THIS CIRCULAR 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 your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

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

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

首長四方（集團）有限公司[*]

SHOUGANG CONCORD GRAND (GROUP) LIMITED

(Incorporated in Bermuda with limited liability)

(Stock code: 730)

I) DISCLOSEABLE AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 100% INTEREST IN SHOUGANG GDC MEDIA HOLDING LIMITED; II) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 50% INTEREST IN JECKMAN HOLDINGS LIMITED;

III) DISCLOSEABLE AND CONNECTED TRANSACTION RELATING TO THE PROPOSED SUBSCRIPTION OF NEW SHARES IN GDC TECHNOLOGY LIMITED; IV) MAJOR TRANSACTION RELATING TO DEEMED DISPOSAL OF INTEREST IN GLOBAL DIGITAL CREATIONS HOLDINGS LIMITED; AND V) PROPOSED GRANT OF OPTIONS UNDER THE GDC TECH SHARE OPTION SCHEME

Financial adviser to Shougang Concord Grand (Group) Limited

CIMB-GK Securities (HK) Limited

Independent financial adviser to the Independent Board Committee and the independent Shareholders

A letter from the Board is set out on pages 6 to 22 of this circular. A letter from the Independent Board Committee is set out on pages 23 to 24 of this circular. A letter from OSK, the independent financial adviser, containing its advice to the Independent Board Committee and the independent Shareholders is set out on pages 25 to 47 of this circular.

A notice convening a SGM to be held at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong on Tuesday, 30 October 2007 at 10:50 a.m. is set out on pages 211 to 213 of this circular. A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit with the Hong Kong branch share registrars and transfer office of the Company, Tricor Tengis Limited of 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting (as the case may be )should you so wish.

* For identification purpose only

11 October 2007

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Letter from OSK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	48
Appendix II – Additional financial information of the Enlarged Group and the Group. . .	113
Appendix III – Accountants’ report of Jeckman Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	143
Appendix IV – Additional financial information of the Jeckman Group . . . . . . . . . . . . . . . . .	175
Appendix V – Pro forma financial information of the Enlarged Group . . . . . . . . . . . . . . . . .	184
Appendix VI – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	197
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	211

DEFINITIONS

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

“associates” has the meaning as ascribed to it under the Listing Rules “Board” the board of Directors

“connected person(s)” has the meaning as ascribed to it under in the Listing Rules

“Company” Shougang Concord Grand (Group) Limited, a company incorporated in Bermuda with limited liability whose securities are listed on the main board of the Stock Exchange

“China Film” China Film Group Corporation (中國電影集團公司 ), a company incorporated in the PRC, a third party independent of each of the Company, GDC and their respective connected persons “Directors” directors of the Company “Enlarged Group” the Company and its subsidiaries immediately after completion of the Jeckman Agreement “GDC” Global Digital Creations Holdings Limited, a company incorporated in Bermuda with limited liability whose securities are listed on GEM

“GDC Group” GDC and its subsidiaries “GDC Holdings” GDC Holdings Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of GDC

“GDC Options” 38,070,000 options at the exercise price of HK$2.75 per share of GDC proposed to be granted to the eligible participants of GDC “GDC Share Option Scheme” the share option scheme adopted by GDC on 18 July 2003 “GDC Tech” GDC Technology Limited, a company incorporated in the British Virgin Islands with limited liability and a 51.08% owned subsidiary of GDC as at the Latest Practicable Date “GDC Tech Options” options to subscribe for 12,000,000 GDC Tech Shares at the subscription price of HK$2.00 per GDC Tech Share “GDC Tech Share(s)” ordinary shares of HK$0.1 each in the share capital of GDC Tech

DEFINITIONS

“GDC Tech Share Option Scheme” the share option scheme adopted by GDC Tech on 19 September 2006
“GDC Tech Subscription” subscription of GDC Tech Subscription Shares by GDC Holdings pursuant to the GDC Tech Subscription Agreement
“GDC Tech Subscription Agreement” the agreement dated 14 August 2007 entered into between GDC Holdings and GDC Tech in relation to the GDC Tech Subscription at GDC Tech Subscription Price as more particularly set out under the section headed “THE GDC TECH SUBSCRIPTION AGREEMENT DATED 14 AUGUST 2007” of this circular
“GDC Tech Subscription Price” HK$2.00 per GDC Tech Subscription Share
“GDC Tech Subscription Shares” 53,388,178 new GDC Tech Shares to be issued pursuant to the GDC Tech Subscription Agreement
“GEM” the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules” the Rules Governing the Listing of Securities on GEM and any amendments thereto
“Grand Phoenix” Grand Phoenix Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company
“Group” the Company and its subsidiaries
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” the committee of the Board comprising Mr. Tam King Ching, Kenny, Ms. Zhou Jianhong and Mr. Yip Kin Man, Raymond, being the independent non-executive Directors, formed to advise the independent Shareholders in respect of the Shougang GDC Media Agreement and the transactions contemplated thereunder, Jeckman Agreement and the transactions contemplated thereunder, and GDC Tech Subscription Agreement and the transactions contemplated thereunder
“Jeckman Acquisition” the acquisition by Grand Phoenix of the Jeckman Sale Shares and the assignment of the Jeckman Loan from Shougang Holding to Grand Phoenix pursuant to the terms and conditions of the Jeckman Agreement

DEFINITIONS

“Jeckman Agreement” the agreement dated 14 August 2007 entered into between Shougang Holding and Grand Phoenix in relation to the purchase of the Jeckman Sale Shares by Grand Phoenix from Shougang Holding and the assignment of Jeckman Loan by Shougang Holding to Grand Phoenix as more particularly set out under the section headed “THE JECKMAN AGREEMENT DATED 14 AUGUST 2007” of this circular
“Jeckman Consideration” HK$52 million, being the aggregate consideration of i) HK$29.2 million for the Jeckman Sale Shares; and ii) HK$22.8 million for the assignment of the Jeckman Loan by Shougang Holding to Grand Phoenix
“Jeckman Group” Jeckman Holdings and its subsidiary, South China Leasing
“Jeckman Holdings” Jeckman Holdings Limited, a company incorporated in the British Virgin Islands with limited liability
“Jeckman Loan” the aggregate outstanding amount advanced by Shougang Holding to Jeckman Holdings as at the date of the Jeckman Agreement, in the sum of HK$22.8 million
“Jeckman Sale Shares” eight shares of US$1.00 each in the share capital of Jeckman Holdings, being 50% of the entire issued share capital of Jeckman Holdings
“Latest Practicable Date” 8 October 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information referred to in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange and any amendments thereto
“OSK” OSK Asia Capital Limited, a licensed corporation to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities for the purpose of the SFO and the independent financial adviser to the Independent Board Committee and independent Shareholders in respect of the Shougang GDC Media Acquisition, the Jeckman Acquisition and the GDC Tech Subscription
“PRC” the People’s Republic of China but excluding, for the purpose of this circular, Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

DEFINITIONS

“PRC Media JV” 中影首鋼環球數碼數字影院建設（北京）有限公司 (CFGDC Digital Cinema Company Limited), a sino-foreign joint venture incorporated in the PRC and is owned as to 49% by Shougang GDC Media and 51% by China Film

“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

“SGM” the special general meeting of the Company to be held for the purpose of approving the Shougang GDC Media Agreement and the transactions contemplated thereunder, the Jeckman Agreement and the transactions contemplated thereunder, the GDC Tech Subscription Agreement and the transactions contemplated thereunder, the grant of the GDC Options and the transactions contemplated thereunder and the grant of the GDC Tech Options and the transactions contemplated thereunder
“Share(s)” ordinary share(s) of HK$0.01 each in the share capital of the Company
“Shareholder(s)” holder(s) of the Share(s)
“Shougang GDC Media” Shougang GDC Media Holding Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of Shougang Holding as at the Latest Practicable Date
“Shougang GDC Media Acquisition” the acquisition by GDC Holdings of the Shougang GDC Media Sale Share pursuant to the terms and conditions of the Shougang GDC Media Agreement
“Shougang GDC Media Agreement”
the agreement dated 14 August 2007 entered into between Shougang Holding and GDC Holdings in relation to the Shougang GDC Media Acquisition as more particularly set out under the section headed “THE SHOUGANG GDC MEDIA AGREEMENT DATED 14 AUGUST 2007” of this circular
“Shougang GDC Media Consideration”

the consideration of HK$42,000,000

“Shougang GDC Media Deposit”
part of the Shougang GDC Media Consideration, being HK$41,500,000, paid within one month from the date of the Shougang GDC Media Agreement
“Shougang GDC Media Sale Share”
one share of HK$1.00 in the share capital of Shougang GDC Media, being the entire issued share capital of Shougang GDC Media

DEFINITIONS

“Shougang Holding” Shougang Holding (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability and the controlling shareholder of the Company “Stock Exchange” The Stock Exchange of Hong Kong Limited “South China Leasing” South China International Leasing Company Limited, a sinoforeign co-operative joint venture established in the PRC, which, as at the Latest Practicable Date, is 60% owned by Jeckman Holdings, 20% owned by a wholly-owned subsidiary of the Company and 20% owned by an independent third party not connected with the Company or its connected persons “United States” the United States of America “HK$” Hong Kong dollars, the lawful currency of Hong Kong “RMB” Renminbi, the lawful currency of the PRC “US$” United States dollars, the lawful currency of the United States

Unless otherwise specified in this circular, amounts denominated in US$ and RMB have been converted, for the purpose of illustration only, into HK$ as follows:

US$1 = HK$7.78 RMB1 = HK$1.03

No representation is made that any amount in HK$ could have been or could be converted at the above rate or at any other rates or at all.

Certain English translation of Chinese names or words in this circular are included for information purpose only and should not be regarded as the official English translation of such Chinese names or words.

LETTER FROM THE BOARD

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability)

(Stock code: 730)

Directors: Wang Qinghai (Chairman) Cao Zhong (Vice Chairman and Managing Director) Chen Zheng (Managing Director of Operations) Wang Tian (Deputy Managing Director) Yuan Wenxin (Deputy Managing Director) Leung Shun Sang, Tony (Non-executive Director) Tam King Ching, Kenny (Independent Non-executive Director) Zhou Jianhong (Independent Non-executive Director) Yip Kin Man, Raymond (Independent Non-executive Director)

Registered office: Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Principal place of business in Hong Kong: 6th Floor Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai, Hong Kong

11 October 2007

To the Shareholders

Dear Sir or Madam,

INTRODUCTION

On 14 August 2007, GDC Holdings, a wholly-owned subsidiary of GDC entered into the Shougang GDC Media Agreement with Shougang Holding for the acquisition of 100% interest in the issued share capital of Shougang GDC Media for a consideration of HK$42 million which was paid as to HK$41.5

* For identification purpose only

LETTER FROM THE BOARD

million as deposit within one month from the date of the Shougang GDC Media Agreement and will be paid as to HK$0.5 million at completion of the Shougang GDC Media Agreement. The sole asset of Shougang GDC Media is its 49% interest in PRC Media JV, which is principally engaged in the deployment of digital cinema network and related businesses in the PRC. The Shougang GDC Media Acquisition constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules. As Shougang Holding held an approximately 40.45% interest in the Company, which in turn, held an approximately 50.76% interest in GDC as at the date of the Shougang GDC Media Agreement, Shougang Holding is a connected person of the Company, and the Shougang GDC Media Acquisition also constitutes a connected transaction for the Company and is subject to the approval of the independent Shareholders by way of poll at the SGM. Shougang Holding and its associates are required to abstain from voting at the SGM to approve the Shougang GDC Media Agreement and the transactions contemplated therein.

On 14 August 2007, Grand Phoenix, an indirect wholly-owned subsidiary of the Company, entered into the Jeckman Agreement with Shougang Holding, pursuant to which Grand Phoenix has conditionally agreed to acquire the Jeckman Sale Shares, representing 50% of the issued share capital of Jeckman Holdings, and to accept an assignment of the Jeckman Loan from Shougang Holding for an aggregate consideration of HK$52 million, which will be payable by Grand Phoenix in cash at completion of the Jeckman Agreement. The Company will finance the Jeckman Consideration by internal resources. The sole asset of Jeckman Holdings is its 60% equity interest in South China Leasing, which is principally engaged in the financial leasing business, including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties in the PRC. The Jeckman Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules. As Shougang Holding held an approximately 40.45% interest in the Company as at the date of the Jeckman Agreement, Shougang Holding is a connected person of the Company, the Jeckman Acquisition also constitutes a connected transaction for the Company and is subject to the approval of the independent Shareholders by way of poll at the SGM. Shougang Holding and its associates are required to abstain from voting at the SGM to approve the Jeckman Agreement and the transactions contemplated therein.

On 14 August 2007, GDC Holdings, a wholly-owned subsidiary of GDC and an indirect non wholly-owned subsidiary of the Company, and GDC Tech, a non wholly-owned subsidiary of GDC Holdings, entered into the GDC Tech Subscription Agreement to subscribe for 53,388,178 new GDC Tech Shares, at HK$2.00 per new GDC Tech Share for a total consideration of approximately HK$106.78 million. As Mr. Li Ka-shing, a substantial shareholder of the Company, through his associate held an approximately 31.60% interest in GDC Tech as at the date of the GDC Tech Subscription Agreement, the GDC Tech Subscription constitutes a discloseable and connected transaction for the Company and is subject to the approval of the independent Shareholders by way of poll at the SGM. Mr. Li Ka-shing and his associates are required to abstain from voting at the SGM to approve the GDC Tech Subscription Agreement and the transactions contemplated therein.

On 20 August 2007, GDC proposed to grant the GDC Options to certain eligible participants under the GDC Share Option Scheme subject to the approval by the Shareholders at the SGM. Upon fully exercise of the GDC Options and all other outstanding options of GDC, the Company’s shareholding interest in GDC, as at the Latest Practicable Date, will be diluted from 50.74% to 48.62% whereby GDC will cease to be a subsidiary of the Company. The grant of the GDC Options constitutes dilution of a major subsidiary of the Company under Chapter 13 of the Listing Rules and a major transaction in respect of a deemed disposal of an interest in GDC by the Company under Chapter 14 of the Listing Rules, which is subject to approval by the Shareholders at the SGM.

LETTER FROM THE BOARD

On 20 August 2007, GDC Tech proposed to grant under the GDC Tech Share Option Scheme, the GDC Tech Options to Ms. Lu Yi, Gloria, a director of GDC to subscribe for an aggregate of 12,000,000 GDC Tech Shares, at a subscription price of HK$2.00 per GDC Tech Share subject to the completion of the GDC Tech Subscription Agreement. Save for the GDC Tech Options, no option of GDC Tech was previously granted to Ms. Lu Yi, Gloria. As at the Latest Practicable Date, the GDC Tech Options, if fully exercised, would represent approximately 6.76% of the existing issued share capital of GDC Tech and approximately 4.94% of the issued share capital of GDC Tech as enlarged by the GDC Tech Options and the GDC Tech Subscription. As the total number of GDC Tech Shares to be issued upon fully exercise of the GDC Tech Options by Ms. Lu Yi, Gloria will exceed 1% of the issued share capital of GDC Tech, pursuant to Rule 17.03(4) of the Listing Rules, the proposed grant of the GDC Tech Options is subject to the approval by the Shareholders. Ms. Lu Yi, Gloria and her associates are required to abstain from voting at the SGM to approve the grant of the GDC Tech Options.

The purpose of this circular is to provide you with further information on all the above transactions, together with, among other things, the accountant’s report on Jeckman Holdings, and a notice of the SGM in accordance with the requirements of the Listing Rules.

I) DISCLOSEABLE AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 100% INTEREST IN SHOUGANG GDC MEDIA HOLDING LIMITED

THE SHOUGANG GDC MEDIA AGREEMENT DATED 14 AUGUST 2007

Parties

Purchaser: GDC Holdings, a wholly-owned subsidiary of GDC Vendor: Shougang Holding

Asset to be acquired

The Shougang GDC Media Sale Share is the entire issued share capital of Shougang GDC Media. The sole asset of Shougang GDC Media is its 49% interest in PRC Media JV, which is principally engaged in the deployment of digital cinema network and related businesses in the PRC. The remaining 51% interest in PRC Media JV is owned by China Film.

Consideration

HK$42 million, which was/will be settled:

as to HK$41.5 million, being the Shougang GDC Media Deposit, paid within one month from the date of the Shougang GDC Media Agreement; and
as to the balance of HK$0.5 million, to be payable at completion of the Shougang GDC Media Agreement.

LETTER FROM THE BOARD

In accordance with the terms of the Shougang GDC Media Agreement, the Shougang GDC Media Deposit has been injected into Shougang GDC Media as an interest-free shareholder’s loan and would be used as to RMB19.6 million by Shougang GDC Media as its 49% committed registered capital for PRC Media JV, with the remaining balance as working capital of Shougang GDC Media. The interest-free shareholder’s loan will be assigned to GDC Holdings at completion of the Shougang GDC Media Agreement at nil consideration.

The Shougang GDC Media Consideration was determined after arm’s length negotiation between the parties based on normal commercial terms with reference to the 49% capital requirements in the registered capital of PRC Media JV and the working capital requirements of Shougang GDC Media in future. GDC finances the Shougang GDC Media Consideration from part of the placing proceeds raised from the share placement announced by GDC on 4 July 2007.

The Directors consider that the terms of the Shougang GDC Media Agreement are fair and reasonable so far as the Company and its Shareholders are concerned.

Conditions to completion of the Shougang GDC Media Agreement

Completion of the Shougang GDC Media Agreement shall be conditional upon:

(a) the passing of an ordinary resolution by the independent Shareholders by way of poll at the special general meeting of each of the Company and GDC to approve the Shougang GDC Media Agreement and the transactions contemplated therein in compliance with the Listing Rules and the GEM Listing Rules;
(b) the establishment of PRC Media JV being approved by the relevant PRC government authorities; and
(c) the business licence of PRC Media JV being issued by the State Administration for Industry and Commerce of the PRC.

Completion will take place on the third business day following the fulfillment of all condition precedents of the Shougang GDC Media Agreement. If any of the above conditions are not fulfilled on or before 31 December 2007 or such other date as may be agreed between the parties, the Shougang GDC Media Agreement shall forthwith become null and void and cease to have any effect whatsoever and neither party shall have any claims against the other for costs, damages, compensations or otherwise (save for any antecedent breach). If the Shougang GDC Media Agreement becomes null and void, the Shougang GDC Media Deposit shall be forthwith refunded by Shougang Holding to GDC Holdings together with an interest calculated at a rate of 6% per annum. As at the Latest Practicable Date, conditions (b) and (c) above have been fulfilled.

INFORMATION ON SHOUGANG GDC MEDIA AND PRC MEDIA JV

Shougang GDC Media

Shougang GDC Media is a special purpose vehicle established with an aim of holding the interest in PRC Media JV and was incorporated on 19 January 2007 in Hong Kong. The sole asset of Shougang GDC Media is its 49% interest in PRC Media JV.

LETTER FROM THE BOARD

PRC Media JV

PRC Media JV is a sino-foreign equity joint venture established in the PRC on 30 August 2007 with a term of 10 years. PRC Media JV is owned as to 49% by Shougang GDC Media and 51% by China Film. PRC Media JV is principally engaged in the deployment of digital cinema network and related businesses in the PRC. The total capital commitment of Shougang GDC Media in PRC Media JV is RMB19.6 million (equivalent to approximately HK$20.2 million), representing 49% of the registered capital of PRC Media JV.

The joint venture agreement was entered into on 24 May 2007 between Shougang GDC Media and China Film. Principal terms of the joint venture agreement are set out as follows:

Scope of business:

To engage in the deployment of digital cinema network and related businesses in the PRC.

Scale of operation:

Stage one:

To install approximately 700 units of digital cinema integrated projection system in the PRC by 2007.

Stage two:

To install approximately 2,000 units of digital cinema integrated projection system in the PRC by 2008.

Term:

10 years from the date of issue of the business licence of PRC Media JV.

Capital structure:

Registered capital:

RMB40 million, which shall be contributed by the following parties at the date of application of the business license of PRC Media JV:

(i) Shougang GDC Media to contribute in cash its 49% capital contribution in US$ in the amount equivalent to RMB19.6 million (equivalent to approximately HK$20.2 million); and
(ii) China Film to contribute in cash its 51% capital contribution for the amount of RMB20,400,000 (equivalent to approximately HK$21.0 million).

Profit distribution:

Profits of PRC Media JV shall be distributed in accordance with the proportion of the registered capital held by Shougang GDC Media and China Film, respectively.

Board composition:

The board of PRC Media JV shall comprise five members. Shougang GDC Media shall have the right to nominate two members and China Film shall have the right to nominate three members to the board of PRC Media JV.

LETTER FROM THE BOARD

REASONS FOR THE SHOUGANG GDC MEDIA ACQUISITION

The Group is principally engaged in property investment and management, provision of financial services and provision of cultural recreation content. The GDC Group is principally engaged in the digital content business, encompassing creation, production and distribution of digital content. On 31 October 2006, GDC announced that its wholly-owned subsidiary entered into a co-operation agreement with China Film to jointly promote digital cinema business in the PRC. The Shougang GDC Media Acquisition represents a further step for GDC to participate in the deployment of digital cinema business in the PRC by participating in the operation of PRC Media JV, which is principally engaged in the deployment of digital cinema network and related businesses in the PRC. GDC will treat its attributable 49% interest in PRC Media JV as a longterm investment, and equity accounts for its interest in PRC Media JV. With the expertise of the GDC Group in digital content distribution and exhibitions, the Directors consider the Shougang GDC Media Acquisition is in the interest of the Company and its Shareholders as a whole.

FINANCIAL EFFECT OF THE SHOUGANG GDC MEDIA ACQUISITION

Immediately upon completion of the Shougang GDC Media Agreement, the total assets and the total liabilities of the Group will remain unchanged. The Company considers that there will not be any material effect on the earnings of the Group immediately upon completion of the Shougang GDC Media Agreement.

REQUIREMENTS OF THE LISTING RULES

The Shougang GDC Media Acquisition constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules. As at the date of Shougang GDC Media Agreement, as Shougang Holding held an approximately 40.45% interest in the Company, which in turn, held approximately 50.76% interest in GDC, Shougang Holding is a connected person of the Company, and the Shougang GDC Media Acquisition also constitutes a connected transaction for the Company and is subject to the approval of the independent Shareholders by way of poll at the SGM. Shougang Holding and its associates are required to abstain from voting at the SGM to approve the Shougang GDC Media Agreement and the transactions contemplated therein.

II) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 50% INTEREST IN JECKMAN HOLDINGS LIMITED

THE JECKMAN AGREEMENT DATED 14 AUGUST 2007

Parties

Purchaser: Grand Phoenix Vendor: Shougang Holding

LETTER FROM THE BOARD

Asset to be acquired

The Jeckman Sale Shares represent 50% of the issued share capital of Jeckman Holdings and the Jeckman Loan represents 50% of the aggregate shareholders’ loan granted by the shareholders to Jeckman Holdings. Grand Phoenix owns the remaining 50% interest of Jeckman Holdings. The sole asset of Jeckman Holdings is its 60% equity interest in South China Leasing, which is principally engaged in the financial leasing business, including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties in the PRC.

Jeckman Consideration

The Jeckman Consideration of HK$52 million, being the aggregate amount of:

(a) HK$29.2 million for the Jeckman Sale Shares; and
(b) HK$22.8 million for the assignment of the Jeckman Loan by Shougang Holding to Grand Phoenix.

The Jeckman Consideration was determined after arm’s length negotiation between the parties based on normal commercial terms with reference to the future prospects of South China Leasing taking into account the number of financial leasing contracts entered into by it.

The Directors consider that the terms of the Jeckman Agreement are fair and reasonable so far as the Company and its Shareholders are concerned.

The Jeckman Consideration of HK$52 million will be payable in cash by Grand Phoenix at completion of the Jeckman Agreement. The Company will finance the Jeckman Consideration by internal resources.

Condition to completion of the Jeckman Agreement

Completion of the Jeckman Agreement shall be conditional upon the passing of an ordinary resolution by the independent Shareholders by way of poll at the SGM to approve the Jeckman Agreement and the transactions contemplated therein in compliance with the Listing Rules.

Completion of the Jeckman Agreement will take place on the third business day following the fulfilment of the above condition. If the above condition is not fulfilled on or before 31 December 2007 or such other date as may be agreed between the parties, the Jeckman Agreement shall forthwith become null and void and cease to have any effect whatsoever and neither party shall have any claims against the other for costs, damages, compensations or otherwise (save for any antecedent breach).

LETTER FROM THE BOARD

Information relating to Jeckman Holdings and South China Leasing

Jeckman Holdings is a company incorporated in the British Virgin Islands with limited liability. The sole asset of Jeckman Holdings is its 60% equity interest in South China Leasing. Shougang Holding purchased the Jeckman Sale Shares at a price of HK$25.2 million. In addition, Shougang Holding had provided interest-free loans in an aggregate amount of HK$22.8 million to Jeckman Holdings.

South China Leasing is a sino-foreign equity joint venture established in the PRC on 20 May 1989 with term of 40 years expiring in 2029. South China Leasing is principally engaged in the financial leasing business, including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties in the PRC. As at 30 June 2007, the audited consolidated total assets of Jeckman Holdings was approximately HK$1,650.9 million.

Pursuant to the existing articles of South China Leasing, the existing board of directors of South China Leasing comprises 5 members. Upon completion of the Jeckman Agreement, the Company, through Jeckman Holdings and its another wholly-owned subsidiary, Valuework Investment Holdings Limited, will have the right to nominate 4 directors to the board of South China Leasing.

Shareholding Structure

The shareholding structure of Jeckman Holdings and South China Leasing before and after completion of the Jeckman Agreement are as follows:

Before completion of the Jeckman Agreement

==> picture [387 x 219] intentionally omitted <==

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

The Company
100%
Shougang Holding Grand Phoenix
50% 50%
100%
Shenzhen Jiayinda
Valuework Investment Investment Company
Jeckman Holdings
Holdings Limited Limited
60% 20% 20%
South China Leasing
----- End of picture text -----

LETTER FROM THE BOARD

Immediately after completion of the Jeckman Agreement

==> picture [386 x 219] intentionally omitted <==

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

The Company
100%
Grand Phoenix
100% 100%
Shenzhen Jiayinda
Valuework Investment Investment Company
Jeckman Holdings
Holdings Limited Limited
60% 20% 20%
South China Leasing
----- End of picture text -----

Reasons for the Jeckman Acquisition

Given the substantial improvement in the audited consolidated revenue of Jeckman Holdings from approximately HK$2.6 million for the year 2005 to approximately HK$55.8 million for the year 2006 and further to approximately HK$50.0 million for the six months ended 30 June 2007 as a result of the increase in financial leasing contracts entered into by South China Leasing in 2006 and after taking into account the prospects of the PRC financial leasing market, the Directors consider that the Jeckman Acquisition would enable the Group to increase its participation in the PRC financial leasing market, which is beneficial to the Group.

The Directors consider that the terms of the Jeckman Agreement are fair and reasonable so far as the Company and its Shareholders are concerned and the Jeckman Acquisition is also beneficial to and is in the interest of the Company and its Shareholders as a whole.

Upon completion of the Jeckman Agreement, Jeckman Holdings will become a whollyowned subsidiary of the Company and South China Leasing will become an indirect 80% owned subsidiary of the Company and their results will be consolidated by the Group.

REQUIREMENTS OF THE LISTING RULES

The Jeckman Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules. As at the date of Jeckman Agreement, as Shougang Holding held an approximately 40.45% interest in the Company, Shougang Holding is a connected person of the Company, and the Jeckman Acquisition also constitutes a connected transaction for the Company and is subject to the approval of the independent Shareholders by way of poll at the SGM. Shougang Holding and its associates are required to abstain from voting at the SGM to approve the Jeckman Agreement and the transactions contemplated therein.

LETTER FROM THE BOARD

III) DISCLOSEABLE AND CONNECTED TRANSACTION RELATING TO THE PROPOSED SUBSCRIPTION OF NEW SHARES IN GDC TECHNOLOGY LIMITED

THE GDC TECH SUBSCRIPTION AGREEMENT DATED 14 AUGUST 2007

Parties

(i) GDC Holdings, a wholly-owned subsidiary of GDC and a non wholly-owned subsidiary of the Company; and
(ii) GDC Tech

Shares to be subscribed

53,388,178 new GDC Tech Shares, representing approximately 30.08% of the issued share capital of GDC Tech and approximately 23.12% of the issued share capital of GDC Tech as enlarged by the GDC Tech Subscription as at the Latest Practicable Date.

GDC Tech Subscription Price

HK$2.00 per GDC Tech Subscription Share, which has been determined after arm’s length negotiation between the parties thereto with reference to the expected future prospect of GDC Tech taking into account its potential sale of 2,000 units of digital cinema integrated projection system and related services for the deployment of digital cinema network in the PRC under the cooperation between China Film and the GDC Group and other digital content distribution related projects under negotiation and the trend of deployment of digital cinemas worldwide. Based on the GDC Tech Subscription Price, the total consideration for the GDC Tech Subscription is approximately HK$106.78 million which will be settled in cash. GDC will finance the GDC Tech Subscription from part of the placing proceeds raised from the share placement announced by GDC on 4 July 2007.

The Directors consider that the GDC Tech Subscription Price is fair and reasonable and in the interests of the Company and its Shareholders as a whole.

Condition to completion of the GDC Tech Subscription Agreement

Completion of the GDC Tech Subscription Agreement shall be conditional upon the passing of an ordinary resolution by the independent Shareholders by way of poll at the SGM to approve the GDC Tech Subscription Agreement and the transactions contemplated therein.

Completion of the GDC Tech Subscription Agreement will take place on the third business day following the fulfilment of the above condition. If the condition is not fulfilled on or before 31 December 2007 or such other date as may be agreed between the parties, the GDC Tech Subscription Agreement shall terminate and neither of the parties shall have any claim against the other for costs, damages, compensation or otherwise, except that such termination shall not affect the then accrued rights and obligations of the parties.

LETTER FROM THE BOARD

Information relating to GDC Tech

GDC Tech, a non wholly-owned subsidiary of GDC, is principally engaged in the provision of computing solutions for digital content distribution and exhibitions on a worldwide basis. The following table sets out the summary of the audited consolidated financial results of the GDC Tech for the two financial years ended 31 December 2006:

	For the years ended	For the years ended
	31 December
	2005	2006
	HK$’000	HK$’000
Loss before tax and extraordinary items	11,622	6,145
Loss after tax and extraordinary items	11,262	6,145
Net liabilities	31,918	26,386

Reasons for the GDC Tech Subscription

The Directors noted that in 2007, there has been a significant increase in the number of digital cinemas around the world, which involve the conversion of film projectors-based analogue cinemas deployment to digital projector and server based digital cinemas. Besides, almost all recent major Hollywood feature films were also released digitally to worldwide cinema chains. The Directors are of the view that such trend will bring ample business opportunities to GDC Tech, which has been actively developing its digital cinema business in recent years. The Directors consider that it is in the interest of GDC Tech to secure additional funding, by entering into the GDC Tech Subscription Agreement, to expedite the rolling out of GDC Tech’s worldwide business plan, including the potential sale of 2,000 units of digital cinema integrated projection system and related services for digital cinema network in the PRC under the co-operation between China Film and the GDC Group. The net proceeds of approximately HK$106.78 million of the GDC Tech Subscription Agreement will be utilised for business expansion of GDC Tech worldwide and for enhancement of research and development activities of GDC Tech.

LETTER FROM THE BOARD

Shareholding Structure of GDC Tech

Before completion of the GDC Tech Subscription Agreement

==> picture [386 x 166] intentionally omitted <==

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

The Company
50.74%
Management and directors Mr. Li Ka-shing
GDC
of GDC and GDC Tech and his associates
19.41% 51.08% 29.51%
GDC Tech
----- End of picture text -----

Immediately after completion of the GDC Tech Subscription Agreement

==> picture [386 x 166] intentionally omitted <==

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

The Company
50.74%
Management and directors Mr. Li Ka-shing
GDC
of GDC and GDC Tech and his associates
14.92% 62.39% 22.69%
GDC Tech
----- End of picture text -----

Note: Assuming GDC and GDC Tech will not issue any new shares after the Latest Practicable Date and before completion of the GDC Tech Subscription Agreement.

FINANCIAL EFFECT OF THE GDC TECH SUBSCRIPTION

Immediately upon completion of the GDC Tech Subscription Agreement, the total assets and the total liabilities of the Group will remain unchanged. The Company considers that there will not be any material effect on the earnings of the Group immediately upon completion of the GDC Tech Subscription Agreement.

REQUIREMENTS OF THE LISTING RULES

As Mr. Li Ka-shing, a substantial shareholder of the Company, through his associate held an approximately 31.60% interest in GDC Tech as at the date of the GDC Tech Subscription Agreement,

LETTER FROM THE BOARD

the GDC Tech Subscription constitutes a discloseable and connected transaction for the Company under Chapter 14 and 14A of the Listing Rules and is subject to the approval of the independent Shareholders by way of poll at the SGM. Mr. Li Ka-shing and his associates are required to abstain from voting at the SGM to approve the GDC Tech Subscription Agreement and the transactions contemplated therein. Ms. Lu Yi, Gloria and her associates are also required to abstain from voting at the SGM to approve the GDC Tech Subscription Agreement.

IV) MAJOR TRANSACTION RELATING TO DEEMED DISPOSAL OF INTEREST IN GLOBAL DIGITAL CREATIONS HOLDINGS LIMITED

DEEMED DISPOSAL OF INTEREST IN GDC

As at the Latest Practicable Date, GDC has 18,563,660 outstanding options, upon fully exercise of which, the Company’s shareholding interest in GDC will be diluted from 50.74% to 50.03%. On 20 August 2007, GDC proposed to grant the GDC Options at the exercise price of HK$2.75 per share of GDC to its eligible participants that would include certain executive and non-executive directors, and chief executives of the Company and/or GDC under the GDC Share Option Scheme subject to the approval by the Shareholders at the SGM. No GDC Options proposed to be granted to any participant will be exceeded 1% of the issued shares of GDC in any 12-month period. Upon fully exercise of the GDC Options and all other outstanding 18,563,660 options of GDC, the Company’s shareholding interest in GDC will be diluted from 50.74% to 48.62%.

The proposed grant of the GDC Options has been approved by the independent non-executive Directors under Rule 17.04(1) of the Listing Rules.

Information relating to GDC

As at the Latest Practicable Date, GDC is 50.74% owned by the Company. The following table sets out the summary of the audited consolidated results of the GDC Group for the two financial years ended 31 December 2006 and its unaudited consolidated results for the six months ended 30 June 2007:

			For the
			six months
	For the		ended
	year ended 31 December		30 June
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(unaudited)
(Loss)/ profit before tax and
extraordinary items	(76,205)	(32,040)	230
(Loss)/ profit after tax and
extraordinary items	(76,356)	(30,245)	40,525
Net (liabilities)/assets	(128,212)	(154,709)	200,701

LETTER FROM THE BOARD

Reasons for the grant of the GDC Options

As stated in the interim report of GDC for the six months ended 30 June 2007, the prospects of the business divisions of the GDC Group are very good and will bring ample business opportunities to the GDC Group. The Directors consider that the grant of the GDC Options under the GDC Share Option Scheme would provide additional incentive to GDC’s employees and other participants and to reward their contribution towards the growth of the GDC Group.

FINANCIAL EFFECT OF THE DEEMED DISPOSAL OF INTEREST IN GDC

Upon fully exercise of the GDC Options and all other outstanding 18,563,660 options of GDC, the Company’s shareholding interest in GDC will be diluted from 50.74% to 48.62%. The Company will be deemed to dispose of its interest in GDC and GDC will cease to be a subsidiary of the Company. Hence, GDC’s financial results and assets and liabilities will cease to be consolidated into the consolidated financial statements of the Company and GDC will be accounted for as an associated company of the Company.

Immediately upon fully exercise of the GDC Options and all other outstanding options of GDC, the total assets of the Group will be enhanced by approximately HK$117.1 million and the total liabilities of the Group will remain unchanged. Regarding the effect on earnings, the Company expects to realise an unaudited gain on the dilution of its interest in GDC of approximately HK$112.8 million, being the difference between (i) the proceeds from the fully exercise of the GDC Options and all other outstanding 18,563,660 options of GDC of approximately HK$117.1 million in aggregate, and (ii) the Company’s attributable interest diluted in the unaudited consolidated net assets of GDC upon the fully exercise of the options of approximately HK$4.3 million as at 30 June 2007. Shareholders should note that the actual gain on the dilution of interest in GDC to be recorded by the Company depends on the consolidated net assets of GDC upon the exercise of the GDC Options and all other outstanding 18,563,660 options of GDC. GDC intends to utilise the proceeds generated from exercising of the GDC Options for general working capital purpose.

REQUIREMENTS OF THE LISTING RULES

The grant of the GDC Options constitutes dilution of a major subsidiary of the Company under Chapter 13 of the Listing Rules and a major transaction in respect of deemed disposal of an interest in GDC by the Company under Chapter 14 of the Listing Rules, which is subject to approval by the Shareholders at the SGM. As at the Latest Practicable Date, the grantees of the GDC Options hold in an aggregate approximately 0.72% of the total issued share capital of the Company. Any grantee and their associates of the GDC Options who is also a Shareholder is required to abstain from voting at the SGM.

V) PROPOSED GRANT OF OPTIONS UNDER THE GDC TECH SHARE OPTION SCHEME

On 20 August 2007, GDC Tech proposed to grant under the GDC Tech Share Option Scheme the GDC Tech Options to Ms. Lu Yi, Gloria, an executive director of GDC to subscribe for an aggregate of 12,000,000 GDC Tech Shares, at a subscription price of HK$2.00 per GDC Tech Share exercisable during the five-year period after granting of the GDC Tech Options. Save for the

LETTER FROM THE BOARD

GDC Tech Options, no option of GDC Tech was previously granted to Ms. Lu Yi, Gloria. As at the Latest Practicable Date, Ms. Lu Yi, Gloria, has no shareholding in the Company. As at the Latest Practicable Date, the GDC Tech Options, if fully exercised, would represent approximately 6.76% of the existing issued share capital of GDC Tech and approximately 4.94% of the issued share capital of GDC Tech as enlarged by the GDC Tech Options and the GDC Tech Subscription. The proposed granting of the GDC Tech Options is conditional upon completion of the GDC Tech Subscription Agreement. GDC’s interest in GDC Tech will be diluted by about 3.08% from 62.39% to 59.31% upon fully exercise of the GDC Tech Options.

As the total number of GDC Tech Shares to be issued upon fully exercise of the GDC Tech Options by Ms. Lu Yi, Gloria will exceed 1% of the issued share capital of GDC Tech, pursuant to Rule 17.03(4) of the Listing Rules, the proposed grant of the GDC Tech Options is subject to the approval by the Shareholders. Ms. Lu Yi, Gloria and her associates are required to abstain from voting at the SGM to approve the grant of the GDC Tech Options and the GDC Tech Subscription Agreement. The proposed grant of the GDC Tech Options has been approved by the independent non-executive Directors under Rule 17.04(1) of the Listing Rules.

Reasons for the grant of the GDC Tech Options

Ms. Lu Yi, Gloria is a deputy managing director of GDC and is primarily responsible for financial strategy of the GDC Group. The Directors consider that the grant of the GDC Tech Options to Ms. Lu Yi, Gloria will serve as an incentive for her commitment and contribution to the GDC Group in the future.

INDEPENDENT BOARD COMMITTEE/INDEPENDENT FINANCIAL ADVISER

An Independent Board Committee has been formed to advise the independent Shareholders in respect of the terms of the Shougang GDC Media Agreement, the Jeckman Agreement and the GDC Tech Subscription Agreement contemplated in this circular. OSK has been appointed as the independent financial adviser to advise the Independent Board Committee and the independent Shareholders in this regard.

SGM

The SGM will be held at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong at 10:50 a.m. on Tuesday, 30 October 2007 to consider and, if thought fit, approve, among other matters, (i) the Shougang GDC Media Agreement and the transactions contemplated thereunder; (ii) the Jeckman Agreement and the transactions contemplated thereunder; (iii) the GDC Tech Subscription Agreement and the transactions contemplated thereunder; (iv) the grant of the GDC Options and the transactions contemplated thereunder; and (v) the grant of the GDC Tech Options and the transactions contemplated thereunder.

A notice convening the SGM is set out on pages 211 to 213 of this circular. A form of proxy for the SGM and at any adjournment is enclosed herewith. Whether or not you are able to attend the SGM in person, you are advised to read the notice and complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit with the Hong Kong branch share registrars and transfer office of the Company, Tricor Tengis Limited of 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) should you so wish.

LETTER FROM THE BOARD

PROCEDURE FOR DEMANDING A POLL AT THE SGM

Pursuant to bye-law 70 of the bye-laws of the Company, unless voting by way of a poll is required by the Listing Rules, every resolution submitted to a general meeting shall be determined on a show of hands in the first instance by the Shareholders present in person or (being a corporation) by a duly authorised corporate representative, but a poll may be demanded (before or upon the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) by the chairman of the relevant meeting or by:

(a) at least 3 Shareholders present in person (or in the case of a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(b) any Shareholder or Shareholders present in person (or in the case of a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or
(c) a Shareholder or Shareholders present in person (or in the case of a corporation, by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting, being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right; or
(d) if required by the Listing Rules, any Director or Directors who, individually or collectively, hold proxies in respect of Shares representing 5% or more of the total voting rights at the meeting.

RECOMMENDATION

The Directors consider that (i) the terms of each of the Shougang GDC Media Agreement and the transactions contemplated thereunder, the Jeckman Agreement and the transactions contemplated thereunder, and the GDC Tech Subscription Agreement and the transactions contemplated thereunder, and (ii) the grant of the GDC Options and the grant of the GDC Tech Options are fair and reasonable to the Company and in the interests of its Shareholders as a whole. Accordingly, the Directors recommend the independent Shareholders/Shareholders (where appropriate) to vote in favour of the ordinary resolutions to be proposed at the SGM to approve these transactions.

Your attention is also drawn to the letter from the Independent Board Committee set out on pages 23 and 24 of this circular and the letter of advice from OSK to the Independent Board Committee and the independent Shareholders in connection with the Shougang GDC Media Acquisition, the Jeckman Acquisition and the GDC Tech Subscription and the principal factors and reasons considered by them in arriving at their advice.

The Independent Board Committee, having taken into account the advice of OSK, considers that the terms of each of Shougang GDC Media Agreement and the transactions contemplated thereunder, the Jeckman Agreement and the transactions contemplated thereunder, and the GDC Tech Subscription Agreement and the transactions contemplated thereunder are fair and reasonable and in the interest of the Company and its Shareholders as a whole. Accordingly, the Independent Board Committee recommends

LETTER FROM THE BOARD

the independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve these transactions.

ADDITIONAL INFORMATION

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

By order of the Board of Shougang Concord Grand (Group) Limited Cao Zhong Vice Chairman and Managing Director

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability)

(Stock code: 730)

11 October 2007

To the independent Shareholders

Dear Sir or Madam,

I) DISCLOSEABLE AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 100% INTEREST IN SHOUGANG GDC MEDIA HOLDING LIMITED; II) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 50% INTEREST IN JECKMAN HOLDINGS LIMITED; AND III) DISCLOSEABLE AND CONNECTED TRANSACTION RELATING TO THE PROPOSED SUBSCRIPTION OF NEW SHARES IN GDC TECHNOLOGY LIMITED

We refer to the circular of the Company dated 11 October 2007 (the “Circular”) to the Shareholders, of which this letter forms a part. Capitalised terms used herein have the same meanings as defined in the Circular unless otherwise requires.

We have been appointed as members of the Independent Board Committee to advise the independent Shareholders in respect of the terms of (i) the Shougang GDC Media Agreement; (ii) the Jeckman Agreement; and (iii) the GDC Tech Subscription Agreement, details of which are set out in the letter from the Board in the Circular.

Having taken into account of the advice of OSK, the independent financial adviser, we consider that (i) the Shougang GDC Media Agreement and the transactions contemplated thereunder; (ii) the Jeckman Agreement and the transactions contemplated thereunder; and (iii) the GDC Tech Subscription Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and the terms of (i) the Shougang GDC Media Agreement and the transactions contemplated thereunder; (ii) the Jeckman Agreement and the transactions contemplated thereunder; and (iii) the GDC Tech Subscription Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Company and the independent Shareholders are concerned. Accordingly, we recommend the independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve (i) the Shougang GDC Media Agreement and the transactions contemplated thereunder;

* For identification purpose only

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

(ii) the Jeckman Agreement and the transactions contemplated thereunder and; (iii) the GDC Tech Subscription Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of the Independent Board Committee Mr. Tam King Ching, Kenny Ms. Zhou Jianhong Independent Non-executive Director Independent Non-executive Director

Mr. Yip Kin Man, Raymond Independent Non-executive Director

LETTER FROM OSK

The following is the full text of the letter of advice from OSK to the Independent Board Committee and the independent Shareholders in respect of the terms of (i) the Shougang GDC Media Agreement and the transactions contemplated thereunder; (ii) the Jeckman Agreement and the transactions contemplated thereunder; and (iii) the GDC Tech Subscription Agreement and the transactions contemplated thereunder, which has been prepared for the purpose of inclusion in this circular.

11/F., Hip Shing Hong Centre, 55 Des Voeux Road Central, Hong Kong

11 October 2007

The Independent Board Committee and the independent Shareholders of Shougang Concord Grand (Group) Limited

Dear Sirs,

(I) DISCLOSEABLE AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF A 100% INTEREST IN SHOUGANG GDC MEDIA HOLDING LIMITED;

(II) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF A 50% INTEREST IN JECKMAN HOLDINGS LIMITED; AND

(III) DISCLOSEABLE AND CONNECTED TRANSACTION RELATING TO THE PROPOSED SUBSCRIPTION OF NEW SHARES IN GDC TECHNOLOGY LIMITED

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the independent Shareholders with respect to the terms of the Shougang GDC Media Agreement, the Jeckman Agreement and the GDC Tech Subscription Agreement, details of which are set out in the circular of the Company dated 11 October 2007 (the “Circular”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter have the same meanings as defined in the Circular, unless the context requires otherwise.

LETTER FROM OSK

On 14 August 2007, GDC Holdings, a wholly-owned subsidiary of GDC, which in turn was an approximately 50.76% owned subsidiary of the Company, entered into the Shougang GDC Media Agreement with Shougang Holding in respect of the acquisition of the entire issued share capital of Shougang GDC Media for a consideration of HK$42 million. The Shougang GDC Media Acquisition constitutes a discloseable transaction for the Company. As at the date of the Shougang GDC Media Agreement, as Shougang Holding held an approximately 40.45% interest in the Company, Shougang Holding was a connected person of the Company. Accordingly, the Shougang GDC Media Acquisition also constitutes a connected transaction for the Company and is subject to the approval of the independent Shareholders by way of poll at the SGM. Shougang Holding and its associates are required to abstain from voting at the SGM to approve, among other things, the Shougang GDC Media Agreement and the transactions contemplated thereunder.

On 14 August 2007, Grand Phoenix, an indirectly wholly-owned subsidiary of the Company, entered into the Jeckman Agreement with Shougang Holding, pursuant to which Grand Phoenix has conditionally agreed to acquire 50% of the issued share capital of Jeckman Holdings and to accept an assignment of the Jeckman Loan from Shougang Holding for an aggregate consideration of HK$52 million. The Jeckman Acquisition constitutes a very substantial acquisition for the Company under the Listing Rules. As Shougang Holding is a connected person of the Company, the Jeckman Acquisition also constitutes a connected transaction for the Company and is subject to the approval of the independent Shareholders by way of poll at the SGM. Shougang Holding and its associates are required to abstain from voting at the SGM to approve, among other things, the Jeckman Agreement and the transactions contemplated thereunder.

On 14 August 2007, GDC Holdings entered into the GDC Tech Subscription Agreement with GDC Tech, an approximately 54.70% owned subsidiary of GDC Holdings, for the subscription of 53,388,178 new GDC Tech Shares at an aggregate consideration of approximately HK$106.78 million. Mr Li Kashing, a substantial shareholder of the Company, through his associate held in aggregate approximately a 31.60% interest in GDC Tech as at the date of the GDC Tech Subscription Agreement. The GDC Tech Subscription constitutes a discloseable and connected transaction for the Company and is subject to the approval of the independent Shareholders by way of poll at the SGM. Mr Li Ka-shing and his associates are required to abstain from voting at the SGM to approve, among other things, the GDC Tech Subscription Agreement and the transactions contemplated thereunder.

