Ulferts International Limited — Proxy Solicitation & Information Statement 2009

Nov 5, 2009

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, 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 to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee.

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

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

(Incorporated in Bermuda with limited liability)

(Stock Code: 730)

MAJOR TRANSACTION AIRCRAFTS FINANCE LEASE ARRANGEMENT

• For identification purpose only

6 November 2009

CONTENTs

	Page
Definitions	1
Letter from the Board 3
Appendix I – Financial information of the Group	8
Appendix II – Financial information of the Aircrafts 107
Appendix III – Valuation report of the Aircrafts	108
Appendix IV – Pro forma financial information of the Group 113
Appendix V – General information	119

• i -

Definitions

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

• “Aircrafts” three Hawker 800-XP aircrafts; “Aircrafts Finance Lease the purchase of the Aircrafts by South China Leasing and the Arrangement” leaseback of the Aircrafts to Deer Air pursuant to the terms of the Sale and Purchase Agreement and the Lease Agreements;

• “Board” the board of Directors; “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;

• “connected person” has the meaning ascribed to it under the Listing Rules;

• “Deer Air” 金鹿航空有限公司 (Deer Air Co., Ltd.), a domestic airline in the PRC;

• “Director(s)” the directors of the Company;

• “Group” the Company and its subsidiaries;

• “HK$” Hong Kong dollar, the lawful currency of Hong Kong;

“Hong Kong” the Hong Kong Special Administrative Region of the PRC; “Independent Valuer” Greater China Appraisal Limited;

• “Latest Practicable Date” 2 November 2009, being the latest practicable date prior to the printing of this circular for ascertaining certain information in the circular;

• “Lease Agreements” the agreement dated 29 September 2009 and the supplemental agreement dated 29 September 2009 both between South China Leasing and Deer Air, pursuant to which South China Leasing has agreed to lease the Aircrafts to Deer Air for a term of 36 months;

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;

• 1 -

Definitions

“Max Same”	Max Same Investment Limited, a company incorporated in Hong
	Kong which is a wholly-owned subsidiary of Cheung Kong
	(Holdings) Limited;
“PRC”	the People’s Republic of China, which, for the purposes of
	this circular, does not include Hong Kong, Macao Special
	Administrative Region and Taiwan;
“RMB”	Renminbi, the lawful currency of the PRC;
“Sale and Purchase Agreement”	the agreement dated 29 September 2009 between South China Leasing
	and Deer Air, pursuant to which South China Leasing has agreed
	to purchase the Aircrafts from Deer Air for RMB200,000,000
	(equivalent to approximately HK$227,273,000);
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws
	of Hong Kong);
“Shareholders”	shareholders of the Company;
“Shares”	ordinary shares of HK$0.01 each in the share capital of the
	Company;
“Shougang Holding”	Shougang Holding (Hong Kong) Limited, a company incorporated
	in Hong Kong with limited liability, the controlling shareholder
	(as defined under the Listing Rules) of the Company;
“South China Leasing”	South China International Leasing Co., Ltd., a company established
	in the PRC and an indirect wholly-owned subsidiary of the
	Company;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited; and
“%”	per cent.

Unless otherwise specified in this circular, translations of RMB into HK$ are made in this circular, for illustration only, at the rate of HK$1.00 to RMB0.88. No representation is made that any amounts in RMB or HK$ could have been or could be converted at that rate or at any other rate or at all.

• 2 -

Letter from the Board

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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 HM 12 Bermuda

Principal Office in Hong Kong: Rooms 1101-4, 11th Floor Harcourt House 39 Gloucester Road Wanchai Hong Kong

6 November 2009

To the Shareholders

Dear Sir or Madam,

maJor traNSaCtIoN aIrCraftS fINaNCe LeaSe arraNGemeNt

INtrodUCtIoN

The Board announced that on 29 September 2009, South China Leasing, an indirect wholly-owned subsidiary of the Company, entered into the Sale and Purchase Agreement with Deer Air pursuant to which South China Leasing has agreed to purchase the Aircrafts from Deer Air for a consideration of RMB200 million (equivalent to approximately HK$227.27 million).

On 29 September 2009, South China Leasing and Deer Air entered into the Lease Agreements pursuant to which South China Leasing has agreed to leaseback the Aircrafts to Deer Air for a term of 36 months.

The purpose of this circular is to provide you with information in respect of, among other things, the details of the Aircrafts Finance Lease Arrangement.

• For identification purpose only

• 3 -

Letter from the Board

SaLe aNd PUrChaSe aGreemeNt

date of the agreement

29 September 2009

Parties to the transaction

Purchaser: South China Leasing, an indirect wholly-owned subsidiary of the Company, is principally engaged in the business of finance leasing, including the leasing of aircrafts, machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties in the PRC; and

Seller: Deer Air, a domestic airline in the PRC. To the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, Deer Air and its ultimate beneficial owner are third parties independent of the Company and its connected persons.

Subject matter of the transaction

South China Leasing agreed to purchase the Aircrafts from Deer Air. The Aircrafts are three Hawker 800-XP aircrafts.

Consideration for the purchase of the aircrafts

The consideration for the purchase of the Aircrafts is RMB200 million (equivalent to approximately HK$227.27 million), which has been agreed after arm’s length negotiations between South China Leasing and Deer Air with reference to the original purchase costs of the Aircrafts by Deer Air and recent market price, after taking into account various factors, including the age and conditions of the Aircrafts. The market value for continued use of the Aircrafts was valued by our valuer, Greater China Appraisal Limited, an independent third party, at an amount of RMB226,000,000 (equivalent to approximately HK$256,818,000). The valuer has experiences in conducting valuation of aviation assets in the PRC.

The consideration for the purchase of the Aircrafts is payable after the following conditions have been satisfied:

1. the authorisation of the respective board of the parties on the execution of the Sale and Purchase Agreement;

2. the delivery by each of the parties of its business license to the other party;

3. the delivery by Deer Air to South China Leasing a copy of the sale contract of the Aircraft;

4. the delivery by Deer Air to South China Leasing a copy of the registration certificate for each of the aircraft issued by the Civil Aviation Administration of China and the corresponding certificate of air worthiness; and

5. 4 -

Letter from the Board

1. the approval of the Sale and Purchase Agreement by the Shareholders in accordance with the requirements of the Listing Rules.

The consideration for the Sale and Purchase Agreement will be satisfied by South China Leasing through bank borrowings.

As at the Latest Practicable Date, all the conditions above have been satisfied and the consideration for the purchase of the Aircrafts has not been paid, pending the transfer of titles of the Aircrafts to South China Leasing.

LeaSe aGreemeNtS

date of the agreement and the supplemental agreement

29 September 2009

Parties to the transaction

Lessor: South China Leasing; and Lessee: Deer Air.

Leaseback arrangement

Pursuant to the Lease Agreements, South China Leasing will leaseback the Aircrafts to Deer Air for a period of 36 months from the date of the Lease Agreements becoming effective.

Condition of the Lease agreements

The Lease Agreements are subject to approval by the Shareholders in accordance with the requirements of the Listing Rules.

As at the Latest Practicable Date, the condition above has been fulfilled.

Lease payments

The lease payments will be payable by Deer Air quarterly in arrears in 12 instalments in total of RMB222.95 million (equivalent to approximately HK$253.35 million), of which RMB60.8 million (equivalent to approximately HK$69.09 million) will be payable within the first twelve months from the date of the Lease Agreements, RMB58.1 million (equivalent to approximately HK$66.02 million) will be payable within the second twelve months and the remaining RMB104.05 million (equivalent to approximately HK$118.24 million) will be payable within the third twelve months. Interest for the lease will be calculated at the 3-year base lending rate announced by the People’s Bank of China, which based on the rate of 5.40% on the date of the execution of the Lease Agreements, will bear annual interest at 5.40%.

• 5 -

Letter from the Board

South China Leasing is also entitled to a lease handling fee of RMB4.25 million (equivalent to approximately HK$4.83 million), payable by Deer Air upon the Lease Agreements becoming effective.

The lease payments have been agreed after arm’s length negotiations between the parties with reference to the consideration paid by South China Leasing for the Aircrafts and the prevailing market rate for finance leases of comparable nature.

Lessee’s option to purchase

At the end of the lease term of the Lease Agreements, Deer Air will have the right to purchase the Aircrafts at a nominal purchase price of RMB10,000 (equivalent to approximately HK$11,400).

Guarantee

Pursuant to the Lease Agreements, Deer Air has warranted to provide satisfactory guarantees, including bank or corporate guarantees, to South China Leasing from the effective date of the Lease Agreements.

reaSoNS for the aIrCraftS fINaNCe LeaSe arraNGemeNt

The Company is an investment holding company and its subsidiaries are principally engaged in provision and distribution of cultural recreations content, provision of financial services and property investment and management.

The entering into of the Aircrafts Finance Lease Arrangement is in the ordinary and usual course of business of South China Leasing. Given that the Aircrafts Finance Lease Arrangement would further expand the scope of South China Leasing in the aircraft leasing sector in the PRC and would earn income, the Directors are of the view that the terms of the Aircrafts Finance Lease Arrangement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

fINaNCIaL effeCt of the traNSaCtIoN

Immediately after completion of the acquisition of the Aircrafts, and assuming that the consideration of approximately HK$227.27 million will be satisfied by bank borrowings, the total assets and total liabilities of the Group will both be increased by approximately HK$232.10 million. South China Leasing will earn a finance lease income of approximately RMB22.95 million (equivalent to approximately HK$26.08 million) and a lease handling fee income of RMB4.25 million (equivalent to approximately HK$4.83 million) over the 36-month lease term under the Lease Agreements.

• 6 -

Letter from the Board

GeNeraL

The transactions contemplated under the Aircrafts Finance Lease Arrangement constitute a major transaction for the Company under the Listing Rules and is subject to the approval of the Shareholders in a general meeting. The Sale and Purchase Agreement and the Lease Agreements are inter-conditional. Pursuant to clause 7.1 of the Sale and Purchase Agreement, when purchasing the Aircrafts, Deer Air acting as lessee of the Lease Agreements shall sell and leaseback the Aircrafts in accordance with the terms of the Lease Agreements. The entering into of the Aircrafts Finance Lease Arrangement is in the ordinary and usual course of business of South China Leasing. Given that the Aircrafts Finance Lease Arrangement was entered into after arm’s length negotiations, under normal commercial terms and would enable the Group to expand its scope of finance lease business as well as earn income, the Directors consider that the entering into of the Aircrafts Finance Lease Arrangement is fair and reasonable and in the interest of the Company and the Shareholders as a whole. Accordingly, the Directors would have recommended that the Shareholders to vote in favour of the resolutions to approve the Aircrafts Finance Lease Arrangement should a general meeting be held to approve the Aircrafts Finance Lease Arrangement. To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, no Shareholder has a material interest in the Aircrafts Finance Lease Arrangement and is required to abstain from voting for the resolutions to approve the Aircrafts Finance Lease Arrangement. Shougang Holding (through its wholly-owned subsidiaries) and Max Same which were respectively interested in 489,840,710 Shares and 91,491,193 Shares, representing approximately 42.54% and 7.95% of the issued share capital of the Company respectively and an aggregate of approximately 50.49% in the issued share capital of the Company as at the date of the Sale and Purchase Agreement, have approved the Aircrafts Finance Lease Arrangement by written shareholders’ approvals pursuant to Rule 14.44 of the Listing Rules in lieu of resolutions to be passed at a general meeting of the Company.

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

By order of the Board Shougang Concord Grand (Group) Limited Cao Zhong

Vice Chairman and Managing Director

• 7 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• I. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP FOR THE THREE FINANCIAL YEARS ENDED 31 DECEMBER 2006, 31 DECEMBER 2007 AND 31 DECEMBER 2008 AND FOR THE SIX MONTHS ENDED 30 JUNE 2008 AND 30 JUNE 2009

The table set out below is the summary of the financial information of the Group for the year ended 31 December 2006, 31 December 2007 and 31 December 2008; and for the six months ended 30 June 2008 and 30 June 2009, as extracted from, the annual report of the Company for the year ended 31 December 2007 and 2008 and the interim report of the Company for the six months ended 30 June 2009.

Results

Revenue Cost of sales Gross profit (Loss)/profit before tax Income tax expense (Loss)/profit for the year/period Attributable to: Owners of the Company Minority interests (Loss)/earnings per share Basic Diluted	For the year ended 2006 HK$’000 (restated) 90,629 (53,670 ) 36,959 (15,075 ) (1,103 ) (16,178 ) (15,204 ) (974 ) (16,178 ) (HK$1.34 cents ) N/A	For the year ended 2007 HK$’000 284,303 (193,371 ) 90,932 447,998 (6,785 ) 441,213 425,661 15,552 441,213 HK$37.19 cents HK$35.99 cents	For the year ended 2008 HK$’000 308,181 (262,550 ) 45,631 (156,209 ) (1,540 ) (157,749 ) (119,446 ) (38,303 ) (157,749 ) (HK10.38 cents ) N/A	For the six months ended 30 June 2008 HK$’000 (unaudited) 111,029 (99,485 ) 11,544 (82,003 ) (2,631 ) (84,634 ) (54,208 ) (30,426 ) (84,634 ) (HK4.71 cents ) N/A	For the six months ended 30 June 2009 HK$’000 (unaudited) 216,048 (173,813 )
					42,235
					6,562 (5,257 )
					1,305
					941 364
					1,305
					HK$0.08 cents
					N/A

• 8 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial position

As at 31 As at 31 As at 31 December 2006 December 2007 December 2008 HK$’000 HK$’000 HK$’000 Total assets 457,164 2,566,391 2,418,299 Total liabilities (235,601 ) (1,598,035 ) (1,547,125 ) Net assets 221,563 968,356 871,174 Equity attributable to owners of the Company 212,010 635,814 551,644 Share options reserve of subsidiaries 5,907 55,249 54,603 Minority interests 3,646 277,293 264,927 Total equity 221,563 968,356 871,174

As at 30 June 2009 HK$’000 (unaudited) 2,229,938 (1,390,031 ) 839,907 552,571 54,598 232,738 839,907

• 9 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

II. EXTRACT FROM THE ANNUAL REPORT OF THE COMPANY FOR THE YEAR ENDED 31 DECEMBER 2008

The following is an extract of the latest published audited consolidated financial statements of the Group for the year ended 31 December 2008 together with the notes therein, from the 2008 annual report of the Company.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2008

Notes Revenue 7 Cost of sales Gross profit Interest income from entrusted loan receivables Other income 9 Distribution costs and selling expenses Administrative expenses (Decrease) increase in fair value of investment properties Changes in fair value of held-for-trading investments Finance costs 10 Share of results of associates Other expense 11 Discount on acquisition of additional interest in a subsidiary 42(c) Gain on disposal and dilution of interests in subsidiaries 12 Gain on disposal of interest in a jointly controlled entity 13 (Loss) profit before tax Income tax expense 14 (Loss) profit for the year 15 Attributable to: Equity holders of the Company Minority interests (Loss) earnings per share 17 Basic Diluted	2008 HK$’000 308,181 (262,550 ) 45,631 3,674 12,035 (14,240 ) (128,233 ) (15,960 ) (30,011 ) (6,046 ) (857 ) (22,202 ) – – – (156,209 ) (1,540 ) (157,749 ) (119,446 ) (38,303 ) (157,749 ) (HK10.38 cents ) N/A	2007 HK$’000 284,303 (193,371) 90,932 – 23,369 (5,553 ) (156,036 ) 31,130 23,713 (4,873 ) 7,255 – 1,342 375,680 61,039 447,998 (6,785) 441,213 425,661 15,552 441,213 HK37.19 cents HK35.99 cents

• 10 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

At 31 December 2008

Notes Non-current assets Property, plant and equipment 18 Prepaid lease payments 19 Investment properties 20 Goodwill 21 Intangible asset 23 Interests in associates 24 Advances 26 Finance lease receivables 27 Entrusted loan receivables 28 Restricted bank deposits 33 Pledged bank deposit 33 Advance paid for acquisition of intangible asset Current assets Inventories 29 Production work in progress 30 Amounts due from customers for contract work 31 Finance lease receivables 27 Entrusted loan receivables 28 Trade receivables 32 Prepayments, deposits and other receivables 33 Prepaid lease payments 19 Amount due from an associate 25(b) Held-for-trading investments 34 Pledged bank deposits 33 Bank balances and cash 33	2008 HK$’000 60,510 7,512 125,200 52,935 244,111 21,856 126,547 827,138 25,499 66,069 665 – 1,558,042 21,904 3,875 16,935 463,170 26,879 20,524 22,957 156 – 85,668 2,808 195,381 860,257	2007 HK$’000 47,634 7,230 141,160 63,332 221,545 424 – 1,029,469 – 72,482 – 35,581
		1,618,857
		25,781 11,094 1,494 344,404 – 19,043 42,259 147 1,053 29,846 8,852 463,561
		947,534

• 11 -

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes Current liabilities Amounts due to customers for contract work 31 Trade payables 35 Other payables and accruals Income received in advance 36 Rental and management fee deposits received Amount due to a related party 37 Tax liabilities Borrowings 38 Net current assets Total assets less current liabilities Non-current liabilities Income received in advance 36 Borrowings 38 Security deposits received Deferred tax liabilities 39 Net assets Capital and reserves Share capital 40 Reserves Equity attributable to equity holders of the Company Share options reserve of subsidiaries Minority interests Total equity	2008 HK$’000 1,763 8,117 53,492 38,108 1,189 – 9,506 427,048 539,223 321,034 1,879,076 16,393 930,248 60,168 1,093 1,007,902 871,174 11,514 540,130 551,644 54,603 264,927 871,174	2007 HK$’000 1,440 5,146 44,848 23,361 1,044 455 8,291 362,267
		446,852
		500,682
		2,119,539
		21,245 1,055,103 73,495 1,340
		1,151,183
		968,356
		11,504 624,310
		635,814 55,249 277,293
		968,356

• 12 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2008

At 1 January 2007 Exchange differences on translation of associates/ subsidiaries representing income recognised directly in equity Profit for the year Release of translation reserve upon disposal of interest in a jointly controlled entity Release of translation reserve upon disposal of interests in subsidiaries Total recognised income for the year Recognition of share- based payments Exercise of share options Exercise of share options of subsidiaries Acquisition of subsidiaries Cancellation of share options granted by a subsidiary Additional contribution from minority shareholders Dilution of interests in subsidiaries Partial disposal of interests in subsidiaries Additional investments in subsidiaries shared by minority shareholders of subsidiaries At 31 December 2007 Exchange differences on translation of associates/ subsidiaries representing income recognised directly in equity Loss for the year Total recognised income and expense for the year Recognition of share-based payments Exercise of share options Reduction of share premium_(Note (c)) Elimination of accumulated losses(Note (c))_ Cancellation of share options granted by subsidiaries Capital contribution from a minority shareholder At 31 December 2008	Share capital HK$’000 11,369 – – – – – – 135 – – – – – – – 11,504 – – – – 10 – – – – 11,514	Share premium HK$’000 417,690 – – – – – – 7,569 – – – – – – – 425,259 – – – – 559 (425,259 ) – – – 559	Capital contribution reserve HK$’000 445 – – – – – – – – – – – – – – 445 – – – – – – – – – 445	Contributed surplus HK$’000 (Note (a)) 2,135 – – – – – – – – – – – – – – 2,135 – – – – – 425,259 (311,818 ) – – 115,576	Translation reserve HK$’000 16,369 12,502 – (12,352 ) 983 1,133 – – – – – – – – – 17,502 23,351 – 23,351 – – – – – – 40,853	Share options reserve HK$’000 – – – – – – 14,949 (2,155 ) – – – – – – – 12,794 – – – 10,869 (159 ) – – – – 23,504	(Accumulated losses) Special retained reserve profts HK$’000 HK$’000 (Note (b)) – (235,998 ) – – – 425,661 – – – – – 425,661 – – – – – – – – – 8 – – – – – – (23,496 ) – (23,496 ) 189,671 – – – (119,446 ) – (119,446 ) – – – – – – – 311,818 – 646 – – (23,496 ) 382,689	Total HK$’000 212,010 12,502 425,661 (12,352 ) 983 426,794 14,949 5,549 – – 8 – – – (23,496 ) 635,814 23,351 (119,446 ) (96,095 ) 10,869 410 – – 646 – 551,644	Share options reserve of subsidiaries HK$’000 5,907 – – – – – 57,402 – (8,052 ) – (8 ) – – – – 55,249 – – – – – – – (646 ) – 54,603	Minority interests HK$’000 3,646 3,968 15,552 – – 19,520 – – 33,986 27,608 – 427,224 (268,781 ) 1,539 32,551 277,293 11,117 (38,303 ) (27,186 ) – – – – – 14,820 264,927	Total HK$’000 221,563 16,470 441,213 (12,352 ) 983 446,314 72,351 5,549 25,934 27,608 – 427,224 (268,781 ) 1,539 9,055 968,356 34,468 (157,749 ) (123,281 ) 10,869 410 – – – 14,820 871,174

• 13 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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, and the transfers as mentioned in note (c) below.

• (b) Special reserve represented the difference between the fair value and the carrying amount of the net assets attributable to the additional interest in a subsidiary being acquired from minority shareholders during the year ended 31 December 2007 (see note 42(c)).

• (c) a special resolution was passed by shareholders of the Company at the Special General meeting of the Company held on 6 June 2008 and completed thereafter that an amount of approximately HK$425,259,000 standing to the credit of the share premium account of the Company as at 31 December 2007 be reduced, with the credit arising therefrom being transferred to the contributed surplus of the Company. Upon the said transfer becoming effective, an amount of approximately HK$311,818,000 standing to the credit of the contributed surplus of the Company has been applied to eliminate the accumulated losses of the Company as at 31 December 2007. The Company has complied with the requirements of section 46(2) of the Companies act 1981 of Bermuda (as amended). Details of which are set out in the circular of the Company dated 9 May 2008.

