Television Broadcasts Limited — Proxy Solicitation & Information Statement 2008

Jun 29, 2008

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold all your shares in China Conservational Power Holdings Limited (the “Company”), you should at once hand this circular to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) 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 circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase, or subscribe for the securities.

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• (Incorporated in the Cayman Islands with limited liability)

(Stock Code: 290)

  - **(1) VERY SUBSTANTIAL ACQUISITION**

  - **OF 51% OF THE ISSUED SHARE CAPITAL OF EXCALIBUR SECURITIES LIMITED**

  - **INVOLVING ISSUE OF CONVERTIBLE BONDS**

     - **(2) PLACING OF CONVERTIBLE BONDS**

• (3) PROPOSED INCREASE IN AUTHORIZED SHARE CAPITAL

• (4) PROPOSED ISSUE OF REMUNERATION SHARES AND REMUNERATION WARRANTS

• (5) REFRESHMENT OF EXISTING SCHEME MANDATE LIMIT AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial Adviser to the Company

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The notice convening the extraordinary general meeting of the Company to be held at Room 3503, 35th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong on 18 July 2008 at 11:30 a.m. (the “EGM”) is set out on pages 198 to 203 of this circular. A form of proxy for the EGM is enclosed with this circular of the Company. Whether or not you propose to attend the EGM, you are requested to complete the form of proxy and return the same to the Company’s branch share registrar in Hong Kong, Union Registrars Limited at Rooms 1901-02, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time appointed for the EGM. Completion and delivery of the form of proxy will not preclude you from attending and voting at the EGM if you so wish.

30 June 2008

CONTENTS

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
Appendix I	– Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
Appendix IIA	– Accountants’ Report of Excalibur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	144
Appendix IIB	– Financial information of Excalibur . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	147
Appendix IIC	– Management discussion and analysis of Excalibur. . . . . . . . . . . . . . . .	175
Appendix III	– Unaudited pro forma financial information of
	the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	178
Appendix IV	– General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	192
Notice of EGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	198

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DEFINITIONS

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

“Acquisition”	the sale and purchase of the Sale Shares pursuant to the
	S&P Agreement;
“Announcement”	an announcement of the Company dated 30 May 2008 in
	relation to, among other things, the Acquisition, the Placing
	and the issue of the Remuneration Shares and the
	Remuneration Warrants;
“Articles”	articles of association of the Company;
“Board”	the board of Directors;
“Business Day”	a day (except Saturday, Sunday or public holiday) on which
	banks in Hong Kong are generally open for business;
“Company”	China Conservational Power Holdings Limited, a company
	incorporated in Cayman Islands with limited liability and
	the Shares of which are listed on the Stock Exchange;
“Completion”	completion of the S&P Agreement;
“Completion Date”	date of completion of the S&P Agreement, being the date
	falling within 3 Business Days after all the conditions for
	the Acquisition (other than conditions (g), (h) and (i) as set
	out in the section headed “The Acquisition – Conditions”
	above) have been fulfilled or waived or at such other time
	as the Vendor and the Purchaser may agree in writing;
“Consideration”	HK$20 million, being the consideration payable by the
	Purchaser to the Vendor for the Sale Shares, which shall be
	satisfied by the issue of the Consideration CB by the
	Company to the Vendor on Completion;
“Consideration CB”	the zero coupon convertible notes due three years from the
	date of issue for a principal amount of HK$20 million;

– 1 –

DEFINITIONS

“Consideration Conversion Price” initial conversion price of HK$0.10 per Consideration Conversion Share (subject to usual anti-dilution adjustments in certain events such as, consolidations or subdivisions of shares, capitalization issue, capital distributions, rights issues and other equity or equity derivatives issue. Provided that no adjustment shall be made which would result in the conversion price being reduced so that on conversion, Shares would fall to be issued at a discount to their nominal value, and in such case an adjustment shall be made to the effect that the conversion price shall be reduced to the nominal value of the Shares);

“Consideration Conversion Shares” new Shares falling to be allotted and issued upon exercise of the conversion rights attached to the Consideration CB;

“CSCPL” China Sciences Conservational Power Limited, a company incorporated in Hong Kong with limited liability and the shares of which are listed on the Stock Exchange; “Directors” the directors of the Company;

“EGM” an extraordinary general meeting of the Company to be convened and held to approve inter alia, among other things, the S&P Agreement and the transactions contemplated thereunder, the Placing Agreement and the transactions contemplated thereunder, the issue of the Remuneration Shares and the Remuneration Warrants, and the increase in authorized share capital of the Company;

• “Enlarged Group” the Group immediately after Completion;

• “Excalibur” Excalibur Securities Limited, a company incorporated in Hong Kong with limited liability;

“Exchange Participant” has the meaning given to it under the Listing Rules and “Exchange Participantship” shall be construed accordingly;

– 2 –

DEFINITIONS

“Existing Scheme Mandate Limit”	the total number of shares of the Company which may be
	issued upon exercise of all options granted and to be granted
	under the Share Option Scheme, which must not exceed
	10% of the Shares in issue as at the date of passing the
	relevant resolution at the extraordinary general meeting of
	the Company held on 18 March 2005;
“Group”	the Company and its subsidiaries;
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC;
“HTH Capital”	Hong Tong Hai Capital Limited, a wholly-owned subsidiary
	of the Company, which was previously engaged in the
	business of money lending;
“HTH Securities”	Hong Tong Hai Securities Limited, a wholly-owned
	subsidiary of the Company engaging in the business of
	securities brokering and margin financing;
“Incident”	the arrest of three former Directors by the Independent
	Commission Against Corruption for the alleged
	misappropriation of funds from the Company on 29
	September 2005;
“Independent Third Party(ies)”	third party(ies) independent of the Company and connected
	persons (as defined under the Listing Rules) of the Company
	and are not connected persons (as defined under the Listing
	Rules) of the Company;
“Last Trading Day”	28 September 2005, being the last trading day before the
	publication of the Announcement;
“Latest Practicable Date”	27 June 2008, being the latest practicable date prior to the
	printing of this circular for inclusion of certain information
	in this circular;
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange;
“Long Stop Date”	31 July 2008;

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DEFINITIONS

“Mr. Wong”	Mr. Wong Hin Shek, the controlling shareholder and
	managing director of Veda Capital;
“Options”	options granted or to be granted under the Share Option
	Scheme;
“Option Shares”	11,700,000 Shares to be allotted and issued upon exercise
	in full of all the outstanding Options as at the Latest
	Practicable Date;
“Placing”	placing of the Placing CB by the Placing Agent pursuant to
	the Placing Agreement;
“Placing Agent”	Kingston Securities Limited;
“Placing Agreement”	the conditional placing agreement dated 27 February 2008
	(as amended on 30 May 2008) and entered into between
	the Company and the Placing Agent in relation to the
	Placing CB;
“Placing CB”	the zero coupon convertible notes in principal amount of
	HK$50 million due in three years from the date of issue to
	be issued by the Company pursuant to the Placing
	Agreement;
“Placing Conversion Price”	initial conversion price of HK$0.10 per Placing Conversion
	Share (subject to usual anti-dilution adjustments in certain
	events such as, consolidations or subdivisions of shares,
	capitalization issue, capital distributions, rights issues and
	other equity or equity derivatives issue. Provided that no
	adjustment shall be made which would result in the
	conversion price being reduced so that on conversion, Shares
	would fall to be issued at a discount to their nominal value,
	and in such case an adjustment shall be made to the effect
	that the conversion price shall be reduced to the nominal
	value of the Shares);
“Placing Conversion Shares”	new Shares falling to be allotted and issued upon exercise
	of the conversion rights attached to the Placing CB;
“Preference Shares”	80,000,000 non-voting cumulative redeemable convertible
	preference shares of CSCPL in the principal amount of
	HK$60,800,000

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DEFINITIONS

“Purchaser” Yew Sang Hong Investment Services Limited, a company incorporated in the British Virgin Islands and a whollyowned subsidiary of the Company;

“PRC” People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan;

“Refreshed Scheme Mandate Limit” the proposed refreshment of the Existing Scheme Mandate Limit at the EGM pursuant to which the Board may grant options to eligible participants under the Share Option Scheme of the Company to subscribe for up to 10% of the Shares in issue as at the date of the EGM;

“Remuneration Shares” such number of new shares of the Company equivalent to 1% of the enlarged issued share capital of the Company upon exercise/conversion in full of all the existing convertible securities of the Company and the issue of, conversion and exercise of all securities and convertible securities of the Company pursuant to the resumption proposal (currently such number of shares is estimated to be approximately 12,000,000) at an issue price of HK$0.10 per new share to Veda Capital (or its nominee(s)) upon the approval by the Stock Exchange on the resumption of trading in the shares of the Company;

“Remuneration Warrants” such number of warrants of the Company equivalent to 1% of the enlarged issued share capital of the Company upon exercise/conversion in full of all the existing convertible securities of the Company and the issue of, conversion and exercise of all securities and convertible securities of the Company pursuant to the resumption proposal (currently such number of warrants is estimated to be approximately 12,000,000) at an issue price of HK$0.10 per new share to Veda Capital (or its nominee(s)) upon the approval by the Stock Exchange on the resumption of trading in the shares of the Company, which entitle Veda Capital (or its nominee(s)) to subscribe for the same number (currently such number of shares is estimated to be approximately 12,000,000) of new shares of the Company at the exercise price of HK$0.10 per share (subject to adjustments), at any time between the date of issue of the Remuneration Warrants and 36 months thereafter;

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DEFINITIONS

“Sale Shares”	a total of 10,200,000 shares of Excalibur, which represents
	51% of the issued share capital of Excalibur;
“Share Option Scheme”	the share option scheme of the Company approved and
	adopted by the Shareholders on 12 February 2003 and is
	valid and effective for a period of 10 years after the date of
	adoption;
“SFC”	Securities and Futures Commission;
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws
	of Hong Kong);
“Share(s)”	share(s) of HK$0.10 each in the capital of the Company
	existing on the Latest Practicable Date and all other (if
	any) stock or shares from time to time and for the time
	being ranking pari passu therewith and all other (if any)
	shares or stock resulting from any sub-division,
	consolidation or re-classification thereof;
“Shareholder(s)”	holder(s) of the Shares;
“S&P Agreement”	the sale and purchase agreement dated 27 February 2008
	(as amended on 30 May 2008) entered into between the
	Vendor and the Purchaser in relation to the Acquisition;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“Trading Right”	the exchange trading right of the Stock Exchange legally
	and beneficially owned by Excalibur;
“Veda Capital”	Veda Capital Limited, a corporation licensed under the SFO
	to engage in type 6 (advising on corporate finance) regulated
	activity, being the financial adviser to the Company;
“Vendor”	Mr. Lao Chio Kuan;
“Warrant Shares”	12,000,000 new Shares to be allotted and issued upon
	exercise in full of the Remuneration Warrants;
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong;
“%”	per cent.

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LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 290)

Executive Directors:

Mr. Sun Tak Yan, Desmond (Chairman) Mr. Ng Cheuk Fan, Keith (Managing Director) Mr. Yeung Kwok Leung

Registered office:

P.O. Box 309, Ugland House South Church Street George Town, Grand Cayman Cayman Islands, British West Indies

Independent Non-executive Directors:

Mr. Ng Kay Kwok Mr. Tam B Ray Billy Mr. Lam Ka Wai, Graham

Head office and principal place of business in Hong Kong: 1702-3, 17th Floor Skyline Commercial Centre 71-77 Wing Lok Street Sheung Wan, Hong Kong

30 June 2008

To the Shareholders

Dear Sirs or Madams,

(1) VERY SUBSTANTIAL ACQUISITION OF 51% OF THE ISSUED SHARE CAPITAL OF EXCALIBUR SECURITIES LIMITED INVOLVING ISSUE OF CONVERTIBLE BONDS

(2) PLACING OF CONVERTIBLE BONDS (3) PROPOSED INCREASE IN AUTHORIZED SHARE CAPITAL

(4) PROPOSED ISSUE OF REMUNERATION SHARES AND REMUNERATION WARRANTS AND

(5) REFRESHMENT OF EXISTING SCHEME MANDATE LIMIT

INTRODUCTION

Reference is made to the Announcement in relation to, among other things, (i) the entering into of the S&P Agreement (as amended on 30 May 2008) between the Vendor and the Purchaser, pursuant to which the Vendor agreed to sell or procure the sale to the Purchaser and the Purchaser agreed to purchase the Sale Shares at HK$20 million. The Consideration will be settled by way of the Company issuing upon Completion the Consideration CB for a principal amount of HK$20 million to the Vendor; (ii) the placing of the Placing CB in the amount of HK$50 million; (iii) the

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LETTER FROM THE BOARD

proposed increase in the authorized share capital of the Company from HK$100 million divided into 1,000,000,000 ordinary Shares of HK$0.10 each to HK$500 million divided into 5,000,000,000 ordinary Shares of HK$0.10 each; and (iv) the proposed issue of the Remuneration Shares and the Remuneration Warrants to Veda Capital.

According to the Listing Rules, the entering into of the S&P Agreement constitutes a very substantial acquisition for the Company under chapter 14 of the Listing Rules. The Company will seek the approval of its Shareholders at the EGM to be convened and held by the Company to approve the S&P Agreement and the transactions contemplated thereunder including the allotment and issue of the Consideration Conversion Shares upon conversion of the Consideration CB. The issue of the Placing Conversion Shares upon the conversion of the Placing CB will be made under a specific mandate which will be subject to the approval of the Shareholders at the EGM. The Remuneration Shares and the Warrant Shares will be issued and allotted under specific mandates proposed to be sought from the Shareholders at the EGM. The issue of the Remuneration Shares and Remuneration Warrants are subject to Shareholders’ approval at the EGM.

The purpose of this circular is to provide the Shareholders with, among other things, (i) further details of the Acquisition; (ii) the accountants’ report of Excalibur; (iii) pro forma financial information of the Enlarged Group; and (iv) a notice of the EGM for the purpose of, among other things, approving the Acquisition, the Placing, the issue of the Remuneration Shares and the Remuneration Warrants, the increase in authorized share capital and refreshment of Existing Scheme Mandate Limit in accordance with the Listing Rules.

THE ACQUISITION

Date: 27 February 2008 (as amended on 30 May 2008) Parties: (1) The Vendor (2) The Purchaser

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LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiry, the Vendor is an Independent Third Party. The Vendor is a businessman with investment in land and building. The Vendor was introduced to the Directors through a director of Excalibur. According to the information provided by the Vendor, currently Excalibur is owned by Pioneer (China) Limited (“Pioneer”), which in turn is owned as to approximately 50.92% by the Vendor and as to the remaining approximately 49.08% by an Independent Third Party (the “Other Pioneer Shareholder”). The Vendor and the Other Pioneer Shareholder, together being interested in 100% of the issued share capital of Pioneer, had an arrangement in place and had given a written confirmation on the transfer of 51% of the issued share capital of Excalibur to the Purchaser upon Completion, i.e. approximately 25.97% and approximately 25.03% of the attributable interests in Excalibur will be disposed of by the Vendor and the Other Pioneer Shareholder respectively through Pioneer to the Purchaser upon Completion. The Vendor and the Other Pioneer Shareholder also confirmed that the Consideration CB (please refer to the section headed “The Consideration CB” below for details) would only be issued to the Vendor by the Company upon Completion.

Subject matter:

Conditions:

The Vendor has agreed to sell or procure the sale and the Purchaser has agreed to purchase the Sale Shares at HK$20 million.

Completion of the S&P Agreement is conditional on the following conditions being fulfilled or waived (1) on or before the Long Stop Date (or such later date as the Vendor and the Purchaser may agree), as to the following conditions other than conditions (g), (h) and (i); and (2) on the Completion Date, as to conditions (g), (h) and (i):

• (a) the result of a legal and financial due diligence exercise to be carried out by the Purchaser on Excalibur (including but not limited to the recoverability of account receivables, the assets, liabilities and business of Excalibur and in relation thereto on the books, records, constitutional documents, contracts, accounting records and any other documents relating to Excalibur) being satisfactory to the Purchaser (in its absolute discretion) and written notice to that effect having been given to the Vendor;

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LETTER FROM THE BOARD

• (b) all necessary consents, confirmations, permits, approvals, licences and authorisations having been obtained from all relevant governmental, regulatory and other authorities, agencies and departments in Hong Kong (including but not limited to the SFC and the Stock Exchange) in connection with the transactions contemplated under the S&P Agreement, the implementation of and all other matters incidental to the S&P Agreement (including the non-revocation of the Trading Right and the Exchange Participantship held by Excalibur as a result of the transactions contemplated under the S&P Agreement and all the conditions and requirements as the SFC and the Stock Exchange shall stipulate in relation to the Trading Right and the Exchange Participantship held by Excalibur respectively having been duly complied with);

• (c) the passing by the Shareholders in general meeting of the necessary resolutions approving the increase of the authorized share capital of the Company to HK$500 million divided into 5,000,000,000 Shares;

• (d) the Stock Exchange having agreed in principle for the resumption of trading in the Shares on the Stock Exchange, either unconditionally or subject to conditions to which neither the Vendor nor the Company reasonably objects and such conditions (if any) having been satisfied;

• (e) (i) the passing by the Shareholders in general meeting of the necessary resolutions approving the S&P Agreement, the issue of the Consideration CB and the Consideration Conversion Shares, and other transactions contemplated in or incidental to the S&P Agreement in accordance with the Listing Rules; and

• (ii) the Stock Exchange having granted approval for the issue, listing of and permission to deal in the Consideration Conversion Shares either unconditionally or subject to conditions to which neither the Vendor nor the Company reasonably objects and such conditions (if any) having been satisfied;

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LETTER FROM THE BOARD

• (f) all other necessary waivers, consents and approvals (if required) in relation to the Purchaser, its holding company(ies) and its (their) shareholders and directors from the relevant governmental or regulatory authorities in Hong Kong (including the Stock Exchange) and other applicable jurisdictions required for the S&P Agreement, the increase in authorised share capital of the Company and the transactions contemplated therein being obtained;

• (g) all warranties remaining true and accurate as at Completion and the Vendor shall have performed or complied, in all material respects, with its covenants and agreements contained herein and required to be performed or complied with by the Vendor at or prior to the Completion Date;

• (h) the completion of the unaudited balance sheet of the Company as at the Completion Date, which shall not be objected by the Purchaser in its absolute discretion (for which the Vendor shall provide promptly explanations (where applicable, with documentary support) in respect of questions or queries the Purchaser may have thereon); and

• (i) the Placing Agreement becoming unconditional and Completion takes place simultaneously with completion of the Placing Agreement.

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LETTER FROM THE BOARD

Consideration:

The Consideration was determined after arm’s length negotiation between the Vendor and the Purchaser and the basis of determining and arriving at the Consideration was by making reference of the unaudited financial position and performance of Excalibur for the year ended 31 December 2007 to market comparables of price earnings ratios and price to book ratios of securities companies listed on the Stock Exchange. The Board has also considered the future prospects of Excalibur to the Company as a whole as set out in the section headed “Reasons for and benefits of the Acquisition”. Based on the unaudited financial statements of Excalibur for the year ended 31 December 2007 and the Acquisition of 51% of Excalibur, the Consideration represents a price earnings multiple of approximately 7.2 times and a price to book ratio of approximately 1.31 times. The price earnings ratios of the listed securities companies in Hong Kong ranged from approximately 4.23 times to 30.84 times with an average of approximately 19 times as at the date of the S&P Agreement whereas the price to book ratios of the listed securities comparables in Hong Kong ranged from approximately 0.98 times to approximately 4.20 times with an average of approximately 1.81 times as at the date of the S&P Agreement.

The Consideration shall be HK$20,000,000, which shall be satisfied by the issue of the Consideration CB by the Company to the Vendor on Completion.

Completion: Completion of the Acquisition is expected to take place on the third Business Day after all the conditions (other than conditions (g), (h) and (i)) set out above have been fulfilled or at such other date as the Vendor and the Purchaser may agree. As at the Latest Practicable Date, none of the conditions under the S&P Agreement has been fulfilled. After Completion, Excalibur will become a non-wholly owned subsidiary of the Company. The financial statements of Excalibur will be consolidated in the accounts of the Group after Completion.

The Company has no current intention to appoint or propose the Vendor or any of his associates to be a director of the Company or any of its subsidiaries, including Excalibur which would become a subsidiary of the company upon Completion.

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LETTER FROM THE BOARD

The Consideration CB

The following is a summary of the key terms of the Consideration CB: Issuer: the Company Initial noteholder: the Vendor Amount: HK$20 million Issue price: 100% of the principal amount of the Consideration CB Interest rate: 0% Conversion: Noteholders have the right to convert on any Business Day from the date of issue of the Consideration CB but prior to 5 Business Days prior to the maturity date, the whole or any part(s) of the principal amount of the Consideration CB provided that such part of the principal amount of the Consideration CB to be converted shall not be less than HK$100,000 at any one time (save that if at any time the principal outstanding amount shall be less than HK$100,000, the whole (but not part only) of the principal amount of the Consideration CB may be converted)

Redemption: Unless previously converted, the Consideration CB shall be redeemed by the Company at it principal amount outstanding on the maturity date of the Consideration CB Maturity date: The date falling on the third anniversary of the date of issue of the Consideration CB

• Consideration HK$0.10 per Consideration Conversion Share, subject to Conversion Price: adjustments in each of the following cases (details provisions are set out in the terms and conditions of the Consideration CB):

• (a) an alteration of the nominal amount of the Shares by reason of any consolidation or subdivision;

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LETTER FROM THE BOARD

• (b) an issue (other than in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);

• (c) a capital distribution being made by the Company, whether on a reduction of capital or otherwise, to the Shareholders in their capacity as such or rights being granted to Shareholders to acquire for cash assets of the Group;

• (d) an offer or grant being made by the Company to the Shareholders by way of rights or of options or warrants to subscribe for or purchase Shares at a price which is less than 90% of the market price;

• (e) an issue wholly for cash being made by the Company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares, if in any case the total effective consideration per Share initially receivable for such securities is less than the greater of either 90% of the market price or the Consideration Conversion Price in effect, or the terms of any such rights of conversion or exchange or subscription attached to any such securities being modified so that the said total effective consideration per Share initially receivable for such securities is less than the greater of either 90% of the market price or the Consideration Conversion Price in effect;

• (f) an issue being made by the Company wholly for cash of Shares (other than Shares issued pursuant to an employee share option scheme of the Company) at a price per Share less than the greater of either 90% of the market price or the Consideration Conversion Price in effect; and

• (g) an issue being made by the Company of Shares for the acquisition of asset at a total effective consideration per Share less than the greater of either 90% of the market price or the Consideration Conversion Price in effect.

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LETTER FROM THE BOARD

The Consideration Conversion Price shall not be adjusted to below the nominal value of a Share from time to time.

The Consideration Conversion Price represents:

• (i) a discount of approximately 67.21% to the closing price of HK$0.305 per Share as quoted on the Stock Exchange on the Last Trading Day;

• (ii) a discount of approximately 67.85% to the average of the closing prices of approximately HK$0.311 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to the Last Trading Day;

• (iii) a premium of approximately 105.76% over the unaudited consolidated net asset value of the Company per Share of approximately HK$0.0486 as at 30 September 2007;

• (iv) the nominal price of the Share of HK$0.10 each; and

• (v) the Placing Conversion Price.

The Board noted that the Shares had been suspended for almost 30 months since 29 September 2005 and with the tight financial position that the Company is facing, the Company has, upon arm’s length negotiation, agreed with the Vendor that the Consideration Conversion Price should represent a substantial discount to the closing price before suspension of the Shares so that the Consideration could be settled in full by issuing the Consideration CB to relief cashflow pressure on the Group while ascertaining the Acquisition.

Transferability:

The Consideration CB or any part(s) thereof may be assigned or transferred only with the prior written consent of the Company and subject to compliance of the conditions thereunder and further subject to the conditions, approvals, requirements and any other provisions of or under:–

• (a) the Stock Exchange (and any other stock exchange on which the Shares may be listed at the relevant time) or their rules and regulations;

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LETTER FROM THE BOARD

• (b) the approval for listing in respect of the Consideration Conversion Shares; and

• (c) all applicable laws and regulations.

If the Consideration CB or any part(s) thereof shall be transferred to any company or other person which is a connected person of the Company, the Company shall promptly notify the Stock Exchange.

Voting: Noteholders shall not be entitled to receive notices of, attend or vote at any meetings of the Company by reason only of it being the noteholders.

Ranking:

The Consideration CB will rank pari passu with all other present and future unsecured and un-subordinated obligations of the Company except for obligations accorded preference by mandatory provisions of applicable laws.

The Consideration Conversion Shares to be issued as a result of the exercise of the conversion rights attached to the Consideration CB will rank pari passu in all respects with all other Shares in issue at the date on which the conversion rights attached to the Consideration CB are exercised.

Limitation on conversion:

No conversion of the Consideration CB shall be made, if immediately upon such conversion, (1) the Vendor and/or parties acting in concert (as defined under the Takeovers Code) with the Vendor will be interested in 30% (or such amount as may from time to time specified in the Takeovers Code as being the level for triggering a mandatory general offer) or more of the then enlarged issued share capital of the Company or will be under an obligation to make a general offer under the Takeovers Code; or (2) the public float of the Company falls below 25% of the issued share capital of the Company.

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LETTER FROM THE BOARD

Events of Default:

The Consideration CB contains customary events of default provisions. Upon the happening of an event of default, noteholder(s) representing not less than 75% of the principal amount of the Consideration CB outstanding may give notice to the Company declaring the Consideration CB to be immediately due and payable.

For illustration purpose only, the 200,000,000 Consideration Conversion Shares to be issued under the Consideration CB represents approximately 43.10% of the existing issued share capital of the Company, approximately 30.12% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Conversion Shares, assuming full conversion of the Consideration CB and the Consideration Conversion Shares were to be issued at the Consideration Conversion Price and approximately 17.18% of the issued share capital of the Company as enlarged by the allotment and issue of both the Consideration Conversion Shares and the Placing Conversion Shares, assuming full conversion of the Consideration CB and the Placing CB and the Consideration Conversion Shares were to be issued at the Consideration Conversion Price and the Placing Conversion Shares were to be issued at the Placing Conversion Price.

Notwithstanding the conversion rights attached to the Consideration CB, the terms of the Consideration CB provide that noteholders shall not convert the Consideration CB if as a result thereof, (i) the Vendor and parties acting in concert with it, will be interested in 30% (or such amount as may from time to time be specified in the Code as being the level for triggering a mandatory general offer) or more of the then enlarged issued share capital of the Company after such conversion; and/or (ii) the public float of the Company will be less than 25% of the issued share capital of the Company. Therefore, no Consideration Conversion Shares will be allotted and issued to the noteholders in respect of any breach of the above restrictions. The Company will closely monitor the shareholding level of the Vendor in the Company and the public float of the Company so that the Company will not issue or allot Consideration Conversion Shares if such issue or allotment will breach the above restrictions. In the S&P Agreement, the Vendor further acknowledged and agreed that he will not exercise the conversion rights under the Convertible Bonds such that his shareholding in the Company (together with the shareholding of parties acting in concert with him) will equal to or exceed 30% following such conversion. In the event that any noteholder of the Consideration CB is restricted from converting certain portion the Consideration CB from time to time, such portion of the Consideration CB will need to be held until, the latest, maturity of the Consideration CB and upon which the Company will redeem such portion at its principal amount outstanding.

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LETTER FROM THE BOARD

Applications for Listing

No application will be made by the Company to the Listing Committee for the listing of the Consideration CB. Application will be made by the Company to the Listing Committee for the listing of, and permission to deal in, the Consideration Conversion Shares. Shareholders should note that the listing approval for the issue, listing of and permission to deal in the Consideration Conversion Shares, which is subject to the resumption of the trading in the Shares on the Stock Exchange may or may not be granted by the Stock Exchange.

Information on the Group

The Group is principally engaged in (i) electrical engineering contracting; (ii) sale of electrical goods; and (iii) securities brokerage and financing.

The Group’s securities brokerage and margin financing business is currently carried under a wholly owned subsidiary of the Company, namely HTH Securities, which is engaged in securities brokerage and margin financing business and is a licensed corporation under the SFO permitted to engage in type 1 regulated activity (dealing in securities). Prior to 19 September 2006, the Group’s securities brokerage and financing business also included turnover from another wholly owned subsidiary, namely HTH Capital, which was engaged in money lending business (but not in the securities brokerage and margin financing business at all). The money lender licence of HTH Capital expired on 15 June 2006 and had not been renewed. Since then, the securities brokerage and margin financing business of the Group continues to be carried under HTH Securities. Turnover from securities brokerage and financing business accounted for approximately 33.97%, approximately 32.90% and approximately 79.6% of the total turnover of the Group for the two years ended 31 March 2006 and 2007 and six months ended 30 September 2007 respectively. As reflected from the turnover from securities brokerage and financing business of the Group for the year ended 31 March 2007 and the six months ended 30 September 2007, termination of the money lending business carried under HTH Capital did not have material negative impact on the securities business of the Group.

Currently, the Group does not intend to put in extra resources for its other existing principle businesses, namely electrical engineering contracting and sale of electrical goods business. The Group has no current intention to cease and/or terminate its other existing principle businesses. The Directors confirm that the existing senior management with expertise in engaging in the businesses of electrical engineering contracting and sale of electrical goods has been retained at the relevant operating subsidiaries of the Company. Turnover from electrical engineering contracting and sale of electrical goods business accounted for approximately 66.0%, approximately 67.1% and approximately 20.4% of the total turnover of the Group for the two years ended 31 March 2006 and 2007 and six months ended 30 September 2007 respectively.

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LETTER FROM THE BOARD

Information on Excalibur

Excalibur (formerly known as Bonche Limited) was incorporated in Hong Kong in 1992 and is principally engaged in securities brokerage and margin financing. Excalibur is an Exchange Participant and a licensed corporation under the SFO permitted to engage in type 1 regulated activity (dealing in securities) and is in line with the securities business of the Group.

As at 31 December 2007, Excalibur had an audited net assets value of approximately HK$30.05 million. The following table shows certain audited financial information of Excalibur for the two years ended 31 December 2006 and 2007:

	Year ended	Year ended
	31 December	31 December
	2006	2007
	(audited)	(audited)
	HK$’000	HK$’000
Turnover	14,674	12,798
Net profit/(loss) before taxation and extraordinary items	2,643	6,834
Net profit/(loss) after taxation and extraordinary items	2,472	5,675

Upon Completion, Excalibur will become a non-wholly owned subsidiary of the Company and its financial results will be consolidated with those of the Group.

