of
			Shares entitled
			pursuant to the
			exercise of the
			Options in full as
			at the Latest
Name of Shareholders	Capacity	Date of Grant	Practicable Date
Lo Wai Kwan Anna	Beneficial owner	18 August 2004	1,800,000
		22 March 2006	1,500,000
		23 November 2006	1,000,000

– V-6 –

GENERAL INFORMATION

APPENDIX V

• (c) Long positions in underlying Shares

		Number of Shares
		entitled pursuant	Number of Shares
		to the full exercise	entitled after
		of the Warrants	Completion and
		held as at the	allotment and issue
		Latest Practicable	of the Exchange
Name of Shareholders	Capacity	Date	Shares
Best Frontier	Beneficial owner	48,226,000	−
Investments Limited	(Note 1)
Oppenheimer	Investment manager	22,000,000	−
International Small		(Note 2)
Company Fund
Oppenheimer Funds,	Investment manager	22,000,000	−
Inc.		(Note 2)
Haven Associates	Interest in controlled	9,320,000	−
Limited	corporation	(Note 3)
Shaw Kyle Arnold	Interest in controlled	9,320,000	−
Junior	corporation	(Note 3)
Lo Wai Kwan Anna	Beneficial owner	1,378,000	−
Integrated Asset	Beneficial owner	4,196,000	−
Management
(Asia) Limited
Yam Tak Cheung	Interest in controlled	4,196,000	−
	corporation	(Note 4)
The Goldman Sachs	Interest in controlled	–	343,348,554
Group, Inc.	corporation		(Note 5)

Notes:

1. The 48,226,000 Warrants are owned by Best Frontier which is owned as to approximately 99.89% and approximately 0.11% by Madam Cheung Kwai Lan and Mr. Chan Tung Mei who are spouse to each other respectively.

2. Oppenheimer International Small Company Fund is managed by Oppenheimer Funds, Inc.

3. The 9,320,000 Warrants represent:

4. (a) 206,000 Warrants beneficially owned by Shaw, Kwei & Partners (Asia) Ltd.

5. (b) 4,924,000 Warrants beneficially owned by China Value Investment Limited which is wholly-owned by Asian Value Investment Fund L.P. (AVIF, L.P.), a limited liability partnership, whose general partner Shaw, Kwei & Partners (Asia) Ltd. (having an 1% interest in AVIF, L.P.) is deemed under the SFO to have interest in the same 4,924,000 Warrants.

6. (c) 4,190,000 Warrants beneficially owned by Javelin Capital Holdings Limited which is wholly-owned by Asian Value Investment Fund II, L.P. (AVIF II, L.P.) a limited liability partnership, whose general partner SKP Capital Limited (having an 1.19% interest in AVIF II, L.P.) is deemed under the SFO to have interest in the same 4,190,000 Warrants.

– V-7 –

APPENDIX V

GENERAL INFORMATION

• (d) Haven Associates Limited, a company controlled by Mr. Shaw Kyle Arnold Junior, is the controlling shareholder of Shaw, Kwei & Partners (Asia) Ltd. and SKP Capital Limited.

• Integrated Asset Management (Asia) Limited is 100% owned by Mr. Yam Tak Cheung. Accordingly, Mr. Yam Tak Cheung is deemed to be interested in the Warrants held by Integrated Asset Management (Asia) Limited.

• A maximum of 343,348,554 new Shares will be allotted and issued to Liberty Harbor upon its exercise of the exchange option under the Convertible Notes. Liberty Harbor is advised by GS Investment Strategies, LLC, a Delaware limited liability company, whose sole member is The Goldman Sachs Group, Inc., a Delaware corporation. Goldman Sachs International, an indirect subsidiary of The Goldman Sachs Group, Inc., is interested in 11,000 listed warrants of the Company. The ISIN of the listed warrants is KYG2159V1178 and the conversion ratio is 1:1.