On 20 August 2007, GDC Tech proposed to grant under GDC Tech Share Option Scheme the GDC Tech Options to Ms Lu Yi, Gloria, an executive director of GDC to subscribe for an aggregate of 12,000,000 GDC Tech Shares, at a subscription price of HK$2.0 per GDC Tech Share. As the grant of GDC Tech Options is conditional on the completion of the GDC Tech Subscription, Ms Lu Yi, Gloria and her associates are also required to abstain from voting at the SGM to approve the GDC Tech Subscription Agreement and the transactions contemplated thereunder.

The Independent Board Committee comprising all of the independent non-executive Directors, namely Mr Tam King Ching, Kenny, Ms Zhou Jianhong and Mr Yip Kin Man, Raymond, has been established to advise the independent Shareholders in respect of the terms of the Shougang GDC Media Agreement, the Jeckman Agreement and the GDC Tech Subscription Agreement. As the independent financial adviser to the Independent Board Committee and the independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the independent Shareholders as to

LETTER FROM OSK

whether the terms of the Shougang GDC Media Agreement, the Jeckman Agreement and the GDC Tech Subscription Agreement are fair and reasonable so far as the Shareholders are concerned and whether the Shougang GDC Media Acquisition, the Jeckman Acquisition and the GDC Tech Subscription are in the interests of the Company and the Shareholders as a whole.

In formulating our opinion, we have relied upon the information, facts and representations contained in the announcements of the Company relating to the Shougang GDC Media Acquisition, the Jeckman Acquisition and the GDC Tech Subscription and the Circular and those supplied or made by the Directors and management of the Group to us. We have assumed that all such information, facts and representations were true and accurate in all respects at the time they were supplied or made and continue to be true and accurate at the date of the Circular and can be relied upon. We have no reason to doubt the truth, accuracy and completeness of such information and representations and have confirmed with the Directors and management of the Group that no material facts have been withheld or omitted from such information and representations.

We have taken all reasonable and necessary steps to comply with the requirements set out in Rule 13.80 of the Listing Rules. We consider that we have been provided with sufficient information to enable us to reach an informed view. We have not, however, conducted any independent verification of the information or any independent in-depth investigation into the business, affairs, financial position or prospects of the Group (including, among others, the Company, GDC, GDC Holdings, GDC Tech and Grand Phoenix), Shougang GDC Media, PRC Media JV, China Film, Shougang Holding, Jeckman Holdings, South China Leasing and their respective subsidiaries, associated companies and jointly controlled entities.

THE SHOUGANG GDC MEDIA ACQUISITION

In formulating our opinion in respect of the Shougang GDC Media Acquisition, we have taken into consideration, among other things, the following principal reasons and factors:

The background of and reasons for the Shougang GDC Media Acquisition

GDC is a non-wholly owned subsidiary of the Company, the shares of which are listed on GEM. The GDC Group is principally engaged in digital content business, including creation, production and distribution of digital content. On 31 October 2006, GDC announced that its wholly-owned subsidiary entered into a co-operation agreement (the “Co-operation Agreement”) with China Film jointly to promote digital cinema business in the PRC. Pursuant to the Co-operation Agreement, Institute of Digital Media Technology (Shenzhen) Limited (“IDMT”), the said wholly-owned subsidiary of GDC, and China Film target jointly to promote digital cinema business in the PRC. China Film will be responsible for promoting the installation of digital cinema equipment in the PRC whereas IDMT will be responsible for sourcing the digital cinema equipment. It was stated in the announcement of GDC dated 31 October 2006 that it was the intention of IDMT to purchase digital cinema equipment from GDC Tech. IDMT also intended to engage GDC Tech to provide network management services in respect of digital cinema equipment provided by GDC Tech. Under the Co-operation Agreement, it is aimed at installing at least 700 units of digital cinema equipment at the top 100 cinemas in the PRC by 2007 and at least 2,000 units of digital cinema equipment to cinemas in major cities in the PRC by 2008. IDMT and China Film anticipate that they will share a portion of box office receipts of those cinemas using digital cinema equipment sourced by IDMT. We understand from the Company that IDMT intends to procure the sourcing of the equipment from GDC Tech.

LETTER FROM OSK

As stated in the “letter from the Board” set out in the Circular, PRC Media JV is a sino-foreign equity joint venture established in the PRC on 30 August 2007 with term of 10 years. PRC Media JV is owned as to 49% by Shougang GDC Media and 51% by China Film. PRC Media JV is principally engaged in the deployment of digital cinema network and related businesses in the PRC. The total capital commitment of Shougang GDC Media in PRC Media JV is RMB19.6 million (equivalent to approximately HK$20.2 million), representing 49% of the registered capital of PRC Media JV.

Under the Shougang GDC Media Agreement, the GDC Group has agreed to acquire the entire issued share capital of Shougang GDC Media with a view to acquiring the 49% interest in PRC Media JV to carry out the proposed digital cinema business proposed under the Co-operation Agreement. It is stated on China Film’s official website that China Film is the only enterprise in the PRC which has the right to import foreign films into the PRC market. We understand from the Company that the sale of digital cinema equipment to cinemas in the PRC and the provision of further management services are key to the business models of the GDC Group. In order to promote the digital cinema business in the PRC, the Directors are of the view that the cooperation with China Film represents a good opportunity for the GDC Group to roll out its business model.

Based on the above, we understand that it is in-line with the business strategy of the GDC Group to acquire the entire issued capital of Shougang GDC Media from Shougang Holding and agree with the Directors that the Shougang GDC Media Acquisition is in the interests of the Company and its Shareholders as a whole.

Principle terms of the Shougang GDC Media Acquisition

Under the Shougang GDC Media Agreement, GDC Holdings has conditionally agreed to acquire the entire issued share capital of Shougang GDC Media for a total consideration of HK$42 million, of which:

HK$41.5 million, being the Shougang GDC Media Deposit, was paid within one month from the date of the Shougang GDC Media Agreement; and
HK$0.5 million, is payable at completion of the Shougang GDC Media Acquisition.

Completion of the Shougang GDC Media Acquisition is subject to the satisfaction or waiver of a number of conditions precedent, including, (1) the independent Shareholders approving the Shougang GDC Media Acquisition; (2) PRC Media JV being approved by the relevant PRC government authorities; and (3) the business licence of PRC Media JV being issued by the State Administration for Industry and Commerce of the PRC. Independent Shareholders should refer to the letter from the Board set out in the Circular for further details of the Shougang GDC Media Agreement. The Company confirms that conditions (2) and (3) above have been fulfilled as of the Latest Practicable Date. If the Shougang GDC Media Agreement does not complete on or before 31 December 2007 (or such other date as may be agreed between the parties to the Shougang GDC Media Agreement), the Shougang GDC Media Deposit will be refunded by Shougang Holding to GDC Holdings together with interest calculated at a rate of 6% per annum. The Hong Kong dollar deposit rates quoted in South China Morning Post as at the Latest Practicable Date ranged from 0% to 2.65% per annum (from saving to 6 months). The interest rate agreed under the Shougang GDC Media Agreement which may be charged by GDC Holdings in the case where the Shougang GDC Media Agreement does not complete is higher than the Hong Kong dollars deposit rates quoted above.

LETTER FROM OSK

Pursuant to the Shougang GDC Media Agreement, Shougang Holding has injected the Shougang GDC Media Deposit into Shougang GDC Media by way of an interest-free shareholder’s loan, of which RMB19.6 million will be used by Shougang GDC Media to satisfy its commitment to contribute 49% of the registered capital of PRC Media JV. The remaining balance of the shareholder’s loan will be used by Shougang GDC Media as working capital. The interest-free shareholder’s loan will be assigned by Shougang Holding to GDC Holdings upon completion of the Shougang GDC Media Acquisition.

As set out in the letter from the Board, the consideration for the Shougang GDC Media Acquisition was determined after arm’s length negotiation between Shougang Holding and GDC Holdings based on normal commercial terms with reference to the 49% of the registered capital of PRC Media JV which will be contributed by Shougang GDC Media and the estimated working capital requirement of Shougang GDC Media and PRC Media JV in future. As mentioned above, out of the total consideration of HK$42 million, HK$41.5 million (representing 98.8% of the total consideration) has been injected into Shougang GDC Media, the entire interest in which (including the entire issued share capital of Shougang GDC Media and the shareholder’s loan made by Shougang Holding to Shougang GDC Media) will be transferred to GDC Holdings pursuant to the Shougang GDC Media Agreement. Effectively, GDC Holdings is paying a fee of HK$500,000 for Shougang Holding facilitating the establishment of PRC Media JV, representing approximately 1.2% of the total consideration for the Shougang GDC Media Acquisition.

We understand from the Company that Shougang Holding has used its internal resources for the establishment of PRC Media JV, including participating in the negotiations of the terms of the joint venture agreement with China Film and actively participating in the process of obtaining the necessary approvals from the relevant PRC authorities within a relatively short period of time. The Company agreed to the payment of the HK$500,000 fee after considering the internal resources incurred and work performed by Shougang Holding.

Financial implications of the Shougang GDC Media Acquisition

The Shougang GDC Media Acquisition constitutes only a discloseable and connected transaction for the Company. No pro forma financial information in respect of the Shougang GDC Media Acquisition is required to be prepared by the Company. As mentioned above, the Company believes that it is beneficial to the business development of the GDC Group (and thus the Group) to acquire an interest in PRC Media JV with a view to establishing a further cooperation with China Film in rolling out the digital cinema business of the Group. As stated previously in this letter, the Directors believe that the Shougang GDC Media Acquisition is important to the roll-out of the GDC Group’s digital cinema business model and may help the GDC Group pave way for new revenue generating abilities.

Based on the unaudited management balance sheet of Shougang GDC Media as at 30 September 2007 provided to us by the Company, Shougang GDC Media did not have any material assets and liabilities, save for the HK$41.5 million cash injected into Shougang GDC Media by way of a shareholder’s loan pursuant to the Shougang GDC Media Agreement. The Company has confirmed that there had been no material change to the assets and liabilities of Shougang GDC Media up to the Latest Practicable Date. As the said shareholder’s loan will also be assigned by Shougang Holding to GDC Holdings, we agree with the Company that the Shougang GDC Media Acquisition will not have any material effect on the assets and liabilities of the Group immediately upon completion of the Shougang GDC Media Acquisition.

LETTER FROM OSK

Conclusion

Based on the various factors considered by us, including:

the business strategy of the GDC Group to roll-out its digital cinema business in the PRC;
the importance of having China Film as the business partner to the digital cinema business of the GDC Group;
approximately 99% of the consideration will be injected into Shougang GDC Media which in turn will be sold to the GDC Group; and
the industry and business prospects in connection with the digital cinema business of the GDC Group,

we consider the terms of the Shougang GDC Media Agreement to be fair and reasonable and the Shougang GDC Media Acquisition to be in the interests of the Company and the Shareholders as a whole.

THE JECKMAN ACQUISITION

In formulating our opinion in respect of the Jeckman Acquisition, we have taken into consideration, among other things, the following principal reasons and factors:

Background of and reasons for the Jeckman Acquisition

Jeckman Holdings is an investment holding company which owns a 60% interest in South China Leasing. The Group currently holds a 50% interest in Jeckman Holdings and through its existing interest in Jeckman Holdings and another wholly-owned subsidiary, the Group owns an indirect effective 50% interest in South China Leasing. The chart below illustrates the shareholding structure of Jeckman Holdings and South China Leasing (together, the “Jeckman Group”).

Before completion of the Jeckman Acquisition

==> picture [302 x 171] intentionally omitted <==

LETTER FROM OSK

Immediately after completion of the Jeckman Acquisition

==> picture [302 x 171] intentionally omitted <==

After completion of the Jeckman Acquisition, the Group will hold the entire issued share capital of Jeckman Holdings and the Group’s effective interest in South China Leasing will increase to 80%.

South China Leasing is principally engaged in financial leasing in the PRC. We understand from the Company that the Group first invested in South China Leasing in 2005. In June 2006, the Group disposed of a 50% interest in Jeckman Holdings (the “Disposal”) for a total consideration of HK$25 million. The Disposal reduced the Group’s interests in Jeckman Holdings and South China Leasing to the existing level. As set out in the announcement of the Company dated 15 June 2006, the Group carried out the Disposal as the business development of South China Leasing required a relatively high level of shareholders’ funding support and thus stressed the Group’s cash and funding positions. We understand from the Company that at such time, apart from the Group’s investment in Jeckman Holdings and South China Leasing, the Group was also required to support financially the business development of the GDC Group in respect of its digital cinema business development. The purposes of the Disposal were (1) partly to relieve the pressure for the Group to provide funding to Jeckman Holdings and allow the Group to focus more of its financial resources on the development of the GDC Group’s digital cinema business and (2) partly to introduce another investor to the Jeckman Group with a view to strengthening the source of financing of the Jeckman Group.

In December 2006, GDC raised gross proceeds of approximately HK$9.74 million and GDC Tech raised gross proceeds of approximately US$6.5 million (equivalent to approximately HK$50.57 million). In June 2007, the Group disposed of its entire interest in a company which was principally engaged in the provision of serviced apartment services for a total consideration of RMB170 million (equivalent to approximately HK$175.1 million). The disposal of the serviced apartment services investment and the fund raising of GDC and GDC Tech have strengthened the cash position of the Group. The cash and cash equivalents of the Group increased from approximately HK$36.3 as at 31 December 2005 to approximately HK$328.0 million as at 30 June 2007. We understand from the Company that given that GDC Tech has already substantially completed its technology start-up development, the strengthened cash position of the Group allows the Group to make new investments.

LETTER FROM OSK

As set out in the letter from the Board, given the substantial improvement in the audited revenue of the Jeckman Group from approximately HK$2.6 million for the year ended 31 December 2005 to approximately HK$55.8 million for the year ended 31 December 2006 as a result of the increase in financial leasing contracts entered into by South China Leasing in 2006, and after taking into account the prospects of the PRC financial leasing market, the Directors consider that the Jeckman Acquisition would enable the Group to increase its participation in the PRC financial leasing market and that this would be beneficial to the Group. For the six months ended 30 June 2007, the total revenue of the Jeckman Group amounted to approximately HK$50.0 million, already representing approximately 90% of the revenue of the Jeckman Group for the whole year of 2006.

After the Jeckman Acquisition, South China Leasing will become a subsidiary of the Company and the Group will be able to consolidate the financial results of South China Leasing. We note from the management discussion and analysis of the Group’s results for the year ended 31 December 2006, the Company indicated that after the Disposal the Group would not only continue to carry out financial leasing business through its interest in South China Leasing, but would also speed up the development of such business. It was also stated in the relevant annual report of the Company that it was the Company’s strategy to diversify from property investment and management to other businesses, including, among other businesses, financial service provision. The Jeckman Acquisition is consistent with the publicly stated business development strategy of the Company.

LETTER FROM OSK

Track record of the Jeckman Group

The table below sets out the results of the Jeckman Group for the three years ended 31 December 2006 and the six months ended 30 June 2007 as extracted from the accountants’ report of Jeckman Holdings set out in Appendix III to the Circular.

Revenue Cost of sales Gross profit Other income Administrative expenses Finance costs Gain on disposal of an investment property Increase in fair value of an investment property Increase in fair value of held-for-trading investments Share of result of an associate Loss for the year/period Attributable to: Equity holders of the parent Minority interests	Year 2004 HK$’000 (Audited) – – – – (7) – – – – – (7) (7) – (7)	Six months ended ended 31 December 30 June 2005 2006 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Unaudited) (Audited) 2,626 55,795 16,288 50,010 (1,351) (44,505) (12,491) (41,852) 1,275 11,290 3,797 8,158 358 777 148 73 (4,329) (22,320) (11,635) (9,122) (1,772) (3,600) (1,655) (1,903) – 726 – – 367 – – – – 572 – 995 (248) – – – (4,349) (12,555) (9,345) (1,799) (1,627) (10,256) (9,345) (1,876) (2,722) (2,299) – 77 (4,349) (12,555) (9,345) (1,799)

As set out in Appendix III to the Circular, Jeckman Holdings acquired a 40% interest in South China Leasing in January 2005 and another 20% interest in South China Leasing in May 2005 and thereafter South China Leasing has become a 60% owned subsidiary of Jeckman Holdings. We understand from the Company that the increase in the consolidated revenue of Jeckman Holdings in 2006 as compared with that in 2005 and the increase of the same during the six months ended 30 June 2007 as compared with the six-month period ended 30 June 2006 were mainly a result of (1) South China Leasing only becoming a subsidiary of Jeckman Holdings in May 2005; and (2) the increase in the financial lease portfolio of South China Leasing. From 31 December 2005 to 31 December 2006, the amount of finance lease receivables of South China Leasing increased from approximately HK$69.6 million to approximately HK$992.6 million, representing an increase of 13.3 times. The amount of finance lease receivables of South China Leasing further increased to approximately HK$1,541.7 million as at 30 June 2007, representing another increase of approximately 55.3%. The increase in the financial lease portfolio of South China Leasing did not lead to an immediate surge of the bottom line of the Jeckman Group in

LETTER FROM OSK

The net loss of the Jeckman Group increased from approximately HK$4.3 million for 31 December 2005 to approximately HK$12.6 million for the year ended 31 December 2006. We understand from the Company that the reason for the increase in the amount of net loss despite the increase in revenue is mainly due to the decrease of the gross profit margin of the Jeckman Group and the increase in the administrative expenses of the Jeckman Group for the year ended 31 December 2006. We understand from the Company that the decrease in the gross profit margin of the Jeckman Group was a result of the business strategy of South China Leasing of focusing more on large scale but lower risk financial leasing projects, such as aircraft leasing and more bank borrowings have been made by South China Leasing in order to support the increased financial lease portfolio. We understand from the Company that the increase of the cost of sales of the Jeckman Group for the year ended 31 December 2006 was also partly a result of the increase in the incurring of initial charges and expenses in respect of new financial lease contracts entered into in 2006. For the six months ended 30 June 2007, the net loss of the Jeckman Group reduced to approximately HK$1.8 million.

Based on the information provided to us by the Company, we understand that new financial lease contracts entered into by South China Leasing amounted to approximately HK$70.9 million in 2005, approximately HK$1,064.9 million in 2006 and approximately HK$715.9 million during the six months ended 30 June 2007.

During the two years ended 31 December 2005 and 2006 and the six months ended 30 June 2007, the effective interest rates of the finance lease receivables of the Jeckman Group increased as follows.

For the year ended 31 December 2005 5% to 12% per annum For the year ended 31 December 2006 6% to 12% per annum For the six months ended 30 June 2007 6% to 16% per annum

For the six months ended 30 June 2007, the effective interest rate of the Jeckman Group’s bank borrowings ranged from the People’s Bank of China RMB Lending Rate plus 0.46% to the People’s Bank of China RMB Lending Rate plus 0.86%. As at the Latest Practicable Date, the People’s Bank of China RMB Lending Rate (1-3 years) was 7.47%. As at 30 June 2007, the Jeckman Group had total borrowings of approximately HK$1.53 billion, out of which approximately HK$1.45 billion were bank borrowings and the other HK$84 million were advances from shareholders and related parties of the Jeckman Group. As set out in the accountants’ report of Jeckman Holdings, the weighted average effective interest rate of the Jeckman Group’s finance lease receivables amounted to approximately 11% as at 30 June 2007. Independent Shareholders should note that the results of the Jeckman Group are sensitive to interest rate changes and the Jeckman Group currently does not have an interest rate hedging policy. However, we understand from the Company that the management of the Jeckman Group will monitor the interest rate exposure of the Jeckman Group and will consider hedging significant interest rate exposure should the need arises.

The Independent Board Committee and the independent Shareholders should note that of the total finance expenses (not including the interest expenses charged to the cost of sales) of HK$3.60 million for the year ended 31 December 2006 and of HK$1.90 million for the six months ended 30 June 2007, notional imputed interest expenses amounted to HK$3.35 million and HK$1.86 million respectively. Such notional imputed interest expenses related to advances from shareholders or other related parties of Jeckman Holdings and South China Leasing which were actually non-interest bearing. As the advances were made by Shougang Holding, the vendor, and other companies within the Group, such notional imputed interest expenses would be eliminated in the income statement of the Enlarged Group on a combined basis.

LETTER FROM OSK

During the year ended 31 December 2006, the Jeckman Group recorded a bad debt of approximately HK$4.6 million. Independent Shareholders should note that the risk of bad debt recognition increases with the increase in the financial lease portfolio of the Jeckman Group. Nevertheless, we understand that South China Leasing will focus on financial lease contracts of large and low risk development projects, such as aircraft leasing, in spite of their relatively lower interest rate charges. We note that it is stated in the accountants’ report of Jeckman Holdings set out in Appendix III to the Circular that before accepting any new finance lease borrower, the Jeckman Group has assessed the credit quality of each potential finance lease borrower and defined credit rating and limits for each finance lease borrower and the Jeckman Group has reviewed the repayment history of finance lease payments by each finance lease borrower with reference to the repayment schedule from the date the finance lease was initially granted up to the reporting date to determine the recoverability of a finance lease receivable. It is also stated in the accountants’ report of Jeckman Holdings that the Jeckman Group has no significant concentration of credit risk in respect of the Group’s finance lease receivables. In order to minimise the credit risk, management of the Jeckman Group has been continuously monitoring the level of exposure to ensure that follow-up and/or corrective action is taken promptly to lower the risk exposure or to recover overdue balances.

As set out in Appendix II to the Circular headed “Additional financial information of the Enlarged Group and the Group”, South China Leasing expects that with the expected continuing economic development in the PRC, its financial leasing business in the PRC will continue to expand although more competition is expected as a result of more financial institutions entering the market. We note that South China Leasing is confident that it has already developed its reputation among its target customer groups and has received continued support from banks. Accordingly, South China Leasing is confident that it is well placed to maintain its competitiveness. We understand that South China Leasing will also explore different means of financing with a view to lowering its finance costs.

The Jeckman Acquisition constitutes a very substantial acquisition for the Company and may have a significant impact on the future business prospects of the Group. The Independent Board Committee and the independent Shareholders should carefully evaluate the information set out in the Circular, including the letter from the Board, the accountants’ report of Jeckman Holdings and the pro forma financial information of the Enlarged Group. The Independent Board Committee and the independent Shareholders should also be aware that the financial leasing business of South China Leasing, being the operating subsidiary of Jeckman Holdings, is subject to a number of major risks, including interest rate risk, credit risk, liquidity risk, regulatory risk and competition. Investment in South China Leasing has been a major business segment of the Group. The various risks associated with the business of South China Leasing should, to a certain extent, already be reflected in the market valuation of the Shares.

Principal terms of the Jeckman Agreement

Under the Jeckman Agreement, Grand Phoenix has conditionally agreed to acquire the 50% interest in Jeckman Holdings for a total consideration of HK$52 million, payable to Shougang Holding as to:

HK$29.2 million for the Jeckman Sale Shares; and
HK$22.8 million for the assignment of the Jeckman Loan by Shougang Holding to Grand Phoenix.

LETTER FROM OSK

The consideration for the Jeckman Acquisition is only payable upon completion of the Jeckman Acquisition. Completion of the Jeckman Acquisition is subject to the approval of the independent Shareholders for the Jeckman Acquisition. Independent Shareholders should refer to the letter from the Board set out in the Circular for further details of the Jeckman Agreement.

As set out in the letter from the Board, the consideration for the Jeckman Acquisition was determined after arm’s length negotiation between the parties to the agreement based on normal commercial terms with reference to the future prospects of South China Leasing taking into account the number of financial lease contracts entered into by it. For the purposes of evaluating the level of consideration payable by the Group to Shougang Holding, the HK$22.8 million for the assignment of the Jeckman Loan was determined on a dollar-for-dollar basis. As at the date of the Jeckman Acquisition and the Latest Practicable Date, the outstanding amount of the Jeckman Loan was HK$22.8 million. The business of South China Leasing is relatively highly geared. The Company has confirmed that the Jeckman Loan was provided by Shougang Holding to Jeckman Holdings as part of the shareholders’ support to the business development of South China Leasing. We understand from the Company that the business of the Jeckman Group is capital intensive. Most of the funding required by the Jeckman Group is supported by shareholders’ equity and other borrowings. We consider it to be fair and reasonable to acquire the Jeckman Loan from Shougang Holding on a dollar-for-dollar basis.

The remaining consideration of HK$29.2 million is for the acquisition of the 50% interest in Jeckman Holdings. As mentioned above, the Group disposed of the 50% interest in Jeckman Holdings in June 2006. The consideration for the Disposal was HK$25 million. The present consideration represents an increase of approximately 16.8%. During the past year, the business of South China Leasing has grown substantially. The revenue of the Jeckman Group increased from approximately HK$2.6 million for the year ended 31 December 2005 to approximately HK$55.8 million for the year ended 31 December 2006. For the six months ended 30 June 2007, the revenue of the Jeckman Group already amounted to approximately HK$50.0 million. As the business of the Jeckman Group is highly geared, the consolidated net assets of Jeckman Holdings have been relatively low. Nevertheless, the net assets of the Jeckman Group increased over 2 times from approximately HK$3.2 million as at 31 December 2005 to approximately HK$6.7 million as at 30 June 2007.

The table below sets out the ratios of each of the consideration of the Disposal and the Jeckman Acquisition to (1) the revenue of the Jeckman Group for the completed financial year prior to when each of the transactions took place and (2) the consolidated net assets of Jeckman Holdings as at the year/ period end date prior to when each of the transactions took place.

			The Jeckman
		The Disposal	Acquisition
Consideration to	50% of the consolidated revenue	19.0	1.0
Consideration to	50% of the consolidated net assets	15.5	8.4

The above ratios in respect of the Jeckman Acquisition are lower than those in respect of the Disposal. This implies that the valuation of the Jeckman Group under the Jeckman Acquisition is lower than that under the Disposal.

We are not aware of any other financial leasing company listed on the Stock Exchange, other than those financial institutions which are principally engaged in banking business. We used Bloomberg to search for financial leasing companies in the Asia-Pacific region listed on a stock exchange. The table below sets out the companies shown to us in Bloomberg’s list of financial leasing companies in the AsiaPacific region and the ratio of the enterprise value to the total equity and debt capital (net of cash) of each of such companies as at the Latest Practicable Date. Please note that we have not independently verify the accuracy and completeness of the information shown by Bloomberg.

LETTER FROM OSK

		Enterprise value to	Gearing ratio (based
		the total equity and debt	on their respective
Company name	Listing place	capital (net of cash)	latest balance sheets)
			(%)
Financial Resources Limited	Australia	0.99	142.47
FlexiGroup Limited	Australia	2.09	581.46
PT Buana Finance Terbuka	Indonesia	1.12	55.03
PT BFI Finance Indonesia Terbuka	Indonesia	1.04	28.42
PT Clipan Finance Indonesia Terbuka	Indonesia	0.91	68.36
PT Indocitra Finance Terbuka	Indonesia	1.42	206.66
PT Mandala Multifinance Terbuka	Indonesia	1.12	250.31
Century Leasing System Incorporation	Japan	1.05	1162.47
Fuyo General Lease Company Limited	Japan	1.07	1127.62
IBJ Leasing Company Limited	Japan	1.06	1743.99
Ichinen Company Limited	Japan	1.07	511.66
Kyushu Leasing Service Company Limited	Japan	1.06	1412.34
Mitsubishi UFJ Lease and Finance	Japan	1.09	1372.67
Company Limited
Nakamichi Leasing Company Limited	Japan	0.89	1163.04
NEC Leasing Limited	Japan	0.99	1064.32
ORIX Corporation	Japan	1.27	421.81
Ricoh Leasing Company Limited	Japan	1.03	648.12
Sanyo Electric Credit Company Limited	Japan	1.10	590.43
Tokyo Leasing Company Limited	Japan	1.05	1709.09
PCI Leasing and Finance	Philippines	0.75	74.47
First Ship Lease Trust	Singapore	0.11	913.52
Pacific Shipping Trust	Singapore	0.98	80.93
CNH Capital Company Limited	South Korea	0.74	121.74
Hanmi Capital Company Limited	South Korea	0.95	332.29
Han Kook Capital Company Limited	South Korea	0.95	332.88
Korea Development Financing Corporation	South Korea	0.68	90.11
SLS Capital Corporation	South Korea	0.65	16.65
Financial One Corporation	Taiwan	1.13	733.04
Hwa-Hsia Leasing and Financial Company	Taiwan	0.14	696.93
Asia Sermkij Leasing Public	Thailand	1.00	782.84
Company Limited
Phatra Leasing Public Company Limited	Thailand	0.98	194.00
Scandinavian Leasing Public	Thailand	0.57	172.79
Company Limited
Siam Commercial Leasing Public	Thailand	1.16	787.14
Company Limited
Average		0.98
Highest		2.09
Median		1.03
Lowest		0.11
Jeckman Holdings (based on the present
consideration and the balance sheet
as at 30 June 2007)		1.10

Source: Bloomberg

Notes: Gearing ratio was calculated as total borrowings ÷ total equity x 100%

Enterprise value refers to the sum of market capitalization and total borrowings less cash and cash equivalents

LETTER FROM OSK

We have chosen to use the ratio of enterprise value to total equity and debt capital (net of cash) (“EV to Total Capital”) as the valuation benchmark as financial leasing companies are generally highly geared and supported by debt capital. Based on the information presented in the table above, we note that the EV to Total Capital of Jeckman Holdings based on the consideration for the Jeckman Acquisition falls within the range of relevant ratios of the comparable companies in the region (despite being higher than the average and the median).

Financial implications of the Jeckman Acquisition

We have considered the potential financial effects of the Jeckman Acquisition on the Company based on the financial information of the Group as set out in Appendix I to the Circular and the unaudited pro forma financial information of the Enlarged Group as set out in Appendix V to the Circular. The unaudited pro forma financial information of the Enlarged Group has been prepared by the Directors to illustrate how the Jeckman Acquisition might have affected the results of operations, financial position and cash flows of the Group had the Jeckman Acquisition been completed. Independent Shareholders should note that the pro forma financial information is for illustrative purposes only and is prepared based on a number of bases and assumptions set out in Appendix V. Independent Shareholders should read such bases and assumptions carefully.

a) Net assets

Based on the unaudited pro forma balance sheet of the Enlarged Group as set out in Appendix V to the Circular, had the Jeckman Acquisition been completed on 30 June 2007, the unaudited pro forma adjusted net assets of the Enlarged Group attributable to Shareholders would remain the same as that of the Group amounted to approximately HK$552.7 million.

As a result of the Jeckman Acquisition, the Enlarged Group would record goodwill of approximately HK$44.2 million in relation to the Jeckman Acquisition. Future impairment of such goodwill, if any, could have a negative impact on the net asset position and financial results of the Enlarged Group. Independent Shareholders should note that the amount of goodwill that may be recorded by the Enlarged Group may be different from the amount used in the unaudited pro forma financial information depending on the fair values of the assets and liabilities of the Jeckman Group as at the date of completion of the Jeckman Acquisition.

b) Profits

Based on the unaudited pro forma income statement of the Enlarged Group as set out in Appendix V to the Circular, we note that, had the Jeckman Acquisition been completed on 1 January 2006, the unaudited pro forma combined net loss of the Enlarged Group from continuing operations for the year ended 31 December 2006 would have been approximately HK$46.1 million as compared to the actual net loss of the Group from its continuing operations of approximately HK$36.5 million.

LETTER FROM OSK

The pro forma net loss of the Enlarged Group is mainly a result of the loss recorded by the Jeckman Group for the year ended 31 December 2006. As explained earlier in this letter, the net loss of the Jeckman Group for the six months ended 30 June 2007 amounted to only approximately HK$1.8 million which has reduced significantly as compared to the net loss of the Jeckman Group of approximately HK$9.3 million for six months ended 30 June 2006 and of approximately HK$12.6 million for the year ended 31 December 2006. We further understand from the Company that one of the major reasons for the loss of the Jeckman Group for the year ended 31 December 2006 was the incurring of initial charges and expenses in respect of the entering into of new financial lease contracts during the year. As stated in the Circular, the Directors believe that with the expected continuing economic development in the PRC, the financial leasing business in the PRC will continue to expand and thus will provide South China Leasing with additional business opportunities. The Company also stated that South China Leasing will not only continue focusing on financial leasing of large development projects, such as aircrafts, container ships, energy and electricity projects and others but shall also explore different financing methods to lower its cost of financing.

c) Indebtedness and gearing

Based on the unaudited pro forma balance sheet of the Enlarged Group as set out in Appendix V to the Circular, had the Jeckman Acquisition been completed on 30 June 2007:

the total borrowings of the Enlarged Group would have been approximately HK$1,533.2 million (the total borrowings of the Group as at 30 June 2007 amounted to approximately HK$87.4 million); and
the gross gearing ratio (being the borrowings divided by total equity) of the Enlarged Group would have been approximately 231.7%.

As mentioned above, financial leasing companies tend to have relatively high gearing ratios. As shown in the table above, some of the listed financial leasing companies in the region had gearing ratios as high as over 1000%. Given the specific nature of the financial leasing business, the gearing ratios of the comparable companies and the ability of South China Leasing to match the finance lease receivable payments against its borrowing repayments, we consider the increase in the gearing ratio as a result of the Jeckman Acquisition acceptable.

d) Working capital

Based on the unaudited pro forma balance sheet of the Enlarged Group as set out in Appendix V to the Circular, had the Jeckman Acquisition been completed on 30 June 2007, the Enlarged Group would have net current assets of approximately HK$507.6 million representing an increase of approximately HK$36.3 million as compared to the net current assets of the Group of approximately HK$471.3 million. The increase in the net current assets of the Enlarged Group as compared with that of the Group is mainly a result of the net current asset position of the Jeckman Group as at 30 June 2007 amounting to approximately HK$73.3 million (before eliminating certain inter-company balances between the Jeckman Group and the Group) and the payment of the cash consideration of HK$52 million.

LETTER FROM OSK

The Directors have also confirmed that after taking into account the internal resources available to the Enlarged Group, the Enlarged Group will have adequate working capital to meet its present requirements for the next twelve months from the date of the Circular.

Conclusion

Based on the above factors considered by us, including:

the investment history of the Group in Jeckman Holdings and South China Leasing and the business strategy of the Group to continue to invest in the financial leasing business in the PRC;
the valuation of the Jeckman Holdings based on the consideration is comparable to the valuation benchmarks of other selected listed financial leasing companies in the Asia-Pacific region;
the growth of the financial lease portfolio of South China Leasing since 2006; and
the positive business prospects of Jeckman Holdings and South China Leasing as viewed by the Directors,

we consider the terms of the Jeckman Acquisition to be fair and reasonable and the Jeckman Acquisition to be in the interests of the Company and the Shareholders as a whole.

THE GDC TECH SUBSCRIPTION

In formulating our opinion in respect of the GDC Tech Subscription, we have taken into consideration, among other things, the following principal reasons and factors:

Background of and reasons for the GDC Tech Subscription

GDC Tech is a non-wholly owned subsidiary of GDC. GDC Tech is one of the major subsidiaries of GDC and is principally engaged in the provision of computing solutions for digital content distribution and exhibitions on a worldwide basis. As mentioned in the section headed “the Shougang GDC Media Acquisition” above in this letter, we understand from the Company that it is the business plan of the Group for PRC Media JV to source digital cinema equipment from GDC Tech and to engage GDC Tech to provide technical management services to the users of such equipment. GDC Tech plays an important role in the whole digital cinema business of the GDC Group (as well as the Group).

It is stated in the letter from the Board set out in the Circular that the Directors noted there was a significant increase in the number of digital cinemas around the world in 2007, which involved the conversion of film projector-based analogue cinemas to digital projector and server based digital cinemas. We understand from the Directors that a number of recent major Hollywood feature films were available for release through digital means. The Directors believe that digital distribution of movies to chains of cinemas is the global trend and provides attractive business opportunities. We understand from the Company that GDC Tech has been able to adopt and implement the required worldwide acceptable

LETTER FROM OSK

standards and specifications in digital movie release and distribution. We also understand that GDC Tech has also successfully completed the digitalization of a well-known cinema multiplex in the PRC based on GDC Tech’s Digital-Cinema-Total Solution platform. The Company believes that this showcases GDC Tech’s ability in helping cinemas adopt the latest movie distribution and master digital technology compatible with Hollywood commonly used specifications. As set out in Appendix II to the Circular headed “Additional financial information of the Enlarged Group and the Group”, other cinema multiplexes in the PRC and Hong Kong have also begun to install similar systems supplied by GDC Tech.

The GDC Group has entered into the Shougang GDC Media Agreement to acquire the entire issued share capital of Shougang GDC Media which in turn will own a 49% interest in PRC Media JV. After the acquisition, the GDC Group will be able to roll-out its digital cinema business strategy in the PRC with the cooperation of China Film. We understand from the Company that as at 30 June 2007, GDC Tech had a cash balance of approximately HK$12.8 million. We understand that it is important for GDC Tech to raise further capital with a view to supporting the sourcing requirements in connection with its targeted supply of digital cinema equipment to at least 2,000 cinemas in the PRC by the end of 2008 and the provision of relevant technical services. We also understand from the Company that, similar to many other information technology business, the technical requirements in respect of digital cinema and movie distribution have been evolving at a relatively fast pace. It is of major importance for GDC Tech to keep abreast of the technology changes. The Company believes that the further capital provided to GDC Tech by the GDC Tech Subscription will help facilitate and maintain GDC Tech’s research and development activities. As stated in the letter from the Board set out in the Circular, the net proceeds from the GDC Tech Subscription are estimated to be approximately HK$106.78 million which will be utilized for business expansion of GDC Tech worldwide and for enhancement of the research and development activities of GDC Tech. GDC will finance the GDC Tech Subscription from part of the placing proceeds raised from the share placement announced by GDC on 4 July 2007. We note from GDC’s announcement dated 4 July 2007 that the net proceeds from the said share placement of GDC were estimated to be approximately HK$188 million, of which HK$163 million was earmarked for the deployment of digital cinema project in the PRC. The GDC Tech Subscription is in-line with the intended use of the net proceeds from the said share placement of GDC.

Given the business development needs of GDC Tech and the business plan of the GDC Group, we agree with the Company that the GDC Tech Subscription is in the interests of the Company and the Shareholders as a whole.

Principle terms of the GDC Tech Subscription

Under the GDC Tech Subscription, GDC Holdings will subscribe for 53,388,178 GDC Tech Subscription Shares, representing approximately 32.21% of the issued share capital of GDC Tech as at the date of the agreement and approximately 24.36% of the issued share capital of GDC Tech as at the date of the agreement and as enlarged by the GDC Tech Subscription. The total consideration amounts to approximately HK$106.78 million, representing HK$2 per GDC Tech Subscription Share.

LETTER FROM OSK

As stated in the letter from the Board, the consideration was arrived with reference to the business plan and expected future prospects of GDC Tech such as (i) GDC Tech’s potential sale of 2,000 units of digital cinema equipment in the PRC; (ii) other digital content distribution related projects under negotiation; and (iii) the trend of deployment of digital cinemas worldwide.

GDC Tech is a non-wholly owned subsidiary of the Company. As at the Latest Practicable Date, GDC Tech was owned as to approximately 51.08% by GDC, as to approximately 29.51% by Mr Li Kashing through his associate and approximately 19.41% by the management and directors of GDC and GDC Tech. After completion of the GDC Tech Subscription, the shareholding interest of GDC in GDC Tech will increase to approximately 62.39%.

On 1 December 2006, GDC Tech entered into a subscription agreement with Greater Appeal Investments Limited, which is ultimately beneficially owned by Mr Li Ka-shing. Pursuant to the subscription agreement entered into between GDC Tech and Great Appeal Investments Limited, GDC Tech has issued 52,383,580 GDC Tech Shares to Great Appeal Investments Limited at a consideration of US$6.5 million (equivalent to approximately HK$0.97 per GDC Tech Share) (the “Last Subscription”). Details of the Last Subscription were set out in the joint announcement issued by the Company and GDC dated 5 December 2006 and the circular of the Company dated 27 December 2006. Independent Shareholders may refer to the above announcement and circular for details of the Last Subscription.

Based on the issue price per GDC Tech Share under the Last Subscription, the implied valuation of GDC Tech (after completion of the Last Subscription) was approximately HK$161 million. Based on the present GDC Tech Subscription Price, the implied valuation of GDC Tech is approximately HK$332 million, approximately double that of the implied valuation based on the consideration of the Last Subscription.

We understand from the Company that the increase in the valuation of GDC Tech after the Last Subscription is mainly attributable to:

GDC Tech has successfully achieved the adoption of the worldwide industry commonly adopted specifications for its technology and products in respect of digital cinema and movie distribution;
GDC Tech has successfully assisted a well-known cinema multiplex in the PRC in the adoption and implementation of a digital cinema system using GDC Tech’s products which showcases the ability of GDC Tech;
the GDC Group is acquiring a 49% interest in PRC Media JV through which, it is targeted that, the products and services of GDC Tech will be promoted with the efforts of China Film; and
a number of major recent Hollywood movies are available for release in digital format and this is expected potentially to lead to greater demand for the products and services of GDC Tech.

LETTER FROM OSK

The Company believes that the above developments have enhanced the competitiveness of GDC Tech and thus help enhance GDC Tech’s chance of success and valuation.

The following table sets out the audited consolidated financial results of GDC Tech for the two years ended 31 December 2006.

	For the year ended 31 December	For the year ended 31 December
	2005	2006
	HK$’000	HK$’000
	(audited)	(audited)
Loss before tax and extraordinary items	11,622	6,145
Loss after tax and extraordinary items	11,262	6,145
Deficiency in net assets	31,918	26,386

As mentioned above, GDC Tech raised net proceeds of approximately HK$50.07 million under the Last Subscription completed in January 2007 which significantly improved the net asset position of GDC Tech.

The following table sets out the segment results of the GDC Group for the 6 months ended 30 June 2006 and 2007 as extracted from the interim report of GDC for six-month period ended 30 June 2007.

Digital content distribution and exhibitions (the digital cinema business of GDC Tech and its subsidiaries) Computer graphics training courses Computer graphics creation and production Total	For the six months ended 30 June 2006 30 June Segment Revenue result Revenue HK$’000 HK$’000 HK$’000 4,868 (6,330) 13,596 3,887 (34) 4,261 9,568 (4,409) 22,252 18,323 (10,773) 40,109	2007 Segment result HK$’000 (128) 751 8,537
		9,160

After the entering into of the subscription agreement in respect of the Last Subscription in December 2006, the results of the digital content distribution and exhibitions of the GDC Group has improved. The revenue of the digital content distribution and exhibitions segment of the GDC Group increased to approximately HK$13.6 million for the six months ended 30 June 2007, representing an increase of approximately 179.3%. The segment loss of the digital content distribution and exhibitions segment of the GDC Group reduced from approximately HK$6.3 million for the six months ended 30 June 2006 to approximately HK$0.1 million for the six months ended 30 June 2007 (close to breaking even).

LETTER FROM OSK

The charts below show the closing price of the Shares and GDC shares from 1 December 2006 (the date of the agreement in respect of the Last Subscription) to 14 August 2007 (the date of the GDC Tech Subscription Agreement).

==> picture [401 x 228] intentionally omitted <==

Source: Infocast

==> picture [399 x 227] intentionally omitted <==

Source: Infocast

LETTER FROM OSK

During the period from 1 December 2006 to 14 August 2007, the closing prices of GDC shares quoted on GEM increased from HK$0.255 per share to HK$2.84 per share, representing an increase of approximately 10.1 times. During the same period, the closing prices of the Company’s shares quoted on the Stock Exchange also increased from HK$0.355 per share to HK$0.810 per share (trading in the Company’s shares was suspended on 14 August 2007, the closing price represents the closing price as at 13 August 2007), representing an increase of approximately 128.2%. However, we note that the trading volume of GDC shares remained relatively thin. We note that the GEM index also increased significantly during the same period. As at 1 December 2006, the GEM index closed at 1,197 points. As at 14 August 2007, the GEM index closed at 1,555 points, representing an increase of approximately 29.9%. Share prices of numerous relatively small sized GEM listed companies also increased significantly. As at 1 December 2006, there were a total of 120 companies, the shares of which were listed on GEM with their closing price per share being less than HK$0.5. As at 14 August 2007, the closing price per share of 110 out of 120 of those GEM listed companies increased as compared with their respective share closing price as at 1 December 2006. When comparing the closing price per share of the 120 selected GEM companies as at 1 December 2006 and as at 14 August 2007, the average increase in share price was approximately 375% and the median increase was approximately 160%.

We believe that the increase in the market capitalization of GDC during the subject period was a result of many factors, including, but not limited to, (1) enhancement of the valuation of GDC Tech, (2) enhancement of the valuation of other business segments of the GDC Group as evidenced by the improvement of the interim results of the other segments for the six months ended 30 June 2006 (recording a total segment profit of HK$9.3 million for the six months ended 30 June 2007 against a total segment loss of HK$4.4 million for the six months ended 30 June 2006); and (3) possible market speculations.

As another reference to the independent Shareholders, we understand from the Company that, Access Integrated Technologies, Inc. (“Company A”), the shares of which are listed on NASDAQ. The business of Company A is comparable to that of GDC Tech. According to the quarterly report publicly filed by Company A for the period ended 30 June 2007, we understand that Company A is principally engaged in (1) the provision of software, services and technology solutions to the motion picture and television industry primarily to facilitate the transition from analogue film to digital cinema and (2) the provision of motion picture exhibition to general public and cinema advertising and film distribution services to movie exhibitors. We understand that prior to 1 May 2007, Company A was also principally engaged in the provision of internet data centre services. For the three months ended 30 June 2007, Company A recorded a revenue of approximately US$18.1 million and a net loss of approximately US$6.8 million.

Company A’s revenue is generated from software licensing and maintenance, including system implementation, training, custom software development services and other professional services, delivery revenues via satellite and hard drive, data encryption and preparation, satellite network monitoring and maintenance, installation and consulting, virtual print fees and alternative content fees, movie theatre admission and concession revenues and cinema advertising service revenues and distribution revenues. The Company considers that the present business and revenue models of GDC Tech and Company A are comparable, in particular after Company A has discontinued operating its internet data centre business after 1 May 2007 and GDC Tech has successfully adopted the industry commonly used specifications for

LETTER FROM OSK

its digital cinema products and services. At the present stage, the Company believes that the valuation of GDC Tech is still much smaller than the market capitalization of Company A as Company A is presently the leader in the US market whilst GDC Tech is starting to roll out its business model. As at 14 August 2007, based on the closing price per Company A share, the market capitalization of Company A was approximately US$179.5 million (equivalent to HK$1,396.5 million). The implied valuation of GDC Tech based on the GDC Tech Subscription Price only represents approximately 23.8% of such market capitalization of Company A.

As an additional reference to the subscription price, GDC Tech has proposed to grant GDC Tech Options (i.e. options carrying rights to subscribe for 12,000,000 GDC Tech Shares) to Ms Lu Yi, Gloria, an executive director of GDC at a subscription price of HK$2.0 per GDC Tech Share pursuant to the terms of the GDC Tech Share Option Scheme. The exercise price of the GDC Tech Options proposed to be granted under the GDC Tech Share Option Scheme is the same as the GDC Tech Subscription Price.

Financial implication of the GDC Tech Subscription

The GDC Tech Subscription constitutes only a discloseable and connected transaction for the Company. No pro forma financial information in respect of the GDC Tech Subscription is required to be prepared by the Company.

GDC Tech is an indirectly owned subsidiary of the Company. As at the Latest Practicable Date, GDC Tech was owned as to approximately 51.08% owned by GDC, which in turn was owned as to approximately 50.74% by the Company. As a result of the GDC Tech Subscription, GDC’s shareholding in GDC Tech will increase to approximately 62.39%. Based on the shareholding structure as at the Latest Practicable Date and assuming there are no other changes, the Group will be able to consolidate a larger proportion of the net profits or loss of GDC Tech in the Group’s financial statements. As mentioned above, GDC Tech is in the stage of actually rolling out its business plan and the Directors believe that the continued digital development trend of the cinema industry in the PRC and worldwide will provide ample opportunities for the business growth of GDC Tech. The Directors believe that the proceeds from the GDC Tech Subscription will further enhance the financial position of GDC Tech and provide it with the necessary working capital for its business development. Accordingly, the Directors believe that the GDC Tech Subscription is important to the business development of GDC Tech and will help enhance the business prospects of GDC Tech which in turn will help the Group enhance its earnings prospects.