Reasons for and benefits of the Acquisition

The Acquisition of the majority interest in Excalibur is in line with one of the existing principal businesses of the Group, i.e. securities brokerage and financing business through HTH Securities so that the Acquisition will enhance the Group’s portfolio of securities brokerage business by strengthening the income flow, enhancing the operation level and increasing the client base of the Group. The Directors are of the view that the Chinese economy will remain relatively intact and valuations of local blue chips and quality second-liners remain in demand while China stock are still attractive with a longer investment perspective given the corporate reform and the underlying economic strength and the imminent influx of capital from the PRC will be a driver for activity in the local securities market and thus is positive on the future prospects of Excalibur. By effecting the Acquisition, the Directors consider that income from securities brokerage and margin financing of Excalibur will provide an additional flow of income stream to the Group, enhance the operation level and expand the scale of business of the Group within a shorter period versus the organic growth of HTH Securities. Given there will be no immediate impact on the cash outflow to the Company from the Acquisition as the Consideration will be payable by way of issuance of the Consideration CB. The Group also expects to apply HK$15 million of the proceeds of the Placing CB for the expansion of margin financing business of HTH Securities (please also refer to the

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section headed “Use of proceeds of the Placing CB” below). The Directors consider that the Acquisition is an appropriate strategic expansion and beneficial to the Group given the current tight financial position of the Group. The Directors consider that the Acquisition was entered into under normal commercial terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

After the Acquisition, the Group will focus on the development of its business in securities brokerage and margin financing. The Directors will continually be actively seeking for investment opportunities of the Group. While keeping abreast with the core businesses of the Group, the Directors would look into investments in order to increase the value of the Company, which is in the interests of the Company and the Shareholders as a whole.

Future plans and prospects

The Group is principally engaged in (i) electrical engineering contracting; (ii) sale of electrical goods; and (iii) securities brokerage and financing. After the Acquisition, the Group will focus on the development of its business in securities brokerage and margin financing. With the additional funding of approximately HK$15 million from the proceeds of the Placing CB, the Company will opt to further develop the margin financing business which in turn will also enhance the securities brokerage business of the Enlarged Group. The strengthened financial position of and the availability with more financial resources available to the Enlarged Group would make the Enlarged Group available as placing agent and underwriter to more fundraising exercises and of larger sizes of its listed clients. The Directors will continually be actively seeking for investment opportunities of the Group. While keeping abreast with the core businesses of the Group, the Directors would look into investments in order to increase the value of the Company, which is in the interests of the Company and the Shareholders as a whole.

Financial effects of the Acquisition

The consideration for the Sale Shares is HK$20 million, which shall be satisfied by the issue of the Consideration CB by the Company to the Vendor on Completion.

Upon Completion, Excalibur will become a non-wholly owned subsidiary of the Company and the financial results of Excalibur will be consolidated with those of the Group.

Net assets

The audited consolidated net assets of the Group as at 31 March 2007, as extracted from the annual report of the Company for the year ended 31 March 2007 was approximately HK$26,863,000. As set out in Appendix III to this circular, assuming Completion had taken place on 31 March 2007, the unaudited pro forma net assets of the Enlarged Group would have been increased to approximately HK$48,980,000.

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LETTER FROM THE BOARD

Earnings

Following the Completion, Excalibur will become a non-wholly owned subsidiary of the Company and the Group will be able to consolidate revenue from the securities brokerage and financing business from Excalibur. The audited net loss for the year ended 31 March 2007 as extracted from the annual report of the Group was approximately HK$13,230,000. According to the unaudited pro forma income statement of the Enlarged Group for the year ended 31 March 2007 as if the Completion had taken place on 31 March 2007, the unaudited pro forma net loss of the Enlarged Group would have been improved and decreased to approximately HK$9,271,000.

Gearing ratio

As at 31 March 2007, the Group’s gearing ratio calculated as a percentage of total debts over total assets was approximately 26.59%. The gearing ratio of the Enlarged Group upon Completion would decrease to approximately 14.07%.

Given net asset will increase, net loss will decrease and the gearing ratio would decrease and in view of the prospect of the business of the securities brokerage and financing business by Excalibur, the Directors consider the Acquisition to be in the interests of the Company and the Shareholders as a whole.

Listing Rules implication

The Acquisition constitutes a very substantial acquisition for the Company under the Listing Rules and is subject to the approval of Shareholders at the EGM. There is no current intention to change the composition of the Board as a result of, or related to, the Acquisition and or the Placing (as detailed in the section headed “Placing of the Placing CB” below).

The Company will seek the approval of its Shareholders at the EGM to be convened and held by the Company to approve the S&P Agreement and the transactions contemplated thereunder including the allotment and issue of the Consideration Conversion Shares upon conversion of the Consideration CB. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiry, no Shareholder have a material interest in the Acquisition other than their shareholding interests in the Shares, and accordingly no Shareholder is required to abstain from voting at the EGM.

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LETTER FROM THE BOARD

PLACING OF THE PLACING CB

I The Placing CB

On 27 February 2008, the Company entered into the Placing Agreement (as amended on 30 May 2008) with the Placing Agent in respect of the conditional placing of the Placing CB of principal amount of HK$50 million with zero coupon due in three years from the date of issue. The Placing Agreement is conditional on, among other things, the resumption of trading of the Shares on the Stock Exchange. Principal terms of the Placing Agreement, in particular the conditions to the placing of the Placing CB, are set out below.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, the Placing Agent is independent of the Company, the Vendor and their respective connected persons and is not a connected person (as defined under the Listing Rules) of the Company or the Vendor.

Given the fully underwritten basis of the Placing CB, the Company can be assured of the amount of the proceeds that will be available to the Company when the Placing CB are issued, and therefore can allocate with certainty its financial resources and will be able to generate HK$50 million cash, which in turn will reduce interest expenses and improve the overall financial position of the Group. In view of the above, the Board considers the terms of the Placing Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

II Principal terms of the Placing

Issuer: the Company Placing Agent: Kingston Securities Limited Basis: Fully underwritten basis Placees: Not less than six placees to be procured by the Placing Agent. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, the potential placees and their respective ultimate beneficial owners are independent of the Company, the Vendor and their respective connected persons and are not connected persons (as defined under the Listing Rules) of the Company or the Vendor

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LETTER FROM THE BOARD

Amount: HK$50 million Placing commission: 2.5% of the principal amount of the Placing CB Issue price: 100% of the principal amount of the Placing CB Interest rate: 0% Conversion: Noteholders have the right to convert on any Business Day from the date of issue of the Placing CB but prior to 5 Business Days prior to the maturity date, the whole or any part(s) of the principal amount of the Placing CB provided that such part of the principal amount of the Placing CB to be converted shall not be less than HK$100,000 at any one time (save that if at any time the principal outstanding amount shall be less than HK$100,000, the whole (but not part only) of the principal amount of the Placing CB may be converted)

Redemption: Unless previously converted, the Placing CB shall be redeemed by the Company at it principal amount outstanding on the maturity date of the Placing CB

Maturity date: The date falling on the third anniversary of the date of issue of the Placing CB

• Placing Conversion Price:

• HK$0.10 per Placing Conversion Share, subject to adjustments in each of the following cases (details provisions are set out in the terms and conditions of the Placing CB):

• (a) an alteration of the nominal amount of the Shares by reason of any consolidation or subdivision;

• (b) an issue (other than in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);

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LETTER FROM THE BOARD

• (c) a capital distribution being made by the Company, whether on a reduction of capital or otherwise, to the Shareholders in their capacity as such or rights being granted to Shareholders to acquire for cash assets of the Group;

• (d) an offer or grant being made by the Company to the Shareholders by way of rights or of options or warrants to subscribe for or purchase Shares at a price which is less than 90% of the market price;

• (e) an issue wholly for cash being made by the Company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares, if in any case the total effective consideration per Share initially receivable for such securities is less than the greater of either 90% of the market price or the Placing Conversion Price in effect, or the terms of any such rights of conversion or exchange or subscription attached to any such securities being modified so that the said total effective consideration per Share initially receivable for such securities is less than the greater of either 90% of the market price or the Placing Conversion Price in effect;

• (f) an issue being made by the Company wholly for cash of Shares (other than Shares issued pursuant to an employee share option scheme of the Company) at a price per Share less than the greater of either 90% of the market price or the Placing Conversion Price in effect; and

• (g) an issue being made by the Company of Shares for the acquisition of asset at a total effective consideration per Share less than the greater of either 90% of the market price or the Placing Conversion Price in effect.

The Placing Conversion Price shall not be adjusted to below the nominal value of a Share from time to time.

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LETTER FROM THE BOARD

The Placing Conversion Price represents:

• (i) a discount of approximately 67.21% to the closing price of HK$0.305 per Share as quoted on the Stock Exchange on the Last Trading Day;

• (ii) a discount of approximately 67.85% to the average of the closing prices of approximately HK$0.311 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to the Last Trading Day;

• (iii) a premium of approximately 105.76% over the unaudited consolidated net asset value of the Company per Share of approximately HK$0.0486 as at 30 September 2007;

• (iv) the nominal price of the Share of HK$0.10 each; and

• (v) the Consideration Conversion Price.

The Board noted that the Shares had been suspended for almost 30 months since 29 September 2005 and with the tight financial position that the Company is facing, the Company has, upon arm’s length negotiation, agreed with the Placing Agent, that the Placing Conversion Price should represent a substantial discount to the closing price before suspension of the Shares so as to attract potential placees to subscribe for the Placing CB.

Transferability:

The Placing CB or any part(s) thereof may be assigned or transferred only with the prior written consent of the Company and subject to compliance of the conditions thereunder and further subject to the conditions, approvals, requirements and any other provisions of or under:–

• (a) the Stock Exchange (and any other stock exchange on which the Shares may be listed at the relevant time) or their rules and regulations;

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LETTER FROM THE BOARD

• (b) the approval for listing in respect of the Placing Conversion Shares; and

• (c) all applicable laws and regulations.

If the Placing CB or any part(s) thereof shall be transferred to any company or other person which is a connected person of the Company, the Company shall promptly notify the Stock Exchange.

Voting: Noteholders shall not be entitled to receive notices of, attend or vote at any meetings of the Company by reason only of it being the noteholders.

Ranking:

The Placing CB will rank pari passu with all other present and future unsecured and un-subordinated obligations of the Company except for obligations accorded preference by mandatory provisions of applicable laws.

The Placing Conversion Shares to be issued as a result of the exercise of the conversion rights attached to the Placing CB will rank pari passu in all respects with all other Shares in issue at the date on which the conversion rights attached to the Placing CB are exercised.

Limitation on conversion:

Noteholders shall exercise the right of conversion to the extent that the public float of the Company will not be less than 25% of the issued share capital of the Company immediately after such conversion.

Events of default:

The Placing CB contains customary events of default provisions. Upon the happening of an event of default, noteholder(s) representing not less than 75% of the principal amount of the Placing CB outstanding may give notice to the Company declaring the Placing CB to be immediately due and payable.

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LETTER FROM THE BOARD

For illustration purpose only, the 500,000,000 Placing Conversion Shares to be issued under the Placing CB represents approximately 107.74% of the existing issued share capital of the Company, approximately 51.86% of the issued share capital of the Company as enlarged by the allotment and issue of the Placing Conversion Shares, assuming full conversion of the Placing CB and the Placing Conversion Shares were to be issued at the Placing Conversion Price and approximately 42.95% of the issued share capital of the Company as enlarged by the allotment and issue of both the Consideration Conversion Shares and the Placing Conversion Shares, assuming full conversion of the Consideration CB and the Placing CB and the Consideration Conversion Shares were to be issued at the Consideration Conversion Price and the Placing Conversion Shares were to be issued at the Placing Conversion Price.

Notwithstanding the conversion rights attached to the Placing CB, the Placing CB provides that noteholders shall not convert the Placing CB if as a result thereof, the public float of the Company will be less than 25% of the issued share capital of the Company.

Applications for Listing

No application will be made by the Company to the Listing Committee for the listing of the Placing CB. Application will be made by the Company to the Listing Committee for the listing of, and permission to deal in, the Placing Conversion Shares. Shareholders should note that the listing approval for the issue, listing of and permission to deal in the Placing Conversion Shares, which is subject to the resumption of the trading in the Shares on the Stock Exchange may or may not be granted by the Stock Exchange.

Conditions precedent to and completion of the subscription of the Placing CB

The obligations of the Placing Agent under the Placing Agreement is conditional on the following conditions being fulfilled on or before the Long Stop Date (or such later time as the Placing Agent and the Company shall agree):

• (a) the passing by the Shareholders in general meeting of the necessary resolutions approving the increase of the authorised share capital of the Company from HK$100,000,000 divided into 1,000,000,000 Shares to HK$500,000,000 divided into 5,000,000,000 Shares by creation of an additional 4,000,000,000 unissued Shares;

• (b) the Stock Exchange having agreed in principle for the resumption of trading in the Shares on the Stock Exchange, either unconditionally or subject to conditions to which neither the Company nor the Placing Agent reasonably objects and such conditions (if any) having been satisfied;

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LETTER FROM THE BOARD

• (c) the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the Placing Conversion Shares falling to be issued and allotted on the exercise of the conversion rights attached to the Placing CB either unconditionally or subject to conditions to which the Placing Agent may accept; and

• (d) the passing by the Shareholders at a general meeting of the Company of an ordinary resolution approving the Placing Agreement, the issue of the Placing CB and the allotment and issue of the Placing Conversion Shares and other transactions contemplated thereunder.

Subject to the fulfillment of the above conditions, the Placing Agent shall effect completion of the Placing within 5 business days after the date of fulfillment of all the above conditions. Completion of the Placing Agreement is not conditional on the completion of the S&P Agreement.

Termination of Placing Agreement

Notwithstanding anything contained in the Placing Agreement, the Placing Agent may at any time prior to completion of the Placing Agreement, terminate the Placing Agreement in, among other, any of the following circumstances:

• (a) if there has been, since the time of execution of the Placing Agreement, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Group;

• (b) if there shall have come to the notice of the Placing Agent any breach of, or any event rendering untrue, inaccurate or misleading in any respect, any of the warranties, representations or covenants contained in the Placing Agreement or any failure to perform any of the Company’s undertakings or agreements in the Placing Agreement;

• (c) if, in the sole opinion of the Placing Agent, there has occurred any material adverse change in the financial markets in the United States, Hong Kong, the PRC or the United Kingdom or in the international financial markets, any outbreak of hostilities or epidemic or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international financial, political or economic conditions or currency exchange rates or exchange controls as would in its view be likely to prejudice materially the success of the offering and distribution of the Placing CB or dealings in the Placing CB in the secondary market or make it impractical or inadvisable to market the Placing CB or to enforce contracts for the sale of the Placing CB; or

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• (d) any change, or development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company or the Group as a whole, which, in the sole opinion of the Placing Agent, is likely to prejudice materially the success of the Placing; and

• (e) if trading generally on any Hong Kong, United States, PRC or United Kingdom stock exchange or Nasdaq has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any such exchange or system or by order of the Stock Exchange, the United States Securities and Exchange Commission, the United States National Association of Securities Dealers, Inc. or any authority, or a material disruption has occurred in commercial banking or securities settlement or clearance services in Hong Kong, United Kingdom or the United States or with respect to the Clearstream or Euroclear systems in Europe, or if a banking moratorium has been declared by Hong Kong, United Kingdom or the United States Federal or New York authorities.

Use of proceeds of the Placing CB

The net proceeds of approximately HK$48 million (being gross proceeds of HK$50 million net of professional service fee of HK$2 million) from the issue of the Placing CB will be used as to approximately HK$23 million for the repayment of the outstanding indebtedness, as to approximately HK$15 million for the expansion of the margin financing business of HTH Securities and as to approximately HK$10 million for general working capital of the Group.

Reasons and benefits for the Placing CB

The Directors, having considered that (i) the issue of the Placing CB will provide funding to the Company; (ii) the availability of funds will strengthen the financial position and working capital position of the Group; and (iii) there will be no immediate dilution effect on the shareholding of the existing Shareholders, are of the view that the issue of the Placing CB is an appropriate mean to raise additional funds for the Group. The Company has considered various financing methods, including both debt financing and equity financing. Nevertheless, in view of the lack of a sustainable profit trend, the Company has in the past experienced difficulties in obtaining sizable bank loans and thus debt financing is considered not the appropriate course to take for the Company under the present circumstances. In addition, the Company does not consider a rights issue or an open offer is a better fund raising exercise at the present development stage of the Company. Even if the Company could succeed in procuring an underwriter, the Shares to be issued in either a rights issue or an open offer would need to be at a deep discount in order to appear as attractive to such underwriter which would result in immediate and significant dilutions to Shareholders who do not participate. In contrast, the Placing CB would provide sufficient funds for the Company to

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carry out its business so that existing Shareholders could enjoy the possible benefits without having to suffer potential immediate dilution or alternatively being forced to pay additional money. On the other hand, given the fully underwritten basis of the Placing CB, the Company can be assured of the amounts of the proceeds that will be available to the Company when the Placing CB are issued and therefore can allocate with certainty its financial resources and will be able to generate HK$48 million cash as net proceeds in which as to approximately HK$23 million will be used to repay its outstanding indebtedness, as to approximately HK$15 million for the expansion of the margin financing business of HTH Securities and as to approximately HK$10 million as general working capital, which in turn will reduce interest expenses and improve the overall financial position of the Group. The issue of the Placing CB will allow the Company to raise additional funds at no interest cost. In addition, if the conversion rights attaching to the Placing CB are exercised, the shareholder and equity capital base of the Company will be further enlarged and strengthened. The Directors consider that the Placing Agreement was entered into under normal commercial terms which are fair and reasonable and are in the interests of the Company and its Shareholders as a whole.

Listing Rules implication

As at the Latest Practicable Date, as the Company did not have a general mandate to issue and allot Shares, the issue of the Placing Conversion Shares upon the conversion of the Placing CB will be made under a specific mandate. The specific mandate for the issue of the Placing Conversion Shares upon the conversion of the Placing CB will be subject to the approval of the Shareholders at the EGM.

To the best of the knowledge, information and belief of the Directors and having made all reasonable enquiries, none of the Shareholders have any material interest in the Placing Agreement. There are no arrangements or proposals (i) to issue any Placing CB to the existing Shareholders; or (ii) to use any proceeds from the issue of the Placing CB for repayment of any amounts due to the existing Shareholders (currently no creditor of the Group is a Shareholder). Accordingly, no Shareholder is required to abstain from voting at the EGM to be convened to approve the Placing Agreement and the transactions contemplated thereunder.

The Directors, including the independent non-executive Directors, believe the terms of the Placing Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

In view of the extent of the dilution effect of the Consideration CB and the Placing CB, the Company will disclose by way of an announcement all relevant details of the conversion of the Consideration CB and the Placing CB in the following manner:

• (i) the Company will make a monthly announcement (the “ Monthly Announcement ”) on or before the tenth business day following the end of each calendar month and will include the following details in a table form:

• a. whether there is any conversion of the Consideration CB and/or the Placing CB during the previous calendar month. If there is a conversion, details thereof including the conversion date, number of the Consideration Conversion Shares and the Placing Conversion Shares issued and the Consideration Conversion Price and the Placing Conversion Price for each conversion. If there is no conversion during the previous calendar month, a negative statement to that effect;

• b. the amount of outstanding Consideration CB and Placing CB after the conversion, if any;

• c. the total number of new Shares issued pursuant to other transactions during the previous calendar month, including the new Shares issued pursuant to exercise of options under any share option scheme(s) of the Company; and

• d. the total issued share capital of the Company as at the commencement and the last day of the previous calendar months;

• (ii) in addition to the Monthly Announcement, if the cumulative amount of the Consideration Conversion Shares and the Placing Conversion Shares issued pursuant to the conversion of the Consideration CB and the Placing CB reaches 5% of the issued share capital of the Company as disclosed in the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Consideration CB and the Placing CB (as the case may be) (and thereafter in a multiple of such 5% threshold), the Company will make an announcement including details as stated in the above for the period commencing from the date of the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Consideration CB and the Placing CB (as the case may be) up to the date on which the total amount of the Consideration Conversion Shares and the Placing Conversion Shares issued pursuant to the conversion amounted to 5% of the issued share capital of the Company as disclosed in the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Consideration CB and the Placing CB (as the case may be); and

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• (iii) if the Company forms the view that any issue of the Consideration Conversion Shares and the Placing Conversion Shares will trigger the disclosure requirements under Listing Rule 13.09(1), then the Company will make such disclosures regardless of the issue of any announcements in relation to the Consideration CB and the Placing CB as mentioned in (i) and (ii) above.

Apart from the issue of the Consideration Conversion Shares, the Placing Conversion Shares, the Remuneration Shares and the Remuneration Warrants conferring subscription rights for the Warrants Shares, the Company does not have a current intention to issue new Shares (other than pursuant to exercise of 11,700,000 Options in issue which were granted to employees of the Group).

PROPOSED ISSUE OF REMUNERATION SHARES AND REMUNERATION WARRANTS

Veda Capital is the financial adviser to the Company regarding the Acquisition, the Placing and the transactions contemplated thereunder. Pursuant to the engagement letter dated 15 April 2008 entered into between the Company and Veda Capital and having considered the financial position of the Group, it was agreed between the Company and Veda Capital that part of the professional fees of HK$1,200,000 charged by Veda Capital may be settled by the issue of the Remuneration Shares to Veda Capital (or its nominee(s)) at an issue price of HK$0.10 per new Share subject to and upon the approval by the Stock Exchange on the resumption of trading in the Shares, which is equivalent to the Consideration Conversion Price and Placing Conversion Price.

The Company also agreed to grant the Remuneration Warrants to Veda Capital (or its nominee(s)) subject to and upon the approval by the Stock Exchange on the resumption of trading in the Shares, which entitle Veda Capital (or its nominee(s)) to subscribe for 12,000,000 new Shares at the exercise price of HK$0.10 per Share (subject to adjustments), at any time between the date of issue of the Remuneration Warrants and 36 months thereafter.

Upon full exercise of the subscription rights attaching to the Remuneration Warrants, a total of 12,000,000 Warrant Shares, representing (i) approximately 2.59% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 1% of the issued share capital of the Company as enlarged by the issue and allotment of all of the Consideration Conversion Shares, the Placing Conversion Shares, the Option Shares, the Warrant Shares and the Remuneration Shares, assuming no further Shares are issued and repurchased. The Remuneration Warrants will be issued to Veda Capital (or its nominee(s)) in registered form and constituted by the instrument creating the Remuneration Warrants. The Remuneration Warrants will rank pari passu in all respects among themselves. Each Remuneration Warrant carries the right to subscribe for one Warrant Share.

– 32 –

LETTER FROM THE BOARD

Major terms of the Remuneration Warrants are set out as follows:

Principal amount: HK$1,200,000

Number of 12,000,000 Remuneration Warrants:

Number of Warrant 12,000,000 Shares:

Exercise price:

HK$0.10 each, subject to adjustments in each of the following cases (details provisions are set out in the terms and conditions of the instrument of the Remuneration Warrants):

• (a) an alteration of the nominal amount of the Shares by reason of any consolidation or subdivision;

• (b) an issue (other than in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);

• (c) a capital distribution being made by the Company, whether on a reduction of capital or otherwise, to the Shareholders in their capacity as such or rights being granted to Shareholders to acquire for cash assets of the Group;

• (d) an offer or grant being made by the Company to the Shareholders by way of rights or of options or warrants to subscribe for or purchase Shares at a price which is less than 90% of the market price;

• (e) an issue wholly for cash being made by the Company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares, if in any case the total effective consideration per Share initially receivable for such securities is less than the greater of either 90% of the market price or the exercise price of the Remuneration Warrants in effect, or the terms of any such rights of conversion or exchange or subscription attached to any such

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LETTER FROM THE BOARD

securities being modified so that the said total effective consideration per Share initially receivable for such securities is less than the greater of either 90% of the market price or the exercise price of the Remuneration Warrants in effect;

• (f) an issue being made by the Company wholly for cash of Shares (other than Shares issued pursuant to an employee share option scheme of the Company) at a price per Share less than the greater of either 90% of the market price or the exercise price of the Remuneration Warrants in effect; and

• (g) an issue being made by the Company of Shares for the acquisition of asset at a total effective consideration per Share less than the greater of either 90% of the market price or the exercise price of the Remuneration Warrants in effect.

Adjustment will be made to the exercise price if and only if in the event of, among other things, subdivision or consolidation of Shares, bonus issues, rights issues and other dilutive events as set out above. Every adjustment to the exercise price of the Remuneration Warrants shall be certified by the auditors of the Company or an approved merchant bank.

The exercise price of the Remuneration Warrants shall not be adjusted to below the nominal value of a Share from time to time.

The exercise price of the Remuneration Warrants is equivalent to the Consideration Conversion Price, Placing Conversion Price and the issue price of the Remuneration Shares.

– 34 –

LETTER FROM THE BOARD

Exercise period: At any time during a period of 36 months commencing from the date of issue of the Remuneration Warrants.

Transferability:

Transferable only to Independent Third Parties in integral multiples of 1,000,000 Remuneration Warrants, unless there are less than 1,000,000 Remuneration Warrants outstanding, the whole but not in part may be transferred. If the Remuneration Warrants shall be transferred to any company or other person which is a connected person of the Company, the Company shall promptly notify the Stock Exchange.

Rights for the holders The holders of the Remuneration Warrants will not have any right of the Remuneration to attend or vote at any meeting of the Company by virtue of Warrants: them being the holders of the Remuneration Warrants. The holders of the Warrants shall not have the rights to participate in any distributions and/or offers of further securities made by the Company.

The subscription rights attaching to the Remuneration Warrants may be exercised in integral multiples of 1,000,000 Remuneration Warrants during the exercise period unless there are less than 1,000,000 Remuneration Warrants outstanding, the whole but not in part may be exercised. The Warrant Shares, when fully paid and allotted, will rank pari passu in all respects with the then Shares in issue on the date of allotment and issue of the relevant Warrant Shares. Save for the 11,700,000 Options which were granted to employees of the Group, there is no equity securities of the Group outstanding as at the Latest Practicable Date. The issue of the Remuneration Warrants complies with Rule 15.02 of the Listing Rules. Any alteration in the terms of the Remuneration Warrants after the issue or grant must be approved by the Exchange, except where the alteration take effect automatically under the terms of the Remuneration Warrants.

– 35 –

LETTER FROM THE BOARD

Liquidation of the Company

If an effective resolution is passed for the voluntary winding-up of the Company, then:

• (a) if such winding up is for the purpose of reconstruction or amalgamation pursuant to a scheme of arrangement to which Veda Capital (or its nominee(s)) for such purpose by the relevant ordinary resolution at the EGM, will be a party or in conjunction with which a proposal is made to Veda Capital (or its nominee(s)) and is approved by an ordinary resolution, the terms of such scheme of arrangement or (as the case may be) proposal will be binding on Veda Capital (or its nominee(s)); and

• (b) in the event a notice is given by the Company to the Shareholders to convene a shareholders’ meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up the Company during a period of 36 months commencing from the date of issue of the Remuneration Warrants (the “Subscription Period”), the Company shall forthwith give notice thereof to Veda Capital (or its nominee(s)) and thereupon, Veda Capital (or its nominee(s)) shall be entitled by irrevocable surrender of the warrant certificate(s) to the Company (such surrender to occur not later than five business days prior to the proposed shareholders’ meeting referred to above) with the subscription form(s) duly completed, together with payment of the relevant subscription monies for the Shares in respect of which the subscription rights attached to the Remuneration Warrants (“Subscription Rights”) are being so exercised or the relative portion thereof, to exercise the Subscription Rights represented by such Remuneration Warrants and the Company shall as soon as possible and in any event no later than the day immediately prior to the date of the proposed shareholders’ meeting allot such number of new Shares to Veda Capital (or its nominee(s)) which fall to be issued pursuant to the exercise of the Subscription Rights represented by such Remuneration Warrants. The Company shall give notice to Veda Capital (or its nominee(s)) of the passing of such resolution within seven days after the passing thereof.

Subject to the foregoing, if the Company is wound up, all Subscription Rights which have not been exercised at the date of the passing of such resolution will lapse and each Remuneration Warrant certificate will cease to be valid for any purpose.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, Veda Capital, Mr. Wong and their respective associates do not have any interest in any securities of the Company. Upon issue of the Remuneration Shares and the Warrants Shares, Veda Capital, Mr. Wong and their respective associates may be interested in up to 24,000,000 Shares, representing approximately 2% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Conversion Shares, the Placing Conversion Shares, the Option Shares, the Warrant Shares and the Remuneration Shares.

The Remuneration Shares and the Warrant Shares will be issued and allotted under specific mandates proposed to be sought from the Shareholders at the EGM. The issue of the Remuneration Shares and Remuneration Warrants are subject to Shareholders’ approval at the EGM but not conditional upon the Acquisition and the Placing. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiry, no Shareholder have a material interest in the issue of the Remuneration Shares and the Remuneration Warrants, accordingly no Shareholder is required to abstain from voting on the relevant resolutions relating to the issue of the Remuneration Shares and Remuneration Warrants at the EGM. No application will be made for listing of the Remuneration Warrants. Application will be made to the Listing Committee of the Stock Exchange in respect of such listing of and permission to deal in the Remuneration Shares and the Warrant Shares.

Use of proceeds

The issue of the Remuneration Shares will be for partial settlement of the professional fees of Veda Capital, so no proceeds will be generated therefrom. Assuming the full exercise of the subscription rights attaching to the Remuneration Warrants, it is expected that HK$1.2 million will be raised. The net proceeds of approximately HK$1.2 million (with minimal administrative expenses) will be utilized by the Group for its general working capital.

– 37 –

LETTER FROM THE BOARD

EFFECT ON SHAREHOLDING STRUCTURE

To the best knowledge of the Directors, the existing shareholding structure of the Company and the shareholding structure of the Company upon the allotment and issue of the Consideration Conversion Shares, the Placing Conversion Shares, the Option Shares, the Remuneration Shares and Warrant Shares under different scenarios are as follows:

Shareholders Good Treasure Holdings Limited_(Note 1) The Vendor Public Shareholders – Holders of Placing CB – Holders of Options(Note 2) – Veda Capital (from Remuneration Shares) – Veda Capital (from full exercise of Remuneration Warrants) – Good Treasure Holdings Limited(Note 1)_ – Existing public Shareholders Total	As at the Latest Practicable Date No. of % Shares 108,000,000 23.27 – – 356,070,000 76.73 – – – – – – – – N/A N/A 356,070,000 76.73 464,070,000 100	Upon issue of the Remuneration Shares No. of % Shares 108,000,000 22.69 – – 368,070,000 77.31 – – – – 12,000,000 2.52 – – N/A N/A 356,070,000 74.79 476,070,000 100	Upon full conversion of the Consideration CB and issue of the Remuneration Shares No. of % Shares 108,000,000 15.97 200,000,000 29.58 368,070,000 54.44 – – – – 12,000,000 1.77 – – N/A N/A 356,070,,000 52.67 676,070,000 100	Upon full conversion of the Placing CB and the issue of the Remuneration Shares No. of % Shares 108,000,000 11.06 – – 868,070,000 88.97 500,000,000 51.23 – – 12,000,000 1.23 – – N/A N/A 356,070,000 36.48 976,070,000 100	Upon full conversion of the Consideration CB, and the Placing CB and the issue of the Remuneration Shares No. of % Shares N/A N/A 200,000,000 17.01 976,070,000 82.99 500,000,000 42.51 – – 12,000,000 1.02 – – 108,000,000 9.18 356,070,000 30.28 1,176,070,000 100	Upon full conversion of the Consideration CB and the Placing CB and issue of the Option Shares, Remuneration Shares and Warrant Shares No. of % Shares N/A N/A 200,000,000 16.67 999,770,000 83.33 500,000,000 41.67 11,700,000 0.98 12,000,000 1.00 12,000,000 1.00 108,000,000 9.00 356,070,000 29.68 1,199,770,000 100

Notes:

1. Good Treasure Holdings Limited is a company incorporated in the British Virgin Islands and whose entire equity interest is beneficially wholly-owned by Mr. Li Chun Sing, Andrew.