• (d) Interest in other members of the Enlarged Group

				Approximate
				percentage of
				equity interest or
				shareholdings in
Other members of the Enlarged				the relevant
Group	Name of Shareholder			member
Cheerfull Group Holdings Limited	Xu	Ming		32.1%
Natural Lives Company Limited	Chan Kin Kee			40%
CNPC Huayau Cu Energy	Reliance Asia			30%
Investment Co., Limited	International Inc.
Harbin Longjiang Fengcai	Liu Ling			10%
Technology Co., Limited	(Heilongjiang Social			25%
	Welfare Lottery Issuing
	Centre)
Top Entrepreneur Profits Limited	Wong Kim Ket			12.5%
	Pentagon Agents		Limited 12.5%
Rapid Progress Profits Limited	Wong Kim Ket			12.5%
	Pentagon Agents		Limited 12.5%

Save as disclosed above, as at the Latest Practicable Date, so far as is known to the Directors or chief executives of the Company, there was no substantial shareholder of the Company (other than the Director or chief executive of the Company) who had interests or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO; or, had direct or indirect interests amounting to 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of the Company and/or any other member of the Enlarged Group, or were required, pursuant to section 336 of the SFO, to be entered in the register referred to therein.

– V-8 –

GENERAL INFORMATION

APPENDIX V

(iii) Interests of other persons in the Company

Save as disclosed above, as at the Latest Practicable Date, so far as is known to the Directors or chief executives of the Company, there was no person or company (other than a Director, chief executive or substantial shareholder of the Company) who had any interests or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, and recorded in the register required to be kept under section 336 of the SFO, and who were directly or indirectly deemed to be interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Enlarged Group.

4. SHAREHOLDINGS AND DEALINGS

(a) In relation to the Vendors

• (i) As at the Latest Practicable Date, the Company did not own or control any shares, convertible securities, warrants, options or derivatives of the respective Vendors (where applicable).

• (ii) As at the Latest Practicable Date, the interests of the Directors in the shares, convertible securities, warrants, options or derivatives of the Vendors (where applicable) which were required to be disclosed in this circular pursuant to the requirements of the Takeovers Code were as follows:

		Number of
	Name of	shares in the	Approximate
Directors	Vendor	Vendor	percentage
Cheung Kwai Lan	Best Frontier	909	99.89%
Chan Tung Mei	Best Frontier	1	0.11%

Save as disclosed above, no other Director was interested in the shares, convertible securities, warrants, options or derivatives of the Venders (where applicable).

• (iii) During the period starting six months prior to 17 January 2008 (being the date of the Announcement) and ending on the Latest Practicable Date (the “ Relevant Period ”):

• (A) the Company had not dealt for value in the shares, convertible securities, warrants, options or derivatives which carry voting rights of the Vendors (where applicable); and

• (B) no Director had dealt for value in the shares, convertible securities, warrants, options or derivatives which carry voting rights of the Vendors (where applicable).

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GENERAL INFORMATION

APPENDIX V

(b) In relation to the Company

• (i) Save as disclosed in the section headed “Disclosure of Interests” in this Appendix, none of the Vendors, their concert parties and any of their respective directors owned or controlled any shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date.

• (ii) Save as contemplated under the Share Purchase Agreement, none of the Vendors, their concert parties and any of their respective directors had dealt for value in any such securities referred to in (b)(i) above during the Relevant Period.

• (iii) Save as disclosed in the section headed “Disclosure of Interests” in this Appendix, none of the Directors was interested in any Shares, convertible securities, warrants, options or derivatives in respect of securities which carry voting rights of the Company as at the Latest Practicable Date.

• (iv) Save as contemplated under the Share Purchase Agreement, none of the Directors had dealt for value in any such securities referred to in (b)(iii) above during the Relevant Period.

• (v) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company, the Vendors or parties acting in concert with any of them or with any person who is an associate of the Company or of the Vendors by virtue of classes (1), (2), (3) and (4) of the definition of associate under the Takeovers Code.

• (vi) During the period starting six months prior to 17 January 2008 (being the date of the Announcement) and ending on the Latest Practicable Date:

• (A) none of the subsidiaries of the Company, nor any pension funds of the Group had dealt for value in or owned or controlled any shares, convertible securities, warrants, options or derivatives of the Company or any of its subsidiaries;

• (B) no fund manager connected with the Company had owned or managed any shares, convertible securities, warrants, options or derivatives of any member of the Group on a discretionary basis; and

• (C) none of the advisers to the Company as specified in class (2) of the definition of “associate” under the Takeovers Code had dealt for value in or owned or controlled any shares, convertible securities, warrants, options or derivatives of any member of the Group.