• 14 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2008

OPERATING ACTIVITIES (Loss) profit before tax Adjustments for: Changes in fair value of held-for-trading investments Amortisation of intangible asset Decrease (increase) in fair value of investment properties Share-based payments expenses Impairment loss in respect of goodwill Depreciation of property, plant and equipment Allowance for bad and doubtful debts Finance costs Research and development costs Allowance for inventories Share of results of associates Amortisation of prepaid lease payments Loss on disposal of property, plant and equipment Interest income Interest income from entrusted loan receivables Dividend income from held-for-trading investments Gain on disposal of intangible asset Discount on acquisition of additional interest in a subsidiary Gain on disposal and dilution of interests in subsidiaries Gain on disposal of interest in a jointly controlled entity Operating cash flows before movements in working capital Decrease (increase) in inventories Decrease in production work in progress (Increase) decrease in amounts due from customers for contract work Decrease in finance lease receivables Increase in trade receivables Decrease (increase) in prepayments, deposits and other receivables (Increase) decrease in held-for-trading investments Increase in amounts due to customers for contract work Increase in trade payables Increase (decrease) in other payables and accruals Increase in income received in advance Increase in rental and management fee deposits received (Decrease) increase in security deposits received Cash generated from (used in) operations Dividend received from held-for-trading investments Income tax paid Interest paid NET CASH FROM (USED IN) OPERATING ACTIVITIES	2008 HK$’000 (156,209 ) 30,011 28,491 15,960 10,869 10,397 7,857 6,386 6,046 2,843 1,031 857 161 50 (5,190 ) (3,674 ) (3,118 ) (104 ) – – – (47,336 ) 4,043 7,965 (13,549 ) 170,090 (7,314 ) 20,985 (85,275 ) 338 2,971 7,707 8,172 145 (17,954 ) 50,988 3,118 (848 ) (6,046 ) 47,212	2007 HK$’000 447,998 (23,713 ) – (31,130 ) 72,351 – 2,433 230 4,873 4,432 – (7,255 ) 99 119 (14,084 ) – (144 ) – (1,342 ) (375,680 ) (61,039 ) 18,148 (14,330 ) 1,443 168 34,631 (141,615 ) (8,301 ) 8,567 227 1,302 (18,528 ) 3,334 29 1,604 (113,321 ) 144 (806 ) (4,721 ) (118,704 )

• 15 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note INVESTING ACTIVITIES Advances paid Capital contribution to associates Increase in entrusted loan receivables Purchases of property, plant and equipment Expenditure on product development Acquisition of intangible asset Advance paid for acquisition of intangible asset Prepaid lease payments made Decrease in restricted bank deposits Decrease (increase) in pledged bank deposits Interest received Interest received from entrusted loan receivables Proceeds from disposal of intangible asset Repayment from associates Proceeds from disposal of interest in a jointly controlled entity Proceeds from disposal of partial interest in a subsidiary (net of expense) Acquisition of subsidiaries 42(a) Proceeds from disposal of property, plant and equipment NET CASH (USED IN) FROM INVESTING ACTIVITIES	2008 HK$’000 (126,547 ) (21,084 ) (52,378 ) (20,670 ) (2,843 ) (548 ) – (87 ) 10,976 5,379 5,190 3,674 1,250 1,053 – – – – (196,635 )	2007 HK$’000 – (17,503 ) – (15,132 ) (4,432 ) (88,633 ) (35,581 ) (5,794 ) – (7,838 ) 14,084 – – 16,190 174,176 68,308 42,447 20 140,312

• 16 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCING ACTIVITIES Repayment of borrowings Repayment to related parties New borrowings raised Capital contribution from a minority shareholder Issue of shares from exercise of share options Repayment to a fellow subsidiary Repayment of obligations under finance leases Repayment to a shareholder Proceeds from issue of shares by subsidiaries to minority shareholders, net of transaction costs of approximately HK$13,075,000 Proceeds from exercise of share options of subsidiaries NET CASH (USED IN) FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR, represented by bank balances and cash	2008 HK$’000 (440,820 ) (455 ) 296,773 14,820 410 – – – – – (129,272 ) (278,695 ) 463,561 10,515 195,381	2007 HK$’000 (71,678 ) (1,928 ) 13,898 – 5,549 (40,000 ) (1,973 ) (512 ) 467,519 25,769 396,644 418,252 34,705 10,604 463,561

• 17 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2008

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, which is defined under the Rules Governing the Listing of Securities on the Stock Exchange as a person who is entitled to exercise or control the exercise of 30% or more of the voting power at general meetings of the issuer, is Shougang Holding (Hong Kong) Limited (“Shougang Holding”), a company incorporated in Hong Kong with limited liability. 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 50.

The functional currency of the Company is Renminbi. The consolidated financial statements are presented in Hong Kong dollars for the convenience of the readers.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied the following amendments and interpretations (“new HKFRSs”) issued by the Hong Kong Institute of Certified public accountants (the “HKICPA”), which have become effective.

HKAS 39 & HKFRS 7 (Amendments) Reclassification of Financial Assets HK(IFRIC) – Int 11 HKFRS 2: Group and Treasury Share Transactions HK(IFRIC) – Int 12 Service Concession Arrangements HK(IFRIC) – Int 14 HKAS 19 – the Limit on a Defined Benefit asset, Minimum Funding Requirements and their Interaction

The adoption 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 and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (amendments) Improvements to HKFRSs[1] HKAS 1 (revised) Presentation of Financial Statements[2] HKAS 23 (revised) Borrowing Costs[2] HKAS 27 (revised) Consolidated and Separate Financial Statements[3 ] HKAS 32 & 1 (Amendments) Puttable Financial Instruments and Obligations Arising on Liquidation[2] HKAS 39 (amendment) Eligible hedged items[3] HKFRS 1 & HKAS 27 (Amendments) Cost of an Investment in a Subsidiary, Jointly Controlled Entity or associate[2] HKFRS 2 (amendment) Vesting Conditions and Cancellations[2] HKFRS 3 (revised) Business Combinations[3] HKFRS 7 (amendments) Improving Disclosures about Financial Instruments[2] HKFRS 8 Operating Segments[2] HK(IFRIC) – Int 9 & HKAS 39 Embedded Derivatives[4] (amendments)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HK(IFRIC) – Int 13 Customer Loyalty Programmes[5] HK(IFRIC) – Int 15 Agreements for the Construction of Real Estate[2] HK(IFRIC) – Int 16 Hedges of a Net Investment in a Foreign Operation[6] HK(IFRIC) – Int 17 Distribution of Non-cash Assets to Owners[3] HK(IFRIC) – Int 18 Transfers of Assets from Customers[7]

1 Effective for annual periods beginning on or after 1 January 2009 except the amendments to HKFRS 5, effective for annual periods beginning on or after 1 July 2009

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

3 Effective for annual periods beginning on or after 1 July 2009

4 Effective for annual periods ending on or after 30 June 2009

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

6 Effective for annual periods beginning on or after 1 October 2008

7 Effective for transfers on or after 1 July 2009

The application of HKFRS 3 (Revised) may affect the accounting for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. HKAS 23 (Revised) will eliminate the option to expense all borrowing costs when incurred. HKAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary. The directors of the Company (the “Directors”) anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and financial position of the Group.

3. SIGNIFICANT ACCOUNTING POLICIES

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.

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

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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Business combinations

The acquisition of businesses 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.

When a business combination involves more than one exchange transaction, each exchange transaction shall be treated separately by the acquirer, using the cost of the transaction and fair value information at the date of each exchange transaction to determine the amount of any goodwill associated with that transaction. Any adjustment to those fair values relating to previously held interests of the Group is credited to the revaluation reserve.

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

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.

Acquisition of additional interest in a subsidiary

Goodwill arising on acquisition of additional interest in a subsidiary represents the excess of the cost of the acquisition over the fair value of the net assets attributable to the additional interest in a subsidiary. If, after reassessment, the fair value of the net assets attributable to the additional interest in a subsidiary by the Group exceeds the cost of the acquisition, the excess is recognised immediately in profit and loss. The difference between the fair value and the carrying value of the underlying assets and liabilities attributable to the additional interest in a subsidiary is debited directly to special reserve.

Goodwill

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

For previously capitalised goodwill arising on 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 business, 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 business, at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 prorata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

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

Interests in associates

An associate is an entity over which the investor has significant influence and there is neither a subsidiary 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. 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 included 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.

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.

Interest income from the finance leasing business and other financial assets is accrued on a timely 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 business and other financial assets to that asset’s net carrying amount.

Revenue from sales of goods is recognised when goods are delivered and title has passed.

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Training fee income is recognised over the period of the training course on a straight-line basis. Unearned training fee income received is recorded as income received in advance.

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

Royalty income from share of box office receipts is recognised when the digital motion pictures are exhibited using the digital cinema equipment sold by the Group and the right to receive certain percentage of the relevant box office receipts has been established.

Receipts from exhibition of digital motion pictures are recognised when the motion pictures are exhibited.

Technical service income and management fee income are recognised when services are provided.

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

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.

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

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as amounts 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.

Property, plant and equipment

Property, plant and equipment other than construction in progress are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

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

Investment properties are properties held to earn rentals and/or for capital appreciation.

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at their fair values using the fair value model. Gains or losses arising from changes in fair value of investment property are included in the consolidated 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 and 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 investment property is transferred at fair value to property, plant and equipment when the property begins to be occupied by the owner. Gain or loss arising from change in fair value of the investment property upon the transfer is included in the consolidated income statement.

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.

The Group as lessee

Rentals payable under operating leases are charged to the consolidated income statement on a straightline 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Leasehold land and building

The land and building elements of a lease of land and building are considered separately for the purpose of lease classification, unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire lease is generally treated as a finance lease and accounted for as property, plant and equipment. To the extent the allocation of the lease payments can be made reliably, leasehold interests in land are accounted for as operating leases except for those which are classified and accounted as investment properties under the fair value model.

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. Non-monetary 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. Exchange differences arising on the re-translation of non-monetary items carried at fair value are included in the 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 case, 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 entities are translated into the presentation currency of the Group (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 the consolidated income statement in the period in which a 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Taxation

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

The tax currently payable is based on taxable profit for the year. Taxable profit differs from 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.

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 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

Intangible assets acquired separately

Intangible assets acquired separately and 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.

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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Production work in progress

Production work in progress is stated at the lower of cost and net realisable value. Costs include all direct costs associated with the production of films or television programme. The cost associated with the production of films and programme would be transferred to inventories upon the completion of films or television programme.

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 instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss (“FVTPL”)) 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 FVTPL are recognised immediately in the consolidated income statement.

Financial assets

The Group’s financial assets are classified into one of the two categories: including held-for-trading investments and loans and receivables. 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.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

Income is recognised on an effective interest basis for debt instruments.

Held-for-trading investments

A financial asset is classified as held-for-trading if:

• it has been acquired principally for the purpose of selling in the near future; or

• it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

At each balance sheet date subsequent to initial recognition, held-for-trading investments are measured at fair value, with changes in fair value recognised directly in the consolidated income statement in the period in which they arise. The net gain or loss recognised in the consolidated income statement excludes any dividend or interest earned on the financial assets.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 entrusted loan receivables, trade receivables, other receivables, amount due from an associate, restricted bank deposits, pledged bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).

Impairment of financial assets

Financial assets, other than held-for-trading investments, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been impacted.

For those loans and receivables, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or

• default or delinquency in interest or principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For loans and receivables, an impairment loss is recognised in the consolidated income statement when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets, with the exception of trade receivables, finance lease receivables and entrusted loan receivables where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in the consolidated income statement. When a trade receivable, finance lease receivable or entrusted loan receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to the consolidated income statement.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent 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.

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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Interest expense is recognised on an effective interest basis.

Financial liabilities

Financial liabilities including trade payables, other payables, amount due to a related party and 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

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 the consolidated income statement.

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

Equity settled share-based payment transactions

Share options granted to the Directors and 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, with a corresponding increase in equity (share options reserve). For share options which are vested at the date of grant, the fair value of the share options granted is expensed immediately to profit or loss.

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 or 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The financial impact of share options granted is not recorded in the consolidated financial statements until such time as the options are exercised, and no charge is recognised in the consolidated income statement in respect of the value of options granted. Upon the exercise of the share options, the resulting shares issued are recorded as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded as share premium. Options which lapse or are cancelled prior to their exercise date are deleted from the register of outstanding options.

Share options granted to other participants

Share options issued in exchange for goods or services are measured at the fair value of the goods or services received, unless that fair value cannot be reliably measured, in which case the goods or services received are measured by reference to the fair value of the share options granted.

Impairment losses on tangible and intangible assets other than goodwill (see accounting policy in respect of goodwill above)

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

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, 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.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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

Key sources of estimation uncertainty

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

Estimated impairment of intangible asset

At 31 December 2008, the carrying amount of intangible asset was approximately HK$244,111,000 (2007: HK$221,545,000). In determining whether there is objective evidence of impairment loss, the Directors take into consideration the estimation of future cash flows to be generated from use of the intangible asset and fair value of the intangible asset less cost to sell. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and higher of the present value of estimated future cash flows discounted at a suitable discount rate or the fair value less cost to sell. Where the actual future cash flows or the net selling price are less than expected, an impairment loss may arise.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the year ended 31 December 2008 and 2007, the Directors did not identify any impairment loss on the intangible asset.

Provision for litigations

The management of the Group monitor any litigation against the Group closely. Provision for litigations is made based on the opinion of the legal adviser on the possible outcome and liability of the Group. As at 31 December 2008 and 2007, there is no foreseeable financial impact to the Group and no provision for litigations has been made. Details are set out in note 44.

Estimated impairment of finance lease receivables

When there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows and fair value of the pledged assets less cost to sell. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and higher of 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) or the fair value of the pledged assets less cost to sell. Where the actual future cash flows or the net selling price of the pledged assets are less than expected, a material impairment loss may arise.

As at 31 December 2008, the carrying amount of finance lease receivables is approximately HK$1,290,308,000 (2007: HK$1,373,873,000).

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. Where the net realisable value is less than the cost, a material impairment loss may arise. The management estimates the net realisable value for such production work in progress was approximately HK$3,875,000 as at 31 December 2008 (2007: HK$11,094,000). There was no write-down of production work in progress made for the year ended 31 December 2008 (2007: Nil).

5. FINANCIAL INSTRUMENTS

a. Categories of financial instruments

Financial assets Loan and receivables (including cash and cash equivalents) Finance lease receivables Fair value through profit or loss Held-for-trading investments Financial liabilities Amortised cost	2008 HK$’000 355,172 1,290,308 85,668 1,457,025	2007 HK$’000 598,602 1,373,873 29,846 1,519,371

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

b. Financial risk management objectives and polices

The Group’s major financial instruments include finance lease receivables, entrusted loan receivables, trade receivables, other receivables, restricted bank deposits, pledged bank deposits and bank balances, amount due from an associate, borrowings, trade payables and other payables. Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (currency risk, interest rate risk and other price risk), credit risk and liquidity risk. 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.

Market risk

(i) Currency risk

The normal operations and investments of the Group are mainly in Hong Kong and the people’s republic of China (the “PRC”, for the purpose of this report, does not include Hong Kong, Macau and Taiwan), with revenue and expenditure denominated in Hong Kong dollars, Renminbi and United States dollars which are primarily transacted using functional currencies of the respective group entities. The Directors believe that the Group does not have significant foreign exchange exposures. However, if necessary, the Group will consider using forward exchange contracts to hedge against foreign currency exposures.

(ii) Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed-rate finance lease receivables for the year ended 31 December 2008 and 2007, certain entrusted loan receivables for the year ended 31 December 2008 and borrowings for the year ended 31 December 2007 (see note 38 for details of the borrowings).

The Group is exposed to cash flow interest rate risk in relation to variable-rate finance lease receivables, an entrusted loan receivable, bank balances and bank borrowings (see note 38 for details of the borrowings). It is the Group’s policy to keep majority of its finance lease receivables, entrusted loan receivable and borrowings at floating rates of interest so as to minimise the fair value interest rate risk.

The Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of the people’s Bank of China Renminbi Lending Rate (“PBC Rate”) arising from the Group’s variable-rate finance lease receivables, entrusted loan receivables and borrowings. The Group currently does not use any derivative contracts to hedge its exposure to interest rate risk. However, the management will consider hedging significant interest rate exposure should the need arise.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for variable-rate finance lease receivables, entrusted loan receivables, borrowings and bank balances at the balance sheet date. The analysis is prepared assuming these outstanding balances at the balance sheet date was outstanding for the whole year. A 100 basis point (2007: 50 basis point) increase or decrease is used which represents management’s assessment of the reasonably possible change in interest rates. As a result of the volatile financial market, the management adjusted the sensitivity rate from 50 basis points to 100 basis points in current year for the purpose of analysing interest rate risk.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

If interest rates had been 100 basis points (2007: 50 basis points) higher/lower and all other variables were held constant, the Group’s post-tax loss for the year ended 31 December 2008 would increase/decrease by approximately HK$8,921,000 (2007: post-tax profit would decrease/increase by approximately HK$3,894,000).

The Group’s sensitivity to interest rates has increased during the current year which is mainly due to change of sensitivity rate from 50 basis points to 100 basis points and increase in variable-rate entrusted loan receivables.

(iii) Other price risk

The Group is exposed to equity price risk through its investments in listed equity securities. The management manages this exposure by maintaining a portfolio of investments with different risks. The Group’s equity price risk is mainly concentrated on equity instruments of entities operating in the PRC which are quoted in stock exchanges in the PRC and Hong Kong. In addition, the Group has appointed a team to monitor the price risk and will consider hedging the risk exposure should the need arise.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to equity price risks at the reporting date. For sensitivity analysis purpose, the sensitivity rate is increased to 10% (2007: 5%) in the current year as a result of volatile financial market.

If the prices of the respective equity instruments had been 10% (2007: 5%) higher/lower, post-tax loss the year ended 31 December 2008 would decrease/ increase by approximately HK$7,153,000 (2007: post-tax profit would increase/decrease by approximately HK$1,492,000) as a result of the changes in fair value of held-for-trading investments.

The Group’s sensitivity to held-for-trading investments has increased from the prior year, which is mainly due to the purchase of held-for-trading investments during the year.

Credit risk

As at 31 December 2008 and 2007, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties arises from the carrying amount of the respective recognised financial 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 followup action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Directors consider that the Group’s credit risk is significantly reduced.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s credit risk is also attributable to advances paid to third parties as disclosed in note 26. The Group has concentration of credit risk on the advances which have been paid to three counterparties. The management of the Group reviews the recoverability of these amounts at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regards, the Directors consider that the Group’s credit risk is significantly reduced.

Before accepting any new finance lease and entrusted loan borrower, the Group assesses the credit quality of each potential finance lease borrower or entrusted loan borrower and defined credit rating and limits for each finance lease borrower or entrusted loan borrower. The Group also demands certain finance lease borrowers to place security deposits with the Group at the time the finance lease arrangement is entered into. In addition, the Group has reviewed the repayment history of finance lease payments from each finance lease borrower or repayment from each entrusted loan borrower with reference to the repayment schedule from the date of finance lease or entrusted loan was initially granted up to the reporting date to determine the recoverability of a finance lease receivable and an entrusted loan receivable.

The credit risk on restricted bank deposits, pledged bank deposits and bank balances 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 PRC, which accounted for 81% (2007: 47%) of the total trade receivables as at 31 December 2008, 100% (2007: 100%) of the total financial lease receivables as at 31 December 2008 and 100% (2007: Nil) of the total entrusted loan receivables as at 31 December 2008.

The Group has concentration of credit risk on its trade receivables as 8% (2007: 24%) and 33% (2007: 58%) of the total trade receivables was due from the Group’s largest customer and the five largest customers, respectively. The customers are mainly engaged in the media business.

The Group also has concentration of credit risk from finance leasing business as 35% (2007: 31%) and 72% (2007: 79%) of the total finance lease receivables was due from the Group’s largest finance lease borrower and the five largest finance lease borrowers, respectively. The borrowers are spread across diverse industries.

The Group also has concentration of credit risk on its entrusted loan receivables as 44% (2007: Nil) and 100% (2007: Nil) of the total entrusted loan receivables was due from the Group’s largest entrusted loan borrower and the three entrusted loan borrowers, respectively. The borrowers are from different industry sectors.

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of borrowings from time to time.

The following table details the Group’s remaining contractual maturity for its financial liabilities. The table has 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.

• 33 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity table

Weighted average effective interest rate % 2008 Trade payables – Other payables – Security deposits received – Borrowings 8 Weighted average effective interest rate % 2007 Trade payables – Other payables – Amount due to a related party – Security deposits received – Borrowings 7	Less than three months HK$’000 6,568 22,688 – 119,276 148,532 Less than three months HK$’000 4,802 22,905 455 – 96,385 124,547	Three to six Six months months to one year HK$’000 HK$’000 76 1,473 8,756 – – – 105,063 211,250 113,895 212,723 Three to six six months months to one year HK$’000 HK$’000 344 – – – – – – 749 87,917 195,378 88,261 196,127	One to five years HK$’000 – – 60,168 997,239 1,057,407 One to five years HK$’000 – – – 62,080 1,271,102 1,333,182	Total Over undiscounted five years cash flows HK$’000 HK$’000 – 8,117 – 31,444 – 60,168 52,976 1,485,804 52,976 1,585,533 Total Over undiscounted five years cash flows HK$’000 HK$’000 – 5,146 – 22,905 – 455 10,666 73,495 – 1,650,782 10,666 1,752,783	Carrying amount at 31/12/2008 HK$’000 8,117 31,444 60,168 1,357,296
					1,457,025
					Carrying amount at 31/12/2007 HK$’000 5,146 22,905 455 73,495 1,417,370
					1,519,371

• c. 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 using market rates from the observable current market transactions as input.

The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their corresponding fair values.

• 34 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. CAPITAL RISK MANAGEMENT

The Group’s objectives to manage its capital are to ensure that entities of the Group will be able to continue as a going concern while maximising the return to shareholders, to support the Group’s stability and growth, and to strengthening the Group’s financial management capability. The Group’s overall strategy remains unchanged from the prior year.

The capital structure of the Group consists of net debt, which includes borrowings disclosed in note 38 net of restricted bank deposits, pledged bank deposits, bank balances and cash, and total equity.

The Directors review the capital structure regularly and manage its capital structure to ensure an optimal capital structure and shareholders’ returns, taking into consideration the future capital requirements of the Group, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. The Directors monitor capital mainly using net debt to total equity ratio and current ratio. These ratios as at 31 December 2008 and 2007 were as follows:

Net debt(1) Total equity(2) Net debt to total equity ratio (%) Current assets Current liabilities Current ratio (%)	2008 HK$’000 1,092,373 871,174 125 860,257 539,223 160	2007 HK$’000 872,475 968,356
		90
		947,534 446,852
		212

The Directors considered that the Group maintained healthy capital as at 31 December 2008 as the Group had excess of current assets over current liabilities.

Notes:

• (1) Net debt equals borrowings less restricted bank deposits, pledged bank deposits and bank balances and cash.

• (2) Total equity equals to all capital and reserves of the Group.

• 35 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. REVENUE

Revenue represents finance lease income, the amounts received and receivable for goods sold by the Group to outside customers (less sales related taxes, returns and trade discounts), films and television programme distribution income, CG creation and production services, revenue arising on training fee, property leasing and management fee income, royalty income from share of box office receipts, receipts from exhibition of digital motion pictures, technical service income and rental income from equipment leasing during the year.

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

Finance lease income Sales of goods Films and television programme distribution income Revenue from contracts for CG creation and production Training fee Property leasing and management fee income Royalty income from share of box office receipts Receipts from exhibition of digital motion pictures Technical service income Rental income from equipment leasing	2008 HK$’000 128,467 51,984 52,832 42,542 14,420 6,702 5,518 3,024 2,652 40 308,181	2007 HK$’000 16,771 180,715 13,839 51,300 10,963 7,568 – – 3,131 16
		284,303

Included in revenue from sales of goods for the year ended 31 December 2007 is an amount of HK$132,912,000 (2008: Nil) in respect of goods sold in exchange for intangible asset.