2. 11,700,000 Options were granted to employees (not Directors) of the Group under the Existing Scheme Mandate Limit of the Company approved and adopted by the Shareholders on 12 February 2003.

The Acquisition which involves the issue of Shares upon full exercise of the conversion rights under the Consideration CB will not result in a change of control (as defined in the Takeovers Code) of the Company.

– 38 –

LETTER FROM THE BOARD

INCREASE IN AUTHORIZED SHARE CAPITAL

In order to ensure that sufficient number of unissued Shares are available for issuance of the Consideration Conversion Shares, the Placing Conversion Shares, the Remuneration Shares, the Warrant Shares and the Option Shares and also for future purpose, the Board also proposes the increase in authorized share capital of the Company from HK$100,000,000 divided into 1,000,000,000 ordinary Shares of HK$0.10 each to HK$500,000,000 divided into 5,000,000,000 ordinary Shares of HK$0.10 each by the creation of an additional 4,000,000,000 ordinary shares of HK$0.10 each. Such new Shares, upon issue, shall rank pari passu in all respects with the existing Shares. The increase of the authorized share capital of the Company by 4,000,000,000 Shares is determined by taking into account the Company’s need for issuance of the Consideration Conversion Shares, Placing Conversion Shares, the Remuneration Shares, the Warrant Shares and the Option Shares and provide flexibility in issuing Shares for any future investments and developments. Save for the issue of the Consideration Conversion Shares, the Placing Conversion Shares, the Remuneration Shares, the Warrant Shares and the Option Shares, the Directors have no present intention to issue additional Shares out of the increased capital.

The proposed increase in authorized share capital of the Company is conditional upon the passing of an ordinary resolution by the Shareholders at the EGM. The proposed increase in authorized share capital of the Company is a condition precedent to both completion of the S&P Agreement and the Placing Agreement.

REFRESHMENT OF EXISTING SCHEME MANDATE LIMIT

The Existing Scheme Mandate Limit is 46,407,000 Shares, being 10% of the Shares in issue as at the date of approval of the Existing Scheme Mandate Limit at the extraordinary general meeting of the Company held on 18 March 2005.

As at the Latest Practicable Date, 19,792,600 Options carrying the rights to subscribe for 19,792,600 Shares were granted under the Existing Scheme Mandate Limit, representing approximately 4.27% of the issued share capital of the Company as at the date of approving the Existing Scheme Mandate Limit on 18 March 2005, and approximately 4.27% of the issued share capital of the Company as at the Latest Practicable Date. As at the Latest Practicable Date, there were 11,700,000 outstanding Options. No Director had any interests in the Options as at the Latest Practicable Date.

– 39 –

LETTER FROM THE BOARD

It is proposed that subject to the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in the Shares to be issued pursuant to the exercise of the Options granted under the Refreshed Scheme Mandate Limit and the passing of the relevant resolution at the EGM, the total number of Shares under the Refreshed Scheme Mandate Limit, which may be issued upon exercise of all Options to be granted under the Refreshed Scheme Mandate Limit, shall not exceed 10% of the Shares in issue as at the date of approval of the relevant resolution by the Shareholders at the EGM. Options previously granted under the Existing Scheme Mandate Limit (including without limitation to those outstanding, cancelled or lapsed in accordance with the Existing Scheme Mandate Limit or exercised Options) will not be counted for the purpose of calculating the Refreshed Scheme Mandate Limit.

As at the Latest Practicable Date, the Company had 464,070,000 Shares in issue. Pursuant to the terms of the Refreshed Scheme Mandate Limit and in compliance with the Listing Rules, the maximum number of Shares, which may be issued upon the exercise of all the Options to be granted under the Refreshed Scheme Mandate Limit should be 46,407,000 Shares (assuming no further issue or repurchase of Shares prior to the EGM). Pursuant to the Listing Rules, the Shares which may be issued upon exercise of all Options granted and yet to be exercised under the Share Option Scheme and any other option scheme(s) of the Company (or its subsidiaries) at any time shall not exceed 30% of the Shares in issue from time to time. No Options shall be granted under the Share Option Scheme or any other scheme(s) of the Company (or its subsidiaries) if this will result in the 30% limit being exceeded.

Conditions of the Refreshed Scheme Mandate Limit

The proposed Refreshed Scheme Mandate Limit is conditional upon:

1. the passing of the ordinary resolution by the Shareholders at the EGM to approve the Refreshed Scheme Mandate Limit; and

2. the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in the Shares to be allotted and issued pursuant to the exercise of Options granted under the Refreshed Scheme Mandate Limit.

Application will be made to the Stock Exchange for the listing of, and permission to deal in, the Shares to be issued pursuant to the exercise of the Options granted under the Refreshed Scheme Mandate Limit.

– 40 –

LETTER FROM THE BOARD

Reasons for the Refreshed Scheme Mandate Limit

The purpose of the Refreshed Scheme Mandate Limit is to recognize the contribution of eligible participants of the Group. Given the Existing Scheme Mandate Limit has been substantially utilized, the Directors consider that the Refreshed Scheme Mandate Limit will enable the Company to grant further Options to eligible participants so as to provide opportunities and incentives to them to work towards enhancing the value of the Company for the benefits of the Company and Shareholders as a whole.

CONTINUED SUSPENSION OF TRADING IN THE SHARES

Trading in the Shares was suspended with effect from 9:30 a.m. on 29 September 2005 at the request of the Company and will continue to be suspended until further notice.

Shareholders should note that completions of the S&P Agreement and the Placing Agreement respectively are conditional on their respective conditions being fulfilled or waived on or before the Long Stop Date (or such later date as the parties may agree), which may or may not be fulfilled or waived. The release of this circular is not an indication that the S&P Agreement and Placing Agreement will be successfully implemented and completed or that the resumption of trading in the Shares has been or will be approved by the Stock Exchange.

The Company has submitted a resumption proposal to the Stock Exchange on 15 April 2008, which is being reviewed by the Stock Exchange. The Company is providing the Stock Exchange further information in respect of the resumption proposal. The resumption proposal of the Company should demonstrate the Company’s compliance with the Listing Rules and all applicable laws and regulations. In particular, the Company is required to (i) investigate and address the issues concerning the Incident and clarify and the operations and financial position of the Group; (ii) address any concerns raised by the auditors of the Company through the qualification of their audit report on the financial statements of the Group published after the suspension; and (iii) demonstrate that it has in place adequate financial reporting system and internal control procedures to enable the Company to meet its obligations under the Listing Rules. The resumption proposal should also include sufficient details to demonstrate the Company’s compliance with Rule 13.24 of the Listing Rules. Meanwhile, the Company is in the process of furnishing further information to the Stock Exchange to demonstrate, among other things, that upon completion of the transactions contemplated under the resumption proposal, the Company will have sufficient level of operations or assets of sufficient value under Listing Rule 13.24. The release of this circular is not an indication that the resumption proposal has been or will be approved by the Stock Exchange. Accordingly, the resumption proposal will or will not proceed. Further announcement(s) on the latest development will be released when appropriate.

– 41 –

LETTER FROM THE BOARD

EGM

The notice of EGM is set out on pages 198 to 203 of this circular.

A form of proxy for the EGM is enclosed with this circular. Whether you intend to attend the EGM or not, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Union Registrars Limited at Rooms 1901-02, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong not less than 48 hours before the time fixed for the EGM. Completion and delivery of the form of proxy will not preclude you from attending and voting at the EGM in person if you so wish.

To the best knowledge of the Directors, none of the Vendor, the Placing Agent, Mr. Wong and their respective associates holds any Shares as at the Latest Practicable Date and none of the Shareholders has any material interest in the S&P Agreement, the Placing Agreement, the proposed issue of Remuneration Shares and Remuneration Warrants, the proposed increase in authorized share capital of the Company, and the proposed refreshment of the Existing Scheme Mandate Limit. On such basis, no Shareholder is required to abstain from voting on the S&P Agreement, the Placing Agreement, the proposed issue of Remuneration Shares and Remuneration Warrants, the proposed increase in authorized share capital of the Company, and the proposed refreshment of the Existing Scheme Mandate Limit.

PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

Pursuant to article 80 of the Articles, all resolutions to be proposed at the EGM will be put to the vote of the Shareholders on a show of hands. It is further provided in article 80 that a poll may be demanded before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll, by:

• (a) the chairman of the meeting; or

• (b) at least five Shareholders present in person or by proxy and entitled to vote; or

• (c) any Shareholder or Shareholders present in person or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all Shareholders having the right to attend and vote at the meeting; or

• (d) any Shareholder or Shareholders present in person or by proxy 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.

– 42 –

LETTER FROM THE BOARD

Notwithstanding any other provision of these Articles, (a) if the aggregate proxies held by the chairman of a particular meeting and the Directors account for 5 per cent. or more of the total voting rights at that meeting, and (b) if on a show of hands in respect of any resolution the members at the meeting vote in the opposite manner to that instructed in the proxies referred in (a) above, then the chairman of the meeting and/or any Director holding the proxies referred to above shall demand a poll. However, if it is apparent from the total proxies held by the persons referred to in (a) above that a vote taken on a poll will not reverse the vote taken on a show of hands, then no poll shall be required.

A poll which is duly demanded shall be then held in such manner prescribed by the Articles.

RECOMMENDATIONS

The Directors consider that the Acquisition is beneficial to and in the best interests of the Company and the Shareholders as a whole. The Directors further consider that the terms of the S&P Agreement and the transactions contemplated thereunder; the Placing Agreement and the transactions contemplated thereunder; the proposed issue of Remuneration Shares and Remuneration Warrants and the transactions contemplated thereunder; the proposed increase in authorized share capital; and the proposed refreshment of the Existing Scheme Mandate Limit are fair and reasonable to the Company and in the interests of the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to approve the abovementioned matters at the EGM.

ADDITIONAL INFORMATION

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

Yours faithfully,

For and on behalf of The board of directors of

China Conservational Power Holdings Limited Ng Cheuk Fan, Keith Managing Director

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. SUMMARY OF FINANCIAL INFORMATION

A summary of the published results and the assets and liabilities of the Group for the last three financial years, as extracted from the audited financial statements, is set out below.

RESULTS

Turnover Cost of sales Gross profit Other operating income Selling expenses Administrative expenses Unrealised losses on listed investments Loss on disposal of listed investments Provision for doubtful debts Impairment losses Loss from operations Finance costs Share of results of associates Gain on disposal of subsidiaries Share of result of a joint venture Loss before taxation Taxation Net loss for the year Dividends Loss per share – basic – diluted	2007 HK$’000 6,504 (3,711) 2,793 250 (12) (20,408) – – (1,684) – (19,061) (2,573) – 9,196 – (12,438) (792) (13,230) – (2.9 cents) N/A	2006 HK$’000 29,690 (21,687) 8,003 4,720 (50) (42,427) – – (2,562) (122,418) (154,734) (2,285) – 25,927 – (131,092) (159) (131,251) – (28.5 cents) N/A	2005 HK$’000 102,427 (91,361) 11,066 3,912 (151) (51,404) (68) (4,753) (8,567) (40,791) (90,756) (394) (3,596) 595 (2,601) (96,752) (36) (96,788) – (27.9 cents) N/A

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

ASSETS AND LIABILITIES

Total assets less current liabilities brought forward Non-current liabilities Retention money payables Obligations under finance leases Deferred taxation Net assets Equity Share capital Reserves Equity attributable to equity holders of the parent Minority interests Total equity	As at 31 March 2007 2006 HK$’000 HK$’000 27,332 42,089	As at 31 March 2007 2006 HK$’000 HK$’000 27,332 42,089	As at 31 March 2007 2006 HK$’000 HK$’000 27,332 42,089	As at 31 March 2007 2006 HK$’000 HK$’000 27,332 42,089	2005 HK$’000 191,681
	– 469 –		1,385 646 2		1,659 921 2
	469 26,863 46,407 (19,544) 26,863 – 26,863		2,033 40,056 46,407 (6,351) 40,056 – 40,056		2,582 189,099 38,672 101,265 139,937 49,162 189,099

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED INCOME STATEMENT

For the year ended 31 March 2007 (Expressed in Hong Kong dollars)

Notes Turnover 5 Cost of sales Gross profit Other operating income 7 Selling expenses Administrative expenses Provision for doubtful debts Impairment losses 8 Loss from operations 9 Finance costs 12 Gain on disposal of subsidiaries 41 Loss before taxation Taxation 13 Net loss for the year Dividends 14 Loss per share 15 – basic – diluted	2007 HK$’000 6,504 (3,711) 2,793 250 (12) (20,408) (1,684) – (19,061) (2,573) 9,196 (12,438) (792) (13,230) – (2.9 cents) N/A	2006 HK$’000 29,690 (21,687) 8,003 4,720 (50) (42,427) (2,562) (122,418) (154,734) (2,285) 25,927 (131,092) (159) (131,251) – (28.5 cents) N/A

– 46 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED BALANCE SHEET

As at 31 March 2007 (Expressed in Hong Kong dollars)

Notes Non-current assets Property, plant and equipment 16 Intangible assets 20 Other assets 21 Retention money receivables 23 Current assets Fixed deposits Bank balances and cash Pledged bank deposits 42 Investments held for trading 22 Inventories 26 Accounts receivable 30 Amounts due from customers for contract work 27 Progress payments receivable 28 Other receivables, deposits and prepayments Loans receivable 29 Retention money receivables 23 Amounts due from related companies Taxation recoverable Current liabilities Bank overdraft (secured) 33 Other borrowings (unsecured) 34 Bills payable Accounts payable, other payables and accrued charges 25 Loans payable Retention money payables 24 Amount due to a related company Amount due to a director 45 Obligations under finance leases 32 Taxation payable Net current assets Total assets less current liabilities carried forward	2007 HK$’000 954 – 205 – 1,159	2007 HK$’000 954 – 205 – 1,159	2006 HK$’000 1,850 251 205 1,109 3,415
	– 7,284 2,134 38,816 213 5,405 – 1,417 800 4,099 1,773 51 –		1,599 16,045 2,063 38,816 252 12,156 657 209 3,681 9,438 4,135 12 272
	61,992		89,335
	1,926 14,113 – 15,874 687 1,252 890 529 290 258		4,098 11,718 91 32,436 320 447 890 – 275 386
	35,819 26,173 27,332		50,661 38,674 42,089

– 47 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Total assets less current liabilities carried forward Non-current liabilities Retention money payables 24 Obligations under finance leases 32 Deferred taxation 40 Net assets Equity Share capital 35 Reserves Total equity Notes	27,332 – 469 – 469 26,863 46,407 (19,544) 26,863 2007 HK$’000	42,089 2006 HK$’000
		1,385 646 2
		2,033 40,056 46,407 (6,351) 40,056

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

At 31 March 2007 (Expressed in Hong Kong dollars)

Notes Non-current assets Property, plant and equipment 16 Interests in subsidiaries 17 Current assets Investments held for trading 22 Other receivables, deposits and prepayments Bank balances and cash Current liabilities Other payables and accrued charges Net current assets Net assets Equity Share capital 35 Reserves 37 Total equity	2007 HK$’000 – 4,074 4,074	2007 HK$’000 – 4,074 4,074	2006 HK$’000 23 2,127 2,150
	38,756 16 3		38,756 15 111
	38,775 1,281 37,494 41,568 46,407 (4,839) 41,568		38,882 976 37,906 40,056 46,407 (6,351) 40,056

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES OF EQUITY

For the year ended 31 March 2007 (Expressed in Hong Kong dollars)

At 1 April 2005 Recognised upon disposal of subsidiaries Net loss for the year Total recognised income and expenses for the year Issue of new shares Share issue expenses Disposal of subsidiaries Equity settled share-based transactions At 31 March 2006 Recognised upon disposal of subsidiaries Net loss for the year Total recognised income and expenses for the year Share options lapsed At 31 March 2007	Share capital HK$’000 38,672 – – 38,672 7,735 – – – 46,407 – – 46,407 – 46,407			Rese	rves		Accumu- lated losses HK$’000 (125,328) – (131,251) (256,579) – – – – (256,579) – (13,230) (269,809) 486 (269,323)	Attributable to equity holders of the company HK$’000 139,937 (468) (131,251) 8,218 30,909 (780) 15 1,694 40,056 37 (13,230) 26,863 – 26,863	Minority interest HK$’000 49,162 – – 49,162 – – (49,162) – – – – – – –	Total HK$’000 189,099 (468) (131,251)
		Share premium HK$’000 210,790 – – 210,790 23,174 (780) – – 233,184 – – 233,184 – 233,184	Share option reserve HK$’000 – – – – – – – 1,694 1,694 – – 1,694 (486) 1,208	Special reserve HK$’000 Note (a) 13,524 – – 13,524 – – – – 13,524 – – 13,524 – 13,524	Capital reserve HK$’000 Note (b) 1,848 – – 1,848 – – 15 – 1,863 – – 1,863 – 1,863	Translation reserve HK$’000 431 (468) – (37) – – – – (37) 37 – – – –
										57,380 30,909 (780) (49,147) 1,694
										40,056 37 (13,230)
										26,863 –
										26,863

Notes:

• (a) The special reserve of the Group represents the difference between the nominal value of the shares of the subsidiaries acquired and the nominal value of the Company’s shares issued for the acquisition under the corporate reorganisation of the Group.

• (b) The capital reserve represents the contributions made by the then controlling shareholder under the corporate reorganisation of the Group.

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 March 2007 (Expressed in Hong Kong dollars)

Notes Operating activities Loss before taxation Adjustments for: Impairment loss recognised in respect of investment deposits Impairment loss recognised in respect of investments held for trading Impairment loss recognised in respect of loan, margin and loan interest receivables Depreciation Interest income Interest expense Interest on obligations under finance leases Provision for doubtful debts Bad debts written off Gain on investments held for trading Gain on disposal of subsidiaries Loss on disposal of property, plant and equipment Amortisation of intangible asset Provision for obsolete inventories Provision for amount due from an associate Equity-settled share-based payment Operating cash outflows before movements in working capital (Increase) decrease in inventories Decrease (increase) in accounts receivable Decrease in amounts due from customers for contract work (Increase) decrease in progress payments receivable Decrease (increase) in other receivables, deposits and prepayments Decrease in retention money receivables (Increase) decrease in amount due from a related company Decrease in bills payable (Decrease) increase in accounts payable, other payables and accrued charges Decrease in retention money payables Decrease in amounts due to associates Increase in amounts due to a related company Increase in amount due to a director Cash used in operations Interest received Interest paid Interest on obligations under finance leases Hong Kong profits tax paid Net cash used in operating activities	2007 HK$’000 (12,438) – – 82 918 (166) 2,542 31 1,602 – – (9,196) 64 251 238 – – (16,072) (199) 5,130 657 (1,208) 2,069 3,471 (39) (91) (6,495) (580) – – 529 (12,828) 166 (2,542) (31) (650) (15,885)	2006 HK$’000 (131,092) 25,000 27,764 69,187 3,147 (902) 2,245 40 2,562 315 (269) (25,927) 1,835 251 13 467 1,694 (23,670) 207 (13,665) 4,327 2,033 (7,332) 958 2,030 (466) 15,508 (583) (2,940) 890 – (22,703) 902 (2,245) (40) – (24,086)

– 51 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Investing activities Purchase of property, plant and equipment Purchase of investments held for trading Refund of investment deposits Payment of investments deposits Placement of pledged bank deposits Decrease (increase) in loans receivable Increase in loans payable Proceeds from disposal of property, plant and equipment Proceeds from disposal of listed investments Disposal of subsidiaries 41 Net cash generated from (used in) investing activities Financing activities Proceeds from issue of ordinary shares, net of issue expenses New borrowings obtained Repayment of other borrowings Repayment of obligations under finance leases Net cash generated from financing activities (Decrease) increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Analysis of the balance of cash and cash equivalents Fixed deposits Bank balances and cash Bank overdrafts (secured) Notes	(180) – – – (71) 5,257 367 214 – (3) 5,584 – 2,395 – (282) 2,113 (8,188) 13,546 5,358 – 7,284 (1,926) 5,358 2007 HK$’000	(233) (5,942) 25,000 (20,000) (56) (20,045) 320 120 15,711 (584) (5,709) 30,129 20,000 (8,282) (405) 41,442 11,647 1,899 13,546 1,599 16,045 (4,098) 13,546 2006 HK$’000

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Hong Kong dollars)

1. Organisation and operations

China Conservational Power Holdings Limited (the “Company”) was incorporated in the Cayman Islands as an exempted company with limited liability under the Companies Law (2000 Revision) of the Cayman Islands. Its registered office and principal place of business are located at P.O. Box 309, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies and at 1702-3, 17th Floor, Skyline Commercial Centre, 71-77 Wing Lok Street, Sheung Wan, Hong Kong respectively.

The Group engages in electrical engineering contracting, trading of electrical equipment and materials, investment holding, securities brokerage and financing and sea freight forwarding services. The Group operates primarily in Hong Kong. The Company is an investment holding company. The activities of the subsidiaries are set out in note 44 to the financial statements. The Company’s shares had been listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The Company’s shares have been suspended for trading on the Stock Exchange since 29 September 2005.

2. Adoption of new and revised Hong Kong Financial Reporting Standards

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are relevant to its operations and effective for annual reporting periods beginning on 1 April 2006. The adoption of these new and revised Standards and Interpretations did not result in substantial changes to the Group’s accounting policies nor have affected the amounts reported for the current or prior years.

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At the date of authorisation of these financial statements, the following Standards and Interpretations relevant to the Group were in issue but not yet effective:

Effective for annual periods beginning on or after

HKAS 1 (Amendment) Capital Disclosures 1 January 2007 HKFRS 7 Financial Instruments: Disclosures 1 January 2007 HK(IFRIC) – Int 8 Scope of HKFRS 2 1 May 2006 HK(IFRIC) – Int 10 Interim Financial Reporting and Impairment HK(IFRIC) – Int 11 HKFRS 2 – Group and Treasury 1 March 2007 Share Transactions

• 1 January 2007

• 1 January 2007 1 May 2006 1 November 2006

The Directors of the Company anticipate that the application of these standards or interpretations will have no material impact on the financial statements of the Group.

3. Principal accounting policies

(a) Statement of compliance

These 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 issued by HKICPA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange.

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Basis of preparation of financial statements

• (i) The consolidated financial statements have been prepared under the historical cost convention, as modified for the revaluation of certain financial instruments which are carried at fair value.

• (ii) The Group sustained a net loss for the year attributable to equity holders of the parent of HK$13,230,000 during the year and had net assets and total equity of approximately HK$26,863,000 as at 31 March 2007. The financial statements have been prepared on a going concern basis, the validity of which depends upon the financial support of a substantial shareholder, who has undertaken to provide funds to finance the working capital requirements of the Group. A licensed money lender has also agreed to make available a new stand-by loan up to a maximum amount of HK$20,000,000 to the Company which is not repayable before 31 July 2008.

(c) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 March each year.

The results of the subsidiaries acquired and 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.

All significant intercompany transactions, balances and unrealised gains on transactions between group enterprises are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment on the asset transferred.

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

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

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) 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 assumed in a business combination are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. 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 recognised immediately in the profit and loss account.

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

(e) Subsidiary

A subsidiary is a company in which the Company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another enterprise.

Investments in subsidiaries are included in the Company’s balance sheet at cost less any impairment loss. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(f) Associates

An associate is a company, not being a subsidiary nor an interest in a joint venture, over which the Group is in a position to exercise significant influence, through participation in the financial and operating policy decisions of the investee.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate are not recognised. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment.

Where a group company transacts with an associate of the Group, unrealised gains and losses are eliminated to the extent of the Group’s interest in the relevant associate, except where unrealised losses provide evidence of an impairment of the assets transferred.

(g) Joint venture

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control, that is when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.

Where a group company undertakes its activities under joint venture arrangements directly, the Group’s share of jointly controlled assets and any liabilities incurred jointly with other venturers are recognised in the financial statements of the relevant company and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group’s share of the output of jointly controlled assets, and its share of jointly venture expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to/from the Group and their amount can be measured reliably.

Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using the equity method of accounting. Under the equity method, investments in jointly controlled entities are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the jointly controlled entities, less impairment in the value of individual investments. Losses of a jointly controlled entities in excess of the Group’s interest in that jointly controlled entity are not recognised. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment.

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Where a group enterprise transacts with a jointly controlled entity of the Group, unrealised gains and losses are eliminated to the extent of the Group’s interest in the joint venture, except where unrealised losses provide evidence of an impairment of the assets transferred.

(h) Goodwill

Goodwill represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary, associate or jointly controlled entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill on acquisitions of subsidiaries is presented separately. Goodwill on acquisitions of associates or jointly controlled entities is included in investments in associates or jointly controlled entities.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Gain or loss on disposal of a subsidiary, an associate or a jointly controlled entity is determined after taking into account the carrying amount of goodwill relating to the subsidiary, associate or jointly controlled entity sold.

(i) Property, plant and equipment

Historical 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 charged to the profit and loss account 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 assets, the expenditure is capitalised as an additional cost of the asset or a separate asset.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Depreciation is charged so as to write off the cost or valuation of assets, other than properties under construction, over their estimated useful lives, using the straightline method. The useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The principal annual rates are as follows:

Leasehold improvements	20%
Furniture and fixtures	25%
Office equipment	25%
Motor vehicles	25%

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

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the profit and loss account.

(j) Intangible assets (other than goodwill)

Intangible assets that are acquired by the Group are stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is other than indefinite) and impairment losses. Intangible assets with indefinite useful lives that are acquired by the Group are stated in the balance sheet at cost less impairment losses.

(k) Impairment of assets excluding goodwill

Assets that have an indefinite useful life are not subject to amortisation and tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the profit and loss account, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the profit and loss account, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

(l) Installation contracts

When the outcome of an installation contract can be estimated reliably, contract revenue and costs are recognised in the income statement by reference to the stage of completion of the contract activity at the balance sheet date, as measured by surveys on works performed.

When the outcome of an installation contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that is probable will be recoverable and contract costs are recognised as an expense in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

(m) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes cost of purchase of materials computed using the weighted average cost method. Net realisable value is determined by reference to the anticipated sales proceeds of items sold in the ordinary course of business less estimated selling expenses after the balance sheet date or to management estimates based on prevailing market conditions.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(n) Financial instruments

Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.

(i) Trade and other receivables

Receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate provision for estimated irrecoverable amounts are recognised in the profit and loss account when there is objective evidence that the asset is impaired. The provision recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

(ii) Investments

Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus directly attributable transaction costs.

At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in the profit and loss account when there is objective evidence that the asset is impaired, and is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Investments other than held-to-maturity debt securities are classified as either investments held for trading or as available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in the profit and loss account for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit and loss account for the period. For investment in an equity instrument that does not have a quoted market price in an active market and for which other methods of reasonably estimating fair value are clearly inappropriate or unworkable, the instrument will be measured at cost less impairment. Impairment losses recognised in the profit and loss account for equity investments classified as available-for-sale are not subsequently reversed through the profit and loss account. Impairment losses recognised in the profit and loss account for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss.

(iii) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

(iv) Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group 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 for specific financial liabilities and equity instruments are set out below.

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(v) Borrowings

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

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(vi) Trade and other payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

• (vii) Equity instruments

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

(o) Leases

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.

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the profit and loss account, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s policy on borrowing costs.

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Rentals payable under operating leases are charged to the profit and loss account 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 also spread on a straightline basis over the lease term.

(p) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or nonoccurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(q) Taxation

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

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expenses 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.

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred tax liabilities is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements and deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. However, such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) or other asset and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

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

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, associated companies and joint ventures, 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.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

(r) Translation of foreign currencies

The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements are expressed in Hong Kong dollars which is the functional currency of the Company, and the presentation currency for the consolidated statements.

In preparing the financial statements of the individual entities, foreign currency transactions are translated into Hong Kong dollars at the rates of exchange 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.

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the profit and loss account for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the profit and loss account for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operation (including comparatives) are expressed in Hong Kong dollars using exchange rates prevailing on the balance sheet date. Income and expenses items (including comparatives) are translated at the average exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised in the profit and loss account in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

(s) Employees’ benefits

(i) Short term benefits

Salaries, annual bonuses, paid annual leaves and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present value.

(ii) Retirement benefit scheme contributions

Contributions to the Mandatory Provident Fund Scheme as required under the Hong Kong Mandatory Provident Fund Schemes Ordinance are charged to the profit and loss account when incurred. The Group has no further payment obligations once the contribution is made.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(iii) Share based payments

The fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in a share option reserve within equity. The fair value is measured at grant date using the Black – Scholes pricing model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the share options, the total estimated fair value of the share options is expensed on a straight-line basis over the vesting period, taking into account the probability that the options will vest.

During the vesting period, the number of share options that is expected to vest is reviewed. Any adjustment to the cumulative fair value recognised in prior years is charged/credited to the profit and loss account for the year of the review, unless the original employee expenses qualify for recognition as an assets, with a corresponding adjustment to the share option reserve. On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of share option that vest (with a corresponding adjustment to the share option reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company’s shares. The equity amount is recognised in the share option reserve until either the option is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to retained profits).

(t) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in the profit and loss account in the period in which they are incurred.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(u) Related parties

Two 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. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

(v) Revenue recognition

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

• (i) Revenue from the sale of electrical products is recognised when the Group entity has delivered products to the customer, the customer has accepted the products and collectibility of the related receivable is reasonably assured.

• (ii) Revenue on installation contracts is recognised using the percentage of completion method by reference to the value of work carried out during the year.

• (iii) Interest income is accrued on a time-apportioned basis by reference to the principal outstanding using the effective interest rate method.

• (iv) Rental income from operating leases is recognised in equal instalments over the accounting periods covered by the lease term.

• (v) Revenue from sea freight forwarding is recognised when the services are rendered, which generally coincides with the time of shipment.

• (vi) Brokerage commission income is recognised on a trade date basis when the services are rendered.

• (vii) Income from securities handling charges and service income is recognised when the services are rendered.

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(w) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these financial statements.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interestbearing loans, borrowings, tax balances, corporate and financing expenses.

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. Critical accounting estimates and judgements

Estimates and judgments

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In determining whether an asset is impaired or the event previously causing the impairment no longer exists, the Group has to exercise judgment in the area of asset impairment, particularly in assessing: (1) whether an event has occurred that may effect the asset value or such event affecting the asset value has not been in existence; (2) whether the carrying value of an asset can be supported by net present value of future cash flows which are estimated based upon the continued use of the asset or derecognition; and (3) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management to determine the level of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test.

Estimation uncertainty

The Group also makes estimates and assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Share option expense is subject to the limitations of the option pricing models adopted and the uncertainty in estimates used by management in the assumptions. Should the estimates including limited early exercise behaviour, expected interval and frequency of open exercise periods in the share option life and the relevant parameters of the share option model be changed, there would be material changes in the amount of share option benefits recognised in the income statement and sharebased reserve.

– 70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The management exercises their judgement in estimation of impairment loss on investments held for trading based on the valuation report from an independent firm of professional valuers. The valuation is subject to the limitation and the uncertainty of the estimates used by management. There would be material changes in the amount of impairment loss recognised in the income statement and accumulated impairment loss if the parameters in the model are changed.