As GDC Tech is already a subsidiary of the Company and the assets and liabilities of GDC Tech are already entirely consolidated in the consolidated financial statements of the Group. The injection of the subscription proceeds to GDC Tech and the increase in the shareholding in GDC Tech will not change the consolidated assets and liabilities of the Group upon completion of the GDC Tech Subscription, but will reduce the share of the minority interests after completion and onwards.

LETTER FROM OSK

Conclusion

Based on the above factors considered by us, including:

the terms of the Last Subscription;
the increase in the valuation of GDC Tech after the Last Subscription as viewed by the Directors in view of the recent business development of GDC Tech and the GDC Group;
the Directors’ confidence in the prospects of GDC Tech;
the improved financial results of GDC Tech;
the exercise price of the GDC Tech Options; and
the stated business strategy of the Group in the digital cinema business and the increase in the indirect shareholding interest of the Group in GDC Tech,

we consider the terms of the GDC Tech Subscription to be fair and reasonable and the GDC Tech Subscription to be in the interests of the Company and the Shareholders as a whole.

OVERALL CONCLUSION

Having considered the information and confirmations provided by the Company, the principal reasons and factors as set out above, we are of the view that (1) the respective terms of the Jeckman Agreement, the Shougang GDC Media Agreement and the GDC Tech Subscription Agreement are fair and reasonable so far as the Shareholders are concerned and are on normal commercial terms (i.e. terms obtained on an arm’s length basis) and (2) the Jeckman Acquisition, the Shougang GDC Media Acquisition and the GDC Tech Subscription are in the interests of the Company and the Shareholders as a whole and are incidental to the ordinary and usual course of business of the Group. Accordingly, we advise that the Independent Board Committee to recommend the independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Jeckman Agreement, the Shougang GDC Media Agreement, the GDC Tech Subscription Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of

OSK Asia Capital Limited Allen Tze Director

In this letter, amounts expressed in US$ and RMB have been translated into HK$ at various exchange rates of US$1=HK$7.78 and RMB1=HK$1.03 (or otherwise indicated in this letter) for illustrative purposes only. No representation is made that any amount in HK$, US$ or RMB could have been or can be converted at the above rates or at any other rates.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following table is a summary of the results and financial position of the Group for the three years ended 31 December 2006 and for the six months ended 30 June 2007 extracted from the annual reports of the Company for the years ended 31 December 2005 and 2006, and interim report for the six months ended 30 June 2007.

Results

Continuing operations Revenue Cost of sales Write-down of production work in progress Gross profit/(loss) Profit/(loss) before tax Income tax Profit/(loss) for the year/period from continuing operations Discontinued operation (Loss)/profit from discontinued operation Profit/(loss) for the year/period Attributable to: Equity holders of the parent Minority interests Earning/(loss) per share attributable to ordinary equity holders of the parent From continuing and discontinued operations – Basic – Diluted From continuing operations – Basic – Diluted	2004 HK$’000 (restated) 14,386 – – 14,386 64,397 3,259 67,656 – 67,656 67,720 (64) 67,656 HK7.31 cents N/A HK7.31 cents N/A	For the year ended 2005 2006 HK$’000 HK$’000 (restated) 43,185 76,991 (42,947) (43,920) (24,712) – (24,474) 33,071 (316,680) (35,427) (2,372) (1,103) (319,052) (36,530) (1,575) 20,352 (320,627) (16,178) (316,796) (15,204) (3,831) (974) (320,627) (16,178) (HK28.57 cents) (HK1.34 cents) N/A N/A (HK28.43 cents) (HK3.13 cents) N/A N/A	For the six months ended 30 June 2007 HK$’000 48,857 (22,228) – 26,629 334,382 (1,644) 332,738 – 332,738 333,488 (750) 332,738 HK29.25 cents HK28.50 cents HK29.25 cents HK28.50 cents

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial position

Total assets Total liabilities Net assets Equity attributable to equity holders of the parent Share options reserve of subsidiaries Minority interests Total equity	2004 HK$’000 (restated) 457,516 (113,738) 343,778 342,344 – 1,434 343,778	As at 31 December 2005 2006 HK$’000 HK$’000 (restated) 461,840 457,164 (253,437) (235,601) 208,403 221,563 204,395 212,010 – 5,907 4,008 3,646 208,403 221,563	As at 30 June 2007 HK$’000 808,154 (146,464) 661,690 552,743 9,108 99,839 661,690

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2006

Set out below are the financial statements as extracted from the Company’s 2006 annual report. In this section, reference to the page number is referred to the page number of the Company’s 2006 annual report.

Consolidated Income Statement

For the year ended 31 December 2006

Notes Continuing operations Revenue 6 Cost of sales Write-down of production work in progress Gross profit (loss) Other income 8 Distribution costs Administrative expenses Increase in fair value of investment properties Changes in fair value and gain on disposal of investments held for trading Finance costs 9 Share of result of a jointly controlled entity 22 Profit (loss) on disposal of partial interests in subsidiaries Share of result of an associate Impairment loss on goodwill arising from acquisition of a subsidiary 10 & 20 Loss before tax Income tax expense 11 Loss for the year from continuing operations Discontinued operation 13 Profit (loss) from discontinued operation Loss for the year 12	2006 HK$’000 76,991 (43,920) – 33,071 9,272 (6,932) (74,767) 8,500 3,308 (10,132) 1,531 1,795 (1,073) – (35,427) (1,103) (36,530) 20,352 (16,178)	2005 HK$’000 (restated) 43,185 (42,947) (24,712) (24,474) 3,724 (2,535) (95,063) 14,400 (2,180) (6,930) 428 (12,345) (248) (191,457) (316,680) (2,372) (319,052) (1,575) (320,627)

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Income Statement (continued)

For the year ended 31 December 2006

Note Attributable to: Equity holders of the parent Minority interests Loss per share 15 Basic From continuing and discontinued operations From continuing operations Diluted	2006 2005 HK$’000 HK$’000 (restated) (15,204) (316,796) (974) (3,831) (16,178) (320,627) (HK1.34 cents) (HK28.57 cents) (HK3.13 cents) (HK28.43 cents) N/A N/A

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 December 2006

Notes Non-current assets Investment properties 16 Property, plant and equipment 17 Prepaid lease payments 18 Goodwill 19 Intangible asset 21 Interest in a jointly controlled entity 22 Interests in associates 23 Advance to an associate 38(b) Available-for-sale investment 24 Finance lease receivables 25 Current assets Inventories 26 Production work in progress 27 Amounts due from customers for contract work 29 Finance lease receivables 25 Trade receivables 30 Prepayments, deposits and other receivables 31 Amounts due from associates 38(c) Prepaid lease payments 18 Investments held for trading 32 Pledged bank deposits 33 Bank balances and cash 34 Interest in a jointly controlled entity held for sale 22 Interest in an associate held for sale 28 Current liabilities Trade payables 35 Amounts due to customers for contract work 29 Other payables and accruals 36 Income received in advance 37 Rental and management fee deposits received Amount due to a fellow subsidiary 39 Amounts due to related parties 40 Amounts due to shareholders 39 Amount due to an associate 38(c) Tax liabilities Borrowings 41 Obligations under finance leases 42	2006 HK$’000 136,098 7,792 1,650 – – – 15,108 57,704 – – 218,352 10,801 11,727 808 – 10,072 7,050 28,168 32 8,946 1,014 34,705 113,323 125,489 – 238,812 3,844 1,850 50,073 12,549 1,015 – 1,776 512 19 2,266 53,818 1,484 129,206	2005 HK$’000 108,000 28,165 6,357 – 21,866 120,113 – – – 34,195
		318,696
		7,822 6,248 – 33,513 7,089 16,446 – 136 6,778 16,455 19,841
		114,328 – 28,816
		143,144
		4,424 – 59,454 6,714 851 24,260 1,098 26,062 – 2,066 76,648 2,761
		204,338

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Balance Sheet (continued)

At 31 December 2006

Notes Net current assets (liabilities) Total assets less current liabilities Non-current liabilities Income received in advance 37 Amount due to a former shareholder of a subsidiary 40 Amount due to a fellow subsidiary 39 Borrowings 41 Obligations under finance leases 42 Security deposits received Deferred tax liabilities 43 Net assets Capital and reserves Share capital 44 Reserves Equity attributable to equity holders of the parent Share option reserve of subsidiaries Minority interests Total equity	2006 HK$’000 109,606 327,958 – 455 40,000 64,065 489 – 1,386 106,395 221,563 11,369 200,641 212,010 5,907 3,646 221,563	2005 HK$’000 (61,194) 257,502 1,194 1,495 – 43,174 716 1,948 572 49,099 208,403 11,369 193,026 204,395 – 4,008 208,403

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2006

At 1 January 2005 Exchange differences on translation of a jointly controlled entity/ subsidiaries representing income recognised directly in equity Loss for the year Total recognised income and expenses for the year Shares issued at premium for acquisition of a subsidiary Acquisition of a subsidiary Additional contribution from minority shareholders Deemed contribution from a former shareholder of a subsidiary Recognition of share-based payments Recognition of put option Recognition of put option liability Transfer upon cancellation of share options At 31 December 2005 and 1 January 2006 Exchange differences on translation of a jointly controlled entity/ subsidiaries representing income recognised directly in equity Loss for the year Total recognised income and expenses for the year Recognition of share-based payments Derecognition of put option liability Exercise of share options Transfer upon cancellation of share options Additional contribution from minority shareholders At 31 December 2006	Share capital HK$’000 9,393 – – – 1,976 – – – – – – – 11,369 – – – – – – – – 11,369	Share premium HK$’000 266,317 – – – 151,373 – – – – – – – 417,690 – – – – – – – – 417,690	Capital contribution reserve HK$’000 – – – – – – – 445 – – – – 445 – – – – – – – – 445	Contributed surplus HK$’000 (Note (a)) 2,135 – – – – – – – – – – – 2,135 – – – – – – – – 2,135	Translation reserve HK$’000 567 5,745 – 5,745 – – – – – – – – 6,312 10,057 – 10,057 – – – – – 16,369	Share options reserve HK$’000 14,863 – – – – – – – 25,456 – – (40,319) – – – – – – – – – –	Accumulated profits (losses) HK$’000 49,069 – (316,796) (316,796) – – – – – – – 40,319 (227,408) – (15,204) (15,204) – 6,612 – 2 – (235,998)	Put option reserve HK$’000 (Note (b)) – – – – – – – – – 6,612 (12,760) – (6,148) – – – – 6,148 – – – –	Total HK$’000 342,344 5,745 (316,796) (311,051) 153,349 – – 445 25,456 6,612 (12,760) – 204,395 10,057 (15,204) (5,147) – 12,760 – 2 – 212,010	Share option reserve of subsidiaries HK$’000 – – – – – – – – – – – – – – – – 5,937 – (28) (2) – 5,907	Minority interests HK$’000 1,434 84 (3,831) (3,747) – 2,722 3,599 – – – – – 4,008 113 (974) (861) – – – – 499 3,646	Total
												HK$’000 343,778 5,829 (320,627)
												(314,798)
												153,349 2,722 3,599 445 25,456 6,612 (12,760) –
												208,403 10,170 (16,178)
												(6,008)
												5,937 12,760 (28) – 499
												221,563

Notes:

(a) The contributed surplus represented the difference between the nominal value of the shares of the subsidiaries acquired pursuant to the Group reorganisation in 1991 over the nominal value of the Company’s shares issued in exchange.
(b) The put option reserve related to the recognition of the obligation to settle a put option written by the Group to minority shareholders during the year ended 31 December 2005, net of option premium. Such put option liability was subsequently reversed during the year ended 31 December 2006 and the option premium of approximately HK$6,612,000 is transferred to accumulated losses.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2006

OPERATING ACTIVITIES Loss for the year Adjustments for: Finance costs Share-based payment expenses Depreciation of property, plant and equipment Allowance for finance lease receivables Research and development costs Allowance for bad and doubtful debts Write-down of inventories Income tax expense Amortisation of intangible asset Amortisation of prepaid lease payments Impairment loss on goodwill arising from acquisition of a subsidiary Write-down of production work in progress Impairment loss of property, plant and equipment (Profit) loss on disposal of (partial) interests in subsidiaries Increase in fair value of investment properties Interest income (Increase) decrease in changes in fair value and gain on disposal of investments held for trading Profit on disposal of partial interest in a subsidiary (net of expense) Gain on disposal of property, plant and equipment Increase in fair value of prepaid lease payments Dividend income from an associate held for sale Dividend income from equity investments Share of result of a jointly controlled entity Share of result of an associate Operating cash flows before movements in working capital Acquisition of prepaid lease payments Increase in inventories (Increase) decrease in production work in progress Increase in finance lease receivables Increase in trade receivables Increase in amounts due from customers for contract work	2006 HK$’000 (16,178) 10,132 5,937 4,705 4,649 2,422 1,660 1,077 1,103 428 80 – – – (24,711) (8,500) (2,252) (3,308) (1,795) (453) (146) (5,490) – (1,531) 1,073 (31,098) – (4,056) (3,611) (772,164) (4,643) (808)	2005 HK$’000 (320,627) 7,007 25,456 2,840 – 2,324 521 2,645 2,372 545 134 191,457 24,712 2,350 12,345 (14,767) (976) 2,180 – (36) – (1,800) (162) (428) 248 (61,660) (4,818) (5,234) 1,787 (67,708) (86) –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Cash Flow Statement (continued)

For the year ended 31 December 2006

Notes Decrease in prepayments, deposits and other receivables Decrease in investments held for trading (Decrease) increase in trade payables Increase in amounts due to customers for contract work Decrease in other payables and accruals Increase in income received in advance Increase (decrease) in rental and management fee deposits received Increase in security deposits received Cash used in operations Hong Kong Profits Tax paid Tax refunded Interest paid Bank facility arrangement fee paid NET CASH USED IN OPERATING ACTIVITIES INVESTING ACTIVITIES Advance to an associate Disposal of interest in a subsidiary 13 Increase in capital contribution in an associate Purchases of property, plant and equipment Expenditure on product development Acquisition of subsidiaries 45 Proceeds from disposal of an associate held for sale Repayment from an associate Decrease in pledged bank deposits Dividend received from an associate held for sale Dividend received from a jointly controlled entity Interest received Proceeds from disposal of partial interest in a subsidiary (net of expense) Proceeds from disposal of property, plant and equipment Proceeds from disposal of partial interest in a subsidiary Proceeds from disposal of held-to-maturity investment Proceeds from disposal of other non-current asset Dividends received from equity investments Acquisition of an associate held for sale NET CASH (USED IN) FROM INVESTING ACTIVITIES	2006 HK$’000 9,364 1,140 (580) 1,850 (13,076) 13,758 164 29,138 (774,622) (168) 79 (9,717) – (784,428) (42,000) (19,016) (10,000) (3,999) (2,422) (1,395) 28,816 16,890 15,441 5,490 3,898 2,252 1,767 453 – – – – – (3,825)	2005 HK$’000 23,702 4,818 993 – (49,349) 2,504 (600) 1,948 (153,703) (143) 69 (1,746) (528) (156,051) – – – (14,667) (2,324) 8,778 – – 49,045 7,204 2,375 976 (63) 434 12,760 9,369 410 162 (28,816) 45,643

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Cash Flow Statement (continued)

For the year ended 31 December 2006 FINANCING ACTIVITIES New borrowings raised Advance from a fellow subsidiary Capital contribution from minority shareholders Repayment of borrowings Repayment of obligations under finance leases (Repayment to) advance from shareholders (Repayment to) advance from related parties NET CASH FROM FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash Bank overdrafts	2006 HK$’000 877,524 15,740 499 (83,567) (3,078) (1,642) (362) 805,114 16,861 17,591 253 34,705 34,705 – 34,705	2005 HK$’000 21,196 24,260 3,599 (65,800) (5,517) 26,062 3,038 6,838 (103,570) 119,683 1,478 17,591 19,841 (2,250) 17,591

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended 31 December 2006

1. GENERAL

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

The Company is an investment holding company. The principal activities of its principal subsidiaries are set out in note 55.

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

2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied, for the first time, a number of new standards, amendments and interpretations (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) that are effective for accounting periods beginning on or after 1 December 2005 and 1 January 2006. The application of the new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

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

HKAS 1 (Amendment)	Capital Disclosure1
HKFRS 7	Financial Instruments: Disclosures1
HKFRS 8	Operating Segments2
HK (IFRIC) – INT 7	Applying the Restatement Approach under HKAS 29
	“Financial Reporting in Hyperinflationary Economies”3
HK(IFRIC) – INT 8	Scope of HKFRS 24
HK(IFRIC) – INT 9	Reassessment of Embedded Derivatives5
HK(IFRIC) – INT 10	Interim Financial Reporting and Impairment6
HK(IFRIC) – INT 11	HKFRS 2 – Group and Treasury Share Transactions7
HK(IFRIC) – INT 12	Service Concession Arrangements8

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

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

3 Effective for annual periods beginning on or after 1 March 2006

4 Effective for annual periods beginning on or after 1 May 2006

5 Effective for annual periods beginning on or after 1 June 2006

6 Effective for annual periods beginning on or after 1 November 2006

7 Effective for annual periods beginning on or after 1 March 2007

8 Effective for annual periods beginning on or after 1 January 2008

3. SIGNIFICANT ACCOUNTING POLICIES

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

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation

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

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

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

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

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

Goodwill

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

For previously capitalised goodwill arising on acquisition of a subsidiary, an associate or a jointly controlled entity for which the agreement date is 1 January 2005, the Group has discontinued amortisation from 1 January 2005 onwards, and such goodwill is tested for impairment annually, and whenever there is an indication that the cash generating unit (“CGU”) to which the goodwill relates may be impaired.

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

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

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

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Interests in associates

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

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting except when the investment is classified as held for sale (in which case it is accounted for under Hong Kong Financial Reporting Standard (“HKFRS”) 5 “Non-current Assets Held for Sale and Discontinued Operations”) issued by the HKICPA. 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 any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment.

On subsequent disposal of an associate, the attributable amount of goodwill capitalised is include in the determination of the amount of profit or loss on disposal.

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

Interests in an associate and a jointly controlled entity held for sale

Interests in an associate and a jointly controlled entity are classified held for sale if its carrying amount will be recovered principally through a sale transaction. This condition is regarded as met only when the sale is highly probable and the interests in an associate and a jointly controlled entity is available for immediate sale.

Interests in an associate and a jointly controlled entity held for sale are measured at the lower of the carrying amount of the interests in an associate and a jointly controlled entity at the date the held for sale conditions are satisfied and fair value less costs to sell.

Jointly controlled entity

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

The results and assets and liabilities of a jointly controlled entity are incorporated in the consolidated financial statements using the equity method of accounting except when the investment is classified as held for sale (in which case it is accounted for under HKFRS 5) or when the investment is designated as at fair value through profit or loss upon initial recognition (in which case it is accounted for under HKAS 39). Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for postacquisition changes in the Group’s share of the profit or loss and of changes in equity of the jointly controlled entity, less any identified impairment loss. When the Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the Group’s net investment in the jointly controlled entity), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Jointly controlled entity (continued)

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the jointly controlled entity recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment.

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

Revenue recognition

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

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

Service income and management fee income are recognised when services are provided.

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

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

Rental income from property and equipment leasing is recognised on a straight-line basis over the relevant lease terms.

Training fee income is amortised over the period of the training course on a straight-line basis. Unearned training fee income received is recorded as training fees received in advance and included under other payables and accruals.

Distribution income of films and television drama is recognised when the films and/or television drama are delivered to the customers.

Receipts from distribution of motion pictures are recognised when the motion pictures are exhibited.

Subcontracting revenue from computer graphic (“CG”) creation and production

Where the outcome of a subcontracting contract of CG creation and production can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

Where the outcome of a subcontracting contract cannot be estimated reliably, subcontracting revenue is recognised to the extent of contract costs incurred that it is probable to be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the excess is shown as an amount due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the excess is shown as an amount due to customers for contract work. Amounts received before the related work is performed are included in the consolidated balance sheet, as a liability, as income received in advance. Amounts billed for work performed but not yet paid by the customer are included in the consolidated balance sheet under trade receivables.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment

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

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

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

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

Investment properties

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

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

An owner-occupied property is transferred from property, plant and equipment to investment property at fair value when it is evidenced by end of owner-occupation. The difference between the carrying amount and fair value at the date of transfer is accounted for as a revaluation increase in accordance with HKAS 16 “Property, Plant and Equipment”.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group’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 the Group’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognised in the consolidated income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

The Group as lessee

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

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are re-translated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are re-translated at the rates prevailing on the date when the fair value was determined. Nonmonetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

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

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

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

Borrowing costs

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

Retirement benefits costs

Payments to the define contribution retirement benefit schemes are charged as expenses when employees have rendered service entitling them to the contributions.

Taxation

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

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

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Taxation (continued)

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

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

Intangible assets

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is the fair value at the acquisition date.

Subsequent to initial recognition, intangible assets with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Alternatively, intangible assets with infinite useful lives are carried at cost less any subsequent accumulated impairment losses.

Research and development expenditure

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

An internally-generated intangible asset arising from development expenditure is recognised only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortised on a straight-line basis over its useful life.

Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.

Production work in progress

Production work in progress is stated at cost less any impairment losses. Costs include all direct costs associated with the production of films or television drama series. Costs are transferred to inventories upon completion.

Financial instruments

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial assets

The Group’s financial assets are classified into one of the three categories, including financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss representing financial assets held for trading. At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in consolidated income statement in the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including advance to an associate, trade receivables, other receivables, amounts due from associates, pledged bank deposits and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in consolidated income statement when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments.

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

Financial liabilities and equity

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

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial liabilities and equity (continued)

Financial liabilities

The Group’s financial liabilities including trade payables, other payables, amount due to a fellow subsidiary, amount due to a related party, amounts due to shareholders, amount due to an associate and borrowings are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

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

Derecognition

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

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

Equity settled share-based payment transactions

Share options granted to employees of the Group

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

At each balance sheet date, the Group revises its estimates of the numbers of options that are expected to ultimately vest. The effect of the change in estimate, if any, is recognised in profit or loss with a corresponding adjustment to share option reserve.

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

For share options granted on or before 7 November 2002 and share options granted after 7 November 2002 but vested before 1 January 2005, the Group did not recognise any financial effect of these share options in accordance with the transitional provisions of HKFRS 2.

Impairment losses (other than goodwill)

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately.

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Estimated impairment on advance to an associate and amounts due from associates

As at 31 December 2006, there were an advance to an associate of approximately HK$57,704,000 (2005: Nil) and amounts due from associates of approximately HK$28,168,000 (2005: Nil). In determining whether there is objective evidence of impairment loss, the management of the Group takes into consideration the estimation of future cash flows of the associates, which are mainly engaged in the finance leasing business and investment holding. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise.

The management of the Group did not identify any impairment loss on the advance to an associate and amounts due from associates for the year ended 31 December 2006.

Allowance for bad and doubtful debts

In determining whether there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material loss may arise. Allowance for bad and doubtful debts of approximately HK$1,660,000 was made for the year ended 31 December 2006 (2005: HK$521,000).

Write-down of inventories

The management of the Group reviews an aged analysis at each balance sheet date, and makes write-down for obsolete and slow-moving inventory items identified that are no longer suitable for use in production. The management estimates the net realisable value for such raw materials and finished goods based primarily on the latest invoice prices and current market conditions. The Group carries out an inventory review on a product-byproduct basis at each balance sheet date and makes write-down for obsolete items. Write-down of inventories of approximately HK$1,077,000 was made for the year ended 31 December 2006 (2005: HK$2,645,000).

Write-down of production work in progress

The policy for write-down of production work in progress of the Group is based on the evaluation of the certainty in finalising the distribution/license agreements in the potential markets and on management’s judgement. The management estimates the net realisable value for such production work in progress was approximately HK$11,727,000 as at 31 December 2006 (2005: HK$6,248,000). There was no write-down of production work in progress made for the year ended 31 December 2006 (2005: HK$24,712,000).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

5. FINANCIAL INSTRUMENTS

Financial risk management objectives and policies

The Group’s major financial instruments include advance to an associate, trade receivables, other receivables, amounts due from (to) associates, investments held for trading, bank balances, trade payables, other payables and borrowings. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Currency risk

The Group entities conduct their operations mainly using the functional currencies of the respective group entities. Therefore, the management considers that foreign exchange exposure is minimal and will further consider hedging significant foreign currency exposure should the need arise.

Fair value interest rate risk

The Group’s fair value interest rate risk relates primarily to pledged bank deposits, bank balances, advance to an associate and fixed-rate bank borrowings (see Note 33, 34, 38 and 41 for details). The Group currently does not have an interest rate hedging policy. However, the management monitors interest rate change exposure and will consider hedging significant interest rate change exposure should the needs arise.

Cash flow interest rate risk

The Group’s cash flow interest rate risk relates primarily to variable-rate bank borrowings (see Note 41 for details of these borrowings). It is the Group’s policy to keep its borrowings at floating rate of interests so as to minimise the cash flow interest rate risk.

Credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations as at 31 December 2006 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt, amounts due from associates and finance lease receivables at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Directors of the Company consider that the Group’s credit risk is significantly reduced.

Although the bank balances are concentrated on certain counterparties, the credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.

The Group’s concentration of credit risk by geographical locations is mainly in the United States of America (“USA”), Hong Kong and the People’s Republic of China (the “PRC”, which for the purpose of this report, does not include Hong Kong, Macau and Taiwan).

The Group has no significant concentration of credit risk except for the amounts due from associates, with exposure spread over a number of counterparties and customers.

Price risk

The Group’s held for trading investments are measured at fair value at each balance sheet date. Therefore, the Group is exposed to equity security price risk. The management manages this exposure by maintaining a portfolio of investments with different risk profiles.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

6. REVENUE

Revenue represents CG creation and films and television drama production income, the amounts received and receivable for goods sold by the Group to outside customers (less returns and trade discounts), revenue arising on training fee, property leasing and management fee income, technical service income, receipts from distribution of motion picture and rental income from equipment leasing, and finance lease income (disclosed as discontinued operation) during the year.

An analysis of the Group’s revenue is as follows:

Continuing operations CG creation and production income Films and television drama distribution income Sale of goods Training fee Property leasing and management fee income Technical service income Receipts from distribution of motion picture Rental income from equipment leasing Discontinued operation Finance lease income	2006 HK$’000 27,425 14,962 12,845 9,093 7,109 2,245 2,929 383 76,991 13,638	2005 HK$’000 4,895 8,971 17,024 6,078 5,411 724 – 82
		43,185

		2,626

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

7. BUSINESS AND GEOGRAPHICAL SEGMENTS

(a) Business segments

For management purposes, the Group was organised into four operating divisions – property leasing and building management services, digital content distribution and exhibitions, CG creation and films and television drama production and CG training courses. These divisions are the basis on which the Group reports its primary segment information.

The Group was also involved in the finance leasing business for the year ended 31 December 2005. That operation was discontinued in June 2006 in accordance with HKFRS 5 as it was carried out by an associate of the Group thereafter. Details of which are set out in Note 13.

Segment information about these divisions is presented below:

For the year ended 31 December 2006

Continuing operations	Continuing operations	Continuing operations	Consolidated
Digital content distribution and exhibitions HK$’000 15,473 (7,224)	CG creation and films and television drama production HK$’000 45,316 (3,218)	CG training courses HK$’000 9,093 116
			HK$’000 90,629

			2,193 5,557 (39,657) (10,132) 1,531 (1,073) 26,506
			(15,075) (1,103)
			(16,178)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

(a) Business segments (continued)

At 31 December 2006

At 31 December 2006
BALANCE SHEET ASSETS Segment assets Interest in a jointly controlled entity held for sale Interests in associates Advance to an associate Amounts due from associates Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Property leasing and building management services HK$’000 131,118 11,446	Digital content distribution and exhibitions HK$’000 7,065 8,413	CG creation and films and television drama production HK$’000 37,872 28,203	CG training courses HK$’000 1,486 4,682	Consolidated
					HK$’000 177,541 125,489 15,108 57,704 28,168 53,154
					457,164

					52,744 182,857
					235,601

For the year ended 31 December 2006

OTHER INFORMATION Capital addition Depreciation of property, plant and equipment Amortisation of intangible asset Allowance for bad and doubtful debts Write-down of inventories Allowance for finance lease receivables Amortisation of prepaid lease payments	Property leasing and building management services HK$’000 37 587 – – – – 80	Digital content distribution and exhibitions HK$’000 1,018 382 – 1,660 – – –	CG creation and films and television drama production HK$’000 2,843 4,365 – – 1,077 – –	CG training courses HK$’000 101 855 – – – – –	Finance leasing HK$’000 – 637 428 – – 4,649 –	Consolidated
						HK$’000 3,999 6,826 428 1,660 1,077 4,649 80

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

(a) Business segments (continued)

For the year ended 31 December 2005

Continuing operations	Continuing operations	Continuing operations	Consolidated
Digital content distribution and exhibitions HK$’000 17,830 (9,148)	CG creation and films and television drama production HK$’000 13,866 (243,895)	CG training courses HK$’000 6,078 89
			HK$’000 45,811

			(237,212) 3,448 (65,319) (7,007) 428 (248) (12,345)
			(318,255) (2,372)
			(320,627)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

(a) Business segments (continued)

At 31 December 2005

BALANCE SHEET Assets Segment assets Interest in a jointly controlled entity Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Property leasing and building management services HK$’000 109,089 12,323	Digital content distribution and exhibitions HK$’000 7,981 3,273	CG creation and films and television drama production HK$’000 28,276 35,735	CG training courses HK$’000 6,211 2,455	Finance leasing HK$’000 99,009 29,031	Consolidated	Consolidated
							HK$’000 250,566 120,113 91,161
							461,840

							82,817 170,620
							253,437

For the year ended 31 December 2005

OTHER INFORMATION Capital addition Amortisation of intangible asset Depreciation of property, plant and equipment Allowance for bad and doubtful debts Write-down of inventories Write-down of production work in progress Amortisation of prepaid lease payments Impairment loss on goodwill arising from acquisition of a subsidiary	Property leasing and building management services HK$’000 15,913 – 815 – – – 134 –	Digital content distribution and exhibitions HK$’000 355 – 1,662 521 2,645 – – –	CG creation and films and television drama production HK$’000 4,162 – 4,848 – – 24,712 – 191,457	CG training courses HK$’000 191 – 373 – – – – –	Finance leasing HK$’000 3,040 545 642 – – – – –	Consolidated
						HK$’000 23,661 545 8,340 521 2,645 24,712 134 191,457

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

(b) Geographical segments

The Group’s five business segments operate in seven main geographical areas, namely the PRC, USA, Hong Kong, Singapore, Europe, Korea, India and other regions. The head office of the Group is located in Hong Kong. The Group’s CG creation and films and television drama production centre and the CG training facilities are located in the PRC. Customers of the Group’s CG creation and films and television drama production business are mainly located in the PRC and USA and customers of the Group’s digital content distribution and exhibitions business are located in the PRC, India, Singapore and other regions.

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

Continuing operations The PRC USA Hong Kong Singapore Europe Korea India Other regions Discontinued operation The PRC	2006 HK$’000 34,500 23,833 5,837 4,035 1,990 2,941 107 3,748 76,991 13,638	2005 HK$’000 19,348 2,183 5,411 2,439 4,125 3,357 2,123 4,199
		43,185

		2,626

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

The PRC Hong Kong USA India Singapore Other regions Total	Carrying amount of segment assets 2006 2005 HK$’000 HK$’000 83,924 120,035 87,201 124,157 3,269 – – 196 2,142 1,717 1,005 4,461 177,541 250,566	Additions to property, plant and equipment and intangible assets 2006 2005 HK$’000 HK$’000 3,417 45,359 547 671 – – – – 35 42 – – 3,999 46,072	Additions to property, plant and equipment and intangible assets 2006 2005 HK$’000 HK$’000 3,417 45,359 547 671 – – – – 35 42 – – 3,999 46,072
			46,072

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

8. OTHER INCOME

Continuing operations Interest income from bank deposits Dividend income from equity investments Dividend income from an associate held for sale Gain on disposal of property, plant and equipment Others Discontinued operation Interest income from bank deposits Increase in fair value of investment properties Others 9. FINANCE COSTS Continuing operations Interest on bank and other borrowings wholly repayable within five years Other finance costs Discontinued operation Interest on bank and other borrowings wholly repayable other than five years	2006 HK$’000 2,251 – 5,490 453 1,078 9,272 1 – 459 460 2006 HK$’000 9,990 142 10,132 –	2005 HK$’000 905 162 1,800 36 821
		3,724

		71 367 402
		840

		2005 HK$’000 6,529 401
		6,930

		77

10. IMPAIRMENT LOSS ON GOODWILL ARISING FROM ACQUISITION OF A SUBSIDIARY

During the year ended 31 December 2005, the Group acquired 658,466,023 shares, representing a 82.2% of the issued share capital, of Global Digital Creations Holdings Limited (“GDC”). GDC is incorporated in Bermuda and its shares are listed on the Growth Enterprise Market (“GEM”) of the Stock Exchange. The principal activities of GDC and its subsidiaries are engaged in CG creation and production, digital content distribution and exhibitions, and provision of CG training courses. Details of this are set out in note 45.

The Directors reviewed the business valuation, the anticipated profitability and the anticipated future operating cash flows of GDC. With reference to the financial results and business operated by GDC, the Directors of the Company identified an impairment loss in respect of goodwill of approximately HK$191,457,000, such amount was dealt with in the consolidated income statement for the year ended 31 December 2005.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

11. INCOME TAX EXPENSE

Continuing operations Current tax: Hong Kong Provision for the year (Over) underprovision in prior years Deferred taxation_(Note 43)_: Current year Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable	2006 HK$’000 291 (2) 289 814 1,103 profit for both years.	2005 HK$’000 138 1,792
		1,930 442
		2,372

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions, if any.

No provision for the PRC Enterprise Income Tax (“EIT”) was made in the consolidated financial statements as the Group’s subsidiaries operating in the PRC either have no assessable profit for both years or pursuant to the relevant income tax regulations for productive enterprises with foreign investment established in the PRC and being approved by the relevant PRC tax authority, some subsidiaries in the PRC are eligible for an exemption from PRC EIT for two years starting from the first profit-making year after offsetting all tax losses carried forward from the previous five years, followed by a 50% reduction of the tax rate in the next three years.

No provision for the PRC EIT was made in the consolidated financial statements for the discontinued operation in the PRC as it has no assessable profit for both years.

The income tax expense for the year can be reconciled to the loss before tax in the consolidated income statement as follows:

Loss before tax Continuing operations Discontinued operation Tax at Hong Kong Profits Tax rate of 17.5% Tax effect on share of result of a jointly controlled entity Tax effect on share of result of an associate Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose (Over) underprovision in prior years Tax effect of deferred tax assets not recognised Tax effect of utilisation of deferred tax assets/tax losses previously not recognised Effect of tax exemptions granted to the PRC subsidiaries Effect of different tax rates of subsidiaries operating in other Jurisdictions Income tax expense for the year	2006 HK$’000 (35,427) 20,352 (15,075) (2,638) (268) 188 8,639 (7,711) (2) 3,257 (778) 224 192 1,103	2005 HK$’000 (316,680) (1,575)
		(318,255)

		(55,695) (75) 43 55,616 (5,393) 1,792 7,502 (3,703) 320 1,965
		2,372

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

12. LOSS FOR THE YEAR

Continuing	Discontinued operation 2006 2005 HK$’000 HK$’000 1,912 1,274 – – – – 1,912 1,274 – – 1,912 1,274 – – – – 4,649 – – – 428 545 – – – – 637 642 – – 637 642 – – – – – – – – – – – – – –	Consolidated 2006 2005 HK$’000 HK$’000 49,167 51,536 659 689 5,937 – 55,763 52,225 (2,422) (2,324) 53,341 49,901 4,938 1,947 1,660 521 4,649 – 1,077 2,645 428 545 80 134 1,000 1,400 6,826 8,340 (2,121) (5,500) 4,705 2,840 – 2,350 7,470 6,980 2,422 2,324 933 362 7,109 5,411 (593) (581) 6,516 4,830	Consolidated 2006 2005 HK$’000 HK$’000 49,167 51,536 659 689 5,937 – 55,763 52,225 (2,422) (2,324) 53,341 49,901 4,938 1,947 1,660 521 4,649 – 1,077 2,645 428 545 80 134 1,000 1,400 6,826 8,340 (2,121) (5,500) 4,705 2,840 – 2,350 7,470 6,980 2,422 2,324 933 362 7,109 5,411 (593) (581) 6,516 4,830
2006 HK$’000 47,255 659 5,937 53,851 (2,422) 51,429 4,938 1,660 – 1,077 – 80 1,000 6,189 (2,121) 4,068 – 7,470 2,422 933 7,109 (593) 6,516	2006 HK$’000 1,912 – – 1,912 – 1,912 – – 4,649 – 428 – – 637 – 637 – – – – – – –	2006 HK$’000 49,167 659 5,937 55,763 (2,422) 53,341 4,938 1,660 4,649 1,077 428 80 1,000 6,826 (2,121) 4,705 – 7,470 2,422 933 7,109 (593) 6,516
			52,225 (2,324)
			49,901

			1,947 521 – 2,645 545 134 1,400 8,340 (5,500)
			2,840 2,350 6,980 2,324 362 5,411 (581)
			4,830

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

13. DISCONTINUED OPERATION

Discontinued operation

In June 2006, the Group entered into a sale and purchase agreement in respect of a disposal of the Group’s 30% effective interest in South China International Leasing Company Limited (“South China Leasing”), which is established in the PRC with principal activities in the provision of finance leasing including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties in the PRC at a consideration of HK$25,000,000 (the “Disposal”). South China Leasing is a sino-foreign equity joint venture established in the PRC on 20 May 1989 with an operation term of 40 years expiring in 2029. Upon the completion of the Disposal, the Group’s effective interest in South China Leasing decreased from 80% to 50% and South China Leasing became an associate of the Group. Accordingly, the finance leasing business was carried out by the associate of the Group and became a discontinued operation. Details of the Disposal are set out in the circular of the Company dated 6 July 2006.

The profit (loss) for the year from the discontinued operation is analysed as follows:

Loss of finance leasing business Profit on disposal of interest in a subsidiary	2006 HK$’000 (4,359) 24,711 20,352	2005 HK$’000 (1,575) – (1,575)

The results of the finance leasing business for the year were as follows:

Interest income Handling fee income Cost of sales Gross profit Other income Administrative expenses Finance costs Loss for the year	2006 HK$’000 12,721 917 13,638 (9,750) 3,888 460 (8,707) – (4,359)	2005 HK$’000 2,263 363 2,626 (719) 1,907 840 (4,245) (77) (1,575)

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

13. DISCONTINUED OPERATION (continued)

The net assets of the finance leasing business at the date of disposal at 15 June 2006 were as follows:

Net assets disposed of
Investment property
Property, plant and equipment
Intangible asset
Finance lease receivables
Other receivables
Bank balances and cash
Borrowings
Trade and other payables
Income received in advance
Security deposits received
Attributable goodwill
Profit on disposal
Amount due to a group company previously
eliminated on consolidation
Interests in associates
Total cash consideration
Satisfied by:
Cash
Direct transaction costs
Net cash outflow arising on disposal:
Net cash consideration
Bank balances and cash disposed of

HK$’000
1,200
2,261
21,438
837,507
119
43,491
(794,672)
(11,707)
(9,229)
(31,086)
59,322
1,087
60,409
24,711
(58,189)
(2,456)
24,475
25,000
(525)
24,475
24,475
(43,491)
(19,016)

During the year, the finance leasing business paid approximately HK$755,340,000 (2005: HK$62,847,000) in respect of operating activities, nil amount (2005: payments of approximately HK$3,014,000) in respect of investing activities and receipt of approximately HK$770,659,000 (2005: payment of HK$6,040,000) in respect of financing activities.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

14. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

The emoluments paid or payable to each of the 12 (2005: 11) Directors were as follows:

2006

							Leung
							Shun	Choy Hok	Tam King
	Wang	Cao	Chen	Wang	Cheng	Yuan	Sang,	Man,		Ching,	Hui Hung,		Zhou
Qinghai		Zhong	Zheng	Tian	Xiaoyu	Wenxin	Tony	Constance		Kenny		Stephen	Jianhong	Liu Wei	Total
HJK$’000		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000		HK$’000	HK$’000	HK$’000	HK$’000
Fees	120	–	–	–	–	–	120	48		150		24	150	125	737
Other emoluments
Salaries and other benefits	–	400	1,920	1,400	1,400	1,400	–	–		–		–	–	–	6,520
Retirement benefit scheme
contributions	–	–	72	60	60	60	–	–		–		–	–	–	252
Share-based payment	–	696	696	–	–	–	668	–		–		64	–	–	2,124
Total emoluments	120	1,096	2,688	1,460	1,460	1,460	788	48		150		88	150	125	9,633

2005
								Leung
								Shun		Choy Hok		Tam King
		Wang	Cao	Chen	Wang	Cheng	Yuan	Sang,		Man,		Ching,	Hui Hung,	Zhou
		Qinghai	Zhong	Zheng	Tian	Xiaoyu	Wenxin	Tony		Constance		Kenny	Stephen	Jianhong	Total
		HJK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000		HK$’000	HK$’000	HK$’000	HK$’000
Fees		–	–	–	–	–	–	120		120		150	150	150	690
Other emoluments
Salaries and other benefits		–	250	1,800	1,400	1,400	750	–		–		–	–	–	5,600
Retirement benefit scheme
contributions		–	–	12	12	12	6	–		–		–	–	–	42
Total emoluments		–	250	1,812	1,412	1,412	756	120		120		150	150	150	6,332

No Director waived any emoluments in both years.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

14. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS (continued)

(b) Employees’ Emoluments

Of the five individuals with the highest emoluments in the Group, two (2005: three) were Directors of the Company whose emoluments are set out above. The emoluments of the remaining three (2005: two) individual was as follows:

Salaries and other benefits Contributions to retirement benefits schemes Its emolument was within the following bands: Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000 HK$2,500,001 to HK$3,000,000	2006 HK$’000 5,734 36 5,770 2006 No. of employees – – 2 – 1	2005 HK$’000 3,270 18
		3,288

		2005 No. of employees – 1 – 1 –

15. LOSS PER SHARE

From continuing and discontinued operations

For the year ended 31 December 2006, the calculation of the basic loss per share is based on the loss for the year attributable to equity holders of the parent of approximately HK$15,204,000 (2005: HK$316,796,000) and on number of shares in issue during the year of 1,136,856,469 shares (2005: weighted average of 1,108,749,469 shares).

No diluted earnings per share has been presented for the year ended 31 December 2006 and 2005 because the exercise price of the Company’s share options during the year was higher than the average market price of the shares and the exercise of the subsidiaries’ share options would reduce loss per share.

From continuing operations

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

Loss for the year attributable to equity holders of the parent Less: Profit (loss) from discontinued operation Loss for the purpose of basic loss per share from continuing operations	2006 HK$’000 (15,204) 20,352 (35,556)	2005 HK$’000 (316,796) (1,575)
		(315,221)

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

15. LOSS PER SHARE (continued)

From discontinued operation

Basic earnings per share for the discontinued operation is HK1.79 cents per share for the year ended 31 December 2006 (2005: basic loss of HK0.14 cents per share), based on the profit for the year from the discontinued operation of approximately HK$20,352,000 (2005: loss of HK$1,575,000). The denominators used are the same as those detailed above for basic loss per share for continuing and discontinued operations.

16. INVESTMENT PROPERTIES

FAIR VALUE
At 1 January 2005
Acquired on acquisition a of subsidiary
Net increase in fair value recognised in the consolidated income statement
At 1 January 2006
Net increase in fair value recognised in the consolidated income statement
Net increase in fair value of prepaid lease payment upon transfer_(Note)
Exchange realignment
Transfer from property, plant and equipment and prepaid lease payments(Note)_
Disposal of subsidiary
At 31 December 2006

HK$’000
92,400
833
14,767
108,000
8,500
146
498
20,154
(1,200)
136,098

The fair value of the Group’s investment properties at 31 December 2006 have been arrived at on the basis of a valuation carried out on that date by AA Property Services Limited, independent qualified professional valuers not connected with the Group. AA Property Services Limited is registered firm of the Hong Kong Institute of Surveyors (the “HKIS”), and has appropriate qualifications. The valuation, which conforms to the HKIS Valuation Standards, was arrived at by reference to market evidence of transaction prices for similar properties.

All of the Group’s property interests held under operating leases to earn rentals are measured using the fair value model and are classified and accounted for as investment properties. As at 31 December 2006, the carrying amount of such property interests amounted to approximately HK$136,098,000 (2005: HK$108,000,000).

All of the Group’s investment properties are held under long leases in Hong Kong and the PRC with the lease term 54 to 128 years and 50 years respectively and investment properties with carrying amount of approximately HK$115,300,000 (2005: HK$85,500,000) have been pledged to banks to secure general banking facilities granted to the Group.

Note: During the year ended 31 December 2006, a building with a carrying amount of approximately HK$15,373,000 and the corresponding prepaid lease payments with a carrying amount of approximately HK$4,781,000 were transferred to an investment property. This property was leased by the Group to South China Leasing for both years. Upon the completion of the Disposal as disclosed in Note 13, South China Leasing became an associate of the Group during the year, and this property was considered as leased out for rental income and therefore transferred to as an investment property. Upon the transfer, the building and prepaid lease payments have been valued by AA Property Services Limited. The valuation, which conforms to the HKIS Valuation Standards, was arrived at by reference to market evidence of transaction price for a similar property.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

17. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2005 Exchange realignment Additions Acquired on acquisition of subsidiaries Disposals At 31 December 2005 and 1 January 2006 Exchange realignment Additions Disposals Transfer to investment properties_(Note 16) At 31 December 2006 DEPRECIATION AND IMPAIRMENT At 1 January 2005 Exchange realignment Provided for the year Eliminated on disposals Impairment losses At 31 December 2005 and 1 January 2006 Exchange realignment Provided for the year Eliminated on disposals Transfer to investment properties(Note 16)_ At 31 December 2006 CARRYING VALUES At 31 December 2006 At 31 December 2005		Buildings HK$’000 1,043 349 15,347 – – 16,739 – – – (15,696) 1,043 253 – 351 – – 604 10 4 – (323) 295 748 16,135	Leasehold improvements HK$’000 373 409 2,036 368 – 3,186 479 675 (2,036) – 2,304 173 390 755 – – 1,318 897 1,077 (1,140) – 2,152 152 1,868		Digital film encoders and servers HK$’000 – – – 1,499 – 1,499 – – (1,499) – – – – 191 – 1,308 1,499 – – (1,499) – – – –		Computer equipment HK$’000 – 240 2,147 10,172 (397) 12,162 641 3,093 (1,145) – 14,751 – – 5,987 (261) 1,042 6,768 520 4,493 (1,145) – 10,636 4,115 5,394		Other fixed assets HK$’000 4,186 3 4,131 1,285 (731) 8,874 440 231 (1,498) – 8,047 3,510 9 1,056 (469) – 4,106 45 1,252 (133) – 5,270 2,777 4,768		Total
											HK$’000 5,602 1,001 23,661 13,324 (1,128)
											42,460 1,560 3,999 (6,178) (15,696)
											26,145
											3,936 399 8,340 (730) 2,350
											14,295 1,472 6,826 (3,917) (323)
											18,353
											7,792

											28,165

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

Buildings Leasehold improvements Digital film encoders and servers Computer equipment Other fixed assets

2% Over the lease term 10% 33[1] /3% 20% – 30%

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

17. PROPERTY, PLANT AND EQUIPMENT (continued)

At 31 December 2006, the net book value of computer equipment of approximately HK$4,115,000 (2005: HK$5,394,000) includes an amount of approximately HK$1,221,000 (2005: HK$2,329,000) and approximately HK$1,094,000 (2005: HK$2,040,000) in respect of assets held under finance leases with third parties and an associate in 2006 (which was a subsidiary in 2005), South China Leasing, respectively.

At 31 December 2006, the Group has pledged buildings with a net book value of approximately HK$748,000 (2005: HK$770,000) to secure general banking facilities granted to the Group.