5. VOTING ON THE WHITEWASH WAIVER

• (a) As at the Latest Practicable Date, no person had, prior to the posting of this circular, irrevocably committed themselves to vote for or against the Whitewash Waiver.

– V-10 –

GENERAL INFORMATION

APPENDIX V

• (b) As at the Latest Practicable Date, Madam Cheung Kwai Lan and Mr. Lau Hin Kun were the only Directors who held Shares. Madam Cheung Kwai Lan will abstain from voting on the resolution to be proposed at the EGM to approve the Whitewash Waiver. Mr. Lau Hin Kun intends to vote in favour of the resolution to be proposed at the EGM to approve the Whitewash Waiver.

• (c) Shareholders other than the Independent Shareholders will abstain from voting at the EGM in respect of the resolution to approve the Whitewash Waiver in respect of such Shares. For the avoidance of doubt, on allotment and issue of the Exchange Shares to the Investors, they will be counted towards the public float of the Company

6. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation or arbitration of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Enlarged Group.

7. MARKET PRICES OF SHARES

The closing prices of the Shares quoted on the Stock Exchange (i) at the end of each of the calendar months during the period commencing the six months immediately preceding 17 January 2008, being the date of the Announcement and ending on the Latest Practicable Date; (ii) on the last trading day immediately before the publication of the Announcement (“Last Trading Day”); and (iii) on the Latest Practicable Date were as follows:

	Closing Price
Date	of the Share
	HK$
31 July 2007	0.72
31 August 2007	0.65
28 September 2007	0.62
31 October 2007	0.73
30 November 2007	0.86
31 December 2007	0.75
10 January 2008 (Last Trading Date)	0.82
31 January 2008	0.76
29 February 2008	0.76
Latest Practicable Date	0.80

The lowest and highest closing prices of the Shares as quoted on the Stock Exchange during the period commencing six months preceding 17 January 2008, being the date of the Announcement, and ending on the Latest Practicable Date were HK$0.455 on 17 August 2007, and HK$0.86 on 30 November 2007, respectively.

– V-11 –

GENERAL INFORMATION

APPENDIX V

8. DIRECTORS’ SERVICE CONTRACTS

Each of Madam Cheung Kwai Lan, Mr. Chan Tung Mei and Mr. Chan Ting has entered into a service contract with the Company for a term of three years from 18 October 2002, renewable automatically for successive terms of one year unless terminated by not less than six months’ notice in writing served by either party on the other. As these service contracts can be renewed automatically, they do not have an expiry date. Pursuant to the amendment letters issued by the Company to each of the above Directors dated 1 September 2007, with effect from 1 September 2007, the remuneration under their respective service contracts was adjusted. The particulars of these service contracts are as follows:

	Annual fixed
	remuneration	Annual fixed
	payable prior to	remuneration payable
Name of Directors	1 September 2007	since 1 September 2007
	HK$	HK$
Cheung Kwai Lan	1,950,000	3,900,000
Chan Tung Mei	650,000	1,300,000
Chan Ting	1,300,000	2,600,000

In addition, under the relevant service contracts with each of Madam Cheung Kwai Lan, Mr. Chan Tung Mei and Mr. Chan Ting:

• (i) after each completed year of service, the remuneration shall be increased at not less than 5% of the annual remuneration immediately prior to such increase for each corresponding relevant year provided that (I) the audited combined/consolidated profit before taxation, minority interest and extraordinary items (if any) of the Group (the “ Profit ”) for the first relevant financial year ending after the date thereof is not less than HK$12,000,000 and (II) the Profit for each of the following corresponding relevant financial years increases by not less than 10% of the annual Profit of the immediately preceding relevant financial year. Save as the abovementioned, remuneration of the Director may be increased at the discretion of the Board;

• (ii) for each completed year of service, a discretionary bonus as may be decided by the Board provided that the total amount of bonus payable to all the Directors for such year (if any) shall not be less than 10% of the Profit for the financial relevant year if the Profit for such financial year is not less than HK$12,000,000. Payment of such bonus shall be made on such date as the Board may resolve; and

• (iii) the Director may, at the discretion of the Board, be granted share options entitling the Director to subscribe for shares in the Company under any share option scheme from time to time adopted by the Company in accordance with the terms and conditions of such share option scheme.