5. Turnover

Turnover represents the aggregate of the value of contract work carried out, proceeds from sales of goods, brokerage income, margin interest earned and interest income from unsecured loans during the year, and is analysed as follows:

Electrical engineering contracting Brokerage income from securities dealings Sale of electrical goods Margin interest from securities brokerage business Interest income from unsecured loans Others	2007 HK$’000 2,934 1,519 1,430 618 3 – 6,504	2006 HK$’000 17,737 3,484 1,865 1,527 5,067 10
		29,690

6. Business and geographical segments

(a) Business segments

For management purposes, the Group is currently organised into four operating divisions. These divisions are the basis on which the Group reports its primary segment information. The principal activities are as follows:

• (i) Electrical engineering contracting

• (ii) Sale of electrical goods

• (iii) Securities brokerage and financing

• (iv) Sea freight forwarding services

– 71 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For the year ended 31 March 2007 Turnover External sales Inter-segment sales Total revenue Results Segment results Unallocated operating income and expenses Loss from operations Finance costs Gain on disposal of subsidiaries Loss before taxation Taxation Net loss for the year	Electrical engineering contracting HK$’000 2,934 – 2,934 (4,153)	Sale of electrical goods HK$’000 1,430 – 1,430 (3,861)	Securities brokerage and financing HK$’000 2,140 – 2,140 (2,393)	Sea freight forwarding services HK$’000 – – – (119)	Others HK$’000 – – – (41)	Elimination Consolidated HK$’000 HK$’000 – 6,504 – – – 6,504 – (10,567) (8,494) (19,061) (2,573) 9,196 (12,438) (792) (13,230)

– 72 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Securities	Sea
	Electrical	Sale of	brokerage	freight
	engineering	electrical	and	forwarding
	contracting	goods	financing	services	Others	**Elimination **	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
As at 31 March 2007
Assets
Segment assets	5,587	1,427	14,480	7	6	–	21,507
Unallocated corporate assets							41,644
Consolidated total assets							63,151
Liabilities
Segment liabilities	8,747	2,533	6,451	17	82	–	17,830
Unallocated corporate
liabilities							18,458
Consolidated total liabilities							36,288
Other information
Additions of property,
plant and equipment	11	250	39	–	–	–	300
Amortisation of
trading right	–	–	251	–	–	–	251
Depreciation	73	86	188	–	6	565	918
(Gain) loss on disposal of
property, plant
and equipment	–	(92)	–	–	–	156	64
Provision for doubtful debts	145	1,336	–	–	7	114	1,602

– 73 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Electrical Sale of engineering electrical contracting goods HK$’000 HK$’000 For the year ended 31 March 2006 Turnover External sales 17,737 1,865 Inter-segment sales – 233 Total revenue 17,737 2,098 Inter-segment sales are charged at prevailing market rates. Results Segment results (8,024) (3,778) Unallocated operating income and expenses Loss from operations Finance costs Gain on disposal of subsidiaries Loss before taxation Taxation Net loss for the year	Securities brokerage and financing HK$’000 10,078 9 10,087 (59,539)	Sea freight forwarding services HK$’000 – – – (108)	Others HK$’000 10 – 10 (19)	Elimination Consolidated HK$’000 HK$’000 – 29,690 (242) – (242) 29,690 – (71,468) (83,266) (154,734) (2,285) 25,927 (131,092) (159) (131,251)

– 74 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Securities	Sea
	Electrical	Sale of	brokerage	freight
	engineering	electrical	and	forwarding
	contracting	goods	financing	services	Others	**Elimination **	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
As at 31 March 2006
Assets
Segment assets	10,155	2,893	27,981	6	30	–	41,065
Unallocated corporate assets							51,685
Consolidated total assets							92,750
Liabilities
Segment liabilities	8,024	1,285	16,882	19	75	–	26,285
Unallocated corporate
liabilities							26,409
Consolidated total liabilities							52,694
Other information
Additions of property, plant
and equipment	–	–	214	–	–	19	233
Amortisation of trading right	–	–	251	–	–	–	251
Depreciation	200	123	273	–	4	2,547	3,147
Impairment losses recognised
in income statement	–	–	62,931	–	–	59,487	122,418
Loss on disposal of property,
plant and equipment	–	79	–	–	–	1,756	1,835
Provision for doubtful debts	1,017	223	–	–	6	1,316	2,562
Bad debts written off	–	1	314	–	–	–	315

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Geographical segments

The Group’s principal operations are mainly located in Hong Kong and the People’s Republic of China (the “PRC”). The Group’s electrical engineering contracting, sale of electrical goods, securities brokerage and financing and sea freight forwarding services are located in Hong Kong.

Over 90% of the Group’s revenues during the two years ended 31 March 2007 were derived from Hong Kong. Accordingly, no geographical information on revenue is presented.

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

Hong Kong The PRC Others	Carrying amount of consolidated total assets At 31 March 2007 2006 HK$’000 HK$’000 24,203 52,383 – 834 24,203 53,217 38,948 39,533 63,151 92,750	Additions to property, plant equipment and intangible assets For the year ended 31 March 2007 2006 HK$’000 HK$’000 300 233 – – 300 233 – – 300 233	Additions to property, plant equipment and intangible assets For the year ended 31 March 2007 2006 HK$’000 HK$’000 300 233 – – 300 233 – – 300 233
			233 –
			233

– 76 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

7. Other operating income Other operating income includes: Interest income Handling charges Sundry income Reversal of provision for irrecoverable prepayments Gain on disposal of other investments Rental income Exchange gain 8. Impairment losses Impairment losses in respect of: Loans and margin receivable Investments held for trading Investment deposits Loan interest receivables Interests in associates	2007 HK$’000 166 46 38 – – – – 250 2007 HK$’000 – – – – – –	2006 HK$’000 902 122 107 3,053 269 230 37
		4,720
		2006 HK$’000 63,550 27,764 25,000 5,637 467
		122,418

– 77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Loss from operations

	2007	2006
	HK$’000	HK$’000
Loss from operations has been arrived at after
charging (crediting):
Provision for doubtful debts	1,602	2,562
Amortisation of trading right in respect of
securities trading included
in administrative expenses_(Note 20)_	251	251
Auditor’s remuneration:
Current year	580	650
Underprovision in prior years	100	–
Bad debts written off	–	315
Cost of inventories	1,198	1,278
Depreciation of property, plant and equipment:
Owned assets	642	2,682
Assets held under finance leases	276	465
Exchange gains	–	(37)
Provision for obsolete inventories	238	13
Impairment losses_(Note 8)_	–	122,418
Loss on disposal of property, plant and equipment	64	1,835
Operating lease rentals in respect of rented premises	1,310	993
Staff costs excluding directors’ remuneration:
Salaries and allowances	9,115	13,647
Retirement benefit scheme contributions	295	424
Share options granted to employees	–	1,694

– 78 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

10. Directors’ and senior executives’ emoluments

• (a) The emoluments paid or payable to each of Directors of the Group during the year are as follows:

Directors’s fees HK$’000 Executive Directors You Wei_(Note) 601 Ng Khai Wain 601 Sun Tak Yan, Desmond 75 Yeung Kwok Leung 90 Szeto Chak Wah, Michael – Lai Man Leung – _Independent non-executive Directors Albert Ho 89 Shane Phillips 89 Cai Zhixu 89 Tsoi Wai Kwong 9 Au Tin Fung 6 Law Mun Yee 6 Chong Yiu Kan, Sherman 9 Total 1,664	Salaries, allowances Retirement and benefit benefits scheme in kind contributions HK$’000 HK$’000 – – – – – – 797 12 180 1 108 1 – – – – – – – – – – – – – – 1,085 14	2007 Total HK$’000 601 601 75 899 181 109 89 89 89 9 6 6 9
		2,763

Note: Ms You Wei was re-designed as Non-Executive Director on 12 June 2007.

– 79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Directors’s fees HK$’000 Executive Directors Lee Yu Leung – Hon Ming Kong – Ting Pascal – Chen Jun Nong – Chan Tat Chee – Lin Hoi Kwong – Zhao Lin – Szeto Chak Wah, Michael – Lai Man Leung – Yeung Kwok Leung – Non-executive Director Li Yong, Alfa 438 Independent non-executive Directors Loo Chung Keung, Steve 92 Au Yeung Ka Cheung 48 Wong Tik Tung 26 Tsoi Wai Kwong 80 Au Tin Fung 22 Law Mun Yee 33 Chong Yiu Kan, Sherman 22 Total 761	Salaries, allowances Retirement and benefit benefits scheme in kind contributions HK$’000 HK$’000 476 7 325 – 225 3 155 2 9 – 370 7 412 – 1,039 6 623 6 111 3 – – – – – – – – – – – – – – – – 3,745 34	2006 Total HK$’000 483 325 228 157 9 377 412 1,045 629 114 438 92 48 26 80 22 33 22
		4,540

– 80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (b) Details of the emoluments paid by the Group to the senior management of the Company are as follows:–

Salaries and allowances HK$’000 Senior management: Lin Hoi Kwong 397 Lai Sai Sang 2,651 Leung Sau Che, Jennifer 835 3,883 Salaries and allowances HK$’000 Senior management: Lin Hoi Kwong 790 Lai Sai Sang 3,012 Leung Sau Che, Jennifer 1,152 4,954	Retirement benefit scheme Bonus contributions HK$’000 HK$’000 – 4 – 28 – 24 – 56 Retirement benefit scheme Bonus contributions HK$’000 HK$’000 – 12 – 73 – 46 – 131	2007 Total HK$’000 401 2,679 859
		3,939
		2006 Total HK$’000 802 3,085 1,198
		5,085

– 81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include three (2006: three) Directors whose emoluments are reflected in the analysis presented in note 10(a) above. The emoluments payable to the remaining two (2006: two) individuals during the year are as follows:

Salaries and other benefits MPF contributions The emoluments fell within the following brand: Emolument bands HK$ 0 – 1,000,000 1,000,001 – 2,000,000 2,000,001 – 3,000,000	2007 2006 HK$’000 HK$’000 3,486 4,164 52 119 3,538 4,283 Number of individuals 2007 2006 1 – – 1 1 1	2006 HK$’000 4,164 119
		4,283
		1
		1

• (d) There were no arrangements under which a director or senior management waived or agreed to waive any emoluments, and no incentive payment nor compensation for loss of office was paid or payable to any director or senior management during the year.

11. Results attributable to equity holders of the parent

The loss attributable to equity holders of the Company includes a profit of HK$1,512,000 (2006: loss of HK$131,647,000) which has been dealt with in the financial statements of the Company.

– 82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. Finance costs

Interest on bank borrowings and overdrafts wholly repayable within five years Interest on obligations under finance leases Interest on other borrowings 13. Taxation The charge comprises: Underprovision of Hong Kong profits tax in respect of prior years Deferred taxation_(Note 40)_	2007 HK$’000 97 31 2,445 2,573 2007 HK$’000 790 2 792	2006 HK$’000 488 40 1,757
		2,285
		2006 HK$’000 159 –
		159

No provision for Hong Kong profits tax for the current year has been made as the Group sustained a loss during the year. Taxation in other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

– 83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Taxation for the year can be reconciled to the accounting loss before taxation per the consolidated income statement as follows:

Loss before taxation Tax credit at the domestic income tax rate of 17.5% (2006: 17.5%) Tax effect of expenses that are not deductible in determining taxable profit Tax effect of income that is not taxable in determining taxable profit Deferred tax asset on tax losses and other timing differences not recognised Underprovision in prior years Taxation charge for the year	2007 HK$’000 (12,438) (2,177) 255 (951) 2,873 792 792	2006 HK$’000 (131,092) (22,941) 11,172 (4,691) 16,460 159 159

Details of deferred taxation are disclosed in note 40 to the financial statements.

– 84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Dividends

No dividend has been paid or declared by the Company during the year (2006: $Nil).

The Directors do not recommend the payment of a final dividend during the year.

15. Loss per share

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

Loss for the purposes of basic loss per share Weighted average number of ordinary shares for the purposes of basic loss per share	2007 HK$’000 (13,230) ’000 464,070	2006 HK$’000 (131,251) ’000 459,620

Diluted loss per share was not presented for both years as the potential diluted ordinary shares resulting from the exercise of the Company’s outstanding share options are anti-dilutive.

– 85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. Property, plant and equipment

Leasehold improvements HK$’000 The Group Cost: At 1 April 2005 5,504 Additions 69 Disposals – of subsidiaries – – others (4,958) At 31 March 2006 615 Additions – Disposals – At 31 March 2007 615 Accumulated depreciation: At 1 April 2005 2,827 Charge for the year 1,180 Written back on disposal – of subsidiaries – – others (3,506) At 31 March 2006 501 Charge for the year 98 Written back on disposal – At 31 March 2007 599 Net book values: At 31 March 2007 16 At 31 March 2006 114	Furniture and fixtures HK$’000 5,566 35 (228) (1,076) 4,297 – (2,639) 1,658 4,097 825 (166) (783) 3,973 120 (2,471) 1,622 36 324	Office equipment HK$’000 4,460 129 (153) (157) 4,279 50 (855) 3,474 3,210 658 (9) (126) 3,733 296 (780) 3,249 225 546	Motor vehicles HK$’000 2,523 – (399) (264) 1,860 250 (278) 1,832 622 484 (27) (85) 994 404 (243) 1,155 677 866	Total HK$’000 18,053 233 (780) (6,455) 11,051 300 (3,772) 7,579 10,756 3,147 (202) (4,500) 9,201 918 (3,494) 6,625 954 1,850

Note: On 31 March 2007, motor vehicles with a net book value of approximate HK$677,000 (2006: HK$866,000) were held under finance leases.

– 86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company Cost: At 1 April 2005, 31 March 2006 and 31 March 2007 Accumulated depreciation: At 1 April 2005 Charge for the year At 31 March 2006 Charge for the year At 31 March 2007 Net book values: At 31 March 2007 At 31 March 2006 17. Interests in subsidiaries Unlisted shares, at cost Amounts due from subsidiaries, net _Less:_Impairment losses	Office equipment HK$’000 157 95 39 134 23 157 – 23 The Company 2007 2006 HK$’000 HK$’000 15,186 15,186 252,483 255,703 267,669 270,889 (263,595) (268,762) 4,074 2,127

The amounts due from subsidiaries are unsecured, interest free and in substance represent the Company’s interest in the subsidiaries in the form of quasi-equity loans.

Particulars of the Company’s principal subsidiaries at 31 March 2007 are set out in note 44.

– 87 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

18. Interests in associates

Cost of investment in associates Amounts due from associates, net Share of post acquisition results of associates _Less:_Impairment losses	The Group 2007 2006 HK$’000 HK$’000 35,000 35,000 33,428 33,428 68,428 68,428 (45,607) (45,607) (22,821) (22,821) – –	The Group 2007 2006 HK$’000 HK$’000 35,000 35,000 33,428 33,428 68,428 68,428 (45,607) (45,607) (22,821) (22,821) – –
		68,428 (45,607) (22,821)
		–

The amounts due from associates are unsecured, interest free and in substance represent the Company’s interest in the associates in the form of quasi-equity loans.

Particulars of the Group’s associates as at 31 March 2007 were as follows:

					Effective
				percentage
	Form of	Place of			of equity
	business	incorporation/	Class of	interest held
Name of associate	structure	operation	shares held		by Group	Principal activities
Bright Rich International	Incorporated	Hong Kong/	Ordinary		50%	Inactive
Limited_(note (a))_		Hong Kong
Sharpway Enterprises	Incorporated	The British Virgin	Ordinary		50%	Inactive
Limited_(note (a))_		Islands/
		The PRC
United Asia Terminal	Incorporated	The British Virgin	Ordinary		40%	Investing holding
Holdings Limited		Islands/
(note (a))		The PRC
Shanghai Fortune Limited	Incorporated	Hong Kong/	Ordinary		40%	Investing holding
(note (a))		The PRC
Fortune Union Investment	Incorporated	Hong Kong/	Ordinary		40%	Investing holding
Limited_(note (a))_		The PRC
Shanghai United Asia	Sino-foreign	The PRC/	Registered capital		36%	Operation of
Container Services	equity joint	The PRC				container depots
Co., Ltd.	venture					and provision of
上海聯亞集裝箱						logistics
服務有限公司						management
(note (b))						services business

– 88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

• (a) No audited or management accounts for the year ended or close to 31 March 2007 were available to the Directors.

• (b) The financial information of Shanghai United Asia Container Services Co., Limited 上海聯亞集 裝箱服務有限公司 was based on the financial statements audited by the PRC auditor made up to 31 December 2006.

19. Interest in a joint venture

	The	Group
	2007	2006
	HK$’000	HK$’000
Share of net assets	–	–

As at 31 March 2007, the Group had an interest in the following joint venture:

				Attributable
	Form of	Place of		equity
	business	incorporation	Class of	interest held
Name of company	structure	and operation	capital held	by the Group	Principal activities
Dagong Credit Information	Incorporated	The PRC	Registered Capital	50%	Provision of credit
Service Co., Ltd.					information rating
大公信用信息服務					services
有限公司					in the PRC

– 89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. Intangible assets

Cost: At 1 April 2005, 31 March 2006 and 31 March 2007 Amortisation and impairment: At 1 April 2005 Charge for the year At 31 March 2006 Charge for the year At 31 March 2007 Net book values: At 31 March 2007 At 31 March 2006 The intangible assets represent trading right in the Stock Exchange.	The Group HK$’000 2,380 1,878 251
	2,129 251
	2,380
	–
	251

21. Other assets

The Stock Exchange – Compensation fund deposits – Fidelity fund deposits – Stamp duty deposits Hong Kong Securities Clearing Company Limited – Guarantee fund contribution – Admission fees At 31 March	The Group 2007 2006 HK$’000 HK$’000 50 50 50 50 5 5 50 50 50 50 205 205	The Group 2007 2006 HK$’000 HK$’000 50 50 50 50 5 5 50 50 50 50 205 205
		205

– 90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. Investments held for trading

Non-voting cumulative redeemable convertible preference shares, (“Preference Shares”) at cost_(note (a)) Listed investments, at cost(note (b))_ _Less:_Impairment losses	The Group 2007 2006 HK$’000 HK$’000 60,800 60,800 5,780 5,780 66,580 66,580 (27,764) (27,764) 38,816 38,816	The Company 2007 2006 HK$’000 HK$’000 60,800 60,800 5,700 5,700 66,500 66,500 (27,744) (27,744) 38,756 38,756

Notes:

• (a) The Preference Shares were issued by China Science Conservational Power Limited (“CSCPL”) and carry a fixed preferential dividend at 3% per annum. The maturity date of the Preference Shares is 3 years from the date of issue, i.e. 4 July 2008. According to the agreement, the Preference Shares can be converted to ordinary shares accompanied with the exercise of the new share options at any time before maturity date.

As at 31 March 2007, the carrying value represented the fair value of the Company’s holding of 80,000,000 Preference Shares based on a valuation carried out as at 31 March 2006. The Directors are of the opinion that there has been no material change on the carrying value of the Preference Shares during the year. The trading of the shares of CSCPL has been suspended since 29 September 2005.

The Preference Shares as at 31 March 2006 were valued by a firm of independent professional valuers at HK$36,000,000 using the discounted cash flow model, based on a specific pricing model and parameters. Accordingly, an impairment loss of HK$24,800,000 was made as at 31 March 2006.

In the opinion of the Directors, the conversion rights and the share options do not have any value.

• (b) Listed investments of HK$5,780,000 primarily represent 7,500,000 ordinary shares of CSCPL acquired through the exercise of options held by the Company. These ordinary shares were valued at HK$2,816,000 as at 31 March 2007 (2006: HK$2,816,000) based on the best judgement of the Directors. Impairment provision as at 31 March 2007 was HK$2,964,000 (2006: HK$2,964,000).

– 91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. Retention money receivables

Retention money receivables _Less:_Provision for bad debts _Less:_Amount receivable within one year included in current assets Amount receivable after one year	The Group 2007 2006 HK$’000 HK$’000 1,773 6,081 – (837) 1,773 5,244 (1,773) (4,135) – 1,109

The amount represents monies retained by the clients on progress payments on contract

work.

The carrying value of retention money receivables approximates their fair value.

24. Retention money payables

Retention money payables _Less:_Amount payable within one year included in current liabilities Amount payable after one year	The Group 2007 2006 HK$’000 HK$’000 1,252 1,832 (1,252) (447) – 1,385

The amount represents monies retained by the Group on payments to subcontractors on contract work. The carrying amount of retention money payables approximates their fair value.

– 92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. Accounts payable, other payables and accrued charges

Included in accounts payable, other payables and accrued charges are trade creditors amounting to HK$8,973,000 (2006: HK$15,897,000). The aged analysis of trade creditors is as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days More than 180 days	The Group 2007 2006 HK$’000 HK$’000 5,111 12,155 38 160 62 41 228 – 3,534 3,541 8,973 15,897	The Group 2007 2006 HK$’000 HK$’000 5,111 12,155 38 160 62 41 228 – 3,534 3,541 8,973 15,897
		15,897

The carrying amount of accounts payable, other payables and accrued charges approximates their fair value.

26. Inventories

	The	Group
	2007	2006
	HK$’000	HK$’000
Finished goods	213	252

– 93 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. Amounts due from customers for contract work

Contract costs incurred plus attributable profits less foreseeable losses _Less:_progress billings	The Group 2007 2006 HK$’000 HK$’000 – 23,363 – (22,706) – 657

28. Progress payments receivable

The aged analysis of progress payments receivable is as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days More than 180 days _Less:_Provision for doubtful debts	The Group 2007 2006 HK$’000 HK$’000 1,417 10 – 2 – – – 131 145 245 1,562 388 (145) (179) 1,417 209

The carrying amount of progress payment receivables approximates their fair value.

– 94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. Loans receivable

Interest bearing loans receivable Margin receivables_(Note)_ _Less:_Impairment losses	The Group 2007 2006 HK$’000 HK$’000 70,024 69,038 3,344 9,587 (69,269) (69,187) 4,099 9,438

In the opinion of the Directors, aged analysis of loans receivable does not give additional value and is therefore not presented.

Note: Margin receivables represent loans to securities margin clients which are secured by clients’ pledged securities. The balances are repayable on demand and bear interest at prevailing market rate.

30. Accounts receivable

The Group normally grants its customers 90 days credit.

The aged analysis of accounts receivable is as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days More than 180 days _Less:_Provision for doubtful debts	The Group 2007 2006 HK$’000 HK$’000 4,950 11,997 61 92 89 – – – 856 519 5,956 12,608 (551) (452) 5,405 12,156

The carrying amount of accounts receivable approximates their fair value.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. Investment deposits

Investment deposits comprise: Deposit for formation of a joint venture_(note (a)) Earnest money for acquisition of an interest in a PRC company engaged in software development(note (b)) _Less:_Impairment losses _Notes:	The Group 2007 2006 HK$’000 HK$’000 5,000 5,000 20,000 20,000 25,000 25,000 (25,000) (25,000) – –

• (a) A deposit of HK$10,000,000 was paid to a PRC party in May 2002 for the formation of a sinoforeign joint venture in the PRC in which the Group would own 49%. The joint venture was to be principally engaged in construction engineering consultancy and advisory services. The joint venture could not obtain the business licence and half of the deposit amounting to HK$5,000,000 was refunded on 18 July 2005. Based on the Directors’ assessment, full provision was made in respect of the remaining HK$5,000,000.

• (b) On 15 July 2005, the Group entered into a letter of intent with an independent third party and a guarantor in relation to the proposed acquisition of certain equity interests in a PRC company, which is principally engaged in the design and distribution of application software specifically for hospitals and clinics in the PRC. Pursuant to the terms of the letter of intent, the Group paid HK$20,000,000 as earnest money. The Group has made full provision for this deposit.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. Obligations under finance leases

The Group

Minimum lease payments 2007 2006 HK$’000 HK$’000 Amounts payable under finance leases: Within one year 324 306 More than one year but not exceeding two years 324 278 More than two years but not exceeding five years 200 440 848 1,024 _Less:_Future finance charges (89) (103) Present value of lease obligations 759 921 _Less:_Amounts due for settlement within one year Amounts due for settlement after one year 33. Bank overdrafts (secured) Bank overdrafts (secured)

Present value of minimum lease payments 2007 2006 HK$’000 HK$’000 290 275 290 250 179 396 759 921 (290) (275) 469 646 The Group 2007 2006 HK$’000 HK$’000 1,926 4,098

The bank overdrafts are denominated in Hong Kong dollars and repayable on demand.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The average interest rate paid on bank overdrafts ranges from prime rate to prime rate less 1% (2006: prime rate less 1%).

The carrying amount of bank overdrafts approximates their fair value due to their short term nature.

34. Other borrowings (unsecured)

	The	Group
	2007	2006
	HK$’000	HK$’000
Unsecured borrowings	14,113	11,718

Other borrowings were unsecured and bored interest rate at 24% per annum.

On 15 June 2007, the loan was fully repaid and the lender advanced a new loan of HK$12,000,000 to the Group to be repaid in full on 13 June 2008. The new loan is unsecured and bears interest at 24% per annum.

The carrying amount of other borrowings approximated their fair value.

35. Share capital

Authorised: 1,000,000,000 ordinary shares of HK$0.10 each Issued and fully paid: 464,070,000 ordinary shares of HK$0.10 each	The Company 2007 2006 HK$’000 HK$’000 100,000 100,000 46,407 46,407	The Company 2007 2006 HK$’000 HK$’000 100,000 100,000 46,407 46,407
		46,407

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A summary of the authorised, issued and fully paid share capital of the Company during the year is as follows:

Authorised: Balance as at 1 April 2005, 31 March 2006 and 31 March 2007 Issued and fully paid: Balance as at 31 March 2005 Share issued on 21 April 2005 Balance as at 31 March 2006 and 31 March 2007	Number of shares 1,000,000,000 386,726,000 77,344,000 464,070,000	Amount HK$’000 100,000
		38,672 7,735
		46,407

36. Share options

The Company had a share option scheme (the “2001 share option scheme”) which was adopted on 3 April 2001. Pursuant to a shareholders’ resolution dated 12 February 2003, the 2001 share option scheme enabling the Directors to grant options to employees, including Executive Directors of the Company and its subsidiaries, to subscribe for shares of the Company was terminated.

A new share option scheme (the “New Option Scheme”) was approved and adopted by the shareholders of the Company on 12 February 2003. The New Option Scheme is valid and effective for a period of 10 years after the date of adoption. Outstanding options granted pursuant to the 2001 share option scheme shall continue to be subject to the provisions of the 2001 share option scheme and the adoption of the New Option Scheme will not in any way affect the terms of the grant of such outstanding options.

Under the terms of the New Option Scheme, the Directors of the Company may, at their discretion, grant options to the full-time employees, including Executive Directors of the Company and its subsidiaries, to subscribe for shares of the Company for recognition of their contribution as incentives or rewards. Options granted must be taken up within 30 days of the date of grant. A nominal consideration of HK$1 is payable on acceptance of the grant of an option which will entitle the holders to subscribe for shares of the Company during a period of 5 years commencing on the date of acceptance of the option at a price not less than the higher of (i) the nominal value of the shares of the Company; (ii) the closing price

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

of the shares of the Company on the Stock Exchange on the date of grant; and (iii) the average of the closing prices of the shares of the Company on the Stock Exchange for the five trading days immediately preceding the date of the grant of the option. The maximum number of shares which may be issued upon the exercise of all outstanding options granted and yet to be exercised under the New Option Scheme and any other schemes of the Company must not exceed 30% of the shares of the Company in issue from time to time. Subject to the shareholders’ approval, the maximum number of shares in respect of which options may be granted under the New Option Scheme shall not exceed 10% of the shares in issue as at the date of the approval, or the maximum number of shares in respect of which options may be granted to any employee may not exceed 1% of the shares in issue from time to time in a 12-month period. Subject to the entitlements of dividends, bonus, rights declared before the exercise of options, any shares allotted and issued on the exercise of an option will rank pari passu with the other shares in issue at the date of exercise of the relevant option.

At 31 March 2007, 13,700,000 (2006: 25,522,600) options had been granted and remained outstanding under the New Option Scheme of the Company, representing 2.9% (2006: 5.5%) of the shares of the Company in issue at that date.

The following table disclose details of the Company’s share options held by employees (including Directors) and movements in such holdings during the year:

For the year ended 31 March 2007

Option type 2004B 2004C 2005A 2006A Total	Outstanding at 1 April 2006 6,400,000 2,630,000 500,000 15,992,600 25,522,600	Lapsed during the year (6,200,000) (530,000) (500,000) (4,592,600) (11,822,600)	Outstanding at 31 March 2007 200,000 2,100,000 – 11,400,000
			13,700,000

At 31 March 2007 and 2006, no share options were held by the Directors.

– 100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of specific categories of options are as follows:

			Closing price
			immediately	Exercise
			before/on the	price
Option type	Date of grant	Exercise period	date of grant	per share
			HK$	HK$
2004B	27 August 2003	27 August 2003	1.170	1.3060
		to 26 August 2008
2004C	16 January 2004	16 January 2004	0.840	0.8520
		to 15 January 2009
2005A	1 April 2004	1 April 2004 to	0.700	0.7000
		31 March 2009
2006A	2 August 2005	2 August 2005 to	0.340	0.3520
		1 August 2010

Options which lapsed or are cancelled prior to their exercise date have been deleted from the register of outstanding options.

– 101 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. Reserves

The Company

At 1 April 2005 Net loss for the year Total recognised income and expenses for the year Share premium arising from issue of shares Equity settled share-based transactions Share issue expenses At 31 March 2006 Net profit for the year Total recognised income and expenses for the year Share options lapsed At 31 March 2007	Share premium HK$’000 210,790 – 210,790 23,174 – (780) 233,184 – 233,184 – 233,184	Share option Contributed Accumulated reserve surplus losses HK$’000 HK$’000 HK$’000 (Note) – 80,657 (190,239 ) – – (131,647 ) – 80,657 (321,886 ) – – – 1,694 – – – – – 1,694 80,657 (321,886 ) – – 1,512 1,694 80,657 (320,374 ) (486) – 486 1,208 80,657 (319,888 )	Total HK$’000 101,208 (131,647) (30,439) 23,174 1,694 (780) (6,351) 1,512 (4,839) – (4,839)

Note:

The contributed surplus of the Company represents the difference between the fair value of the underlying net assets of the subsidiaries on the date they were acquired by the Company and the nominal amount of the Company’s shares issued under the corporate reorganisation of the Group.

– 102 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. Capital commitments

Capital commitments outstanding as at 31 March 2007 not provided for in the financial statements were as follows:

	The	Group
	2007	2006
	HK$’000	HK$’000
Contracted for but not provided
in the financial statements in respect of:
– acquisition of the cable cutting and
testing equipment	–	75

39. Operating lease commitments

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

Land and buildings: Operating leases which expire: – within one year – in the second to fifth year inclusive	The Group 2007 2006 HK$’000 HK$’000 742 654 295 – 1,037 654	The Group 2007 2006 HK$’000 HK$’000 742 654 295 – 1,037 654
		654

Operating lease payments for land and buildings represent rentals payable by the Group on its office premises. Leases are negotiated for an average term of two (2006: two) years.