During the year ended 31 December 2005, the Directors conducted a review of the Group’s computer equipment and digital film encoders and servers and determined that a number of those assets were impaired, due to physical damage and technical obsolescence. Accordingly, the carrying amount of computer equipment of one of the Group’s subsidiaries amounting to approximately HK$1,042,000 and the carrying amount of the Group’s digital film encoders and servers amounting to approximately HK$1,308,000 have been fully impaired. No such impairment loss was identified in respect of the computer equipment by the Directors during the year ended 31 December 2006.

18. PREPAID LEASE PAYMENTS

The Group’s prepaid lease payments comprise: Long-term leasehold land in Hong Kong Medium-term leasehold land in the PRC Analysed for reporting purposes as: Current asset Non-current asset	2006 HK$’000 1,682 – 1,682 32 1,650 1,682	2005 HK$’000 1,714 4,779
		6,493

		136 6,357
		6,493

As disclosed in Note 16, prepaid lease payments with carrying amount of approximately HK$4,781,000 was transferred to investment properties during the year upon the transfer.

The Group has pledged leasehold land with a net book value of approximately HK$1,682,000 (2005: HK$1,714,000) to secure general banking facilities granted to the Group.

19. GOODWILL

COST Arising on acquisition of a subsidiary_(Note 45)_ Eliminated on disposal of partial interest in a subsidiary At 31 December 2005, 1 January 2006 and 31 December 2006 IMPAIRMENT Impairment loss recognised for the year ended 31 December 2005 and balance at 31 December 2005 and 2006 CARRYING VALUES At 31 December 2006 and 31 December 2005	HK$’000 209,950 (18,493)
	191,457 (191,457)
	–

Particulars regarding impairment testing on goodwill are disclosed in Note 20.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

20. IMPAIRMENT TESTING ON GOODWILL

As explained in Note 7, the Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill with indefinite useful life set out in Note 19 has been allocated to individual CGU mainly represented by CG creation and production segment.

The recoverable amounts of the above CGU have been determined on the basis of value in use calculations. The recoverable amount is based on certain key assumptions. The value in use calculations use cash flow projections based on financial budgets approved by management covering a 5-year period, and a discount rate of 15%. Cash flow projections during the budget period for the CGU are based on the expected revenue and gross margins during the budget period. Budgeted revenue and gross margins have been determined based on past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying amount of the above CGU to exceed the recoverable amount of the above CGU.

As disclosed in Note 10, an impairment loss in respect of goodwill of approximately HK$191,457,000 was identified and recognised in the consolidated income statement for the year ended 31 December 2005.

21. INTANGIBLE ASSET

COST
Acquired from acquisition of a subsidiary during 2005 and
balance at 31 December 2005 and 1 January 2006
Disposal of interest in a subsidiary_(Note 13)
At 31 December 2006
AMORTISATION
Charge for the year ended 31 December 2005 and balance at
31 December 2005 and 1 January 2006
Charge for the year
Eliminated on disposal of interest in a subsidiary(Note 13)_
At 31 December 2006
CARRYING VALUES
At 31 December 2006
At 31 December 2005

Finance lease
license
HK$’000
22,411
(22,411)
–
545
428
(973)
–
–
21,866

The Group’s finance lease license was purchased as part of a business combination during the year ended 31 December 2005.

The Directors amortised the cost on a straight-line basis over 24 years which is the remaining valid period of the business license of that subsidiary.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

22. INTEREST IN A JOINTLY CONTROLLED ENTITY HELD FOR SALE

At 31 December 2006, the Group had interest in the following jointly controlled entity:

			Proportion of
			nominal value of
		Place of	issued ordinary
	Form of	incorporation	share capital indirectly
Name of entity	business structure	and operation	held by the Company	Principal activities
Beijing Dongzhimen	Sino-foreign equity	The PRC	44%	Property holding and
International	joint venture			provision of residential
Apartment Co. Ltd.				service apartments
(“Beijing Dongzhimen”)

Beijing Dongzhimen is a sino-foreign equity joint venture which was established in the PRC on 18 December 1986 with a tenure of 14 years and 8 months to 17 August 2001 (the “initial JV term”). The extension of the initial JV term for a further period of 15 years from the date of expiry of the initial JV term to 17 August 2016 has been approved by the relevant authorities.

Beijing Dongzhimen has obtained approval from relevant authorities to further extend the land use right of the residential service apartments for 40 years following the expiry of the initial JV term.

On 1 December 2006, the Group has entered into an agreement (the “Disposal Agreement”) with China Beijing Shougang Hotel Development Company, a company incorporated in the PRC and is a wholly-owned subsidiary of Shougang Corporation, and Strength Up Investments Limited, a company incorporated in the British Virgin Islands (“BVI”) and is a wholly-owned subsidiary of Shougang Holding (hereinafter collectively referred to as the “Purchasers”) in relation to the disposal of Beijing Dongzhimen, for a consideration of RMB170,000,000 (equivalent to approximately HK$164,360,000) (the “Disposal of Beijing Dongzhimen”). Accordingly, Beijing Dongzhimen became a jointly controlled entity held for sale as at 31 December 2006 and has been accounted for under HKFRS 5.

According to the Disposal Agreement, in any event that the Purchasers and/or Beijing Dongzhimen effect substantial changes to the existing use and/or existing operating model of its principal underlying asset, East Lake Villas or to directly or indirectly dispose of East Lake Villas and/or the site where East Lake Villas is located or to redevelop East Lake Villas and/or the site within five years from the date of completion of the Disposal of Beijing Dongzhimen, the Group can, within three months from the date of occurrence of such changes, request the Purchasers to appoint a qualified valuer as approved by the Group and in accordance with the relevant requirements of the Listing Rules, to assess the new valuation of East Lake Villas and/or the site based on such changes and other principles as the parties may agree. The Purchasers shall, based on their proportional interests to be purchased from the Group upon the Disposal of Beijing Dongzhimen, pay to the Group the difference between the consideration of RMB170,000,000 and the 44% acquiring interest in Beijing Dongzhimen in the new valuation of East Lake Villas and/or the site within three months from the date of issuance of the new valuation report, if any. Up to the date of this report, the Purchasers have expressed no intention to dispose of the 44% acquiring interest in Beijing Dongzhimen or to procure Beijing Dongzhimen to dispose of or to redevelop East Lake Villas and/or the site and/or to effect any substantial change to the existing use and/or its existing operating model of East Lake Villas within five years from the date of completion of the Disposal of Beijing Dongzhimen.

The Disposal of Beijing Dongzhimen was subsequently approved by the independent shareholders of the Company in January 2007. The Directors considered that the net proceeds of the Disposal of Beijing Dongzhimen were in excess of the carrying amount of the Group’s interest in Beijing Dongzhimen at the date of disposal and no impairment loss has been identified for the year ended 31 December 2006. Details of the Disposal of Beijing Dongzhimen are set out in the circular of the Company dated 27 December 2006.

For the year ended 31 December 2005, Beijing Dongzhimen was a jointly controlled entity of the Group and the Group’s share of net assets and results of Beijing Dongzhimen was accounted for using the equity method under HKAS 31 “Interests in Joint Ventures”.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

22. INTEREST IN A JOINTLY CONTROLLED ENTITY HELD FOR SALE (continued)

The summarised financial information in respect of Beijing Dongzhimen is set out below:

Non-current assets Current assets Current liabilities Non-current liabilities Net assets Group’s share of net assets Income Expenses Profit for the year Group’s share of result 23. INTERESTS IN ASSOCIATES Cost of investment in unlisted associate Share of post-acquisition results Less: Impairment loss recognised	2006 HK$’000 446,403 12,525 (108,080) (65,646) 285,202 125,489 110,469 (106,989) 3,480 1,531 2006 HK$’000 16,961 (1,073) (780) 15,108	2005 HK$’000 453,273 11,277 (102,236) (89,329) 272,985 120,113 106,836 (105,864) 972 428 2005 HK$’000 780 – (780) –

Details of the Group’s principal associates at 31 December 2006 are as follows:

		Place of	Proportion of
		incorporation/	nominal of value
	Form of	registration	issued share capital
Name of entity	business structure	and operation	held by the Group	Principal activities
Jeckman Holdings Limited	Incorporated	BVI	50%	Investment holding
(“Jeckman”)(Note i)
South China Leasing	Incorporated	The PRC	50%	Leasing of property,
(Note ii)				plant and equipment
Top Pearl International	Incorporated	BVI/	50%	Property development
Development Limited		The PRC
(“Top Pearl”)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

23. INTERESTS IN ASSOCIATES (continued)

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

Total assets Total liabilities Net assets Group’s share of net assets of an associate Goodwill_(Note) Revenue Loss for the period (subsequent to disposal of interest in Jeckman)/year Group’s share of result of associates for the year _Note: GOODWILL Arising from acquisition during the year Release upon disposal of interest in an associate As at 31 December 2006	2006 HK$’000 1,114,636 (1,085,994) 28,642 14,321 787 15,108 42,101 (2,146) (1,073)	2005 HK$’000 – – – – – – – (620) (248) HK$’000 1,087 (300) 787

Notes:

(i) Jeckman is the immediate holding company of South China Leasing which holds 60% equity interest of South China Leasing.
(ii) In January 2005, the Group, through its wholly owned subsidiary, Jeckman, acquired a 40% equity interest of South China Leasing and recognised share of post-acquisition loss of South China Leasing of approximately HK$248,000 in the consolidated income statement. South China Leasing subsequently became a subsidiary of the Company upon further acquisition of 20% equity interest by the Group in May 2005. In January 2006, the Group further acquired 20% effective interest in South China Leasing, through an acquisition of a wholly owned subsidiary, Valuework Investment Holdings Limited (“Valuework”). Particulars regarding the acquisitions of South China Leasing and Valuework are disclosed in Note 45.

In June 2006, the Group disposed of a 50% equity interest of Jeckman, which represented an effective disposal of a 30% interest in South China Leasing. Upon the completion of the Disposal, the Group’s effective interest in South China Leasing decreased from 80% to 50% and the Group’s equity interest of Jeckman decreased from 100% to 50%. Accordingly, Jeckman and South China Leasing became associates of the Group since June 2006. Particulars regarding the Disposal of South China Leasing are disclosed in Note 13.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

24. AVAILABLE-FOR-SALE INVESTMENT

2006 & 2005 HK$’000

– Unlisted equity securities

At 31 December 2006, investment represents 25% equity interest in Production and Partners Multimedia, SAS (“P&PM”), a company incorporated in France. Since the Group did not have any significant influence in the investee, the investment is accounted for in accordance with the Group’s accounting policy for financial assets – available-for-sale investment in accordance with HKAS 39. The investment was acquired on acquisition of a subsidiary during the year ended 31 December 2005 with a fair value of nil.

25. FINANCE LEASE RECEIVABLES

During the year ended 31 December 2005, the Group started finance leasing business upon acquisition of South China Leasing as disclosed in Note 45. All interest rates inherent in the leases are fixed at the contract date over the lease terms. The business was discontinued during 2006. Particulars of the discontinued operation are disclosed in Note 13.

Finance lease receivables comprise: Within one year In more than one year but not more than two years In more than two years but not more than three years In more than three years but not more than four years In more than four years but not more than five years Less: Unearned finance income Present value of minimum lease receipts Analysed as: Current finance lease receivables (receivable within 12 months) Non-current finance lease receivables (receivable after 12 months)	Minimum lease receipts As at 31 December 2005 HK$’000 37,364 27,333 4,738 3,401 1,687 74,523 (6,815) 67,708	Present value of minimum lease receipts As at 31 December 2005 HK$’000 33,513 25,594 3,981 3,009 1,611
		67,708 N/A
		67,708

		33,513 34,195
		67,708

Effective interest rates of the above finance leases range from 5% to 6%.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

25. FINANCE LEASE RECEIVABLES (continued)

Finance lease receivables that are denominated in currencies other than the functional currencies of the relevant group entities are set out below:

RMB’000

As at 31 December 2005

70,491

Unguaranteed residual values of assets leased under finance leases at 31 December 2005 are estimated at approximately HK$9,000.

As at 31 December 2005, finance lease receivables of approximately HK$37,193,000 has been pledged against general banking facilities granted to the Group.

The fair values of the Group’s finance lease receivables approximated to the corresponding carrying amounts.

26. INVENTORIES

Raw materials, net of write-down of approximately HK$135,000 (2005: HK$475,000) Finished goods, net of write-down of approximately HK$597,000 (2005: HK$2,170,000) 27. PRODUCTION WORK IN PROGRESS Movie and television series, net of write-down of approximately HK$318,000 (2005: HK$24,712,000) 28. INTEREST IN AN ASSOCIATE HELD FOR SALE Unlisted equity security, at cost	2006 HK$’000 1,770 9,031 10,801 2006 HK$’000 11,727 2006 HK$’000 –	2005 HK$’000 448 7,374
		7,822

		2005 HK$’000 6,248

		2005 HK$’000 28,816

The above unlisted investment represents an investment of 30% interest in an associate, which is a private entity established in the PRC and is engaged in the business of property development, acquired during the year ended 31 December 2005, at consideration of RMB30,000,000 (equivalent to approximately HK$28,816,000). This investment is accounted for in accordance with the Group’s accounting policy for investment in an associate held for sale in accordance with HKFRS 5.

During the year ended 31 December 2006, this investment was disposed of at a consideration of RMB30,000,000 (equivalent to approximately HK$28,816,000).

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

29. AMOUNTS DUE FROM (TO) CUSTOMERS FOR CONTRACT WORK

The following is details of contracts from CG production in progress at the balance sheet date:

Contract costs incurred plus recognised profits less recognised losses Less: progress billings Analysed for reporting purposes as: Amounts due from customers for contract work Amounts due to customers for contract work 30. TRADE RECEIVABLES Trade receivables Less: Allowance for bad and doubtful debts	2006 HK$’000 18,488 (19,530) (1,042) 808 (1,850) (1,042) 2006 HK$’000 11,732 (1,660) 10,072	2005 HK$’000 – –
		–

		– –
		–

		2005 HK$’000 7,610 (521)
		7,089

The Group allows an average credit periods of 90 days to its trade customers. The following is an aged analysis of the trade receivables at the balance sheet date:

0 – 90 days 91 – 180 days > 180 days	2006 HK$’000 9,506 519 47 10,072	2005 HK$’000 5,283 1,455 351
		7,089

The fair value of the Group’s trade receivables at 31 December 2006 and 2005 approximates to the corresponding carrying amount.

31. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

The fair value of the Group’s other receivables at 31 December 2006 and 2005 approximates to the corresponding carrying amount.

32. INVESTMENTS HELD FOR TRADING

Investments held for trading as at 31 December 2006 represent equity securities listed in Hong Kong.

The fair values of the investments held for trading are determined based on the quoted market bid prices available on the relevant exchanges.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

33. PLEDGED BANK DEPOSITS

The amounts represents deposit pledged to banks to secure short-term banking facilities granted to the Group and are therefore classified as current assets.

The deposits carry floating interest rate of prevailing bank saving deposits rate (“prime rate”) plus 1%. The pledged bank deposits will be released upon the settlement of relevant bank borrowings.

The fair value of pledged bank deposits at 31 December 2006 and 2005 approximates to the corresponding carrying amount.

34. BANK BALANCES AND CASH

The Group’s bank deposits carry interest rate at prevailing bank saving deposits rate with maturity of less than 3 months. The Directors of the Company consider that the carrying amount of the Group’s bank balances approximates to their fair value.

35. TRADE PAYABLES

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

0 – 90 days 91 – 180 days >180 days	2006 HK$’000 3,694 150 – 3,844	2005 HK$’000 4,368 16 40
		4,424

The fair value of the Group’s trade payables at 31 December 2006 and 2005 approximates to the corresponding carrying amount.

36. OTHER PAYABLES AND ACCRUALS

The fair value of the Group’s other payables at 31 December 2006 and 2005 approximates to the corresponding carrying amount.

37. INCOME RECEIVED IN ADVANCE

As at 31 December 2005, the income received in advance represented handling fee income received from finance lease receivables for administrative services provided over the relevant lease term and advance payment received from an investee.

As at 31 December 2006, the income received in advance represent training fee income received in advance before the training courses are completed and production and distribution income of films and television drama received before completion of production and distribution of films and television drama from the customers.

Analysed for reporting purposes of: Current Non-current	2006 HK$’000 12,549 – 12,549	2005 HK$’000 6,714 1,194
		7,908

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

38. LOAN TO/ADVANCE TO/AMOUNT DUE FROM (TO) ASSOCIATES

(a) Loan to Top Pearl

Loan to Top Pearl Due from Top Pearl Less: Allowance for bad and doubtful debt	2006 HK$’000 27,900 3,589 31,489 (31,489) –	2005 HK$’000 27,900 3,589 31,489 (31,489) –

The loan of approximately HK$27,900,000 as at 31 December 2006 and 2005 to Top Pearl is unsecured, interest-bearing at 15% per annum and has no fixed terms of repayment. The amount “Due from Top Pearl” is unsecured, interest-free and has no fixed terms of repayment. All of these amounts have been fully impaired at the balance sheet date.

(b) Advance to an associate

The amount is unsecured, non-interest bearing and has no fixed terms of repayment. In the opinion of the Directors, the Company will not demand repayment within one year from the balance sheet date and is therefore considered as non-current. Such non-interest bearing advance is measured at amortised cost determined using the effective interest method at subsequent balance sheet dates. The effective interest rate used was 6%, being approximates to the prevailing market borrowing rate of interest for a similar instrument.

The fair value of the advance to an associate approximate to the corresponding carrying amount.

(c) Amounts due from (to) associates

The amounts are unsecured and are repayable on demand which is non-interest bearing.

The fair values of the amounts due from (to) associates approximate to the corresponding carrying amounts.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

39. AMOUNT DUE TO A FELLOW SUBSIDIARY/AMOUNTS DUE TO SHAREHOLDERS

==> picture [399 x 249] intentionally omitted <==

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

2006 2005
Notes HK$’000 HK$’000
Amount due to a fellow subsidiary
– due within one year:
Shougang (Hong Kong) Finance
Company Limited (“Shougang Finance”) (a) – 24,260
Amounts due to shareholders
– due within one year:
Mr. Anthony Francis Neoh (b) – 22,403
Bright Oceans Corporation (HK) Limited (c) 512 3,659
512 26,062
Amount due to a fellow subsidiary
– due after one year
Shougang Finance (d) 40,000 –
Notes:
----- End of picture text -----

(a) The loan was unsecured, interest bearing at a prevailing market rate per annum and was fully settled during the year ended at 31 December 2006.
(b) The loan from Mr. Anthony Francis Neoh of approximately HK$18,295,000 is unsecured, interest bearing at the best lending rate as quoted by the Hong Kong and Shanghai Banking Corporation Limited (“Best Lending Rate”) plus 3% per annum and is repayable on demand. The amount due to Mr. Anthony Francis Neoh of approximately HK$5,613,000 is unsecured, non-interest bearing and is repayable on demand. As at 31 December 2006, both balances were assigned to a third party, Win Real Management Limited. Accordingly, the amounts were reclassified as other loans.
(c) The loan is unsecured and is repayable on demand. Except for an amount of HK$303,000 which is noninterest bearing, the remaining amount is interest bearing at the Best Lending Rate plus 3% per annum. The fair value of the balance at 31 December 2006 and 2005 approximates to the corresponding carrying amount.
(d) The amount is unsecured, interest bearing at a fixed rate of 5% per annum and is repayable on 31 March 2008. The fair value of the balance at 31 December 2006 approximates to the corresponding carrying amount.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

40. AMOUNT DUE TO RELATED PARTIES/AMOUNT DUE TO A FORMER SHAREHOLDER OF A SUBSIDIARY

Notes Amounts due to related parties – due within one year: Madam Chan Wing Yee, Betty (a) Mr. Raymond Dennis Neoh (b) Amount due to a former shareholder of a subsidiary – due after one year (b) Notes:	2006 HK$’000 1,201 575 1,776 455	2005 HK$’000 1,098 –
		1,098

		1,495

(a) The amount due to Madam Chan Wing Yee, Betty, the spouse of Mr. Anthony Francis Neoh who is a shareholder of the Company, is unsecured and is repayable on demand. Except for an amount of approximately HK$201,000 which is non-interest bearing, the remaining amount is interest bearing at the Best Lending Rate plus 3% per annum. The fair value of the balance as at 31 December 2006 and 2005 approximates to the corresponding carrying amount.

(b) The amount is unsecured, non-interest bearing and is stated at amortised cost at effective interest rate of 9.8%.

41. BORROWINGS

Bank overdrafts Bank loans Other loans Secured Unsecured Carrying amount repayable: On demand or within one year More than one year, but not exceeding two years More than two years, but not more than three years More than three years, but not more than four years More than four years, but not more than five years Less: Amounts due within one year shown under current liabilities Amounts due after one year	2006 HK$’000 – 85,000 85,000 32,883 117,883 75,000 42,883 117,883 53,818 19,238 29,202 12,500 3,125 117,883 (53,818) 64,065	2005 HK$’000 2,250 88,972
		91,222 28,600
		119,822

		66,263 53,559
		119,822

		76,648 30,354 12,820 – –
		119,822 (76,648)
		43,174

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

41. BORROWINGS (continued)

The exposure of the Group’s fixed-rate borrowings and the contractual maturity dates are as follows:

	2006	2005
	HK$’000	HK$’000
Fixed-rate borrowings which are within one year
– Bank loans	10,000	44,345
– Other loans	14,588	14,730

The ranges of effective interest rates (which are equal to contractual interest rates) on the Group’s borrowings as follows:

	2006	2005
Effective interest rate:
Fixed-rate borrowings
– Bank loans	6.138%	6%
– Other loans	7% to 15%	6% to 15%
Variable-rate borrowings
– Bank loans	HIBOR plus	HIBOR plus
	1% to 1.375%	1.35% to 1.75%
– Other loans	3%	3%
The Group’s borrowings that are denominated in currencies other than functional currencies of the relevant group
entities are set out below:
	US$’000	RMB’000
As at 31 December 2006	2,500	10,995

As at 31 December 2005	2,500	30,000

The Directors consider that the carrying amount of fixed rate borrowings approximates their fair values.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

42. OBLIGATIONS UNDER FINANCE LEASES

Amounts payable under finance leases Within one year In more than one year but not more than two years Less: future finance charges Present value of lease obligations Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months	Minimum lease payments 2006 2005 HK$’000 HK$’000 1,567 3,135 504 738 2,071 3,873 (98) (396) 1,973 3,477	Present value of minimum lease payments 2006 2005 HK$’000 HK$’000 1,484 2,761 489 716 1,973 3,477 N/A N/A 1,973 3,477 (1,484) (2,761) 489 716	Present value of minimum lease payments 2006 2005 HK$’000 HK$’000 1,484 2,761 489 716 1,973 3,477 N/A N/A 1,973 3,477 (1,484) (2,761) 489 716
			3,477 N/A
			3,477 (2,761)
			716

The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets.

All finance lease obligations are denominated in Hong Kong dollars, the functional currency of the subsidiary entered into these arrangements.

The lease term ranges from two to three years. Interest rates are fixed at the contract date ranged from 6.3% to 12.3% per annum (2005: 5.7% per annum). All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The Directors consider that the carrying amount of the obligations under finance leases approximates to their fair value.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

43. DEFERRED TAX LIABILITIES

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

At 1 January 2005 Arising on acquisition of a subsidiary Charge (credit) to consolidated income statement At 31 December 2005 and 1 January 2006 (Credit) charge to consolidated income statement At 31 December 2006	Investment properties HK$’000 679 – 2,584 3,263 (1,327) 1,936	Accelerated tax depreciation HK$’000 44 (118) (2,050) (2,124) 2,259 135	Tax losses HK$’000 (442) – (125) (567) (118) (685)	Other HK$’000 – (33) 33 – – –	Total HK$’000 281 (151) 442
					572 814
					1,386

At the balance sheet date, the Group has unused tax losses of approximately HK$106,734,000 (2005: HK$92,698,000) available for offset against future profits subject to approval from the relevant tax authority. A deferred tax asset has been recognised in respect of approximately HK$3,915,000 (2005: HK$3,240,000) of such losses. No deferred tax asset has been recognised in respect of the remaining HK$102,819,000 (2005: HK$89,458,000) due to the unpredictability of future profit streams. Included in unrecognised tax losses are losses of Nil (2005: HK$2,955,000) that will expire in 2008. Other losses may be carried forward indefinitely.

At the balance sheet date, the Group has deductible temporary differences of approximately HK$32,716,000 (2005: HK$32,583,000) attributable to the difference between tax allowances and depreciation. No deferred tax asset has been recognised in relation to such deductible temporary difference as it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

44. SHARE CAPITAL

Ordinary shares of HK$0.01 each Authorised: At 1 January and 31 December Issued and fully paid: At 1 January Issued in consideration for acquisition of the issued share capital of GDC (Note (a) and 45) At 31 December	2006 Number of shares 2,000,000,000 1,136,856,469 – 1,136,856,469	Nominal value HK$’000 20,000 11,369 – 11,369	2005 Number of shares 2,000,000,000 939,316,667 197,539,802 1,136,856,469	Nominal value HK$’000 20,000

				9,393 1,976
				11,369

Note (a): These shares rank pari passu in all material respects with other shares in issue.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

45. ACQUISITION OF SUBSIDIARIES

(a) In January 2005, the Group acquired a 40% equity interest of South China Leasing for approximately HK$2,861,000. Accordingly, the payment for acquisition of an associate previously prepaid in September 2004 was transferred as investment cost of an associate during the year ended 31 December 2005. In May 2005, the Group has further acquired an additional 20% equity interest of South China Leasing at a consideration of approximately HK$1,471,000 and it became a subsidiary of the Company since 26 May 2005. For the year ended 31 December 2005, net cash inflow arising on acquisition of South China Leasing was amounted to approximately HK$5,666,000. As at 31 December 2005, the Group held a 60% equity interest of South China Leasing.
(b) In February 2005, the Group acquired 461,833,761 shares of GDC, representing approximately a 57.7% of the then issued share capital of GDC through share exchange of 138,550,125 shares of the Company. Subsequently in February and March 2005, the Group further acquired in aggregate of 196,632,262 shares of GDC, representing approximately a 24.5% of the issued share capital of GDC through share exchange of 58,989,677 shares of the Company. On 7 September 2005, the Group placed 58,000,000 shares of GDC, representing approximately a 7.24% of the issued share capital of GDC to the placees. As at 31 December 2005, the Group held an aggregate of 600,466,023 shares of GDC, representing approximately 74.9% of the issued share capital of GDC.

For the year ended 31 December 2005, net cash inflow arising on acquisition of GDC was amounted to approximately HK$3,112,000.

(c) In July 2005, the Group also entered into an agreement to acquire the entire interest in Valuework, which holds a 20% equity interest in South China Leasing at a consideration of approximately HK$1,460,000 (the “Acquisition”). The consideration of the Acquisition has been fully settled by the Group to the vendor in January 2006 and since then the Group’s effective interest in South China Leasing has increased from 60% to 80%.

The net assets acquired in the above purchase transaction accounted for using the purchase method, and the goodwill arising, are as follows:

Acquiree’s carrying amount before combination HK$’000 Net assets acquired: Interest in South China Leasing 4,818 Bank balances and cash 65 Other payables and accruals (4,510) 373 Goodwill_(Note 23)_ Total consideration, satisfied by cash Net cash outflow arising on acquisition: Cash consideration paid Cash and cash equivalents acquired	Fair value adjustment HK$’000 – – – –	Fair value HK$’000 4,818 65 (4,510) 373 1,087 1,460 (1,460) 65 (1,395)

Valuework did not contribute any revenue and loss before tax to the Group for the period between the date of acquisition and the balance sheet date.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

46. LITIGATION

(a) On 14 May 2003, GDC Entertainment Limited (“GDC Entertainment “), a non wholly-owned subsidiary of the Company, entered into a co-production agreement (the “Co-production Agreement”) with Westwood Audiovisual and Multimedia Consultants, Inc. (“WAMC”) and P&PM, in which the Group has a 25% equity interest, in relation to an animated television series.

In about November 2004, P&PM and WAMC commenced proceedings against GDC Entertainment in the Court of Commerce of Angouleme (France) alleging breaches on the part of GDC Entertainment of the Co-production Agreement.

In relation to the French proceedings, the Group’s French legal advisers have advised that the enforcement of P&PM’s and WAMC’s claims should in any event only be limited to the assets of GDC Entertainment.

Further, arbitration proceedings were commenced by GDC Entertainment against P&PM and WAMC in Hong Kong by way of a notice of arbitration dated 16 June 2005 issued pursuant to the Co-production Agreement. In the arbitration, issues had been raised by GDC Entertainment as to whether P&PM and/or WAMC was in repudiatory breach of the Coproduction Agreement which entitled GDC Entertainment to terminate the same claim of damages from P&PM and WAMC. Pleadings have not yet been exchanged in the arbitration. P&PM and WAMC have applied to the arbitrator for the determination of a preliminary issue as to whether the arbitrator has jurisdiction to hear the dispute which GDC Entertainment has referred to the arbitrator in the arbitration. The hearing of the application was held on 20 January 2006. Award of the arbitrator was published on the Issue of Jurisdiction on 23 March 2006 dismissing the application, and made an order for costs in GDC Entertainment’s favour in respect of the application. Since then, there has been no further step taken by the parties apart from recently. GDC Entertainment has written to the arbitrator seeking directions for the further conduct of the arbitration, including the service of pleadings in the arbitration. GDC Entertainment is still waiting to hear from the arbitrator as to how she would like to proceed with further conduct of the arbitration.

(b) On 16 August 2006, 深圳大學文化科技服務有限公司 (“Shenzhen University”) commenced legal action in the People’s Court (Nanshan District) (“Nanshan Court”) in the PRC against Institute of Digital Media Technology (Shenzhen) Limited (“IDMT Shenzhen”), a non-wholly-owned subsidiary of the Company for, among others, unpaid rent, related expenses and compensation in the amount of RMB8,960,000. On 14 September 2006, IDMT Shenzhen filed a counterclaim against Shenzhen University for, among others, compensation for renovation fee and relocation expenses in the amount of approximately RMB10,726,000 and RMB6,000,000, respectively, and returns of rental deposit. On 19 March 2007, Shenzhen University filed an application to the Nanshan Court to withdraw its claim against IDMT Shenzhen. On 22 March 2007, IDMT Shenzhen filed an application to the Nanshan Court to withdraw its counter claim against Shenzhen University. Both applications are pending for approval by the Nanshan Court.

The Directors are of the opinion that liability of the above claims is not probable. Accordingly, no provision for any potential liability has been made in the consolidated financial statements.

47. MAJOR NON CASH TRANSACTIONS

For the year ended 31 December 2005, the major non-cash transactions were as follow:

(i) Part of the consideration of the acquisition of a subsidiary during the year was through share exchange at approximately HK$153,349,000. Further details of the acquisition are set out in Note 45.
(ii) The Group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the leases of approximately HK$8,994,000.

For the year ended 31 December 2006, there was a reclassification of amounts due to shareholders to other payables with details set out in Note 39(b).

100

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

48. OPERATING LEASES

The Group as lessor

Property rental income earned during the year was approximately HK$7,109,000 (2005: HK$5,411,000). All of the properties held have committed tenants for the next one to three years.

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

Within one year In the second to fifth years inclusive	2006 HK$’000 4,169 2,298 6,467	2005 HK$’000 3,108 678
		3,786

The Group as lessee

Minimum lease payments paid under operating lease in respect of office premises during the year was approximately HK$4,938,000 (2005: HK$1,947,000).

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

Within one year In the second to fifth years inclusive Over five years	2006 HK$’000 2,648 3,611 3,905 10,164	2005 HK$’000 1,917 4,936 –
		6,853

Operating lease payments represent rentals payable by the Group for certain of its office premises, production studio, training centers, warehouse and staff quarters. Leases for properties are negotiated for a term ranging from one to ten years with fixed rentals.

49. CAPITAL COMMITMENTS

The Group’s share of the capital commitments of its jointly controlled entity contracted but not provided for OTHER COMMITMENTS Expenditure contracted for but not provided in the financial statements in respect of film production costs and advertising expenditure	2006 HK$’000 – 2006 HK$’000 –	2005 HK$’000 1,653

		2005 HK$’000 1,690

50. OTHER COMMITMENTS

101

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

51. SHARE OPTIONS SCHEMES

(a) Share Option Scheme of the Company

On 7 June 2002, the share option scheme (the “Old Scheme”) of the Company adopted on 8 September 1993 ceased to operate and a new share option scheme (the “New Scheme”) has been adopted to comply with the new requirements of Chapter 17 of the Listing Rules regarding share option schemes of a company. No share options under the Old Scheme were outstanding as at 1 January 2002 and no share option was granted by virtue of the Old Scheme for the period from 1 January 2002 and up to 7 June 2002, being the date of termination of the Old Scheme.

The Company operates the New Scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations and/or its associated companies. Eligible participants of the New Scheme included Directors (including executive and non-executive Directors), executives, officers, employees or shareholders of the Company or any of its subsidiaries or any of its associated companies and any suppliers, customers, consultants, advisers, agents, partners or business associates. The New Scheme became effective on 7 June 2002, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the New Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue at the date of the passing of such resolution. At 8 June 2004, the total number of shares available for issue under the New Scheme was 93,931,666, which represented approximately 10% of the Company’s shares in issue as at that date. The maximum number of shares issuable under share options to each eligible participant in the New Scheme within any 12-month period, is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

Share options granted to a Director, executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the Independent Non-executive Directors. In addition, any share options granted to a substantial shareholder or an Independent Non-executive Director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time and with an aggregate value (based on the price of the Company’s shares at the date of the grant) in excess of HK$5 million, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within 60 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. An option may be exercised under the New Scheme at any time within 10 years from the date of the options granted.

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

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

102

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

51. SHARE OPTIONS SCHEMES (continued)

(a) Share Option Scheme of the Company (continued)

The following table discloses the details of the share options and movements in such holdings during the years ended 31 December 2006 and 2005:

	Number of share options	Number of share options
Transfer during the year – – –	Granted during the year – – –	Exercised during the year – – –	Cancelled during the year – – – –	At 31.12.2006 75 604 1,330,000
–	–	–		1,330,679

				1,330,679


Transfer during the year (Note (b)) – – – – (14,584,000 ) 14,584,000	Granted during the year – – – – – –	Exercised during the year – – – – – –	Cancelled during the year – – (71,202,000) – – (14,584,000) (85,786,000)	At 31.12.2005 75 604 – 1,330,000 – –
–	–	–		1,330,679

				1,330,679

103

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

51. SHARE OPTIONS SCHEMES (continued)

(a) Share Option Scheme of the Company (continued)

Notes:

(a) The options granted in 2004 may be exercised in accordance with the terms of the relevant scheme as to:
(i) The first tranche of 34,314,400 options will be exercisable after the expiry of 12 months from the date of grant;
(ii) The second tranche of 25,735,800 options will be exercisable after the expiry of 24 months from the date of grant;
(iii) The third tranche of 25,735,800 options will be exercisable after the expiry of 36 months from the date of grant; and
(iv) The options will expire after ten years from date of grant i.e. 7 June 2014.
(b) Transfer of share options upon the termination of services of certain employees during the year.

No consideration received from employees for taking up the options granted for both years.

Pursuant to a resolution passed by the Executive Committee of the Board of Directors held on 30 December 2005, share options granted on 8 June 2004 to subscribe for an aggregate of 85,786,000 shares of the Company at an exercise price of HK$0.82 per share under the New Scheme were cancelled and accordingly, the Group immediately recognised expenses of approximately HK$13,013,000 to the consolidated income statement for the year ended 31 December 2005.

The Group recognised the total expenses of Nil for the year ended 31 December 2006 (2005: HK$25,456,000 included approximately HK$13,103,000 recognised upon cancellation of the share options on 30 December 2005) in relation to share options of the Company.

(b) Share option schemes of GDC (the “GDC Scheme”) and GDC Technology Limited (“GDC Technology”) (the “GDC Technology Scheme”)

The GDC Scheme was adopted pursuant to a resolution passed at its Special General Meeting held on 18 July 2003 for the primary purpose of providing incentives or rewards to selected participants for their contribution to the GDC. The GDC Scheme will expire on 17 July 2013.

Under the terms of the GDC Scheme, the Board of Directors of GDC (the “GDC Board”) may grant options to all full-time employees, Directors (including independent non-executive Directors) and parttime employees with weekly working hours of 10 hours and above, of GDC and any advisor (professional or otherwise) or consultant, distributors, suppliers, agents, customers, joint venture partners, service provider to GDC who the Board considers, in its sole discretion, have contributed or contribution to GDC.

The maximum number of shares which may be issued upon exercise of all options to be granted and yet to be exercised under the GDC Scheme is not permitted to exceed 10% of the shares of GDC in issue which can be refreshed according to the GDC Scheme. The number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised at any time under the GDC Scheme and any other share option schemes of GDC shall not exceed 30% of the issued share capital of GDC from time to time.

The number of shares in respect of which options may be granted to any individual in any 12-month period is not permitted to exceed 1% of the shares of GDC in issue at any point in time, without prior approval from GDC’s shareholders in accordance with the GDC Scheme. Where any grant of options to a substantial shareholder or an independent non-executive Director or any of their respective associates would result in the shares of GDC being issued or to be issued upon exercise of all options to such person in the 12-month period up to and including the date of grant in excess of 0.1% of the shares of GDC in issue and with a value (based on the closing price of the shares of GDC at the offer date of each offer) in excess of HK$5,000,000, such grant of options must be approved in advance by GDC’s shareholders in accordance with the GDC Scheme.

104

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

51. SHARE OPTIONS SCHEMES (continued)

(b) Share option schemes of GDC (the “GDC Scheme”) and GDC Technology Limited (“GDC Technology”) (the “GDC Technology Scheme”) (continued)

An option may be exercised at any time during the period to be determined and notified by the Directors to the grantee and in the absence of such determination, from the date of acceptance of an offer of the grant of such option to the earlier of the date on which such option lapses according to the GDC Scheme and ten years from the date of offer of that opinion. A consideration of HK$1 is payable upon acceptance the offer.

The exercise price is determined by the Directors of GDC, and will not be less than the higher of the nominal value of the share; the closing price of GDC’s shares on the date of offer; and the average closing price of the shares for the five business days immediately preceding the date of offer.

During the year ended 31 December 2006, 69,848,380 options and 26,656,665 options have been granted under the GDC Scheme and GDC Technology Share Option Scheme to the Directors of GDC, employees of GDC and its subsidiaries and others, respectively. All share options of the GDC Scheme and the GDC Technology Scheme are vested at the date of grant.

The following table sets out the movements in the GDC’s share options during the year:

Category or name Date of grantees of grant Exercise price Directors of GDC 6.10.2006 HK$0.3 (Note (i)) Employees of GDC and its subsidiaries 6.10.2006 HK$0.3 Others 6.10.2006 HK$0.3 Totals			Number of share options	Number of share options
	Balance as at 1.1.2006 – – – –	Granted during the year 42,443,460 18,100,000 9,304,920 69,848,380	Exercised during the year – – – –	Cancelled/ lapsed during Exercisable the year period – 6.10.2006 – 5.10.2009 – 6.10.2006 – 5.10.2009 – 6.10.2006 – 5.10.2009 –	Balance as at 31.12.2006 42,443,460 18,100,000 9,304,920
					69,848,380

The following table sets out the movements in the share options of GDC Technology during the year:

Category or name Date of grantees of grant Exercise price Directors of GDC 29.9.2006 HK$0.145 (Note (ii)) Employees of GDC 29.9.2006 HK$0.145 and its subsidiaries 5.10.2006 HK$0.145 Others 29.9.2006 HK$0.145 Totals			Number of share options	Number of share options	Number of share options
	Balance as at 1.1.2006 – – – – –	Granted during the year 12,693,334 7,466,666 5,323,332 1,173,333 26,656,665	Exercised during the year (2,130,000) – – – (2,130,000)	Lapsed Balance during Exercisable as at the year period 31.12.2006 – 29.9.2006 – 10,563,334 28.9.2009 – 29.9.2006 – 7,466,666 28.9.2009 (130,000) 5.10.2006 – 5,193,332 4.10.2009 – 29.9.2006 – 1,173,333 28.9.2009 (130,000) 24,396,665
					24,396,665

105

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

51. SHARE OPTIONS SCHEMES (continued)

(b) Share option schemes of GDC (the “GDC Scheme”) and GDC Technology Limited (“GDC Technology”) (the “GDC Technology Scheme”) (continued)

Notes:

(i) Included in total number of GDC’s share options of 42,443,460 granted on 6 October 2006 to the Directors of GDC were share options of 8,008,200, 8,008,200, 8,008,200 and 800,820, respectively granted to four Directors of the Company.
(ii) Included in total number of GDC Technology’s share options of 12,693,334 granted on 29 September 2006 to the Directors of GDC were share options of 4,266,667, 4,266,667 and 2,133,333, respectively, granted to three Directors of the Company.

The fair value per option of HK$0.013 and HK$0.08 for options granted on 29 September 2006 and 5 October 2006 under the GDC Technology, and on 6 October 2006 under the GDC Scheme were calculated using the Binomial Option Valuation pricing model. The inputs into the model were as follows:

	The GDC	The GDC
	Technology Scheme	Scheme
	Share option grant date
	29 September 2006
	and 5 October 2006	6 October 2006
Weighted average share price	HK$0.10	HK$0.28
Exercise price	HK$0.145	HK$0.30
Expected volatility	32%	87%
Expected life	3 years	3 years
Risk-free rate	3.77%	3.75%
Expected dividend yield	Nil	Nil

Expected volatility of GDC and GDC Technology were determined by using the historical volatility of GDC’s share price and the share price of other companies in the similar industry, respectively. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations.

The Group recognised the total expense of approximately HK$5,937,000 for the year ended 31 December 2006 (2005: Nil) in relation to share options granted by GDC and GDC Technology.

The Binomial Option Valuation pricing model has been used to estimate the fair value of the options. The variables and assumptions used in computing the fair value of the share options are based on the Directors’ best estimate. The value of an option varies with different variables of certain subjective assumptions.

52. RETIREMENT BENEFIT SCHEMES

The Group contributes to defined contribution retirement schemes which are available to all employees in Hong Kong and Singapore. The assets of the schemes are held separately from those of the Group in independently administered funds.

Pursuant to the relevant regulations of the government in the PRC, the subsidiaries in the PRC participate in the municipal government contribution scheme whereby the subsidiaries are required to contribute to the scheme for the retirement benefit of eligible employees. The municipal government of the PRC is responsible for the entire benefit obligations payable to the retired employees. The only obligation of the Group with respect to the scheme is to pay the ongoing contributions required by the scheme.

The retirement benefit costs represent gross contributions paid and payable by the Group to the schemes operated in Hong Kong, the PRC and Singapore (collectively the “Retirement Schemes”). Contributions totalling approximately HK$133,000 (2005: HK$91,000) payable to the Retirement Schemes at 31 December 2006 are included in other payables and accruals. There was no forfeited contribution throughout the year (2005: Nil).

106

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

53. POST BALANCE SHEET EVENTS

(a) On 1 December 2006, GDC Technology, a non wholly-owned subsidiary of the Company, has entered into a conditional agreement with a subscriber (the “GDC Tech Subscriber”), which is a company incorporated in the BVI and beneficially wholly-owned by a substantial shareholder of the Company, where the GDC Tech Subscriber will subscribe 52,383,580 shares of GDC Technology, representing approximately 48.14% of the then issued share capital of GDC Technology, at a consideration of US$6.5 million (equivalent to approximately HK$50,570,000) (the “GDC Tech Subscription”).

Upon completion of the GDC Tech Subscription and the subscription of shares of GDC as mentioned in Note 53(b), the Company’s effective shareholding interest in GDC Technology will be diluted from approximately 62.49% to 40.17% and it will continue to be a subsidiary of the Company as GDC holds approximately 83.34% of the then issued capital of GDC Technology as at 31 December 2006 and approximately 56.25% of the issued capital of GDC Technology upon the completion of the GDC Tech Subscription.

(b) On 1 December 2006, GDC has also entered into a conditional agreement with a subscriber other than the GDC Tech Subscriber (the “GDC Subscriber”), which is a company incorporated in the BVI and beneficially wholly-owned by a substantial shareholder of the Company, where the GDC Subscriber will subscribe 40,000,000 shares of GDC (the “GDC Share”), representing approximately 4.99% of the then issued share capital of GDC, at a subscription price of HK$0.2436 per GDC Share (the “GDC Subscription”). The total consideration of the subscription of GDC Shares by the GDC Subscriber is approximately HK$9,744,000.

Upon completion of the GDC Subscription, the Company’s shareholding interest in GDC would be diluted from approximately 74.98% (based on the then issued capital of GDC as at 31 December 2006) to 71.41% (based on the issued capital of GDC upon the completion of the GDC subscription), and GDC will continue to be a subsidiary of the Company.

(c) On 16 March 2007, Upper Nice Assets Limited (“Upper Nice”), a wholly-owned subsidiary of the Company, and GDC entered into a placing and subscription agreement with a placing agent, pursuant to which the placing agent has agreed to, on a fully underwritten basis, procure purchasers to acquire, and Upper Nice has agreed to sell, 120,000,000 existing shares of GDC at the placing price of HK$0.54 per share (“Topup Placing”) and Upper Nice has also agreed to subscribe 120,000,000 new shares of GDC at HK$0.54 per share (“Top-up Subscription”). The Top-up Placing and Top-up Subscription were completed in March 2007 and the Company’s shareholding interest in GDC was further diluted to approximately 62.49%.

On the same date, Upper Nice and GDC entered into a subscription agreement, pursuant to which Upper Nice has conditionally agreed to subscribe 100,000,000 new shares of GDC at HK$0.54 per share (“Subscription”), but subject to the approval by independent shareholders of GDC at the special general meeting to be held on 23 April 2007. Upon completion of the Subscription, the Company’s shareholding would be increased from approximately 62.49% to approximately 66.02%.

Details of Top-up Placing, Top-up Subscription and Subscription are set out in the Company’s announcement dated 16 March 2007.

(d) On 30 March 2007, Upper Nice entered into another placing agreement with a placing agent, pursuant to which the placing agent has agreed to, on a fully underwritten basis, procure purchasers to acquire, and Upper Nice has agreed to sell, 30,000,000 existing shares of GDC at the placing price of HK$1.20 per share. This placing was completed on 4 April 2007 and the Company’s shareholding interest in GDC was further diluted to approximately 58.75%.

107

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

54. RELATED PARTY TRANSACTIONS

During the year, the Group entered into the following transactions with related parties:

(a) Rental expenses charged by Winluck Properties Limited, a subsidiary of Shougang Holding (b) Rental income received from Gold Regal Limited, a subsidiary of Shougang Holding (c) Consultancy expense charged by Shougang Holding (d) Management fee charged by Shougang Concord International Enterprises Company Limited, an associate of Shougang Holding (e) Interest expense charged by Shougang Finance, a fellow subsidiary of the Company (f) Interest expense charged by Bright Oceans Corporation (HK) Limited, a shareholder of the Company (g) Interest expense charged by Mr. Anthony Francis Neoh, a shareholder of the Company (h) Interest expense charged by Madam Chan Wing Yee, Betty, spouse of Mr. Anthony Francis Neoh (i) Interest expense paid to South China Leasing in respect of finance lease obligations	2006 HK$’000 1,385 130 960 870 2,047 – 2,413 102 107	2005 HK$’000 1,154

		108

		960

		300

		247

		261

		1,592

		69

		–

The Group operates in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government (“state-controlled entities”). In addition, the Group itself is a part of a larger group of companies under Shougang Corporation which is controlled by the PRC government. The Directors are of the opinion that transactions with other state-controlled entities are not significant to the Group’s operations.

The Group has entered into various transactions, including deposits placements, borrowings and other general banking facilities, with certain banks and financial institutions which are state-controlled entities in its ordinary course of business. In view of the nature of those banking transactions, the Directors are of the opinion that separate disclosure would not be meaningful. The Directors are of the opinion that transactions with other statecontrolled entities are not significant to the Group’s operations.

Details of balances with related parties as at the balance sheet date are set out in the consolidated balance sheet and in Notes 38, 39 and 40.