8. BUSINESS AND GEOGRAPHICAL SEGMENTS

(a) Business segments

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

• 36 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment information about these divisions is presented below:

For the year ended 31 December 2008

Property leasing and building management services HK$’000 REVENUE 6,702 RESULT (10,883 ) Unallocated corporate income Unallocated corporate expenses Finance costs Share of loss of an associate Loss before tax Income tax expense Loss for the year	Digital and CG creation content films and distribution television and programme CG training exhibitions production courses HK$’000 HK$’000 HK$’000 60,194 98,398 14,420 (77,108 ) 775 2,510	Finance leasing Consolidated HK$’000 HK$’000 128,467 308,181 20,369 (64,337 ) 5,751 (90,720 ) (6,046 ) (857 ) (156,209 ) (1,540 ) (157,749 )

At 31 December 2008

	Property	Digital and	CG creation
	leasing and	content	films and
	building	distribution	television
	management	and	programme CG training		Finance
	services	exhibitions	production	courses	leasing	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
BALANCE SHEET
Assets
Segment assets	146,225	374,957	51,629	4,267	1,577,527	2,154,605
Interests in associates						21,856
Held-for-trading investments						85,668
Unallocated corporate assets						156,170
Consolidated total assets						2,418,299
Liabilities
Segment liabilities	4,906	32,253	43,742	4,864	1,282,509	1,368,274
Borrowings						171,199
Unallocated corporate liabilities						7,652
Consolidated total liabilities						1,547,125

• 37 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the year ended 31 December 2008

Property leasing and building management services HK$’000 OTHER INFORMATION Capital additions – Other expense_(note 11) – Depreciation of property, plant and equipment 21 Allowance for bad and doubtful debts – Allowance for inventories – Amortisation of intangible asset (included in cost of sales) – Amortisation of prepaid lease payments – Share-based payments expenses(note 46)_ – Gain on disposal of intangible asset – Impairment loss in respect of goodwill – Loss on disposal of property, plant and equipment – Decrease in fair value of investment properties 15,960	Digital and CG creation content films and distribution television and programme exhibitions production HK$’000 HK$’000 39,345 17,762 22,202 – 1,442 5,663 – 6,000 1,031 – 28,491 – – 125 – – 104 – 10,397 – – 50 – –	CG training courses HK$’000 1,453 – 736 386 – – – – – – – –	Finance leasing HK$’000 10 – 619 – – – – – – – – –	Corporate Consolidated HK$’000 HK$’000 556 59,126 – 22,202 1,848 10,329 – 6,386 – 1,031 – 28,491 36 161 10,869 10,869 – 104 – 10,397 – 50 – 15,960

For the year ended 31 December 2007

Property leasing and building management services HK$’000 REVENUE 7,568 RESULT 37,464 Unallocated corporate income Unallocated corporate expenses Finance costs Share of results of associates Discount on acquisition of additional interest in a subsidiary Gain on disposal and dilution of interests in subsidiaries Gain on disposal of interest in a jointly controlled entity Profit before tax Income tax expense Profit for the year	Digital and CG creation content films and distribution television and programme CG training exhibitions production courses HK$’000 HK$’000 HK$’000 183,862 65,139 10,963 4,522 15,967 1,987	Finance leasing Consolidated HK$’000 HK$’000 16,771 284,303 488 60,428 41,068 (93,941 ) (4,873 ) 7,255 1,342 375,680 61,039 447,998 (6,785 ) 441,213	Finance leasing Consolidated HK$’000 HK$’000 16,771 284,303 488 60,428 41,068 (93,941 ) (4,873 ) 7,255 1,342 375,680 61,039 447,998 (6,785 ) 441,213
			60,428 41,068 (93,941 ) (4,873 ) 7,255 1,342 375,680 61,039
			447,998 (6,785 )
			441,213

• 38 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Property	Digital and	CG creation
	leasing and	content	films and
	building	distribution	television
	management	and	programme CG training		Finance
	services	exhibitions	production	courses	leasing	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
BALANCE SHEET
Assets
Segment assets	149,229	259,886	80,791	6,296	1,554,963	2,051,165
Interests in associates						424
Amount due from an associate						1,053
Held-for-trading investments						29,846
Unallocated corporate assets						483,903
Consolidated total assets						2,566,391
Liabilities
Segment liabilities	1,574	24,678	27,841	6,405	1,443,897	1,504,395
Borrowings						78,822
Unallocated corporate liabilities						14,818
Consolidated total liabilities						1,598,035

For the year ended 31 December 2007

	Property	Digital and	CG creation	CG creation
	leasing and	content		films and
	building	distribution		television
management		and	programme		CG training	Finance
	services	exhibitions		production	courses	leasing	Corporate	Consolidated
	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
OTHER INFORMATION
Capital additions	1,498	225,121		5,098	2,734	119	2,107	236,677
Depreciation of property,
Pant and equipment	21	115		2,880	351	102	1,013	4,482
Allowance for bad and
doubtful debts	–	–		230	–	–	–	230
Amortisation of prepaid
lease payments	–	–		68	–	–	31	99
Share-based payments
expenses_(note 46)_	–	15,914		–	–	–	56,437	72,351
(Gain) loss on disposal of
property, plant and equipment	–	(20 )		–	–	–	139	119
Increase in fair value of
investment properties	31,130	–		–	–	–	–	31,130

• 39 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Geographical segments

The Group’s five business segments operate in four main geographical areas, namely the PRC, the United States, Europe and other regions. The head office of the Group is located in Hong Kong. The Group’s CG creation and films and television programme production centres, CG training facilities and finance leasing are located in the PRC. For property leasing and building management services, the business is mainly located in Hong Kong.

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

The PRC The United States Europe Other regions	2008 HK$’000 236,822 36,434 12,076 22,849 308,181	2007 HK$’000 173,837 68,073 12,962 29,431
		284,303

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

The PRC Hong Kong The United States Singapore Other regions Total	Carrying amount of segment assets 2008 2007 HK$’000 HK$’000 1,734,051 1,109,322 416,118 937,315 342 1,986 4,094 2,501 – 41 2,154,605 2,051,165	Capital 2008 HK$’000 58,089 886 137 14 – 59,126	additions 2007 HK$’000 231,317 4,547 177 636 –
			236,677

9. OTHER INCOME

Interest income from loans and receivables Dividend income from held-for-trading investments Waiver of interest payable on other loan Waiver of rental payable to a landlord Others	2008 HK$’000 5,190 3,118 – – 3,727 12,035	2007 HK$’000 14,084 144 4,156 3,228 1,757
		23,369

• 40 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. FINANCE COSTS

Interest on bank and other borrowings wholly repayable within five years Interest on bank and other borrowings not wholly repayable within five years Other finance costs	2008 HK$’000 5,047 335 664 6,046	2007 HK$’000 4,858 – 15
		4,873

11. OTHER EXPENSE

Other expense for the year ended 31 December 2008 represents a one-off payment to China Film Group Corporation (“CFGC”), the majority shareholder of an associate of the Group, for the acquisition of certain of its film distribution rights in the PRC.

12. GAIN ON DISPOSAL AND DILUTION OF INTERESTS IN SUBSIDIARIES

The gain on disposal and dilution of interests in subsidiaries for the year ended 31 December 2007 of approximately HK$375,680,000 (2008: Nil) resulted from the following transactions:

• (i) During that year, Global Digital Creations Holdings Limited (“GDC”), a subsidiary of the Company with its shares listed on the Growth Enterprise market (“GEM”) of the Stock Exchange, issued in aggregate 378,000,000 new shares through one subscription and three top-up placing and subscriptions (“the GDC 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 62,426,000 new shares of GDC (“the GDC Dilution”), and the Group also disposed of approximately 44,106,000 shares of GDC (“the GDC Disposal transaction”) during that year. An aggregate gain on the GDC top-up placing transactions, the GDC Dilution and the GDC Disposal transaction of approximately HK$335,550,000 has been recognised in the consolidated income statement with aggregate proceeds of approximately HK$508,667,000.

• (ii) a gain of approximately HK$40,295,000 arising from dilution of the GDC’s interest in GDC technology Limited (“GDC technology”), a subsidiary of the Company, from approximately 83.3% to 56.3% of the issued capital of GDC technology upon the completion of a subscription of 52,383,580 shares of GDC technology by a subscriber at a consideration of US$6.5 million (equivalent to approximately HK$50,570,000) in January 2007.

• (iii) a net loss of approximately HK$165,000 on further dilution of the Group’s interest in GDC technology upon exercise of share options of GDC technology during that year.

• 41 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. GAIN ON DISPOSAL OF INTEREST IN A JOINTLY CONTROLLED ENTITY

On 1 December 2006, the Group 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 北京 東直門國際公寓有限公司Beijing Dongzhimen International apartment Co. Ltd. (“Beijing Dongzhimen”) to Shougang Hotel and Strength Up for a consideration of RMB170,000,000 (the “Dongzhimen Disposal”). Beijing Dongzhimen was a sino-foreign equity joint venture which was established in the PRC and was 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$61,039,000 (2008: Nil) was recognised in the consolidated income statement for the year ended 31 December 2007.

14. INCOME TAX EXPENSE

The income tax expense comprises: Current tax: Hong Kong Provision for the year Overprovision in prior year PRC Enterprise Income tax (“EIT”) Provision for the year Overprovision in prior year Deferred taxation_(note 39)_: Current year	2008 HK$’000 63 (431 ) (368 ) 4,401 (2,246 ) 2,155 1,787 (247 ) 1,540	2007 HK$’000 1,479 – 1,479 5,352 – 5,352 6,831 (46 ) 6,785

On 26 June 2008, the Hong Kong Legislative Council passed the revenue Bill 2008 which reduced corporate profits tax rate from 17.5% to 16.5% effective from the year of assessment 2008/2009. Therefore, Hong Kong profits tax is calculated at 16.5% (2007: 17.5%) of the estimated assessable profit for the year.

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

On 16 march 2007, the PRC promulgated the Law of the PRC on EIT (the “New Law”) by order No. 63 of the president of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation regulation of the New Law. Under the New Law and Implementation regulation, the EIT rate of certain Group’s subsidiaries operating in the PRC was EIT her reduced from 33% to 25% or was increased from 18% to 25% progressively from 1 January 2008 onwards. The relevant tax rates for the Group’s subsidiaries in the PRC ranged from 18% to 25% (2007: 15% to 33%).

• 42 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In 2008, a PRC subsidiary was granted two years’ tax exemption for the financial years ended 2007 and 2008, a provision for PRC EIT of approximately HK$2,246,000 made in 2007 was therefore reversed in the consolidated income statement for the current financial year.

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

(Loss) profit before tax Tax (credit) charge at PRC EIT rate of 25% (2007: Hong Kong profits tax rate of 17.5%) Tax effect on share of results of associates Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Overprovision in prior year Tax effect of deferred tax assets not recognised Tax effect of utilisation of deferred tax assets previously not recognised Tax effect of temporary differences arising from unrealised profits resulting from intra-group transactions not recognised Utilisation of temporary differences arising from unrealised profits resulting from intra-group transactions previously not recognised Effect of different tax rates of subsidiaries operating in other jurisdictions Effect of tax exemptions granted to a subsidiary in the PRC Decrease in opening deferred tax liabilities resulting from a decrease in applicable tax rate Others Income tax expense for the year	2008 HK$’000 (156,209 ) (39,052 ) 214 18,449 (920 ) (2,677 ) 15,951 (317 ) – (423 ) 13,205 (1,618 ) (66 ) (1,206 ) 1,540	2007 HK$’000 447,998 78,400 (1,270 ) 8,551 (76,762 ) – 4,578 (8,551 ) 2,961 – (898 ) – – (224 ) 6,785

• 43 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. (LOSS) PROFIT FOR THE YEAR

(Loss) profit for the year has been arrived at after charging: Staff costs, including Directors’ remuneration_(note 16)_: – Salaries, wages and other benefits – Retirement benefit scheme contributions – Share-based payments Total staff costs Less: amounts included in production work in progress Allowance for bad and doubtful debts Allowance for inventories Amortisation of intangible asset (included in cost of sales) Amortisation of prepaid lease payments Auditor’s remuneration Cost of inventories recognised as an expense Depreciation of property, plant and equipment Less: amounts included in production work in progress government grants Impairment loss in respect of goodwill Loss on disposal of property, plant and equipment Minimum lease payments under operating leases for land and buildings Research and development costs and after crediting: Gain on disposal of intangible asset Gross rents from investment properties Less: outgoings	2008 HK$’000 94,028 2,905 10,869 107,802 (10,526 ) 97,276 6,386 1,031 28,491 161 3,433 35,574 10,329 (1,904 ) (568 ) 7,857 10,397 50 7,992 2,843 104 6,702 (580 ) 6,122	2007 HK$’000 76,697 1,814 72,351 150,862 (13,612 ) 137,250 230 – – 99 3,252 137,819 4,482 (2,049 ) – 2,433 – 119 6,008 4,432 – 7,568 (579 ) 6,989

• 44 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

The emoluments paid or payable to each of the 9 (2007: 11) Directors were as follows:

2008

Wang Qinghai HK$’000 Fees 150 Other emoluments Salaries and other benefits – Retirement benefit scheme contributions – Share-based payments – Total emoluments 150 2007 Wang Qinghai HK$’000 Fees 120 Other emoluments Salaries and other benefits – Retirement benefit scheme contributions – Share-based payments 1,810 Total emoluments 1,930	Cao Chen Wang Yuan Zhong Zheng Tian Wenxin HK$’000 HK$’000 HK$’000 HK$’000 – – – – 1,950 1,560 1,560 1,560 12 72 72 72 2,979 1,813 1,555 1,555 4,941 3,445 3,187 3,187 Cao Chen Wang Cheng Yuan Zhong Zheng Tian Xiaoyu Wenxin HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – – – – – 720 2,280 1,600 800 1,600 – 72 60 37 60 1,810 1,810 1,448 1,448 1,448 2,530 4,162 3,108 2,285 3,108	Leung Shun Sang, Tony HK$’000 190 – – 2,073 2,263 Leung Shun Sang, Tony HK$’000 120 – – 1,810 1,930	Tam King Yip Kin Ching, Zhou Man, Kenny Jianhong Raymond Total HK$’000 HK$’000 HK$’000 HK$’000 240 240 240 1,060 – – – 6,630 – – – 228 298 298 298 10,869 538 538 538 18,787 Tam King Yip Kin Ching, Zhou Man, Kenny Jianhong Raymond Liu Wei Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 150 150 143 10 693 – – – – 7,000 – – – – 229 181 181 181 181 12,308 331 331 324 191 20,230	Tam King Yip Kin Ching, Zhou Man, Kenny Jianhong Raymond Total HK$’000 HK$’000 HK$’000 HK$’000 240 240 240 1,060 – – – 6,630 – – – 228 298 298 298 10,869 538 538 538 18,787 Tam King Yip Kin Ching, Zhou Man, Kenny Jianhong Raymond Liu Wei Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 150 150 143 10 693 – – – – 7,000 – – – – 229 181 181 181 181 12,308 331 331 324 191 20,230
				18,787
				Total HK$’000 693 7,000 229 12,308
				20,230

No Director waived any emoluments in both years.

• 45 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) employees’ emoluments

Of the five individuals with the highest emoluments in the Group, four (2007: three) were the Directors whose emoluments are set out above. The emoluments of the remaining one (2007: two) individual were as follows:

Salaries and other benefits Contributions to retirement benefits schemes Share-based payments Their emoluments were within the following bands: Nil to HK$2,500,000 HK$2,500,001 to HK$3,000,000 HK$3,000,001 to HK$13,500,000 HK$13,500,001 to HK$14,000,000 HK$14,000,001 to HK$21,500,000 HK$21,500,001 to HK$22,000,000 HK$22,000,001 to HK$24,000,000	2008 HK$’000 2,680 12 – 2,692 2008 No. of employees – 1 – – – – –	2007 HK$’000 3,680 16 31,967
		35,663
		2007 No. of employees – – – 1 – 1 –

• 46 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. (LOSS) EARNINGS PER SHARE

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

(Loss) earnings (Loss) earnings for the purposes of basic (loss) earnings per share ((loss) profit for the year attributable to equity holders of the Company) Effect of dilutive potential ordinary shares: – adjustment to the share of profits of subsidiaries based on dilution of their earnings per share (Loss) earnings for the purposes of diluted (loss) earnings per share Number of shares Weighted average number of ordinary shares for the purposes of basic (loss) earnings per share Effect of dilutive potential ordinary shares: – share options Weighted average number of ordinary shares for the purpose of diluted (loss) earnings per share	2008 HK$’000 (119,446 ) – (119,446 ) ’000 1,151,206 – 1,151,206	2007 HK$’000 425,661 (740 ) 424,921 ’000 1,144,518 36,267 1,180,785

No diluted loss per share has been presented for the year ended 31 December 2008 as the exercise of the share options could result in a decrease in the loss per share.

• 47 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2007 Exchange realignment Additions Disposals Acquired on acquisition of subsidiaries Transfer from investment properties_(note 20)_ At 31 December 2007 Exchange realignment Additions Disposals At 31 December 2008 DEPRECIATION AND IMPAIRMENT At 1 January 2007 Exchange realignment Provided for the year Eliminated on disposals At 31 December 2007 Exchange realignment Provided for the year Eliminated on disposals At 31 December 2008 CARRYING VALUES At 31 December 2008 At 31 December 2007	Leasehold Buildings improvements HK$’000 HK$’000 1,043 2,304 – 1,583 – 3,511 – – – 41 27,931 – 28,974 7,439 1,755 1,641 – 1,825 – (104 ) 30,729 10,801 295 2,152 2 1,637 122 353 – – 419 4,142 12 1,543 694 1,572 – (104 ) 1,125 7,153 29,604 3,648 28,555 3,297	Computer Other Construction equipment fixed assets in progress HK$’000 HK$’000 HK$’000 14,751 8,047 – 1,314 305 – 6,144 3,958 1,519 (35 ) (428 ) – – 1,077 – – – – 22,174 12,959 1,519 1,415 543 96 10,134 1,343 7,368 (13,898 ) (278 ) – 19,825 14,567 8,983 10,636 5,270 – 1,049 232 – 2,233 1,774 – (35 ) (289 ) – 13,883 6,987 – 1,038 272 – 5,593 2,470 – (13,898 ) (228 ) – 6,616 9,501 – 13,209 5,066 8,983 8,291 5,972 1,519	Total HK$’000 26,145 3,202 15,132 (463 ) 1,118 27,931 73,065 5,450 20,670 (14,280 ) 84,905 18,353 2,920 4,482 (324 ) 25,431 2,865 10,329 (14,230 ) 24,395 60,510 47,634

Depreciation is provided to write off the cost of items of property, plant and equipment other than the construction in progress over their estimated useful lives and after taking into account their estimated residual value, using the straightline method, at the following rates per annum:

Buildings over the shorter of term of the lease or 50 years Leasehold improvements over the shorter of term of the lease or 5 years Computer equipment 33[1] /3% Other fixed assets 20% – 30%

At 31 December 2008, the Group has pledged buildings with a carrying value of approximately HK$29,604,000 (2007: HK$28,555,000) to secure general banking facilities granted to the Group.

• 48 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. 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	2008 HK$’000 1,619 6,049 7,668 156 7,512 7,668	2007 HK$’000 1,650 5,727 7,377 147 7,230 7,377

The Group has pledged leasehold land with a carrying value of approximately HK$1,619,000 (2007: HK$1,650,000) to secure general banking facilities granted to the Group.

20. INVESTMENT PROPERTIES

FAIR VALUE At 1 January 2007 Exchange realignment Net increase in fair value recognised in the consolidated income statement Transfer to property, plant and equipment_(Note)_ At 31 December 2007 Net decrease in fair value recognised in the consolidated income statement At 31 December 2008	HK$’000 136,098 1,863 31,130 (27,931 ) 141,160 (15,960 ) 125,200

Note: During the year ended 31 December 2007, an investment property with a fair value of approximately HK$27,931,000 was transferred to property, plant and equipment. This property was leased by the Group to South China International Leasing Company Limited (“South China Leasing”) for that year. Upon the completion of acquisition of further 30% effective interest in South China Leasing during that year, South China Leasing became a subsidiary of the Company and this property was considered as used by the Group and was therefore transferred to property, plant and equipment. Upon the transfer, the investment property was valued by AA property Services Limited. The valuation was arrived at by reference to market evidence of transaction prices for similar properties.

The fair value of the Group’s investment properties at 31 December 2008 and 2007 have been arrived at on the basis of a valuation carried out on that date by AA property Services Limited, an independent qualified professional valuer not connected with the Group. AA property Services Limited is a registered firm of the Hong Kong Institute of Surveyors, and has appropriate qualifications and experiences. The valuation was arrived at by reference to market evidence of transaction prices for similar properties.

• 49 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

At 31 December, 2008, all of the Group’s investment properties are held under long leases with the lease terms of 52 to 126 years and investment properties with carrying amount of approximately HK$125,200,000 (2007: HK$141,160,000) have been pledged to banks to secure general banking facilities granted to the Group.

21. GOODWILL

COST At 1 January 2007 Transfer from interests in associates_(note 24) Arising on acquisition of subsidiaries(note 42(a)) Arising on acquisition of additional interest in a subsidiary(note 42(b))_ At 31 December 2007 and 2008 IMPAIRMENT At 1 January 2007 and 31 December 2007 Impairment loss recognised At 31 December 2008 CARRYING VALUE At 31 December 2008 At 31 December 2007	HK$’000 191,457 787 52,148 10,397
	254,789
	191,457 10,397
	201,854
	52,935
	63,332

Particulars regarding impairment testing on goodwill are disclosed in note 22.

22. IMPAIRMENT TESTING ON GOODWILL

As explained in note 8, the Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill set out in note 21 has been allocated to CGUs mainly represented by finance leasing division and digital content distribution and exhibitions division. The carrying amounts of goodwill allocated to these units are as follows:

Finance leasing – South China Leasing Digital content distribution and exhibitions – GDC	2008 HK$’000 52,935 – 52,935	2007 HK$’000 52,935 10,397
		63,332

• 50 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The recoverable amount of the CGU arising from finance leasing division has been determined on the basis of value in use calculations. The recoverable amount is based on certain key assumptions. For the purpose of impairment testing, the value in use calculations use cash flow projections based on financial budgets approved by management covering a 5-year period, and discount rates of 9% (2007: 8%) for finance leasing division. Cash flow projections during the budget period for the CGUs 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 48(b), the Group has entered into a conditional agreement with CFGC to dispose the intangible asset which represents the contractual rights to share a specific percentage of the box office receipts from certain cinemas in the PRC using the digital cinema equipment installed by the Group. Based on the terms of this disposal, the fair value less cost to sell in relation to this CGU is less than the carrying amount of the CGU as at year end. The management has therefore determined that goodwill associated with the Group’s digital content distribution and exhibitions division was impaired and impairment loss was recognised for the entire carrying amount of approximately HK$10,397,000 (2007: Nil).