– 103 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

40. Deferred taxation

The following are the major deferred tax liabilities (assets) recognised and movements thereon during the current and prior reporting periods:

The Group

At 1 April 2005 (Credit) charge to profit and loss for the year At 31 March 2006 Credit to profit and loss for the year At 31 March 2007	Accelerated tax depreciation HK$’000 62 (60) 2 (2) –	Tax losses HK$’000 (60) 60 – – –	Total HK$’000 2 – 2 (2) –

At 31 March 2007 the Group had unused tax losses of approximately HK$179,418,000 (2006: HK$159,588,000) available for offset against future profits. No deferred tax asset has been recognised in respect of the tax losses due to the unpredictability of future profit streams. Unrecognised tax losses may be carried forward indefinitely.

– 104 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

41. Disposal of subsidiaries

During the year, the Group disposed of its holding of 60% in the equity interest of Cyber Touch Limited for a consideration of HK$1 in cash. Cyber Touch Limited in turn holds 100% in the equity interest in 北京易行商盟在線網絡技術有限公司 .

The net assets of the subsidiaries disposed of at the date of disposal and the gain of disposal based on the unaudited financial information of the subsidiaries as at 31 December 2005 (Note) were as follows:

Net assets disposed of: Accounts receivable Other receivables and prepayments Bank balances and cash Trade and other payables Translation reserve Gain on disposal of subsidiaries Cash consideration received (HK$1) Net outflow of cash and cash equivalents on disposal of subsidiaries: Bank balances and cash disposed of Cash consideration received (HK$1)	HK$’000 19 812 3 (10,067) 37 9,196 – (3) – (3)

Note:

The Group has not received any updated accounts or financial information of the subsidiaries beyond the unaudited financial information as at 31 December 2005 obtained in previous year.

42. Pledged bank deposits

At 31 March 2007, the Group had pledged bank deposits of approximately HK$2 million (2006: HK$2 million) to secure certain bank facilities granted to the Group.

In addition, the Group’s bank overdrafts of HK$ Nil (2006: HK$3,210,000) as at the balance sheet date were secured on the securities held by the Group’s margin loan borrowers.

– 105 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

43. Retirement benefits schemes

The Group has joined a Mandatory Provident Fund Scheme (“MPF Scheme”) for all its employees. The MPF Scheme is registered with the Mandatory Provident Fund Scheme Authority under the Mandatory Provident Fund Schemes Ordinance. The assets of the MPF Scheme are held separately from those of the Group in funds under the control of an independent trustee. Under the rules of the MPF Scheme, the employer and its employees are required to make contributions to the MPF Scheme at rates specified in the rules. The only obligation of the Group in respect of the MPF Scheme is to make the required contributions under the MPF Scheme

The amounts charged to the income statement represented contributions payable to the MPF Scheme by the Group at rates specified in the rules of the MPF Scheme.

44. Principal subsidiaries

Details of the Company’s principal subsidiaries as at the 31 March 2007, all of which are wholly owned by the Company are as follows:

		Issued	and
	Place of	fully paid share capital/
Name of subsidiary	incorporation	registered	capital		Principal activities
		Ordinary/
		registered		Deferred
Brongham Park Limited	Hong Kong	HK$20	HK$1,000,000		Trading in diesel
				(Note c)	generating sets
Charmview International Limited	Hong Kong	HK$1		–	Inactive
China Legend International Limited	Hong Kong	HK$10,000		–	Investment holding
Country Super Limited	Hong Kong	HK$1,000,000		–	Investment holding
Ever Ace Investment Limited	Hong Kong	HK$2		–	Administrative
					centre and
					investment holding
Hong Tong Hai Capital Limited	Hong Kong	HK$10,000		–	Personal and
					commercial lending
Hong Tong Hai Consultants Limited	Hong Kong	HK$2		–	Investment holding
Hong Tong Hai Logistics Limited	The British	US$100		–	Investments holding
	Virgin Islands

– 106 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		Issued	and
	Place of	fully paid share capital/
Name of subsidiary	incorporation	registered capital		Principal activities
		Ordinary/
		registered	Deferred
Hong Tong Hai Securities Limited	Hong Kong	HK$21,000,000	–	Securities brokerage
Honsda (HK) Electronics Limited	Hong Kong	HK$1	–	Trading of electronic
				products
Jetcom Limited	The British	US$1	–	Investment holding
	Virgin Islands
MindGenius Secretarial	Hong Kong	HK$10,000	–	Provision of company
Services Limited				secretarial services
Oriental Overseas Group Limited	The British	US$50,000	–	Investment holding
	Virgin Islands
Sinogear Enterprises Limited	The British	US$1	–	Investment holding
	Virgin Islands
TopStar Enterprises	The British	US$1	–	Investment holding
(Holdings) Limited	Virgin Islands
Tribest Investments Limited	The British	US$1	–	Investment holding
	Virgin Islands
Yew Sang Hong (China) Limited	The British	US$1	–	Investments holding
	Virgin Islands
Yew Sang Hong (BVI) Limited	The British	US$1	–	Investments holding
	Virgin Islands
Yew Sang Hong Trading	Hong Kong	HK$2	–	Trading in electrical
(China) Limited				equipment and
				materials
Yew Sang Hong Building	Hong Kong	HK$2	–	Building maintenance
Services (Maintenance)
Engineering Limited
Yew Sang Hong Investment	The British	US$1	–	Investment holding
Services Limited	Virgin Islands
Yew Sang Hong Limited	Hong Kong	HK$20	HK$12,524,000	Electrical engineering
			(Note (c))	contracting

– 107 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		Issued and
	Place of	fully paid share capital/
Name of subsidiary	incorporation	registered capital		Principal activities
		Ordinary/
		registered	Deferred
Yew Sang Hong Trading Limited	Hong Kong	HK$2	HK$2	Trading in electrical
			(Note (c))	equipment and
				materials
Wellink Shipping Limited	Hong Kong	HK$2	–	Sea freight forwarding
				services

Notes:

• (a) Other than Yew Sang Hong (BVI) Limited, Yew Sang Hong (China) Limited, Yew Sang Hong Investment Services Limited, Hong Tong Hai Logistics Limited and Oriental Overseas Group Limited which are directly held by the Company, all other companies are indirectly held by the Company.

• (b) Other than those subsidiaries incorporated in the British Virgin Islands, whose place of operations are basically in Hong Kong, the places of operations of all other subsidiaries are the same as their places of incorporation.

• (c) The deferred shares are shares whose shareholders are neither entitled to receive notices, attend, vote at any general meetings nor to receive any dividend out of operating profit and have very limited rights on return of capital of the subsidiaries.

• (d) None of the subsidiaries had issued any debt securities at the end of the year.

• (e) The above table lists the subsidiaries of the Group which, in the opinion of the Directors, principally affected the results or assets and liabilities of the Group. To give details of other subsidiaries would, in the opinion of the Directors, result in particular excessive length.

45. Amount due to a director

The amount due to a director is unsecured, interest free and has no fixed terms of repayment.

– 108 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

46. Financial risk management

(a) Financial risk factors

The main risks arising from the Groups’ financial instruments in the normal course of the Group’s business are interest rate risk, credit risk, foreign currency risk and liquidity risk. These risks are limited by the Group’s financial management policies and practices described below. Generally, the Group introduces conservative strategies on its risk management. The Group has not used any derivatives and other instruments for hedging purposes nor does it hold or issue derivative financial instruments for trading purposes.

(i) Fair value and cash flow interest rate risk

Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Interest bearing financial assets and liabilities are mainly accounts receivable from cash and margin clients, bank overdrafts and other borrowings which are all short-term in nature. Therefore, any future variations in interest rates may impact on the income and operating cash flows of the company. Accordingly, the Group is exposed to cash flow interest rate risk.

(ii) Credit risk

The Group’s principal financial assets are bank balances and cash, trade and other receivables, retention money receivable, progress payment receivable, loans receivable and investments held for trading.

The Group’s credit risk is primarily attributable to its receivables. The amounts presented in the balance sheet are net of provisions for doubtful receivables. A provision for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.

(iii) Foreign exchange risk

The Group’s main operations are in Hong Kong and has no significant exposure to any specific foreign currency other than Hong Kong dollars.

– 109 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iv) Liquidity risk

The Group will consistently maintain a prudent financial policy and ensure that it maintains sufficient cash to meet its liquidity requirements.

(b) Fair values estimation

All financial instruments are carried at amounts not materially different from their fair values as at 31 March 2007.

Fair values of securities are based on quoted market, prices or professional valuation at the balance sheet date without any deduction from transaction costs. Fair values for the unquoted equity investments are estimated using the applicable price/ earning ratios for similar listed companies adjusted for the specific circumstances of the issuer, or based on the Directors’ best judgement.

The fair values of interest-bearing loans and borrowings and finance lease liabilities are estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

47. Post balance sheet events

• (a) Subsequent to the year end, a licensed money lender has granted the following loans to the Group:

• (i) a loan of HK$12,000,000 bearing interest at 24% per annum to be repaid in full on 13 June 2008 (note 34) ;

• (ii) a loan of HK$10,000,000 bearing interest at prime rate to be repaid in full on 25 May 2008; and

• (iii) a stand-by loan up to a maximum amount of HK$20,000,000 bearing interest at prime rate plus 3% which is not repayable before 31 July 2008.

As at the date of this report, the Group has drawn down the loans under (i) and (ii) in full and not utilised the stand-by loan under (iii).

• (b) In June 2007, in anticipation of recommencing the Group’s sea freight forwarding business, the Group has entered into an agreement to lease a class A office premises for a period of 3 years commencing on 3 September 2007 and expiring on 2 September 2010 for a rental of approximately HK$116,000 per month.

– 110 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

B. INTERIM RESULTS

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 September 2007

Notes Turnover 3 Cost of sales Gross profit Other revenue Selling expenses Administrative expenses Recovery of impairment losses 4 Impairment losses 5 Loss from operations 6 Finance costs 7 Loss before taxation Taxation 8 Net loss for the period Dividends 9 Loss per share – basic 10 – diluted 10	Six months ended 30 September 2007 2006 HK$’000 HK$’000 (unaudited) (unaudited) 5,207 2,692 (2,662) (2,042) 2,545 650 403 143 (5) (6) (7,838) (10,552) 2,500 – (12) (6) (2,407) (9,771) (1,921) (1,585) (4,328) (11,356) – (134) (4,328) (11,490) – – (0.9) cents (2.5) cents N/A N/A

– 111 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 September 2007

30 September 2007 Notes HK$’000 (unaudited) Non-current assets Property, plant and equipment 11 1,539 Other assets 230 1,769 Current assets Bank balances and cash 18,126 Pledged bank deposits 2,170 Investments held for trading 12 38,804 Inventories – Accounts receivable 13 4,329 Progress payments receivable 14 – Other receivables, deposits and prepayments 1,911 Loans receivable 15 10,606 Retention money receivables 1,679 Amounts due from related companies 82 77,707 Current liabilities Bank overdraft (secured) 2,009 Other borrowings (unsecured) 22,386 Accounts payable, other payables and accrued charges 16 25,179 Loans payable 4,401 Retention money payables 1,204 Amount due to a related company 890 Amount due to a director – Obligations under finance leases 290 Taxation payable 258 56,617 Net current assets 21,090 Total assets less current liabilities 22,859 Non-current liabilities Obligations under finance leases 324 Net assets 22,535 Equity Share capital 17 46,407 Reserves (23,872) Total equity 22,535

31 March 2007 HK$’000 (audited) 954 205 1,159 7,284 2,134 38,816 213 5,405 1,417 800 4,099 1,773 51 61,992 1,926 14,113 15,874 687 1,252 890 529 290 258 35,819 26,173 27,332 469 26,863 46,407 (19,544) 26,863

– 112 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 September 2007

NET CASH GENERATED FROM (USED IN) OPERATING ACTIVITIES NET CASH (USED IN) GENERATED FROM INVESTING ACTIVITIES NET CASH GENERATED FROM FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS Bank balances and cash Bank overdrafts	Six months ended 30 September 2007 2006 HK$’000 HK$’000 (unaudited) (unaudited) 3,857 (9,131) (1,226) 5,317 8,128 1,332 10,759 (2,482) 5,358 13,546 16,117 11,064 18,126 11,808 (2,009) (744) 16,117 11,064

– 113 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 September 2007

As at 1 April 2007 Net loss for the period As at 30 September 2007 As at 1 April 2006 Equity settled share – based transactions Net loss for the period As at 30 September 2006	Share capital (unaudited) HK$’000 46,407 – 46,407 46,407 – – 46,407	Share premium (unaudited) HK$’000 233,184 – 233,184 233,184 – – 233,184	Share option reserve (unaudited) HK$’000 1,208 – 1,208 1,694 (403) – 1,291	Special reserve (unaudited) HK$’000 13,524 – 13,524 13,524 – – 13,524	Capital reserve (unaudited) HK$’000 1,863 – 1,863 1,863 – – 1,863	Translation reserve (unaudited) HK$’000 – – – (37) – – (37)	Accumulated losses (unaudited) HK$’000 (269,323) (4,328) (273,651) (256,579) – (11,490) (268,069)	Total (unaudited) HK$’000 26,863 (4,328)
								22,535
								40,056 (403) (11,490)
								28,163

– 114 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

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

2. Summary of principal accounting policies

The accounting policies and basis of preparation adopted in these unaudited interim financial statements are consistent with those adopted in the Annual Report of the Company for the year ended 31 March 2007.

In the current period, the Group has applied, for the first time, the following new standard, amendment and interpretations (“new HKFRSs”) issued by the HKICPA, which are effective for the Group’s financial year beginning on 1 January 2007.

HKAS 1 (Amendment) Capital disclosures [1] HKFRS 7 Financial instruments: disclosures [1] HK (IFRIC) – INT 8 Scope of HKFRS 2 [2] HK (IFRIC) – INT 9 Reassessment of embedded derivatives [3] HK (IFRIC) – INT 10 Interim financial reporting and impairment [4] HK (IFRIC) – INT 11 HKFRS 2 – Group and treasury share transactions [5] 1 Effective for annual periods beginning on or after 1 January 2007. 2 Effective for annual periods beginning on or after 1 May 2006. 3 Effective for annual periods beginning on or after 1 June 2006. 4 Effective for annual periods beginning on or after 1 November 2006. 5 Effective for annual periods beginning on or after 1 March 2007.

The adoption of these new HKFRSs had no material effect on the results or financial position for the current or prior accounting periods. Accordingly, no prior period adjustment has been recognized.

– 115 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

HKAS 23 (Revised) Borrowing costs [1] HKFRS 8 Operating segments [1] HK(IFRIC) – INT 12 Service concession arrangements [2] HK(IFRIC) – INT 13 Customer loyalty programmes [3] HK(IFRIC) – INT 14 HKAS19 – The limit on a defined benefit asset, minimum funding requirements and their interaction [2]

1 Effective for annual periods beginning on or after 1 January 2009.

2 Effective for annual periods beginning on or after 1 January 2008.

3 Effective for annual periods beginning on or after 1 July 2008.

3. Turnover and segmental information

For management purposes, the Group is currently organised into four operating divisions – electrical engineering contracting, sale of electrical goods, securities brokerage and financing and sea freight forwarding services. These divisions form the basis on which the Group reports its primary segment information.

Business segments

Turnover Results Segment results Unallocated operating income and expenses Loss from operations Finance costs Loss before taxation Taxation Net loss for the period	Unaudited For the six months ended 30 September 2007 Securities Electrical Sale of brokerage Sea freight engineering electrical and forwarding contracting goods financing services Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 313 751 4,143 – 5,207 (1,765) (40) 502 (283) (1,586) (821) (2,407) (1,921) (4,328) – (4,328)	Unaudited For the six months ended 30 September 2007 Securities Electrical Sale of brokerage Sea freight engineering electrical and forwarding contracting goods financing services Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 313 751 4,143 – 5,207 (1,765) (40) 502 (283) (1,586) (821) (2,407) (1,921) (4,328) – (4,328)	Unaudited For the six months ended 30 September 2007 Securities Electrical Sale of brokerage Sea freight engineering electrical and forwarding contracting goods financing services Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 313 751 4,143 – 5,207 (1,765) (40) 502 (283) (1,586) (821) (2,407) (1,921) (4,328) – (4,328)
	Electrical engineering contracting HK$’000 313 (1,765)	Sale of electrical goods HK$’000 751 (40)	Securities brokerage and financing HK$’000 4,143 502

– 116 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Unaudited

		Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
		For the six months ended 30 September							2006
				Securities
	Electrical		Sale of	brokerage	Sea freight
engineering		electrical		**and **	forwarding
	contracting		goods	financing		services			**Others **		Consolidated
	HK$’000	HK$’000		HK$’000		HK$’000		HK$’000				HK$’000
Turnover	1,145		492	1,055		–				–		2,692
Results
Segment results	(2,983)		(962)	(1,092)		(114)			(3)			(5,154)
Unallocated operating
income and expenses												(4,617)
Loss from operations												(9,771)
Finance costs												(1,585)
Loss before taxation												(11,356)
Taxation												(134)
Net loss for the period												(11,490)
Recovery of impairment losses
						Six	months			ended
						30		September
						2007						2006
						HK$’000					HK$’000
						(unaudited)				(unaudited)
Partial refund on earnest money
for proposed acquisition of interest
in a PRC company engaged
in software development_(note)_						2,000						–
Others							500					–
						2,500						–

4. Recovery of impairment losses

Note: On 28 September 2007, the company’s wholly owned subsidiary, Excellent Legend Limited entered into a settlement agreement with the third party and the guarantor. Pursuant to the settlement agreement, the third party shall refund the earnest money in full (HK$20 million) without interest to Excellent Legend Limited by 10 instalments of HK$2 million each. On 28 September 2007, the third party has paid HK$2 million, being the first instalment.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Impairment losses Impairment losses in respect of: Investment held for trading 6. loss from operations Loss from operations has been arrived at after charging: Depreciation of property, plant and equipment Amortisation of trading rights in respect of securities trading included in administrative expenses Loss on disposal of property, plant and equipment Cost of inventories recognised as expenses Staff costs including directors’ fee and emoluments Lease expense

Six months ended 30 September 2007 2006 HK$’000 HK$’000 (unaudited) (unaudited) 12 6 Six months ended 30 September 2007 2006 HK$’000 HK$’000 (unaudited) (unaudited) 312 619 – 126 – 157 640 402 4,136 5,925 409 837

– 118 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. Finance costs

Interest on bank borrowings and overdrafts wholly repayable within five years Interest on obligations under finance leases Interest on other borrowing Taxation The charge comprises: Underprovision of Hong Kong Profits Tax in respect of prior years	Six months ended 30 September 2007 2006 HK$’000 HK$’000 (unaudited) (unaudited) 68 86 17 17 1,836 1,482 1,921 1,585 Six months ended 30 September 2007 2006 HK$’000 HK$’000 (unaudited) (unaudited) – 134

8. Taxation

No provision for Hong Kong profits tax for the current period has been made as the Group sustained a loss during the period. Taxation in other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

9. Dividends

No dividends were paid or declared during the period. The Directors do not recommend the payment of any interim dividend for the six months ended 30 September 2007 (For the six months ended 30 September 2006: Nil).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. Loss per share

The loss per share is calculated based on the loss for the period amounting to approximately HK$4,328,000 (For the six months ended 30 September 2006: loss of approximately HK$11,490,000) and on 464,070,000 ordinary shares in issue throughout the two six-month periods ended 30 September 2007 and 2006.

No diluted loss per share has been presented. The exercise of the Company’s outstanding share options would result in a decrease in the loss per share.

11. Additions to plant and equipment

During the period, the Group spent approximately HK$897,000 on plant and equipment (approximately HK$39,000 for the six months ended 30 September 2006).

12. Investments held for trading

30 September 2007 HK$’000 (unaudited) Non-voting cumulative redeemable convertible preference shares, at cost_(note (a)) 60,800 Listed investments, at cost(note (b)) 5,780 66,580 _Less:_Impairment losses (27,776) 38,804 _Notes:	31 March 2007 HK$’000 (audited) 60,800 5,780 66,580 (27,764) 38,816

• (a) Non-voting cumulative redeemable convertible preference shares HK$60,800,000 represent 80,000,000 non-voting cumulative redeemable preference shares of China Sciences Conservational Power Limited (“CSCPL”), a company listed on the Stock Exchange. The trading of the shares of CSCPL was suspended since 29 September 2005.

• (b) Listed investments of HK$5,780,000 primarily represent 7,500,000 ordinary shares of CSCPL.

– 120 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. Accounts receivable

The Group normally grants its customers 90 days credit.

The ageing analysis of accounts receivable as at the balance sheet date is as follows:

30 September 2007 HK$’000 (unaudited) 0 to 30 days 3,050 31 to 60 days 944 61 to 90 days 99 91 to 180 days – More than 180 days 787 4,880 _Less:_Provision for doubtful debts (551) 4,329	31 March 2007 HK$’000 (audited) 4,950 61 89 – 856 5,956 (551) 5,405

The carrying amounts of accounts receivables approximate to their fair value.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Progress payments receivable

The ageing analysis of progress payments receivable as at the balance sheet date is as follows:

30 September 2007 HK$’000 (unaudited) 0 to 30 days – 31 to 60 days – 61 to 90 days – 91 to 180 days – More than 180 days 145 145 _Less:_Provision for doubtful debts (145) –	31 March 2007 HK$’000 (audited) 1,417 – – – 145 1,562 (145) 1,417

The carrying amounts of progress payment receivables approximate to their fair value.

15. Loans receivable

30 September 2007 HK$’000 (unaudited) Interest bearing loans receivable 71,078 Margin receivables_(Note)_ 8,797 _Less:_Impairment losses (69,269) 10,606	31 March 2007 HK$’000 (audited) 70,024 3,344 (69,269) 4,099

Note: Margin receivables represent loans to securities margin clients which are secured by clients’ pledged securities. The balance are repayable on demand and bear interest at prevailing market rate.

In the opinion of the Directors, aged analysis of loans receivable does not give additional value and is therefore not presented.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. Accounts payable, other payables and accrued charges

Included in accounts payable, other payables and accrued charges are trade creditors amounting to approximately HK$12,701,000 (At 31 March 2007: approximately HK$8,973,000). The ageing analysis of trade creditors as at the balance sheet date is as follows:

30 September 2007 HK$’000 (unaudited) 0 to 30 days 9,676 31 to 60 days 38 61 to 90 days 72 91 to 180 days 93 More than 180 days 2,822 12,701	31 March 2007 HK$’000 (audited) 5,111 38 62 228 3,534
	8,973

The carrying amount of accounts payable, other payables and accrued charges approximate to their fair value.

17. Share capital

Shares of HK$0.10 each Authorised: Balance as at 1 April 2006, 31 March 2007 and 30 September 2007 Issued and fully paid: Balance as at 1 April 2006, 31 March 2007 and 30 September 2007	Number of shares 1,000,000,000 464,070,000	Amount HK$’000 100,000
		46,407

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. Operating lease commitments

As at the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

30 September 2007 HK$’000 (unaudited) Land and buildings: Operating leases which expire: – within one year 2,187 – in the second to fifth year inclusive 2,722 4,909 19. Related party transactions	31 March 2007 HK$’000 (audited) 742 295
	1,037

The Group had the following related party transactions during the period:

Brokerage commission income received from directors of the Company Rental and management fee expenses paid to company beneficially owned by a former substantial shareholder of the Group Rental expenses paid to company beneficially owned by a former Director and Chairman of the Group	Six months ended 30 September 2007 2006 HK$’000 HK$’000 (unaudited) (unaudited) 47 – 79 363 – 191	Six months ended 30 September 2007 2006 HK$’000 HK$’000 (unaudited) (unaudited) 47 – 79 363 – 191
		363 191

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. Comparative figures

Certain comparative figures were re-classified to conform with current period’s presentation.

21. Review of unaudited interim financial report

The unaudited interim financial report for the six months ended 30 September 2007 has been reviewed by the audit committee of the Company.

22. Approval of interim financial report

The interim financial report was approved by the board on 19 December 2007.

– 125 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C. MANAGEMENT DISCUSSION AND ANALYSIS

(I) For the year ended 31 March 2005

During the year, the Group recorded an audited loss attributable to shareholders of approximately HK$94,376,000 (2004: loss of approximately HK$57,198,000). Turnover of the year was HK$102,427,000, representing a decrease of 38.4% as compared to the corresponding period of last year. The decrease was mainly attributable to the decrease of the expense of government public works as well as the structural changes in government housing policies, bringing the construction of public housing to a halt. The increase in losses of the year mainly attributes to the provision for non-core business, the share of losses of a joint venture and the provision of impairment of goodwill, accounts receivable and inventories. Recognising the importance of effective cost control during the period of diversification of business, management will continue to enhance the implementation of various cost-cutting measures.

Electrical Engineering Contracting Business

During the year, the Group continued with the work in progress without any addition of new projects. The Group’s electrical engineering contracting business generated a turnover of HK$43,307,000, representing a decline of 58.7% from HK$104,812,000 last year. The turnover of engineering contracting business represents 42.3% of the total turnover (2004: 63%).

The term contract for electrical maintenance work for Hong Kong Housing Authority (“HKHA”) and the electrical engineering work for Ho Man Tin South Estate Phase 3, certain school improvement projects and Tin Shui Wai Area 102-phase 3 were completed during the year under review. As at 31 March 2005, the Group’s outstanding electrical engineering contracts on hand amounted to approximately HK$21,365,000.

With the halt of constructing public housing and substantial decline in the number of public housing projects, the Group’s electrical engineering contracting division mainly focused on school improvement programmes, electrical installation work for Tung Chung Area 30 and 31 Phase 3&5, various electrical maintenance work for HKHA (Northern District 1) and Lei Cheng Uk Estate project. It is believed that the electrical engineering contracting business will continue to shrink in the coming year.

– 126 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Electrical Materials and Components Trading Business

Given the continued unfavourable market condition of local construction industry coupled with the halt of public housing projects resulting from structural changes in government housing policies, the external sales from electrical materials and components trading of the Group decreased by 76.7% to approximately HK$4,616,000 from approximately HK$19,782,000 in the corresponding period of last year. In addition, with the import of electrical appliances from the Mainland China, it is believed that this situation will not be improved in short-term.

Securities Brokerage and Financing Business

Hong Tong Hai Securities Limited (“HTHS”) and Hong Tong Hai Capital Limited are mainly engaged in direct investment, securities brokerage, assets management and external financing business. Although the Hong Kong stock market has shown signs of recovery and is active recently, the business will hardly achieve surprisingly good development in short-term under keen competition resulting from the elimination of the minimum brokerage fee. Incomes from securities brokerage and financing business of the Group decreased to HK$5,458,000 from HK$6,360,000 in the corresponding period of last year, representing a decrease of approximately 14.2%. However, the board of directors believes that the financial sector will play a more important role in Hong Kong amidst the transformation of the economy. Moreover, overseas financial firms are being admitted as “Qualified Foreign Institutional Investors” to operate in the PRC capital markets. It is also expected that those PRC firms with “Qualified Domestic Institutional Investors” status will be allowed to invest in the Hong Kong stock market. The fact that China Ping An Insurance（中國平安保險）is allowed to invest in overseas stock markets is also a good news. It is believed that the Group’s securities brokerage, assets management and external financing business will have substantial growth potentials. In the middle of the year, HTHS successfully applied for Asset Management License（資產管理牌 照）from Hong Kong Securities and Futures Commission, which is expected to benefit our securities business.

– 127 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Sea Freight Forwarding Services Business

The implementation of CEPA has strengthened Hong Kong’s role as the gateway to Mainland China and facilitated the trading between the Straits. Taking advantage of this, the management has commenced sea freight forwarding services business in China, Hong Kong, Taiwan and Asia in the second half of 2003 and registered a significant turnover right after. As at the end of the year, the Group recorded a turnover of HK$49,010,000 of sea freight forwarding services, representing an increase of approximately 41.5% from HK$34,637,000 of the corresponding period of last year. The result is remarkable.

Other Businesses

The Group recorded a realised loss of approximately HK$4,753,000 during the year from the disposal of approximately 2.6% equity interests in South Sea Holding Company Limited, a listed company in Hong Kong. However, taking into account the accumulated unrealised gain of HK$10,291,000 included in the year ended 31 March 2004, the effective investment in South Sea Holding Company Limited contributed a profit of HK$5,538,000 to the Group. Another joint venture entity which is engaged in credit rating business in Beijing also recorded a loss of approximately HK$2,600,000 and the Group had to share the loss of HK$3,596,000 of associated companies. Under the new accounting rules and based on the principle of prudence, the Group has made provision of HK$7,737,000 for impairment of goodwill. In the meantime, the Group has made provision of approximately HK$47,731,000 for impairment of certain longterm investments, accounts receivable and inventories.

Financial Review and Analysis

Liquidity, Financial Resources and Gearing

The Group’s total current assets and current liabilities were approximately HK118,585,000 (as at 31 March 2004: HK$208,779,000) and HK$53,042,000 (as at 31 March 2004: HK$62,239,000) respectively, as at 31 March 2005, while the current ratio was about 2.24 times (as at 31 March 2004: 3.35 times). As at 31 March 2005, the Group’s aggregate cash balance amounted to HK$13,303,000 (as at 31 March 2004: HK$41,095,000), representing approximately 11.2% (as at 31 March 2004: 19.7%) of total current assets. The board of directors believes that the Group has adequate funds for the business operation and was maintained a good liquidity position.

– 128 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As shown in the Group’s consolidated balance sheet as at 31 March 2005, consolidated shareholders’ funds amounted to approximately HK$139,937,000 (as at 31 March 2004: HK$219,400,000); whereas the Group’s total borrowing was about HK$10,723,000 (as at 31 March 2004: HK$4,881,000) only, which mainly comprised of Hong Kong dollar overdrafts, borrowings and finance lease obligations. Bank overdrafts carry interests calculated on the prime lending rate whereas finance charges are fixed on the date the finance leases are entered. Comparing the stock in the corresponding period of last year, the stock as at the end of this period decreased 60.2%, which was mainly attributed to the shrinkage of the electrical materials and components trading business, which led to the reduction of the Group’s inventories.

As at 31 March 2005, the gearing ratio, defined as total debts over total assets, was approximately 4.38% (as at 31 March 2004: 1.72%). The increase in the gearing ratio was mainly due to the bank borrowings arising from the Group’s margin securities business.

Placing of New Shares and Use of Proceeds

On 4 November 2004, the Company entered into an agreement with an independent agent for the placement of 64,454,000 new shares. All new shares of HK$0.10 each share were placed to independent investors at the placing price of HK$0.23 each share. The proceeds from the abovementioned placing of shares has mainly been used for identifying the new investment projects in the China and as the Group’s general working capital.

On 22 March 2005, the Company entered into an agreement of placing with an independent agent for the placement of 77,344,000 new shares. All new shares of HK$0.40 each share were placed conditionally on a fully underwritten basis. The proceeds from the abovementioned placing of shares will be mainly used for the payment of the acquisition of a company engaged in the distribution of medicine and investment in the China, with no more than 49% interest and related expenses. If the above acquisition does not proceed, the funds from the placing of new shares will be used as general working capital. The above mentioned placing of shares has been completed in April 2005.