108

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

55. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY

Details of principal subsidiaries at 31 December 2006 are as follows:

		Issued and	Proportion of
		fully paid	nominal value of
	Place of	share capital/	issued share
	incorporation/	contributed	capital held by
Name of subsidiary	operation	capital	the Company	Principal activities
		(Note (a))
Direct subsidiary
SCG Investment (BVI) Limited	BVI	HK$100,000	100%	Investment holding
Indirect subsidiaries
首方投資管理（深圳）有限公司	The PRC	RMB75,500,000	100%	Investment holding
（「首方投資」）	(Note (b))
Concord Grand TV &	BVI	US$1	100%	Investment holding
Movie Investment Limited
Dunley Developments Limited	BVI	US$1	100%	Investment holding
Durali Developments Limited	BVI	US$1	100%	Investment holding
Ecko Limited	Hong Kong	HK$2	100%	Property management
Eldex Investment	Hong Kong	HK$541,000	100%	Property investment
Company Limited		(ordinary)
		HK$1,459,000
		(non-voting
		deferred)
GDC Asset Management	BVI	US$1	75%	Investment holding in
Limited				Hong Kong
GDC (BVI) Limited	BVI	US$5,214,181	75%	Investment holding
				in Hong Kong
GDC Management Service	Hong Kong	HK$2	75%	Provision of
Limited (formerly known				administrative
as GDC Capital Limited)				and management
				services
				in Hong Kong
GDC China Limited	Hong Kong	HK$2	75%	Investment holding
GDC Entertainment	BVI	US$3,510	75%	Animation investment,
				licensing and
				merchandising
				distribution in a
				worldwide basis
GDC Holdings Limited	BVI	US$5,214,181	75%	Investment holding
GDC International Limited	Samoa	US$1	75%	Provision of CG
				animation creation
				and production
				services

109

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

55. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY (continued)

		Issued and	Proportion of
		fully paid	nominal value of
	Place of	share capital/	issued share
	incorporation/	contributed	capital held by
Name of subsidiary	operation	capital	the Company	Principal activities
		(Note (a))
Indirect subsidiaries (continued)
GDC Technology	BVI	HK$10,879,667	62%	Provision of computing
				solutions for digital
				content distribution
				and exhibitions in
				a worldwide basis
GDC Technology Pte. Ltd.	Singapore	S$900,000	62%	Provision of computing
				solutions for digital
				content distribution
				and exhibitions in
				a worldwide basis
GDC_(Note (c))_	Bermuda	HK$8,008,200	75%	Investment holding
Grand Award Limited	BVI	US$1	100%	Investment holding
Grand Park Investment Limited	Hong Kong	HK$2	100%	Property investment
Grand Phoenix Limited	BVI	US$1	100%	Investment holding
環球數碼媒體科技(上海)	The PRC	US$140,000	75%	Provision of computer
有限公司	(Note (b))			graphics and
				animation training
IDMT Shenzhen	The PRC	US$7,085,900	75%	Provision of computer
	(Note (b))			graphics and animation
				training, development
				of multimedia software
				and hardware, and
				provision of related
				technical consultancy
				services
Linksky Limited	Hong Kong	HK$2	100%	Property holding
Long Cosmos Investment	Hong Kong	HK$2	100%	Provision of
Limited				management services
Lyre Terrace Management	Hong Kong	HK$1,000,000	100%	Investment holding
Limited				and property investment
On Hing Investment	Hong Kong	HK$1,000	100%	Property investment
Company, Limited		(ordinary)
		HK$2,000,000
		(non-voting
		deferred)
SCG Finance Corporation	Hong Kong	HK$20	100%	Provision of financial
Limited				services
SCG Financial Investment Limited	BVI	US$1,000	100%	Investment holding

110

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

55. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY (continued)

		Issued and	Proportion of
		fully paid	nominal value of
	Place of	share capital/	issued share
	incorporation/	contributed	capital held by
Name of subsidiary	operation	capital	the Company	Principal activities
		(Note (a))
Indirect subsidiaries (continued)
SCG Leasing Corporation	Hong Kong	HK$2	100%	Property investment
Limited
Strenbeech Limited	BVI	HK$147,000,078	100%	Property investment
Tin Fung Investment	Hong Kong	HK$975,000	100%	Property investment
Company, Limited		(ordinary)
		HK$210,000
		(non-voting
		deferred)
Upper Nice	BVI	US$1	100%	Investment holding
Valuework	BVI	US$1	100%	Investment holding
四方源創國際影視文化傳播	The PRC	RMB20,000,000	80%	Production of films and
（北京）有限公司	(Note (d))			television drama series
廣東四方源創動畫制作	The PRC	RMB10,000,000	64%	Provision of graphic
有限公司	(Note (d))			animation creation
東陽市四方源創影視制作	The PRC	RMB1,000,000	80%	Production of film and
有限公司	(Note (d))			television drama series
杭州四方源創動畫制作	The PRC	RMB3,000,000	64%	Provision of graphic
有限公司	(Note (d))			animation creation
深圳市環球數碼科技	The PRC	RMB1,770,000	75%	Provision of digital cinema
有限公司	(Note (d))			equipment’s technology
				development sales and
				related services
深圳市環球數碼影視文化	The PRC	RMB2,480,000	75%	Provision of films
有限公司	(Note (d))			and animation's
				technology development
				and production of film
				cultural activities

Notes:

(a) All issued share capital are ordinary shares unless otherwise stated.

(b) These entities are wholly foreign owned enterprises.

(d) These entities are sino-foreign equity joint venture/enterprises.

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 Directors, result in particulars of excessive length.

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

111

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2006

56. SUMMARISED BALANCE SHEET OF THE COMPANY

Interests in subsidiaries Other current assets Amounts due to subsidiaries Other current liabilities Other non-current liabilities Share capital Reserves	2006 HK$’000 231,154 173 (12,122) (47,244) (40,000) 131,961 11,369 120,592 131,961	2005 HK$’000 231,154 78 (15,548) (50,448) (33,570) 131,666 11,369 120,297 131,666

112

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

I. WORKING CAPITAL

After taking into account the Enlarged Group’s internal resources and in the absence of the unforeseen circumstances, the Directors are of the opinion that the Enlarged Group will have sufficient working capital to meet its present requirements for the next twelve months from the date of this circular.

After taking into account the Group’s internal resources and in the absence of the unforeseen circumstances, the Directors are of the opinion that the Group will have sufficient working capital to meet its present requirements for the next twelve months from the date of this circular.

II. INDEBTEDNESS

Indebtedness of the Enlarged Group

Borrowings

At the close of business on 31 July 2007, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Enlarged Group had outstanding borrowings of approximately HK$1,627,518,000 comprising secured borrowings of approximately HK$1,622,520,000 and unsecured borrowings of approximately HK$4,998,000. The secured borrowings were bank loans. The unsecured borrowings of approximately HK$4,998,000 included bank loans of approximately HK$1,289,000, payable due to an independent third party of approximately HK$3,000,000 and payable due to a related party of approximately HK$709,000.

Pledge of assets and restricted bank deposits

At the close of business on 31 July 2007, the secured borrowings were secured by certain assets of the Enlarged Group of approximately HK$1,463,409,000, which included the Enlarged Group’s investment properties, buildings and prepaid lease payments with an aggregate carrying value of approximately HK$142,250,000, finance lease receivables of approximately HK$1,261,800,000, restricted bank deposits of approximately HK$50,516,000 and pledged bank deposits of approximately HK$8,843,000.

Debt securities

At the close of business on 31 July 2007, the Enlarged Group had no debt securities.

Contingent liabilities

Save as disclosed in the section headed “Litigation” in Appendix VI to this circular, the Enlarged Group did not have any material contingent liabilities as at the close of business on 31 July 2007.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Enlarged Group did not have outstanding at the close of business on 31 July 2007 any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptable credits, debentures, mortgages, charges, finance lease commitments, guarantees or other material contingent liabilities.

113

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

Indebtedness of the Group

Borrowings

At the close of business on 31 July 2007, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$86,794,000 comprising secured borrowings of approximately HK$83,085,000 and unsecured borrowings of approximately HK$3,709,000. The secured borrowings were bank loans. The unsecured borrowings of approximately HK$3,709,000 included payable due to an independent third party of approximately HK$3,000,000 and payable due to a related party of approximately HK$709,000.

Pledge of assets

At the close of business on 31 July 2007, the secured borrowings were secured by certain assets of the Group of approximately HK$151,093,000, which included the Group’s investment properties, buildings and prepaid lease payments with an aggregate carrying value of approximately HK$142,250,000 and pledged bank deposits of approximately HK$8,843,000.

Debt securities

At the close of business on 31 July 2007, the Group had no debt securities.

Contingent liabilities

Save as disclosed in the section headed “Litigation” in Appendix VI to this circular, the Group did not have any material contingent liabilities as at the close of business on 31 July 2007.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have outstanding at the close of business on 31 July 2007 any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptable credits, debentures, mortgages, charges, finance lease commitments, guarantees or other material contingent liabilities.

III. MATERIAL CHANGES

The Directors are not aware of any material change in the financial or trading position or prospects of the Group since 31 December 2006, the date to which the latest published audited accounts of the Company were made up.

114

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

IV. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS AND OPERATIONS OF THE GROUP

The following is the management discussion and analysis of the Group principally extracted from the annual reports of the Company for each of the three years ended 31 December 2006 and for the six months ended 30 June 2007.

FOR THE YEAR ENDED 31 DECEMBER 2004

FINANCIAL REVIEW

For the year ended 31 December 2004, the Group’s revenue decreased by approximately 7.0% to approximately HK$14,386,000 (2003: HK$15,470,000). Profit for the year ended 31 December 2004 increased by approximately 137.5% to approximately HK$67,656,000 (2003: HK$28,481,000). Basic earnings per share was approximately HK7.31 cents (2003: HK 3.34 cents).

On 13 February 2004, the Board declared to distribute a special dividend to be satisfied by the distribution in specie of the Group’s entire shareholding of approximately 31.02%, representing 371,029,995 shares in an associate, Shougang Concord Technology Holdings Limited (“Shougang Technology”), to the Shareholders on a pro-rata basis (the “Distribution”). The Distribution was completed on 23 March 2004 and market price of Shougang Technology’s share at that date was HK$1.01 per share. Total special dividend distributed amounted to approximately HK$374,740,000, represented approximately HK$39.9 cents per share. The Directors do not recommend the payment of a final dividend for the year ended 31 December 2004.

The decrease in revenue for the year ended 31 December 2004 was mainly due to the disposal of certain investment properties during the year while the significant increase in profit for the year ended 31 December 2004 was largely attributable to the gain on distribution of an associate arising from the distribution in specie of the Group’s entire shareholding in Shougang Technology, a company listed on the main board of The Stock Exchange of Hong Kong Limited, during the year.

BUSINESS REVIEW AND OUTLOOK

Property Investment and Management

Hong Kong Investment Properties

In line with the recovery of the economy and the property market in Hong Kong, the rental market showed on improvement during the year under review. The property market in Hong Kong had experienced a significant downturn since the Asian financial crisis in 1997. Although the property market had improved since the beginning of 2004, the improved market conditions applied, to a large extent, to newly constructed residential projects. The difficult market conditions in local property market have caused the Group to take a fresh look at its core business in Hong Kong. During the year, the Group has disposed of certain of its industrial investment properties, which were relatively old with high maintenance costs, and the Directors believed that the Group’s resources could be better applied in other investments that offer better return. In this regard, the Group had been exploring new business opportunities with a view to diversifying its existing business.

115

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

Beijing Dongzhimen International Apartment Co., Limited (“Beijing Dongzhimen”)

The Group beneficially owned a 44% interests in Beijing Dongzhimen which is principally engaged in the leasing of East Lake Villas in Beijing, the PRC, which comprised a variety of garden villas, high-rise apartments and office building, club housing, shops, restaurants and numerous sports facilities.

As a result of the severe competition in Beijing property leasing market and performance of Beijing Dongzhimen for the past few years, an impairment loss in respect of the Group’s share of net assets and goodwill in Beijing Dongzhimen amounted to approximately HK$90 million in aggregate was made for the year ended 31 December 2004.

FINANCIAL SERVICES BUSINESS

Financial Leasing Business

The Group acquired 40% and 20% interests of South China Leasing in September 2004 and March 2005 respectively. South China Leasing is a Sino-foreign equity joint venture established in the PRC and is principally engaged in the financial leasing business, including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties in the PRC.

The Directors consider the financial leasing market in the PRC presents a lot of opportunities due to the improved economy in line with the continuous industrial and business growth in the PRC. Through South China Leasing, which has an existing and valid business license, could shorten the Group’s initiative in establishing a financial leasing business in the PRC.

Possible investment in China Life Insurance (Overseas) Company Limited (“China Life (Overseas)”)

On 28 January 2005, the Group entered into a memorandum (the “Memorandum”) with China Life (Overseas) in respect of a proposed subscription (the “Proposed Subscription”) of shares in China Life (Overseas) that would represent 40 per cent. of the capital of China Life (Overseas) as enlarged by the Proposed Subscription. The initial subscription price was proposed to be HK$800,000,000 which would be adjusted with reference to a valuation of China Life (Overseas) to be mutually agreed. The Memorandum gave the Group an exclusive right for a period of up to 30 June 2005 to consider the Proposed Subscription. China Life (Overseas) was principally engaged in the provision of life insurance business in Hong Kong, Macau and Singapore.

Cultural Mass Media Business

The Directors believe that the cultural mass media business, especially animation business in the PRC, offers promising prospects. Given the success of various animation films globally and the increasing disposable income of PRC citizens, the Group has considered to invest in certain projects in this sector and has set up a film production company in the PRC.

Furthermore, on 19 November 2004, the Group announced a voluntary conditional offer to acquire all the issued share capital of and cancel all the outstanding options of GDC, which is

116

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

listed on GEM (the “Voluntary Offer”). Headquartered in Hong Kong, GDC provides an integrated value chain in digital content business which encompasses computer graphics (“CG”) creation and production, distribution and exhibitions of digital content, and training of CG artists in the Asia Pacific region. GDC is also a CG house capable of producing CG to international standards with CG artists principally trained in-house. The Voluntary Offer was approved by shareholders of the Company by a special general meeting held on 31 January 2005, became unconditional in all respects on 14 February 2005 and was closed on 1 March 2005. There were valid acceptances received in respect of 658,466,023 shares of and 22,631,615 options of GDC, representing approximately 82.2% of its issued share capital and all of its outstanding options. The Company had issued approximately 197,540,000 shares, represented approximately 17.4% of the enlarged issued capital of the Company, and paid approximately HK$226,000 under the Voluntary Offer subsequent to 31 December 2004.

OTHER INVESTMENTS/BUSINESS

Shougang Technology

During the year, the Directors declared a payment of a special dividend to be satisfied by the distribution in specie of the Group’s entire shareholding of approximately 31% in Shougang Technology to its shareholders (the “Distribution”). The Distribution not only enabled the Group to return the appreciation in its investment to its Shareholders but also provided its Shareholders and investors with the opportunity to directly invest in the Group’s core businesses, other than those of Shougang Technology. The Distribution represented an important step of the Group in diversifying its business.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

The Shareholders’ fund of the Group amounted to approximately HK$342.3 million as at 31 December 2004 (2003: HK$632.0 million). The decrease was mainly arisen from the Distribution made during the year. During the year, the Company allotted and issued 81,448,753 new shares upon the exercise of share options with proceeds of approximately HK$60,287,000 which was applied as general working capital of the Group.

The Group had bank balances and cash and pledged bank deposits of approximately HK$185.2 million as at 31 December 2004 (2003: HK$51.7 million) which were mainly denominated in Hong Kong dollars and Renminbi. The increase was mainly because of the proceeds from the disposal of certain of its industrial investment properties and proceeds from the issue of shares pursuant to the exercise of share option during the year.

The Group’s bank borrowings amounted to approximately HK$105.8 million as at 31 December 2004 which comprised approximately HK$15.8 million and HK$90.0 million repayable within one year and repayable more than one year as at 31 December 2004 respectively. There was no gearing level (calculated as bank borrowings less bank balances and cash and pledged bank deposits divided by shareholders’ fund) presented as the Group had a net cash position as at 31 December 2004. Except bank borrowings of approximately HK$0.8 million, the Group’s bank borrowings were secured by pledged bank deposits, investment properties and land and buildings with carrying value of approximately HK$65.5 million, HK$92.4 million and HK$2.5 million as at 31 December 2004 respectively.

117

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

The routine business operation and investment of the Group are in Hong Kong and the PRC, with revenue and expenditure denominated mainly in Hong Kong dollars and Renminbi. The Renminbi income from the PRC was mainly remitted to Hong Kong at the prevailing official exchange rate. Given the stable official exchange rate of Renminbi to Hong Kong dollars, the Directors believed that it would not be subject to any significant exposure associated with fluctuation in exchange rates under foreseeable circumstances.

DISPOSAL OF INVESTMENT PROPERTIES

During the year, the Group has disposed of certain of its investment properties at proceeds of approximately HK$139.4 million to independent third parties with loss of approximately HK$1.4 million and the proceeds were applied as general working capital of the Group.

CONTINGENT LIABILITIES

As at 31 December 2004, the Group did not have any material contingent liability.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 December 2004, there were 16 employees (2003: 28) (excluding those under the payroll of the associates and the jointly-controlled entity of the Group) for the Group. Remuneration packages were reviewed either annually or by special increment. In addition to basic salary, other staff benefits include medical and hospitalization subsidies, and mandatory provident fund scheme.

FOR THE YEAR ENDED 31 DECEMBER 2005

FINANCIAL REVIEW

The revenue of the Group amounted to approximately HK$45.8 million for the year ended 31 December 2005, representing an increase of approximately 218% as compared with that for the year 2004. The Group reported a net loss of approximately HK$320.6 million for the year ended 31 December 2005, as compared to a net profit of approximately HK$67.7 million for the year 2004.

Revenue from property investment and management continued to decrease as the Group disposed of certain investments in property in the second half of 2004, in order to carry out its plan of diversifying business. The Group started cultural recreation content provision business, through acquiring and establishing subsidiaries, and generated revenue. At the same time, the Group started finance leasing business during the year. As the revenue generated by the new businesses has outweighed the decrease in revenue of property investment and management, the Group’s revenue increased.

Due to that one of the Group’s subsidiaries, GDC, was under restructuring after it was acquired by the Group and started a new business as a contractor for CG production and creation, the new business was not able to generate gross profit after deducting certain starting up costs.

118

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

Although the Group has generated gross profit in other businesses, including property investment and finance leasing, the Group incurred gross losses in aggregate during the year ended 31 December 2005.

During the year ended 31 December 2005, other income amounted to approximately HK$19.9 million which was mainly consist of increases in fair value of investment properties, dividend income from an associate held for sale, interest income and gain on disposal of held-for-trading investments. Other income for the year 2004 was mainly interest income.

Through acquisition of GDC, the Group has entered into the business of digital content distribution and exhibitions, which include sales of digital cinema equipment. This business incurred distribution costs amounted to approximately HK$2.5 million during the year ended 31 December 2005.

During the year ended 31 December 2005, administrative expenses amounted to approximately HK$102.4 million, representing an increase of approximately 175% as compared with that of the year 2004 amounted to approximately HK$37.2 million. The increase in administrative expenses was mainly due to that the Group’s acquisitions and establishments of a number of subsidiaries to carry out its plan of diversifying business and more expenses were incurred to restructure and to implement control on the subsidiaries. At the same time, in order to improve the incentive scheme to the management and staff of the Group, most outstanding options issued under the former share option scheme were cancelled during the year ended 31 December 2005. Expenses related to share option increased as economic value of the share options cancelled which would originally be charged to the Group’s income statement throughout the vesting period was totally charged as an expense for the year ended 31 December 2005.

During the year ended 31 December 2005, finance costs amounted to approximately HK$7.0 million, representing an increase of approximately 233% as compared with that of the year 2004 amounted to approximately HK$2.1 million. It is mainly the result of that balance of borrowings from shareholder, bank and other corporations and individuals increased as the Group increased in aggregate its borrowings from these parties to finance its diversifying business and working capital requirements during the process of diversification.

During the year ended 31 December 2005, there was an expense of impairment of goodwill amounted to approximately HK$191.5 million. During the year 2004, there were two non-recurring transactions, namely exceptional gain on deemed disposal of the Group’s holding in shares of Shougang Technology amounted to approximately HK$189.2 million and expenses of impairment and amortisation of goodwill and net assets of a jointly controlled entity amounted to approximately HK$90.0 million.

BUSINESS REVIEW AND OUTLOOK

The Group has been actualising its business plan of diversifying its core business into businesses other than property investment and management, namely financial service provision and cultural recreation content provision.

119

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

PROPERTY INVESTMENT AND MANAGEMENT

Hong Kong Investment Properties

Both rental income and resalable value of the Group’s investment properties improved when comparing with 2004. However, as the Group disposed of certain investments in industrial property, the aggregate amount of rental income decreased.

Beijing Dongzhimen

The Group continually held 44% interests in Beijing Dongzhimen. Despite competition in Beijing service department market was severe, the performance of Beijing Dongzhimen was significantly improved. At the same time, the Directors consider that there were no further impairment in book value of Beijing Dongzhimen’s net assets and a provision for such impairment which the amounted to approximately HK$67.5 million for the corresponding period in 2004 was not necessary. Further, as there was no balance of goodwill of investment in Beijing Dongzhimen, there was no amortisation and/or write-off of goodwill, which was amounted to approximately HK$22.5 million for the year 2004, charged to the income statement during the year ended 31 December 2005.

FINANCIAL SERVICE PROVISION

Finance Leasing

The Group acquired a 60% interest in South China Leasing during the year ended 31 December 2005. In addition, the Group agreed with a third party to acquire its entire equity interest in Valuework Investment Holdings Limited (“Valuework”), a company incorporated in the British Virgin Islands with limited liability and held 20% equity interest of South China Leasing, for a consideration of approximately RMB1,520,000, or equivalent to approximately HK$1,460,000. As at 31 December 2005, although the transfer had been documented by an instrument of transfer, the Group had not yet paid the consideration. Accordingly, the Group had not yet recognised its control on the 100% equity interest in Valuework and its indirect 20% equity interest in South China Leasing in its accounting records. During the year ended 31 December 2005, business of South China Leasing was restructured and streamlined and resumed generating finance lease income from July 2005.

Financial Investment

To explore financial service provision business, the Group through its wholly owned subsidiary, 首方投資管理（深圳）有限公司 (“Capital Steel”), utilising its own fund, actively carried out financial service business such as asset custodian and project financial investment, as well as providing clients consultancy service such as design and evaluation of merger and acquisition and bank financing schemes. By the end of the year 2005, Capital Steel had signed an memorandum of cooperation in respect asset management with 國投資產管理公司 and had made a direct financial investment amounted to RMB30 million in a project and generating income within the same year.

120

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

Possible Subscription of Shares in China Life (Overseas)

Negotiation on a proposed subscription of shares in China Life (Overseas) has been terminated by mutual agreement between the shareholder of China Life (Overseas) and the Group as the two parties failed to agree on certain material terms of a proposed shareholder agreement between the shareholders of China Life (Overseas) after the proposed subscription. The conclusion of the proposed shareholder agreement was a condition to completion of the proposed subscription. Neither the shareholder of China Life (Overseas) and the Group was entitled to any claim against the other party for any losses, damages and expenses as a result of the termination.

The Group continued to actively explore other opportunities to be engaged in finance service business.

CULTURAL RECREATION CONTENT PROVISION

By the Voluntary Offer, the Group acquired an approximately 82.22% interest in GDC, which together with its subsidiaries was mainly engaged in the creation and production of CGs, distribution and exhibition of digital content, and training of CG artists. To comply with the requirements of the GEM Listing Rules in respect of maintaining a minimum public float of 25%, the Group placed out shares of GDC held by the Group equivalent to approximately 7.24% of GDC’s then share capital in September 2005. After the completion of the Voluntary Offer, the Group reorganised GDC’s business with a view to improving its prospects.

During the year ended 31 December 2005, through subsidiaries other than GDC, the Group started providing cultural recreation content, including movies and television drama series and generating revenue.

OUTLOOK

The Directors would monitor closely the property market and would dispose of its investments in property, especially in industrial property, in case of such disposal would offer satisfactory return. The Directors expected that there would be continuous stable growth in return from Beijing Dongzhimen for the foreseeable future.

The finance leasing business of the Group was expected to start to be profitable from the year 2006. The Group has been negotiating and concluding finance leasing contracts of material amount. Such contracts were expected to contribute significant revenue to the Group. In the coming year, Capital Steel would firmly carry out financial investments in industries including infrastructure, culture and real estate, etc. Its business was expected to have further breakthrough and became a new growing point of income of the Group.

The Group has focused its strategy in cultural recreation content provision business at subcontracting for production and creation of CG. The subcontracting business was expected to contribute cash inflow from operation to the Group in the year 2006. The Group was also engaged in digital content distribution and exhibition business. In case digitalisation of cinema was rolled out during the year 2006, as anticipated by participants in the industry, the Group business of sale

121

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

of digital cinema equipment will be a point of dramatic growth. To capture the benefit of the enormous growth in digital cinema equipment business, the Group proposed to restructured its subsidiary engaged in the business by inviting the subsidiary’s management and staff to become shareholders of the subsidiary and inviting strategic partner to invest in the subsidiary.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

The shareholders’ fund of the Company amounted to approximately HK$204.4 million as at 31 December 2005 (2004: HK$342.3 million). The decrease was mainly arisen from the net loss for the year that was partially offset by the increment of share premium as a result of shares issued for acquisition of a subsidiary.

The Group had bank balances and cash and pledged bank deposits of approximately HK$36.3 million as at 31 December 2005 (2004: HK$185.2 million) which were mainly denominated in Hong Kong dollars and Renminbi. The decrease was mainly because of that cash were used in operating activities of the Group.

The Group’s bank borrowings and other banking facilities utilised amounted to approximately HK$91.2 million as at 31 December 2005 which comprised approximately HK$61.6 million and HK$29.6 million repayable within one year and repayable more than one year as at 31 December 2005 respectively. Bank loans included approximately HK$25.0 million fixed-rate borrowing which carried interest at 6% per annum. The remaining bank loans and banking facilities utilised were variable-rate borrowings which carried interest at Hong Kong Interbank Offered Rate (“HIBOR”) plus 1.35% per annum.

Gearing ratio (calculated as borrowings less bank balances and cash and pledged bank deposits divided by shareholders’ fund) as at 31 December 2005 was approximately 52.7% (no gearing ratio as at 31 December 2004 was presented as the Group had a net cash position at the balance sheet date). The Group’s leverage increased mainly due to the Group’s need of additional working capital to finance their new businesses.

Approximately HK$66.3 million and HK$25.0 million of the bank borrowings and other banking facilities utilised outstanding at 31 December 2005 were secured and unsecured respectively. The Group’s bank borrowings were secured by pledged bank deposits, investment properties, land and buildings with carrying value of approximately HK$16.5 million, HK$83.0 million, HK$1.7 million and HK$0.8 million as at 31 December 2005 respectively.

The routine business operation and investment of the Group are in Hong Kong and the PRC, with revenue and expenditure denominated mainly in Hong Kong dollars, Renminbi and United States dollars. The Renminbi income from the PRC and United States dollar incomes from areas outside the PRC and Hong Kong were mainly remitted to Hong Kong at the prevailing official exchange rate. Given the stable official exchange rate among Hong Kong dollars, Renminbi and United States dollars, the Directors believed that it would not be subject to any significant exposure associated with fluctuation in exchange rates under foreseeable circumstances.

122

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

CONTINGENT LIABILITIES

Pending litigations as at 31 December 2005 in process were as follows:

(i) On 14 May 2003, GDC Entertainment Limited (“GDC Entertainment”), a subsidiary of the Company, entered into a co-production agreement (the “Co-production Agreement”) with Westwood Audiovisual and Multimedia Consultants, Inc. (“WAMC”) and Production and Partners Multimedia, SAS (“P&PM”), in which the Group had a 25% equity interest, in relation to an animated television series.

Since November 2004, P&PM and WAMC issued a summary summons and then modified their claims against GDC Entertainment in the Court of Commerce of Angouleme (France) for breach of the Co-production Agreement.

In relation to their claims, the Group’s French legal adviser had his opinion that (i) in any event, the summary judgements to be rendered shall be very difficult or at least costly to P&PM and WAMC and (ii) the enforcement of the claim should only be limited to the assets of GDC Entertainment.

Accordingly, the Directors consider that the claims made by P&PM and WAMC have no material financial impact to the Group and no provision for this litigation is considered necessary.

Arbitration proceedings were commenced by GDC Entertainment against P&PM and WAMC in Hong Kong by way of a notice of arbitration dated 16 June 2005. In the arbitration, issues would be raised by GDC Entertainment as to whether P&PM and/or WAMC was in repudiatory breach of the Co-production Agreement which entitled GDC Entertainment to terminate the same and claim damages from P&PM and WAMC. Pleadings have not yet exchanged in the arbitration. P&PM and WAMC have applied to the arbitrator for the determination of a preliminary issue as to whether the arbitrator has jurisdiction to hear the dispute which GDC Entertainment will refer to the arbitrator in the arbitration. The hearing of the application was held on 20 January 2006 As at the date of this report, the arbitrator has issued the arbitrator’s decision and concluded that the arbitrator has jurisdiction to determine the disputes referred to the arbitrator in GDC Entertainment’s Notice of Arbitration.

(ii) During the year, a court order was issued from a court in Shanghai against Institute of Digital Media Technology (Shenzhen) Limited (“IDMT Shenzhen”), a subsidiary of the Company, in respect of a loan amounting to RMB9,262,000 payable to 上海新長寧（集團）有限公司 . Accordingly to the court order, the assets of IDMT Shenzhen amounting to RMB9,262,000 were frozen. On 1 March 2006, IDMT Shenzhen and 上海新長寧（集團）有限公司 entered into a mutual settlement agreement and RMB3 million was subsequently repaid after the year ended 31 December 2005 based on the agreed repayment schedule. Such amount was provided in the consolidated financial statements of the Company as at 31 December 2005. The court order for the cancellation of such dispute was issued from the court on 14 March 2006.

Save for the above, as at 31 December 2005, the Group did not have any other material contingent liability.

123

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

EMPLOYEES AND REMUNERATION POLICIES

As at 31 December 2005, there were about 410 employees (2004: 16) (excluding those under the payroll of the associates and the jointly-controlled entity of the Group) for the Group. Remuneration packages are reviewed either annually or by special increment. In addition to basic salary, other staff benefits include medical and hospitalization subsidies, and mandatory provident fund scheme.

During the year ended 31 December 2005, the Company and its subsidiaries did not pay or commit to pay any amount as an inducement to join or upon joining the Company and/or its subsidiaries to any individual.

FOR THE YEAR ENDED 31 DECEMBER 2006

FINANCIAL REVIEW

The revenue from continuing operations of the Group amounted to approximately HK$76,991,000 for the year ended 31 December 2006, increased for approximately 78% as compared with that for the year 2005. The Group reported a loss for the year from continuing operations of approximately HK$36,530,000 for the year ended 31 December 2006, improved for approximately 89% as compared with that for the year 2005, and a profit for the year from discontinued operation of approximately HK$20,352,000 for the year ended 31 December 2006, as compared to that loss of approximately HK$1,575,000 for the year 2005. Overall, the loss for the year attributable to equity holders of the parent of the Company amounted to approximately HK$15,204,000 for the year ended 31 December 2006, improved for approximately 95% as compared with that for the year 2005.

The increase in the revenue from continuing operations of the Group was mainly come from the success of the Group’s strategy of diversifying business, the revenue from the Group’s cultural recreation content provision and distribution, the revenue from this business increased by approximately 85% to approximately HK$69,882,000 for the year ended 31 December 2006 as compared with that for the year 2005. This increase was as a result of that the strategy of entering into the business of subcontractor of CG creation and production by the Group has been successful. The revenue from property investment and management amounted to approximately HK$7,109,000 for the year ended 31 December 2006, increased by approximately 31% was mainly attributable to the increase in both the monthly rental and occupancy rate.

Cost of sales from continuing operations for the year ended 31 December 2006 amounted to approximately HK$43,920,000 which, comparing with that of approximately HK$42,947,000 for the year 2005, represented an increase of approximately 2%. Despite the significant increase in revenue, the slight increase in cost of sales was mainly due to increase in efficiency in cultural recreation content provision and distribution and save of starting up costs from this new business in the year 2005.

124

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

Write-down of production work in progress from continuing operations made during the year ended 31 December 2005 amounted to approximately HK$24,712,000 was on the production costs of an animation movie “Thru the Moebius Strip” (the “Movie”), which was released in the PRC in second half of 2006. No significant write-down was required to make for the year ended 31 December 2006.

The Group made a gross profit from continuing operations of approximately HK$33,071,000 for the year ended 31 December 2006, representing a gross profit margin of approximately 43%. Comparing with that gross loss resulted in the year 2005, there was a significant improvement in terms of both monetary value and percentage to revenue. The improvement was mainly from the result of the success of the Group’s strategy of entering into the business of cultural recreation content provision and distribution.

Other income from continuing operations for the year ended 31 December 2006 amounted to approximately HK$9,272,000 (2005: HK$3,724,000), representing an increase of approximately 149%. The increase was mainly attributable to increase in investment income generated by the Group’s asset management division, which started normal operation in the second half of the year 2005.

Distribution costs from continuing operations for the year ended 31 December 2006 amounted to approximately HK$6,932,000 (2005: HK$2,535,000), representing an increase of approximately 173%. The increase in the distribution costs was mainly due to costs were incurred during the year for the promotion of the Movie and other films and television drama, and for the new products of digital cinema equipment launched by the digital content distribution and exhibitions business in compliance with the new industrial technical standard.

Administrative expenses from continuing operations for the year ended 31 December 2006 amounted to approximately HK$74,767,000 (2005: HK$95,063,000), representing a decrease of approximately 21%. However, these expenses for the years 2006 and 2005 included expenses upon recognition of equity-settled share based payment of approximately HK$5,937,000 and HK$25,456,000, respectively. Adjusted for this non-cash flow expense, the administrative expenses for this year were approximated to those for the year 2005.

Finance costs from continuing operations for the year ended 31 December 2006 amounted to approximately HK$10,132,000 (2005: HK$6,930,000), representing an increase of approximately 46%. The increase was mainly come from increase in interest on addition funding raised during this year to finance the Group’s daily operations as the Group was still in the investment stage of carrying out its strategy of diversifying its business, that most of the divisions required investment of funding and some of them were yet to contribute cash return.

Profit on disposal of partial interests in subsidiaries of approximately HK$1,795,000 for the year ended 31 December 2006 mainly represented the profit on a transfer of a 15% interest in GDC Tech to the management of GDC Tech for an aggregate cash consideration of HK$1,600,000. The Board considers that the transfer would lead to GDC Tech’s management having personal interests in GDC Tech and it would enhance their commitment and participation in the business of

125

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

GDC Tech. As their personal investments will be directly affected by the performance of GDC Tech, the Board anticipates that GDC Tech’s management would devote more time and be more focused on the business of GDC Tech. This additional commitment will facilitate the development of GDC Tech and in turn the continuous development of the Group. That loss of approximately HK$12,345,000 for the year ended 31 December 2005 mainly represented the loss on disposal of certain of its equity interests in GDC to independent third parties during that year.

During the year ended 31 December 2005, the Group incurred an impairment loss of goodwill arising from acquisition of a subsidiary amounted to approximately HK$191,457,000. During the year ended 31 December 2006, there was no transaction of similar nature.

During the year ended 31 December 2006, profit from discontinued operation amounted to approximately HK$20,352,000. The operation means the finance leasing business the Group operated through South China Leasing. During the year 2006, due to that the Group had induced a new investor to South China Leasing to strengthen its capital structure in order to speed up its development, the Group’s interest in South China Leasing, direct and indirect, has been diluted to 50%. South China Leasing was therefore changed from a subsidiary to an associate of the Group. Its net result of operation was disclosed as the discontinued operation. However, the Group would not only continue to operate finance leasing business through South China Leasing, but also speed up the development of the business. The profit was mainly come from profit on disposal arisen from dilution of the Group’s interest in South China Leasing.

During the year ended 31 December 2006, net cash used in operating activities of the Group amounted to approximately HK$784,428,000 which included an aggregate amount of approximately HK$772,164,000 representing advances granted to customers which were financed by bank borrowings of approximately HK$794,672,000 in aggregate raised during the year. If the advances granted to customers not being taken into consideration, there was net cash used in operating activities of the Group amounted to approximately HK$12,264,000. During the year 2005, a net cash used in operating activities amounted to approximately HK$156,051,000 was recorded. The significant improvement of operating cash flow was mainly due to that the Group’s strategy of diversifying business has won initial success; and operating cash flow was improved to different extent in different business divisions.

BUSINESS REVIEW

The Group continued actualising its strategy of diversifying its core business into businesses other than property investment and management, namely financial service provision and cultural recreation content provision and distribution. Such strategy of diversifying business has won initial success.

126

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

Cultural Recreation Content Provision and Distribution

During the year ended 31 December 2006, the Group launched several movies and television series, such as “Crazy Stone”, one of the highest box office income among all movies of similar investment released in the year 2006 in the PRC and the Best Original Screenplay of the 43rd Golden Horse Award, and “In Great Entanglement”, number one in the television audience share among all the channels in Shanghai in 2006. Most of the television series produced by the Group have been broadcasted on major television channels in the PRC including China Central Television.

In the CG creation and production division, the Group successfully released the first createdin-China full length CG animation movie “Thru the Moebius Strip” in summer 2006 in the PRC. The public release of this movie filled the gap of the 3 Dimension animation movie domains in the PRC. It has not only marked a new idea for complete 3 Dimension animated films in the PRC, but also explored into a new idea of producing animation production in collaboration with foreign countries, which has substantially enhanced the development of creative industry in the PRC in terms of advanced technology, contents and 3 Dimension animation industry chain. Besides, one of the Group’s short films “The Legend of Shangri-la” received the best short film award in the Hansome Monkey Award and the No. 1 in the China Region Award and the Final Award in the Eighth “DigiCon 6” (Tokyo) Contest in 2006 with the use of 3 Dimension technology in creating digital shadow puppet styles for carriers.

In addition, the Group’s strategy of entering into the business of contractor of CG creation and production has been proved to be suitable for the Group. For the year ended 31 December 2006, the Group’s CG creation and production subsidiary achieved revenue growth of approximately 519%, the operation expanded dramatically. It is also the first time for the Group’s CG creation and production business to have operating cash flow breakeven. Such results was almost unique among large-scale 3 Dimension animation companies in the PRC, Hong Kong and Taiwan, implying that the Group will record profit in the coming year. The Group’s results and publicity had undisputedly established the Group’s CG production studio as the number one CG animation production studio in the PRC and one of the best in Asia.

The Group’s digital cinema subsidiary, GDC Tech completed the development of digital cinema products that supported the latest JPEG2000 and launched its second generation digital cinema (“D-cinema”) server at Beijing International Radio, TV & Film Equipment Exhibition 2006 in August 2006. This new model SA2000 DSR[TM] Digital Film Server is a “hybrid” server allows users to exhibit digital cinema contents on JPEG2000 format, which is in complying with certain specifications adopted by the Digital Cinema Initiatives, LLC (“DCI”) and maintains its backward compatibility with the MXF MPEG2 Interop format. In late 2006, a couple of Hollywood blockbusters were also released in JPEG2000 formats to this newly upgraded SA2000 server. Further, the technology of GDC Tech has been applied in a more advanced manner. GDC Tech was selected by a Hong Kong listed company to supply a complete D-cinema solution to its first brand name flagship multiplex including multi-screen cinema, the in-lobby displays such as LCD digital signage, plasma television monitors and indoor LED video wall which are to be fully integrated into one theater management system.

127

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

Financial Service Provision

Finance Leasing

During the year ended 31 December 2006, to strengthen South China Leasing’s capital structure in order to speed up its development, the Group induced a new investor to South China Leasing. The Group’s interest in South China Leasing, direct and indirect, has been diluted to 50%. South China Leasing was therefore changed from a subsidiary to an associate of the Group. However, the Group would not only continue to operate finance leasing business through South China Leasing but also speed up the development of the business. During the year ended 31 December 2006, South China Leasing’s amount of contracts signed grew significantly, mainly from finance leasing of aircrafts.

Financial Investment

The Group continued operating the business of financial service through Capital Steel. The return of Capital Steel’s direct financial investment has been booked during the year ended 31 December 2006. Since the direct financial investment project was successful, Capital Steel is negotiating further cooperation with the partner, including being assumed its financial and asset management consultant.

Property Investment and Management

Hong Kong and the PRC Investment Properties

Both rental income and resalable value of the Group’s investment properties have been improved as compared with 2005. The Group was still receiving stable cash inflow from rental income.

Beijing Dongzhimen

Beijing Dongzhimen was principally engaged in the provision of serviced apartment services through its ownership of East Lake Villas and was owned as to 44% by the Group. In December 2006, the Group has signed an agreement to dispose of its entire interests in Beijing Dongzhimen, details of which were set out in the Group’s circular dated 27 December 2006, as the Group preferred to recoup capital investment in Beijing Dongzhimen for developing other businesses, including cultural recreation content provision and distribution, and financial service provision. As at 31 December 2006, the Group’s interest in Beijing Dongzhimen was classified as interest in a jointly controlled entity held for sale.

BUSINESS OUTLOOK

In 2006, the Group has lined up each business’s management team to focus on executing its corporate strategy. The Group’s effort and results set up a solid foundation for the Group to grow at a much faster pace next year. The market demands are there and huge, the Group will better execute and improve efficiency in order to harness the financial and market rewards.

128

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

Cultural Recreation Content Provision and Distribution

In CG creation and production division, as consumers all over the world generally demand for greater audio-visual sensations at movie theaters and in front of the television (“TV”) tubes and computers, tremendous business opportunities has been created for digital CG animation audio-visual creation and production. Leading children’s channels worldwide have already begun to gradually upgrade their animation programs from 2 Dimension to 3 Dimension, and newly launched High Definition (“HD”) channels in the United States of America and Europe are also spending generous amount of funding to commission HD animation TV series in order to attract subscribers. Currently, digital animations content is a fast developing market. Meanwhile, continuous business development and innovation make it inevitable to turn productions to the Asian market. The Group expects to see that more world class clients requesting services and co-production partnership from them, generating a steady and profitable revenue stream in the near term; the existing co-production deals generating moderate upside on back end revenue; their clients will become the creative and world wide distribution partners for their future original content creation effort. At the time of writing this report, the Group can already see solid deals being sealed to fill their existing production capacity, the Group may even has to expand or out-source some of their works this year to fulfill the market demand.

On the other hand, the Group will also focus on producing television series to gain relatively reliable return. The Group will also invest and produce quality movie projects.

In digital content distribution and exhibitions division, since the release and endorsement of DCI specifications by the consortium of Hollywood’s major studios, the race for the movie industry to transition from analog (printed film) to digital (data on hard disk) is officially on. All over the world, leading theater operators, cinema equipment manufacturers and cinema service providers have all announced bold transition plan to roll out digital cinema in the next 5 years starting from last year, and the world wide digital cinema installation had jumped from less than 1,000 screens prior to 2005 to several thousands screens by end of 2006. The Group are of the view that such trend would bring ample business opportunities to GDC Tech and considered that it was in the interest of GDC Tech to secure addition funding to expedite the rolling out of its business plan. With the completion of GDC Tech’s Subscription, details of which are set in the circular dated 27 December 2006, GDC Tech had addition funding of approximately HK$50 million for business expansion in the PRC and other countries and for enhancement of its research and development activities.

Recently, GDC Tech unveiled its new digital cinema product – SA2100 DSR[TM] Digital Film Server which is 33% smaller in size and designed to meet DCI specifications. The new SA2100 server supports DCI defined DCP 2k and 4k digital cinema packages, and JPEG2000 and remains backward compatible with the MXF MPEG2 Interop format. This new SA2100 server is designed to work in cinema multiplex with Theater Management System and Network Operations Center which support operations such as scheduling of playlist, content rights management and collection of playout log information. Besides, GDC Tech has also signed a development and supply agreement worldwide with a digital projector supplier to develop its digital cinema integrated projection system. GDC Tech expected that these new products will enhance and expand GDC Tech’s role to become the leading supplier of digital content delivery and playback equipment to worldwide customers.

129

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

In addition to its D-cinema server, GDC Tech is in a unique position to offer its complete suite of content delivery and playback solutions with DSR[TM] Network Operations Centre software for customers who run digital cinema, on-screen advertisement and out-of-home advertisement business. Within months of launching these new products, GDC Tech received orders of digital signage solutions to equipment twelve large shopping malls in Singapore, cinema multiplexes in Hong Kong as well as in India.

Besides, the Group also entered into a cooperative agreement scheme with China Film in 2006, whereby not less than 2,000 units of digital cinema integrated projection system are targeted to be installed by the end of 2008. This will highly accelerate the digitalisation of the film distribution industry in the PRC and at the same time, lay a solid foundation for commencing related businesses of the Group, thus enable the Group to become the technology supplier of digital cinema in the PRC as well as the pioneer in related businesses on top of its basis as a provider of digital cinema equipment worldwide.

Financial Service Provision

Finance Leasing

With the expected blooming economy development in the PRC, South China Leasing expects that the finance leasing business in the PRC will further expand. At the same time, as more financial institutions have been approved to enter into this business, South China Leasing will face keen competition. However, South China Leasing has already developed its brand name in this business and its existing operation has received continued support from banks, South China Leasing expects that it can maintain its market shares. Besides, South China Leasing will not only continue focusing on finance leasing of large development projects, such as aircrafts, energy and electricity, etc., but also explore different financing methods to lower its finance costs.

Financial Investment

Since the second half of 2006, Capital Steel has continued to approach several financial institutions and culture mass media companies in the PRC in order to look for investment opportunities, and also financial and asset management services provision opportunities.

Property Investment and Management

The Directors expect investment properties in Hong Kong and the PRC will continue to contribute stable cash return in the foreseeable future.

LIQUIDITY AND FINANCIAL RESOURCES

The equity attributable to equity holders of the Company amounted to approximately HK$212.0 million as at 31 December 2006 (2005: HK$204.4 million). The increase was mainly arisen from derecognition of put option liability of approximately HK$12.8 million and approximately HK$10.1 million increase in translation reserve upon exchange difference on translation of a jointly controlled entity and subsidiaries, netting off with loss for the year attributable to equity holders of the Company of approximately HK$15.2 million.

130

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

The Group had bank balances and cash and pledged bank deposits amounted to approximately HK$35.7 million as at 31 December 2006 (2005: HK$36.3 million) which were mainly denominated in Hong Kong dollars and Renminbi. The decrease was mainly from the result of that the Group had reserved approximately HK$14.4 million at 31 December 2005 to restructure/renew bank borrowings and paid the reserve during the year ended 31 December 2006 and that was partially offset by the net cash inflow generated from other areas during the year.

The Group’s borrowings amounted to approximately HK$157.9 million as at 31 December 2006 (2005: HK$144.1 million) which comprised approximately HK$53.8 million and HK$104.1 million repayable within and after twelve months after 31 December 2006, respectively. All bank loans bear interest at market rates and are repayable over a period of five years.

Gearing ratio (calculated as borrowings less bank balances and cash and pledged bank deposits divided by equity attributable to equity holders of the parent of the Company) as at 31 December 2006 was approximately 57.6% (2005: 52.7%). The Group’s leverage increased was mainly due to that the Group needed additional funds to be invested into its businesses which were developing. The bank borrowings amounted to HK$75.0 million outstanding at 31 December 2006 were secured by investment properties and land and buildings with carrying value of approximately HK$117.7 million in aggregate.

MATERIAL ACQUISITION, DISPOSALS AND SIGNIFICANT INVESTMENT

Other than the acquisition of the entire interest in Valuework, transfer of a 15% interest in GDC Tech and dilution of effective interest in South China Leasing to 50% as mentioned above and in the audited consolidated financial statements, the Group had made no material acquisitions, disposals and investment during the year ended 31 December 2006.

FOREIGN EXCHANGE EXPOSURE

The normal operations and investments of the Group are mainly in Hong Kong and the PRC, with revenue and expenditure denominated in United States dollars, Renminbi and Hong Kong dollars. Considering that the Group will have sufficient foreign exchange currencies to meet its foreign exchange requirement, the Directors believe that the Group does not have significant foreign exchange problems. However, if necessary, the Group will consider using forward exchange contracts to hedge against foreign currency exposures. As at 31 December 2006, the Group has no significant exposure under foreign exchange.