23. INTANGIBLE ASSET

COST At 1 January 2007 Acquisition At 31 December 2007 Exchange realignment Acquisition Disposal At 31 December 2008 AMORTISATION At 1 January 2007 and 31 December 2007 Charge for the year Eliminated on disposal At 31 December 2008 CARRYING VALUE At 31 December 2008 At 31 December 2007	HK$’000 – 221,545 221,545 13,834 38,369 (1,250 ) 272,498 – 28,491 (104 ) 28,387 244,111 221,545

The intangible asset represents the contractual rights to share a specified percentage of the box office receipts from certain cinemas in the PRC using the digital cinema equipment installed by the Group for exhibition of digital contents. It has finite useful life and is amortised on a straight-line basis over the relevant contract up to 10 years.

On 9 January 2009, the Group conditionally agreed to dispose the intangible asset to CFGC for a consideration of RMB223,791,600 (equivalent to approximately HK$254,227,000). Details of which are set out in note 48(b).

• 51 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. INTERESTS IN ASSOCIATES

Cost of investment in unlisted associates Share of post-acquisition translation reserve Share of post-acquisition losses Less: Impairment loss recognised	2008 HK$’000 22,586 1,205 (1,155 ) (780 ) 21,856	2007 HK$’000 1,502 – (298 ) (780 ) 424

Details of the Group’s principal associates at 31 December 2008 and 2007 are as follows:

			Proportion of	Proportion of
		Place of	nominal of value
	Form of	incorporation/	issued	share capital/	Proportion
	business	establishment	registered capital		of voting
Name of entity	structure	and operation	held	by the Group	power held	Principal activities
Top Pearl International	Incorporated	BVI/the PRC		50%	50%	Property development
Development Ltd.
(“Top Pearl”)
中影首鋼環球數碼	Sino-foreign	the PRC/		49%	40%	Deployment of digital
數字影院建設(北京)	equity joint	the PRC			(Note)	cinema network and
有限公司	venture					related business
CFGDC Digital Cinema
Company Limited
(“CFGDC”)

Note: the Group holds 49% of the registered capital of CFGDC and holds 2 out of 5 votes (representing 40% of total votes) in the board of directors of CFGDC. Pursuant to the articles of association of CFGDC, over 50% vote is required to pass a resolution in relation to the financial and operating policies of CFGDC. The Directors consider the Group does not control CFGDC but the Group can exercise significant influence over CFGDC. Hence, CFGDC is classified as an associate of the Group.

• 52 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Total assets Total liabilities Net assets The Group’s share of net assets of associates Goodwill_(Note) Revenue (Loss) profit for the year The Group’s share of results of associates for the year _Note: GOODWILL As at 1 January 2007 Transfer to goodwill (note 21) upon acquisition of further interests in associates_(Note)_ As at 31 December 2007 and 2008	2008 HK$’000 44,639 (35 ) 44,604 21,856 – 21,856 611 (1,749 ) (857 )	2007 HK$’000 2,837 (1,972 ) 865 424 – 424 99,860 14,498 7,255 HK$’000 787 (787 ) –

Note: In November 2007, the Group acquired a further 50% equity interest in Jeckman Holdings Limited (“Jeckman”), which represented an effective acquisition of a further 30% equity interest in South China Leasing (the “Jeckman acquisition”). Upon the completion of the Jeckman acquisition, the Group’s equity interest of Jeckman increased from 50% to 100% and the Group’s effective equity interest in South China Leasing increased from 50% to 80%. Accordingly, Jeckman and South China Leasing became subsidiaries of the Company thereafter.

• 53 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. LOAN TO/AMOUNT DUE FROM AN ASSOCIATE

(a) Loan to Top Pearl

Loan to Top Pearl Due from Top Pearl Less: allowance for bad and doubtful debt	2008 HK$’000 27,900 3,589 31,489 (31,489 ) –	2007 HK$’000 27,900 3,589
		31,489 (31,489 )
		–

The loan to and due from top pearl as at 31 December 2008 and 2007 of approximately HK$31,489,000 are unsecured, interest-free and has no fixed terms of repayment. The Directors considered the whole amount of loan to and due from top peal was fully impaired at the balance sheet date.

(b) Amount due from an associate

The amount was unsecured, non-interest bearing and was fully settled during the year.

26. ADVANCES

Advances paid for: Agreement for a term loan facility and call options (note 48(a)) Agreements for acquisition of non-performing loans and interests_(note 48(c)) Agreement for acquisition of additional interest in a subsidiary(Note)_	2008 HK$’000 68,182 32,136 26,229 126,547	2007 HK$’000 – – –
		–

Note: on 20 august 2008, the Group entered into an agreement with the minority shareholder of South China Leasing pursuant to which the minority shareholder agreed to transfer its 20% equity interest in the registered capital of South China Leasing to the Group for a consideration of RMB31,755,150 (equivalent to approximately HK$36,085,000). This acquisition is subject to the approval by the authority in the PRC and South China Leasing having received its new business license. Details of this acquisition are set out in the circular of the Company dated 3 September 2008.

As at 31 December 2008, the amount of advance paid and direct transaction costs incurred in relation to the acquisition of the additional interest in a subsidiary amounted to approximately HK$26,229,000.

• 54 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. FINANCE LEASE RECEIVABLES

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 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 2008 2007 HK$’000 HK$’000 543,315 453,221 530,174 445,482 209,746 465,960 115,246 162,768 33,278 77,156 943 15,799 1,432,702 1,620,386 (142,394 ) (246,513 ) 1,290,308 1,373,873	Present value of minimum lease receipts 2008 2007 HK$’000 HK$’000 463,170 344,404 492,351 367,104 193,068 427,555 108,464 147,825 32,409 71,792 846 15,193 1,290,308 1,373,873 N/A N/A 1,290,308 1,373,873 463,170 344,404 827,138 1,029,469 1,290,308 1,373,873	Present value of minimum lease receipts 2008 2007 HK$’000 HK$’000 463,170 344,404 492,351 367,104 193,068 427,555 108,464 147,825 32,409 71,792 846 15,193 1,290,308 1,373,873 N/A N/A 1,290,308 1,373,873 463,170 344,404 827,138 1,029,469 1,290,308 1,373,873
			1,373,873 N/A
			1,373,873
			344,404 1,029,469
			1,373,873

• 55 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Effective interest rates of the above finance lease receivables for the year are as follows:

		2008		2007
Effective interest rates	6% to	16%	6% to	17%

For the year ended 31 December 2008, finance lease receivables of approximately HK$1,258,941,000 (2007: HK$1,345,221,000) have been pledged against specific bank borrowings granted to the Group. As at 31 December 2008, finance lease receivables amounting to approximately HK$39,393,000 (2007: Nil) were past due but not impaired. The finance lease receivables past due but not impaired are all aged 90 to 180 days. The Directors considered that those receivables are with good credit quality according to their past repayment history. The Directors have assessed the estimated fair value of the leased assets of receivables which are past due but not impaired to determine whether adequate collateral has been held for these finance lease borrowers and considered that the estimated fair value of these leased assets held is in excess of the carrying amount of the receivables. The leased assets for those past due receivables mainly include machineries and vessels.

For the finance lease receivables which are neither past due nor impaired, the Directors assessed that the balances are with good credit quality according to their past repayment history.

Security deposits of approximately HK$60,168,000 (2007: HK$73,495,000) has been received by the Group to secure the finance lease receivables. In addition, the finance lease receivables are secured over the leased assets as at 31 December 2008. The Group is not permitted to sell or re-pledge the collateral in the absence of default by the lessee.

All the Group’s finance lease receivables are denominated in Renminbi, the functional currency of the relevant group entity.

28. ENTRUSTED LOAN RECEIVABLES

During the year, two of the PRC subsidiaries of the Company entered into entrusted loan arrangements with banks, in which the subsidiaries acted as the entrusting parties and the banks acted as the lenders to provide funding to specified borrowers. Details of the entrusted loan receivables are as follows:

Entrusted loan 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 Less: amounts due within one year shown under current assets Amounts due after one year	2008 HK$’000 26,879 25,272 227 52,378 (26,879 ) 25,499	2007 HK$’000 – – –
		– –
		–

• 56 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2008, the exposure of the Group’s fixed-rate receivables and the contractual maturity dates are as follows:

Fixed-rate receivables which are due: 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	2008 HK$’000 26,879 2,545 227 29,651	2007 HK$’000 – – –
		–

As at 31 December 2008, the Group’s variable-rate receivable amounted to approximately HK$22,727,000 (2007: Nil) which is due in more than one year but not more than two years.

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

	2008	2007
Effective interest rate:
Fixed-rate receivables	13% to 15%	–
Variable-rate receivable	PBC Rate up by	–
	a premium of 5%

For the year ended 31 December 2008, no entrusted loan receivables have been past due but not impaired. The Directors considered that the entrusted loan borrowers have good credit quality according to their past repayment history.

All the Group’s entrusted loan receivables are denominated in Renminbi, the functional currency of the relevant group entities. During the year, the Group entered into an entrusted loan agreement with a finance lease borrower amounting to approximately HK$23,987,000.

The entrusted loan receivables are mainly secured by properties and vessels pledged by the specified borrowers or their related parties. The Group is not permitted to sell or re-pledge the collateral in the absence of default by the entrusted loan borrower.

29. INVENTORIES

Raw materials Finished goods	2008 HK$’000 6,345 15,559 21,904	2007 HK$’000 4,395 21,386
		25,781

• 57 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. PRODUCTION WORK IN PROGRESS

Movie and television series	2008 HK$’000 3,875	2007 HK$’000 11,094

31. 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 TRADE RECEIVABLES Trade receivables Less: allowance for doubtful debts	2008 HK$’000 28,574 (13,402 ) 15,172 16,935 (1,763 ) 15,172 2008 HK$’000 26,910 (6,386 ) 20,524	2007 HK$’000 19,137 (19,083 )
		54
		1,494 (1,440 )
		54
		2007 HK$’000 19,273 (230 )
		19,043

32. TRADE RECEIVABLES

• 58 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group allows an average credit period of 90 days to its trade customers. the following is an aged analysis of the trade receivables, net of allowance for doubtful debts, at the balance sheet date:

0 – 90 days 91 – 180 days Over 180 days	2008 HK$’000 8,302 8,527 3,695 20,524	2007 HK$’000 17,179 1,053 811
		19,043

Included in the Group’s trade receivable balances are debtors with an aggregate carrying amount of approximately HK$12,222,000 (2007: HK$1,864,000) which are past due at the reporting date for which the Group has not provided for impairment loss. The Directors assessed that the balances will be recovered as these receivables have good credit quality according to their past repayment history. The Group does not hold any collateral over these balances.

The following is an aged analysis of trade receivables which are past due but not impaired:

91 – 180 days 181 – 270 days 271 – 360 days Over 360 days Total	2008 HK$’000 8,527 1,446 2,046 203 12,222	2007 HK$’000 1,053 – 306 505
		1,864

Movement in the allowance for doubtful debts

Balance at beginning of the year Allowance for impairment losses Amounts written off as uncollectible Amounts recovered during the year Balance at end of the year	2008 HK$’000 230 6,386 – (230 ) 6,386	2007 HK$’000 1,660 230 (1,660 ) –
		230

Included in the allowance for doubtful debts as at 31 December 2008 and 2007 were individually impaired trade receivables with an aggregate balance of approximately HK$6,386,000 and HK$230,000, respectively, in respect of which the customers were not fully satisfied with the quality of products provided by CG creation and films and television programme production division and services provided by CG training division and the amount was considered uncollectible.

• 59 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. OTHER FINANCIAL ASSETS

Prepayments, deposits and other receivables

Other receivables Prepayments Deposits	2008 HK$’000 17,347 3,336 2,274 22,957	2007 HK$’000 33,611 2,268 6,380
		42,259

Other receivables as at 31 December 2007 mainly represented a temporary payment of approximately HK$24,600,000 (2008: Nil) to a third party for a potential project of which a minority shareholder of a subsidiary agreed to pledge its equity interest in the subsidiary as security of the settlement and handling fee receivable from the finance lease borrower. The temporary payment has been repaid by the third party during the year ended 31 December 2008.

The Group does not hold any collateral over these balances except for the temporary payment mentioned above.

Restricted bank deposits

The amounts as at 31 December 2008 and 2007 represented bank deposits restricted and the restricted bank deposits will be released upon the full settlement of the relevant bank borrowings. Therefore, they are classified as non-current assets.

The deposits carried at average interest rate at 3.60% (2007: 8.64%) per annum.

Pledged bank deposits

As at 31 December 2008, pledged bank deposits represent deposits of approximately HK$2,808,000 (2007: HK$7,800,000) and HK$665,000 (2007: Nil) pledged to banks to secure a purchase of raw materials agreement (classified as current asset) and a construction agreement (classified as non-current asset), respectively, entered into with independent third parties. The pledged bank deposits will be released upon the settlement of the relevant agreements.

As at 31 December 2007, a bank deposit of approximately HK$1,052,000 (2008: Nil) was restricted for the repayment of short-term bank borrowing. This deposit was released during the year ended 31 December 2008 upon full settlement of the relevant bank borrowing.

As at 31 December 2008, the deposits carried interest rate from 0.1% to 3.22% per annum (2007: 3.75% per annum).

Bank balances and cash

The Group’s deposits carry interest rate at prevailing bank saving deposits rate ranging from 0.18% to 1.69% (2007: 1.34% to 4.65%) per annum.

• 60 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. HELD-FOR-TRADING INVESTMENTS

Held-for-trading investments as at 31 December 2008 and 2007 represented equity securities as follows:

Listed in the PRC Listed in Hong Kong_(note 49(a))_	2008 HK$’000 73,588 12,080 85,668	2007 HK$’000 8,864 20,982
		29,846

The fair values of the held-for-trading investments were market bid prices available on the relevant exchanges. Determined based on the quoted

35. TRADE PAYABLES

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

0 – 90 days 91 – 180 days Over 180 days	2008 HK$’000 6,568 76 1,473 8,117	2007 HK$’000 4,802 344 –
		5,146

36. INCOME RECEIVED IN ADVANCE

As at 31 December 2008 and 2007, the income received in advance represented handling fee income received from finance lease borrowers for administrative services provided over the relevant lease term, deposits received in advance before sales of goods are completed, training fee income received in advance before the training courses are completed and production and distribution income of films and television programme received before completion of production and distribution of films and television programme to the customers.

Analysed for reporting purposes: Current Non-current	2008 HK$’000 38,108 16,393 54,501	2007 HK$’000 23,361 21,245
		44,606

• 61 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. AMOUNT DUE TO A RELATED PARTY

	2008	2007
	HK$’000	HK$’000
Mr. Raymond Dennis Neoh_(Note)_	–	455

Note: as at 31 December 2007, the amount due to Mr. Raymond Dennis Neoh was unsecured, non-interest bearing and was stated at amortised cost at effective interest rate of 9.8%. The amount was fully settled during the year ended 31 December 2008.

38. BORROWINGS

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 exceeding three years More than three years, but not exceeding four years More than four years, but not exceeding five years More than five years Less: Amounts due within one year shown under current liabilities Amounts due after one year	2008 HK$’000 1,357,296 – 1,357,296 1,357,296 – 1,357,296 427,048 568,735 181,320 100,915 33,454 45,824 1,357,296 (427,048 ) 930,248	2007 HK$’000 1,412,688 4,682
		1,417,370
		1,412,688 4,682
		1,417,370
		362,267 390,048 436,334 147,004 81,717 –
		1,417,370 (362,267 )
		1,055,103

• 62 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Fixed-rate borrowings which are due within one year – Bank loan – Other loans The Group’s variable-rate borrowings and the contractual maturity Variable-rate borrowings which are 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 More than five years	2008 HK$’000 – – dates are as follows: 2008 HK$’000 427,048 568,735 181,320 100,915 33,454 45,824 1,357,296	2007 HK$’000 13,898 4,682
		2007 HK$’000 343,687 390,048 436,334 147,004 81,717 –
		1,398,790

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

	2008	2007
Effective interest rate:
Fixed-rate borrowings
– Bank loan	–	6.73%
– Other loans	–	12%
Variable-rate borrowings
– Bank loans	(Note)	(Note)

Note: the interest rate in the Group’s bank borrowing varies from different subsidiaries. The interest rate varies from prime rate minus 2.25%, HIBOR plus 1% to 1.375% and variable PBC rate up by a premium ranged from approximately 6% to 9% (2007: HIBOR plus 1% to 1.375% and variable PBC rate up by a premium ranged from approximately 6% to 9%). The proceeds were used as general working capital for the Group.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. DEFERRED TAX LIABILITIES

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

Deferred tax liabilities Deferred tax assets	2008 HK$’000 10,148 (9,055 ) 1,093	2007 HK$’000 10,335 (8,995 ) 1,340

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

At 1 January 2007 Charge (credit) to the consolidated income statement At 31 December 2007 Credit to the consolidated income statement Effect of change in tax rate At 31 December 2008	Accelerated Investment tax properties depreciation HK$’000 HK$’000 4,751 135 5,448 1 10,199 136 (120 ) (8 ) (59 ) – 10,020 128	Tax losses HK$’000 (3,500 ) (5,495 ) (8,995 ) (53 ) (7 ) (9,055 )	Total HK$’000 1,386 (46 ) 1,340 (181 ) (66 ) 1,093

At the balance sheet date, the Group has unused tax losses of approximately HK$181,450,000 (2007: HK$115,434,000) 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$54,878,000 (2007: HK$51,400,000) of such losses. No deferred tax asset has been recognised in respect of the remaining HK$126,572,000 (2007: HK$64,034,000) due to the unpredictability of future profit streams.

At the balance sheet date, the Group has deductible temporary differences of approximately HK$32,716,000 (2007: HK$32,716,000) attributable to the difference between tax allowances and depreciation. No deferred tax asset has been recognised in relation to such deductible temporary differences as it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

Under the New Law of the PRC, withholding tax is imposed on dividends declared in respect of profits earned by the PRC subsidiaries from 1 January 2008 onwards. Deferred taxation has not been provided for in the consolidated financial statements in respect of temporary difference attributable to the profits earned by the PRC subsidiaries amounting to approximately HK$27 million as the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

40. SHARE CAPITAL

Ordinary shares of HK$0.01 each Authorised: At 1 January and 31 December Issued and fully paid: At 1 January Exercise of share options_(Note)_ At 31 December	2008 Number Nominal of shares value HK$’000 2,000,000,000 20,000 1,150,392,469 11,504 1,000,000 10 1,151,392,469 11,514	2007 Number Nominal of shares value HK$’000 2,000,000,000 20,000 1,136,856,469 11,369 13,536,000 135 1,150,392,469 11,504	2007 Number Nominal of shares value HK$’000 2,000,000,000 20,000 1,136,856,469 11,369 13,536,000 135 1,150,392,469 11,504
			11,369 135
			11,504

• Note: During the year, share option holders exercised their right to subscribe for 1,000,000 (2007: 13,536,000) ordinary shares of the Company at HK$0.41 per share.

41. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in the consolidated financial statements in respect of: Acquisition of property, plant and equipment and intangible asset Investment in an associate	2008 HK$’000 8,350 – 8,350	2007 HK$’000 2,928 20,954
		23,882

In addition, as disclosed in note 26, the Group entered into an agreement with the minority shareholder of South China Leasing to acquire the remaining 20% equity interest in the registered capital of South China Leasing, which will give rise to a future payment of approximately HK$9,856,000 (2007: Nil) subsequent to the approval by the authority in PRC and South China Leasing having received its new business licence.

42. ACQUISITION OF SUBSIDIARIES/ADDITIONAL INTERESTS IN SUBSIDIARIES

• (a) on 14 august 2007, the Group signed an agreement to acquire a further 50% equity interest in Jeckman and the assignment of the HK$22.8 million shareholder’s loan to Jeckman for a total consideration of HK$52 million (the “Jeckman acquisition”). The Jeckman acquisition was completed on 2 November 2007, the Group’s effective interest in Jeckman increased from 50% to 100% and the effective interest in South China Leasing increased from 50% to 80%. Details of which are set out in the Company’s circular dated 11 October 2007.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The net assets acquired in the transaction, and the goodwill arising, are as follows:

Net assets acquired: Property, plant and equipment Finance lease license Held-for-trading investments Finance lease receivables Restricted bank deposits Other receivables Bank balances and cash Borrowings Trade and other payable Income received in advance Shareholder’s loan Amounts due to group companies Security deposits received Interests in associates Minority interests Goodwill_(note 21)_ Assignment of shareholder’s loan Total consideration satisfied by: Cash Net cash inflow arising on acquisition: Cash consideration paid Bank balances and cash acquired	Acquiree’s carrying amount before combination HK$’000 1,118 20,149 5,598 1,370,413 70,522 26,149 94,447 (1,320,561 ) (12,313 ) (28,185 ) (22,800 ) (66,226 ) (69,947 ) 68,364	Fair value adjustments HK$’000 – (20,149 ) – – – – – – – – – – – (20,149)	Fair value HK$’000 1,118 – 5,598 1,370,413 70,522 26,149 94,447 (1,320,561 ) (12,313 ) (28,185 ) (22,800 ) (66,226 ) (69,947 ) 48,215 (43,555 ) (27,608 ) 52,148 22,800 52,000 52,000 (52,000 ) 94,447 42,447

South China Leasing contributed a loss of approximately HK$1.1 million to the Group for the period between the date of acquisition and 31 December 2007.

Had the acquisition been completed on 1 January 2007, total group revenue for the year ended 31 December 2007 would have been increased by approximately HK$100 million and profit for that year would have been increased by approximately HK$7 million. The pro forma information was for illustrative purposes only and was not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2007, nor was it intended to be a projection of future results.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The fair value of certain assets of South China Leasing acquired had been determined based on a valuation report by an independent professional valuer.

• (b) 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 conditionally agreed to subscribe for 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 year ended 31 December 2007.

• (c) On 14 august 2007, GDC Holdings Limited (“GDC Holdings”), a subsidiary of the Company, entered into a subscription agreement with GDC Technology, pursuant to which GDC Holdings conditionally agreed to subscribe for 53,388,178 new shares of GDC Technology at HK$2 per share (the “GDC Tech Subscription”) at a consideration of approximately HK$106,776,000. The GDC Tech Subscription was completed on 2 November 2007 and GDC Holdings’ equity interest in GDC Technology increased from approximately 51.1% to 62.4% thereafter.

The Group appointed Messrs. Greater China Appraisal Limited, an independent qualified professional valuer not connected with the Group, to assist the Group to ascertain the fair value of the net assets of GDC Technology in relation to the acquisition of additional interest in GDC Technology at the date of completion of the GDC Tech Subscription. Intangible assets mainly including customer orders and technology, had been identified with aggregate amount of fair value of approximately HK$410 million in accordance with the income approach and replacement cost approach while the fair value of other assets and liabilities of GDC Technology at that time did not differ significantly from their respectively carrying amounts.

Accordingly, a discount on the acquisition of the additional interest in GDC Technology of approximately HK$1,342,000 arose, which represented the excess of the Group’s additional interest in the fair values of the net assets of GDC Technology over the cost of the GDC Tech Subscription at the date of completion of the GDC Tech Subscription. In addition, it resulted in a special reserve in the amount of approximately HK$23,496,000 attributable to the equity holders of the Company which represented the difference between the fair value and the carrying amount of the net assets of GDC Technology attributable to the additional interest in GDC Technology being acquired.