– V-12 –

GENERAL INFORMATION

APPENDIX V

Save as disclosed above, there is no other material variable component of the remuneration under the respective service contracts of Madam Cheung Kwai Lan, Mr. Chan Tung Mei and Mr. Chan Ting. As at the Latest Practicable Date, no discretionary bonus had been paid to any Director.

Save as disclosed herein, as at the Latest Practicable Date:

• (i) there was no other existing or proposed service contract between any of the Directors and any member of the Enlarged Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation));

• (ii) none of the Directors had any service contract with the Company or any of its subsidiaries or associated companies (as defined in the Takeovers Code) in force which:

• (A) are continuous contracts with a notice period of 12 months or more;

• (B) are fixed term contracts with more than 12 months to run irrespective of the notice period; and

• (C) are continuous or fixed term contracts and have been entered into or amended within six months before the date of the Announcement.

9. INTERESTS IN CONTRACTS AND ASSETS OF THE ENLARGED GROUP

None of the Directors or the experts as stated in the section headed “Qualification and Consent of Experts” in this Appendix has any direct or indirect interest in any assets which have been acquired or disposed of by, or leased to, any member of the Enlarged Group or are proposed to be acquired or disposed of by, or leased to, any member of the Enlarged Group since 30 June 2007, the date to which the latest published audited consolidated financial statements of the Group were made up.

Save as disclosed herein, none of the Directors are materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Enlarged Group.

10. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or the management shareholders of the Company and their respective associates had any interest in a business which competes or may compete, directly or indirectly, with the business of the Group.

– V-13 –

GENERAL INFORMATION

APPENDIX V

11. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Enlarged Group after the date two years preceding 17 January 2008 (being the date of the Announcement) and up to the Latest Practicable Date and are, or may be, material:

• (a) the Share Purchase Agreement;

• (b) the Convertible Note Agreement;

• (c) the Convertible Notes;

• (d) the Birdview Share Charge;

• (e) an agreement dated 13 April 2006 entered into between Loyalion Limited and Hunan Friendship Apollo Company Limited in relation to the disposal by Loyalion Limited of a 20.83% equity interest in Your Mart Co. Ltd. for a consideration of RMB56,446,000;

• (f) an agreement dated 25 July 2006 entered into between Aptus, China Huayou Group Corporation and the State-owned Assets Supervision and Administration Committee of the People’s Government of Changde relating to the increase in the registered capital of Changde Huayou Gas Co. Ltd for the amount of approximately RMB131,707,900 (equivalent to approximately HK$127,877,000);

• (g) an agreement dated 25 July 2006 entered into between Aptus, China Huayou Group Corporation and Beijing Xin Hua Lian Gas Investment Co. Ltd relating to the increase in the registered capital of Hunan Huayou Natural Gas Transportation & Distribution Co., Ltd. for the amount of approximately RMB79,599,000 (equivalent to approximately HK$77,281,000);

• (h) an agreement dated 4 August 2006 entered into between Loyalion Limited and Davidson Agents Limited in relation to the disposal by Loyalion Limited of 55% and 100% equity interest in Wuhu Bee & Bee Natural Food Company Limited and Zhuhai Free Trade Zone Bee & Bee Natural Food Company Limited respectively for a combined consideration of HK$76,000,000; and

• (i) a bond purchase agreement dated 7 November 2006 entered into between Aptus and Evolution in relation to a HK$234,000,000 zero coupon secured convertible bonds due in 2011 with a step-up cash coupon in 2008 convertible into ordinary shares of Aptus.