– 129 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Major Investments

The Group entered into a co-operation agreement with China Sciences Enterprise Group (Holding) Corporation（中科實業集團（控股）公司）(hereinafter refer as to the “China Sciences Group” （中科集團） relating to the formation of a joint venture “(Dongguan China Sciences Conservational Power Co., Ltd.) 東莞中科環保電力有 限公司 ” (hereinafter refer as to the “Dongguan CSCP”). The registered capital of this joint venture is RMB110 million, among which RMB56.1 million, representing 51% interest in the joint venture, will be contributed by the Group. The joint venture was formally established on 5 November 2004 for 25 years until 4 November 2029. On 24 November 2004, all parties involved had already injected their registered capital in cash to the joint venture in accordance with their proportion to the registered capital. The Group disposed of its equity interest in this joint venture to another listed connected company, China Sciences Conservational Power Limited (“CSCP”) at a consideration of 100,000,000 CSCP’s Convertible Preference Shares (“Preference Share”) in July 2005.

On 29 March 2004, the Group entered into a conditional sale and purchase agreement with an independent third party, under which the Group purchased 40% interest equity of an investment company with an account receivable at HK$28,000,000. The acquired company holds 89% effective interests of an enterprise engaged in container depots and the provision of logistic services in Shanghai, the PRC. The acquisition was completed on 3 April 2004.

On 2 June 2004, the Group further acquired the remaining 49% of the issued share capital of a subsidiary, namely, TopEast Engineering Limited, for a cash consideration of HK$49,000. On 9 September 2004, the Group further acquired the remaining 49% of the issued share capital of another subsidiary, namely Country Super Limited, for a cash consideration of HK$490,000. During the year, a subsidiary, Honsda (HK) Electronics Limited, commenced household electrical appliances trading business and has contributed insignificant turnover and results to the Group.

Foreign Exchange Management

Since the Company’s shares listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), the Group basically has not changed its foreign exchange management policy. The risks in foreign exchange within this year were reduced accordingly because of the decrease in overseas purchases at times of reduced trade activities. As at 31 March 2005, the Group had no significant outstanding forward foreign exchange contracts on hand.

– 130 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent Liabilities

As at the balance sheet date, the Group had no material contingent liabilities for both years.

Pledge of Assets

At 31 March 2005, the Group had pledged bank deposits of approximately HK$2 million (2004: HK$4 million) to secure certain bank facilities available to the Group.

In addition, the Group’s overdrafts of HK$8,490,000 as at the balance sheet date were secured on the securities held by the Group on behalf of its customers.

Prospects

The deteriorating waste problem in Mainland China cities has already caused serious concerns of all levels of the Mainland Chinese Government. As shown by statistics, medium to large cities in the Mainland China are producing 100 million tons of waste per year, and a large city of a size such as Guangzhou is creating 6,000 tons of waste each day. Among over 670 medium to large cities of this kind in the whole nation, approximately 30% of them are trapped in wastes. As such, the Group considers that the above situation represents a new investment opportunity. Apart from going on with its existing electrical engineering business, the Group is determined to develop waste incineration processing business in the Mainland China. As a result, the Group and China Sciences Group established Dongguan CSCP in Dongguan, Guangdong, which mainly engages in generating electricity through waste combustion.

The total investment of Dongguan CSCP amounts to about RMB328 million, about 33% of which will be provided by the Group and China Sciences Group in accordance with their proportionate equity interests in the plant, while the remaining 66% will be raised externally through financing and other channels. Dongguan CSCP was established on 5 November 2004 with the injection of the registered capital completed on 29 November 2004 and it is expected to commence trial running by the fourth quarter of 2005 at the earliest. Upon official commencement of production, the plant will be able to process 1,000 tons of waste per day, resolving the urban waste problem in the Dongguan city. On the other hand, heat generated during the combustion process can be used for power generation and put onto power network. The annual waste treatment volume of the entire project will reach 365,000 tons, while the power generation capacity will be 240 million kWh per year. The total operation life span of Dongguan CSCP is 25 years.

– 131 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In July 2005, the Group, based on the grounds stated below, disposed of its 51% equity interest in Dongguan CSCP in consideration of 100,000,000 Preference Shares of CSCP which is equivalent to HK$76 million. Apart from the disposal of the 51% equity interest in Dongguan CSCP, the Group has no intention to directly invest in any other incineration and processing business. As stated in the announcement published by CSCP, the company was setting up joint ventures in Guilin and Meizhou, the PRC to carry on waste incineration and processing business, the board was of the view that, in the event of the Company exercises the conversion right attaching to the Preference Shares and the new options, the Group would be able to continue to have an exposure to the waste incineration and processing business through its interest in the shares in CSCP and to enjoy potential returns from CSCP.

The Preference Shares bear a fixed preferential dividend at the rate of 3% per annum. Therefore, the directors consider that the holding of the Preference Shares could provide the Group with an opportunity to enjoy a stable dividend return with redemption in full amount as well as to capture any potential returns from the businesses of CSCP by converting the Preference Shares into ordinary shares in CSCP and exercising the new options. The Group is able to increase its share of return from the businesses of CSCP by increasing its interest in CSCP via the exercise of the new options at the current share price of CSCP during the three-year option period.

Hong Kong has a brighter prospect in sight, while the pressure for deflation is decreasing. As such, the Hong Kong economy is on the track to recovery. In order to maintain its competitiveness in the market, the Group has to equip itself with the capability to provide diversified and comprehensive services. To this end, the Group has already commenced its securities brokerage, financing, corporate consultant, asset management and company secretary business through certain subsidiaries. The directors of the Company believe, the Group can capitalise on the opportunities of undertaking a range of businesses, which in turn will enhance greater flexibility in related businesses. However, the Group does not intend to over-emphasise on those business.

The swift growth in the China economy, the implementation of CEPA and the launch of the “9+2” Pan-Pearl River Delta Policy have enhanced the trading and business relationships with China. In view of this, the Group is confident with its in logistics business development in China, Hong Kong, Taiwan and other Asia countries. Therefore, we expect our Group’s sea freight forwarding services business will be stable increasing.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Due to the changes in public housing and the infrastructure policies in recent years, the demand for the Group’s electrical equipment trading are relatively weak and it is expected that this situation will continue. Meanwhile, the Mainland China has recorded tremendous progress with giant strides. In view of this, the Group has therefore been exploring new investment opportunities in the Mainland China. Apart from the existing businesses of electrical engineering and electrical equipment trading, the Group also diversified into waste combustion electric power business and sea freight forwarding services business, and has been actively identifying some emerging investments, such as the pharmaceutical industry, that generate stable revenue as its long-term investments in China.

As mentioned in the Chairman’s Statement, the board of directors holds a positive view on the investment in the pharmaceutical industry in China and has signed the letters of intent with two companies which are engaged in the distribution of medicine and hospital management software development in December 2004 and July 2005 respectively. After that, due diligence review and discussion have been carried out and they are going smoothly.

– 133 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(II) For the year ended 31 March 2006

Review of Operations

During the year, the Group recorded an audited loss attributable to shareholders of approximately HK$131,251,000 (2005: loss of approximately HK$94,376,000). The loss attributable to shareholders was mainly due to the making of provisions on investment deposits (HK$25,000,000), loans and margin receivable (HK$63,550,000), loans interest receivable (approximately HK$5,637,000) and investments held for trading (approximately HK$27,764,000).

Electrical Engineering Contracting Business

During the year, the Group continued the work in progress without any addition of new projects. The electrical engineering contracting business generated a turnover of approximately HK$17,737,000, representing a decline of 59.0% from HK$43,307,000 last year. Turnover from electrical engineering contracting business accounted for 59.7% (2005: 42.3%) of the total turnover of the Group.

During the year under review, various contracts, including the contracts for electrical engineering work at Tseung Kwan O Area 74 phase 4 and Tin Shui Wai Area 102-phase 2 and the term contract for electrical maintenance work for Hong Kong Housing Authority and Architectural Services Department were completed.

As at 31 March 2006, the value of the Group’s outstanding electrical engineering contracts on hand amounted to approximately HK$779,000.

Electrical Materials & Component Trading Business

Given the continued unfavourable market condition of local construction industry, the external sales from electrical materials and components trading of the Group decreased by 43.6% from approximately HK$3,306,000 in the previous year to approximately HK$1,865,000. In addition, with the increasing import of electrical appliances from Mainland China, it is believed that the competitive environment for the electrical materials and components trading will not improve in the near future.

– 134 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Securities Brokerage and Financing Business

Hong Tong Hai Securities Limited and Hong Tong Hai Capital Limited are engaged in asset management, financing, money-lending, and securities brokerage business. The income from these operations increased to approximately HK$10,078,000 from approximately HK$5,458,000 in the last financial year, representing an increase of 84.6%, as a result of the increased transactions in the financing and money-lending operations.

Hong Tong Hai Capital Limited is currently seeking legal and professional advice for the recovery of the overdue loans.

Sea Freight Forwarding Services

The sea freight forwarding services has been temporarily suspended after several senior management staff resigned at the beginning of the year under review. The Group has not yet identified suitable staff for the recommencement of the sea freight forwarding business up to the date of this report and will continue to look for suitable candidates.

Other Businesses

The Group recorded a realised gain of approximately HK$25,927,000 during the year for the disposal of three subsidiaries and made a provision for an associate company in the amount of approximately HK$467,000.

In addition, by exercising prudence, the Group has made provisions for impairment in the total of approximately HK$121,951,000 in respect of investment deposits, investments held for trading, loans receivable and loan interest receivables.

– 135 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial Review and Analysis

Financing

Liquidity, Financial Resources and Gearing

As at 31 March 2006, the Group’s total current assets and current liabilities were approximately HK$89,335,000 (as at 31 March 2005: HK$118,585,000) and approximately HK$50,661,000 (as at 31 March 2005: HK$53,042,000) respectively, while the current ratio was about 1.76 times (as at 31 March 2005: 2.24 times).

As at 31 March 2006, the Group’s aggregate cash balance amounted to approximately HK$19,707,000 (as at 31 March 2005: HK$13,303,000), representing 22.06% (as at 31 March 2005: 11.22%) of total current assets. Barring unforeseeable circumstances and with the financial support from a substantial shareholder of the Company, the Directors believe that the Group should have adequate funds and liquidity for its business operations.

As shown in the Group’s consolidated balance sheet as at 31 March 2006, total equity amounted to approximately HK$40,056,000 (as at 31 March 2005: HK$139,937,000); whereas the Group’s total borrowings was approximately HK$16,737,000 (as at 31 March 2005: HK$10,723,000) only, which mainly comprised of HK dollar overdrafts, borrowings and finance lease obligations. Bank overdrafts carry interest on the prime lending rate, other borrowings carry interest at fixed rate and finance charges are fixed on the date finance leases are entered into. Compared with the level of inventory level in the last financial year, the inventory level as at the end of this period decreased by 46.6%, which was mainly attributed to the shrinking of the electrical materials and components trading business.

As at 31 March 2006, the gearing ratio, defined as total debts over total assets, was approximately 18.04% (as at 31 March 2005: 4.38%). The increase in the gearing ratio was mainly due to new borrowing obtained from financial institutions.

Placing of New Shares and Use of Proceeds

On 21 April 2005, the Company placed a total of 77,344,000 new shares of HK$0.10 each at a consideration HK$0.40 per share, with Kingston Securities Limited as a placing agent, to independent investors pursuant to the placing underwriting agreement dated 22 March 2005, further details of which are set out in the announcement of the Company dated 22 March 2005. The placing of shares was completed on 21 April 2005.

– 136 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The net proceeds of the abovementioned placing of shares amounted to approximately HK$30.1 million was intended to be used for making future investments including, inter alia, the proposed acquisition of up to 49% of the equity interest of a pharmaceutical product and investment company in the People’s Republic of China. As the proposed acquisition did not proceeded, the entire amount of the net proceeds has been retained as the Group’s general working capital.

Major Investments

During the year under review, the Group made no major investment except for the investment in the non-voting cumulative redeemable convertible preference shares of China Sciences Conservational Power Limited (“CSCPL”), which were issued by CSCPL to the Group as consideration for the disposal of the Group’s investment in the waste incineration processing plant in Dongguan. Details of this disposal are set out in notes 25(a), 45 and 49 of the notes to the financial statements.

Foreign Exchange Management

The Group’s purchases from overseas suppliers are always subject to foreign currency fluctuations. The Group monitors the risks in foreign exchange by way of placing forward foreign exchange contracts. Since the Company’s shares are listed on The Stock Exchange of Hong Kong Limited, the Group basically has not changed its foreign exchange management policy. The risks in foreign exchange this year were reduced because of the decrease in overseas purchases at times of reduced trade activities. As at 31 March 2006, the Group had no significant outstanding forward foreign exchange contracts on hand.

Contingent Liabilities and Capital Commitments

Details of contingent liabilities and capital commitments are set out in notes 42 and 43 to the financial statements respectively.

Pledge of Assets

Details of the pledge of assets are set out in note 47 to the financial statements.

– 137 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Prospects

On 29 September 2005, the Independent Commission Against Corruption issued a press release in relation to the arrest of 22 individuals for alleged corruption over the misappropriation of funds from listed companies and it was subsequently mentioned in certain press articles that several former directors of the Company had been arrested. As a result, the Company requested a suspension in the trading of its shares with the effect from 9:30 a.m. on 29 September 2005. Trading of the shares of the Company remains suspended.

Since October 2005, the composition of the Board of the Company has undergone substantial changes. The Special Board Committee, comprising two former directors of the Company, was formed on 31 October 2005 to review the existing financial and business position of the Group. On 13 December 2005, CCIF CPA Limited, a firm of certified public accountants which is an independent third party, was appointed at the recommendation of the Special Board Committee to conduct a review of the financial affairs of the Group for the period from 1 April 2005 to 31 December 2005 (the “Financial Due Diligence Review”). Subsequent to the change in most of the Directors of the Board in May 2006 as a result of the change in substantial shareholder of the Company, the current Board is in the course of reviewing the draft reports on the Financial Due Diligence Review. The current Board will also review the existing businesses of the Group with the intention to formulate a proposal to submit to the Stock Exchange for the resumption of trading of the shares of the Company.

With the termination of a number of proposed acquisition, the current Board intends to continue for the time being with the existing business operation of the Group including electrical engineering contracting business, trading in electrical materials and components, investment holding, securities brokerage, financing, moneylending and sea freight forwarding services. For the electrical engineering contracting business, the current Board is currently negotiating an electrical engineering contract in a development site in Tseung Kwan O but no contracts have been signed up to the date of this report.

– 138 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(III) For the year ended 31 March 2007

Review of Operations

During the year, the Group recorded an audited net loss attributable to shareholders of approximately HK$13,230,000 (2006: loss of approximately HK$131,251,000). Provisions on interest in associates, investment deposits, loans and margin receivable, loans interest receivable and investment held for trading in the amount of approximately HK$122,418,000 had been made by the Group in the financial year ended 31 March 2006. During the year, no material provision had been made, thus the loss decreased sharply.

Electrical Engineering Contracting Business

During the year, the electrical engineering contracting business had completed all the contracts on hand. The business generated a turnover of approximately HK$2,934,000, representing a decline of 83.4% from HK$17,737,000 last year. Turnover from the business accounted for 45.1% (2006: 59.8%) of the total turnover of the Group for the year.

Electrical Materials & Component Trading Business

The sales from electrical materials and components trading of the Group decreased by 23.3% to approximately HK$1,430,000 as compared to HK$1,865,000 in the corresponding period of last year.

Securities Brokerage and Financing Business

Hong Tong Hai Securities Limited is engaged in securities brokerage and margin financing business. The income from these operations decreased to approximately HK$2,137,000 from approximately HK$5,011,000 in the corresponding period of last year, representing a decrease of 57.3%. The decrease is mainly due to the resignation of several senior staff of Hong Tong Hai Securities Limited during the year. The Group had already recruited a number of experienced staff to fill the vacancies for smooth operation.

Hong Tong Hai Capital Limited did not grant any new loan during the year under review. The money lender licence expired on 15th June 2006 and had not been renewed.

– 139 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Other Businesses

The Group recorded a realised gain of approximately HK$9,196,000 during the year from the disposal of two subsidiaries.

Financial Review and Analysis

Financing

Liquidity, Financial Resources and Gearing

The Group’s total current assets and current liabilities were approximately HK$61,992,000 (as at 31 March 2006: HK$89,335,000) and approximately HK$35,819,000 (as at 31 March 2006: HK$50,661,000) respectively, while the current ratio was about 1.73 times (as at 31 March 2005: 1.76 times).

As at 31 March 2007, the Group’s aggregate cash balance amounted to approximately HK$7,284,000 (as at 31 March 2006: HK$16,045,000), representing 11.7% (as at 31 March 2006: 18%) of total current assets. Barring unforeseen circumstances and with the continued financial support from the substantial shareholder and a lender of the Group, the Directors believe that the Group has adequate funds and liquidity for its business operations.

As shown in the Group’s consolidated balance sheet as at 31 March 2007, consolidated shareholders’ funds amounted to approximately HK$26,863,000 (as at 31 March 2006: HK$40,056,000); whereas the Group’s total borrowing was approximately HK$16,798,000 (as at 31 March 2006: HK$16,737,000) only, which mainly comprised of HK dollar overdrafts, borrowings and finance lease obligations. Bank overdrafts carry interests calculated on the prime lending rate, other borrowings carry interests calculated at fixed rate and finance charges are fixed on the date the finance leases are entered.

As at 31 March 2007, the gearing ratio, defined as total debts over total assets, was approximately 26.59% (as at 31 March 2006: 18.04%). The increase in the gearing ratio was mainly due to the decrease in total assets of the Group during the year.

– 140 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign Exchange Management

The Group’s purchases from overseas suppliers are always subject to foreign currency fluctuations. The Group monitors the risks in foreign exchange by way of placing forward foreign exchange contracts. Since the Company’s shares listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), the Group basically has not changed its foreign exchange management policy. The risks in foreign exchange within this year were reduced accordingly because of the decrease in oversea purchases at times of reduced trade activities. As at 31 March 2007, the Group had no significant outstanding forward foreign exchange contracts on hand.

Contingent Liabilities and Capital Commitments

At 31 March 2007, the Group had no material contingent liabilities and capital commitments.

Pledge of Assets

At 31 March 2007, the Group had pledged bank deposits of approximately HK$2 million (as at 31 March 2006: approximately HK$2 million) to secure certain bank facilities available to the Group.

Prospects

It is the Board’s intention to continue with the existing business operations of the Group including electrical engineering contracting business, trading in electrical materials and components, investment holding, securities brokerage and margin financing, while at the same time looking for new business opportunities. For sea freight forwarding services business, the Board is in the course of formulating a strategic plan to restart this business.

The Board is determined to use their best endeavor to maintain a high standard of corporate governance.

Trading in the shares of the Company has been suspended since 29 September 2005. The Board will use its best endeavor to formulate a plan for the resumption of trading of the shares of the Company so as to protect the interest of the shareholders of the Company.

– 141 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

D. INDEBTEDNESS STATEMENT OF THE GROUP

As at the close of business on 31 May 2008, being the latest practicable date for the purpose of ascertaining information contained in this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$35,577,000, comprising secured bank overdrafts of approximately HK$2,001,000; unsecured other borrowings HK$33,155,000 and obligation under finance lease HK$421,000 (of which approximately HK$131,000 were long-term obligation under finance lease repayable more than 1 year but less than 5 years). The bank overdrafts were secured by certain pledged bank deposits of the Group.

The Group’s banking facilities of approximately HK$2,000,000 were secured by pledged bank deposits of approximately HK$2,200,000 of the Group.

Details of the issue of the Convertible Bonds are set out in the circular. The Convertible Bonds may be convertible into ordinary shares of the Company at an initial convertible price of HK$0.10 per share during its conversion period. The maturity date of the Convertible Bonds is the third anniversary of the date of issue thereof. The Convertible Bonds are interest free.

Save as aforesaid and apart from intra-group liabilities, the Group did not have any mortgages, charges, debentures, loan capital, bank loans and overdrafts, term loans, debt securities or other similar indebtedness, finance leases or hire purchase commitment, liabilities under acceptances or acceptance credits, or any guarantees, or other material contingent liabilities outstanding at the close of business on 31 May 2008.

For the purpose of this indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the approximate rates of exchange prevailing as at 31 May 2008.

The directors are not aware of any material adverse changes in the Group’s indebtedness position and contingent liabilities since 31 May 2008.

E. OTHER FINANCIAL INFORMATION

The financial statements of the Group for the year ended 31 March 2007 were qualified by the auditors of the Company due to, among others, the fact that the auditors of the Company were unable to satisfy themselves as to whether or not the carrying value of investment held for trading of approximately HK$38.8 million as at 31 March 2007 was fairly stated. Approximately HK$36 million of such amount was the fair value of the Preference Shares as valued by an independent valuer as at 31 March 2006.

– 142 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to the terms of the Preference Shares, any outstanding amount of the Preference Shares could be redeemed upon maturity on 4 July 2008. As at the Latest Practicable Date, no portion of the Preference Shares had been converted and the Company does not intend to convert any part thereof before maturity and decide to redeem the Preference Shares in the amount of HK$60.8 million (HK$24.8 million had been accounted for as impairment loss as at 31 March 2007 with approximately HK$36 million remained as investment held for trading on the balance sheet of the Company) in full upon maturity of the Preference Shares.

In the event that the redemption proceeds of the Preference Shares in the amount of HK$60.8 million fails to materialize, the Directors consider that the Group would still have sufficient working capital to meet its day to day operation for the next 12 months with the transactions contemplated under the resumption proposal still being executed and the Company would need to re-evaluate the net realizable value of the Preference Shares in light of the then actual situation.

F. WORKING CAPITAL

The Directors, after due and careful consideration, are of the opinion that should the transactions contemplated under the resumption proposal (including obtaining the proceeds from the Placing CB) be completed within twelve months from the date of this circular, with or without taking into account of the net proceeds from the redemption of the Preferences Shares, the Group will have sufficient working capital for at least twelve months from the date of this circular.

Should the transactions contemplated under the resumption proposal (including obtaining the proceeds from the Placing CB) not be completed, the Directors are of the opinion that the Group would not have sufficient working capital for at least twelve months from the date of this circular and the Directors would endeavour to negotiate with the creditors to extend the repayment terms of the outstanding debts so that the Group will have sufficient working capital for at least twelve months from the date of this circular.

G. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2007, being the date of which the latest audited financial statements of the Group were made up.

– 143 –

ACCOUNTANTS’ REPORT OF EXCALIBUR

APPENDIX IIA

The following is the text of a report, prepared for the purpose of inclusion in this circular, received from Excalibur’s reporting accountants, K. H. Chan & Company, Certified Public Accountants (Practising), Hong Kong.

K. H. Chan & Company

Certified Public Accountants (Practising) 陳健衡會計師事務所

Room 2301 Ginza Square 565-567 Nathan Road Kowloon, Hong Kong

30 June 2008

The Directors

China Conservational Power Holdings Limited 1702-3, 17th Floor, Skyline Commercial Centre, 71-77 Wing Lok Street, Sheung Wan, Hong Kong.

Dear Sirs,

We set out below our report on the financial information regarding Excalibur Securities Limited（駿溢証券有限公司）(“Excalibur”) including the balance sheets of Excalibur as at 31 December 2005, 2006 and 2007, and the related income statements, statements of changes in equity and statements of cash flows of Excalibur for each of the years ended 31 December 2005, 2006 and 2007 (the “Relevant Periods”) and the summary of significant accounting policies and other explanatory notes thereto (collectively the “Financial Information”), for inclusion in a Circular dated 30 June 2008 (the “Circular”) issued by China Conservational Power Holdings Limited (the “Company”) in connection with its proposed investment of 51% interest in Excalibur. The Financial Information has been prepared on a basis consistent with the accounting policies adopted by the Company.

Excalibur was incorporated in Hong Kong under the Companies Ordinance. The principal activities of Excalibur are securities brokerage and margin financing. As at 31 December 2007, the directors of Excalibur consider the immediate holding company to be Pioneer (China) Limited, a company incorporated in Hong Kong and the ultimate holding company to be Kademan Limited, a company incorporated in British Virgin Islands.

We have acted as auditors of Excalibur throughout the Relevant Periods covered by this

report.

– 144 –

ACCOUNTANTS’ REPORT OF EXCALIBUR

APPENDIX IIA

DIRECTORS’ RESPONSIBILITIES FOR THE FINANCIAL INFORMATION

The directors of Excalibur during the Relevant Periods, are responsible for preparing the respective financial statements which give a true and fair view of the financial condition and results of operations of Excalibur, in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In addition, the directors of Excalibur also have a responsibility to ensure that the financial statements are in accordance with the records kept under the Securities and Futures (Keeping of Records) Rules and satisfy the requirements of the Securities and Futures (Accounts and Audit) Rules. The directors of Excalibur are responsible for the contents of the Circular in which this report is included.

REPORTING ACCOUNTS’ RESPONSIBILITIES

It is our responsibility to express an independent opinion, based on our examination, on the Financial Information and to report our opinion solely to you, for no other purpose.

BASIS OF OPINION

As a basis for forming an opinion on the Financial Information of Excalibur, for the purpose of this report, we have carried out appropriate audit procedures in respect of the Financial Information for the Relevant Periods in accordance with Hong Kong Standards on Auditing and with reference to Practice Note 820 “The audit of licensed corporations and associated entities of intermediaries” Issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and have carried out such procedures as we considered necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA. We have not audited any financial statements of Excalibur in respect of any period subsequent to 31 December 2007.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Financial Information. It also includes an assessment of significant estimates and judgements made by the directors of Excalibur in the preparation of the Financial Information, and of whether the accounting policies are appropriate to Excalibur’s circumstances, consistently applied and adequately disclosed.

– 145 –

ACCOUNTANTS’ REPORT OF EXCALIBUR

APPENDIX IIA

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the Financial Information is free from material misstatement. In forming our opinion, we also evaluated the overall adequacy of the preparation of the Financial Information. We believe that our audit provides a reasonable basis for our opinion.

OPINION

In our opinion, for the purpose of this report, all adjustments considered necessary have been made and the Financial Information gives a true and fair view of the state of affairs of Excalibur as at 31 December 2005, 2006 and 2007 and of its results and cash flows for each of the three years ended 31 December 2005, 2006 and 2007.

– 146 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

A. FINANCIAL INFORMATION

INCOME STATEMENTS

Note Total value of transactions 7 Turnover 8 Other income Administrative expenses Other operating expenses Profit from operation Finance costs Profit before tax 9 Taxation 11 Profit for the year	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 12,095,999 12,182,479 49,801,283 11,695 14,674 12,798 1,916 3,201 4,811 13,611 17,875 17,609 (8,038) (14,606) (10,299) (4,314) (161) (349) 1,259 3,108 6,961 (487) (465) (127) 772 2,643 6,834 (249) (171) (1,159) 523 2,472 5,675

– 147 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

BALANCE SHEETS

Note NON-CURRENT ASSETS Property, plant and equipment 12 Stock exchange trading right 13 Shares in The Hong Kong Exchanges and Clearing Ltd Deposits with The Stock Exchange of Hong Kong Ltd Deposit to replenish compensation fund Fidelity Fund Admission fee paid to a clearing house Contribution to CCASS guarantee fund Stamp duty deposit CURRENT ASSETS Amount due from a related company 14 Amounts receivable arising from the ordinary course of business of dealing in securities 15 Deposits and prepayment Cash and bank balances 16 Prepaid income tax 17	As 2005 HK$’000 540 880 81 50 53 100 100 100 30 1,934 107 12,367 6 24,852 359 37,691	at 31 December 2006 2007 HK$’000 HK$’000 387 624 880 880 81 100 50 50 53 52 100 100 100 100 100 100 30 30 1,781 2,036 – – 30,157 49,044 5 604 21,144 98,723 139 – 51,445 148,371	at 31 December 2006 2007 HK$’000 HK$’000 387 624 880 880 81 100 50 50 53 52 100 100 100 100 100 100 30 30 1,781 2,036 – – 30,157 49,044 5 604 21,144 98,723 139 – 51,445 148,371
			2,036
			– 49,044 604 98,723 –
			148,371

– 148 –

APPENDIX IIB

FINANCIAL INFORMATION OF EXCALIBUR

CURRENT LIABILITIES Provision for taxation 17 Accounts payable and accruals Amounts payable arising from the ordinary course of business of dealing in securities 18 Amount due to a related company 19 Amount due to an ultimate holding company 19 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Subordinated loan from an ultimate holding company Deferred taxation 17 NET ASSETS CAPITAL AND RESERVES Share capital 20 Reserves Note	– 440 6,989 – 73 7,502 30,189 32,123 10,000 220 10,220 21,903 20,000 1,903 21,903 As 2005 HK$’000	– 847 698 680 22,155 109,808 5,959 9,022 – – 28,812 120,357 22,633 28,014 24,414 30,050 – – 39 – 39 – 24,375 30,050 20,000 20,000 4,375 10,050 24,375 30,050 at 31 December 2006 2007 HK$’000 HK$’000	– 847 698 680 22,155 109,808 5,959 9,022 – – 28,812 120,357 22,633 28,014 24,414 30,050 – – 39 – 39 – 24,375 30,050 20,000 20,000 4,375 10,050 24,375 30,050 at 31 December 2006 2007 HK$’000 HK$’000
			120,357
			28,014
			30,050
			– –
			–
			30,050
			20,000 10,050
			30,050

– 149 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

STATEMENTS OF CHANGES IN EQUITY

At 1 January 2005 Share allotted during the year Profit for the year At 31 December 2005 Profit for the year At 31 December 2006 Profit for the year At 31 December 2007	Share capital HK$’000 10,000 10,000 – 20,000 – 20,000 – 20,000	Retained profits HK$’000 1,380 – 523 1,903 2,472 4,375 5,675 10,050	Total HK$’000 11,380 10,000 523
			21,903 2,472
			24,375 5,675
			30,050

– 150 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

CASH FLOW STATEMENTS

OPERATING ACTIVITIES Profit before tax Adjustments for Interest income Finance costs Depreciation on property, plant and equipment Revaluation surplus on trading right Impairment loss on trading right Impairment loss on property, plant and equipment Operating profits before changes in working capital Decrease in amount due from a related company Increase in shares in the Hong Kong Exchanges and Clearing Limited Decrease in deposit to replenish compensation fund Increase in amounts receivable arising from the ordinary course of business of dealing in securities Decrease (increase) in deposits and prepayment Increase (decrease) in accounts payable and accruals Increase in amounts payable arising from the ordinary course of business of dealing in securities Increase in amount due to a related company Increase (decrease) in amount due to an ultimate holding company Cash generated from operations Hong Kong profits tax paid

Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 772 2,643 6,834 (914) (2,314) (3,574) 487 465 127 372 153 349 (358) – – 170 – – 905 – – 1,434 947 3,736 3,636 107 – – – (19) – – 1 (6,346) (17,790) (18,887) 905 1 (599) 130 258 (18) 763 15,166 87,653 – 5,959 3,063 73 (73) – 595 4,575 74,930 (388) (132) (212)

– 151 –

APPENDIX IIB

FINANCIAL INFORMATION OF EXCALIBUR

NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Payment for the purchase of property, plant and equipment Payment for the trading right Interest income Finance costs Payment for shares in The Hong Kong Exchanges and Clearing Ltd Payment for fidelity fund Payment for admission fee Payment for CCASS guarantee fund NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Subordinated loan obtained Repayment of subordinated loan Allotment of share capital NET CASH FROM (USED IN) FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR, REPRESENTED BY BANK BALANCES AND CASH

207 4,443 74,718 (1,817) – (586) (400) – – 914 2,314 3,574 (487) (465) (127) (48) – – (50) – – (50) – – (50) – – (1,988) 1,849 2,861 10,000 – – – (10,000) – 10,000 – – 20,000 (10,000) – 18,219 (3,708) 77,579 6,633 24,852 21,144 24,852 21,144 98,723 Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000

– 152 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

NOTES TO THE FINANCIAL INFORMATION

1. General information

Excalibur was incorporated in Hong Kong under the Companies Ordinance. The registered office and principal place of business is located at Room 2512, Cosco Tower, 183 Queen’s Road Central, Sheung Wan, Hong Kong. The ultimate holding company of Excalibur is Sun Hung Kai Securities Limited, a company incorporated in Hong Kong. However, Sun Hung Kai Securities Limited disposed all its ordinary shares on 28 December 2007. As at 31 December 2007, the directors of Excalibur consider the immediate holding company to be Pioneer (China) Limited, a company incorporated in Hong Kong and the ultimate holding company to be Kademan Limited, a company incorporated in the British Virgin Islands.