43. MAJOR NON CASH TRANSACTION

During the year ended 31 December 2007, the Group had goods sold in exchange for intangible asset in the amount of HK$132,912,000 (2008: Nil).

44. LITIGATIONS

• (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 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 had advised that the enforcement of P&PM’s and WAMC’s claims should only be limited to the assets of GDC Entertainment.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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. 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 consolidated financial statements.

Effective from 1 May 2008, GDC Entertainment has been struck off but can be restored at any time up to ten years after the strike off date.

• (ii) In April 2008, a former employee of the Company filed a claim to the District Court of Hong Kong (the “District Court”) against the Company for an alleged disability discrimination to him and claimed for a compensation of approximately HK$6,659,000. In May 2008, the Company filed a defence to the District Court.

The legal advisor of the Company to the above District Court’s case advised that the Company has an arguable defence to his claim and the Directors are of the opinion that settlement of the claim is remote, therefore no provision for any potential liability has been made in the consolidated financial statements.

45. OPERATING LEASES

The Group as lessor

Property rental income earned during the year was approximately HK$6,702,000 (2007: HK$7,568,000). All of the properties held have committed tenants for the next one to two years.

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

Within one year In the second to fifth years inclusive	2008 HK$’000 4,308 1,901 6,209	2007 HK$’000 2,546 276
		2,822

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group as lessee

Minimum lease payments paid under operating lease in respect of office premises during the year was approximately HK$7,992,000 (2007: HK$6,008,000).

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

Within one year In the second to fifth years inclusive Over five years	2008 HK$’000 9,407 8,093 2,754 20,254	2007 HK$’000 9,268 8,244 3,289
		20,801

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

46. SHARE OPTIONS SCHEMES

a. Share option scheme of the Company

The Company operates the share option scheme (the “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 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 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 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. the maximum number of shares issuable under share options to each eligible participant in the 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 Scheme at any time within 10 years from the date of the options granted. All options granted would vest immediately on the date of grant of options.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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’ meetings.

The following table discloses the details of the share options and movements in such holdings during the years ended 31 December 2008 and 2007:

For the year ended 31 December 2008

Exercise Category of Date of Exercise price grantees grant period per share		Number of share options	Number of share options	Number of share options
	Balance as at 1.1.2008	Granted during the year	Exercised during the year	Lapsed during the year (Note (a))	Balance as at 31.12.2008
Directors 23.8.2002 23.8.2002 – 6.6.2012 HK$0.73 6.3.2003 6.3.2003 – 5.3.2013 HK$0.76 19.1.2007 19.1.2007 – 18.1.2017 HK$0.41 22.1.2008 22.1.2008 – 21.1.2018 HK$0.724 Employees 6.3.2003 6.3.2003 – 5.3.2013 HK$0.76 19.1.2007 19.1.2007 – 18.1.2017 HK$0.41 22.1.2008 1.7.2008 – 30.6.2018 HK$0.724 Exercisable at the end of the year Weighted average exercise price(HK$)	75 604 63,068,000 – 1,330,000 8,200,000 –	– – – 41,950,000 – – 40,000,000	– – – – – (1,000,000) –	– – – – – – (40,000,000) (40,000,000) 0.724	75 604 63,068,000 41,950,000 1,330,000 7,200,000 –
	72,598,679	81,950,000	(1,000,000)		113,548,679
	0.42	0.724	0.41		113,548,679
					0.53

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the year ended 31 December 2007

Exercise Category of Exercise price grantees Date of grant period per share			Number of share options	Number of share options
	Balance as at 1.1.2007	Granted during the year	Transfer during the year	Exercised during the year (Note (b))	Lapsed during the year	Balance as at 31.12.2007
Directors 23.8.2002 23.8.2002 – 6.6.2012 HK$0.73 6.3.2003 6.3.2003 – 5.3.2013 HK$0.76 19.1.2007 19.1.2007 – 18.1.2017 HK$0.41 Employees 6.3.2003 6.3.2003 – 5.3.2013 HK$0.76 19.1.2007 19.1.2007 – 18.1.2017 HK$0.41 Other 19.1.2007 19.1.2007 – 18.1.2017 HK$0.41 participants (Note (c)) Exercisable at the end of the year Weighted average exercise price(HK$) Notes:	75 604 – 1,330,000 – – 1,330,679 0.76	– – 77,298,000 – 15,200,000 1,400,000 93,898,000 0.41	– – (1,136,000 ) – – 1,136,000 – 0.41	– – (4,000,000 ) – (7,000,000 ) (2,536,000 ) (13,536,000 ) 0.41	– – (9,094,000 ) – – – (9,094,000 ) 0.41	75 604 63,068,000 1,330,000 8,200,000 –
						72,598,679
						72,598,679
						0.42

• (a) Such share options were granted to four grantees, who are employees of the Group, with the exercise period for 10 years commencing from 1 July 2008 at an exercise price of HK$0.724 per share, subject to a condition that the grantees shall procure that the Company and/or its subsidiaries successfully obtain bank financing of HK$100 million before 1 July 2008 (the “Condition”). As the Condition for each of the grantees was not satisfied, the 40,000,000 options lapsed on 1 July 2008 accordingly.

• (b) Transfer of share options upon resignation of a Director during that year.

• (c) Other participants include persons who will or have contributed to the Company or any subsidiaries or any associated companies of the Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

The closing price of the Company’s shares on 22 January 2008 and 19 January 2007, the grant date of the 41,950,000 options and 93,898,000 options, was HK$0.68 per share and HK$0.41 per share, respectively. The fair value of the share options determined at the date of grant using the Binomial option Valuation pricing model was approximately HK$10,869,000 and HK$14,949,000, respectively.

The following assumptions were used to calculate the fair value of share options:

	22 January 2008	19 January 2007
Grant date share price	HK$0.68	HK$0.41
Exercise price	HK$0.724	HK$0.41
Option life	10 years	10 years
Expected volatility	60%	56%
Dividend yield	Nil	Nil
Risk-free interest rate	2.78%	4.04%

Expected volatility of the Company was determined by using the historical volatility of the Company’s weekly average share prices over the past two years. 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.

Share-based compensation expenses in respect of grant of the share options by the Company of approximately HK$10,869,000 for the year ended 31 December 2008 (2007: HK$14,949,000) was included in administrative expenses.

The Binomial 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.

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

The GDC Scheme was adopted pursuant to a resolution passed at a special general meeting of GDC held on 18 July 2003 for the primary purpose of providing incentives or rewards to selected participants for their contribution to GDC and its subsidiaries. The GDC Scheme will expire on 4 August 2013.

An option may be exercised at any time during the period to be determined and notified by the directors of GDC to the grantee but may not be exercised after the expiry of ten years from the date of offer of that opinion. Option is fully vested at the date of grant and a consideration of HK$1 is payable upon acceptance of the offer.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 on the date of offer, 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.

The GDC Technology Scheme was adopted pursuant to a resolution passed at a special general meeting of GDC held on 19 September 2006 for the primary purpose of providing incentives or rewards to eligible participants for their contribution to GDC Technology, its subsidiaries and its holding companies (including intermediate and ultimate holding companies). The GDC Technology Share Scheme will remain in force for a period of 10 years to 18 September 2016.

Details of the GDC Scheme and the GDC Technology Scheme are disclosed in the section headed “Share Option Schemes” in the Report of the Directors.

During the year ended 31 December 2007, 48,300,000 options (2008: Nil) and 19,095,000 options (2008: Nil) had been granted under the GDC Scheme and the GDC Technology Scheme to the directors, employees and other participants of GDC, respectively. All options granted would vest immediately on the date of grant of options.

The following table sets out the movements in the share options of GDC during the year ended 31 December 2008:

Exercise Category Date of price of grantees grant Exercise period per share		Number of share	Number of share	options
	Balance as at 1.1.2008	Transferred to other category during the year	Transferred from other category during the year	Lapsed during the year	Balance as at 31.12.2008
Directors of GDC 6.10.2006 6.10.2006 – 5.10.2009 HK$0.30 30.10.2007 30.10.2007 – 29.10.2012 HK$2.75 Employees of GDC 22.3.2007 22.3.2007 – 21.3.2010 HK$1.07 4.4.2007 4.4.2007 – 3.4.2010 HK$1.52 30.10.2007 30.10.2007 – 29.10.2012 HK$2.75 Other participants 6.10.2006 6.10.2006 – 5.10.2009 HK$0.30 (Note) 4.4.2007 4.4.2007 – 3.4.2010 HK$1.52 30.10.2007 30.10.2007 – 29.10.2012 HK$2.75 Totals Weighted average exercise price (HK$)	8,809,020 28,170,000 2,300,000 2,262,000 9,900,000 2,500,820 1,781,000 – 55,722,840 2.09	(800,820) (490,000) – – – – – – (1,290,820) 1.23	– – – – – 800,820 – 490,000 1,290,820 1.23	– – – – – (800,820) – (490,000) (1,290,820) 1.23	8,008,200 27,680,000 2,300,000 2,262,000 9,900,000 2,500,820 1,781,000 –
					54,432,020
					2.11

• 73 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table sets out the movements in the share options of GDC Technology during the year ended 31 December 2008:

Category Date of Exercise price of grantees grant Exercise period per share	Number of share Balance Lapsed as at during 1.1.2008 the year	Number of share Balance Lapsed as at during 1.1.2008 the year	options
		Lapsed during the year	Balance as at 31.12.2008
Directors of GDC 29.9.2006 29.9.2006 – 28.9.2009 HK$0.145 2.11.2007 2.11.2007 – 1.11.2012 HK$2.00 Employees of GDC 5.10.2006 5.10.2006 – 4.10.2009 HK$0.145 2.11.2007 2.11.2007 – 1.11.2012 HK$2.00 Other participants (Note) 29.9.2006 29.9.2006 – 28.9.2009 HK$0.145 Totals Weighted average exercise price(HK$)	3,333 17,445,000 4,563,332 1,650,000 1,173,333 24,834,998 1.57	– (165,000) (650,000) – (320,000) (1,135,000) 0.41	3,333 17,280,000 3,913,332 1,650,000 853,333
			23,699,998
			1.63

Note: Other participants mainly represent employees of the Group.

The following table sets out the movements in the share options of GDC during the year ended 31 December 2007:

Category Date of Exercise price of grantees grant Exercise period per share		Number of share options	Number of share options
	Balance as at 1.1.2007	Granted during the year	Exercised during the year	Balance as at 31.12.2007
Directors of GDC 6.10.2006 6.10.2006 – 5.10.2009 HK$0.30 30.10.2007 30.10.2007 – 29.10.2012 HK$2.75 Employees of GDC 6.10.2006 6.10.2006 – 5.10.2009 HK$0.30 22.3.2007 22.3.2007 – 21.3.2010 HK$1.07 4.4.2007 4.4.2007 – 3.4.2010 HK$1.52 30.10.2007 30.10.2007 – 29.10.2012 HK$2.75 Other participants (Note) 6.10.2006 6.10.2006 – 5.10.2009 HK$0.30 4.4.2007 4.4.2007 – 3.4.2010 HK$1.52 Totals Weighted average exercise price (HK$)	42,443,460 – 14,200,000 – – – 13,204,920 – 69,848,380 0.30	– 28,170,000 – 3,000,000 2,890,000 9,900,000 – 4,340,000 48,300,000 2.46	(33,634,440) – (14,200,000) (700,000) (628,000) – (10,704,100) (2,559,000)	8,809,020 28,170,000 – 2,300,000 2,262,000 9,900,000 2,500,820 1,781,000 55,722,840 2.09
			(62,425,540)
			0.37

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table sets out the movements in the share options of GDC Technology during the year ended 31 December 2007:

Category Date of Exercise price of grantees grant Exercise period per share		Number of share	Number of share	options
	Balance as at 1.1.2007	Granted during the year	Exercised during the year	Lapsed during the year	Balance as at 31.12.2007
Directors of GDC 29.9.2006 29.9.2006 – 28.9.2009 HK$0.145 2.11.2007 2.11.2007 – 1.11.2012 HK$2.00 Employees of GDC 29.9.2006 29.9.2006 – 28.9.2009 HK$0.145 5.10.2006 5.10.2006 – 4.10.2009 HK$0.145 2.11.2007 2.11.2007 – 1.11.2012 HK$2.00 Other participants 29.9.2006 29.9.2006 – 28.9.2009 HK$0.145 (Note) Totals Weighted average exercise price(HK$)	10,563,334 – 7,466,666 5,313,332 – 1,173,333 24,516,665 0.145	– 17,445,000 – – 1,650,000 – 19,095,000 2.00	(10,560,001) – (7,466,666) – – – (18,026,667) 0.145	– – – (750,000) – – (750,000) 0.145	3,333 17,445,000 – 4,563,332 1,650,000 1,173,333
					24,834,998
					1.57

Note: Other participants mainly represent employees of the Group.

The fair value per option of approximately HK$0.58, HK$0.86, HK$0.88 and HK$0.83 for options granted on 22 March 2007, 4 April 2007, 30 October 2007 and 2 November 2007, respectively, were calculated using the Binomial Option Valuation pricing model.

The inputs into the model were as follows:

Weighted average share price Exercise price Option life Expected volatility Dividend yield Risk-free rate	GDC Share option at grant date 22 March 4 April 30 October 2007 2007 2007 HK$1.07 HK$1.52 HK$2.70 HK$1.07 HK$1.52 HK$2.75 3 years 3 years 5 years 89% 97% 68% Nil Nil Nil 3.88% 3.89% 3.49%	GDC Technology
		Share option at grant date
		2 November 2007 HK$2.00 HK$2.00 5 years 51% Nil 3.34%

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 similar industries, respectively. The expected lives used in the model have been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Total expenses of approximately HK$57,402,000 (2008: Nil) were recognised by the Group for the year ended 31 December 2007 in relation to share options granted by GDC and GDC Technology.

The Binomial 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 Directors’ best estimate. The value of an option varies with different variables of certain subjective assumptions.

47. 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 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$105,000 (2007: HK$151,000) payable to the Retirement Schemes at 31 December 2008 are included in other payables and accruals.

There was no forfeited contribution throughout two consecutive years.

48. POST BALANCE SHEET EVENTS

Subsequent to 31 December 2008, the Group has entered into the following four transactions:

• (a) On 23 December 2008, GDC Holdings entered into a conditional agreement with Southern International Limited (the “Borrower”), a company incorporated in Hong Kong with limited liability, and Keen Front Group Limited, the holding company of the Borrower which is incorporated in the British Virgin Islands, whereby:

• (i) GDC Holdings agreed to, and/or procure its designated companies to, make available to the Borrower and/or its designated companies a loan facility in the maximum principal amount of RMB100,000,000 (equivalent to approximately HK$113,600,000) for the purposes of satisfying the obligations of 廣州市影逸廣告有限公司 (“Guangzhou Yingyi”), a company established under the laws of the PRC and is indirectly owned as to 80% by the Borrower, under the agreement entered into between Guangzhou Yingyi and 廣東珠江電影文化發展有限公司 in December 2008, pursuant to which Guangzhou Yingyi will be the sole advertising agent for the television channel of Guangdong Television Station for a 20-year period commencing from 1 July 2009 and as working capital of Guangzhou Yingyi. The loan, which carries interest at 6% per annum and matures on 30 June 2012, is secured by a charge in favour of GDC Holdings and/or its designated companies in respect of each of (i) the entire issued capital of the Borrower; (ii) the entire equity interest in 寧波影逸信息技術有限公司, which is a wholly-owned subsidiary of the Borrower established under the laws of the PRC; and (iii) 80% of the equity interest of Guangzhou Yingyi; and

• (ii) the Borrower agreed to grant to GDC Holdings and/or its designated companies the exclusive rights and options to subscribe for an aggregate of up to 60% of the enlarged issued share capital of the Borrower at an exercise price to be determined with reference to the audited consolidated financial statements of the Borrower in respect of each of the 12-month periods beginning on 1 July each year from 2009 to 2012.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2008, the Group advanced a sum of RMB60,000,000 (equivalent to approximately HK$68,182,000) to the Borrower and its designated companies. The sum was recognised as an advance in the consolidated balance sheet.

The transaction was subsequently approved by the shareholders of the Company at the Special General Meeting of the Company held on 17 February 2009. Upon the agreement becoming effective, the advance formed part of the loan.

Details of the transaction are set out in the circular of the Company dated 23 January 2009.

• (b) On 9 January 2009, the Group conditionally agreed to dispose of the intangible asset which represents the contractual rights to share a specific percentage of the box office receipts from certain cinemas in the PRC using 445 units of digital cinema equipment installed by the Group to CFGC for a consideration of RMB223,791,600 (equivalent to approximately HK$254,227,000). The consideration should be payable by CFGC in cash to the Group in the following manner:

• (i) a sum of RMB100,000,000 (equivalent to approximately HK$113,600,000) should be payable within 3 days upon the agreement became effective; and

• (ii) the remaining balance of RMB123,791,600 (equivalent to approximately HK$140,627,000) shall be payable in three installments in accordance with the following schedule:

  • RMB50,000,000 (equivalent to approximately HK$56,800,000) shall be payable on or before 1 June 2009;

  • RMB50,000,000 (equivalent to approximately HK$56,800,000) shall be payable on or before 1 September 2009; and

  • RMB23,791,600 (equivalent to approximately HK$27,027,000) shall be payable on or before 1 December 2009.

The transaction was subsequently approved by the shareholders of the Company at the Special General Meeting of the Company held on 17 February 2009 and part of the consideration of RMB100,000,000 (equivalent to approximately HK$113,600,000) was received from CFGC on 24 February 2009.

Details of the transaction are set out in the circular of the Company dated 23 January 2009.

The Directors are still estimating the potential impact of the transaction.

• (c) On 30 January 2009, the Group entered into two agreements with an independent third party pursuant to which the Group would acquire two non-performing loans and interests accrued thereon with carrying amounts of approximately RMB41.5 million (equivalent to approximately HK$47.1 million) and RMB66.5 million (equivalent to approximately HK$75.6 million) for considerations of RMB9 million (equivalent to approximately HK$10.2 million) and RMB19 million (equivalent to approximately HK$21.6 million), respectively. Details of which are set out in the announcement of the Company dated 4 February 2009.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2008, the Group advanced a sum of approximately RMB28 million (equivalent to approximately HK$32 million) to the vendor of the non-performing loans, 中國東方資產管 理公司石家莊辦事處, an assets management company as advances for the agreements. The sum was recognised as advances in the consolidated balance sheet.

The Directors are still estimating the potential impact of the transaction.

• (d) On 2 March 2009, Shougang Holding and Max Same Investment Limited, a company incorporated in Hong Kong which is a wholly owned subsidiary of Cheung Kong (Holdings) Limited and is interested in approximately 7.94% of the issued share capital of the Company approved a cap amount of HK$200 million for the construction by the Group of a building in Shenzhen, including the land cost, with a gross floor area of approximately 40,795 square meters. Details of the aforesaid arrangement are set out in the announcement of the Company dated 3 March 2009.

Up to the date of this report, the Group has entered into a contract for the mentioned construction for a consideration of approximately RMB168,800,000 (equivalent to approximately HK$191,800,000).

49. RELATED PARTY TRANSACTIONS

• (a) During the year, the Group entered into the following transactions with related parties:

		2008	2007
		HK$’000	HK$’000
(i)	Rental expenses charged by Winluck Properties Limited,
	a wholly-owned subsidiary of Shougang Holding	–	1,615
(ii)	Rental income received from Gold Regal Limited,
	an associate of Shougang Holding	142	142
(iii)	Consultancy expense charged by Shougang Holding	960	960
(iv)	Management fee charged by Shougang Concord
	International Enterprises Company Limited
	(“Shougang International”), an associate of
	Shougang Holding	1,140	1,140
(v)	Interest expense charged by Shougang (Hong Kong)
	Finance Company Limited, a wholly-owned subsidiary
	of Shougang Holding	614	109
(vi)	Interest expense paid to South China Leasing in respect
	of finance lease obligations	–	58

At 31 December 2008, the Group’s held-for-trading investments included listed securities of 13,870,000 shares (2007: 13,870,000 shares) of Shougang Concord Century Holdings Limited (“Shougang Century”), 13,766,000 shares (2007: 4,120,000 shares) of Shougang Concord Technology Holdings Limited (“Shougang Technology”) and 230,000 shares (2007: 230,000 shares) of Shougang International. Shougang Century, Shougang Technology and Shougang International are associates of Shougang Holding.

• 78 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Compensation of key management personnel

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

Short-term benefits Share-based payments Post-employment benefit	2008 HK$’000 19,251 10,869 296 30,416	2007 HK$’000 13,073 56,581 269
		69,923

The remuneration of the Directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends.

During the year, 41,950,000 share options with an exercise price of HK$0.724 per share were granted to the Directors.

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 state-controlled 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 25 and 37.