– V-14 –

GENERAL INFORMATION

APPENDIX V

12. MATERIAL ADVERSE CHANGE

Save as disclosed herein, the Directors are not aware of any material adverse change in the financial position or trading position of the Group since 30 June 2007, being the date to which the latest published audited consolidated financial statements of the Group were made up.

13. QUALIFICATION AND CONSENT OF EXPERTS

The following are the qualifications of the experts who have been named in this circular or have given their opinions, letters or advices which are contained in this circular:

Name Qualification

Merrill Lynch a corporation licensed to carry on Type 1, 4, 6 and 7 regulated activities under the SFO and the financial adviser to the Company in respect of the Acquisition W.H. Tang & Partners Certified Public Accountants CPA Limited Somerley Somerley Limited, a corporation licensed to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO having CE registration number AAJ067 and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Share Purchase Agreement and all transactions contemplated thereunder and the Whitewash Waiver

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its opinion, letter or advice and/or all references thereto and to its name in the form and context in which they are respectively included.

As at the Latest Practicable Date, each of the above experts did not have (i) any shareholding, direct or indirect, in any member of the Enlarged Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group, or (ii) any interest, direct or indirect, in any assets which had been, since 30 June 2007, being the date of the latest published audited consolidated financial statements of the Company were made up, acquired or disposed of by or leased to any member of the Enlarged Group, or were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

– V-15 –

GENERAL INFORMATION

APPENDIX V

14. PROCEDURES FOR DEMANDING A POLL

Subject to the requirements under the GEM Listing Rules and pursuant to Article 80 of the Articles of Association of the Company, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands 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 duly demanded by:

• (a) the Chairman of the meeting; or

• (b) at least five members present in person or by proxy or, in the case of corporations, by their duly authoirsed representatives, and entitled to vote or who represent in the aggregate not less than one-tenth of the total voting rights of all members having the right to attend and vote at the meeting; or

• (c) any member or members present in person or by proxy or, in the case of corporations, by their duly authorised representatives, and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all shares conferring that right; or

• (d) if required by the GEM Listing Rules, any Director holding proxies if such aggregate proxies held individually or collectively by the Directors account for five (5) per cent or more of the total voting rights at that meeting, and if on a show of hands in respect of any resolution, the meeting votes in the opposition manner to that instructed in those proxies.

15. GENERAL

• (a) The registered office of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

• (b) The head office and principal place of business of the Company is at Room 2201, 22/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (c) The branch share registrar and transfer office of the Company is Tricor Standard Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (d) The address of Best Frontier is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands, and the directors of Best Frontier are Madam Cheung Kwai Lan and Mr. Chan Tung Mei.

• (e) The address of Mega Capital International Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands, and Mr. Wong Soraharjo is the sole director of Mega Capital International Limited.

– V-16 –

GENERAL INFORMATION

APPENDIX V

• (f) The address of Kiree Group Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands, and Mr. Lo Po Tong is the sole director of Kiree Group Limited.

• (g) The business address of Ms. Lo Wai Kwan Anna is Room 2201, 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (h) The address of Mr. Tang Ping Fai Rocky is G/F, 55 Fa Po Street, Village Garden, Kowloon Tong, Kowloon.

• (i) The address of Integrated Asset Management (Asia) Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands, and Mr. Yam Tak Cheung is the sole director of Integrated Asset Management (Asia) Limited.

• (j) The business address of Mr. Chan Ka Yin is Room 2201, 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (k) The address of Mr. Wong Sze Chuen is 28H, Tower 2, Nan Fung Plaza, Pui Shing Road, Tseung Kwan O, New Territories.

• (l) The compliance officer of the Company is Mr. Chan Ting.

• (m) The company secretary and qualified accountant of the Company is Mr. Kwan Yiu Ming, Patrick. Mr. Kwan holds a bachelor degree of commerce in accounting from the Curtin University of Technology in Australia. Mr. Kwan is a fellow member of Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.