CONTINGENT LIABILITIES

The litigations in process as at 31 December 2006 were as follows:

(a) On 14 May 2003, GDC Entertainment, a non wholly-owned subsidiary of the Company, entered into the Co-production Agreement with WAMC and P&PM, in which the Group has a 25% equity interest, in relation to an animated television series.

131

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

(b) On 16 August 2006, 深圳大學文化科技服務有限公司 (“Shenzhen University”) commenced legal action in the People’s Court (Nanshan District) (“Nanshan Court”) in the PRC against IDMT Shenzhen, a non-wholly-owned subsidiary of the Company for, among others, unpaid rent, related expenses and compensation in the amount of RMB8,960,000. On 14 September 2006, IDMT Shenzhen filed a counterclaim against Shenzhen University for, among others, compensation for renovation fee and relocation expenses in the amount of approximately RMB10,726,000 and RMB6,000,000, respectively, and returns of rental deposit. On 19 March 2007, Shenzhen University filed an application to the Nanshan Court to withdraw its claim against IDMT Shenzhen. On 22 March 2007, IDMT Shenzhen filed an application to the Nanshan Court to withdraw its counter claim against Shenzhen University. Both applications are pending for approval by the Nanshan Court.

The Directors are of the opinion that liability of the above claims is not probable. Accordingly, no provision for any potential liability has been made in the consolidated financial statements for the year ended 31 December 2006. Save for the above, as at 31 December 2006, the Group did not have any other material contingent liability.

132

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

EMPLOYEES

As at 31 December 2006, the Group employed 383 (2005: 410) full time employees (excluding those under the payroll of the associates and the jointly controlled entity of the Group). The Group remunerated its employees mainly with reference to the prevailing market practice, individual performance and experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund, discretionary bonus and employee share option scheme are also available to the employees of the Group. Remuneration packages are reviewed either annually or by special increment.

During the year ended 31 December 2006, the Company and its subsidiaries had not paid or committed to pay any amount as an inducement to join or upon joining the Company and/or its subsidiaries to any individual.

FOR THE PERIOD ENDED 30 JUNE 2007

FINANCIAL OVERVIEW

The revenue from continuing operations of the Group for the six months ended 30 June 2007 was approximately HK$48,857,000, when compared with that of approximately HK$31,226,000 for the corresponding period in the year 2006, represented an increase of approximately 56%. The increase was mainly attributable to the increase in revenue from digital content distribution and exhibitions division, and CG creation and films and television drama production division.

During the six months ended 30 June 2007, the Group’s revenue from digital content distribution and exhibitions division, which mainly consisted of sales of digital cinema equipment and the relevant technical service income, amounted to approximately HK$13,596,000, increased for approximately 179% comparing with that for the corresponding period in the year 2006. This increase was mainly due to many orders for new products in compliance with the new industrial technical standard, which was just coming out in the fourth quarter of 2006, were received during this period. The Group’s revenue from CG creation and films and television drama production division amounted to approximately HK$27,094,000, increase of approximately 38% comparing with that for the corresponding period in the year 2006, a result of increase in both works from new clients and repeated orders from existing clients of CG creation and production.

Cost of sales from continuing operations for the six months ended 30 June 2007 amounted to approximately HK$22,228,000, increased by 16% comparing with that of approximately HK$19,155,000 for the corresponding period in the year 2006.

The Group made a gross profit from continuing operations of approximately HK$26,629,000 for the six months ended 30 June 2007, representing a gross profit margin of approximately 55%. Comparing with that gross profit margin of approximately 29% for the corresponding period in the year 2006, the improvement was mainly attributable to higher margin on sales of new products of digital cinema equipment and increase in efficiency in CG creation and films and television drama production division.

133

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

Other income from continuing operations for the six months ended 30 June 2007 amounted to approximately HK$12,278,000 (2006: HK$12,176,000) mainly represented the waiving of certain interest payable on other loans and rental payable of approximately HK$4,156,000 and HK$3,228,000, respectively, upon entering into settlement agreements with relevant parties, and interest income of approximately HK$4,189,000 earned during this period.

Administrative expenses from continuing operations for the six months ended 30 June 2007 amounted to approximately HK$53,015,000 (2006: HK$27,688,000), representing an increase of approximately 91%. The increase was mainly due to recognition of equity-settled share based payments of approximately HK$22,874,000 for the share options granted during this period. Adjusted for this non-cash expense, the administrative expenses from continuing operations for this period increased by approximately 9%.

Gain on disposal and dilution of interests in subsidiaries of approximately HK$279,536,000 for the six months ended 30 June 2007 included (i) approximately HK$239,241,000 from the gain on disposal and dilution of the Group’s interest in GDC from issue of approximately 302,770,000 new shares in total by GDC through completion of the one subscription and two top-up subscriptions and exercise of its share options during this period and disposal of approximately 44,106,000 shares of GDC by the Group; and (ii) approximately HK$40,295,000 from the gain on dilution of the Group’s interest in GDC Tech upon the completion of the subscription of 52,383,580 shares of GDC Tech at a consideration of US$6.5 million (or equivalent to approximately HK$50,570,000).

Gain on disposal of an interest in a jointly controlled entity of approximately HK$61,184,000 for the six months ended 30 June 2007 represented the gain on disposal of the Group’s 44% interest in Beijing Dongzhimen for a consideration of RMB170,000,000 (or equivalent to approximately HK$174,321,000). The disposal was approved by the independent shareholders of the Company in January 2007 and was completed in June 2007 upon the approvals from the relevant authorities in the PRC.

During the six months ended 30 June 2007, the Group recorded profit for the period from continuing operations of approximately HK$332,738,000, as compared to that loss of approximately HK$12,728,000 for the corresponding period in the year 2006.

During the six months ended 30 June 2006, profit from discontinued operation amounted approximately HK$20,352,000. That operation means the finance leasing business the Group operated through South China Leasing. During that period, due to that the Group had induced a new investor to South China Leasing to strengthen its capital structure in order to speed up its development, the Group’s interest in South China Leasing, direct and indirect, has been diluted to 50%. South China Leasing was therefore changed from a subsidiary to an associate of the Group. Its net result of operation was disclosed as the discontinued operation. The profit was mainly come from gain on dilution of the Group’s indirect interest in South China Leasing.

Overall, the Group recorded profit of approximately HK$333,488,000 for the six months ended 30 June 2007 attributable to equity holders of the Company, improved significantly as compared with that for the corresponding period in the year 2006 of approximately HK$8,553,000.

134

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

BUSINESS REVIEW

Cultural Recreations Content Provision and Distribution

The significant improvement in this business was mainly come from our digital content distribution and exhibitions division and CG creation and films and television drama production division.

Digital content distribution and exhibitions

During this period, there was a new generation of digital cinema server developed which has adopted the DCI specifications and receiving worldwide customers’ repeat orders to upgrade their digital cinema theatres to this next generation digital cinema server throughout the world. On the other side, recently, almost all major Hollywood feature films were also released digitally to worldwide cinema chains using our newly developed digital cinema servers.

Besides, the Group also completed digitalisation of a high profile cinema multiplex in the PRC, based on its state-of-the-art Digital-Cinema-Total-Solution platform. With the Group’s total solution for digital cinema, the cinema operator can now display the full array of trailers, advertisements and alternative content on both the in-foyer displays and in-theatres screens through a centrally controlled Theater Management System that in turn is remotely monitored by a Network Operation Center. The various display devices can now be programmed from the ticketing system to playback all kind of content in coherency and up-to-the-last minute media can be delivered to all the various display devices connected to a central server. The installed system is so successful that other high-end cinema multiplexes in the PRC and Hong Kong have also begun installing the similar system supplied by the Group.

CG creation and films and television drama production

The Group’s business volume in this division also grew continuously since the Group changed its strategy to enter into the business of subcontracting of CG creation and production. It resulted in a profit from this division for the period, the first ever half-year profit in the history of this division. During this period, while having completed several direct-to-home CG films and television series production projects and a co-production project, the Group continued delivering episodes of direct-to-home CG films and television series to clients. The production of a feature CG film for a client is in progress as well. The quality of the Group’s service has won recognition in the CG industry. Three renowned distributors headquartered in Hollywood have respectively committed to distribute one direct-to-home CG film and two CG television series produced by the Group. Such recognition has generated new orders from all the clients for the Group. At present, in addition to domestic business in the PRC, the Group has expanded its customer base to the United States of America (“USA”), Europe, Japan and Middle East region.

During this period, the Group has also launched one movie in the PRC and Hong Kong and two television series in the PRC.

135

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

CG training

The Group’s CG training division served as a core component of its strategy towards professionalism. Tailored for students in the PRC, its training courses focused on the basic knowledge of CG production. With the best training, highest graduates employment rate and comprehensive training materials, the Group maintains a leading position in the CG professional training domain in the PRC. The Group also developed its infrastructure continuously to maintain its best training environment in the PRC. Through continued improvement in the management system and focused marketing programs, the Group recorded steady revenue growth from CG training division of approximately 10% for the six months ended 30 June 2007, comparing with the corresponding period in the year 2006.

Financial Service Provision

Financial Investment

The Group continue operating the business of financial service through Capital Steel. During this period, Capital Steel approached several financial institutions in the PRC to look for investment opportunities, and simultaneously financial and asset management services.

Finance Leasing

By introducing a new investor to South China Leasing in June 2006, South China Leasing was changed from a subsidiary to an associate of the Group. However, the Group would not only continue to operate finance leasing business through South China Leasing but also speed up the development of the business. During this period, South China Leasing’s amount of contracts signed grew significantly and its revenue improved to approximately HK$50.0 million, increased by 207% comparing with that for the corresponding period in the year 2006.

Property Investment and Management

Both rental income and resalable value of the Group’s investment properties have improved comparing with the corresponding period in the year 2006. The Group was receiving stable cash flow from rental income.

During this period, the disposal of the Group’s investment in Beijing Dongzhimen was completed. The Group would reinvest the consideration received for developing other businesses, including cultural recreations content provision and distribution, and financial service provision.

136

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

BUSINESS OUTLOOK

Cultural Recreations Content Provision and Distribution

Digital content distribution and exhibitions

The Group continues to upgrade its products and market them through participation in international trade exhibitions and high profile demonstration projects. At 2007 ShoWest convention in March 2007, the Group launched an important new digital cinema product – DCI-2000 Digital Cinema Integrated Projection System that answered the exhibitors’ need of a fully integrated projector – server system. DCI-2000 addresses some of the biggest challenges of delivering, installing, operating and maintaining of digital cinema system in cinema multiplexes. The Group also unveiled another new product – SA2100 DSR[TM] Digital Film Server which is 33% smaller in size and designed to meet DCI specifications such as Texas Instruments Cinelink[TM] 2 and Hollywood’s approved forensic watermarking features. The SA2100 server is a cost-effective and flexible solution for digital cinema and alternative content sources to be playout in a seamless pipeline; various formats of content such as live interview, on-screen advertisement and feature films can be programmed to playout without the need to re-initialise the server and/or projector for different image formats.

On the other hand, there are a rapidly growing number of cinemas going digital, over 3,000 North American screens have been digitalised, nearly two-thirds of them in the past year. The biggest cinema chains in USA have announced to digitalise their cinemas next year, and a company in Europe signed “Virtual Print Fees” contracts with two major Hollywood studios in July 2007 for its roll-out plan of digital cinemas there. With the increase in demand for digital cinema equipment and the successful development of DSR[TM] range of products, the Group expects there will be further improvement of business in this division for the remaining part of the year 2007 and in the future.

In addition, the Group’s cooperation with China Film, whereby to install not less than 2,000 units of digital cinema integrated projection system by the end of 2008, has started, the Group started to install digital cinema equipment in July 2007 and is expected to install 700 units by end of the year 2007 and the remaining 1,300 units will be installed not later than mid of the year 2008. Besides, as announced by the Company on 16 August 2007, the Group take a further step by participating in the operation of the joint venture that to be formed with China Film for this deployment of digital cinema network and related business in the PRC. The cooperation will highly accelerate the digitalisation of the film distribution and exhibitions industry in the PRC and at the same time, lay a solid foundation for commencing related businesses of the Group, thus enable the Group to become the technology supplier of digital cinema in the PRC as well as the pioneer in related businesses on top of its basis as a provider of digital cinema equipment worldwide.

Furthermore, as announced by the Company on 16 August 2007, the Group would increase its investment in GDC Tech. With this additional funding, GDC Tech can expedite the rolling out of its worldwide business plan and enhance its research and development activities.

137

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

CG creation and films and television drama production

Based on the CG orders secured up to, the Group expect that its revenue from this division for the whole year 2007 will have substantial growth comparing with that for the year 2006. This division is expected to have a profit for the year 2007 as well. Considering the value of CG orders under discussion and the clients’ trust and dependency on the Group and the fact that the Group’s reputation in the CG industry are being enhanced, it is expected that the high growth rate of revenue will be maintained in the year 2008.

Various levels of the PRC government have been continuously recognising the Group as the leader in the CG industry in the PRC and have provided the Group with various forms of support, including supporting the Group to build a new building as its headquarters.

The CG industry certainly is a rapidly growing market both domestically and internationally, in order to maintain the Group’s leadership position in the PRC and siege the market opportunities, the Group will continuously improve its market share, production efficiency and creative ability. Besides, the Group is also actively studying the feasibility of establishment of a new CG studio, preliminary discussions with various parties, including local government for the potential new studio, are in progress.

On the other hand, the Group will also focus at producing television series to gain relatively reliable return. At present, three television series under production are nearly completed and it is expected that they can start to broadcast in the second half of 2007.

CG training

With the view of great success in the CG creation and production, attracting more students and raising market demand for graduates, the Group will design new courses emphasising practical skills and including more case studies to in line with the market needs and enhance the production capability of the students. Besides, the Group’s training centre in Shanghai and Shenzhen has already been certified by the local government authorities to be a vocational training centre, and the Group is considering the establishment of its third training centre, this will strengthen the training brand of the Group in the PRC. To conclude, the Group will further expand its training network throughout the PRC with Shanghai, Shenzhen and its new training centre as the core centers. The Group will also upgrade and strengthen its training system, the quality of its teaching staff and the graduate employment network.

Financial Service Provision

Financial Investment

Facing the dynamic market opportunities and economic environment in the PRC, merger and acquisition, reformation and restructuring are expected to be occurred in many different industries, the Group will proactively grasp the development opportunities by providing clients consultancy service or investing in high potential businesses, such as trust and insurance.

138

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

Finance Leasing

With the expected blooming economy development in the PRC, the Group expect that the finance leasing business in the PRC will further expand and this will bring ample business opportunities to South China Leasing. As announced by the Company on 16 August 2007, in respect of the Jeckman Acquisition of another 30% effective interest in South China Leasing, the Group can increase its participation in the PRC financial leasing business and is beneficial to the Group.

Property Investment and Management

The Directors expect investment properties in Hong Kong and the PRC will continue to contributable stable cash return to the Group in the foreseeable future.

LIQUIDITY AND FINANCIAL RESOURCES

The Group had bank balances and cash of approximately HK$319.1 million as at 30 June 2007 (31 December 2006: HK$34.7 million) and pledged bank deposit of approximately HK$8.9 million as at 30 June 2007 (31 December 2006: HK$1.0 million) which were mainly denominated in United States dollars, Hong Kong dollars and Renminbi. The increase was mainly from net proceeds received from the issue of shares by GDC of approximately HK$279.3 million in total during the six months ended 30 June 2007, and proceed received from disposal of interests in GDC and GDC Tech, and Beijing Dongzhimen of approximately HK$68.4 million and HK$56.8 million, respectively, proceeds from exercise of share options of a subsidiary of approximately HK$14.7 million, netting off with the repayment of borrowings of approximately HK$43.5 million and repayment to a fellow subsidiary of approximately HK$40.0 million during the period.

The Group’s borrowings amounted to approximately HK$87.4 million as at 30 June 2007, of which approximately HK$29.2 million were repayable within twelve months from 30 June 2007 and approximately HK$58.2 million were repayable after twelve months from 30 June 2007. All loans bear interest at market rates and are wholly repayable within five years.

As at 30 June 2007, gearing ratio (calculated as borrowings divided by equity attributable to equity holders of the Company) was approximately 16% (31 December 2006: 74%) and current ratio was approximately 6.4 (31 December 2006: 1.8) based on current assets of approximately HK$557.9 million and current liabilities of approximately HK$86.6 million. The Group’s leverage enhanced significantly was mainly attributable to addition funding as mentioned above during the six months ended 30 June 2007.

CAPITAL STRUCTURE

The equity attributable to equity holders of the Company amounted to approximately HK$552.7 million as at 30 June 2007 (31 December 2006: HK$212.0 million). The increase was mainly due to the profit for the six months ended 30 June 2007 attributable to equity holders of the Company of approximately HK$333.5 million, recognition of equity-settled share-based payments

139

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

for the share options granted by the Company of approximately HK$14.9 million and proceeds from exercise of share options of approximately HK$4.2 million, netting off with release of translation reserve upon disposal of interest in a jointly controlled entity of approximately HK$12.4 million.

MATERIAL ACQUISITION, DISPOSALS AND SIGNIFICANT INVESTMENT

During the period, GDC has issued in aggregate 260,000,000 new shares through one subscription and two top-up placing and subscriptions (the “Top-up Placing Transactions”). In addition, the Group’s interest in GDC has been diluted upon exercise of GDC’s share options with the issue of approximately 42,770,000 new shares of GDC (the “Dilution”), and the Group also disposed of approximately 44,106,000 shares of GDC (the “Disposal Transaction”) during the period. An aggregate gain on the Top-up Placing Transactions, the Dilution and the Disposal Transaction of approximately HK$239,241,000 has been recognised in the condensed consolidated income statement.

During the period, GDC Tech issued 52,383,580 new shares (the “Subscription”). Upon completion of the Subscription, the Group’s interest in GDC Tech has been diluted and a gain on dilution of approximately HK$40,295,000 has been recognised in the condensed consolidated income statement.

On 1 December 2006, the Group has entered into an agreement with China Beijing Shougang Hotel Development Company (“Shougang Hotel”), a wholly owned subsidiary of Shougang Corporation, and Strength Up Investments Limited (“Strength Up”), a wholly owned subsidiary of Shougang Holding, for the disposal of the Group’s 44% interest in Beijing Dongzhimen to Shougang Hotel and Strength Up for a consideration of RMB170,000,000 (or equivalent to approximately HK$174,321,000) (the “Dongzhimen Disposal”). Beijing Dongzhimen is a sino-foreign equity joint venture which was established in the PRC and is principally engaged in the provision of serviced apartment services through its ownership of East Lake Villas located in Dongcheng District, Beijing, the PRC. The Dongzhimen Disposal was approved by the independent shareholders of the Company in January 2007 and was completed in June 2007 upon receipt of approval from the relevant PRC authorities. Accordingly, a gain on disposal of interest in a jointly controlled entity of approximately HK$61,184,000 has been recognised in the condensed consolidated income statement.

On 16 March 2007, Upper Nice Assets Ltd. (“Upper Nice”), a wholly owned subsidiary of the Company, and GDC entered into a subscription agreement, pursuant to which Upper Nice has conditionally agreed to subscribe 100,000,000 new shares of GDC at HK$0.54 per share. The subscription was approved by independent shareholders of GDC at the special general meeting held on 23 April 2007. Accordingly, goodwill of approximately HK$10,397,000 arose during the six months ended 30 June 2007.

Save as disclosed above, the Group had no material acquisitions, disposals and investment during the six months ended 30 June 2007.

140

ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

APPENDIX II

CHARGE ON ASSETS

As at 30 June 2007, the Group’s investment properties and leasehold land and building with an aggregate carrying value of approximately HK$141.6 million and a bank deposit of approximately HK$1 million were pledged to banks to secure for bank borrowings with outstanding amount of approximately HK$84.4 million. Besides, the Group also pledged a deposit amounted to approximately HK$7.9 million to a bank to secure a facility granted to the Group.

FOREIGN EXCHANGE EXPOSURE

The normal operations and investments of the Group are mainly in Hong Kong and the PRC, with revenue and expenditure denominated in United States dollars, Renminbi and Hong Kong dollars. Considering that the Group will have sufficient foreign exchange currencies to meet its foreign exchange requirement, the Directors believe that the Group does not have significant foreign exchange problems. However, if necessary, the Group will consider using forward exchange contracts to hedge against foreign currency exposures. As at 30 June 2007, the Group has no significant exposure under foreign exchange.

CONTINGENT LIABILITIES

On 14 May 2003, GDC Entertainment, a subsidiary of the Company, entered into the Co-production Agreement with WAMC and P&PM, in which the Group has a 25% equity interest, in relation to an animated television series.

In relation to the French Proceedings, the Group’s French legal advisers have advised that the enforcement of P&PM’s and WAMC’s claims should only be limited to the assets of GDC Entertainment.

Further, arbitration proceedings were commenced by GDC Entertainment against P&PM and WAMC in Hong Kong by way of a notice of arbitration dated 16 June 2005 issued pursuant to the Co-production Agreement. In the arbitration, issues had been raised by GDC Entertainment as to whether P&PM and/or WAMC was in repudiatory breach of the Co-production Agreement which entitled GDC Entertainment to terminate the same claim of damages from P&PM and WAMC. Pleadings have not yet been exchanged in the arbitration. P&PM and WAMC have applied to the arbitrator for the determination of a preliminary issue as to whether the arbitrator has jurisdiction to hear the dispute which GDC Entertainment will refer to the arbitrator in the arbitration. The hearing of the application was held on 20 January 2006. Award of the arbitrator was published on the Issue of Jurisdiction on 23 March 2006 dismissing the application, and made an order for costs in GDC Entertainment’s favour in respect of the application. Since then, there has been no further step taken by the parties apart from recently. GDC Entertainment has written to the arbitrator

141

APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF THE ENLARGED GROUP AND THE GROUP

seeking directions for the further conduct of the arbitration, including the service of pleadings in the arbitration. GDC Entertainment is still waiting to hear from the arbitrator as to how she would like to proceed with the arbitration.

The Directors are of the opinion that settlement of the claim is remote. Accordingly, no provision for any potential liability has been made in the condensed consolidated financial statements.

Save as disclosed above, the Group had no significant contingent liabilities as at 30 June 2007.

EMPLOYEES

As at 30 June 2007, the Group employed 428 (31 December 2006: 383) full time employees (excluding those under the payroll of the associates and the jointly controlled entity of the Group). The Group remunerated its employees mainly with reference to the prevailing market practice, individual performance and experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund, discretionary bonus and employee share option scheme are also available to employee of the Group. Remuneration packages are reviewed either annually or by special increment.

During the six months ended 30 June 2007, the Group has not paid or committed to pay any amount as an inducement to join or upon joining the Company and/or its subsidiaries to any individual.

V. FINANCIAL AND TRADING PROSPECTS

With the expected blooming economy development in the PRC, the Group expect that the finance leasing business in the PRC will further expand and this will bring ample business opportunities. Through investment in South China Leasing, which has an existing and valid business license, can increase its participation in the PRC financial leasing business and is beneficial to the Group. After completion of the Jeckman Acquisition, the Group will increase its support to South China Leasing to speed up development of its business. South China Leasing will not only continue focusing on finance leasing of large development projects, such as aircrafts, container ships, energy and electricity, etc. but also explore different financing methods to lower its finance costs.

142

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

11 October 2007

==> picture [76 x 58] intentionally omitted <==

The Directors

Shougang Concord Grand (Group) Limited 6/F, Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai, Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Jeckman Holdings Limited (the “Company”) and its subsidiary (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007 (the “Relevant Periods”) for inclusion in the circular issued by the Company dated 11 October 2007 (the “Circular”) in connection with the very substantial acquisition of 50% interest in the registered capital of the Company. The sole asset of the Company is its 60% equity interest in 南方國際租賃有限公司 (“South China Leasing”), a company incorporated in the People’s Republic of China (the “PRC”, which for the purpose of this report, does not include Hong Kong, Macau and Taiwan), which is principally engaged in the finance leasing business, including the leasing of machinery, equipment, electrical equipment, meters and motor vehicles, in the PRC.

The Company was incorporated in the British Virgin Islands (the “BVI”) on 2 March 1993 and is an investment holding company. The address of the registered office is P.O. Box 71, Craigmuir Chambers, Road Town, Tortola, the British Virgin Islands.

As at the date of this report, the Company has the following subsidiary with limited liability:

			Proportion of
	Place and date of		contributed capital
	establishment/	Registered	held by
Name of subsidiary	operation	capital	the Company	Principal activity
South China Leasing_(Note)_	The PRC	US$24,000,000	60%	Leasing of property,
				plant and equipment

Note: The statutory financial statements of South China Leasing for each of the respective three years ended 31 December 2004, 2005 and 2006 were prepared in accordance with the relevant accounting principles and financial regulations applicable in the PRC and were audited by the PRC auditors, 深圳立信會計師事務所 , 中聯會計師事務所 , 深圳岳華會計師事務所 , respectively, in the respective years.

143

APPENDIX III

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

For the purpose of this report, the Group has prepared consolidated financial statements of the Group for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007 in accordance with accounting principles generally accepted in Hong Kong. We have undertaken an independent audit on the consolidated financial statements of the Group in accordance with the Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

We have examined the audited consolidated financial statements (the “Underlying Financial Statements”) of the Group for the Relevant Periods. Our examination was made in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The consolidated income statements and consolidated cash flow statements of the Group for each of the Relevant Periods and consolidated balance sheets as at 31 December 2004, 2005, 2006 and 30 June 2007 as set out in this report have been prepared based on the Underlying Financial Statements for the Relevant Periods for the purpose of preparing our report for inclusion in the Circular.

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

In our opinion, the Financial Information together with the notes thereon gives, for the purpose of this report, a true and fair view of the state of affairs of the Group as at 31 December 2004, 2005 and 2006 and 30 June 2007 and of the consolidated results and cash flows of the Group for each of the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007.

The comparative consolidated income statement, consolidated statement of changes in equity and consolidated cash flows of the Group for the six months ended 30 June 2006, together with the notes thereto, (the “30 June 2006 Financial Information”), were prepared by the Directors of the Company solely for the purpose of this report. We have reviewed the 30 June 2006 Financial Information in accordance with SAS 700 “Engagements to review interim financial reports” issued by the HKICPA. Our review consisted principally of making enquiries of management and applying analytical procedures to the 30 June 2006 Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the 30 June 2006 Financial Information. On the basis of our review which does not constitute an audit, we are not aware of any material modification that should be made to the 30 June 2006 Financial Information.

144

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

I. FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENT

Notes Revenue 6 Cost of sales Gross profit Other income 8 Administrative expenses Finance costs 9 Gain on disposal of an investment property Increase in fair value of an investment property Increase in fair value of held-for-trading investments Share of result of an associate 17 Loss for the year/period 11 Attributable to: Equity holders of the parent Minority interests Dividend 12 Loss per share 13 Basic Diluted	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 – 2,626 55,795 – (1,351) (44,505) – 1,275 11,290 – 358 777 (7) (4,329) (22,320) – (1,772) (3,600) – – 726 – 367 – – – 572 – (248) – (7) (4,349) (12,555) (7) (1,627) (10,256) – (2,722) (2,299) (7) (4,349) (12,555) 132,391 – – HK$(438) HK$(101,688) HK$(641,000) N/A N/A N/A	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (unaudited) 16,288 50,010 (12,491) (41,852) 3,797 8,158 148 73 (11,635) (9,122) (1,655) (1,903) – – – – – 995 – – (9,345) (1,799) (9,345) (1,876) – 77 (9,345) (1,799) – – HK$(584,063) HK$(117,250) N/A N/A

145

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

CONSOLIDATED BALANCE SHEET

Notes Non-current assets Investment property 14 Property, plant and equipment 15 Intangible asset 16 Interest in an associate 17 Finance lease receivables 18 Payment for acquisition of an associate 19 Restricted bank deposits 20 Current assets Finance lease receivables 18 Prepayments, deposits and other receivables 19 & 20 Amount due from a related party 21 Held-for-trading investments 22 Bank balances and cash 20 Current liabilities Trade payables 23 Other payables and accruals Income received in advance 24 Deposits received Amount due to ultimate holding company 21 Amounts due to related parties 21 Amount due to a shareholder 21 Bank borrowings 25 Net current (liabilities) assets Total assets less current liabilities	As 2004 HK$’000 – – – – – 2,861 – 2,861 – 10,184 – – 1 10,185 – – – – 13,023 – – – 13,023 (2,838) 23	at 31 December 2005 2006 HK$’000 HK$’000 1,200 – 2,603 1,610 21,866 20,932 – – 35,401 718,973 – – – – 61,070 741,515 34,206 273,640 4,643 3,818 – 19 – 94 5,658 65,044 44,507 342,615 1,750 1,343 715 3,176 1,310 5,848 – 676 – – 22,255 28,166 – 15,000 14,408 177,044 40,438 231,253 4,069 111,362 65,139 852,877	As at 30 June 2007 HK$’000 – 1,228 20,465 – 1,178,734 – 49,000
			1,249,427
			362,942 869 19 953 36,723
			401,506
			600 2,604 8,317 680 – 9,950 15,000 291,065
			328,216
			73,290
			1,322,717

146

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

Notes Non-current liabilities Income received in advance 24 Amount due to ultimate holding company 21 Amount due to ultimate holding company of a shareholder 21 Amount due to a shareholder 21 Bank borrowings 25 Deposits received Net assets Capital and reserves Share capital 27 Reserves Equity attributable to equity holders of the parent Minority interests Total equity	As 2004 HK$’000 – – – – – – – 23 – 23 23 – 23	at 31 December 2005 2006 HK$’000 HK$’000 1,194 14,065 49,176 – – 44,931 – 14,151 9,605 737,020 1,948 35,777 61,923 845,944 3,216 6,933 – – 3,216 (1,721) 3,216 (1,721) – 8,654 3,216 6,933	As at 30 June 2007 HK$’000 20,618 – 44,931 14,151 1,154,687 81,680 1,316,067 6,650 – (1,922) (1,922) 8,572 6,650

147

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Total HK$’000 75,194 (7) 57,227
Share capital HK$’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – –	Share premium HK$’000 7,683 – – – (7,683) – – – – – – – – – – – – – – – – – – – – – – –	Capital contribution reserve HK$’000 – – – – – – – – – – 4,650 4,650 – – – 1,274 5,924 – – – 2,669 – 8,593 – – – 1,864 10,457	Investment revaluation reserve HK$’000 64,021 – 57,227 57,227 (121,248) – – – – – – – – – – – – – – – – – – – – – – –	Accumulated Translation profits reserve (losses) HK$’000 HK$’000 – 3,490 – (7) – – – (7) – (3,460) – 23 170 – – (1,627) 170 (1,627) – – – – 170 (1,604) (113) – – (9,345) (113) (9,345) – – 57 (10,949) 1,489 – – (911) 1,489 (911) – – – – 1,546 (11,860) (189) – – (1,876) (189) (1,876) – – 1,357 (13,736)
					57,220
					(132,391)
					23
					170 (4,349)
					(4,179)
					2,722 4,650
					3,216
					(113) (9,345)
					(9,458)
					1,274
					(4,968)
					2,442 (3,210)
					(768)
					2,669 10,000
					6,933
					(348) (1,799)
					(2,147)
					1,864
					6,650

Note: Capital contribution reserve for the year ended 31 December 2005 represented the accumulated effect of imputed interest on amount due to Shougang Concord Grand (Group) Limited (“Shougang Grand”), which held 100% effective interest in the Company and was considered as the ultimate holding company of the Group during the period.

On 15 June 2006, Shougang Grand disposed of its 50% effective interest in the Company and became the ultimate holding company of a shareholder of the Group thereafter.

148

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

CONSOLIDATED CASH FLOW STATEMENTS

OPERATING ACTIVITIES Loss for the year/period Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible asset Gain on disposal of an investment property Allowance for finance lease receivables Written-off of other receivable Imputed interest expense on non-current amounts due to ultimate holding company/a shareholder and its ultimate holding company Finance costs on general borrowings Increase in fair value of an investment property Increase in fair value of held-for-trading investments Share of result of an associate Interest income from bank deposits Operating cash flows before movements in working capital Increase in finance lease receivables Decrease in prepayments, deposits and other receivables Decrease in held-for-trading investments Increase (decrease) in trade payables Increase (decrease) in other payables and accruals Increase in income received in advance Increase in deposits received Increase (decrease) in amount due to a related party Cash used in operations Interest paid on general borrowings NET CASH USED IN OPERATING ACTIVITIES	Six months ended Year ended 31 December 30 June 2004 2005 2006 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (7) (4,349) (12,555) (9,345) (1,799) – 618 1,414 693 785 – 545 934 467 467 – – (726) – – – – 4,649 4,649 2,144 – 327 – – – – 1,699 3,349 1,529 1,864 – 73 251 126 39 – (367) – – – – – (572) – (995) – 248 – – – – (71) (163) (85) (73) (7) (1,277) (3,419) (1,966) 2,432 – (69,607) (928,159) (752,051) (556,367) – 11,433 825 3,535 2,949 – – 478 – 136 – 1,701 (342) (1,750) (743) – 715 2,461 1,670 (572) – 2,504 17,453 6,670 9,022 – 1,948 34,574 29,138 46,105 – 22,255 5,911 (2,042) (18,223) (7) (30,328) (870,218) (716,796) (515,261) – (73) (251) (126) (39) (7) (30,401) (870,469) (716,922) (515,300)	Six months ended Year ended 31 December 30 June 2004 2005 2006 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (7) (4,349) (12,555) (9,345) (1,799) – 618 1,414 693 785 – 545 934 467 467 – – (726) – – – – 4,649 4,649 2,144 – 327 – – – – 1,699 3,349 1,529 1,864 – 73 251 126 39 – (367) – – – – – (572) – (995) – 248 – – – – (71) (163) (85) (73) (7) (1,277) (3,419) (1,966) 2,432 – (69,607) (928,159) (752,051) (556,367) – 11,433 825 3,535 2,949 – – 478 – 136 – 1,701 (342) (1,750) (743) – 715 2,461 1,670 (572) – 2,504 17,453 6,670 9,022 – 1,948 34,574 29,138 46,105 – 22,255 5,911 (2,042) (18,223) (7) (30,328) (870,218) (716,796) (515,261) – (73) (251) (126) (39) (7) (30,401) (870,469) (716,922) (515,300)
		2,432 (556,367) 2,949 136 (743) (572) 9,022 46,105 (18,223)
		(515,261) (39)
		(515,300)

149

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

Note
INVESTING ACTIVITIES
Increase in restricted bank deposits
Purchase of property, plant and equipment
Proceeds from disposal of an investment
property
Interest received from bank deposits
Cash inflow from acquisition of
a subsidiary, net
28
Payment for acquisition of an associate
NET CASH (USED IN) FROM INVESTING
ACTIVITIES
FINANCING ACTIVITIES
New loans raised
Capital contribution from a minority
shareholder
Advance from shareholders
Advance from a related party
Advance to a related company
Advance from (repayment to) ultimate
holding company/ultimate holding
company of a shareholder
Repayment of borrowings
NET CASH FROM FINANCING
ACTIVITIES
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE YEAR/PERIOD
EFFECT OF FOREIGN EXCHANGE
RATE CHANGES
CASH AND CASH EQUIVALENTS AT
END OF THE YEAR/PERIOD, represented
by bank balances and cash

Six months ended
Year ended 31 December
30 June
2004
2005
2006
2006
2007
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(unaudited)
–
–
–
–
(49,000)
–
(2,983)
(350)
(293)
(394)
–
–
1,926
–
–
–
71
163
85
73
–
5,666
–
–
–
(2,861)
–
–
–
–
(2,861)
2,754
1,739
(208)
(49,321)
–
–
1,020,000
840,000
645,000
–
–
10,000
–
–
–
–
30,000
–
–
–
–
–
–
7
–
–
(19)
(19)
–
2,869
39,104
(4,500)
(4,500)
–
–
(5,963)
(127,576)
(79,963)
(109,065)
2,869
33,141
927,905
755,518
535,942
1
5,494
59,175
38,388
(28,679)
–
1
5,658
5,658
65,044
–
163
211
42
358
1
5,658
65,044
44,088
36,723

150

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

The Company was incorporated in the BVI on 2 March 1993 as an investment holding company with limited liability. Its shareholders are Shougang Holding (Hong Kong) Limited (“Shougang Holding”), a controlling shareholder of Shougang Concord Grand (Group) Limited (“Shougang Grand”), and Grand Phoenix Limited (“Grand Phoenix”), a wholly owned subsidiary of Shougang Grand. The addresses of the registered office and principal place of business of the Company is P.O. Box 71, Craigmuir Chambers, Road Town, Tortola, the BVI and 6th floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, respectively.

During the Relevant Periods, the Group was principally engaged in the finance leasing business, including the leasing of machinery, equipment, electrical equipment, meters and motor vehicles in the PRC.

The functional currency of the Company and its sole subsidiary is Renminbi (“RMB”). The Financial Information is presented in Hong Kong dollars (“HKD”) because the acquirer of the Group is Shougang Grand, a company listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), and most of the investors of the acquirer are located in Hong Kong.

For the year ended 31 December 2004 and 2005, the Company was an indirectly wholly owned subsidiary of Shougang Grand and Shougang Grand was the ultimate holding company of the Group during that period. On 15 June 2006, Shougang Grand disposed of its 50% effective interest in the Company while Grand Phoenix, one of the shareholders of the Company, still remained as a wholly owned subsidiary of Shougang Grand. Accordingly, Shougang Grand became the ultimate holding company of a shareholder of the Group thereafter.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The Group has adopted all of the new Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKAS”) and Interpretations (hereinafter collectively referred to as “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), which are effective for accounting periods beginning on or after 1 January 2007 in the preparation of the Financial Information throughout the Relevant Periods.

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

HKAS 23 (Revised) Borrowing Costs[1] HKFRS 8 Operating Segments[1] HK(IFRIC) – INT 11 HKFRS 2 – Group and Treasury Share Transactions[2] HK(IFRIC) – INT 12 Service Concession Arrangements[3]

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

2 Effective for annual periods beginning on or after 1 March 2007 3 Effective for annual periods beginning on or after 1 January 2008

3. SIGNIFICANT ACCOUNTING POLICIES

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

The Financial Information has been prepared in accordance with the HKFRSs. These policies have been consistently applied throughout the Relevant Periods.

Basis of consolidation

The Financial Information incorporates the financial statements of the Company and its subsidiary. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefit from its activities.

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

151

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

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

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

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

Business combinations

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

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.

When a subsidiary is acquired through more than one exchange transaction, the cost of acquisition is the aggregate cost of the individual transactions, with the cost of each individual transaction determined at the date of each exchange transaction. Each transaction is treated separately to determine the goodwill on that transaction, using cost and fair value information at the date of each exchange transaction.

Revenue recognition

Revenue is measured at the fair value of the consideration received and receivable and represents interest income receivable from finance leasing in the ordinary course of business, net of related business taxes.

Consultancy income is recognised when services are provided.

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

Rental income from property and equipment leasing is recognised on a straight-line basis over the relevant lease terms.

Property, plant and equipment

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

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

Investment property

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

152

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

Leasing

The Group as lessor

The Group as lessee

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (“foreign currencies”) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date.

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

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

Borrowing costs

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

Retirement benefits costs

Payments to the defined contribution retirement benefit schemes are charged as expenses when employees have rendered service entitling them to the contributions.

Taxation

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

153

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

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

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

Intangible assets

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

Financial instruments

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

Financial assets

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss comprise financial assets held for trading. At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in consolidated income statement in the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including finance lease receivables, other receivables, amount due from a related party, restricted bank deposits and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in consolidated income statement when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

154

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of finance lease receivables where the carrying amount is reduced through the use of an allowance account. When a finance lease receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the consolidated income statement.

Available-for-sale financial assets

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

Financial liabilities and equity

Financial liabilities

The Group’s financial liabilities including trade and other payables, amounts due to related parties, amount due to ultimate holding company, amount due to ultimate holding company of a shareholder, amount due to a shareholder and bank borrowings are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

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

Derecognition

Impairment losses (other than goodwill)

155

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

Allowance for financial lease receivables

In determining whether there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material loss may arise. Allowance for finance lease receivables of approximately HK$4,649,000, HK$4,649,000 and HK$2,144,000 was made for the year ended 31 December 2006 and the six months ended 30 June 2006 and 2007, respectively.

5. FINANCIAL INSTRUMENTS

a. Financial risk management objectives and policies

The Group’s major financial instruments include finance lease receivables, other receivables, amount due from a related party, restricted bank deposits, bank balances, trade and other payables, bank borrowings, amounts due to related parties, amount due to ultimate holding company, amount due to an ultimate holding company of a shareholder and amount due to a shareholder. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Details of categories of financial assets and liabilities with its carrying values are as follows:

				As at
		As at 31 December		30 June
	2004	2005	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000
Financial assets
Loan and receivables	10,185	75,408	1,058,789	1,628,287
Financial assets at fair value
through profit or loss
Held-for-trading investments	–	–	94	953
Financial liabilities
Amortised cost	13,023	97,645	1,019,781	1,530,394

Interest rate risk

The Group’s cash flow interest rate risks relates primarily to variable-rate finance lease receivables, pledged bank deposits, bank balances and bank borrowings. The interest rate and terms of repayment of finance lease receivables, restricted bank deposits, bank balances and bank borrowings are disclosed in Notes 18, 20 and 25, respectively. The Group currently does not have an interest rate hedging policy. However, the management monitors interest rate change exposure and will consider hedging significant interest rate change exposure should the need arises.

Interest rate sensitivity

The sensitivity analysis below have been determined based on the exposure to interest rates for finance lease receivables and bank borrowings at the balance sheet dates and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates.

156

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007 would (decrease)/increase by approximately Nil, HK$(33,000), HK$786,000, HK$(1,732,000) and HK$(2,058,000), respectively. This is mainly attributable to the Group’s exposure to interest rates on its variable-rate finance lease receivables and bank borrowings.

The Group’s sensitivity to interest rates has increased during the Relevant Periods mainly due to the increment in variable-rate finance lease receivables and bank borrowings.

Credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations as at 31 December 2004, 2005 and 2006 and 30 June 2007 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. In order to manage the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that followup action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual finance lease receivables at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Directors of the Company consider that the Group’s credit risk is significantly reduced.

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

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

Liquidity risk

The Group has net current liabilities amounting to approximately HK$2,838,000 as at 31 December 2004. The Group is exposed to liquidity risk of being unable to raise sufficient funds to meet its financial obligations when they fall due.

To manage the liquidity risk, the Group has obtained financial support from Shougang Grand until 31 December 2005 to enable the Group to meet in full its financial obligations as and when they arise and to continue its operations in the foreseeable future.

Liquidity and interest risk tables

The following tables detail the Group’s remaining contractual maturity for its financial liabilities as at 31 December 2005 and 2006 and 30 June 2007. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. The adjustment column represents the possible future cash flows attributable to the instrument included in the maturity analysis which are not included in the carrying amount of the financial liability on the balance sheet.

157

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

31 December 2005

Weighted average effective interest rate (%) Trade payables – Other payables – Amount due to ultimate holding company 6 Amounts due to related parties – Bank borrowings 6.62 31 December 2006 Weighted average effective interest rate (%) Trade payables – Other payables – Amount due to ultimate holding company of a shareholder 6 Amounts due to related parties – Amount due to shareholders 6 Bank borrowings 6.76 30 June 2007 Weighted average effective interest rate (%) Trade payables – Other payables – Amount due to ultimate holding company of a shareholder 6 Amounts due to related parties – Amount due to shareholders 6 Bank borrowings 6.78	Less than 3 months HK$’000 – – – 22,255 3,980 26,235 Less than 3 months HK$’000 – – – 28,166 – 61,164 89,330 Less than 3 months HK$’000 – 10 – 9,950 – 94,904 104,864	3 months to 1 year HK$’000 1,750 451 – – 11,581 13,782 3 months to 1 year HK$’000 1,343 2,126 – – 15,000 173,911 192,380 3 months to 1 year HK$’000 600 – – – 15,000 272,603 288,203	1 – 2 years HK$’000 – – – – 9,844 9,844 1 – 2 years HK$’000 – – 47,431 – 15,000 213,529 275,960 1 – 2 years HK$’000 – – 45,945 – 15,000 412,050 472,995	2 – 5 years HK$’000 – – 50,875 – – 50,875 2 – 5 years HK$’000 – – – – – 525,471 525,471 2 – 5 years HK$’000 – – – – – 845,575 845,575	Over 5 years Adjustments HK$’000 HK$’000 – – – – – (1,699) – – – (1,392) – (3,091) Over 5 years Adjustments HK$’000 HK$’000 – – – – – (2,500) – – – (849) 122,715 (182,726) 122,715 (186,075) Over 5 years Adjustments HK$’000 HK$’000 – – – – – (1,014) – – – (849) 73,727 (253,107) 73,727 (254,970)	Total HK$’000 1,750 451 49,176 22,255 24,013
						97,645

						Total HK$’000 1,343 2,126 44,931 28,166 29,151 914,064
						1,019,781

						Total HK$’000 600 10 44,931 9,950 29,151 1,445,752
						1,530,394

158

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

The following table details the Group’s expected maturity for its financial assets as at 31 December 2005 and 2006 and 30 June 2007. The table below have been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the Group anticipates that the cash flow will occur in a different period. The adjustment column represents the possible future cash flows attributable to the instrument included in the maturity analysis which are not included in the carrying amount of the financial asset on the balance sheet.

31 December 2005

Weighted average effective interest rate (%) Finance lease receivables 8.5 Other receivables – Bank balances – 31 December 2006 Weighted average effective interest rate (%) Finance lease receivables 9 Other receivables – Amount due from a related party – Bank balances – 30 June 2007 Weighted average effective interest rate (%) Finance lease receivables 11 Other receivables – Amount due from a related party – Restricted bank deposits 8.64 Bank balances –	Less than 3 months HK$’000 8,167 143 5,658 13,968 Less than 3 months HK$’000 70,497 1,113 19 65,044 136,673 Less than 3 months HK$’000 91,448 785 19 – 36,723 128,975	3 months to 1 year HK$’000 29,990 – – 29,990 3 months to 1 year HK$’000 271,957 – – – 271,957 3 months to 1 year HK$’000 393,820 – – – – 393,820	1 – 2 years HK$’000 28,078 – – 28,078 1 – 2 years HK$’000 235,379 – – – 235,379 1 – 2 years HK$’000 419,416 84 – – – 419,500	2 – 5 years HK$’000 10,353 – – 10,353 2 – 5 years HK$’000 542,502 – – – 542,502 2 – 5 years HK$’000 853,400 – – 60,954 – 914,354	Over 5 years Adjustments HK$’000 HK$’000 – (6,981) – – – – – (6,981) Over 5 years Adjustments HK$’000 HK$’000 87,838 (215,560) – – – – – – 87,838 (215,560) Over 5 years Adjustments HK$’000 HK$’000 87,152 (303,560) – – – – – (11,954) – – 87,152 (315,514)	Total HK$’000 69,607 143 5,658
						75,408

						Total HK$’000 992,613 1,113 19 65,044
						1,058,789

						Total HK$’000 1,541,676 869 19 49,000 36,723
						1,628,287

159

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

b. Fair value

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

the fair value of financial assets with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices; and

• the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The Directors of the Company consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their corresponding fair values.

c. Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

The capital structure of the Group consists of debt, which includes amount due to ultimate holding company, amounts due to related parties, bank borrowings, amount due to ultimate holding company of a shareholder and amount due to a shareholder as disclosed in Notes 21 and 25, respectively, bank balances and equity attributable to equity holders of the Company, comprising issued capital, reserves and accumulated profits (losses).

The Directors of the Company review the capital structure from time to time. As part of this review, the Directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the Directors, the Group will balance its overall capital structure through new debts.

d. Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial assets, financial liability and equity instrument are disclosed in Note 3.

6. REVENUE

Revenue represents finance lease income arising from leasing of machinery, equipment, electrical equipment, meters and motor vehicles in the PRC during the Relevant Periods and the six months ended 30 June 2006.

7. BUSINESS AND GEOGRAPHICAL SEGMENTS

The Group is principally engaged in finance leasing business and therefore no business segment information is presented.

No geographical segment information is presented for the Relevant Periods and the six months ended 30 June 2006 as 100% of the Group’s segment revenue and assets are derived from operations carried out in the PRC.