• 79 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

50. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY

Details of principal subsidiaries at 31 December 2008 are as follows. The changes of subsidiaries as compared with 2007, were set out in note (f) for details:

			Proportion of
		Issued and	nominal value
	Place of	fully paid	of issued
	incorporation or	share capital/	share capital
	establishment/	contributed	held by
Name of subsidiary	operation	capital	the Company	Principal activities
		(Note (a))
Direct subsidiary
SCG Investment	BVI	HK$100,000	100%	Investment holding
(BVI) Limited
Indirect subsidiaries
首方投資管理（深圳）	The PRC_(Note (b))_	HK$230,000,000	100%	Investment holding
有限公司
Concord Grand TV &	BVI	US$1	100%	Investment holding
Movie Investment
Limited
Dunley Developments	BVI	US$1	100%	Investment holding
Limited
Durali Developments	BVI	US$1	100%	Investment holding
Limited
GDC Asset Management	BVI_(Note (g))_	US$1	51%	Investment holding
Limited
GDC China Limited	Hong Kong_(Note (g))_	HK$2	51%	Investment holding
GDC Digital Cinema	BVI_(Note (g))_	US$1	51%	Investment holding
Network Limited
GDC Digital Cinema	Hong Kong_(Note (f))_	HK$1	51%	Deployment of digital
Network Limited	(Note (g))			cinema equipment
GDC Entertainment	BVI_(Note (g))_	US$3,510	51%	Struck off
GDC Holdings	BVI_(Note (g))_	US$5,214,181	51%	Investment holding
GDC International Limited	Samoa_(Note (g))_	US$1	51%	Provision of CG
				animation creation
				and production services

• 80 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Proportion of Issued and nominal value Place of fully paid of issued incorporation or share capital/ share capital establishment/ contributed held by Name of subsidiary operation capital the Company Principal activities (Note (a)) GDC Management Services Hong Kong (Note (g)) HK$2 51% Provision of administrative Limited and management services GDC Technology BVI (Note (g)) HK$23,259,509 32% Provision of computing solutions for digital content distribution and exhibitions in a worldwide basis GDC Technology Hong Kong (Note (g)) HK$2 32% Provision of computing (Hong Kong) Limited solutions for digital content distribution and exhibitions GDC Technology Pte. Ltd. Singapore (Note (g)) S$900,000 32% Provision of computing solutions for digital content distribution and exhibitions in a worldwide basis GDC Technology (USA), United States (Note (g)) US$1,000 32% Provision of computing LLC solutions for digital content distribution and exhibitions GDC (Note (c)) Bermuda HK$12,952,455 51% Investment holding Grand Award Limited BVI US$1 100% Investment holding Grand Park Investment Hong Kong HK$2 100% Property investment Limited Grand Phoenix Limited BVI US$1 100% Investment holding 環球數碼媒體科技（上海） The PRC (Note (b)) US$1,300,000 51% Provision of CG animation 有限公司 (Note (g)) training in the PRC Institute of Digital Media Technology (Shanghai) Limited

• 81 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

			Proportion of
		Issued and	nominal value
	Place of	fully paid	of issued
	incorporation or	share capital/	share capital
	establishment/	contributed	held by
Name of subsidiary	operation	capital	the Company	Principal activities
		(Note (a))
環球數碼媒體科技研究	The PRC_(Note (b))_	US$35,353,896	51%	Provision of CG and
（深圳）有限公司	(Note (g))			animation training,
Institute of Digital Media				development of
Technology (Shenzhen)				multimedia Limited
				software and hardware,
				and provision of related
				technical consultancy
				services in the PRC
Jeckman	BVI	US$16	100%	Investment holding
Linksky Limited	Hong Kong	HK$2	100%	Property holding
Long Cosmos Investment	Hong Kong	HK$2	100%	Provision of administrative
Limited				and 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 Leasing	Hong Kong	HK$2	100%	Property investment
Corporation Limited
Shongang GDC Media	Hong Kong_(Note (g))_	HK$1	51%	Investment holding
Holding Limited
South China Leasing	The PRC_(Note (d))_	US$24,000,000	80%	Leasing of property,
				plant and equipment
Strenbeech Limited	BVI	HK$147,000,008	100%	Investment holding
天津首方投資管理	The PRC_(Note (d))_	RMB130,000,000	90%	Development of finance
有限公司	(Note (f))			and assets investment and
				management

• 82 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

			Proportion of
		Issued and	nominal value
	Place of	fully paid	of issued
	incorporation or	share capital/	share capital
	establishment/	contributed	held by
Name of subsidiary	operation	capital	the Company	Principal activities
		(Note (a))
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 Investment	BVI	US$1	100%	Investment holding
Holdings Limited
四方源創國際影視文化傳播	The PRC_(Note (d))_	RMB20,000,000	80%	Production of films
（北京）有限公司				and television
				programme series
廣東四方源創動畫制作	The PRC_(Note (d))_	RMB10,000,000	64%	Provision of graphic
有限公司				animation creation
東陽市四方源創影視制作	The PRC_(Note (d))_	RMB1,000,000	80%	Production of films
有限公司				and television
				programme series
東陽方源影視制作	The PRC_(Note (d))_	RMB1,000,000	80%	Production of films
有限公司	(Note (f))			and television
				programme series
杭州四方源創動畫制作	The PRC_(Note (d))_	RMB3,000,000	64%	Provision of graphic
有限公司				animation creation
深圳市環球數碼影視文化	The PRC_(Note (d))_	RMB3,000,000	51%	Animation investment
有限公司	(Note (g))
深圳市環球數碼科技	The PRC_(Note (d))_	RMB3,000,000	32%	Provision of computing
有限公司	(Note (g))			solutions for digital content
				distribution and exhibition
重慶環球數碼動畫有限公司	The PRC_(Note (d))_	RMB5,500,000	51%	Provision of CG and
	(Note (f))			animation training,
	(Note (g))			development of
				multimedia software and
				hardware, and provision of
				related technical
				consultancy services
				in the PRC

• 83 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Proportion of Issued and nominal value Place of fully paid of issued incorporation or share capital/ share capital establishment/ contributed held by Name of subsidiary operation capital the Company Principal activities (Note (a)) 深圳市南山區環球數碼 The PRC (Note (e)) RMB200,000 51% Provision of CG and 培訓學校 (Note (g)) animation training in PRC 上海環球數碼職業技能 The PRC (Note (e)) RMB200,000 51% Provision of CG and 培訓學校 (Note (g)) animation training in the PRC 北京科創環球數碼技術 The PRC (Note (d)) RMB200,000 32% Provision of computer 有限公司 (Note (f)) solutions for digital (Note (g)) content distribution and exhibition

Note:

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

• (b) These entities are wholly foreign owned enterprises.

• (c) This entity is listed on the GEM.

• (d) These entities are sino-foreign equity joint venture/enterprises or limited liability enterprises.

• (e) These entities are school.

• (f) The subsidiary was newly established/incorporated in current year.

• (g) The subsidiaries were indirectly owned subsidiaries of the Group through shareholdings of GDC.

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.

• 84 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

III. EXTRACT FROM THE INTERIM REPORT OF THE COMPANY FOR THE SIX MONTHS ENDED 30 JUNE 2009

The following is an extract of the latest published unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2009 together with the notes therein, from the 2009 interim report of the Company.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2009

Notes Revenue 3 Cost of sales Gross profit Interest income from entrusted loan receivables Other income 4 Distribution costs and selling expenses Administrative expenses Increase in fair value of investment properties Changes in fair value of held-for-trading investments Finance costs 5 Share of loss of an associate Other expense 6 Discount on acquisition of additional interest in a subsidiary 7 Profit (loss) before tax Income tax expense 8 Profit (loss) for the period 9 Other comprehensive income: Exchange differences on translation of associates/subsidiaries Total comprehensive income for the period Profit (loss) for the period attributable to: Owners of the Company Minority interests Total comprehensive income for the period attributable to: Owners of the Company Minority interests Earnings (loss) per share 11 Basic

Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 216,048 111,029 (173,813 ) (99,485) 42,235 11,544 2,352 – 13,793 6,410 (5,633 ) (6,655 ) (57,538 ) (56,462 ) 5,950 13,440 5,594 (24,854 ) (2,056 ) (2,562 ) (289 ) (662 ) – (22,202 ) 2,154 – 6,562 (82,003 ) (5,257 ) (2,631) 1,305 (84,634 ) (56 ) 34,390 1,249 (50,244 ) 941 (54,208 ) 364 (30,426 ) 1,305 (84,634 ) 922 (31,105 ) 327 (19,139 ) 1,249 (50,244 ) HK0.08 cents (HK4.71 cents )

• 85 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30 June 2009

Notes Non-current assets Property, plant and equipment 12 Prepaid lease payments Investment properties 12 Goodwill Intangible asset 13 Available-for-sale investments 14 Interests in associates Convertible loan receivable 15 Finance lease receivables 16 Entrusted loan receivables 17 Restricted bank deposits Pledged bank deposit Advances 18 Current assets Inventories Production work in progress Amounts due from customers for contract work Finance lease receivables 16 Entrusted loan receivables 17 Trade receivables 19 Prepayments, deposits and other receivables 20 Prepaid lease payments Held-for-trading investments Pledged bank deposit Bank balances and cash	30 June 2009 HK$’000 (unaudited) 88,499 7,437 131,150 52,935 – 32,704 21,567 115,818 475,949 1,541 77,688 19,585 – 1,024,873 33,638 3,945 3,135 619,863 50,837 55,987 171,646 152 32,788 2,808 230,266 1,205,065	31 December 2008 HK$’000 (audited) 60,510 7,512 125,200 52,935 244,111 – 21,856 – 827,138 25,499 66,069 665 126,547
		1,558,042
		21,904 3,875 16,935 463,170 26,879 20,524 22,957 156 85,668 2,808 195,381
		860,257

• 86 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Current liabilities Amounts due to customers for contract work Trade payables 21 Other payables and accruals Income received in advance Rental and management fee deposits received Amount due to an associate 22 Tax liabilities Borrowings 23 Net current assets Total assets less current liabilities Capital and Reserves Issued capital 24 Retained earnings Other reserves Equity attributable to owners of the Company Share options reserve of subsidiaries Minority interests Total equity Non-current liabilities Income received in advance Borrowings 23 Security deposits received Deferred tax liabilities Total equity and liabilities	30 June 2009 HK$’000 (unaudited) 1,023 30,528 45,200 46,388 1,071 20,874 12,164 567,699 724,947 480,118 1,504,991 11,514 383,635 157,422 552,571 54,598 232,738 839,907 12,323 591,297 60,168 1,296 665,084 1,504,991	31 December 2008 HK$’000 (audited) 1,763 8,117 53,492 38,108 1,189 – 9,506 427,048
		539,223
		321,034
		1,879,076
		11,514 382,689 157,441
		551,644 54,603 264,927
		871,174
		16,393 930,248 60,168 1,093
		1,007,902
		1,879,076

• 87 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2009

At 1 January 2008 (audited) Exchange differences on translation of associates/subsidiaries Loss for the period Total comprehensive income for the period Recognition of share-based payments Exercise of share options Reduction of share premium reserve_(Note) Elimination of defcit(Note) Cancellation of share options granted by a subsidiary At 30 June 2008 (unaudited) Exchange differences on translation of associates/subsidiaries Loss for the period Total comprehensive income for the period Cancellation of share options granted by subsidiaries Capital contribution from a minority shareholder At 31 December 2008 and 1 January 2009 (audited) Exchange differences on translation of subsidiaries Proft for the period Total comprehensive income for the period Cancellation of share options granted by a subsidiary Capital contribution from minority shareholders Acquisition of additional interest in a subsidiary(note 7)_ At 30 June 2009 (unaudited)	Issued capital HK$’000 11,504 – – – – 10 – – – 11,514 – – – – – 11,514 – – – – – – 11,514	Share Capital Contributed premium contribution surplus Translation reserve reserve reserve reserve HK$’000 HK$’000 HK$’000 HK$’000 425,259 445 2,135 17,502 – – – 23,103 – – – – – – – 23,103 – – – – 559 – – – (425,259 ) – 425,259 – – – (311,818 ) – – – – – 559 445 115,576 40,605 – – – 248 – – – – – – – 248 – – – – – – – – 559 445 115,576 40,853 – – – (19 ) – – – – – – – (19) – – – – – – – – – – – – 559 445 115,576 40,834	Shares options reserve HK$’000 12,794 – – – 10,869 (159 ) – – – 23,504 – – – – – 23,504 – – – – – – 23,504	Special reserve HK$’000 (23,496 ) – – – – – – – – (23,496 ) – – – – – (23,496 ) – – – – – – (23,496 )	Attributable Share to owners options Retained of the reserve of earnings Company subsidiaries HK$’000 HK$’000 HK$’000 189,671 635,814 55,249 – 23,103 – (54,208) (54,208) – (54,208) (31,105) – – 10,869 – – 410 – – – – 311,818 – – 7 7 (7) 447,288 615,995 55,242 – 248 – (65,238) (65,238) – (65,238) (64,990) – 639 639 (639 ) – – – 382,689 551,644 54,603 – (19 ) – 941 941 – 941 922 – 5 5 (5 ) – – – – – – 383,635 552,571 54,598	Minority interests HK$’000 277,293 11,287 (30,426) (19,139) – – – – – 258,154 (170 ) (7,877) (8,047) – 14,820 264,927 (37 ) 364 327 – 5,816 (38,332) 232,738	Total HK$’000 968,356 34,390 (84,634)
							(50,244)
							10,869 410 – – –
							929,391 78 (73,115)
							(73,037)
							– 14,820
							871,174 (56 ) 1,305
							1,249
							– 5,816 (38,332)
							839,907

Note: A special resolution was passed by shareholders of the Company at the Special General Meeting of the Company held on 6 June 2008 and completed thereafter whereby an amount of approximately HK$425,259,000 standing to the credit of the share premium reserve of the Company as at 31 December 2007 had been reduced, with the credit arising therefrom being transferred to the contributed surplus reserve of the Company. Upon the said transfer became effective, an amount of approximately HK$311,818,000 standing to the credit of the contributed surplus reserve of the Company had been applied to eliminate the deficit of the Company as at 31 December 2007. The Company had complied with the requirements of section 46(2) of the Companies Act 1981 of Bermuda (as amended). Details of which were set out in the circular of the Company dated 9 May 2008.

• 88 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2009

	Six months ended	Six months ended
	30 June
	2009	2008
	HK$’000	HK$’000
	(unaudited)	(unaudited)
NET CASH FROM (USED IN) OPERATING ACTIVITIES	155,165	(190,757 )
INVESTING ACTIVITIES
Proceeds from disposal of intangible asset,
net of transaction costs	168,703	–
Interest received from entrusted loan receivables	2,352	–
Interest received	977	2,832
Proceeds from disposal of property, plant and equipment	892	–
Investment in a convertible loan receivable	(45,454 )	–
Purchase of property, plant and equipment	(35,028 )	(5,076 )
(Increase) decrease in pledged bank deposits	(18,920 )	5,044
(Increase) decrease in restricted bank deposits	(11,619 )	58,623
Acquisition of additional interest in a subsidiary	(9,949 )	–
Investment in available-for-sale investment	(568 )	–
Repayment from an associate	–	1,053
Capital contribution to an associate	–	(21,084 )
Acquisition of intangible asset	–	(1,798 )
Prepaid lease payments made	–	(314 )
NET CASH FROM INVESTING ACTIVITIES	51,386	39,280
FINANCING ACTIVITIES
Repayment of borrowings	(213,073 )	(186,933 )
Advance from an associate	20,874	–
New borrowings raised	14,773	139,773
Capital contribution from minority shareholders	5,816	–
Repayment to a related party	–	(336 )
Issue of shares from exercise of share options	–	410
Advance from a fellow subsidiary	–	100,000
NET CASH (USED IN) FROM FINANCING ACTIVITIES	(171,610 )	52,914
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS	34,941	(98,563 )
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD	195,381	463,561
EFFECT OF FOREIGN EXCHANGE RATE CHANGES	(56 )	10,285
CASH AND CASH EQUIVALENTS AT END
OF THE PERIOD	230,266	375,283

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2009

1. BASIS OF PREPARATION

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

2. SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared under the historical cost convention, except for investment properties and certain financial instruments that are measured at fair values.

A number of new or revised Standards and Interpretations are effective for the financial year beginning on 1 January 2009. Except as described below, the same accounting policies, presentation and methods of computation have been followed in these condensed consolidated financial statements as were applied in the preparation of the Group’s financial statements for the year ended 31 December 2008.

Hong Kong Financial Reporting Standard (“HKFRS”) 8 “Operating Segments”

(effective for annual periods beginning on or after 1 January 2009)

HKFRS 8 is a disclosure Standard that has resulted in a redesignation of the Group’s reportable segments (see note 3), but has had no impact on the reported results or financial position of the Group.

HKAS 1 (Revised in 2007) “Presentation of Financial Statements”

(effective for annual periods beginning on or after 1 January 2009)

HKAS 1 (Revised in 2007) has introduced a number of terminology changes (including revised titles for the condensed consolidated financial statements) and has resulted in a number of changes in presentation and disclosure. However, HKAS 1 (Revised in 2007) has had no impact on the reported results or financial position of the Group.

The Group has not early applied any new and revised standards, amendments or interpretations that have been issued but are not yet effective. The adoption of HKFRS 3 (Revised in 2008) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. HKAS 27 (Revised in 2008) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary. The directors of the Company (the “Directors”) anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. SEGMENT INFORMATION

The Group has adopted HKFRS 8 “Operating Segments” with effect from 1 January 2009. HKFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker (the “CODM”) in order to allocate resources to the segment and to assess its performance. In contrast, the predecessor Standard (HKAS 14 “Segment Reporting”) required an entity to identify two sets of segments (business and geographical), using a risks and rewards approach, with the entity’s “system of internal financial reporting to key management personnel” serving only as the starting point for the identification of such segments. As a result, following the adoption of HKFRS 8, the identification of the Group’s reportable segments has changed.

In prior years, segment information reported externally was analysed on the basis of the Group’s operating divisions. However, information reported to the Group’s Executive Directors, the CODM, for the purposes of resource allocation and assessment of performance is analysed further on each sub-group level. The Group’s reportable segments under HKFRS 8 are property leasing and building management services, digital content distribution and exhibitions, deployment of digital cinema network in Asia (a new division for the six months ended 30 June 2009), computer graphic (“CG”) creation and production, CG training courses, films and television programme production, finance leasing and assets management.

Information regarding these segments is presented below. Amounts reported for the prior period have been restated to conform to the requirements of HKFRS 8.

Six months ended 30 June 2009 (unaudited)

Property Digital Deployment leasing and content of digital building distribution cinema CG management and network creation and services exhibitions in Asia production HK$’000 HK$’000 HK$’000 HK$’000 REVENUE External sales 3,363 130,709 – 21,002 RESULT Segment result 8,842 21,502 (1,953 ) (16,662 ) Investment revenue Central administration costs Changes in fair value of held-for-trading investments Finance costs Share of loss of an associate Profit before tax	Films and CG television training programme courses production HK$’000 HK$’000 9,345 2,047 3,081 (8,322 )	Finance Assets leasing management Consolidated HK$’000 HK$’000 HK$’000 49,582 – 216,048 11,858 3,176 21,522 2,220 (20,429 ) 5,594 (2,056 ) (289 ) 6,562	Finance Assets leasing management Consolidated HK$’000 HK$’000 HK$’000 49,582 – 216,048 11,858 3,176 21,522 2,220 (20,429 ) 5,594 (2,056 ) (289 ) 6,562
			21,522 2,220 (20,429 ) 5,594 (2,056 ) (289 )
			6,562

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Six months ended 30 June 2008 (unaudited and restated)

Property Digital leasing and content building distribution CG management and creation and services exhibitions production HK$’000 HK$’000 HK$’000 REVENUE External sales 3,062 12,699 12,519 RESULT Segment result 15,979 (41,770 ) (7,965 ) Investment revenue Central administration costs Changes in fair value of held-for-trading investments Finance costs Share of loss of an associate Loss before tax	Films and CG television training programme courses production HK$’000 HK$’000 6,024 11,036 193 (1,524 )	Finance Assets leasing management Consolidated HK$’000 HK$’000 HK$’000 65,689 – 111,029 8,128 2,063 (24,896 ) 2,267 (31,296 ) (24,854 ) (2,562 ) (662 ) (82,003)	Finance Assets leasing management Consolidated HK$’000 HK$’000 HK$’000 65,689 – 111,029 8,128 2,063 (24,896 ) 2,267 (31,296 ) (24,854 ) (2,562 ) (662 ) (82,003)
			(24,896 ) 2,267 (31,296 ) (24,854 ) (2,562 ) (662 )
			(82,003)

All of the segment revenue reported above is from external customers.

Segment result represents the profit earned or loss incurred by each segment without allocation of investment revenue, central administration costs, changes in fair value of held-for-trading investments, finance costs and share of loss of an associate. This is the measure reported to the Group’s Executive Directors for the purposes of resources allocation and assessment of segment performance.

4. OTHER INCOME

Other income for the six months ended 30 June 2009 primarily comprises:

• Interest income from loans and receivables of approximately HK$7,668,000 (Six months ended 30 June 2008: HK$2,832,000);

• Gain of approximately HK$2,543,000 (Six months ended 30 June 2008: Nil) on disposal of intangible asset to China Film Group Corporation (“CFGC”), the majority shareholder of an associate of the Group at a consideration of RMB223,791,600 (equivalent to approximately HK$254,227,000), of which RMB150,000,000 (equivalent to approximately HK$170,455,000) has been settled during the period. The remaining balance is recognised as other receivable (see note 20) as at 30 June 2009. The disposal was approved by shareholders of the Company at the Special General Meeting on 17 February 2009. Details of the disposal are set out in the circular of the Company dated 23 January 2009; and

• Imputed interest income derived from the deferred consideration of the disposal of intangible asset of approximately HK$2,062,000 (Six months ended 30 June 2008: Nil).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. FINANCE COSTS

Interest on bank and other borrowings wholly repayable within five years Interest on bank and other borrowings not wholly repayable within five years	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 1,109 2,562 947 – 2,056 2,562	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 1,109 2,562 947 – 2,056 2,562
		2,562

6. OTHER EXPENSE

Other expense for the six months ended 30 June 2008 represented a one-off payment to CFGC for acquisition of certain of its film distribution rights in the People’s Republic of China (the “PRC”, for the purpose of this report, does not include Hong Kong, Macau and Taiwan).

7. DISCOUNT ON ACQUISITION OF ADDITIONAL INTEREST IN A SUBSIDIARY

On 20 August 2008, the Group entered into a conditional agreement with the minority shareholder of South China International Leasing Co., Ltd. (“South China Leasing”), a then 80% indirect owned subsidiary of the Company, pursuant to which the minority shareholder agreed to transfer its 20% equity interest in the registered capital of South China Leasing to the Group for a consideration of RMB31,755,150 (equivalent to approximately HK$36,085,000). Details of this acquisition were set out in the circular of the Company dated 3 September 2008.

This acquisition was completed in April 2009 upon receiving the approval by the authority in the PRC and the new business license, and South China Leasing became an indirect wholly-owned subsidiary of the Company. The advance paid and direct transaction costs incurred in relation to this acquisition of approximately HK$26,229,000 as at 31 December 2008 (note 18) formed part of the consideration thereafter and the Group pays the remaining consideration of approximately HK$9,949,000 to the minority shareholder during the six months ended 30 June 2009.

The Group has ascertained the fair value of the net assets of South China Leasing in relation to the acquisition of additional interest in South China Leasing at the date of completion and concluded that the fair values of assets and liabilities of South China Leasing at that time did not have significant difference from their respective carrying amounts. Accordingly, discount on acquisition of additional interest in South China Leasing of approximately HK$2,154,000 arose, which represented the excess of the Group’s additional interest in the fair value of the net assets of South China Leasing over the consideration paid at the date of completion.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. INCOME TAX EXPENSE

Current tax: The PRC Hong Kong Deferred taxation: Current period	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 5,072 1,380 (18 ) 407 5,054 1,787 203 844 5,257 2,631	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 5,072 1,380 (18 ) 407 5,054 1,787 203 844 5,257 2,631
		1,787 844
		2,631

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both periods.

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

For the PRC Enterprise Income Tax, the relevant tax rates for the Group’s subsidiaries in the PRC for the period range from 20% to 25% (Six months ended 30 June 2008: 18% to 25%).

9. PROFIT (LOSS) FOR THE PERIOD

Profit (loss) for the period has been arrived at after charging (crediting): Allowance for inventories Allowance for (reversal of) doubtful debts Amortisation of intangible asset (included in cost of sales) Amortisation of prepaid lease payments Depreciation of property, plant and equipment Less: amounts included in contracts work in progress	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 4,770 – 6,001 (230 ) 633 14,098 79 85 6,318 5,713 (1,386 ) (622 ) 4,932 5,091	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 4,770 – 6,001 (230 ) 633 14,098 79 85 6,318 5,713 (1,386 ) (622 ) 4,932 5,091
		5,091

10. DIVIDEND

The Directors do not recommend the payment of an interim dividend for the six months ended 30 June 2009 and 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. EARNINGS (LOSS) PER SHARE

The calculation of the basic earnings (loss) per share attributable to owners of the Company is based on the following data:

Earnings (loss) Earnings (loss) for the purpose of basic earnings (loss) per share (profit (loss) for the period attributable to owners of the Company) Number of shares Weighted average number of ordinary shares for the purpose of basic earnings (loss) per share	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 941 (54,208) ’000 ’000 1,151,392 1,151,008

There is no dilutive potential ordinary share arising from the Company’s share options for the six months ended 30 June 2009 because the exercise prices of these share options are higher than the average market price for shares for the period.