• (n) The Company established an audit committee on 18 October 2002 with written terms of reference in compliance with Rules 5.28 to 5.29 of the GEM Listing Rules. Upon the appointment of Mr. Zhang Xiu Fu as an independent non-executive Director and a member of each of the audit committee and remuneration committee of the Company with effect from 25 January 2008, the audit committee of the Company comprises four independent non-executive Directors. The primary duties of the audit committee are to review the Company’s annual report and accounts, half-year reports and quarterly reports and to provide advice and comments thereon to the Board. The audit committee is also responsible for reviewing and supervising the financial reporting process and internal control procedures of the Group. The details of the members are as follows:

Mr. Tian He Nian, aged 67, an independent non-executive Director. He was the deputy head of the Department of United Front Work of the Central Government of the PRC from 1998 to 2003. He is the vice-chairman of China Overseas Association. He is also an independent non-executive director and audit committee member of Aptus. He joined the Group in November 2004.

– V-17 –

APPENDIX V

GENERAL INFORMATION

Mr. Zhao Zhi Ming, aged 65, an independent non-executive Director. He is the committee member of the Specialist Committee of the China Development Bank and the Professor of Liao Ning Technical University. After graduation from the University in 1965, he had worked for several governmental authorities of the PRC, such as Tianjin Government, National Energy Investment Company of the PRC and China Development Bank. Mr. Zhao had been engaged in the general management, investment, review and approval, and risk management of some sizable national infrastructure projects in the PRC. He has extensive knowledge of and experience in management, investment and capital markets. He is also an independent nonexecutive director and audit committee member of Aptus. He joined the Group in December 2005.

Mr. Zhang Xiu Fu, aged 73, was born in Haiyang, Yiantai, Shandong. He devoted himself to the Chinese Revolution in August 1948 and joined in the Communist Party in March 1950. He had served as the head of the municipal police of Hangzhou city, Zhejiang province, the chief officer of the provincial police of Zhejiang province, a member of the Communist Party’s Provincial Standing Committee in Zhejiang province and the secretary of the Political and Legislative Affairs Committee. He had also served as the commissar of the Chinese People’s Armed Police, the vice minister and the vice head of the party organization of the Chinese Ministry of Legislation, a representative of the Nine National People’s Congress, a member of the Legislation Committee of the National People’s Congress and the vice president of China Law Science Association. He currently serves as the president of the China Legal Aid Foundation. He is also an independent nonexecutive director and audit committee member of Aptus. He joined the Group in January 2008.

Mr. To Yan Ming, Edmond, aged 36, an independent non-executive Director. He holds a bachelor degree in commerce in accounting from Curtin University of Technology in Western Australia. He is a practicing accountant and presently the director of Fortitude C.P.A. Limited, Certified Public Accountants. He is a member of both the CPA Australia and Hong Kong Institute of Certified Public Accountants. He worked for one of the international accounting firms, Deloitte Touche Tohmatsu and has over 8 years of experience in auditing, accounting, flotation and taxation matters. He is also an independent non-executive director and audit committee member of Aptus. He joined the Group in January 2006. He was also appointed as the independent non-executive director of Century Sunshine Ecological Technology Holdings Limited on 30 August 2007. For the period from 19 December 2002 to 13 March 2005, he was an independent non-executive director for Rontex International Holdings Limited.

• (o) As at Latest Practicable Date, save as contemplated in the Share Purchase Agreement, there was no agreement, arrangement or understanding (including any compensation arrangement) between the Vendors or any of their concert parties and other persons in relation to the transfer, charge or pledge of the Consideration Shares and the Settlement Shares that may be allotted and issued to the Vendors under the Share Purchase Agreement.

– V-18 –

GENERAL INFORMATION

APPENDIX V

• (p) As at the Latest Practicable Date, there was no agreement or arrangement existed between any Director and any other person which is conditional on or dependent upon the outcome of the Whitewash Waiver or otherwise connected therewith.

• (q) No benefit will be given to any Director as compensation for loss of office or otherwise in connection with the Whitewash Waiver (other than statutory compensation).

• (r) As at the Latest Practicable Date, there was no agreement, arrangement to which the Vendors are the parties which relate to the circumstances in which they may or may not invoke or seek to invoke a condition to their offer and the consequences of its doing so, including details of any break fee payable as a result.