8. OTHER INCOME

Consultancy income Interest income from bank deposits Rental income Others	Six months ended Year ended 31 December 30 June 2004 2005 2006 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – 175 – – – 71 163 85 73 – 33 112 63 – – 254 327 – – – 358 777 148 73	Six months ended Year ended 31 December 30 June 2004 2005 2006 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – 175 – – – 71 163 85 73 – 33 112 63 – – 254 327 – – – 358 777 148 73
		73

160

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

9. FINANCE COSTS

Inputed interest expense on non-current amount due to: – ultimate holding company – ultimate holding company of a shareholder – a shareholder Other finance costs	Six months ended Year ended 31 December 30 June 2004 2005 2006 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – 1,699 – – – – – 2,969 1,529 1,418 – – 380 – 446 – 73 251 126 39 – 1,772 3,600 1,655 1,903	Six months ended Year ended 31 December 30 June 2004 2005 2006 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – 1,699 – – – – – 2,969 1,529 1,418 – – 380 – 446 – 73 251 126 39 – 1,772 3,600 1,655 1,903
		1,903

10. INCOME TAX EXPENSE

No provision for Hong Kong Profit Tax has been made in the Financial Information as the Group’s income for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007 neither arises in, nor is derived from Hong Kong.

The Group is engaged in the finance leasing industry in Shenzhen and enjoys a preferential enterprise income tax rate of 15% on the assessable profits with the approval of the State Administration of Taxation. The PRC subsidiary enjoys this preferential tax rate throughout the Relevant Periods and the six months ended 30 June 2006.

However, no provision for the Enterprise Income Tax (“EIT”)of the PRC was made in the Financial Information as the Group’s subsidiary operating in the PRC has no assessable profit for the two years ended 31 December 2005 and 2006 and the six months ended 30 June 2006 and 2007. The Group did not have any subsidiary operating in the PRC during the year ended 31 December 2004.

Income tax expense for the year/period can be reconciled to the loss for the year/period in the consolidated income statement as follows:

Loss for the year/period Tax at the PRC tax rate of 15% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of deferred tax assets not recognised Tax effect of utilisation of tax losses not previously recognised Tax effect of tax benefit granted to the subsidiary Income tax expense for the year/period	Six months ended Year ended 31 December 30 June 2004 2005 2006 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (7) (4,349) (12,555) (9,345) (1,799) (1) (653) (1,883) (1,402) (270) 1 487 673 353 461 – (17) – (756) – – 376 2,968 2,150 1,961 – (103) – – – – (90) (1,758) (345) (2,152) – – – – –	Six months ended Year ended 31 December 30 June 2004 2005 2006 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (7) (4,349) (12,555) (9,345) (1,799) (1) (653) (1,883) (1,402) (270) 1 487 673 353 461 – (17) – (756) – – 376 2,968 2,150 1,961 – (103) – – – – (90) (1,758) (345) (2,152) – – – – –

		(270) 461 – 1,961 – (2,152)
		–

Details of deferred taxation are set out in Note 26.

161

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

11. LOSS FOR THE YEAR/PERIOD

Loss for the year/period has been
arrived at after charging:
Directors’ remuneration
Staff costs, comprising:
– Salaries, wages and other benefits
– Retirement benefit scheme contributions
Total staff costs
Minimum lease payments under
operating leases for land and buildings
Allowance for finance lease receivables
Write-off of other receivable
Amortisation of intangible asset
Auditor’s remuneration
Depreciation of property, plant
and equipment
and crediting:
Gross rents from investment properties
Less: outgoings
DIVIDEND
Ordinary shares:
Interim – HK$8,274,446 per share,
by way of distribution in specie

Six months ended
Year ended 31 December
30 June
2004
2005
2006
2006
2007
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(unaudited)
–
–
–
–
–
–
1,312
4,802
2,191
1,638
–
72
93
46
66
–
1,384
4,895
2,237
1,704
–
–
2,726
1,243
882
–
–
4,649
4,649
2,144
–
327
–
–
–
–
545
934
467
467
–
37
19
18
8
–
618
1,414
693
785
–
33
112
63
–
–
(10)
(12)
(3)
–
–
23
100
60
–
Six months ended
Year ended 31 December
30 June
2004
2005
2006
2006
2007
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(unaudited)
132,391
–
–
–
–

12. DIVIDEND

For the year ended 31 December 2004, the Directors of the Company distributed a special dividend which was satisfied by the distribution in specie of the Group’s entire shareholding of approximately 16.36%, representing 131,306,500 shares in Shougang Concord Technology Holdings Limited (“Shougang Technology”), to its immediate holding company (the “Distribution”). The Distribution was completed on 23 March 2004 and the market price of Shougang Technology’s share at that date was approximately HK$1.01 per share. Total dividend paid during that year amounted to approximately HK$132,391,000.

No other dividend was paid or proposed during year ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007, nor has any dividend been proposed since the balance sheet date.

162

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

13. LOSS PER SHARE

For the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007, the calculation of the basic loss per share is based on the loss for the year/period attributable to equity holders of the parent of approximately HK$7,000, HK$1,627,000, HK$10,256,000, HK$9,345,000 (unaudited) and HK$1,876,000, respectively, and on the number of shares in issue of 16 shares during the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007.

No diluted loss per share has been presented for the year ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007 because the Company has no potential ordinary shares outstanding for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007.

14. INVESTMENT PROPERTY

FAIR VALUE At 1 January 2005 Acquired on acquisition of a subsidiary Increase in fair value recognised in the consolidated income statement At 31 December 2005 and 1 January 2006 Disposals At 31 December 2006 and 30 June 2007	HK$’000 – 833 367 1,200 (1,200) –

The fair value of the Group’s investment property at 31 December 2005 has been arrived at on the basis of a valuation carried out on that date by AA Property Services Limited, independent qualified professional valuers not connected with the Group. AA Property Services Limited is a registered member firm of the Hong Kong Institute of Surveyors (the “HKIS”), and has appropriate qualifications. The valuation, which conforms to the HKIS Valuation Standards, was arrived at by reference to market evidence of transaction prices for similar properties.

All of the Group’s property interests held under operating leases to earn rentals are measured using the fair value model and are classified and accounted for as investment properties. The carrying amount of such property interests amounted to approximately HK$1,200,000, as at 31 December 2005.

The Group’s investment property was held under long leases in the PRC.

163

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

15. PROPERTY, PLANT AND EQUIPMENT

Office equipment, furniture Leasehold and improvements fixtures HK$’000 HK$’000 COST At 1 January 2005 – – Additions 2,031 952 Arising from acquisition of a subsidiary – 231 Exchange realignment 5 3 At 31 December 2005 and 1 January 2006 2,036 1,186 Additions 78 20 Exchange realignment 74 42 At 31 December 2006 and 1 January 2007 2,188 1,248 Additions – – Exchange realignment 12 7 At 30 June 2007 2,200 1,255 DEPRECIATION AND IMPAIRMENT At 1 January 2005 – – Provided for the year 508 110 Exchange realignment 1 – At 31 December 2005 and 1 January 2006 509 110 Provided for the year 1,041 304 Exchange realignment 38 10 At 31 December 2006 and 1 January 2007 1,588 424 Provided for the period 550 157 Exchange realignment 9 2 At 30 June 2007 2,147 583 CARRYING VALUES At 30 June 2007 53 672 At 31 December 2006 600 824 At 31 December 2005 1,527 1,076	Motor vehicle HK$’000 – – – – – 252 5 257 394 1 652 – – – – 69 2 71 78 – 149 503 186 –	Total HK$’000 – 2,983 231 8
		3,222 350 121
		3,693 394 20
		4,107
		– 618 1
		619 1,414 50
		2,083 785 11
		2,879
		1,228

		1,610

		2,603

Leasehold improvements 50% Office equipment, furniture and fixtures 25% Motor vehicle 30%

During the two years ended 31 December 2005 and 2006 and the six months ended 30 June 2007, the Directors conducted an impairment review of the Group’s property, plant and equipment and no impairment losses were identified.

164

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

16. INTANGIBLE ASSET

	Finance lease
	license
	HK$’000
COST
Acquired from acquisition of a subsidiary during 2005 and
balance at 31 December 2005, 1 January 2006,
31 December 2006, 1 January 2007 and 30 June 2007	22,411
AMORTISATION
Charge for the year ended 31 December 2005 and balance
at 31 December 2005 and 1 January 2006	545
Charge for the year	934
At 31 December 2006 and 1 January 2007	1,479
Charge for the period	467
At 30 June 2007	1,946
CARRYING VALUES
At 30 June 2007	20,465
At 31 December 2006	20,932
At 31 December 2005	21,866

The Group’s finance lease license was acquired as part of a business combination during the year ended 31 December 2005.

The Directors amortised the cost on a straight-line basis over 24 years which is the remaining valid period of the business license of that subsidiary.

During the two years ended 31 December 2005 and 2006 and the six months ended 30 June 2007, the Directors conducted an impairment review of the Group’s intangible asset with reference to a valuation performed by an external valuer and no impairment losses were identified.

17. INTEREST IN AN ASSOCIATE

In January 2005, the Company acquired a 40% equity interest of South China Leasing and it became an associate of the Group. A share of post-acquisition loss of this associate of approximately HK$248,000 has been recognised in the consolidated income statement for the year ended 31 December 2005. This associate subsequently became a subsidiary of the Company upon further acquisition of a 20% equity interest by the Company in May 2005. Particulars regarding the acquisition of this entity are disclosed in Note 28.

165

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

18. FINANCE LEASE RECEIVABLES

During the year ended 31 December 2005, the Group started finance leasing business upon acquisition of South China Leasing as disclosed in Note 28. All interest rates inherent in the leases are determined at the People’s Bank of China RMB Lending Rate (“PBC Rate”) plus a premium rate ranging from 0.4% to 0.9% per annum at the contract date over the lease terms.

Finance lease receivables comprise: Within one year In more than one year but not more than two years In more than two years but not more than three years In more than three years but not more than four years In more than four years but not more than five years Over five years Less: Unearned finance income Present value of minimum lease receipts Analysed as: Current finance lease receivables (receivable within 12 months) Non-current finance lease receivables (receivable after 12 months)	Minimum lease receipts As at 31 December As at 30 June 2005 2006 2007 HK$’000 HK$’000 HK$’000 38,157 342,454 485,268 28,078 235,379 419,416 5,271 214,524 508,265 3,400 194,769 220,314 1,682 133,209 124,821 – 87,838 87,152 76,588 1,208,173 1,845,236 (6,981) (215,560) (303,560) 69,607 992,613 1,541,676	Present value of minimum lease receipts As at 31 December As at 30 June 2005 2006 2007 HK$’000 HK$’000 HK$’000 34,206 273,640 362,942 26,282 180,386 335,478 4,500 173,408 453,630 3,009 167,022 194,341 1,610 117,839 111,956 – 80,318 83,329 69,607 992,613 1,541,676 N/A N/A N/A 69,607 992,613 1,541,676 34,206 273,640 362,942 35,401 718,973 1,178,734 69,607 992,613 1,541,676	Present value of minimum lease receipts As at 31 December As at 30 June 2005 2006 2007 HK$’000 HK$’000 HK$’000 34,206 273,640 362,942 26,282 180,386 335,478 4,500 173,408 453,630 3,009 167,022 194,341 1,610 117,839 111,956 – 80,318 83,329 69,607 992,613 1,541,676 N/A N/A N/A 69,607 992,613 1,541,676 34,206 273,640 362,942 35,401 718,973 1,178,734 69,607 992,613 1,541,676
			1,541,676 N/A
			1,541,676

			362,942 1,178,734
			1,541,676

Effective interest rates of the above finance leases for the two years ended 31 December 2005 and 2006 and the six months ended 30 June 2007 are as follows:

		31	December	31 December		30 June
			2005	2006		2007
Effective interest rates	5% to	12%	per annum	6% to 12% per annum	6% to	16% per annum

Unguarantee residual values of assets leased under finance leases for the two years ended 31 December 2005 and 2006 and the six months ended 30 June 2007 are estimated at approximately HK$9,000 HK$53,000 and HK$52,000, respectively.

For the year ended 31 December 2006 and the six months ended 30 June 2007, finance lease receivables of approximately HK$904,118,000 and HK$1,471,134,000, respectively have been pledged against specific bank borrowings granted to the Group.

Before accepting any new finance lease borrower, the Group has assessed the credit quality of each potential finance lease borrower and defined credit rating and limits for each finance lease borrower. In addition, the Group has reviewed the repayment history of finance lease payments by each finance lease borrower with reference to the repayment schedule from the date of finance lease was initially granted up to the reporting date to determine the recoverability of a finance lease receivable.

The Group has no significant concentration of credit risk of the Group’s finance lease receivables. In order to minimise the credit risk, management continuously monitor the level of exposure to ensure that follow-up action and/or corrective actions are taken promptly to lower the risk exposure or to recover overdue balances. Accordingly, the Directors believe that adequate credit provision has been made during the Relevant Periods.

166

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

The Group has fully provided allowance for finance lease receivables of approximately HK$4,649,000, HK$4,649,000 and HK$2,144,000 for the year ended 31 December 2006 and the six months ended 30 June 2006 and 2007, respectively, for finance lease receivables which had been past due and considered as irrecoverable by the Directors of the Company during the Relevant Periods and the six months ended 30 June 2006.

Movement of the accumulated allowance for finance lease receivables for the Relevant Periods is set out as follows:

Balance at beginning of the year/period Addition for the year/period Exchange realignment Balance at end of the year/period	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK’000 – – – – – 4,649 – – 135 – – 4,784	As at 30 June 2007 HK’000 4,784 2,144 26
		6,954

19. PAYMENT FOR ACQUISITION OF AN ASSOCIATE

During the year ended 31 December 2004, the Group entered into an agreement with an independent third party and paid a total consideration of approximately HK$12,995,000, comprising the consideration of approximately HK$2,861,000 to acquire 40% equity interest in South China Leasing and the assignment of a shareholder’s loan of approximately HK$10,134,000, which is unsecured, interest bearing at prevailing market rate and repayable on demand and is classified as other receivables as at 31 December 2004. South China Leasing is a company established in the PRC with principal activities in the provision of finance leasing including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties, in the PRC. It is a sino-foreign equity joint venture established in the PRC on 20 May 1989 with an operation term of 40 years expiring in 2029 and registered capital amounted to RMB5,000,000. Since full payment of the total consideration for the acquisition of 40% equity interest in South China Leasing by the Group was made in September 2004, South China Leasing has applied to the relevant PRC authorities for approval of the change in shareholder. Such approval and relevant significant influence to South China Leasing by the Group has been obtained and established in January 2005. Accordingly, South China Leasing was not considered as an associate for the year and the amount was classified as payment for acquisition of an associate as at 31 December 2004.

20. OTHER FINANCIAL ASSETS

Prepayments, deposits and other receivables

Other receivables Prepayments	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK’000 10,184 143 1,113 – 4,500 2,705 10,184 4,643 3,818	As at 30 June 2007 HK’000 869 –
		869

Other receivables as at 31 December 2004 mainly represented the shareholder’s loan assigned upon acquisition of an associate. Details are set out in Note 19.

Other receivables as at 31 December 2005 and 2006 and 30 June 2007 mainly represent interest receivables and handling fee receivable from the finance lease borrowers and advances to staff. Prepayments mainly comprise prepayment made for purchase of assets to be leased to the finance lease borrowers.

The Group does not hold any collateral over these balances. The average age of the other receivables at 31 December 2004, 2005 and 2006 and 30 June 2007 are 30, 30, 30 and 90 days, respectively.

167

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

Restricted bank deposits

The amounts as at 30 June 2007 represented bank deposits restricted for the repayable of bank borrowings and are therefore classified as non-current assets.

The deposits carried average interest rate at 8.64% per annum. The restricted bank deposits will be released upon the full settlement of the relevant bank borrowings.

Bank balances and cash

The Group’s deposits carry interest rate at prevailing bank saving deposits rate with maturity of less than 3 months.

21. AMOUNTS DUE FROM (TO) A RELATED PARTY/RELATED PARTIES/AMOUNT DUE TO ULTIMATE HOLDING COMPANY/ ULTIMATE HOLDING COMPANY OF A SHAREHOLDER/ A SHAREHOLDER

Notes Amounts due from: Non-trade related: Related party which is a subsidiary of a shareholder: Within one year (i) Amounts due to: Trade-related: Related party which is a subsidiary of a shareholder: Within one year (ii) Non-trade related: Ultimate holding company (iii) Ultimate holding company of a shareholder (iii) Shareholders (iv) Related parties which are subsidiaries of a shareholder (v)	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK’000 – – 19 – 22,255 28,166 13,023 49,176 – – – 44,931 – – 29,151 – – – 13,023 49,176 74,082	As at 30 June 2007 HK’000 19

		9,943

		– 44,931 29,151 7
		74,089

Notes:

(i) The amount due from a related party as at 31 December 2006 and 30 June 2007 is unsecured, non-interest bearing and repayable on demand.

(ii) The trade-related amount due to a related party as at 31 December 2005 and 2006 and 30 June 2007 is unsecured, interest bearing at prevailing market rate and repayable on demand.

The average age of amount as at 31 December 2005 and 2006 and 30 June 2007 are 60, 60 and 60 days, respectively.

168

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

(iii) Amount due to ultimate holding company as at 31 December 2004 and 2005 and amount due to ultimate holding company of a shareholder as at 31 December 2006 and 30 June 2007 represented amount due to Shougang Grand. Prior to 15 June 2006, the Company is an indirectly wholly owned subsidiary of Shougang Grand. The amount due to Shougang Grand by the Group is grouped under amount due to ultimate holding company as at 31 December 2004 and 2005. Upon the disposal of 50% effective interest in the Company by Shougang Grand on 15 June 2006, the amount due to Shougang Grand by the Group is reclassified to amount due to ultimate holding company of a shareholder thereafter. Details are set out in Note 1.

The amount due to ultimate holding company as at 31 December 2004 is unsecured, non-interest bearing and repayable on demand.

The amount due to ultimate holding company as at 31 December 2005 and the amount due to ultimate holding company of a shareholder of the Company as at 31 December 2006 and 30 June 2007 is unsecured, non-interest bearing and has no fixed terms of repayment. As Shougang Grand agreed not to demand repayment from the Group within one year from the balance sheet date and is therefore considered as non-current. Such non-interest bearing advance is measured at amortised cost determined using the effective interest method at subsequent balance sheet dates. The effective interest rate used was 6%, being approximates to the prevailing market borrowing rate of interest for a similar instrument.

(iv) Included in amounts due to shareholders as at 31 December 2006 and 30 June 2007 of HK$15,000,000 are unsecured, non-interest bearing and repayable on demand.

The remaining amounts due to shareholders of HK$14,151,000 as at 31 December 2006 and 30 June 2007 are unsecured, non-interest bearing and have no fixed terms of repayment. As the shareholders agreed not to demand repayment from the Group within one year from the balance sheet date, the amounts due to shareholders are therefore considered as non-current. Such non-interest bearing advance is measured at amortised cost determined using the effective interest method at subsequent balance sheet dates. The effective interest rate used was 6%, being approximates to the prevailing market borrowing rate of interest for a similar instrument.

(v) The non-trade related amount due to a related party as at 30 June 2007 is unsecured, non-interest bearing and repayable on demand.

22. HELD-FOR-TRADING INVESTMENTS

Held-for-trading investments as at 31 December 2006 and 30 June 2007 represent equity securities listed in the PRC.

23. TRADE PAYABLE

Trade payables 0-90 days 91-180 days Over 181 days Balance at end of the year /period	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK’000 – 1,710 1,343 – – – – 40 – – 1,750 1,343	As at 30 June 2007 HK’000 – – 600
		600

Trade payables comprise principally amounts outstanding for trade purchases. The average credit period taken for trade purchases is 30 to 90 days.

24. INCOME RECEIVED IN ADVANCE

The amount of income received in advance as at 31 December 2005 and 2006 and 30 June 2007 represented handling fee income received in advance in respect of finance lease receivables for administrative services provided over the relevant lease term.

169

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

25. BANK BORROWINGS

Secured Unsecured Carrying amount repayable: On demand or within one year More than one year, but not exceeding two years More than two years, but not exceeding three years More than three years, but not exceeding four years More than four years, but not exceeding five years Over five years Less: Amounts due within one year shown under current liabilities Amounts due after one year	As at As at 31 December 2005 2006 HK$’000 HK’000 – 904,118 24,013 9,946 24,013 914,064 14,408 177,044 9,605 167,098 – 167,098 – 167,098 – 119,355 – 116,371 24,013 914,064 (14,408) (177,044) 9,605 737,020	30 June 2007 HK’000 1,443,252 2,500
		1,445,752

		291,065 330,158 456,782 194,400 102,347 71,000
		1,445,752 (291,065)
		1,154,687

The exposure of the Group’s variable-rate borrowings and the contractual maturity dates are as follows:

Variable-rate borrowings which due within one year More than one year, but not exceeding two years More than two years, but not exceeding three years More than three years, but not exceeding four years More than four years, but not exceeding five years Over five years	As at As at 31 December 2005 2006 HK$’000 HK’000 14,408 177,044 9,605 167,098 – 167,098 – 167,098 – 119,355 – 116,371 24,013 914,064	30 June 2007 HK’000 291,065 330,158 456,782 194,400 102,347 71,000
		1,445,752

The ranges of effective interest rates (which are equal to contractual interest rates) on the Group’s bank borrowings as follows:

					As at
		As at 31 December			30 June
	2004	2005		2006	2007
Effective interest rate:
Variable-rate borrowings
– Bank loans	–	1-3 years PBC	1-3 years PBC		1-3 years PBC
	–	Rate plus 0.86%	Rate plus 0.46%		Rate plus 0.51%

In any event of default repayment by the finance lease receivables, the ownership of the underlying assets of respective finance lease will be taken over by the bank and the bank has the right to recover the remaining outstanding balance of bank borrowings from the Group after realisation of the underlying assets of respective finance lease in the open market. The Group is required to settle any shortfall between the realisation proceeds and the remaining outstanding loan balance to the bank.

170

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

26. DEFERRED TAXATION

The Group has unused tax losses of approximately HK$2,955,000, HK$7,125,000 and HK$10,938,000 at 31 December 2005 and 2006 and 30 June 2007, respectively, available for offset against future profits. No deferred tax asset has been recognised in respect of such losses due to unpredictability of future profit streams. All these losses will be expired at various dates up to 30 June 2012.

The Group has deductible temporary differences of approximately HK$2,505,000, HK$18,127,000 and HK$27,395,000 at 31 December 2005 and 2006 and 30 June 2007, respectively arising from income received in advance. No deferred tax asset has been recognised in relation to such deductible temporary difference as it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

27. SHARE CAPITAL

Ordinary shares of HK$7.8 (US$1) each Authorised: At beginning and end of the year/period Issued and fully paid: At beginning and end of the year/period	2004 Number Nominal of shares value HK$’000 50,000 390 16 –	2005 Number Nominal of shares value HK$’000 50,000 390 16 –	2006 Number Nominal of shares value HK$’000 50,000 390 16 –	2007 Number of shares 50,000 16	Nominal value HK$’000 390

					–

28. ACQUISITION OF A SUBSIDIARY

For the year ended 31 December 2005

In September 2004, the Group paid approximately HK$2,861,000 as payment for acquisition of a 40% equity interest of South China Leasing. The relevant approval from the PRC authority of the change in shareholder was obtained in January 2005. Accordingly, the payment for acquisition of an associate recognised in 2004 was transferred as investment cost of an associate in the year of 2005. In May 2005, the Group has further acquired an additional 20% equity interest of South China Leasing at a consideration of approximately HK$1,471,000 and it became a subsidiary of the Company since 26 May 2005. As at 31 December 2006 and 30 June 2007, the Group held a 60% equity interest of South China Leasing.

171

APPENDIX III

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

The net assets acquired in the above purchase transactions accounted for using the step acquisitions method, are as follows:

Acquiree’s carrying amount before combination HK$’000 Net assets acquired: Property, plant and equipment 231 Investment property 833 Intangible asset in respect of a finance lease licence – Bank balances and cash 7,137 Trade and other receivables 6,219 Trade and other payables (49) Borrowings (29,976) (15,605) Minority interests – (15,605) Total consideration satisfied by: Interest in an associate Cash consideration paid Net cash inflow arising on acquisition: Cash consideration paid Bank balances and cash	Fair value adjustment HK$’000 – – 22,411 – – – – 22,411 – 22,411	Fair value HK$’000 231 833 22,411 7,137 6,219 (49) (29,976) 6,806 (2,722) 4,084 Fair value HK$’000 2,613 1,471 4,084 (1,471) 7,137 5,666

If the acquisition had been completed on 1 January 2005, the revenue for the Group for the year ended 31 December 2005 would have been approximately HK$4,369,000 and loss for the year would have been approximately HK$2,961,000. The pro forma information is for illustrative purpose only and is not necessary an indicative revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2005, nor it is intended to be a projection of future results.

29. MAJOR NON CASH TRANSACTIONS

For the year ended 31 December 2004, the Group distributed special dividend in specie of the Group’s entire shareholding in an associate. Details of the Distribution are set out in Note 12.

172

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

30. OPERATING LEASES

The Group as lessor

Property rental income earned during the two years ended 31 December 2005 and 2006 and the six months ended 30 June 2006 was approximately HK$33,000, HK$112,000 and HK$63,000. No property rental income was earned during the year ended 31 December 2004 and the six months ended 30 June 2007. The property held have committed tenants for the next one year.

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

				As at
		As at 31 December		30 June
	2004	2005	2006	2007
	HK$’000	HK$’000	HK’000	HK’000
Within one year	–	105	–	–

The Group as lessee

Minimum lease payments paid under operating lease in respect of office premises during the ended 31 December 2006 and the six months ended 30 June 2006 and 2007 was approximately HK$2,726,000, HK$1,243,000 and HK$882,000 respectively. There were no operating lease payments for the two years ended 31 December 2004 and 2005.

The Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

				As at
		As at 31 December		30 June
	2004	2005	2006	2007
	HK$’000	HK$’000	HK’000	HK’000
Within one year	–	–	1,029	147

Operating lease payments represent rentals payable by the Group for its office premises. Leases for properties are negotiated for a term of one year with fixed rentals.

31. RETIREMENT BENEFIT SCHEMES

Pursuant to the relevant regulations of the government in the PRC, the subsidiary in the PRC participate in the municipal government contribution scheme whereby the subsidiary is required to contribute to the scheme for the retirement benefit of eligible employees. The municipal government of the PRC is responsible for the entire benefit obligations payable to the retired employees. The only obligation of the Group with respect to the scheme is to pay the ongoing contributions required by the scheme.

The retirement benefit costs represent gross contributions paid and payable by the Group to the schemes operated in the PRC. There was no forfeited contribution throughout the Relevant Periods.

173

ACCOUNTANTS’ REPORT OF JECKMAN HOLDINGS

APPENDIX III

32. RELATED PARTY TRANSACTIONS

(a) During the Relevant Periods and the six months ended 30 June 2006, the Group entered into the following transactions with the related parties:

				Six months ended	Six months ended
	Year ended 31 December			30	June
	2004	2005	2006	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Subsidiaries of Shougang Grand:
Interest expenses charged by
首方投資管理(深圳)有限公司(“首方”)	–	73	257	125	855
Rental expenses charged by首方	–	–	2,726	1,243	882
Consultancy expense charged by首方	–	–	318	4	–
Interest income received from
Global Digital Creations Holdings
Limited (“GDC”)	–	56	104	54	38
Handling fees being received from GDC	–	37	–	–	–

The Group operates in an economic environment currently predominated by entity directly or indirectly owned or controlled by the PRC government (“state-controlled entities”). In addition, the Group itself is a part of a larger group of companies under 首鋼集團 Shougang Corporation, which has beneficial interest in Shougang Grand and is controlled by the PRC government. The Directors are of the opinion that transactions with other state-controlled entities are not significant to the Group’s operations.

The Group has entered into various transactions, including deposits placements, borrowings and other general banking facilities, with certain banks and financial institutions which are state-controlled entities in its ordinary course of business. In view of the nature of those banking transactions, the Directors are of the opinion that separate disclosure would not be meaningful. The Directors are of the opinion that transactions with other state-controlled entities are not significant to the Group’s operations.

Details of balances with related parties as at the balance sheet dates are set out in the consolidated balance sheet and in Note 21.

(b) Compensation to key management personnel

No remuneration was paid to directors and other members of key management during the Relevant Periods and the six months ended 30 June 2006.

II. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Group or any of its subsidiary have been prepared in respect of any period subsequent to 30 June 2007.

Yours faithfully

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

174

ADDITIONAL FINANCIAL INFORMATION OF THE JECKMAN GROUP

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS AND OPERATIONS OF THE JECKMAN GROUP

FOR THE YEAR ENDED 31 DECEMBER 2004

During the year ended 31 December 2004, operation of Jeckman Holdings was under restructuring and Jeckman Holdings did not have significant operation and record any revenue during the year.

In February 2004, Jeckman Holdings distributed its approximately 16.36% equity interest in Shougang Technology to its holding company for the distribution of a special dividend of the Company in specie of the Group’s entire shareholding in Shougang Technology to the Company’s shareholders on a pro-rata basis.

During the year, Jeckman Holdings also entered into an agreement with an independent third party and paid a total consideration of approximately HK$12,995,000, comprising the consideration of approximately HK$2,861,000 to acquire 40% equity interest in South China Leasing and the assignment of a shareholder’s loan of approximately HK$10,134,000. In September 2004, South China Leasing has applied to the relevant PRC authorities for approval of the change in shareholder. Such approval and relevant significant influence to South China Leasing by Jeckman Holdings has been obtained and established in January 2005. Accordingly, South China Leasing was not considered as an associate of Jeckman for the year and the amount was classified as payment for acquisition of an associate as at 31 December 2004.

LIQUIDITY AND FINANCIAL RESOURCES

Jeckman Holdings had bank balances and cash of approximately HK$1,000 as at 31 December 2004 which were mainly denominated in Hong Kong dollars.

Jeckman Holdings borrowing amounted to approximately HK$13.0 million as at 31 December 2004 which were repayable within twelve months from 31 December 2004. The amount represented amount due to ultimate holding company and was unsecured, non-interest bearing and repayable on demand.

As at 31 December 2004, gearing ratio (calculated as borrowings less bank balances and cash divided by equity attributable to equity holders of Jeckman Holdings) was approximately 566. As at 31 December 2004, current ratio was approximately 0.8 based on current assets of approximately HK$10.2 million and current liabilities of approximately HK$13.0 million.

175

ADDITIONAL FINANCIAL INFORMATION OF THE JECKMAN GROUP

APPENDIX IV

CAPITAL STRUCTURE

As at 31 December 2004, Jeckman Holdings recorded equity attributable to equity holders of Jeckman Holdings of approximately HK$23,000.

MATERIAL ACQUISITION, DISPOSALS AND SIGNIFICANT INVESTMENT

Other than the transfer of the equity interest in Shougang Technology and potential acquisition of 40% equity interest in South China Leasing as mentioned above and in the accountant’s report of Jeckman Holdings, Jeckman Holdings had no material acquisitions, disposals and investment during the year ended 31 December 2004.

CHARGE ON ASSETS

As at 31 December 2004, Jeckman Holdings had no charge on assets.

FOREIGN EXCHANGE EXPOSURE

The Directors believe that Jeckman Holdings will not be subject to significant foreign exchange exposure as it was under restructuring during the year.

CONTINGENT LIABILITIES

As at 31 December 2004, Jeckman Holdings had no significant contingent liabilities.

EMPLOYEES

As at 31 December 2004, Jeckman Holdings did not employ any employees as it was under restructuring during the year.

FOR THE YEAR ENDED 31 DECEMBER 2005

RESULTS

In September 2004, Jeckman Holdings paid approximately HK$2,861,000 as the payment for acquisition of the 40% interest in South China Leasing. The relevant approval from the PRC authority for the change in shareholders was obtained in January 2005. Accordingly, the payment for acquisition of South China Leasing was transferred as investment cost of an associate. In May 2005, Jeckman Holdings has further acquired an additional 20% equity interest of South China Leasing at a consideration of approximately HK$1,475,000 and South China Leasing became a subsidiary of Jeckman Holdings since 26 May 2005 and the results of South China Leasing were consolidated to that of the Jeckman Group then.

176

APPENDIX IV

ADDITIONAL FINANCIAL INFORMATION OF THE JECKMAN GROUP

The revenue of the Jeckman Group for the year ended 31 December 2005 was approximately HK$2,626,000 while the cost of sales of the Jeckman Group for the year ended 31 December 2005 amounted to approximately HK$1,351,000. The Jeckman Group made a gross profit of approximately HK$1,275,000 for the year ended 31 December 2005, representing a gross profit margin of approximately 49%. Overall, the Jeckman Group recorded loss of approximately HK$1,627,000 for the year ended 31 December 2005 attributable to equity holders of Jeckman Holdings.

LIQUIDITY AND FINANCIAL RESOURCES

The Jeckman Group had bank balances and cash of approximately HK$5.7 million as at 31 December 2005 (31 December 2004: HK$1,000) which were mainly denominated in Renminbi. The increase was mainly from consolidation of the financial statements of South China Leasing since the acquisition during the year.

The Jeckman Group’s borrowings amounted to approximately HK$95.4 million as at 31 December 2005, of which approximately HK$36.6 million were repayable within twelve months from 31 December 2005 and approximately HK$58.8 million were repayable after twelve months from 31 December 2005. The loans of approximately HK$46.2 million bear interest at market rates and are wholly repayable within five years while the loan from ultimate holding company of approximately HK$49.2 million were unsecured, non-interest bearing and repayable on demand.

As at 31 December 2005, gearing ratio (calculated as borrowings less bank balances and cash divided by equity attributable to equity holders of Jeckman Holdings) was approximately 28.0 (31 December 2004: 566). As at 31 December 2005, current ratio was approximately 1.1 (31 December 2004: 0.8) based on current assets of approximately HK$44.5 million and current liabilities of approximately HK$40.4 million.

CAPITAL STRUCTURE

As at 31 December 2005, the Jeckman Group recorded equity attributable to equity holder of Jeckman Holdings of approximately HK$3.2 million (31 December 2004: HK$23,000). The increase was mainly due to the consolidation of the financial statements of South China Leasing since the acquisition during the year.

MATERIAL ACQUISITION, DISPOSALS AND SIGNIFICANT INVESTMENT

Other than the acquisition of the 60% equity interest in South China Leasing as mentioned above and in the accountants’ report of Jeckman Holdings, the Jeckman Group had no material acquisitions, disposals and investment during the year ended 31 December 2005.

177

ADDITIONAL FINANCIAL INFORMATION OF THE JECKMAN GROUP

APPENDIX IV

CHARGE ON ASSETS

As at 31 December 2005, the Jeckman Group had no charge on assets.

FOREIGN EXCHANGE EXPOSURE

The normal operation of the Jeckman Group is mainly in the PRC, with revenue and expenditure denominated in Renminbi. The directors believe that it will not be subject to significant foreign exchange exposure.

CONTINGENT LIABILITIES

As at 31 December 2005, the Jeckman Group had no significant contingent liabilities.

EMPLOYEES

As at 31 December 2005, the Jeckman Group employed 20 (31 December 2004: Nil) full time employees. the Jeckman Group remunerated its employees mainly with reference to the prevailing market practice, individual performance and experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund and discretionary bonus are also available to its employee. Remuneration packages are reviewed either annually or by special increment.

During the year ended 31 December 2005, the Jeckman Group had not paid or committed to pay any amount as an inducement to join or upon joining them to any individual.

FOR THE YEAR ENDED 31 DECEMBER 2006

RESULTS

The revenue of the Jeckman Group for the year ended 31 December 2006 was approximately HK$55,795,000, when compared with that of approximately HK$2,626,000 for the year 2005, represented an increase of approximately 2,025%. The increase was mainly due to speed up of its finance lease operation in the PRC during the year since the Group’s acquisition of South China Leasing on 26 May 2005. The finance lease receivables increased from approximately HK$69.6 million as at 31 December 2005 to approximately HK$992.6 million as at 31 December 2006.

Cost of sales of the Jeckman Group for the year ended 31 December 2006 amounted to approximately HK$44,505,000, increased by approximately 3,194% comparing with that of approximately HK$1,351,000 for the year 2005. The increase was mainly due to the increase in interest expense paid during the year as bank borrowings increased to fund the finance lease contracts. The bank borrowings increased from approximately HK$24.0 million as at 31 December 2005 to approximately HK$914.1 million as at 31 December 2006.

178

APPENDIX IV

ADDITIONAL FINANCIAL INFORMATION OF THE JECKMAN GROUP

The Jeckman Group made a gross profit of approximately HK$11,290,000 for the year ended 31 December 2006, representing a gross profit margin of approximately 20%. Comparing with that gross profit margin of approximately 49% for the year 2005, the decrease was mainly due to the Jeckman Group raised significant external bank borrowings during the year to finance the finance lease operations.

Other income of the Jeckman Group for the year ended 31 December 2006 amounted to approximately HK$777,000 (31 December 2005: HK$358,000). The increase was mainly due to the amount for the year 2005 only consolidated the other income of South China Leasing since completion of the acquisition of South China Leasing on 26 May 2005.

Administrative expenses of the Jeckman Group for the year ended 31 December 2006 amounted to approximately HK$22,320,000 (31 December 2005: HK$4,329,000), representing a increase of approximately 416%. The increase was mainly due to the increase in the scale of operation of the Jeckman Group and recognition of bad debt expenses of approximately HK$4,649,000 during the year. Besides, the amount for the year 2005 only consolidated the administrative expenses of South China Leasing since completion of the acquisition of South China Leasing on 26 May 2005.

Finance costs of the Jeckman Group for the year ended 31 December 2006 amounted to approximately HK$3,600,000 (31 December 2005: HK$1,772,000) mainly represented the imputed interest expense calculated on non-interest bearing loans from ultimate holding company of a shareholder and a shareholder.

Overall, Jeckman Group recorded loss of approximately HK$10,256,000 for the year ended 31 December 2006 attributable to equity holders of Jeckman Holdings, increased for approximately 530% as compared with that for the year 2005 of approximately HK$1,627,000.

LIQUIDITY AND FINANCIAL RESOURCES

The Jeckman Group had bank balances and cash of approximately HK$65.0 million as at 31 December 2006 (31 December 2005: HK$5.7 million) which were mainly denominated in Renminbi. The increase was mainly from raising of borrowings in funding the finance lease business.

The Jeckman Group’s borrowings amounted to approximately HK$1,016.3 million as at 31 December 2006, of which approximately HK$220.2 million were repayable within twelve months from 31 December 2006 and approximately HK$796.1 million were repayable after twelve months from 31 December 2006. The loans of approximately HK$825.8 million and HK$116.4 million bear interest at market rates and are wholly repayable within five years and over five years, respectively, while the loans from ultimate holding company of a shareholder and a shareholder of approximately HK$74.1 million were unsecured, non-interest bearing and repayable on demand.

There was no gearing ratio presented as at 31 December 2006 as the Jeckman Group recorded capital deficiency at the moment. As at 31 December 2005, gearing ratio (calculated as borrowings less bank balances and cash divided by equity attributable to equity holders of Jeckman Holdings) was approximately 28.0. As at 31 December 2006, current ratio was approximately 1.5 (31 December 2005: 1.1) based on current assets of approximately HK$342.6 million and current liabilities of approximately HK$231.3 million.

179

ADDITIONAL FINANCIAL INFORMATION OF THE JECKMAN GROUP

APPENDIX IV

CAPITAL STRUCTURE

As at 31 December 2006, the Jeckman Group recorded capital deficiency attributable to equity holder of Jeckman Holdings of approximately HK$1.7 million (31 December 2005: equity of approximately HK$3.2 million) which was mainly financed by internal resources, bank borrowings and loans from related parties. The capital deficiency was mainly arisen from the loss incurred during the year attributable to equity holders of Jeckman Holdings of approximately HK$10.3 million.

MATERIAL ACQUISITION, DISPOSALS AND SIGNIFICANT INVESTMENT

The Jeckman Group had no material acquisitions, disposals and investment during the year ended 31 December 2006.

CHARGE ON ASSETS

As at 31 December 2006, the Jeckman Group’s finance lease receivables with a carrying value of approximately HK$904.1 million were pledged to banks to secure for bank borrowings with outstanding amount of approximately HK$904.1 million.

FOREIGN EXCHANGE EXPOSURE

CONTINGENT LIABILITIES

As at 31 December 2006, the Jeckman Group had no significant contingent liabilities.

EMPLOYEES

As at 31 December 2006, the Jeckman Group employed 21 (31 December 2005: 20) full time employees. The Jeckman Group remunerated its employees mainly with reference to the prevailing market practice, individual performance and experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund and discretionary bonus are also available to its employee. Remuneration packages are reviewed either annually or by special increment.

During the year ended 31 December 2006, the Jeckman Group have not paid or committed to pay any amount as an inducement to join or upon joining them to any individual.

180

ADDITIONAL FINANCIAL INFORMATION OF THE JECKMAN GROUP

APPENDIX IV

FOR THE SIX MONTHS ENDED 30 JUNE 2007

RESULTS

The revenue of the Jeckman Group for the six months ended 30 June 2007 was approximately HK$50,010,000, when compared with that of approximately HK$16,288,000 for the corresponding period in the year 2006, represented an increase of approximately 207%. The increase was mainly attributable to the increase in interest income earned during the period as more finance lease contracts have been entered. The finance lease receivables increased from approximately HK$816.6 million as at 30 June 2006 to approximately HK$1,541.7 million as at 30 June 2007.

Cost of sales of the Jeckman Group for the six months ended 30 June 2007 amounted to approximately HK$41,852,000, increased by approximately 235% comparing with that of approximately HK$12,491,000 for the corresponding period in the year 2006. The increase was mainly due to the increase in interest expense paid during the period as bank borrowings increased to fund the finance lease contracts. The bank borrowings increased from approximately HK$783.8 million as at 30 June 2006 to approximately HK$1,445.8 million as at 30 June 2007.

The Jeckman Group made a gross profit of approximately HK$8,158,000 for the six months ended 30 June 2007, representing a gross profit margin of approximately 16%. Comparing with that gross profit margin of approximately 23% for the corresponding period in the year 2006, the decrease was mainly attributable to interest rate charged on the newly entered finance lease contracts decreased as they were mainly on finance leasing of large and low risk development projects, such as mining equipment, aircrafts.

Administrative expenses of the Jeckman Group for the six months ended 30 June 2007 amounted to approximately HK$9,122,000 (2006: HK$11,635,000), representing a decrease of approximately 22%. The decrease was mainly due to recognition of bad debt expenses of approximately HK$4,649,000 for the six months ended 30 June 2006 but only amounted to approximately HK$2,144,000 for the six months ended 30 June 2007. Adjusted for this expense, the administrative expenses for this period was approximated to that for the corresponding period in the year 2006.

Finance costs of the Jeckman Group for the six months ended 30 June 2007 amounted to approximately HK$1,903,000 (30 June 2006: HK$1,655,000) mainly represented the imputed interest expense calculated on non-interest bearing loans from ultimate holding company of a shareholder and a shareholder.

Overall, the Jeckman Group recorded loss of approximately HK$1,876,000 for the six months ended 30 June 2007 attributable to equity holders of Jeckman Holdings, improved for approximately 80% as compared with that for the corresponding period in the year 2006 of approximately HK$9,345,000.

181

APPENDIX IV

ADDITIONAL FINANCIAL INFORMATION OF THE JECKMAN GROUP

LIQUIDITY AND FINANCIAL RESOURCES

The Jeckman Group had bank balances and cash of approximately HK$36.7 million as at 30 June 2007 (31 December 2006: HK$65.0 million) and restricted bank deposits of approximately HK$49.0 million as at 30 June 2007 (31 December 2006: Nil) which were mainly denominated in Renminbi. The increase was mainly from raising of borrowings in funding the finance lease business.

The Jeckman Group’s borrowings amounted to approximately HK$1,529.8 million as at 30 June 2007, of which approximately HK$316.0 million were repayable within twelve months from 30 June 2007 and approximately HK$1,213.8 million were repayable after twelve months from 30 June 2007. The loans of approximately HK$1,384.7 million and HK$71.0 million bear interest at market rates and are wholly repayable within five years and over five years, respectively, while the loans from ultimate holding company of a shareholder and a shareholder of approximately HK$74.1 million were unsecured, non-interest bearing and repayable on demand.

There was no gearing ratio presented as at 30 June 2007 and 31 December 2006 as the Jeckman Group recorded capital deficiency at the moment. As at 30 June 2007, current ratio was approximately 1.2 (31 December 2006: 1.5) based on current assets of approximately HK$401.5 million and current liabilities of approximately HK$328.2 million.

CAPITAL STRUCTURE

As at 30 June 2007, the Jeckman Group recorded capital deficiency attributable to equity holder of Jeckman Holdings of approximately HK$1.9 million (31 December 2006: HK$1.7 million) which was mainly financed by internal resources, bank borrowings and loans from related parties. The capital deficiency was mainly arisen from the loss incurred during the period attributable to equity holder of Jeckman Holdings of approximately HK$1.9 million and of previous years.

MATERIAL ACQUISITION, DISPOSALS AND SIGNIFICANT INVESTMENT

The Jeckman Group had no material acquisitions, disposals and investment during the six months ended 30 June 2007.

CHARGE ON ASSETS

As at 30 June 2007, the Jeckman Group’s finance lease receivables with a carrying value of approximately HK$1,471.1 million were pledged to banks to secure for bank borrowings with outstanding amount of approximately HK$1,443.3 million.

As at 30 June 2007, there were bank deposits of approximately HK$49.0 million restricted for the repayment of bank borrowings, which will be released upon full settlement of the relevant bank borrowings.

FOREIGN EXCHANGE EXPOSURE

182

ADDITIONAL FINANCIAL INFORMATION OF THE JECKMAN GROUP

APPENDIX IV

CONTINGENT LIABILITIES

As at 30 June 2007, the Jeckman Group had no significant contingent liabilities.

EMPLOYEES

As at 30 June 2007, the Jeckman Group employed 21 (31 December 2006: 21) full time employees. The Jeckman Group remunerated its employees mainly with reference to the prevailing market practice, individual performance and experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund and discretionary bonus are also available to its employee. Remuneration packages are reviewed either annually or by special increment.

During the six months ended 30 June 2007, the Jeckman Group have not paid or committed to pay any amount as an inducement to join or upon joining them to any individual.

183

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX V

A. PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. UNAUDITED PRO FORMA BALANCE SHEET OF THE ENLARGED GROUP UPON COMPLETION OF THE JECKMAN ACQUISITION

(A) Introduction

The unaudited pro forma balance sheet of the Enlarged Group has been prepared to illustrate the effect of the Jeckman Acquisition.

The unaudited pro forma balance sheet of the Enlarged Group has been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Jeckman Acquisition as if the Jeckman Acquisition took place on 30 June 2007.

The unaudited pro forma balance sheet of the Enlarged Group is based upon the unaudited consolidated balance sheet of the Group as at 30 June 2007, which has been extracted from the unaudited consolidated financial statements of the Group for the six months ended 30 June 2007 and the audited consolidated balance sheet of the Jeckman Group as at 30 June 2007, which has been extracted from the audited consolidated financial statements of the Jeckman Group for the six months ended 30 June 2007 set out in Appendix I and III, respectively, to this circular, after making pro forma adjustments relating to the Jeckman Acquisition that are (i) directly attributable to the transaction; and (ii) factually supportable.

The unaudited pro forma balance sheet of the Enlarged Group is based on a number of assumptions, estimates and uncertainties. Accordingly, the accompanying unaudited pro forma balance sheet of the Enlarged Group does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Jeckman Acquisition been completed on 30 June 2007. The unaudited pro forma balance sheet of the Enlarged Group does not purport to predict the future financial position of the Enlarged Group.

The unaudited pro forma balance sheet of the Enlarged Group should be read in conjunction with the historical information of the Group as set out in the unaudited consolidated financial statements of the Group for the six months ended 30 June 2007 and the audited consolidated financial statements of the Jeckman Group for the six months ended 30 June 2007 set out in Appendix I and III, respectively, to this circular and other financial information included elsewhere in this circular.

The statement has been prepared by the Directors for illustrative purpose only and because of its nature, it may not give a true picture of financial position of the Enlarged Group following completion of the Jeckman Acquisition.