There was no dilutive potential ordinary share arising from the Company’s share options for the six months ended 30 June 2008 as the exercise of these share options would result in a decrease in the loss per share.

12. MOVEMENTS IN PROPERTY, PLANT AND EQUIPMENT AND INVESTMENT PROPERTIES

During the six months ended 30 June 2009, the Group acquires property, plant and equipment of approximately HK$35,028,000 (Six months ended 30 June 2008: HK$5,076,000).

The fair value of the Group’s investment properties at 30 June 2009 and 31 December 2008 has been arrived at on the basis of a valuation carried out on that date by AA Property Services Limited, an independent qualified professional valuer not connected with the Group. The valuation was arrived at by reference to market evidence of transaction prices for similar properties. The resulting increase in fair value of investment properties of approximately HK$5,950,000 (Six months ended 30 June 2008: HK$13,440,000) has been recognised directly in the condensed consolidated statement of comprehensive income.

13. INTANGIBLE ASSET

At 1 January 2009 (audited) Amortisation during the period Disposals At 30 June 2009 (unaudited)	Carrying value HK$’000 244,111 (633 ) (243,478 ) –

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. AVAILABLE-FOR-SALE INVESTMENTS

Notes Unlisted non-performing loans and interests (i) Unlisted equity interests (ii)	30 June 2009 HK$’000 (unaudited) 32,136 568 32,704	31 December 2008 HK$’000 (audited) – –
		–

Notes:

• (i) On 30 January 2009, the Group entered into two agreements with 中國東方資產管理公司石家莊 辦事處 (the “Vendor”), an independent third party pursuant to which the Group acquired two nonperforming loans and interests accrued thereon with principal amounts of RMB23 million (equivalent to approximately HK$26.1 million) and RMB30.54 million (equivalent to approximately HK$34.7 million) for considerations of RMB9 million (equivalent to approximately HK$10.2 million) and RMB19 million (equivalent to approximately HK$21.6 million), respectively. Details of which are set out in the announcement of the Company dated 4 February 2009.

The advance of approximately RMB28 million (equivalent to approximately HK$32.1 million) as at 31 December 2008 (note 18) to the Vendor became the investment costs which were then designated as available-for-sales investments thereafter and the fair value of the investment as at 30 June 2009 is estimated to appropriate its cost. Only after such time as the interest-in-suspense is no longer required, interest income will then be subsequently recognised using the effective interest method.

• (ii) The investment represents 5% equity interest in a private entity established in the PRC, and is measured at cost less impairment at each balance sheet date.

15. CONVERTIBLE LOAN RECEIVABLE

On 23 December 2008, the Group entered into a conditional agreement with Southern International Limited (the “Borrower”) and its holding company whereby the Group agreed to advance a loan facility in the maximum principal amount of RMB100 million (equivalent to approximately HK$113.6 million) (the “Loan Receivable”) and the Borrower agreed to grant to the Group the exclusive rights and options to subscribe for an aggregate of up to 60% of the enlarged issued capital of the Borrower (the “Conversion Option”). Details of the transaction are set out in the circular of the Company dated 23 January 2009.

The transaction was approved by shareholders of the Company at the Special General Meeting of the Company on 17 February 2009, the advance of approximately HK$68.2 million as at 31 December 2008 (note 18) formed part of the Loan Receivable thereafter and the Group advances the remaining approximately HK$45.4 million to the Borrower during the six months ended 30 June 2009.

Since the entire instrument contained the Loan Receivable and the Conversion Option, the Group assessed the fair value of the Loan Receivable with reference to the prevailing market interest of similar non-convertible loans and appointed Messrs. Jones Lang LaSalle Sallmanns, an independent qualified professional valuer not connected with the Group, to ascertain the fair value of the Conversion Option. The Group concluded that the principal amount of the Loan Receivable approximated to its fair value at initial recognition. As the underlying shares are unquoted and the fair value of the Conversion Option cannot be reliably estimated, the entire instrument is carried at cost less impairment at both initial recognition and 30 June 2009.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 30 June 2009, the carrying amount of the convertible loan receivable of approximately HK$115.8 million comprises principal amount of RMB100 million (equivalent to approximately HK$113.6 million) and the accrued interest thereon. The convertible loan receivable is stated at amortised cost using the effective interest method at 6% per annum less any identified impairment losses.

16. FINANCE LEASE RECEIVABLES

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 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 30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) (audited) 695,086 543,315 288,876 530,174 141,233 209,746 83,899 115,246 705 33,278 590 943 1,210,389 1,432,702 (114,577 ) (142,394 ) 1,095,812 1,290,308	Present value of minimum lease receipts 30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) (audited) 619,863 463,170 263,872 492,351 130,240 193,068 80,718 108,464 569 32,409 550 846 1,095,812 1,290,308 N/A N/A 1,095,812 1,290,308 619,863 463,170 475,949 827,138 1,095,812 1,290,308	Present value of minimum lease receipts 30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) (audited) 619,863 463,170 263,872 492,351 130,240 193,068 80,718 108,464 569 32,409 550 846 1,095,812 1,290,308 N/A N/A 1,095,812 1,290,308 619,863 463,170 475,949 827,138 1,095,812 1,290,308
			1,290,308 N/A
			1,290,308
			463,170 827,138
			1,290,308

Effective interest rates of the above finance lease receivables range from approximately 6% to 16% (31 December 2008: 6% to 16%) per annum.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. ENTRUSTED LOAN RECEIVABLES

30 June 2009 HK$’000 (unaudited) Entrusted loan receivables comprise: Within one year 50,837 In more than one year but not more than two years 1,541 In more than two years but not more than three years – 52,378 Less: Amounts due within one year shown under current assets (50,837 ) Amounts due after one year 1,541 18. ADVANCES 30 June 2009 HK$’000 (unaudited) Advances paid for: Agreement for a term loan facility and call options_(note 15) – Agreements for acquisition of non-performing loans and interests(note 14) – Agreement for acquisition of additional interest in a subsidiary(note 7) – – 19. TRADE RECEIVABLES 30 June 2009 _HK$’000 (unaudited) Trade receivables 68,374 Less: Allowance for doubtful debts (12,387 ) 55,987

31 December 2008 HK$’000 (audited) 26,879 25,272 227 52,378 (26,879 ) 25,499 31 December 2008 HK$’000 (audited) 68,182 32,136 26,229 126,547 31 December 2008 HK$’000 (audited) 26,910 (6,386 ) 20,524

The Group allows different credit periods to its trade customers from 30 days to 90 days depending on the type of products or services provided.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The allowance for doubtful debts as at 30 June 2009 includes individually impaired trade receivables with an aggregate balance of approximately HK$4,587,000 and HK$7,800,000 in respect of which the customers are in financial difficulties or not fully satisfied with the quality of products produced by the CG creation and production division and the films and television programme production division, respectively, and the amounts are considered uncollectible.

The following is an aged analysis of trade receivables, net of allowance for doubtful debts at the balance sheet

date:

0 – 90 days 91 – 180 days Over 180 days	30 June 2009 HK$’000 (unaudited) 55,378 508 101 55,987	31 December 2008 HK$’000 (audited) 8,302 8,527 3,695
		20,524

20. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Other receivables as at 30 June 2009 primarily comprises:

• receivable of approximately RMB72,854,000 (equivalent to approximately HK$82,789,000) due from CFGC in connection with the unsettled sale proceeds from the disposal of intangible asset. The amount is unsecured, non-interest bearing and will be settled by two instalments on or before 1 September 2009 and 1 December 2009, respectively. The amount is stated at amortised cost using the effective interest method at approximately 5% per annum. Details of the transaction are set out in the circular of the Company dated 23 January 2009; and

• receivable of approximately HK$62,864,000 due from an independent third party for the assets management division. The amount is secured by a listed security in the PRC with market value of approximately HK$89,872,000 as at 30 June 2009, interest bearing at 15% per annum and repayable on or before 24 December 2009.

21. TRADE PAYABLES

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

0 – 90 days 91 – 180 days Over 180 days	30 June 2009 HK$’000 (unaudited) 15,202 15,148 178 30,528	31 December 2008 HK$’000 (audited) 6,568 76 1,473
		8,117

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. AMOUNT DUE TO AN ASSOCIATE

The amount is unsecured, non-interest bearing and repayable on demand.

23. BORROWINGS

During the period, the Group obtained a new bank loan of approximately HK$14.8 million (Six months ended 30 June 2008: HK$139.8 million) and repaid borrowings of approximately HK$213.1 million (Six months ended 30 June 2008: HK$186.9 million) in accordance with the repayment terms. The new bank loan raised is denominated in Renminbi, secured by pledged of a property of the Group, carries interest at the People’s Bank of China Renminbi Lending Rate per annum and is repayable within twelve months from the balance sheet date.

24. ISSUED CAPITAL

Ordinary share of HK$0.01 each Authorised: At beginning and end of the period/year Issued and fully paid: At beginning of the period/year Exercise of share options At the end of the period/year	30 June 2009 Number Nominal of shares value HK$’000 (unaudited) (unaudited) 2,000,000,000 20,000 1,151,392,469 11,514 – – 1,151,392,469 11,514	31 December 2008 Number Nominal of shares value HK$’000 (audited) (audited) 2,000,000,000 20,000 1,150,392,469 11,504 1,000,000 10 1,151,392,469 11,514	31 December 2008 Number Nominal of shares value HK$’000 (audited) (audited) 2,000,000,000 20,000 1,150,392,469 11,504 1,000,000 10 1,151,392,469 11,514
			11,504 10
			11,514

25. PLEDGE OF ASSETS

As at 30 June 2009, the Group has the following charge on assets:

• (i) The Group’s investment properties and leasehold land and building with an aggregate carrying value of approximately HK$162.0 million (31 December 2008: HK$156.4 million) were pledged to banks to secure for bank borrowings with outstanding amount of approximately HK$169.5 million (31 December 2008: HK$171.2 million).

• (ii) The Group’s finance lease receivables with a carrying value of approximately HK$1,069.7 million (31 December 2008: HK$1,258.9 million) were pledged to banks to secure for bank borrowings with outstanding amount of approximately HK$989.5 million (31 December 2008: HK$1,186.1 million).

• (iii) There were bank deposits of approximately HK$77.7 million (31 December 2008: HK$66.1 million) restricted for the repayment of bank borrowings, which will be released upon full settlement of the relevant bank borrowings.

• (iv) The Group pledged deposits amounted to approximately HK$22.4 million (31 December 2008: HK$3.5 million) to banks to secure a purchase of raw materials agreement and a construction agreement entered into with independent third parties. The pledged bank deposits will be released upon the settlement of the relevant agreements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. CONTINGENCIES AND COMMITMENTS

Capital commitments

	30 June	31 December
	2009	2008
	HK$’000	HK$’000
	(unaudited)	(audited)
Capital expenditure contracted for but not provide in the condensed
consolidated financial statements in respect of:
Acquisition of property, plant and equipment	180,505	8,350

Litigations

• (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 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 had 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 were 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. GDC Entertainment has written to the arbitrator seeking directions for the further conduct of the arbitration, including the service of pleadings in 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.

Effective from 1 May 2008, GDC Entertainment had been struck off but can be restored at any time up to ten years after the strike off date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (ii) In April 2008, a former employee of the Company filed a claim to the District Court of Hong Kong (the “District Court”) against the Company for an alleged disability discrimination to him and claimed for a compensation of approximately HK$6,659,000. In May 2008, the Company filed a defence to the District Court. In August 2009, both parties entered into a mutual settlement agreement and the court order for the cancellation of such claim was issued thereafter.

No provision for any potential liability has been made in the condensed consolidated financial statements for the six months ended 30 June 2009.

27. RELATED PARTY TRANSACTIONS

Apart from details of the balances with related parties disclosed in the condensed consolidated statement of financial position on pages 5 and 6, the Group also entered into the following transactions with related parties during the period:

Controlling shareholder: Consultancy expenses charged by Shougang Holding (Hong Kong) Limited (“Shougang Holding”) Associates of Shougang Holding: Management fee charged by Shougang Concord International Enterprises Company Limited (“Shougang International”) Rental income received from Gold Regal Limited Subsidiary of Shougang Holding: Interest expense charged by Shougang (Hong Kong) Finance Company Limited

Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 480 480 570 570 71 71 – 417

At 30 June 2009 and 31 December 2008, the Group’s held-for-trading investments included listed securities of 13,870,000 shares of Shougang Concord Century Holdings Limited (“Shougang Century”), 13,766,000 shares of Shougang Concord Technology Holdings Limited (“Shougang Technology”) and 230,000 shares of Shougang International. Shougang Century, Shougang Technology and Shougang International are associates of Shougang Holding.

28. POST BALANCE SHEET EVENT

On 13 August 2009, the Group entered into a sale and purchase agreement and a lease agreement with an independent third party pursuant to which the Group would purchase a 200,000 tonnes high-end containerboard production line for a consideration of RMB150 million (equivalent to approximately HK$170.45 million) and then leaseback for a term of 5 years and with interest at 20% premium above the 5-year base lending rate announced by the People’s Bank of China. Details of which are set out in the announcement of the Company dated 13 August 2009.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

IV. INDEBTEDNESS

Borrowings

At the close of business on 30 September 2009, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group had outstanding secured bank loans of approximately HK$1,403,012,000.

Pledge of assets and restricted bank deposits

At the close of business on 30 September 2009, the Group has pledged the following assets to banks as security for the Group’s secured banking facilities:

• (i) the Group’s investment properties and leasehold land and building;

• (ii) the Group’s finance lease receivables; and

• (iii) certain bank deposits restricted for the repayment of bank borrowings, which will be released upon full settlement of the relevant bank borrowings.

In addition, the Group pledged a bank deposit to a bank to secure for the performance of a construction agreement entered into with an independent third party. The pledged bank deposit will be released upon the settlement of the relevant agreement.

Debt securities

At the close of business on 30 September 2009, the Group had no debt securities.

Contingent liabilities

Save as disclosed in the section headed “Litigation” in Appendix V to this circular, the Group did not have any material contingent liabilities as at the close of business on 30 September 2009.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have 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 at the close of business on 30 September 2009.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

V. WORKING CAPITAL

After taking into account the Group’s internal resources, the presently available banking facilities and in the absence of 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.

VI. MATERIAL ADVERSE CHANGE

The Directors were not aware of any material adverse change to the financial or trading position of the Group since 31 December 2008, being the date to which the latest published audited accounts of the Company were made up.

VII. FUTURE PROSPECTS

Cultural Recreations Content Provision and Distribution

Digital content distribution and exhibitions

In the United States, the Group begins its sales and marketing activities to build up a sales network with key resellers there and signed agreements with the two largest cinema service providers to offer services through their networks in the United States. In the PRC, upon termination of the cooperation with China Film Group Corporation, the Group is actively marketing its products to other key cinema chains landing orders from three key cinema chains in the PRC. Attributed by breakthrough in the United States and return of orders from the PRC, the Group receives more orders for digital cinema equipment.

The Group continues to market its products through participation in international trade exhibitions and high profile demonstration projects. In March 2009, the Group attended ShoWest 2009 with a strong line of product offerings which included an enhanced version of its bestselling digital cinema server, SA2100A, as well as its theatre management system, TMS1000. In April 2009, the Group also completed the integration of a 3D EQ technology to its digital cinema server. This new feature can significantly save the film distributors millions of dollars by adopting Digital Cinema Initiative (“DCI”) requirement of a single 3D DCP format for digital cinema distribution. Together with other products for digital cinema mastering, cinema digital signage and integrated projection system, the Group is capable of offering exhibitors an all-round digital cinema solution and developing products that aim at meeting more than the standard DCI specifications, and can differentiate its technology from its competitors.

According to key industrial reports, the Hollywood studios are now supplying nearly all of their contents in the United States in digital format apart from a few specialised films. Together with more 3D titles coming, the digital cinema conversion worldwide begins and will take at least 5 years to complete.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deployment of digital cinema network in Asia

In Asia (outside of the PRC), the Group has reached separate non-exclusive virtual print fee (“VPF”) agreements with five of the six major Hollywood studios for digital cinema deployment, of which these studios are committed to supply Asian exhibitors with feature film content digitally, as well as to make financial contributions towards the hardware cost of DCI compliant digital cinema equipment deployed. This milestone signals the Group’s on-going commitment to Asian exhibitors as a trusted partner in digital conversion. At present, the Group is in negotiation with exhibitors for moving forward with the VPF program and expects deployment of the digital cinema equipment will begin in the second half of this year.

Computer graphic (“CG”) creation and production

At present, there are seven CG production projects in progress, including films, DVD and television series, the customers come from North America, Europe and Australia. Two of the seven projects are co-production with large European and American animation content production and distribution companies, in which the Group has sole distribution right in the Chinese-speaking region and can share certain percentage from the global distribution. These partners actively work with the Group to insert “Chinese element” to these global projects, and the Group is proud of using the strong economic base and extensive distribution channels of these large children’s entertainment content production companies to introduce Chinese culture to children around the world. The Group is looking forward to these new contents bringing reasonable return to the Group and its partners.

To deal with business growth and increase market share, the Group’s subsidiary in Chongqing has already commenced its production and employs more than 140 employees. The production centres in Shenzhen and Chongqing are now using advanced network and IT technology to establish an integrated operation platform so that employees, facilities and management system at these two locations can interflow together. This multi-site CG production increases the Group’s ability in the CG business to expand the capacity and price adjustment, the Group can react promptly to changes in the market.

The Group is also actively developing new clients, several projects with world leading entertainment bands for animated television series and films are under negotiation. Many clients have expressed the desire for long-term and multi-project relationship with the Group based on the demonstrated track record of providing reliable, cost effective, high quality CG production services to international market.

CG training

The CG training division continues to serve as a core component of its strategy towards professionalism and strengthening the training materials, records nearly 100% employment of the graduates continuously for several classes, and receives more support from the PRC government.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

After completion of upgrading the existing training courses for the knowledge of CG production, on-line and other games, the Group has organised new professional training programmes for other areas, including after effects, virtual reality and case studies for animation to cope with the market needs. Besides, the Group continues to co-operate with famous high schools in the PRC for organising “Skill and Qualification” training programme to their students to achieve their aim to get “One Course, Several Certificates”, and to train up their practical skills to get ready for work immediately after graduation.

In addition to the Group’s training centres in Shanghai and Shenzhen and direct operation training sites in Chongqing and Wuxi, the Group set up a new direct operation training site in Guangzhou and plans to set up one more site in the North to cover all four corners of the PRC. At the same time, the Group will further develop its training network to those areas in the PRC with developed animation industry.

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 businesses, the Group would proactively grasp the development opportunities by providing clients consultancy service on investing in high potential businesses. Other than the finance and assets investment and management business which the Group has acquired the two nonperforming loans, the Group plans to invest in and manage an agriculture fund.

Finance leasing

In view of the coming recovery of the global economy and introducing a number of measures to stimulate its economic growth by the central government in the PRC, economy of the PRC continues to bloom and the finance leasing business in the PRC will further expand. The Group will also continue focusing on finance leasing of large development projects and explore different financing methods to lower its finance costs.

Besides, the Group has completed the acquisition of the remaining 20% equity interest in the registered capital of the subsidiary operating this division, this enable the Group to increase its participation in this business and seize the opportunities presented in this business in the PRC without the hindrances of the involvement of a minority shareholder.

Property Investment and Management

The Group is receiving stable cash flow from rental income and expects that the investment properties will continue to contribute stable cash return in the foreseeable future.

• 106 -

FINANCIAL INFORMATION OF THE AIRCRAFTs

APPENDIX II

VALUATION OF THE AIRCRAFTs

				As at
			29	september 2009
Valuation		RMB		226,000,000
Equivalent	to approximately	HK$		256,818,000

The valuation of the Aircrafts as at 29 September 2009 is based on the valuation report issued by the Independent Valuer as set out in Appendix III to this circular.

The Directors engaged Cachet Certified Public Accountants Limited, the reporting accountants of the Company, to perform a factual findings procedure in respect of the valuation of the Aircrafts in accordance with Hong Kong Standard on Related Services 4400 “Engagements to Perform Agreed Upon Procedures Regarding Financial Information” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The reporting accountants agreed amount included in the valuation as set out in paragraph headed Valuation of the Aircrafts of Appendix II to this circular to the valuation report issued by the Independent Valuer as set out in Appendix III to this circular. The reporting accountants reported that they found that such information was in agreement with the valuation report issued by the Independent Valuer. The procedure performed by the reporting accountants do not constitute an assurance engagement performed in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the HKICPA. Accordingly, the reporting accountants do not express any assurance on the valuation of the Aircrafts.

• 107 -

VALUATION REPORT OF THE AIRcRAFTs

APPENDIX III

==> picture [308 x 49] intentionally omitted <==

Room 2703 Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

6 November 2009

The Directors

shougang concord Grand (Group) Limited Rooms 1101-1104 11th Floor, Harcourt House 39 Gloucester Road Wanchai Hong Kong

Dear Sirs,

In accordance with the instructions from Shougang Concord Grand (Group) Limited (the “ company ”), we have completed the valuation of three aircrafts (“ the Aircrafts ”) exhibited to us as that held by Deer Air Co., Ltd. (“ Deer Air ”). We confirm that we have carried out an inspection, made relevant enquiries and obtained such further information as we considered necessary for the purpose of providing you with our opinion of the fair market value of the Aircrafts as at 29 September 2009 (“ the Date of Valuation ”).

It is our understanding that this valuation is used for a major transaction.

BAsIs OF VALUATION

The valuation is our opinion of the fair market value which we would define as intended to mean “the estimated amount expressed in terms of money that may be reasonably expected for assets in exchange between a willing buyer and a willing seller with equity to both, neither being under any compulsion to sell or buy, both fully aware of all relevant facts, as of the Date of Valuation.”

Our estimate of fair market value is established based on the assumption that the asset could be sold in the open market for its continued use. An estimate of fair market value arrived at on the premise of continued use does not represent the amount that might be realized from piecemeal disposition of the assets in the marketplace or from an alternative use of the assets.