The principal activities of Excalibur are securities brokerage and margin financing. There were no significant changes in the nature of Excalibur’s principal activities during the Relevant Periods.

The Financial Information is presented in Hong Kong Dollars which is the functional currency of Excalibur.

2. Basis of preparation of financial information

The Financial Information has been prepared on the historical cost basis and in accordance with 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 issued by the Hong Kong Institute of Certified Public Accountants (HKICPA), accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. In addition, the Financial Information has been prepared in accordance with the records kept under the Securities and Futures (Keeping of Records) Rules and satisfy the requirements of the Securities and Futures (Accounts and Audit) Rules.

3. Application of new and revised Hong Kong Financial Reporting Standards

The HKICPA has issued certain new and revised HKFRSs that are effective for accounting periods beginning on or after either 1 January 2005, 1 December 2005, 1 January 2006 or 1 January 2007. For the purposes of preparing and presenting the Financial Information for the Relevant Periods, Excalibur has consistently adopted all the new HKFRSs.

– 153 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

Excalibur has not yet early adopted the following new standards, interpretations or amendments that have been issued but are not yet effective for Excalibur’s financial year beginning on 1 January 2007. The directors of Excalibur anticipate that the application of these standards, interpretations or amendments will have no material impact on the results of operations and financial position of Excalibur.

Hong Kong Accounting Presentation of Financial Statements [1] Standards (“HKAS”) 1 (Revised) HKAS 27 (Revised) Consolidated and Separate Financial Statements [2] HKFRS 23 (Revised) Borrowing costs [1] HKFRS 8 Operating Segments [1] HKFRS 2 (Amendment) Share-based Payment – Vesting Conditions and Cancellations [1] HKFRS 3 (Revised) Business Combinations [2] HK(IFRIC) – Interpretation HKFRS 2: Group and Treasury Share Transactions [3] (“Int”) 11 HK(IFRIC) – Int 12 Service Concession Arrangements [4] HK(IFRIC) – Int 13 Customer Loyalty Programmes [5] HK(IFRIC) – Int 14 HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction [4]

1 Effective for annual periods beginning on or after 1 January 2009.

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

3 Effective for annual periods beginning on or after 1 March 2007.

4 Effective for annual periods beginning on or after 1 January 2008.

5 Effective for annual periods beginning on or after 1 July 2008.

4. Significant accounting policies

Basis of preparation of the Financial Information

The measurement basis used in the preparation of the Financial Information is historical cost.

– 154 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to Excalibur and when the revenue and costs, if applicable, can be measured reliably on the following bases.

Brokerage and commission income recognized in the financial statements represents brokerage income accrued on all broking transactions traded during the year; and

Interest income is recognized on a time proportion basis taking into account the principal outstanding and the effective rate of interest applicable.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement or in equity if it relates to items recognised directly to equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from temporary differences at balance sheet date between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases respectively. Deferred tax assets also arise from unused tax losses and unused tax credits.

All deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised except for the initial recognition of assets or liabilities that affect neither accounting nor taxable profit.

The amount of deferred tax provided is based on the expected manner of realisation or the settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.

– 155 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available.

• in the case of current tax assets and liabilities, Excalibur intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

• in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on the same taxable entity.

Stock Exchange Trading Right

The eligibility right to trade on or through The Stock Exchange of Hong Kong Limited is stated in the balance sheet at cost less impairment losses.

Translation of foreign currencies

Items included in Excalibur’s financial statements are measured using the currency of the primary economic environment in which Excalibur operates (“functional currency”).

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhaul costs, is 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 the property, plant and equipment.

– 156 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

When assets are sold or retired, their costs, accumulated depreciation and accumulated impairment loss are eliminated from the balance sheet and any gain or loss resulting from their disposal or retirement is included in the income statement.

Depreciation on property, plant and equipment is provided to write off the costs over their estimated useful lives as follows:–

Leasehold improvement	33-1/3% (over the lease term)
Computer equipment	33-1/3% on straight-line method
Office equipment	20% on straight-line method
Furniture and fixtures	20% on straight-line method

A monthly charge for depreciation is made in the month of purchase, while no charge is made in the year of disposal or retirement.

Impairment of non-financial assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:

• property, plant and equipment (other than properties carried at revalued amounts); and

• intangible assets

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

• Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash flows independently.

– 157 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

Recognition of impairment losses

An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.

– Reversals of impairments losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

Provisions

Provisions are recognised when Excalibur has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of obligation can be made. Expenditures for which a provision has been recognised are charged against the related provision in the year in which the expenditures are incurred. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount provided is the present value of the expenditures expected to be required to settle the obligation. Where Excalibur expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

– 158 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of Excalibur’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

Employee benefits

Salaries, annual bonuses, paid annual leave, leave passage and the cost to Excalibur of non-monetary are accrued in the year in which the associated services are rendered by employees of Excalibur. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present value.

Leases

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.

As lessor

Amounts due from lessees under finance leases are recorded as receivables at the amount of Excalibur’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on Excalibur’s net investment outstanding in respect of the leases.

As lessee

Assets held under finance leases are recognised as assets of Excalibur at the lower of the fair value of the leased assets and the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as finance lease obligation. Finance charges, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

– 159 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

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

Lease incentives are recognised in the income statement as an integral part of the net consideration agreed for the use of the leased asset. Contingent rentals are recognised as expenses in the accounting period in which they are incurred.

Related parties

A party is related to Excalibur if:

• (i) directly, or indirectly through one or more intermediaries, the party controls, is controlled by, or is under common control with, Excalibur; or has an interest in Excalibur that gives it significant influence over Excalibur; or has joint control over Excalibur;

• (ii) the party is an associate of Excalibur;

• (iii) the party is a joint venture in which Excalibur is a venturer;

• (iv) the party is a member of the key management personnel of Excalibur or its parent;

• (v) the party is a close member of the family of any individual referred to in (i) or (iv);

• (vi) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or

• (vii) the party is a post-employment benefit plan for the benefit of employees of Excalibur, or of any entity that is a related party of Excalibur.

Financial instruments

Financial assets and financial liabilities are recognised when Excalibur becomes a party to the contractual provisions of the instruments and on a trade date basis. A financial asset is derecognised when Excalibur’s contractual rights to future cash flows from the financial asset expire or when Excalibur transfers the contractual rights to future cash flows to a third party. A financial liability is derecognised only when the liability is extinguished.

– 160 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

Loans and receivables

Loans and receivables including trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are not held for trading. They are measured at amortised cost using the effective interest method, except where receivables are interest-free loans and without any fixed repayment term or the effect of discounting would be insignificant. In such case, the receivables are stated at cost less impairment loss. Amortised cost is calculated by taking into account any discount or premium on acquisition, over the year to maturity. Gains and losses arising from derecognition, impairment or through the amortisation process are recognised in the income statement.

Impairment of financial assets

At each balance sheet date, Excalibur assesses whether there is objective evidence that financial assets, other than those at fair value through profit or loss, are impaired. The impairment loss of financial assets carried at amortised cost is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flow discounted at the financial asset’s original effective interest rate.

Financial liabilities

Excalibur’s financial liabilities include trade and other payables, bank loans and other borrowings and obligations under finance leases. All financial liabilities except for derivatives are recognised initially at their fair value and subsequently measured at amortised cost, using effective interest method, unless the effect of discounting would be insignificant, in which case they are stated at cost.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer of the contract to make specified payments to reimburse the holder of the contract for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee contract is initially recognised as deferred income within trade and other payable at fair value, where such information is available, otherwise, it is recognised at consideration received and receivable. Subsequently, it is measured at the higher of the amount initially recognised, less accumulated amortisation, and the amount of the provision, if any, that is required to settle the commitment at the balance sheet date.

– 161 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

5. Critical accounting judgements and key sources of estimation uncentainty

In the application of Excalibur’s accounting policies which are described in note 4, the directors of Excalibur are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are considered to be relevant. Actual results may differ from these estimates.

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

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the 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.

Depreciation and amortisation

Excalibur’s net carrying value of property, plant and equipment as at 31 December 2005, 2006 and 2007 were approximately HK$540,000, HK$387,000 and HK$624,000 respectively. Excalibur depreciates the property, plant and equipment on a straight-line basis over the estimated useful life, and after taking into account of their estimated residual value, at the rate of 20% to 33-1/3% per annum, commencing from the date the asset is placed into productive use. The estimated useful life and dates that Excalibur places the equipment into productive use reflects the directors’ estimate of the periods that Excalibur intend to derive future economic benefits from the use of Excalibur’s property, plant and equipment.

Allowances for bad and doubtful debts

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

– 162 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

6. Financial risk management objectives and policies

Excalibur’s principal financial instruments comprise of cash and bank balances. The main purpose of these financial instruments is to raise and maintain finance for Excalibur’s operations. Excalibur has various other financial instruments such as trade receivables and trade payables, which arise directly from its business activities.

The main risks arising from Excalibur’s financial instruments are credit risk. Excalibur does not have any written risk management policies and guidelines. However, the board of directors generally adopts conservative strategies on its risk management and limit Excalibur’s exposure to these risks to a minimum.

Credit risk

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings.

Excalibur’s credit risk is primarily attributable to its trade receivables. Excalibur’s maximum exposure to credit risk in the event of counterparties failure to perform their obligations as at 31 December 2005, 2006 and 2007 in relation to each class of recognised financial assets is the carrying amounts of these assets as stated in the balance sheet. The management, based on prior experience and assessment of the current economic environment reviews the recoverable amount of each individual balance at the balance sheet date to ensure that adequate impairment loss is made for irrecoverable amounts. In this regard, the directors of Excalibur consider that Excalibur’s credit risk is significantly reduced.

Capital management

The objectives of Excalibur’s capital management are to safeguard the entity’s ability to continue as a going concern and to provide returns for shareholders. Excalibur manages its capital structure and makes adjustments, including payment of dividend to shareholders, return capital to shareholders or issue new shares or sell assets to reduce debts. No changes were made in the objectives, policies or processes during the years ended 31 December 2005, 2006 and 2007.

– 163 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

7. Total value of transactions

Total value of transactions arising out of the business of dealing in securities other than the underwriting of securities undertaken by Excalibur on The Stock Exchange of Hong Kong Limited is as follows:–

Own Account Clients’ Account	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 – 20,486 – 12,095,999 12,161,993 49,801,283 12,095,999 12,182,479 49,801,283	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 – 20,486 – 12,095,999 12,161,993 49,801,283 12,095,999 12,182,479 49,801,283
		49,801,283

8. Turnover

The principal activities of Excalibur are securities brokerage and margin financing.

Turnover represents the commission and brokerage of securities dealing on The Stock Exchange of Hong Kong Limited.

	Year	ended 31 December
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Commission and brokerage	11,695	14,674	12,798

– 164 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

9. Profit before tax

Profit before tax is arrived at after charging/(crediting):–

Finance costs Interest expenses – client Lon interest Staff costs Salaries, wages and other benefits Other items Auditors’ remuneration Commission expenses Management fee Research expenses Bad debts Depreciation on property, plant and equipment Operating lease rental – office premises Written off related company outstanding balance Impairment loss on property, plant and equipment Impairment loss on trading right Interest income Revaluation surplus on trading right

Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 58 295 91 429 170 36 487 465 127 11 11 74 36 35 35 2,375 7,143 3,218 1,200 2,636 2,669 1,750 – – 121 7 – 372 153 349 – 1,504 2,312 2,346 – – 905 – – 170 – – (914) (2,314) (3,574) (358) – –

– 165 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

10. Directors’ and employees’ emoluments

No emoluments were paid or payable to any of the directors of Excalibur for the Relevant Periods.

During the Relevant Periods, no emoluments were paid by the Company to any of the directors and employees as an inducement to join or upon joining the Company or as compensation for loss of office. None of the directors waived any emoluments during the Relevant Periods.

11. Taxation

Hong Kong Profits Tax has been provided at the rate of 17.5% on Excalibur’s estimated assessable profits arising from Hong Kong during the year.

Tax charged represents:

Current tax – Hong Kong Profits Tax Deferred tax – Current period	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 29 352 1,198 220 (181) (39) 249 171 1,159

– 166 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

The taxation for the Relevant Period can be reconciled to the profit before taxation as follows:

Profit before tax Income tax at applicable rate of 17.5% Tax effect of temporary differences Tax effect on non-taxable revenue Tax effect of non-deductible expenditure Tax effect of unused tax losses recognised Tax expense for the year	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 772 2,643 6,834 135 462 1,196 125 (158) 1 (29) (133) (38) 480 – – (462) – – 249 171 1,159

– 167 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

12. Property, plant and equipment

Leasehold improvement HK$’000 Costs: Additions and At 31 December 2005 and At 31 December 2006 – Additions 586 Scrapped – At 31 December 2007 586 Accumulated deprecation and impairment losses: Charge for the year – Impairment losses – At 31 December 2005 – Charge for the year – At 31 December 2006 – Charge for the year 196 Written off – At 31 December 2007 196 Net carry values: At 31 December 2005 – At 31 December 2006 – At 31 December 2007 390	Computer equipment HK$’000 815 – – 815 214 261 475 113 588 113 – 701 340 227 114	Office equipment HK$’000 583 – – 583 92 291 383 40 423 40 – 463 200 160 120	Furniture and fixtures HK$’000 419 – (102) 317 66 353 419 – 419 – (102) 317 – – –	Total HK$’000 1,817 586 (102) 2,301 372 905 1,277 153 1,430 349 (102) 1,677 540 387 624

– 168 –

APPENDIX IIB

FINANCIAL INFORMATION OF EXCALIBUR

13. Stock exchange trading rights

Costs: At 1 January 2005 Opening balance adjustment to eliminate accumulated amortisation Additions Revaluation surplus At 31 December 2005, 2006 and 2007 Accumulated amortisation and impairment losses: At 1 January 2005 Eliminated against cost at 1 January 2005 Impairment loss At 31 December 2005, 2006 and 2007 Net carry values: At 31 December 2005 At 31 December 2006 At 31 December 2007	HK$’000 583 (291) 400 358 1,050 291 (291) 170 170 880 880 880

14. Amount due from a related company

The amount due was unsecured, interest free and had no fixed term of repayment.

– 169 –

APPENDIX IIB

FINANCIAL INFORMATION OF EXCALIBUR

15. Amounts receivable arising from the ordinary course of business of dealing in securities

Clearing Houses Clients – Cash accounts Clients – Margin accounts	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 851 – 10,811 2,476 3,998 3,398 9,040 26,159 34,835 12,367 30,157 49,044	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 851 – 10,811 2,476 3,998 3,398 9,040 26,159 34,835 12,367 30,157 49,044
		49,044

16. Cash and bank balances

General accounts Trust accounts	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 19,118 12,153 2,768 5,734 8,991 95,955 24,852 21,144 98,723	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 19,118 12,153 2,768 5,734 8,991 95,955 24,852 21,144 98,723
		98,723

17. Income tax in the balance sheet

Current taxation in the balance sheet represents:

Provision for Hong Kong Profits Tax for the year Provision Profits Tax paid Balance of Profits Tax provision related to prior year (Prepaid) Provision for taxation	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 29 352 1,198 (388) (132) (212 (359) 220 986 – (359) (139 (359) (139) 847	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 29 352 1,198 (388) (132) (212 (359) 220 986 – (359) (139 (359) (139) 847
		986 (139
		847

– 170 –

APPENDIX IIB

FINANCIAL INFORMATION OF EXCALIBUR

Deferred tax liabilities recognised:

Balance brought forward Charge for the year Balance carried forward	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 – 220 39 220 (181) (39) 220 39 –	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 – 220 39 220 (181) (39) 220 39 –
		–

Deferred tax:

At the balance sheet date, the major components of the deferred taxation (assets)/ liabilities provided are follows:

	Year	ended 31 December
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Depreciation allowance in excess of
related depreciation	220	39	(1)

18. Amounts payable arising from the ordinary course of business of dealing in securities

Clearing Houses Clients – Cash accounts Clients – Margin accounts	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 – 7,706 – 1,289 5,303 99,189 5,700 9,146 10,619 6,989 22,155 109,808	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 – 7,706 – 1,289 5,303 99,189 5,700 9,146 10,619 6,989 22,155 109,808
		109,808

19. Amount due to a related company/ultimate holding company

The amount due was unsecured, interest free and had no fixed term of repayment.

– 171 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

20. Share capital

Authorised:– 100,000,000 ordinary shares of HK$1 each Issued and fully paid:– 20,000,000 ordinary shares of HK$1 each 21. Related party transactions Sun Hung Kai Securities Limited Loan interest Management fee Smart Day Capital Limited* Management fee	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 100,000 100,000 100,000 20,000 20,000 20,000 Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 429 170 36 – 2,636 2,669 1,200 – –	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 100,000 100,000 100,000 20,000 20,000 20,000 Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 429 170 36 – 2,636 2,669 1,200 – –
		–

• Sun Hung Kai Securities Limited is the ultimate holding company. However, Sun Hung Kai Securities Limited disposed all its ordinary shares on 28 December 2007.

• ** During the year ended 31 December 2005, Excalibur’s director Mr POON Kwok Wah, Allan was also the director of the related company. However, he resigned from the related company on 27 October 2005.

– 172 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

22. Commitments under operating leases

At the balance sheet date, Excalibur had the total of future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Land and buildings Within one year In the second to fifth years inclusive At the balance sheet date	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 – – 1,771 – – 2,978 – – 4,749	Year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 – – 1,771 – – 2,978 – – 4,749
		4,749

23. Ultimate holding company

As at 31 December 2007, the directors consider the immediate holding company to be Pioneer (China) Limited, a company incorporated in Hong Kong and the ultimate holding company to be Kademan Limited, a company incorporated in British Virgin Islands.

24. Subsequent event

On 27 February 2008, Yew Sang Hong Investment Services Limited (“Purchaser”) has conditionally agreed to invest in Excalibur. Pursuant to the S&P agreement, the Purchaser will purchase 51% of the issued capital of Excalibur at a consideration of HK$20 million. The consideration will be settled by way of the Company issuing upon completion the consideration convertible bonds for a principal amount of HK$20 million to the vendor.

– 173 –

FINANCIAL INFORMATION OF EXCALIBUR

APPENDIX IIB

B. DISTRIBUTABLE RESERVES

The reserve attributable to equity owners of Excalibur is dealt with in the financial statements of Excalibur to the extent of HK$1,903,000, HK$4,375,000 and HK$10,050,000 for the years ended 31 December 2005, 2006 and 2007 respectively.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Excalibur in respect of any period subsequent to 31 December 2007.

Yours faithfully,

K. H. Chan & Co.

Certified Public Accountants (Practising) Hong Kong

– 174 –

APPENDIX IIC MANAGEMENT DISCUSSION AND ANALYSIS OF EXCALIBUR

MANAGEMENT DISCUSSION AND ANALYSIS OF EXCALIBUR SECURITIES LIMITED

Financial summary

Set out below is the management discussion and analysis on Excalibur for the three years ended 31 December 2005, 31 December 2006 and 31 December 2007.

For the three years ended 31 December 2005, 31 December 2006 and 31 December 2007

	2007	2006	2005
	HK$’000	HK$’000	HK$’000
Revenue	17,609	17,875	13,611
Profit for the year	5,675	2,472	523

The principal activities of Excalibur are securities brokerage and margin financing.

Amount due to an ultimate holding company

As at 31 December 2007, there was no amount due to an ultimate holding company.

As at 31 December 2006, there was no amount due to an ultimate holding company.

As at 31 December 2005, the amount due to an ultimate holding company were unsecured, interest free and had no fixed term of repayment.

Liquidity, financial resources and gearing

Net Assets/Liabilities

Set out below is a summary of the audited accountants’ report of Excalibur as at 31 December 2005, 31 December 2006 and 31 December 2007 which was prepared on the bases as set out on page 153 of this circular and details of which are set out in Appendix IIB this circular.

– 175 –

APPENDIX IIC MANAGEMENT DISCUSSION AND ANALYSIS OF EXCALIBUR

	2007	2006	2005
	HK$’000	HK$’000	HK$’000
Total assets	150,407	53,226	39,625
Total liabilities	120,357	28,851	17,722
Net assets	30,050	24,375	21,903
Amount due to an ultimate shareholder	–	–	73
*Gearing ratio	0%	0%	0%

* The gearing ratio is defined as total debts over total assets.

Cash & Bank Balances

As at 31 December 2005, 31 December 2006 and 31 December 2007, Excalibur’s aggregate cash and bank balances amounted to approximately HK$24,852,000, HK$21,144,000 and HK$98,723,000 respectively, representing 65.9%, 41.1% and 66.5% of total current assets respectively.

Borrowings

As at 31 December 2005, 31 December 2006 and 31 December 2007, there was no other borrowing from bank or financial institution during the period.

Significant investments held

As at 31 December 2005, 31 December 2006 and 31 December 2007, Excalibur did not hold any significant investments during the period.

Acquisition and disposals

Excalibur had not made any acquisition or disposal during the periods under review.

Segmental information

No business segment analysis and geographical segment analysis was presented since substantially all the turnover and contribution to results were derived from the commission and brokerage of securities dealing on The Stock Exchange of Hong Kong Limited.

– 176 –

APPENDIX IIC MANAGEMENT DISCUSSION AND ANALYSIS OF EXCALIBUR

Foreign Exchange Management

Excalibur does not hedge its foreign currency risk, as the management does not expect any significant movements in exchange rate between, U.S. dollars, Hong Kong dollars and Renminbi. During the relevant periods under review, as the impact of foreign exchange exposure has been insignificant, no hedging or other alternatives have been implemented.

Contingent Liabilities

As at 31 December 2005, 31 December 2006 and 31 December 2007, Excalibur did not have any contingent liabilities.

Pledge of Assets

As at 31 December 2005, 31 December 2006 and 31 December 2007, Excalibur had no interest-bearing borrowings and no assets were pledged.

Prospects and material investments

Excalibur has no future plan for material investments or in capital assets. It is the intention of Excalibur to continue with the securities trading business. Given the results have been improving in the past few years, Excalibur is looking to improve further of its results in the coming year. With its internally generated resources, Excalibur will continue to develop the securities brokerage and margin financing business with the aim to broaden its client base including customers from the PRC who would like to invest in the stock market in Hong Kong. Excalibur has also become more active in acting as underwriter and placing agent to fund raising activities of its listed clients.

– 177 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Introduction to the unaudited Pro Forma Financial Information of the Enlarged Group

The following is the unaudited pro forma financial statements of the Enlarged Group for the purpose of illustrating the effects of (i) the proposed acquisition of 51% equity interest in Excalibur Securities Limited (“Excalibur”) (the “Proposed Acquisition”), (ii) placing of convertible bonds of a principal amount of HK$50 million with zero coupon due in three years from the date of issue (the “Placing CB”) and the repayment of the outstanding borrowings from Kingston Finance Limited ; and (iii) the proposed issue of remuneration shares and remuneration warrants (the “Proposed Remuneration Shares and Remuneration Warrants”) as settlement of the professional fees charged by the financial adviser on the financial position of the Enlarged Group as at 31 March 2007 and the results and cash flows of the Enlarged Group for the year ended 31 March 2007. As it is prepared for illustrative purpose only, and because of its nature, it may not give a true picture of the financial position of the Enlarged Group following the completion of the Proposed Acquisition, Placing CB and Proposed Remuneration Shares and Remuneration Warrants.

The unaudited pro forma consolidated balance sheet of the Enlarged Group has been prepared using accounting policies materially consistent with that of the Group and based upon the historical audited consolidated balance sheet of the Group as at 31 March 2007 as per the published annual report included in the financial information as set out in Appendix I of this Circular and the audited balance sheet of Excalibur as at 31 December 2007 as set out in Appendix II of this Circular, after giving effect to the pro forma adjustments described in the accompanying notes, as if the Proposed Acquisition, Placing CB and Proposed Remuneration Shares and Remuneration Warrants had been completed on 31 March 2007.

The unaudited pro forma consolidated income statement and consolidated cash flow statement of the Enlarged Group have been prepared using accounting policies materially consistent with that of the Group and based upon the historical audited consolidated income statement and consolidated cash flow statement of the Group for the year ended 31 March 2007 as per the published annual report of the Group as set out in Appendix I and the audited income statement and cash flow statement of Excalibur for the year ended 31 December 2007 as set out in Appendix I of this Circular, after giving effect to the pro forma adjustments described in the accompanying notes, as if the Proposed Acquisition, Placing CB and Proposed Remuneration Shares and Remuneration Warrants had been completed at the beginning of the year ended 31 March 2007.

The unaudited pro forma financial information of the Enlarged Group should be read in conjunction with the historical information of the Group as set out in the published annual report of the Company and other financial information included elsewhere in this circular.

– 178 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(I) Unaudited Pro Forma Consolidated Balance Sheet of the Enlarged Group

Audited consolidated balance sheet of the Group as at 31 March 2007 HK$’000 Non-current assets Property, plant and equipment 954 Intangible assets – Other assets 205 Goodwill – 1,159 Current assets Bank balances and cash 7,284 Pledged bank deposits 2,134 Investments held for trading 38,816 Inventories 213 Accounts receivable 5,405 Progress payments receivable 1,417 Other receivables, deposits and prepayments 800 Loans receivable 4,099 Retention money receivables 1,773 Amounts due from related companies 51 61,992 Current liabilities Bank overdrafts (secured) 1,926 Other borrowings (unsecured) 14,113 Accounts payable, other payables and accrued charges 15,874 Loans payable 687 Retention money payables 1,252 Amount due to a related company 890 Amount due to a director 529 Obligations under finance leases 290 Taxation payable 258 35,819 Net current assets 26,173 Total assets less current liabilities 27,332	Unaudited pro forma consolidated balance sheet of the Enlarged Group (upon Audited completion of balance sheet Acquisition of the Acquisition Remuneration of Excalibur 51% equity alone) Placing of CB shares and as at 31 interest in as at 31 and repayment Remuneration December 2007 Excalibur Notes March 2007 of borrowings Notes Warrants Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 624 1,578 880 880 532 737 – 6,775 1(iii) 6,775 2,036 9,970 98,723 106,007 48,050 6 (14,113) 6 – 2,134 – 38,816 – 213 14,209 19,614 – 1,417 604 1,404 34,835 38,934 – 1,773 – 51 148,371 210,363 – 1,926 – 14,113 (14,113) 6 110,488 500 3 126,862 – 687 – 1,252 9,022 9,912 – 529 – 290 847 1,105 120,357 156,676 28,014 53,687 30,050 63,657	Unaudited pro forma consolidated balance sheet of the Enlarged Group as at 31 s March 2007 HK$’000 1,578 880 737 6,775
		9,970
		139,944 2,134 38,816 213 19,614 1,417 1,404 38,934 1,773 51
		244,300
		1,926 – 126,862 687 1,252 9,912 529 290 1,105
		142,563
		101,737
		111,707

– 179 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Non-current liabilities Obligations under finance leases Convertible notes Net assets Equity Share capital Reserves Total equity attributable to equity holders of the Company Minority interests	469 – (469) 26,863 46,407 (19,544) 26,863 – 26,863 Audited consolidated balance sheet of the Group as at 31 March 2007 HK$’000	– 469 – 14,208 2 14,208 34,128 6 – (14,677) 30,050 48,980 20,000 (20,000) 1(iv) 46,407 1,200 8 10,050 (10,050) 1(iv) 13,922 6 (1,200) 8 7,392 2 (12,152) 30,050 34,255 – 14,725 1(iii) 14,725 30,050 48,980 Unaudited pro forma consolidated balance sheet of the Enlarged Group (upon Audited completion of balance sheet Acquisition of the Acquisition Remuneration of Excalibur 51% equity alone) Placing of CB shares and as at 31 interest in as at 31 and repayment Remuneration December 2007 Excalibur Notes March 2007 of borrowings Notes Warrants Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	469 48,336 Unaudited pro forma consolidated balance sheet of the Enlarged Group as at 31 s March 2007 HK$’000
			(48,805)
			62,902
			47,607 570
			48,177 14,725
			62,902

– 180 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(II) Unaudited Pro Forma Consolidated Income Statement Of The Enlarged Group

Turnover Cost of sales Gross profit Other operating income Selling expenses Administrative expenses Provision for doubtful debts (Loss)/profit from operations Finance costs Gain in disposal of subsidiaries (Loss)/profit before taxation Taxation (Loss)/profit for the year Attributable to: Equity holder of the Company Minority interest	Audited consolidated income statement of the Group for the year ended 31 March 2007 HK$’000 6,504 (3,711) 2,793 250 (12) (20,408) (1,684) (19,061) (2,573) 9,196 (12,438) (792) (13,230) (13,230) – (13,230)	Audited income statement of Excalibur Acquisition of for the year 51% equity ended 31 interest in December 2007 Excalibur Note HK$’000 HK$’000 16,371 (3,964) 12,407 1,238 – (6,684) – 6,961 (127) (1,716) 4 – 6,834 (1,159) 5,675 5,675 – 2,781 5 5,675	Unaudited pro forma consolidated income statement of the Enlarged Group (upon completion of the Acquisition alone) Remuneration for the year Placing of CB Shares and ended 31 and repayment Remuneration s March 2007 of borrowings Notes Warrants Note HK$’000 HK$’000 HK$’000 22,875 (7,675) 15,200 1,488 (12) (27,092) (1,200) 8 (1,684) (12,100) (4,416) (4,633) 7 9,196 (7,320) (1,951) (9,271) (12,052) 2,781 (9,271)	Unaudited pro forma consolidated income statement of the Enlarged Group for the year ended 31 s March 2007 HK$’000 22,875 (7,675)
				15,200 1,488 (12) (28,292) (1,684)
				(13,300) (9,049) 9,196
				(13,153) (1,951)
				(15,104)
				(17,885) 2,781
				(15,104)

– 181 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(III) Unaudited Pro Forma Consolidated Cash Flow Statement Of The Enlarged Group