• (s) As at the Latest Practicable Date, save for the Share Purchase Agreement in which Madam Cheung Kwai Lan and Mr. Chan Tung Mei are interested, there was no material contract entered into by the Vendors in which any Director has a material personal interest.

• (t) As at the Latest Practicable Date, there was no agreement, arrangement or understanding (including any compensation arrangement) between the Vendors or any parties acting in concert with them and any of the Directors or recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Whitewash Waiver.

• (u) The English text of this circular shall prevail over the Chinese text in case of inconsistency.

16. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any weekday other than public holidays, up to and including the date of the EGM at (i) the principal place of business of the Company at Room 2201, 22/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, (ii) the website of the SFC at www.sfc.hk, and (iii) the Company’s website at www.cvg.com.hk:

• (a) the memorandum and articles of association of the Company;

• (b) the material contracts referred to in the paragraph headed “Material contracts” in this Appendix;

• (c) the undertaking dated 11 January 2008 issued by the Investors to Grand Promise;

• (d) the letter of recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out in this circular;

• (e) the letter from Somerley, the text of which is set out in this circular;

– V-19 –

GENERAL INFORMATION

APPENDIX V

• (f) the annual reports of the Company for each of the two financial years ended 30 June 2007;

• (g) the interim report of the Group for the six months ended 31 December 2007;

• (h) the accountants’ report of the Grand Promise Group, the text of which is set out in Appendix II to this circular;

• (i) the report in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;

• (j) the written consents referred to in the paragraph headed “Qualification and Consent of Experts” in this Appendix;

• (k) the service contracts referred to in the paragraph headed “Directors’ Service Contracts” in this Appendix; and

• (l) this circular.

– V-20 –

NOTICE OF EGM

APPENDIX VI

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8156)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of China Vanguard Group Limited (the “ Company ”) will be held at Room 2201, 22/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong on 3 April 2008 at 10:00 a.m. or any adjournment thereof to consider and, if thought fit, pass the following resolutions as ordinary resolutions (with or without modifications):

ORDINARY RESOLUTIONS

• (1) “ THAT

• (a) the sale and purchase agreement (the “ Share Purchase Agreement ”) dated 17 January 2008 entered into between the Company, as the purchaser and Best Frontier Investments Limited, Mega Capital International Limited, Kiree Group Limited, Ms. Lo Wai Kwan Anna, Mr. Tang Ping Fai Rocky, Integrated Asset Management (Asia) Limited, Mr. Chan Ka Yin and Mr. Wong Sze Chuen as the vendors (the “ Vendors ”) pursuant to which the Vendors have conditionally agreed to sell and the Company has conditionally agreed to acquire the entire issued share capital of Grand Promise International Limited (“ Grand Promise ”), details of the Share Purchase Agreement are set out in the circular of the Company dated 14 March 2008 (a copy of the Share Purchase Agreement and the circular have been produced to the EGM marked “A” and “B” respectively and initialled by the Chairman of the EGM for the purpose of identification) and the transactions contemplated thereunder are hereby approved, confirmed and ratified;

• (b) subject to the GEM Listing Committee of The Stock Exchange of Hong Kong Limited granting approval for the listing of, and permission to deal in, the Consideration Shares (as defined below) and the Settlement Shares (as defined below), the allotment and issue of 2,262,173,906 shares (the “ Consideration Shares ”) and 20,023,192 shares (the “ Settlement Shares ”) respectively of HK$0.01 each in the share capital of the Company be and are hereby approved; and

• (c) any director of the Company (the “ Director ”) be and is hereby authorised in his or her absolute discretion to exercise the authorities, powers and discretion on behalf of the board of Directors to deal with all matters and sign any ancillary documentation (whether with seal or not) in relation to and in connection with the Share Purchase Agreement and the transactions contemplated thereunder.”