184

APPENDIX V

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(B) Unaudited Pro Forma Assets and Liabilities Statement

The Jeckman
The Group
Group
as at
as at
Pro forma
Pro forma
30 June 2007 30 June 2007
Adjustment
Adjustment
HK$’000
HK$’000
HK$’000
HK$’000
(unaudited)
(audited)
(Note 1)
(Note 2)
Non-current assets
Property, plant and equipment
20,949
1,228
Prepaid lease payments
6,791
–
Investment properties
139,200
–
Goodwill
10,397
–
44,196
Intangible assets
–
20,465
Interest in associates
15,224
–
(15,224)
Finance lease receivables
–
1,178,734
Advance to an associate
57,704
–
(57,704)
Restricted bank deposits
–
49,000
250,265
1,249,427
Current assets
Inventories
9,195
–
Production work in progress
18,704
–
Finance lease receivables
–
362,942
Trade receivables
16,886
–
Prepayments, deposits and
other receivables
41,164
869
Prepaid lease payments
137
–
Amounts due form customers
for contract work
2,374
–
Amounts due from related parties
117,491
19
(19)
Amount due from associates
9,950
–
(9,950)
Held-for-trading investments
13,945
953
Pledged bank deposits
8,935
–
Bank balances and cash
319,108
36,723
(52,000)
557,889
401,506
Current liabilities
Amounts due to customers for
contract work
(4,056)
–
Trade payables
(3,537)
(600)
Other payables and accruals
(26,455)
(2,604)
Income received in advance
(17,075)
(8,317)
Rental and management fee
deposits received
(1,006)
–
Deposits received
–
(680)
Amount due to related parties
(580)
(9,950)
9,950
Amount due to a shareholder
–
(15,000)
15,000
Amount due to an associate
(19)
–
19
Tax liabilities
(3,862)
–
Borrowings
(29,180)
(291,065)
Obligations under finance leases
(794)
–
(86,564)
(328,216)
Net current assets
471,325
73,290
Total assets less current liabilities
721,590
1,322,717

Unaudited
Enlarged
Group
HK$’000
22,177
6,791
139,200
54,593
20,465
–
1,178,734
–
49,000
1,470,960
9,195
18,704
362,942
16,886
42,033
137
2,374
117,491
–
14,898
8,935
303,831
897,426
(4,056)
(4,137)
(29,059)
(25,392)
(1,006)
(680)
(580)
–
–
(3,862)
(320,245)
(794)
(389,811)
507,615
1,978,575

185

APPENDIX V

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Unaudited
Enlarged
Group
HK$’000
(20,618)
(178)
–
–
(1,212,925)
(86)
(81,680)
(1,398)
(1,316,885)
661,690
(11,471)
(541,272)
(552,743)
(9,108)
(99,839)
(661,690)

Notes:

The adjustment reflects the goodwill arising from the Jeckman Acquisition of approximately HK$44,196,000 to be recognised by the Enlarged Group with the assumption that the fair value of the net assets of the Jeckman Group is the same as the carrying amount of net assets as at 30 June 2007. No fair value adjustment is taken up as no valuation exercise to determine the fair value of identifiable assets, liabilities and contingent liabilities of the Jeckman Group has been carried out by the Group. The adjustment of goodwill is calculated based on:
(i) the interest in the Jeckman Group shared by the Group of approximately HK$15,224,000 as at 30 June 2007;
(ii) the consideration of HK$52,000,000 to be settled in cash upon the completion of the Jeckman Agreement;
(iii) the assignment of loan from previous shareholder of the Jeckman Group to the Group of HK$15,000,000 as at 30 June 2007;
(iv) the elimination of pre-acquisition deficit of the Jeckman Group of approximately HK$1,922,000; and
(v) the elimination of minority interests in South China Leasing directly held by the Group of approximately HK$9,950,000 as at 30 June 2007.
The adjustment reflects the elimination of outstanding receivables, payables and loan balance between the Group and the Jeckman Group.

186

APPENDIX V PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. UNAUDITED PRO FORMA INCOME STATEMENT AND UNAUDITED PRO FORMA CASH FLOW STATEMENT OF THE ENLARGED GROUP UPON COMPLETION OF THE JECKMAN ACQUISITION

(A) Introduction

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group have been prepared to illustrate the effect of the Jeckman Acquisition.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group have been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Jeckman Acquisition as if the Jeckman Acquisition had taken place at the beginning of the year ended 31 December 2006.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group are based upon the audited consolidated income statement and audited consolidated cash flow statement of the Group for the year ended 31 December 2006, which have been extracted from the consolidated financial statements of the Group for the year ended 31 December 2006 and the audited consolidated income statement and audited cash flow statement of the Jeckman Group for the year ended 31 December 2006, which have been extracted from the consolidated financial statements of the Jeckman Group for the year ended 31 December 2006 set out in Appendix I and III, respectively, to this circular, after making pro forma adjustments relating to the Jeckman Acquisition that are (i) directly attributable to the transaction; and (ii) expected to have a continuing impact on the Enlarged Group; and (iii) factually supportable.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group are based on a number of assumptions, estimates and uncertainties. Accordingly, the accompanying unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group does not purport to describe the actual results and cash flow of the Enlarged Group that would have been attained had the Jeckman Acquisition been completed at the beginning of the year ended 31 December 2006 or to predict the future results and cash flow of the Enlarged Group.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group should be read in conjunction with the audited consolidated financial statements of the Group for the year ended 31 December 2006 and the audited consolidated financial statements of the Jeckman Group for the year ended 31 December 2006 set out in Appendix I and III, respectively, to this circular and other financial information included elsewhere in this circular.

The statement has been prepared by the Directors for illustrative purpose only and because of their nature, they may not give a true picture of the results and the cash flow of the Enlarged Group had the Jeckman Acquisition actually occurred at the beginning of the year ended 31 December 2006 or for any future period.

187

APPENDIX V

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(B) Unaudited Pro Forma Income Statement

Continuing operations Revenue Cost of sales Gross profit Other income Distribution costs Administrative expenses Gain on disposal of an investment property Increase in fair value of investment properties Change in fair value and gain on disposal of held-for-trading investments Finance costs Share of result of a jointly controlled entity Profit on disposal of partial interest in a subsidiary Share of result of an associate Loss before tax Income tax expense Loss for the year from continuing operations Discontinued operation Profit from discontinued operation Loss for the year Attributable to: Equity holders of the parent Minority interests Loss per share Basic From continuing and discontinued operations From continuing operations	The Group for the year ended 31 December 2006 HK$’000 (audited) 76,991 (43,920) 33,071 9,272 (6,932) (74,767) – 8,500 3,308 (10,132) 1,531 1,795 (1,073) (35,427) (1,103) (36,530) 20,352 (16,178) (15,204) (974) (16,178) (HK1.34 cents) (HK3.13 cents)	The Jeckman Group for the year ended 31 December 2006 HK$’000 (audited) 55,795 (44,505) 11,290 777 – (22,320) 726 – 572 (3,600) – – – (12,555) – (12,555) – (12,555) (10,256) (2,299) (12,555) HK$(641,000) N/A	Pro forma Adjustment HK$’000 (Note 1) (1,415) 3,349 1,934 94 1,840 1,934	Pro forma Adjustment HK$’000 (Note 2) (107) 107 – – – –	Pro forma Adjustment HK$’000 (Note 3) 1,073 (20,352) (19,279) (19,279) – (19,279)	Pro Forma Enlarged Group HK$’000 132,679 (88,425) 44,254 8,634 (6,932) (97,087) 726 8,500 3,880 (10,276) 1,531 1,795 – (44,975) (1,103) (46,078) – (46,078) (44,645) (1,433) (46,078) (Note 4) (HK3.93 cents) (HK3.93 cents)

188

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX V

Notes:

The adjustment reflects the exclusion of imputed interest expenses on amount due from the Jeckman Group, interest income from South China Leasing and the 20% minority interests of South China Leasing directly held by the Group for the year ended 31 December 2006 as if the Jeckman Acquisition had been completed on 1 January 2006 and Jeckman Holdings and South China Leasing became subsidiaries of the Company on 1 January 2006.
The adjustment reflects the elimination of interest expenses paid to South China Leasing in respect of finance lease obligations for the year ended 31 December 2006 as if the Jeckman Acquisition had been completed on 1 January 2006.
The adjustment reflects the exclusion of share of result of an associate and profit from discontinued operation contributed by the Jeckman Group for the year ended 31 December 2006 as if the Jeckman Acquisition had been completed on 1 January 2006.
The calculation of pro forma loss per share for the year ended 31 December 2006 was based on the pro forma loss attributable to the equity holders of the parent of the Enlarged Group of approximately HK$44,645,000 and the weighted average number of shares issued for the year ended 31 December 2006 of approximately 1,136,856,000 shares.

No diluted earnings per share has been presented for the year ended 31 December 2006 because the exercise price of the Company’s share options during the year was higher than the average market price of the shares and the exercise of the subsidiaries’ share options would reduce loss per share.

189

APPENDIX V

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(C) Unaudited Pro Forma Cash Flow Statement

	The	The Jeckman
	Group	Group
	for the	for the
	year ended	year ended					Pro Forma
31 December		31 December	Pro forma	Pro forma	Pro forma	Pro forma	Enlarged
	2006	2006	Adjustment	Adjustment	Adjustment	Adjustment	Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(Note 1)	(Note 2)	(Note 3)	(Note 4)
OPERATING ACTIVITIES
Loss for the year	(16,178)	(12,555)	1,934	(19,279)			(46,078)
Adjustments for:
Finance costs	10,132	251					10,383
Share-based payment expenses	5,937	–					5,937
Depreciation of property, plant
and equipment	4,705	1,414			(637)		5,482
Allowance for finance lease
receivables	4,649	4,649			(4,649)		4,649
Research and development costs	2,422	–					2,422
Allowance for bad and
doubtful debts	1,660	–					1,660
Write-down of inventories	1,077	–					1,077
Income tax expense	1,103	–					1,103
Amortisation of intangible asset	428	934			(428)		934
Amortisation of prepaid lease
payments	80	–					80
Profit on disposal of partial
interests in subsidiaries	(24,711)	–					(24,711)
Increase in fair value of
investment properties	(8,500)	–					(8,500)
Interest income	(2,252)	(163)	1,415				(1,000)
Increase in changes in fair
value and gain on disposal
of held-for-trading
investments	(3,308)	(572)					(3,880)
Imputed interest expense on
non-current amounts due to
a shareholder and its
ultimate holding company	–	3,349	(3,349)				–
Profit on disposal of partial
interests in a subsidiary
(net of expense)	(1,795)	–					(1,795)
Gain on disposal of property,
plant and equipment	(453)	–					(453)
Gain on disposal of an
investment property	–	(726)					(726)
Increase in fair value of
prepaid lease payments	(146)	–					(146)
Dividend income from an
associate held for sale	(5,490)	–					(5,490)
Share of result of a jointly
controlled entity	(1,531)	–					(1,531)
Share of result of an associate	1,073	–		(1,073)			–

190

APPENDIX V

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The
The Jeckman
Group
Group
for the
for the
year ended
year ended
31 December
31 December
Pro forma
Pro forma
Pro forma
Pro forma
2006
2006
Adjustment
Adjustment
Adjustment
Adjustment
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(audited)
(audited)
(Note 1)
(Note 2)
(Note 3)
(Note 4)
Operating cash flows before
movements in working
capital
(31,098)
(3,419)
Increase in inventories
(4,056)
–
Increase in production work
in progress
(3,611)
–
Increase in finance lease
receivables
(772,164)
(928,159)
772,164
Increase in trade receivables
(4,643)
–
Increase in amounts due from
customers for contract work
(808)
–
Decrease in prepayments,
deposits and other receivables
9,364
825
Decrease in held-for-trading
investments
1,140
478
Decrease in trade payables
(580)
(342)
Increase in amounts due to
customers for contract work
1,850
–
Decrease in other payables
and accruals
(13,076)
2,461
Increase in income received
in advance
13,758
17,453
Increase in rental and
management fee deposits
received
164
–
Increase in deposits received
29,138
34,574
Increase in amount due to a
related party
–
5,911
Cash used in operations
(774,622)
(870,218)
Hong Kong Profits Tax paid
(168)
–
Tax refunded
79
–
Interest paid
(9,717)
(251)
NET CASH USED IN
OPERATING ACTIVITIES
(784,428)
(870,469)

Pro Forma
Enlarged
Group
HK$’000
(60,583)
(4,056)
(3,611)
(928,159)
(4,643)
(808)
10,189
1,618
(922)
1,850
(10,615)
31,211
164
63,712
5,911

(898,742)
(168)
79
(9,968)

(908,799)

191

APPENDIX V

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The
The Jeckman
Group
Group
for the
for the
year ended
year ended
31 December
31 December
Pro forma
Pro forma
Pro forma
Pro forma
2006
2006
Adjustment
Adjustment
Adjustment
Adjustment
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(audited)
(audited)
(Note 1)
(Note 2)
(Note 3)
(Note 4)
INVESTING ACTIVITIES
Advance to an associate
(42,000)
–
42,000
Increase in capital contribution
in an associate
(10,000)
–
10,000
Disposal of interest in a
subsidiary
(19,016)
–
Purchases of property, plant
and equipment
(3,999)
(350)
Expenditure on product
development
(2,422)
–
Acquisition of subsidiaries
(1,395)
–
(52,000)
Proceeds from disposal of
an associate held for sale
28,816
–
Repayment from an associate
16,890
–
(16,890)
Decrease in pledged bank
deposits
15,441
–
Dividend received from an
associate held for sale
5,490
–
Dividend received from a
jointly controlled entity
3,898
–
Interest received
2,252
163
Proceeds from disposal of an
investment property
–
1,926
Proceeds from disposal of
partial interest in a subsidiary
(net of expense)
1,767
–
Proceeds from disposal of
property, plant and equipment
453
–
NET CASH (USED IN) FROM
INVESTING ACTIVITIES
(3,825)
1,739

Pro Forma
Enlarged
Group
HK$’000
–
–
(19,016)
(4,349)
(2,422)
(53,395)
28,816
–
15,441
5,490
3,898
2,415
1,926
1,767
453

(18,976)

192

APPENDIX V

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The The Jeckman Group Group for the for the year ended year ended 31 December 31 December Pro forma Pro forma Pro forma Pro forma 2006 2006 Adjustment Adjustment Adjustment Adjustment HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (audited) (audited) (Note 1) (Note 2) (Note 3) (Note 4) FINANCING ACTIVITIES New borrowings raised 877,524 1,020,000 Advance from a fellow subsidiary 15,740 – Advance from shareholders – 30,000 (15,000) Repayment to ultimate holding company of a shareholder – (4,500) Capital contribution from minority shareholders 499 10,000 (10,000) Decrease in amount due from a related company – (19) 19 Repayment of borrowings (83,567) (127,576) Repayment of obligations under finance leases (3,078) – Repayment to shareholders (1,642) – Repayment to related parties (362) – NET CASH FROM FINANCING ACTIVITIES 805,114 927,905 NET INCREASE IN CASH AND CASH EQUIVALENTS 16,861 59,175 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 17,591 5,658 EFFECT OF FOREIGN EXCHANGE RATE CHANGES 253 211 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 34,705 65,044 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash 34,705 65,044 – (20,352) 776,579 (52,000)	Pro Forma Enlarged Group HK$’000 1,897,524 15,740 15,000 (4,500) 499 – (211,143) (3,078) (1,642) (362)
	1,708,038
	780,263 23,249 464
	803,976

	803,976

193

APPENDIX V

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes:

The adjustment reflects the exclusion of imputed interest expenses on amount due from the Jeckman Group, interest income from South China Leasing and the 20% minority interests of South China Leasing directly held by the Group for the year ended 31 December 2006 as if the Jeckman Acquisition had been completed on 1 January 2006 and the Jeckman Holdings and South China Leasing became subsidiaries of the Company on 1 January 2006.
The adjustment reflects the exclusion of share of result of an associate and profit from discontinued operation contributed by the Jeckman Group for the year ended 31 December 2006 as if the Jeckman Acquisition had been completed on 1 January 2006.
The adjustment reflects the exclusion of cash flows contributed by the Jeckman Group for the year ended 31 December 2006.
The adjustment reflects the consideration of HK$52,000,000 to be paid in cash upon completion of the Jeckman Acquisition in accordance with the terms of the Jeckman Agreement.

194

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX V

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

==> picture [76 x 58] intentionally omitted <==

11 October 2007

The Board of Directors Shougang Concord Grand (Group) Limited 6/F, Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong

We report on the unaudited pro forma financial information of Shougang Concord Grand (Group) Limited (the “Company”) and its subsidiaries (the “Group”, together with Jeckman Holdings Limited and its subsidiary hereinafter collectively referred to as the “Enlarged Group”), which has been prepared by the directors of the Company (the “Directors”) for illustrative purposes only, to provide information about how the very substantial acquisition of 50% interest in the issued capital of Jeckman Holdings Limited might have affected the financial information presented, for inclusion in Appendix V of the circular dated 11 October 2007 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out on pages 184 to 194 to the Circular.

Respective responsibilities of Directors and reporting accountants

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

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

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 consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the Directors. This engagement did not involve independent examination of any of the underlying financial information.

195

APPENDIX V

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

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

The unaudited pro forma financial information is for illustrative purpose only, based on the judgements and assumptions of the Directors, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of:

the financial position of the Enlarged Group as at 30 June 2007 or any future date; or
the results and cash flows of the Enlarged Group for the year ended 31 December 2006 or any future period.

Opinion

In our opinion:

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

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

196

GENERAL INFORMATION

APPENDIX VI

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. DISCLOSURE OF INTERESTS

a) Interests and short positions of the Directors in shares and underlying shares of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (a) 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 (b) were required, pursuant to section 352 of the SFO, to be entered in the register of the Company referred to therein; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) contained in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

(i) Long positions in Shares and underlying Shares of the Company

Capacity
in which
interests
Name of Director
are held
Wang Qinghai
Beneficial own
Cao Zhong
Beneficial own
Chen Zheng
Beneficial own
Wang Tian
Beneficial own
Yuan Wenxin
Beneficial own
Leung Shun Sang, Tony
Beneficial own

Percentage of
Number of Shares/
total interests
underlying Shares held in the Company
as to the
Interests
issued share
Interests
under equity
Total
capital of
in Shares
derivatives
interests
the Company
(Note)
er
–
11,368,000
11,368,000
0.99%
er
–
11,368,000
11,368,000
0.99%
er
–
11,368,000
11,368,000
0.99%
er
4,000,000
5,094,000
9,094,000
0.79%
er
4,000,000
9,094,000
13,094,000
1.14%
er
8,278,000
11,368,679
19,646,679
1.71%

197

GENERAL INFORMATION

APPENDIX VI

Capacity in which interests Name of Director are held Tam King Ching, Kenny Beneficial own Zhou Jianhong Beneficial own Yip Kin Man, Raymond Beneficial own	Percentage of Number of Shares/ total interests underlying Shares held in the Company as to the Interests issued share Interests under equity Total capital of in Shares derivatives interests the Company (Note) er – 1,136,000 1,136,000 0.10% er – 1,136,000 1,136,000 0.10% er – 1,136,000 1,136,000 0.10%

Note: The relevant interests are unlisted physically settled options granted pursuant to the Company’s share option scheme adopted on 7 June 2002 (the “ Scheme ”). Upon exercise of the share options in accordance with the Scheme, ordinary shares of HK$0.01 each in the share capital of the Company are issuable. The share options are personal to the respective Directors.

(ii) Long positions in shares and underlying shares of GDC, an associated corporation of the Company

Capacity
in which
interests
Name of Director
are held
Cao Zhong
Beneficial own
Chen Zheng
Beneficial own
Wang Tian
Beneficial own
Leung Shun Sang, Tony
Beneficial own
Zhou Jianhong
Beneficial own

Percentage of
Number of Shares/
total interests
underlying Shares held in GDC
as to the
Interests
issued share
Interests
under equity
Total
capital of
in Shares
derivatives
interests
GDC
(Note)
er
8,008,200
–
8,008,200
0.62%
er
8,008,200
–
8,008,200
0.62%
er
200,820
–
200,820
0.02%
er
8,008,200
–
8,008,200
0.62%
er
500,615
–
500,615
0.04%

Note: The relevant interests are unlisted physically settled options granted pursuant to GDC Share Option Scheme. Upon exercise of the share options in accordance with the GDC Share Option Scheme, ordinary shares of HK$0.01 each in the share capital of GDC are issuable. The share options are personal to the respective Directors.

198

GENERAL INFORMATION

APPENDIX VI

(iii) Long positions in shares and underlying shares of GDC Tech, an associated corporation of the Company

Capacity in which interests Name of Director are held Cao Zhong Beneficial own Chen Zheng Beneficial own Leung Shun Sang, Tony Beneficial own	Percentage of Number of Shares/ total interests underlying Shares held in GDC Tech as to the Interests issued share Interests under equity Total capital of in Shares derivatives interests GDC Tech (Note) er 8,533,334 – 8,533,334 4.81% er 8,533,334 – 8,533,334 4.81% er 2,130,000 3,333 2,133,333 1.20%

Note: The relevant interests are unlisted physically settled options granted pursuant to GDC Tech Share Option Scheme. Upon exercise of the share options in accordance with the GDC Tech Share Option Scheme, ordinary shares of HK$0.1 each in the share capital of GDC Tech are issuable. The share options are personal to the respective Directors.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interest or short position in the shares, underlying shares and debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

Save as disclosed in this circular, none of the Directors or proposed Director is a director or employee of a company which has an interest in the Shares and underlying Shares of the Company which would fall to be disclosed under the provisions of Division 2 and 3 of Part XV of the SFO.

(b) Directors’ service contracts

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group or any associated company of the Company (excluding contracts expiring or determinable within one year without payment of compensation other than statutory compensation).

199

GENERAL INFORMATION

APPENDIX VI

(c) Directors’ interests in competing businesses

As at the Latest Practicable Date, the interests of the Directors in the businesses (other than those businesses where the Directors were appointed as directors to represent the interests of the Company and/ or any member of the Group) which were considered to compete or were likely to compete, either directly or indirectly, with the businesses of the Group were as follows:

Name of Director

Description of Name of entity businesses of whose businesses the entity which were considered were considered to compete or to compete or Nature likely to compete likely to compete of interest with the businesses with businesses of the Director of the Group of the Group in the entity

Wang Qinghai Shougang Corporation (Note) Property investment Director Cao Zhong China Shougang Property investment Director International Trade and Engineering Corporation (Note)

Director

Note: Such business may be carried out though its subsidiaries or associates or by way of other forms of investments.

Save as disclosed above, as at the Latest Practicable Date, in so far as the Directors were aware, none of the Directors or their respective associates had any interest in a business that competed or was likely to compete with the business of the Group.

(d) Directors’ interests in assets and contracts

None of the Directors had any direct or indirect interest in any assets which have been acquired or disposed or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2006, being the date to which the latest published audited accounts of the Group were made up.

None of the Directors was materially interested, directly or indirectly, in any contract or arrangements entered into by any member of the Group subsisting at the Latest Practicable Date and which was significant in relation to the business of the Group.

200

GENERAL INFORMATION

APPENDIX VI

3. SUBSTANTIAL SHAREHOLDERS

(a) As at the Latest Practicable Date, according to the register kept by the Company pursuant to Section 336 of SFO, the following persons and companies (other than the Directors or chief executive of the Company) had an interest or short position in the Shares and the underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of the Divisions 2 and 3 of Part XV of the SFO:

			Percentage
			of interest as
	Capacity in	Number of	to the issued
	which	Shares held	share capital
	interests	in the	of the
Name of Shareholder	are held	Company	Company	Note(s)
Shougang Holding	Interests of	489,450,710	42.61%	1
	controlled
	corporations
Wheeling Holdings	Beneficial	430,491,315	37.48%	1
Limited (“Wheeling”)	owner
Prime Success Investments	Beneficial	58,959,395	5.13%	1
Limited (“Prime Success”)	owner
Cheung Kong	Interests of	133,048,717	11.58%	2,3
(Holdings) Limited	controlled
(“Cheung Kong”)	corporations
Max Same Investment	Beneficial	91,491,193	7.96%	2
Limited (“Max Same”)	owner
Li Ka-shing	Interests of	133,048,717	11.58%	3
	controlled
	corporations,
	founder of
	discretionary
	trusts
Li Ka-Shing Unity	Trustee	133,048,717	11.58%	3
Trustee Company
Limited (“TUT1”)

201

GENERAL INFORMATION

APPENDIX VI

			Percentage
			of interest as
	Capacity in	Number of	to the issued
	which	Shares held	share capital
	interests	in the	of the
Name of Shareholder	are held	Company	Company	Note(s)
Li Ka-Shing Unity	Trustee,	133,048,717	11.58%	3
Trustee Corporation	beneficiary
Limited (“TDT1”)	of a trust
Li Ka-Shing Unity	Trustee,	133,048,717	11.58%	3
Trustcorp Limited	beneficiary
(“TDT2”)	of a trust

Notes:

1. Each of Wheeling and Prime Success was a wholly-owned subsidiary of Shougang Holding and their interests were included in the interest held by Shougang Holding.

2. Max Same was a wholly-owned subsidiary of Cheung Kong and its interest was included in the interest held by Cheung Kong.

3. Li Ka-Shing Unity Holdings Limited (“ Unity Holdco ”), of which each of Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor and Mr. Li Tzar Kai, Richard was interested in one-third of the entire issued share capital, owned the entire issued share capital of TUT1. TUT1 as trustee of The Li Ka-Shing Unity Trust (“ UT1 ”), together with certain companies which TUT1 as trustee of UT1 was entitled to exercise or control the exercise of more than one-third of the voting power at their general meetings, held more than one-third of the issued share capital of Cheung Kong.

In addition, Unity Holdco also owned the entire issued share capital of TDT1 as trustee of The Li KaShing Unity Discretionary Trust (“ DT1 ”) and TDT2 as trustee of another discretionary trust (“ DT2 ”). Each of TDT1 and TDT2 held units in UT1.

By virtue of the SFO, each of Mr. Li Ka-shing, being the settlor and may being regarded as a founder of each of DT1 and DT2 for the purpose of the SFO, TUT1, TDT1 and TDT2 was deemed to be interested in the same block of Shares in which Cheung Kong was interested under the SFO.

202

GENERAL INFORMATION

APPENDIX VI

(b) As at the Latest Practicable Date, so far as is known to any Director, the following persons and companies were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group or had any option in respect of such capital:

Name of	Name of	Name of	% of
registered	beneficial	member of	attributable
Shareholder	owner	the Group	interest
Zhou Lin	Zhou Lin	四方源創國際	20.00%
		影視文化傳播
		（北京）有限公司
		(Concord Creation
		International (Beijing)
		Company Limited#)
		(“Concord Creation”)
Yang Yong	Yang Yong	廣東四方源創	20.00%
		動畫製作有限公司
		(Concord Creation
		Animation Production
		Guangdong Company
		Limited#) (“Guangdong
		Creation”)
Concord Creation	Zhou Lin	Guangdong Creation	16.00%
			(Note 1)
Concord Creation	Zhou Lin	東陽市四方源創	20.00%
		影視製作有限公司	(Note 2)
		(Dongyang Concord
		Creation Film @ TV
		Company Limited#)
		(“Dongyang Creation”)
Guangdong Creation	Zhou Lin	杭州四方源創	16.00%
and Chen Zheng		動畫製作有限公司	(Note 3)
		(Concord Creation
		Animation Production
		Hangzhou Company
		Limited#) (“Hangzhou
		Creation”)
Guangdong Creation	Yang Yong	Hangzhou Creation	20.00%
and Chen Zheng			(Note 4)

203

APPENDIX VI

GENERAL INFORMATION

Name of	Name of	Name of	% of
registered	beneficial	member of	attributable
Shareholder	owner	the Group	interest
Greater Appeal	Greater Appeal	GDC Tech	29.51%
Investments
Limited
(“Greater Appeal”)
Greater Appeal	Greater Appeal	GDC Technology	29.51%
		Pte Limited	(Note 5)
Greater Appeal	Greater Appeal	GDC Technology	29.51%
		China Limited	(Note 5)
Greater Appeal	Greater Appeal	GDC Technology	29.51%
		(Hong Kong) Limited	(Note 5)
Greater Appeal	Greater Appeal	深圳市環球數碼	29.51%
		科技有限公司	(Note 5)

For identification purpose only

Notes:

1. Guangdong Creation was held as to 80.00% by Concord Creation. As Concord Creation was beneficially held as to 20.00% by Zhou Lin, Guangdong Creation was deemed to be held as to 16.00% by Zhou Lin.

2. Dongyang Creation was held as to 90.00% by Concord Creation. As Concord Creation was beneficially held as to 20.00% by Zhou Lin, Dongyang Creation was deemed to be held as to 18.00% by Zhou Lin. Together with Zhou Lin’s beneficial interest of 2.00% held in Dongyang Creation through another nominee, Zhou Lin has an aggregate interest of 20.00% in Dongyang Creation.

3. Hangzhou Creation was beneficially held as to 100% by Guangdong Creation which included its beneficial interest of 10.00% held in Hangzhou Creation through its nominee, Chen Zheng. As Guangdong Creation was deemed to be beneficially held as to 16.00% by Zhou Lin, Hangzhou Creation was deemed to be held as to 16.00% by Zhou Lin.

4. Hangzhou Creation was beneficially held as to 100% by Guangdong Creation which included its beneficial interest of 10.00% held in Hangzhou Creation through its nominee, Chen Zheng. As Guangdong Creation was held as to 20.00% by Yang Yong, Hangzhou Creation was deemed to be held as to 20.00% by Yang Yong.

5. Each of GDC Technology Pte Limited, GDC Technology China Limited, GDC Technology (Hong Kong) Limited and 深圳市環球數碼科技有限公司 was held as to 100% by GDC Tech. As GDC Tech was held as to 29.51% by Greater Appeal, each of GDC Technology Pte Limited, GDC Technology China Limited, GDC Technology (Hong Kong) Limited and 深圳市環球數碼科技有限公司 was deemed to be held as to 29.51% by Greater Appeal.

Save as disclosed above, the Directors and the chief executive of the Company were not aware of any other person who had an interest or short position in the Shares or underlying Shares 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 was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group, or any options in respect of such capital.

204

GENERAL INFORMATION

APPENDIX VI

4. MATERIAL CONTRACTS

The following material contracts (not being contracts entered into in the ordinary course of business) had been entered into by the Group within the two years preceding the date of this circular and up to the Latest Practicable Date:

(a) the supplemental agreements to the option agreements dated 4 November 2005 entered into between Upper Nice Assets Ltd. (“Upper Nice”) and the Company with each of Baron Absolute Return Fund (I) Limited, China Investment Fund Company Limited, Chan Kwok Sum, Hung Chen Richael, Lee Tin Wei Bettina, Shiu Kum Tai, Tang Ping Sum and Wu Xu Ping;
(b) the deed of assignments dated 4 November 2005 entered into between Upper Nice, the Company and Li Baoku with each of Baron Absolute Return Fund (I) Limited, China Investment Fund Company Limited, Chan Kwok Sum, Hung Chen Richael, Lee Tin Wei Bettina, Shiu Kum Tai, Tang Ping Sum and Wu Xu Ping in respect of the transfer of 58,000,000 option shares (with put options) to Li Baoku;
(c) the agreement dated 26 January 2006 entered into between the Company and China Life Insurance (Overseas) Company Limited in respect of the termination of the conditional subscription agreement dated 27 September 2005;
(d) the agreement of sale and purchase of shares dated 12 June 2006 entered into between Grand Phoenix Limited, a wholly-owned subsidiary of the Company, as vendor, and Good Business Trading Limited as purchaser in respect of the transfer of 8 shares of US$1.00 each in the share capital of Jeckman Holdings to Good Business Trading Limited for a consideration of HK$25,000,000;
(e) the agreement dated 1 December 2006 entered into between Grand Award Limited, as vendor, China Beijing Shougang Hotel Development Company, Strength Up Investments Limited and Shougang Holding in relation to the disposal of 44% interest in the registered capital of Beijing Dongzhimen International Apartment Co., Limited by Grand Award to China Beijing Shougang Hotel Development Company and Strength Up Investments Limited for an aggregate consideration of RMB 170 million;
(f) the subscription agreement dated 1 December 2006 entered into between GDC and Great Horizon International Limited in respect of the subscription of 40,000,000 new shares of GDC at HK$0.2436 per share for an aggregated consideration of approximately HK$9.74 million;
(g) the subscription agreement dated 1 December 2006 entered into between GDC Tech and Greater Appeal in respect of the subscription of 52,383,580 new GDC Tech Shares at US$0.12408 per share for an aggregate consideration of approximately US$6.5 million;

205

GENERAL INFORMATION

APPENDIX VI

(h) the termination deed dated 1 February 2007 entered into between Upper Nice, the Company and Li Baoku in respect of the termination of the option agreements dated 7 September 2005 and the supplemental agreements to the option agreements dated 4 November 2005;
(i) the placing and subscription agreement dated 16 March 2007 entered into between Upper Nice, GDC and Guotai Junan Securities (Hong Kong) Limited, the placing agent, in respect of the top-up placing of 120,000,000 shares of GDC at HK$0.54 per share;
(j) the subscription agreement dated 16 March 2007 entered into between Upper Nice and GDC in respect of the subscription of 100,000,000 new shares of GDC at HK$0.54 per share;
(k) the placing agreement dated 30 March 2007 entered into between Upper Nice and CITIC Securities Corporate Finance (HK) Limited, the placing agent, in respect of the placing of 30,000,000 shares of GDC at HK$1.2 per share;
(l) the placing and subscription agreement dated 30 April 2007 and the supplemental agreement dated 2 May 2007 entered into between Upper Nice, the Company, GDC and CITIC Securities Corporate Finance (HK) Limited, the placing agent, in respect of the top-up placing of 105,000,000 shares of GDC at HK$1.61 per share;
(m) the placing and subscription agreement dated 4 July 2007 entered into between Upper Nice, the Company, GDC and SBI E2-Capital Securities Limited, the placing agent, in respect of the top-up placing of 72,000,000 shares of GDC at HK$2.7 per share;
(n) the Shougang GDC Media Agreement;
(o) the Jeckman Agreement; and
(p) the GDC Tech Subscription Agreement.

Save as disclosed below, the Company has not entered into any material contracts (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of this circular which are or may be material.

206

GENERAL INFORMATION

APPENDIX VI

5. LITIGATION

As at the Latest Practicable Date, the Group was engaged in the following litigation or arbitration of material importance:

On 14 May 2003, GDC Entertainment Limited (“GDC Entertainment”), an indirect non whollyowned subsidiary of the Company, entered into a co-production agreement (the “Co-production Agreement”) with Westwood Audiovisual and Multimedia Consultants, Inc. (“WAMC”) and Production and Partners Multimedia, SAS (“P&PM”), in which the Group has a 25% equity interest, in relation to an animated television series.

In relation to the French Proceedings, the Group’s French legal advisers have advised that the enforcement of P&PM’s and WAMC’s claims should only be limited to the assets of GDC Entertainment.

Further, arbitration proceedings were commenced by GDC Entertainment against P&PM and WAMC in Hong Kong by way of a notice of arbitration dated 16 June 2005 issued pursuant to the Co-production Agreement. In the arbitration, issues had been raised by GDC Entertainment as to whether P&PM and/or WAMC was in repudiatory breach of the Co-production Agreement which entitled GDC Entertainment to terminate the same claim of damages from P&PM and WAMC. Pleadings have not yet been exchanged in the arbitration. P&PM and WAMC have applied to the arbitrator for the determination of a preliminary issue as to whether the arbitrator has jurisdiction to hear the dispute which GDC Entertainment will refer to the arbitrator in the arbitration. The hearing of the application was held on 20 January 2006. Award of the arbitrator was published on the Issue of Jurisdiction on 23 March 2006 dismissing the application, and made an order for costs in GDC Entertainment’s favour in respect of the application. Since then, there has been no further step taken by the parties apart from recently. GDC Entertainment has written to the arbitrator seeking directions for the further conduct of the arbitration, including the service of pleadings in the arbitration. GDC Entertainment is still waiting to hear from the arbitrator as to how she would like to proceed with the arbitration.

The Directors are of the opinions that settlement of the claim is remote. Accordingly, no provision for any potential liability has been made in the condensed consolidated financial statements.

Save as disclosed above, neither the Company nor any other members of the Group was engaged in any litigation or arbitration of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against any member of the Group as at the Latest Practicable Date.

207

GENERAL INFORMATION

APPENDIX VI

6. EXPERTS AND CONSENT

Name

Qualification

Deloitte Touche Tohmastsu (“DTT”) Certified Public Accountants OSK a corporation licensed to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

Each of OSK and DTT has given, and has not withdrawn, its written consent to the issue of this circular with the inclusion herein of its letter and/or references to its name, in the form and context in which it appears.

As at the Latest Practicable Date, each of OSK and DTT was not interested in any Share or share in any member of the Group nor did it have any right or option (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any Share or share in any member of the Group.

As at the Latest Practicable Date, each of OSK and DTT did not have any direct or indirect interest in any asset which have been, since 31 December 2006, being the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to any member of the Group or which are proposed to be acquired or disposed of by or leased to any member of the Group.

7. SECRETARY AND QUALIFIED ACCOUNTANT OF THE COMPANY

The company secretary of the Company is Ms. Cheng Man Ching, who is a fellow member of each of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries and an associate member of the Hong Kong Institute of Bankers, and holds a master degree in business administration and a master degree of arts.

The qualified accountant of the Company is Mr. Chiu Ming Kin, 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, and holds a bachelor degree of business administration with honor.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s principal place of business in Hong Kong at 6th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong during normal business hours on any weekday other than public holidays, from the date of this circular up to and including the date of the SGM:

(a) the Bye-laws of the Company;
(b) the material contracts referred to in the section headed “Material Contracts” in this appendix;

208

GENERAL INFORMATION

APPENDIX VI

(c) the written consents referred to under the section headed “Experts and Consents” in this appendix;
(d) the annual reports of the Company for two years ended 31 December 2006 and the interim report of the Company for the six months ended 30 June 2007;
(e) the letter from the Independent Board Committee, the text of which is set out in this circular;
(f) the letter from OSK, the text of which is set out in this circular;
(g) the accountants’ report from DTT on the financial position of the Jeckman Group, the text of which is set out in Appendix III to this circular; and
(h) the letter on unaudited pro forma consolidated financial information from DTT, the text of which is set out in Appendix V to this circular;
(i) the circular of the Company dated 4 April 2007 in relation to subscription of new shares and disposal of existing shares in Global Digital Creations Holdings Limited;
(j) the circular of the Company dated 30 April 2007 in relation to proposals for refreshment of the 10% general limit on grant of options under the share option scheme and refreshment of the 10% general limit on grant of options under the GDC Share Option Scheme and refreshment of the 10% general limit on grant of options under the GDC Tech Share Option Scheme and general mandates to issue and repurchase shares and re-election of retiring directors and notice of annual general meeting;
(k) the circular of the Company dated 4 May 2007 in relation to continuing connected transactions;
(l) the circular of the Company dated 14 May 2007 in relation to discloseable transaction on top-up placing; and
(m) the circular of the Company dated 19 July 2007 in relation to discloseable transaction on top-up placing.

9. MISCELLANEOUS

(a) So far as is known to the Directors, as at the Latest Practicable Date, there was (i) no voting trust or other agreement or arrangement or understanding entered into by or binding upon any Shareholders; and (ii) no obligation or entitlement of any Shareholders, whereby he/ she/it has or may have temporarily or permanently passed control over the exercise of the voting rights in respect of his/her/its Shares to a third party, either generally or on a case by case basis.

209

GENERAL INFORMATION

APPENDIX VI

(b) So far as is known to the Directors, as at the Latest Practicable Date, there was no discrepancy between any Shareholder’s beneficial shareholding interest in the Company as disclosed in this circular and the number of Shares in respect of which it will control or will be entitled to exercise control over the voting rights at the SGM.
(c) The registered office of the Company is at Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda and the principal place of business of the Company in Hong Kong is at 6th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(d) The Hong Kong branch share registrars and transfer office of the Company is Tricor Tengis Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(e) The English text of this circular shall prevail over the Chinese text.

210

NOTICE OF SGM

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability)

(Stock code: 730)

NOTICE IS HEREBY GIVEN that a special general meeting of Shougang Concord Grand (Group) Limited (the “Company”) will be held at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong on Tuesday, 30 October 2007 at 10:50 a.m. for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT
(a) the agreement (the “ Shougang GDC Media Agreement ”) dated 14 August 2007 entered into between GDC Holdings Limited, (“ GDC Holdings ”), an indirect non wholly-owned subsidiary of the Company and Shougang Holding (Hong Kong) Limited (“ Shougang Holding ”), a copy of which is tabled at the meeting and marked “A” and initialed by the chairman of the meeting for identification purpose, pursuant to which Shougang Holding conditionally agreed to sell, and GDC Holdings has conditionally agreed to purchase the entire equity interest in the issued share capital of Shougang GDC Media Holding Limited for a consideration of HK$42 million be and is hereby approved and ratified; and
(b) the board of directors of the Company be and is hereby authorised to do all such things and executive all such documents in its absolute discretion as it deems fit or appropriate to give effect to the Shougang GDC Media Agreement and the implementation of the transactions contemplated thereunder.”

“ THAT

(a) the agreement (the “ Jeckman Agreement ”) dated 14 August 2007 entered into between Grand Phoenix Limited, (“ Grand Phoenix ”), an indirect wholly-owned subsidiary of the Company and Shougang Holding (Hong Kong) Limited (“ Shougang Holding ”), a copy of which is tabled at the meeting and marked “B” and initialed by the chairman of the meeting for identification purpose, pursuant to which Shougang Holding conditionally agreed to sell and Grand Phoenix has conditionally agreed to purchase the 50% interest in the issued share capital of Jeckman Holdings Limited held by Shougang Holding for a consideration of HK$52 million be and is hereby approved and ratified; and

* For identification purpose only

211

NOTICE OF SGM

(b) the board of Director of the Company be and is hereby authorised to do all such things and execute all such documents in its absolute discretion as it deems fit or appropriate to give effect to the Jeckman Agreement and the implementation of the transactions contemplated thereunder.”
“ THAT
(a) subscription agreement (the “ GDC Tech Subscription Agreement ”) dated 14 August 2007 entered into between GDC Technology Limited (“ GDC Tech ”), an indirect non wholly-owned subsidiary of the Company and GDC Holdings Limited (“ GDC Holdings ”), a copy of which is tabled at the meeting and marked “C” and initialed by the Chairman of the meeting for identification purpose, pursuant to which GDC Tech has conditionally agreed to issue and allot to GDC Holdings 53,388,178 new shares (the “ GDC Tech subscription Share(s) ”) of HK0.10 each in the capital of GDC Tech at a Subscription price of HK$2.00 per GDC Tech Subscription Share be and is hereby approved and ratified; and
(b) the board of Director of the Company be and is hereby authorised to do all such things and executive all such documents in its absolute discretion as it deems fit or appropriate to give effect to the GDC Tech Subscription Agreement and the implementation of the transactions contemplated thereunder.”
“ THAT
(a) the grant of GDC Options (as defined in the circular of the Company date 11 October 2007 (the “ Circular ”)) under the GDC Share Option Scheme (as defined in the Circular) to the eligible participants of Global Digital Creations Holdings Limited be and is hereby confirmed and approved; and
(b) the board of Director of the Company be and is hereby authorised to do all such things and execute all such documents in its absolute discretion as it deems fit or appropriate to give effect to the grant and exercise of the GDC Options.”

212

NOTICE OF SGM

“ THAT
(a) the grant of GDC Tech Options (as defined in the Circular) under the GDC Tech Share Option Scheme (as defined in the Circular) to Ms. Lu Yi, Gloria which would entitle her to subscribe for 12,000,000 shares of HK$0.10 each in the share capital of GDC Tech, be and is hereby confirmed and approved;
(b) the board of Director of the Company be and is hereby authorised to do all such things and execute all such documents in its absolute discretion as it deems fit or appropriate give effect to the grant and exercise of the GDC Tech Options to Ms. Lu Yi, Gloria.”

By order of the Board of

Shougang Concord Grand (Group) Limited Cao Zhong Vice Chairman and Managing Director

11 October 2007

Notes:

1. Any member of the Company entitled to attend and vote at the meeting by the above notice is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him/her. A proxy need not be a member of the Company.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of any officer, attorney or other person authorised to sign the same.

3. In order to be valid, the instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, must be delivered to the office of the Hong Kong branch share registrars and transfer office of the Company, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting thereof (as the case may be).

4. Completion and return of the form of proxy shall not preclude a member of the Company from attending and voting in person at the meeting or at any adjourned meeting thereof (as the case may be) and in such event, the instrument appointing a proxy shall be deemed to be revoked.

5. Where there are joint registered holders of any share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she was solely entitled thereto, but if more than one of such joint holders are present at the meeting, whether in person or by proxy, the joint registered holder present whose name stands first on the register of members in respect of the shares shall be accepted to the exclusion of the votes of the other registered holders.

213

AI assistant

Ulferts International Limited — Proxy Solicitation & Information Statement 2007

50108_rns_2007-10-10_4837d446-abb1-4b95-8f23-daf7fb8d6c71.pdf

首 長 四 方（集 團）有 限 公 司[*]

SHOUGANG CONCORD GRAND (GROUP) LIMITED

CIMB-GK Securities (HK) Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

首 長 四 方（集 團）有 限 公 司[] SHOUGANG CONCORD GRAND (GROUP) LIMITED*

INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

THE SHOUGANG GDC MEDIA AGREEMENT DATED 14 AUGUST 2007

Parties

Asset to be acquired

Consideration

LETTER FROM THE BOARD

Conditions to completion of the Shougang GDC Media Agreement

INFORMATION ON SHOUGANG GDC MEDIA AND PRC MEDIA JV

Shougang GDC Media

LETTER FROM THE BOARD

PRC Media JV

Scope of business:

Term:

Capital structure:

Registered capital:

Profit distribution:

Board composition:

LETTER FROM THE BOARD

REASONS FOR THE SHOUGANG GDC MEDIA ACQUISITION

FINANCIAL EFFECT OF THE SHOUGANG GDC MEDIA ACQUISITION

REQUIREMENTS OF THE LISTING RULES

THE JECKMAN AGREEMENT DATED 14 AUGUST 2007

Parties

LETTER FROM THE BOARD

Asset to be acquired

Jeckman Consideration

Condition to completion of the Jeckman Agreement

LETTER FROM THE BOARD

Information relating to Jeckman Holdings and South China Leasing

Shareholding Structure

LETTER FROM THE BOARD

REQUIREMENTS OF THE LISTING RULES

LETTER FROM THE BOARD

III) DISCLOSEABLE AND CONNECTED TRANSACTION RELATING TO THE PROPOSED SUBSCRIPTION OF NEW SHARES IN GDC TECHNOLOGY LIMITED

THE GDC TECH SUBSCRIPTION AGREEMENT DATED 14 AUGUST 2007

Parties

Shares to be subscribed

GDC Tech Subscription Price

Condition to completion of the GDC Tech Subscription Agreement

LETTER FROM THE BOARD

Information relating to GDC Tech

Reasons for the GDC Tech Subscription

LETTER FROM THE BOARD

Shareholding Structure of GDC Tech

FINANCIAL EFFECT OF THE GDC TECH SUBSCRIPTION

REQUIREMENTS OF THE LISTING RULES

LETTER FROM THE BOARD

IV) MAJOR TRANSACTION RELATING TO DEEMED DISPOSAL OF INTEREST IN GLOBAL DIGITAL CREATIONS HOLDINGS LIMITED

DEEMED DISPOSAL OF INTEREST IN GDC

Information relating to GDC

LETTER FROM THE BOARD

Reasons for the grant of the GDC Options

FINANCIAL EFFECT OF THE DEEMED DISPOSAL OF INTEREST IN GDC

REQUIREMENTS OF THE LISTING RULES

V) PROPOSED GRANT OF OPTIONS UNDER THE GDC TECH SHARE OPTION SCHEME

LETTER FROM THE BOARD

Reasons for the grant of the GDC Tech Options

INDEPENDENT BOARD COMMITTEE/INDEPENDENT FINANCIAL ADVISER

SGM

LETTER FROM THE BOARD

PROCEDURE FOR DEMANDING A POLL AT THE SGM

RECOMMENDATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Ulferts International Limited Proxy Solicitation & Information Statement 2007

首長四方（集團）有限公司[*]

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**