Audited consolidated cash flow statement of the Group for the year ended 31 March 2007 HK$’000 Operating activities Loss before taxation (12,438) Adjustments for: Impairment loss recognised in respect of loan, margin and loan interest receivables 82 Depreciation 918 Interest income (166) Interest expenses 2,542 Interest on obligations under finance leases 31 Interest on convertible notes – Share-based payment expense – Provision for doubtful debts 1,602 Gain on disposal of subsidiaries (9,196) Loss on disposal of property, plant and equipment 64 Amortisation of intangible assets 251 Provision for obsolete inventories 238 Operating cash flows before working capital changes (16,072) Increase in inventories (199) Decrease/(increase) in accounts receivable 5,130 Decrease in amounts due from customers for contract work 657 Increase in progress payments receivable (1,208) Decrease/(increase) in other receivables, deposits and prepayments 2,069 Decrease in retention money receivables 3,471 Increase in amount due from a related company (39) Decrease in bills payable (91) (Decrease)/increase in accounts payable, other payables and accrued charges (6,495) Decrease in retention money payables (580) Increase in amounts due to a related company – Increase in amount due to a director 529	Audited cash flow statement of Acquisition of Excalibur for the 51% equity year ended interest in 31 December 2007 Excalibur Note HK$’000 HK$’000 6,834 (1,716) 4 – 349 (3,574) 127 – – 1,716 4 – – – – – – 3,736 – (10,211) – – (599) – – – 87,635 – 3,063 –	Unaudited pro forma consolidated cash flow statement of the Enlarged Group (upon completion of the Acquisition Remuneration alone) for the Placing of CB Shares and year ended and repayment Remuneration s 31 March 2007 of borrowings Notes Warrants Note HK$’000 HK$’000 HK$’000 (7,320) (4,633) 7 (1,200) 8 82 1,267 (3,740) 2,669 31 1,716 4,633 7 – 1,200 8 1,602 (9,196) 64 251 238 (12,336) (199) (5,081) 657 (1,208) 1,470 3,471 (39) (91) 81,140 (580) 3,063 529	Unaudited pro forma consolidated cash flow statement of the Enlarged Group for the year ended s 31 March 2007 HK$’000 (13,153) 82 1,267 (3,740) 2,669 31 6,349 1,200 1,602 (9,196) 64 251 238
			(12,336) (199) (5,081) 657 (1,208) 1,470 3,471 (39) (91) 81,140 (580) 3,063 529

– 182 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Cash (used in)/generated from operations Interest received Interest paid Interest on obligations under finance leases Hong Kong profits tax paid Net cash (used in)/generated from operating activities Investing activities Purchase of property, plant and equipment Placement of pledged bank deposits Increase in other assets Decrease/(increase) in loans receivable Increase in loans payable Proceeds from disposal of property, plant and equipment Disposal of subsidiaries Net cash generated from/ (used in) investing activities	(12,828) 166 (2,542) (31) (650) (15,885) (180) (71) – 5,257 367 214 (3) 5,584 Audited consolidated cash flow statement of the Group for the year ended 31 March 2007 HK$’000	83,624 3,574 (127) – (212) 86,859 (586) – (18) (8,676) – – – (9,280) Audited cash flow statement of Acquisition of Excalibur for the 51% equity year ended interest in 31 December 2007 Excalibur Note HK$’000 HK$’000	70,796 3,740 (2,669) (31) (862) 70,974 (766) (71) (18) (3,419) 367 214 (3) (3,696) Unaudited pro forma consolidated cash flow statement of the Enlarged Group (upon completion of the Acquisition Remuneration alone) for the Placing of CB Shares and year ended and repayment Remuneration s 31 March 2007 of borrowings Notes Warrants Note HK$’000 HK$’000 HK$’000	70,796 3,740 (2,669) (31) (862) Unaudited pro forma consolidated cash flow statement of the Enlarged Group for the year ended s 31 March 2007 HK$’000
				70,974
				(766) (71) (18) (3,419) 367 214 (3)
				(3,696)

– 183 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Financing activities New borrowings obtained Repayment of borrowings Repayment of obligations under finance leases Issue of convertible notes Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Analysis of the balances of cash and cash equivalents Bank balances and cash Bank overdrafts (secured)	Audited consolidated cash flow statement of the Group for the year ended 31 March 2007 HK$’000 2,395 – (282) – 2,113 (8,188) 13,546 5,358 7,284 (1,926) 5,358	Audited cash flow statement of Acquisition of Excalibur for the 51% equity year ended interest in 31 December 2007 Excalibur Note HK$’000 HK$’000 – – – – – 77,579 21,144 98,723 98,723 – 98,723	Unaudited pro forma consolidated cash flow statement of the Enlarged Group (upon completion of the Acquisition Remuneration alone) for the Placing of CB Shares and year ended and repayment Remuneration s 31 March 2007 of borrowings Notes Warrants Note HK$’000 HK$’000 HK$’000 2,395 – (14,113) 6 (282) – 48,050 6 2,113 69,391 34,690 104,081 106,007 48,050 6 (14,113) 6 (1,926) 104,081	Unaudited pro forma consolidated cash flow statement of the Enlarged Group for the year ended s 31 March 2007 HK$’000 2,395 (14,113) (282) 48,050
				36,050
				103,328 34,690
				138,018
				139,944 (1,926)
				138,018

– 184 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes to unaudited pro forma financial information of the Enlarged Group

1. Under HKFRS 3 Business Combinations (“HKFRS 3”), the Group applied the purchase method to account for the acquisitions of Excalibur. In applying the purchase method, the identifiable assets, liabilities and contingent liabilities of Excalibur are recorded on the consolidated balance sheet of the Group at their fair values at the date of completion. Goodwill arising on the acquisition is determined as the excess or deficit of the consideration payable by the Group over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of Excalibur at the date of completion. Excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of Excalibur over consideration is recognised immediately in the consolidated income statement.

Since the net fair value of the identifiable assets, liabilities, and contingent liabilities of Excalibur and the share price of the Target Company (which form part of the consideration given by the Company for the Acquisition) as at the date of completion of the Acquisition may be different from their values used in the preparation of the unaudited pro forma consolidated balance sheet above, the amount of excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition arising from the Acquisition will be reassessed at time of actual completion.

The adjustments reflect the following:

• (i) The consideration of the Proposed Acquisition will be satisfied by issue of convertible notes of HK$20,000,000 which are convertible into ordinary shares of the Company at a conversion price of HK$0.10.

• (ii) The fair value of the convertible notes is determined by reference to the valuation (the “Valuation”) of the 51% equity interest in Excalibur at HK$21,600,000. The Valuation was carried out by BMI Appraisals Limited, an independent firm of professional valuers.

– 185 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

• (iii) Goodwill of approximately HK$6,775,000 arising from the Transaction, which is derived from the calculation as follows:

Consideration_(Note 1(ii)) Fair value of net assets of Excalibur _Less:_Minority interests _Add:_Professional expense incurred for the Proposed Acquisition(Note 3)_ Goodwill	HK$’000 21,600 30,050 (14,725) 15,325 500 6,775

All identifiable assets, liabilities and considerations are assumed to be at their fair values.

On completion, the fair value of the net identifiable assets and liabilities of Excalibur will have to be reassessed. As a result of the reassessment, the amount of goodwill may be different from that estimated on the basis stated above for the purpose of preparation of the unaudited pro forma financial information. Accordingly, the actual goodwill at the date of completion may be different from the above.

• iv) Elimination of share capital and reserve of Excalibur of HK$20,000,000 and HK$10,050,000 respectively on consolidation of the 51% equity interest in Excalibur.

• The adjustment represents the liability and equity components of the convertible notes issued for the Proposed Acquisition as if it was issued on 31 March 2007. The estimated fair value of the liability component of the convertible notes is approximately HK$14,208,000 determined using the discounted cash flow method. The equity component, being the residual amount of fair value of convertible notes after deducting the fair value of liability component, is approximately HK$7,392,000.

– 186 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. The adjustment represents professional expenses to be incurred by the Company in relation to the Proposed Acquisition.

2. The adjustment of approximately HK$1,716,000 represents the yearly imputed interest expenses on the convertible notes issued for the Proposed Acquisition to be expensed in the consolidated income statement of the Enlarged Group by assuming that the acquisition had been completed at the beginning of the year ended 31 March 2007. These interest expenses shall have a continuing effect on the financial statements of the Group in the subsequent years.

3. The adjustment represents the share of profit of Excalibur for the year ended 31 December 2007 by the minority shareholders of this company (HK$5,675,000 x 49%). The share of profit for the year by the minority shareholders shall have a continuing effect on the financial statements of the Group in the subsequent years.

4. The Company entered into a Placing Agreement with the Placing Agent in respect of the conditional placing of the Placing CB of a principal amount of HK$50 million with zero coupon due in three years from the date of issue. The adjustment represents the liability and equity components of the convertible notes issued for the Placing CB, which are stated net of the issue costs of HK$1,950,000 as if they were issued on 31 March 2007. The estimated fair value of the liability component of the convertible note is approximately HK$34,128,000 determined using the discounted cash flow method. The equity component, being the residual amount of fair value of convertible notes after deducting the fair value of liability component, is approximately HK$13,922,000. Part of the proceeds of the convertible notes is to repay the outstanding other borrowings from Kingston Finance Limited which amounted to approximately HK$14,113,000 as at 31 March 2007. Consequently, the net increase in bank balances and cash in the consolidated pro forma balance sheet is approximately HK$33,937,000 (HK$50,000,000 less HK$1,950,000 less HK$14,113,000). The Placing CB shall have a continuing effect on the financial statements of the Group in the subsequent years.

5. The adjustment of approximately HK$4,633,000 represents the yearly imputed interest expenses on the Placing CB to be expensed in the consolidated income statement of the Enlarged Group by assuming that the Placing CB had been issued at the beginning of the year ended 31 March 2007. These yearly interest expenses shall have a continuing effect on the financial statements of the Group in the subsequent years.

– 187 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. Veda Capital is the financial adviser to the Company regarding the resumption proposal. Pursuant to the engagement letter entered into between the Company and Veda Capital and having considered the financial position of the Company, it was agreed between the Company and Veda Capital that the professional fees of HK$1,200,000 charged by Veda Capital may be settled by the issue of Remuneration Shares to Veda Capital (or its nominee(s)) at an issue price of HK$0.10 per new Share upon the approval by the Stock Exchange on the resumption of trading in the Shares, which is equivalent to the Consideration Conversion Price and Placing Conversion Price. The Company also agreed to grant Remuneration Warrants to Veda Capital (or its nominee(s)) upon the approval by the Stock Exchange on the resumption of trading in the Shares, which entitle Veda Capital (or its nominee(s) to subscribe for 12,000,000 new Shares at the exercise price of HK$0.10 per Share (subject to adjustments), at any time between the date of issue of the Remuneration Warrants and 36 months thereafter. This administrative expense shall not have a continuing effect on the financial statements of the Group in the subsequent years.

2. No adjustment has been made to reflect any trading result or other transactions of the Group entered into subsequent to 31 March 2007.

– 188 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

B. COMFORT LETTER ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a letter from Shu Lun Pan Horwath Hong Kong CPA Limited, the reporting accountants of the Company, in respect of the unaudited pro forma financial information of the Enlarged Group as set out in this Appendix and prepared for the sole purpose of inclusion in this circular.

Shu Lun Pan Horwath Hong Kong CPA Limited

2001 Central Plaza 18 Harbour Road Wanchai, Hong Kong Telephone: (852) 2526 2191 Facsimile: (852) 2810 0502 horwath@horwath.com.hk www.horwath.com.hk

30 June 2008

The Directors

China Conservational Power Holdings Limited Room 1702-3, 17/F Skyline Commercial Centre 71-77 Wing Lok Street Sheung Wan Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information (“Unaudited Pro Forma Financial Information”) of China Conservational Power Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) and Excalibur Securities Limited (“Excalibur”) (together with the Group hereinafter referred to as the “Enlarged Group”) as set out on pages 178 to 188 under the heading of “Unaudited Pro Forma Financial Information of the Enlarged Group” in Appendix III to the Company’s circular (the “Circular”) dated 30 June 2008, which have been prepared by the directors of the Company, solely for illustrative purposes only, to provide information about how the proposed acquisition of the entire issued share capital of Excalibur (the “Excalibur Acquisition”), placing of convertible bonds of a principal amount of HK$50 million, repayment of the outstanding borrowings from Kingston Finance Limited and proposed issue of remuneration shares and remuneration warrants as set out in Part A of this Appendix might have affected the financial information of the Group. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages 190 and 191 of the Circular.

– 189 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Respective Responsibilities of Directors of the Company and Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of Opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information as set out in Appendix I of the Circular with the source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company.

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 paragraph 4.29(1) of the Listing Rules.

– 190 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Unaudited Pro Forma Financial Information is for illustrative purpose only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

• the financial position of the Enlarged Group as at 31 March 2007 or any future date; or

• the financial results and cash flows of the Enlarged Group for the year ended 31 March 2007 or for any future period.

Opinion

In our opinion:

• a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

• b) such basis is consistent with the accounting policies of the Group; and

• c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

For and on behalf of

Shu Lun Pan Horwath Hong Kong CPA Limited Certified Public Accountants

Hong Kong

Shiu Hong NG

Director

Practising Certificate number P03752

– 191 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

As at the Latest Practicable Date, the authorized and issued share capital of the Company was, and immediately following the increased in authorized share capital, conversion of the Consideration CB, Placing CB, issue of the Remuneration Shares and exercise of Remuneration Warrants will be as follows:

Authorised 1,000,000,000 Shares as at the Latest Practicable Date 5,000,000,000 Shares immediately after the proposed increase in authorized share capital of the Company becoming effective Issued and credited as fully paid 464,070,000 Shares as at the Latest Practicable Date 200,000,000 Consideration Conversion Shares to be issued upon exercise in full of the conversion rights of the Consideration CB 500,000,000 Placing Conversion Shares to be issued upon exercise in full of the conversion rights of the Placing CB 12,000,000 Remuneration Shares to be issued upon resumption of trading of Shares and approval from Stock Exchange 12,000,000 Warrant Shares to be issued upon exercise in full of the subscription rights of the Remuneration Warrants 1,188,070,000 Shares in issue immediately after the completion of both of the S&P Agreement and the Placing assuming the Remuneration Shares has been issued in full, the conversion or subscription rights of the Consideration CB and Remuneration Warrants Placing CB are exercised in full	HK$ 100,000,000
	500,000,000
	46,407,000 20,000,000 50,000,000 1,200,000 1,200,000
	118,807,000

All the Shares rank pari passu in all respects including as to dividends, voting and return of capital.

– 192 –

APPENDIX IV

GENERAL INFORMATION

All the new Shares to be issued upon issue of Remuneration Shares and completion of the conversion or exercise of the Consideration CB, Placing CB and Remuneration Warrants shall rank pari passu with all the Shares then in issue in all aspects, including all rights as to dividend, voting and interest in capital, among themselves and with all other Shares then in issue on the date of allotment and issue or exercise of conversion rights in respect of such new Remuneration Shares, Consideration Conversion Shares, Placing Conversion Shares and Warrant Shares. The Company had no debt securities in issue as at the Latest Practicable Date.

3. DISCLOSURE OF INTERESTS

Directors’ interests in Shares and underlying shares of the Company

As at the Latest Practicable Date, none of the Directors or chief executive of the Company and their associates had any interest or short positions in any 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 required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and 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 maintained by the Company referred to therein, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (“Model Code”).

Substantial Shareholders’ interests in Shares and underlying shares of the Company

As at the Latest Practicable Date, so far as known to the Directors or chief executive of the Company, the following persons (other than the Directors or chief executive of the Company) had, or were deemed or taken to have interests or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV 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 the rights to vote in all circumstances at general meetings of the Company or any other member of the Enlarged Group:

			Approximate
		Number of	shareholding
Name of Shareholders	Capacity	Shares held	percentage
Good Treasure	Beneficial owner	108,000,000	23.27%
Holdings Limited		(Long position)
(Note 1)
Mr. Li Chun Sing,	Interest of controlled	108,000,000	23.27%
Andrew	corporation	(Long position)
AWH Fund Ltd	Beneficial owner	27,366,000	5.90%
(Note 2)

– 193 –

GENERAL INFORMATION

APPENDIX IV

• Notes: (1) Good Treasure Holdings Limited is a company incorporated in the British Virgin Islands and whose entire equity interests is beneficially wholly-owned by Mr. Li Chun Sing, Andrew.

• (2) The interest of AWH Fund Ltd. in the Company is based on the information available on the website of the Stock Exchange as at the Latest Practicable Date.

Save as disclosed above, as at the Latest Practicable Date and so far as known to the Directors or chief executive of the Company, no other person (other than the Directors or chief executive of the Company) had any interests or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under provisions of Divisions 2 and 3 of Part XV of the SFO, or recorded in the register kept by the Company pursuant to 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 the rights to vote in all circumstances at general meetings of the Company or any other member of the Enlarged Group and none of the Directors held any directorship or employment in a company which has an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 or Part XV of the SFO.

4. COMPETING BUSINESS

As at the Latest Practicable Date, so far as the Directors were aware, none of the Directors or their respective associates had any interest in any business which competes or may compete, either directly or indirectly, with the business of the Enlarged Group or have or may have any other conflicts of interest with the Enlarged Group pursuant to the Listing Rules.

5. DIRECTORS’ SERVICE CONTRACTS

The Company entered into a service contract with Mr. Sun Tak Yan, Desmond, the Chairman and an executive Director, is for a term of one year commencing from 11 January 2007 and subject to provisions on removal, re-election and retirement by rotation in accordance with the Articles.

Mr. Ng Cheuk Fan, Keith, the Managing Director and an executive Director, was appointed as an executive Director for a term of one year commencing from 4 April 2007 subject to provisions on removal, re-election and retirement by rotation in accordance with the Articles pursuant to his service agreement.

Mr. Yeung Kwok Leung, the Qualified Accountant and an executive Director of the Company, entered into a service agreement with the Company commencing from 1 August 2006 for a term of one year and subject to provisions on removal, re-election and retirement by rotation in accordance with the Articles. He also entered into an employment contract with one of the subsidiary in the Group.

Save as disclosed herein, as at the Latest Practicable Date, none of the Director has entered into any service contract with the Company or any member of the Enlarged Group or any of its subsidiaries or associated companies in force, which was entered into or amended within six months prior to the Latest Practicable Date, or is continuous with a notice period of 12 months to run irrespective of the notice period (excluding contracts expiring or determinable by the employer within one year without payment of compensation, other than statutory compensation.

– 194 –

GENERAL INFORMATION

APPENDIX IV

6. MATERIAL CONTRACTS

Save for the S&P Agreement, the Placing Agreement and the engagement letter dated 15 April 2008 entered into between the Company and Veda Capital, no material contract, not being a contract entered into in the ordinary course of business carried on or intended to be carried on by the Company or its subsidiaries, had been entered into after 30 May 2006, being two years immediately preceding 30 May 2008, the date of the Announcement, and up to the Latest Practicable Date.

7. EXPERTS AND CONSENTS

• (a) The following are the qualifications of the expert who has given its opinions and advice which are included in this circular:

Name Qualification Shu Lun Pan Horwath Hong Kong Certified Public Accountants CPA Limited (“SLP Horwath”)

• K. H. Chan & Company Certified Public Accountants (“KHChan & Co.”)

• (b) None of SLP Horwath and KHChan & Co. has any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) Each of SLP Horwath and KHChan & Co. has given and has not withdrawn its written consent to the issue of this circular, with the inclusion of the references to its name and/or its opinion in the form and context in which they are included.

8. LITIGATION

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

– 195 –

GENERAL INFORMATION

APPENDIX IV

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

None of the Directors has any direct or indirect interests 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 31 March 2007, being the date to which the latest published audited consolidated accounts of the Group were made up.

None of the Directors was materially interested in any asset, contract or arrangement entered into by any member of the Enlarged Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Enlarged Group.

As at the Latest Practicable Date, none of Directors or their respective associates was interested in any business apart from the business of the Enlarged Group, which competed or was likely to compete, either directly or indirectly, with that of the Enlarged Group.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any weekday (public holidays excepted) at the office of the Company at 1702-3, 17th Floor, Skyline Commercial Centre, 71-77 Wing Lok Street, Sheung Wan, Hong Kong from the date of this circular up to and including the date of the EGM:

• (a) the Articles;

• (b) the annual report of the Company for the two years ended 31 March 2006 and 2007 and the interim report of the Company for the six months ended 30 September 2007 as set out in Appendix I;

• (c) the annual report of Excalibur for the two years ended 31 December 2006 and 2007 and the accountants’ report of Excalibur for the year ended 31 December 2007 issued by KHChan & Co. as set out in Appendix IIA and IIB to this circular;

• (d) the unaudited pro forma financial information of the Enlarged Group issued by SLP Horwath as set out in Appendix III to this circular;

• (e) the working capital comfort letter as provided by SLP Horwath to the Board pursuant to the requirements of rule 14.66(4) of the Listing Rules;

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GENERAL INFORMATION

APPENDIX IV

• (f) the letters of consent from SLP Horwath and KHChan & Co. referred to under “Experts and Consents” in this appendix;

• (g) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix.

• (h) the service contracts referred to in the paragraph headed “Directors’ Service Contracts” in this appendix.

11. MISCELLANEOUS

• (a) The registered office of the Company is located at P.O. Box 309, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies.

• (b) The head office and principal place of business of the Company in Hong Kong is at 1702-3, 17th Floor, Skyline Commercial Centre, 71-77 Wing Lok Street, Sheung Wan, Hong Kong.

• (c) The Hong Kong branch share registrar and transfer office of the Company is Union Registrars Limited of Rooms 1901-02, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong.

• (d) The qualified accountant is Mr. Yeung Kwok Leung who is a fellow member of the Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants.

• (e) The company secretary of the Company is Ms. Chow Man Ngan who is a member of The Hong Kong Institute of Chartered Secretaries.

• (f) The English text of this circular shall prevail over the Chinese text in the event of inconsistency.

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NOTICE OF EGM

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 290)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (“ EGM ”) of China Conservational Power Holdings Limited (“ Company ”) will be held at Room 3503, 35th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong on 18 July 2008 at 11:30 a.m. for the purposes of considering and, if thought fit, passing, with or without amendment or modification, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT :

• (a) the sale and purchase agreement dated 27 February 2008 (as amended on 30 May 2008) (“ S&P Agreement ”) entered into between Mr. Lao Chio Kuan (“ Vendor ”) and Yew Sang Hong Investment Services Limited (“ Purchaser ”), a wholly-owned subsidiary of the Company, as purchaser, in respect of the acquisition of 51% of the issued share capital of Excalibur Securities Limited by the Purchaser at the consideration of HK$20 million, to be satisfied by the issue of the Consideration CB (as defined in paragraph 1(b) below) by the Company, a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification, and the execution thereof and implementation of all transactions thereunder be and are hereby approved, ratified and confirmed;

• (b) (i) the creation and issue of the zero coupon convertible notes by the Company in the aggregate principal amount of HK$20 million (the “ Consideration CB ”) pursuant to the terms of the S&P Agreement; and (ii) the allotment and issue of new shares (“ Consideration Conversion Shares ”) of HK$0.10 each (subject to adjustment) in the capital of the Company upon the exercise of the conversion rights attached to the Consideration CB be and are hereby approved; and the directors of the Company be and are hereby authorised to allot and issue the Consideration CB and the Consideration Conversion Shares accordingly; and

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NOTICE OF EGM

• (c) the directors of the Company be and are hereby authorised to sign, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things (including under seal where applicable) as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the implementation of the S&P Agreement, the issue and allotment of the Consideration CB and the Consideration Conversion Shares, and all other documents in connection thereunder and all transactions and other matters contemplated thereunder or ancillary thereto, to waive compliance from and/or agree to any amendment or supplement to any of the provisions of the S&P Agreement (including the Consideration CB) and all other documents in connection thereunder which in their opinion is necessary or desirable to effect or implement any other matters referred to in this Resolution.”

• “ THAT :

• (a) the conditional placing agreement dated 27 February 2008 (as amended on 30 May 2008) (“ Placing Agreement ”) entered into between the Company and Kingston Securities Limited, as placing agent, in respect of the placing of the Placing CB (as defined in paragraph 2(b) below), a copy of which has been produced to the meeting marked “B” and signed by the Chairman of the meeting for the purpose of identification, and the execution thereof and implementation of all transactions thereunder be and are hereby approved, ratified and confirmed;

• (b) (i) the creation and issue of the zero coupon convertible notes by the Company in the aggregate principal amount of HK$50 million (the “ Placing CB ”) pursuant to the terms of the Placing Agreement; and (ii) the allotment and issue of new shares (“ Placing Conversion Shares ”) of HK$0.10 each (subject to adjustment) in the capital of the Company upon the exercise of the conversion rights attached to the Placing CB be and are hereby approved; and the directors of the Company be and are hereby authorised to allot and issue the Placing CB and the Placing Conversion Shares accordingly; and

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NOTICE OF EGM

• (c) the directors of the Company be and are hereby authorised to sign, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things (including under seal where applicable) as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the implementation of the Placing Agreement, the issue and allotment of the Placing CB and the Placing Conversion Shares, and all other documents in connection thereunder and all transactions and other matters contemplated thereunder or ancillary thereto, to waive compliance from and/or agree to any amendment or supplement to any of the provisions of the Placing Agreement (including the Placing CB) and all other documents in connection thereunder which in their opinion is necessary or desirable to effect or implement any other matters referred to in this Resolution.”

• “ THAT :

• (a) the engagement letter dated 15 April 2008 (“ Engagement Letter ”) entered into between the Company and Veda Capital Limited (“ Veda Capital ”), in respect of financial advisory services to be provided to the Company by Veda Capital, a copy of which has been produced to the meeting marked “C” and signed by the Chairman of the meeting for the purpose of identification, and the execution thereof and implementation of all transactions thereunder be and are hereby approved, ratified and confirmed;

• (b) (i) subject to necessary approval of The Stock Exchange of Hong Kong Limited (“ Stock Exchange ”) on the resumption of trading in the shares of the Company on the Stock Exchange and the Stock Exchange having granted approval for the issue, listing of and permission to deal in the Remuneration Shares (as defined below), the allotment and issue of such number of new shares of the Company as equivalent to 1% of the enlarged issued share capital of the Company upon exercise/conversion in full of all the existing convertible securities of the Company and the issue of, conversion and exercise of all securities and convertible securities of the Company pursuant to the resumption proposal (including the Consideration CB, the Placing CB, the Remuneration Shares and the Remuneration Warrants (as defined in paragraph 3(c) below) (currently such number is estimated to be approximately 12 million shares of HK$0.10 each) at an issue price of HK$0.10 per new share (“ Remuneration Shares ”) to Veda Capital (or its nominee(s)) subject to and in accordance with the terms and conditions of the Engagement Letter be and is hereby approved; and (ii) the directors of the Company be and are hereby authorised to allot and issue the Remuneration Shares accordingly;

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NOTICE OF EGM

• (c) (i) subject to necessary approval of the Stock Exchange on the resumption of trading in the shares of the Company on the Stock Exchange and the Stock Exchange having granted approval for the issue, listing of and permission to deal in the Warrant Shares (as defined below), the creation and issue of warrants which will entitle the holders thereof to subscribe in aggregate up to such number of new shares of the Company as equivalent to 1% of the enlarged issued share capital of the Company upon exercise/conversion in full of all the existing convertible securities of the Company and the issue of, conversion and exercise of all securities and convertible securities of the Company pursuant to the resumption proposal (including the Consideration CB, the Placing CB, the Remuneration Shares and the Remuneration Warrants) (currently such number is estimated to be approximately 12 million shares of HK$0.10 each) at an issue price of HK$0.10 per new share (“ Remuneration Warrants ”) by the Company pursuant to the terms of the Engagement Letter; and (ii) the allotment and issue of new shares (“ Warrant Shares ”) of HK$0.10 each (subject to adjustment) in the capital of the Company upon the exercise of the subscription rights attaching to the Remuneration Warrants be and are hereby approved; and the directors of the Company be and are hereby authorised to allot and issue the Remuneration Warrants and the Warrant Shares accordingly; and

• (d) the directors of the Company be and are hereby authorised to sign, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things (including under seal where applicable) as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the implementation of the Engagement Letter, the issue and allotment of the Remuneration Shares, Remuneration Warrants and Warrant Shares, and all other documents in connection thereunder and all transactions and other matters contemplated thereunder or ancillary thereto, to waive compliance from and/or agree to any amendment or supplement to any of the provisions of the Engagement Letter (including the Remuneration Warrants) and all other documents in connection thereunder which in their opinion is necessary or desirable to effect or implement any other matters referred to in this Resolution.”

• “ THAT the authorized share capital of the Company be increased from HK$100,000,000 divided into 1,000,000,000 shares of HK$0.10 each of the Company (“ Shares ”) to HK$500,000,000 divided into 5,000,000,000 Shares by the creation of an additional 4,000,000,000 unissued Shares (“ Increase of Authorized Capital ”) and the directors of the Company be and are hereby authorized to sign, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the implementation of the Increase of Authorized Capital.”

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NOTICE OF EGM

1. “ THAT :

2. (a) subject to and conditional upon the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the shares in the share capital of the Company to be issued pursuant to the exercise of options which may be granted under the Refreshed Scheme Mandate Limit (as defined below), the refreshment of the limit in respect of the granting of share options under the share option scheme of the Company adopted on 12 February 2003 (“ Existing Share Option Scheme ”) and all other share option scheme(s) up to 10 per cent of the number of shares in issue at the date of the passing of this Resolution (“ Refreshed Scheme Mandate Limit ”) be and is hereby approved;

3. (b) the directors of the Company be and are hereby authorized, subject to compliance of the Rules Governing the Listing of Securities on the Stock Exchange, to grant options under the Existing Share Option Scheme up to the Refreshed Scheme Mandate Limit and to exercise all the powers of the Company to allot, issue and deal with shares of the Company pursuant to the exercise of such options; and

4. (c) the directors of the Company be and are hereby authorized to sign, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the implementation of the Refreshed Scheme Mandate Limit and any other matters referred to in this Resolution.”

By order of the Board

China Conservational Power Holdings Limited Ng Cheuk Fan, Keith Managing Director

Hong Kong, 30 June 2008

Principal Place of Business in Hong Kong:

1702-3, 17th Floor Skyline Commercial Centre 71-77 Wing Lok Street Sheung Wan Hong Kong

Registered Office:

P.O. Box 309 Ugland House South Church Street George Town, Grand Cayman Cayman Islands British West Indies

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NOTICE OF EGM

Notes:

1. Any member of the Company entitled to attend and vote at the EGM may appoint one or more than one proxy to attend and to vote in his stead. A proxy need not be a member of the Company.

2. 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 of the Company as if he were solely entitled thereto; but if more than one or such joint holders be present at the EGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.

3. In order to be valid, the proxy form duly completed and signed in accordance with the instructions printed thereon together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof must be delivered to the Company’s branch registrar and transfer office in Hong Kong, Union Registrars Limited, at Rooms 1901-02, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof.

4. Whether or not you propose to attend the EGM in person, you are strongly urged to complete and return the proxy form in accordance with the instructions printed thereon. Completion and return of the proxy form will not preclude you from attending the EGM and voting in person if you so wish. In the event that you attend the EGM after having lodged the proxy form, it will be deemed to have been revoked.

As at the date of this notice, the Company’s Board of Directors consists of three Executive Directors namely Mr. Sun Tak Yan, Desmond (Chairman), Mr. Ng Cheuk Fan, Keith (Managing Director) and Mr. Yeung Kwok Leung; and three Independent Non-executive Directors, namely Mr. Tam B Ray Billy, Mr. Ng Kay Kwok and Mr. Lam Ka Wai, Graham.

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