* For identification purposes only

– VI-1 –

NOTICE OF EGM

APPENDIX VI

1. “ THAT

2. (a) subject to and conditional on the passing of ordinary resolution no. 1, the execution of the deeds of adherence (collectively, the “ Deeds of Adherence ”) by the Company on completion of the Share Purchase Agreement, pursuant to which the Company agrees, subject to the terms and conditions thereof, to be bound by the terms of the senior convertible redeemable notes both dated 30 November 2007 in the principal amount of US$25 million and US$10 million issued by Grand Promise respectively to Liberty Harbor Master Fund I, L.P. and Evolution Master Fund Ltd. Spc, Segregated Portfolio M, jointly and severally (to the extent practicable) with Grand Promise (copies of Deeds of Adherence have been produced to the EGM marked “C” and initialled by the Chairman of the EGM for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved;

3. (b) subject to and conditional on the passing of ordinary resolution no. 1 and the GEM Listing Committee of The Stock Exchange of Hong Kong Limited granting approval for the listing of, and permission to deal in, the Exchange Shares (as defined below), the allotment and issue of a maximum of 480,687,974 shares (the “ Exchange Shares ”) of HK$0.01 each in the share capital of the Company be and are hereby approved; and

4. (c) any Director be and is hereby authorised in his or her absolute discretion to exercise the authorities, powers and discretion on behalf of the board of Directors to deal with all matters and sign any ancillary documentation (whether with seal or not) in relation to and in connection with the Deeds of Adherence and the transactions contemplated thereunder.”

5. “ THAT

6. (a) subject to and conditional on the passing of ordinary resolution no. 1, the waiver (the “ Whitewash Waiver ”) granted or to be granted by the Executive Director of the Corporate Finance Division of the Securities and Futures Commission of Hong Kong and any delegate of such Executive Director pursuant to Note 1 on dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers in respect of the obligation on the part of the Vendors to make a mandatory general offer to the shareholders of the Company for all issued shares of the Company not already owned by them or parties acting in concert with any of them under Rule 26 of the Hong Kong Code on Takeovers and Mergers as a result of the allotment and issue of the Consideration Shares and the Settlement Shares be and is hereby approved; and

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NOTICE OF EGM

APPENDIX VI

• (b) any Director be and is hereby authorised in his or her absolute discretion to exercise the authorities, powers and discretion on behalf of the board of Directors to deal with all matters and sign any ancillary documentation (whether with seal or not) in relation to and in connection with the Whitewash Waiver.”

By order of the Board China Vanguard Group Limited Lau Hin Kun Executive Director

Hong Kong, 14 March 2008

Registered office: Head office and principal place of Cricket Square business in Hong Kong: Hutchins Drive Room 2201, 22nd Floor P.O. Box 2681 Hopewell Centre Grand Cayman KY1-1111 183 Queen’s Road East Cayman Islands Wanchai, Hong Kong

Notes:

• (1) A form of proxy for use at the EGM has been despatched to the shareholders of the Company together with a copy of this notice.

• (2) The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney authorised in writing, or if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorised to sign the same.

• (3) Any member of the Company entitled to attend and vote at the EGM shall be entitled to appoint another person (who must be an individual) as his proxy to attend and vote instead of him and a proxy so appointed shall have the same right as the member to speak at the EGM. On a poll, votes may be given either personally or by proxy. A proxy need not be a member of the Company. A member may appoint any number of proxies to attend in his stead at the EGM.

• (4) In order to be valid, the form of proxy, together with the power of attorney (if any) under which it is signed, or a notarially certified copy of such power or authority, must be delivered at the branch share registrar and transfer office of the Company in Hong Kong, Tricor Standard Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjourned meeting.

• (5) Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the EGM or any adjournment thereof and in such event, the instrument appointing a proxy shall be deemed to be revoked.

• (6) Where there are joint registered holders of any share, any one of such persons may vote at the EGM, either personally 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 EGM personally or by proxy, that one of the said persons so present being the most or, as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand on the register in respect of the relevant joint holding. Several executors or administrators of a deceased member in whose name any share stands shall for the purposes of the articles of association of the Company be deemed joint holders thereof.

As at the date of this notice, the executive Directors are Madam Cheung Kwai Lan, Mr. Chan Tung Mei, Mr. Chan Ting and Mr. Lau Hin Kun; and the independent non-executive Directors are Mr. Tian He Nian, Mr. Zhao Zhi Ming, Mr. Zhang Xiu Fu and Mr. To Yan Ming, Edmond.

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