• 108 -

VALUATION REPORT OF THE AIRcRAFTs

APPENDIX III

DEscRIPTION OF THE APPRAIsED AssETs

The Aircrafts comprises three Hawker 800-XP aircrafts. Details of the Aircrafts are shown as follows:

Principle Particulars

	1	2	3
Aircraft Model	Hawker 800XP	Hawker 800XP	Hawker 800XP
Serial Number	258470	258501	258525
Manufacturer	Raytheon	Raytheon	Raytheon
Origin	USA	USA	USA
Year of Manufacture	2000	2000	2001
Country of Registry	China	China	China
Aircraft Registration	B-3391	B-3392	B-3393
Call Sign	FQKR	EMBL/B-3992	FPHL/B-3993
Seating capacity	Crew – 2	Crew – 2	Crew – 2
	Passenger – 8	Passenger – 8	Passenger – 8
Maximum Payload (pounds)	2,070	2,070	2,070
Length (metres)	15.5	15.5	15.5
Height (metres)	5.31	5.31	5.31
Span (metres)	15.66	15.66	15.66
Maximum Speed (km/hour)	863	863	863
Maximum Range (km)	4,800	4,800	4,800
Maximum Baggage Weight (kg)	160	160	160
Engine	Honeywell	Honeywell	Honeywell
	TFE731-5BR	TFE731-5BR	TFE731-5BR
Engine time (approximate hours)	6,050	5,230	4,690
Year of Purchase (by Deer Air)	2000 (March)	2000 (December)	2001 (June)
Airframe time (approximate hours)	6,050	5,230	4,690

As at the Date of Valuation, the Aircrafts were parked at Hainan and Shanghai, the PRC. The Aircrafts were found to be in good operating condition. We have assumed that the Aircrafts can perform efficiently according to the purposes for which they were designed and built.

VALUATION METHODOLOGY

To develop our opinion of value, we considered the three generally accepted approaches to value: the depreciated replacement cost, market comparable and income capitalization. The theory of these approaches is outlined as follows:

The depreciated replacement cost approach

The depreciated replacement cost approach establishes value based on the cost of reproducing or replacing the assets, less depreciation from physical deterioration, and functional and economic/external obsolescence.

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VALUATION REPORT OF THE AIRcRAFTs

APPENDIX III

Physical deterioration is the loss in value of an asset from wear and tear of asset in operation and exposure to various elements. Functional obsolescence is the loss in value is due to factors inherent in the asset itself and changes in design, materials, or process that result in inadequacy, over capacity, excess construction, lack of functional utility or excess operating costs, etc. Economic obsolescence is an incurable loss in value caused by unfavorable external conditions.

The market comparable approach

The market comparable approach involves the collection of market data pertaining to the subject assets being appraised. The primary intent of the market comparable approach is to determine the desirability of the assets through recent sales or offerings of similar assets currently on the market in order to arrive at an indication of the most probable selling price for the assets being appraised.

If the comparable sales are not exactly similar to the asset being appraised, adjustments must be made to bring them as closely in line as possible with the subject asset.

The income capitalization approach

In the income capitalization approach considers value in relation to the present worth of future benefits derived from ownership and is usually measured through the capitalization of a specific level of income.

In any appraisal study, all three approaches to value must be considered, as one or more may be applicable to the subject asset. In some situations, elements of two or three approaches may be combined to reach an opinion of value.

INVEsTIGATION AND ANALYsIs

Before arriving at our opinion of value, we personally inspected the Aircrafts and studied the market conditions including recent market transactions of similar aircrafts in China.

In this valuation, we have excluded the income capitalization approach due to the lack of sufficient financial data in respect of the Aircrafts which are essential materials for the adoption of income capitalization approved. Nevertheless, we have adopted both the depreciated replacement cost approach and the market comparable approach in this valuation.

Under the depreciated replacement cost approach, we have estimated the replacement cost, new of similar aircrafts, deducted from which the deterioration and obsolescence that reflect observed condition, current use and planned future utilization.

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VALUATION REPORT OF THE AIRcRAFTs

APPENDIX III

Under the market comparable approach, comparison based on recent transactions of used aircrafts has been made. Comparable aircrafts of similar specifications are analyzed and weighed against all the respective advantages and disadvantages in order to arrive at a fair comparison of market value.

During the physical inspection, any deferred maintenance, physical wear and tear, operation malfunctions, lack of utility, or other observable conditions distinguishing the appraised Aircrafts from like kind in new condition were noted and made part of our judgment in arriving the value.

We did not investigate any financial data pertaining to the present or prospective earning capacity of the operation in which the appraised assets are used.

We accepted the information furnished as properly describing the Aircrafts to be appraised. We have relied to a very considerable extend in such records, listings, specifications and documents as far as they are relevant in arriving at our opinion of value. We visited the location to verify the existence of the Aircrafts and to gather information relating to the condition and utility of the Aircrafts.

We do not investigate any industrial safety environment and health related regulations in association with this particular manufacturing process. It is assumed that all-necessary license, procedures, and measures were implemented in accordance with the Government legislation and guidance.

It is assumed that are no hidden or unapparent conditions which would render it more or less valuable.

For the purpose of this valuation, we have been provided with an Aircraft Purchase Agreement dated 21 March 2000 entered into between Raytheon Aircraft Company as seller and Hainan Airlines Company Limited (of which Deer Air is a subsidiary) as buyer. Moreover, we have obtained the following licenses or certificates issued by Civil Aviation Administration of China in relation to the Aircrafts,

• Certificates of Aircraft Registration issued on 1 February 2007;

• Aircraft Station Licenses; and

• Standard Airworthiness Certificates.

OPINION OF VALUE

After a thorough analysis of the Aircrafts and review of the information made available to us, it is our opinion that as at 29 September 2009, the fair market value in continued use of the Aircrafts, is reasonably represented by the amount of RENMINBI YUANs TWO HUNDRED AND TWENTY sIX MILLION ONLY (RMB226,000,000).

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VALUATION REPORT OF THE AIRcRAFTs

APPENDIX III

We hereby certify that we have neither present nor prospective interest in the appraised assets or the value reported.

This valuation report is issued subject to our General Service Conditions.

Yours faithfully, For and on behalf of

GREATER cHINA APPRAIsAL LIMITED

K. K. Ip BLE LLD Chartered Valuation Surveyor Registered Professional Surveyor Managing Director

Investigation and report by

Andy H.F. chu BEng

Candidate Member of American Society of Appraisers

• 112 -

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

• (A) UNAUDITED PRO FORMA CONsOLIDATED sTATEMENT OF AssETs AND LIABILITIEs OF THE GROUP

INTRODUCTION

The accompanying unaudited pro forma consolidated statement of assets and liabilities of the Group (the “Unaudited Pro Forma Consolidated Statement of Assets and Liabilities”) has been prepared to illustrate the effects of transactions contemplated under the Aircrafts Finance Lease Arrangement might have on the financial position of the Group.

The Unaudited Pro Forma Consolidated Statement of Assets and Liabilities has been prepared based on the unaudited consolidated statement of financial position of the Group as at 30 June 2009 as extracted from the unaudited interim report of the Company for the six months ended 30 June 2009, and adjusted in accordance with the pro forma adjustments described in the notes thereto as if the transactions contemplated under the Aircrafts Finance Lease Arrangement had been completed on 30 June 2009.

The Unaudited Pro Forma Consolidated Statement of Assets and Liabilities has been prepared based on a number of assumptions, estimates, uncertainties and currently available information, and is provided for illustrative purposes only. Accordingly, as a result of the nature of the Unaudited Pro Forma Consolidated Statement of Assets and Liabilities, it may not give a true picture of the actual financial position of the Group that would have been attained had the transactions contemplated under the Aircrafts Finance Lease Arrangement actually occurred on the dates indicated herein. Furthermore, the Unaudited Pro Forma Consolidated Statement of Assets and Liabilities does not purport to predict the Group’s future financial position.

The Unaudited Pro Forma Consolidated Statement of Assets and Liabilities should be read in conjunction with the financial information of the Group, as set out in Appendix I to the circular.

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APPENDIX IV PRO FORMA FINANCIAL INFORMATION OF THE GROUP

UNAUDITED PRO FORMA CONsOLIDATED sTATEMENT OF AssETs AND LIABILITIEs

				The Group’s
				unaudited
				pro forma
				consolidated
	The Group’s			statement of
	unaudited			assets and
	consolidated			liabilities after
	statement			the Aircrafts
	of assets and			Finance Lease
	liabilities			Arrangement
	as at	Pro forma		as at
	30 June 2009	adjustments		30 June 2009
	HK$’000	HK$’000	Notes	HK$’000
Non-current assets
Property, plant and equipment	88,499			88,499
Prepaid lease payments	7,437			7,437
Investment properties	131,150			131,150
Goodwill	52,935			52,935
Available-for-sale investments	32,704			32,704
Interests in associates	21,567			21,567
Convertible loan receivable	115,818			115,818
Finance lease receivables	475,949	170,455	(ii)	646,404
Entrusted loan receivables	1,541			1,541
Restricted bank deposits	77,688			77,688
Pledged bank deposit	19,585			19,585
	1,024,873			1,195,328
Current assets
Inventories	33,638			33,638
Production work in progress	3,945			3,945
Amounts due from customers for
contract work	3,135			3,135
Finance lease receivables	619,863	56,818	(ii)	676,681
Entrusted loan receivables	50,837			50,837
Trade receivables	55,987			55,987
Prepayments, deposits and
other receivables	171,646			171,646
Prepaid lease payments	152			152
Held-for-trading investments	32,788			32,788
Pledged bank deposit	2,808			2,808
Bank balances and cash	230,266	4,830	(iii)	235,096
	1,205,065			1,266,713

• 114 -

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

				The Group’s
				unaudited
				pro forma
				consolidated
	The Group’s			statement of
	unaudited			assets and
	consolidated			liabilities after
	statement			the Aircrafts
	of assets and			Finance Lease
	liabilities			Arrangement
	as at	Pro forma		as at
	30 June 2009	adjustments		30 June 2009
	HK$’000	HK$’000	Notes	HK$’000
Current liabilities
Amounts due to customers for
contract work	1,023			1,023
Trade payables	30,528			30,528
Other payables and accruals	45,200			45,200
Income received in advance	46,388	1,610	(iii)	47,998
Rental and management
fee deposits received	1,071			1,071
Amount due to an associate	20,874			20,874
Tax liabilities	12,164			12,164
Borrowings	567,699	56,818	(i)	624,517
	724,947			783,375
Net current assets	480,118			483,338
Total assets less current
liabilities	1,504,991			1,678,666
Non-current liabilities
Income received in advance	12,323	3,220	(iii)	15,543
Borrowings	591,297	170,455	(i)	761,752
Security deposits received	60,168			60,168
Deferred tax liabilities	1,296			1,296
	665,084			838,759
Net assets	839,907			839,907

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APPENDIX IV PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Notes:

• (i) The adjustment represents the purchase of the Aircrafts at a consideration of RMB200,000,000 (equivalent to approximately HK$227,273,000) payable to Deer Air, which is financed by obtaining a bank loan repayable by 36 months.

• Since an amount of RMB50,000,000 (equivalent to approximately HK$56,818,000) will be repaid within one year, this shall be classified as a current liability. The remaining amount of RMB150,000,000 (equivalent to approximately HK$170,455,000) will be repaid after one year and shall be classified as a non-current liability.

• (ii) The adjustment represents the leaseback of the Aircrafts to Deer Air at a principal of RMB200,000,000 (equivalent to approximately HK$227,273,000) over a 36-month term.

• Since an amount of RMB50,000,000 (equivalent to approximately HK$56,818,000) will be settled within one year, this shall be classified as a current asset. The remaining amount of RMB150,000,000 (equivalent to approximately HK$170,455,000) will be settled after one year and shall be classified as a non-current asset.

• (iii) The adjustment represents a lease handling fee of RMB4,250,000 (equivalent to approximately HK$4,830,000) to be received upon the Lease Agreements becoming effective.

Since the lease handling fee shall be recognised as income over the 36-month lease term, an amount of approximately RMB1,417,000 (equivalent to approximately HK$1,610,000) shall be recorded as current income received in advance and the remaining amount of approximately RMB2,833,000 (equivalent to approximately HK$3,220,000) shall be recorded as non-current income received in advance.

• 116 -

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

(B) LETTER ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of the report, prepared for the purpose of incorporation in this circular, from Cachet Certified Public Accountants Limited in respect of the pro forma financial information of the Group as set out in this appendix:

6 November 2009

The Directors

shougang Concord Grand (Group) Limited

Dear Sirs,

We report on the unaudited pro forma financial information of Shougang Concord Grand (Group) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the Directors of the Company for illustrative purposes only, to provide information about how the completion of the purchase of the three Hawker 800-XP aircrafts (the “Aircrafts”) by South China International Leasing Co., Ltd., an indirect wholly-owned subsidiary of the Company, from 金鹿航空有限公司 (Deer Air Co., Ltd.) (“Deer Air”), an independent third party and a domestic airline in the People’s Republic of China (the “PRC”) (the “Sale and Purchase Agreement”), and the leaseback of the Aircrafts to Deer Air (the “Lease Agreements”, and together with the Sale and Purchase Agreement, the “Aircrafts Finance Lease Arrangement”), might have affected the financial information presented, for inclusion as Appendix IV to the circular of Company dated 6 November 2009 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out in Appendix IV to the Circular.

REsPECTIVE REsPONsIBILITIEs OF DIRECTORs OF THE COMPANY AND REPORTING ACCOUNTANTs

It is the responsibility of the Directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and 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 4.29(7) of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to whom those reports were addressed by us at the dates of their issue.

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 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

• 117 -

APPENDIX IV PRO FORMA FINANCIAL INFORMATION OF THE GROUP

of the Company. This engagement did not involve independent examination of any of the underlying financial information. We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the pro forma financial information has been properly compiled by the Directors of Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The unaudited pro forma financial information is for illustrative purposes only, based on the judgements and assumptions of the Directors of the Company, and, because of its hypothetical nature, does not provide any assurance of indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 30 June 2009 or at any future date.

Opinion

In our opinion:

• (a) the unaudited pro forma financial information has been properly compiled by the Directors of the Company on the basis stated;

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

• (c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully

Cachet Certified Public Accountants Limited

Certified Public Accountants

Chan Yuk Tong

Practising Certificate Number P03723

Hong Kong

• 118 -

GenerAl informAtion

Appendix V

1. reSponSiBilitY StAtement

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable 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 the shares and underlying shares of the Company

Capacity in which interests name of director are held	percentage of total number of shares/underlying interests as shares held in the Company to the issued interests share capital interests under equity total of the in shares derivatives interests Company*
Wang Qinghai Beneficial owner Cao Zhong Beneficial owner Chen Zheng Beneficial owner Wang Tian Beneficial owner Yuan Wenxin Beneficial owner Leung Shun Sang, Tony Beneficial owner Tam King Ching, Kenny Beneficial owner Zhou Jianhong Beneficial owner Yip Kin Man, Raymond Beneficial owner	– 11,368,000 11,368,000 0.99% – 22,868,000 22,868,000 1.99% – 18,368,000 18,368,000 1.60% 4,000,000 11,094,000 15,094,000 1.31% 4,000,000 15,094,000 19,094,000 1.66% 8,278,000 19,368,679 27,646,679 2.40% – 2,286,000 2,286,000 0.20% – 2,286,000 2,286,000 0.20% – 2,286,000 2,286,000 0.20%

• 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, Shares are issuable. The share options are personal to the respective Directors.

• 119 -

GenerAl informAtion

Appendix V

• (ii) Long positions in the shares and underlying shares of Global Digital Creations Holdings Limited (“ GDC ”), an associated corporation of the Company

Capacity in which interests name of director are held	percentage number of shares/underlying of total shares held in GdC interests as interests to the issued interests under equity total share capital in shares derivatives interests of GdC*
Cao Zhong Beneficial owner Chen Zheng Beneficial owner Wang Tian Beneficial owner Leung Shun Sang, Tony Beneficial owner Zhou Jianhong Beneficial owner	26,942,200 4,900,000 31,842,200 2.46% 8,718,200 4,900,000 13,618,200 1.05% 820 – 820 0.00% 20,008,200 4,900,000 24,908,200 1.92% 500,615 – 500,615 0.04%

• The relevant interests are unlisted physically settled options granted pursuant to GDC’s share option scheme adopted on 18 July 2003 (the “ GDC Scheme ”). Upon exercise of the share options in accordance with the GDC 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.

• (iii) Long positions in the shares and underlying shares of GDC Technology Limited (“ GDC Tech ”), an associated corporation of the Company

Capacity in which interests name of director are held	percentage number of shares/underlying of total shares held in GdC tech interests as interests to the issued interests under equity total share capital in shares derivatives interests of GdC tech*
Cao Zhong Beneficial owner Chen Zheng Beneficial owner Leung Shun Sang, Tony Beneficial owner	8,533,334 1,650,000 10,183,334 4.36% 8,533,334 1,650,000 10,183,334 4.36% 2,130,000 1,650,000 3,780,000 1.62%

• The relevant interests are unlisted physically settled options granted pursuant to GDC Tech’s share option scheme adopted on 19 September 2006 (the “ GDC Tech Scheme ”). Upon exercise of the share options in accordance with the GDC Tech Scheme, ordinary shares of HK$0.10 each in the share capital of GDC Tech are issuable. The share options are personal to the respective Directors.

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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 of the Company 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 Divisions 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).

(c) As at the latest practicable date:

• (i) none of the Directors had any direct or indirect interest in any assets which have been, since the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by, or leased to the Company or any of its subsidiaries, or are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries; and

• (ii) none of the Directors is materially interested in any contract or arrangement entered into by the Company or any of its subsidiaries which contract or arrangement is subsisting at the date of this circular and which is significant in relation to the business of the Group.

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(d) 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:

		description of
	name of entity whose	businesses of
	businesses were	the entity which
	considered to	were considered to	nature of
	compete or likely to	compete or likely to	interest of
	compete with the	compete with the	the director
name of director	businesses of the Group	businesses of the Group	in the entity
Wang Qinghai	Shougang Corporation#	Property investment	Director
Cao Zhong	China Shougang	Property investment	Director
	International Trade and
	Engineering Corporation#
	Shougang Holding#	Property investment	Director

• Such businesses may be carried out through the subsidiaries or associates of the entity concerned or by way of other forms of investments.

The Board is independent from the boards of the above-mentioned entities and is accountable to the Shareholders. Coupled with the diligence of its independent non-executive Directors whose views carry significant weight in the Board’s decisions, the Group is capable of carrying on its businesses independently of, and at arm’s length from, the businesses of these entities.

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.

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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:

Long positions in the Shares

			percentage of
			interests as to
		number of	the issued share
	Capacity in which	shares held	capital of the
name of Shareholder	interests are held	in the Company	Company	Note(s)
Shougang Holding	Interests of	489,450,710	42.50%	1
	controlled
	corporations
Wheeling Holdings	Beneficial owner	430,491,315	37.38%	1
Limited
(“Wheeling”)
Prime Success	Beneficial owner	58,959,395	5.12%	1
Investments Limited
(“prime Success”)
Cheung Kong (Holdings)	Interests of	133,048,717	11.55%	2, 3
Limited (“Cheung	controlled
Kong”)	corporations
Max Same	Beneficial owner	91,491,193	7.94%	2
Li Ka-shing	Interests of	133,048,717	11.55%	3
	controlled
	corporations,
	founder of
	discretionary
	trusts
Li Ka-Shing Unity	Trustee	133,048,717	11.55%	3
Trustee Company
Limited (“tUt1”)
Li Ka-Shing Unity	Trustee, beneficiary	133,048,717	11.55%	3
Trustee Corporation	of a trust
Limited (“tdt1”)
Li Ka-Shing Unity	Trustee, beneficiary	133,048,717	11.55%	3
Trustcorp Limited	of a trust
(“tdt2”)

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Notes:

1. Shougang Holding indicated in its disclosure form dated 28 September 2007 (being the latest disclosure form filed up to the Latest Practicable Date) that as at 25 September 2007, its interests included 430,491,315 and 58,959,395 Shares held by Wheeling and Prime Success respectively, both were wholly-owned subsidiaries of Shougang Holding.

2. Cheung Kong indicated in its disclosure form dated 26 February 2005 (being the latest disclosure form filed up to the Latest Practicable Date) that as at 23 February 2005, its interests included 91,491,193 Shares held by Max Same, a wholly-owned subsidiary of 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.

• (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		% of
registered	beneficial	name of member of	attributable
shareholder(s)	owner	the Group	interest
Zhou Lin	Zhou Lin	四方源創國際影視文化傳播(北京)有限公司	20.00%
		(Concord Creation International
		(Beijing) Company Limited*)
		(“Concord Creation”)
Yang Yong	Yang Yong	廣東四方源創動畫製作有限公司	20.00%
		(Concord Creation Animation
		Production Guangdong Company Limited*)
		(“Guangdong Creation”)
Concord Creation	Zhou Lin	Guangdong Creation	16.00%
			(Note 1)
Concord Creation	Zhou Lin	東陽市四方源創影視製作有限公司	20.00%
		(Dongyang Concord Creation	(Note 2)
		Film@TV Company Limited*)
		(“dongyang Concord Creation”)
Cao Zhong	Zhou Lin	東陽方源影視製作有限公司	20.00%
and Zhou Lin		(Dongyang Creation	(Note 3)
		Film@TV Company Limited*)
		(“dongyang Creation”)

• For identification purpose only

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GenerAl informAtion

name of	name of		% of
registered	beneficial	name of member of	attributable
shareholder(s)	owner	the Group	interest
Guangdong Creation	Zhou Lin	杭州四方源創動畫製作有限公司	16.00%
and Chen Zheng		(Concord Creation Animation	(Note 4)
		Production Hangzhou
		Company Limited*)
		(“Hangzhou Creation”)
Guangdong Creation	Yang Yong	Hangzhou Creation	20.00%
and Chen Zheng		(Note 5)
Greater Appeal	Greater Appeal	GDC Tech	22.47%
Investments Limited
(“Greater Appeal”)
GDC Tech	Greater Appeal	GDC Technology Pte Ltd	22.47%
			(Note 6)
GDC Tech	Greater Appeal	GDC Technology China Limited	22.47%
			(Note 6)
GDC Tech	Greater Appeal	GDC Technology (Hong Kong) Limited	22.47%
			(Note 6)
GDC Tech	Greater Appeal	GDC Technology (USA), LLC	22.47%
			(Note 6)
Chen Zheng and 環球數碼媒體科技 研究(深圳)有限公司	Greater Appeal	深圳市環球數碼科技有限公司 (“Shenzhen GdC tech”)	22.47% (Note 7)
(Institute of Digital
Medial Technology
(Shenzhen) Limited*)
(“Shenzhen idmt”)
Shenzhen GDC Tech	Greater Appeal	北京科創環球數碼技術有限公司	22.47%
		(“Beijing GdC tech”)	(Note 8)
天津渤海灣投資	Beihai Investment	天津首方投資管理有限公司	10.00%
管理有限公司		(Tianjin Capital Steel
(Tianjin Beihai		Investment Management
Bay Investment		Company Limited*)
Management
Company Limited*)
(“Beihai investment”)

• 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 Concord Creation was held as to 90.00% by Concord Creation. As Concord Creation was beneficially held as to 20.00% by Zhou Lin, Dongyang Concord 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 Concord Creation through another nominee, Zhou Lin has an aggregate interest of 20.00% in Dongyang Concord Creation.

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1. Dongyang Creation was beneficially held as to 100.00% by Concord Creation which included its beneficial interests of 80.00% and 20.00% held in Dongyang Creation through its nominees, Cao Zhong and Zhou Lin, respectively. As Concord Creation was beneficially held as to 20.00% by Zhou Lin, Dongyang Creation was deemed to be held as to 20.00% by Zhou Lin.

2. Hangzhou Creation was beneficially held as to 100.00% 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.

3. Hangzhou Creation was beneficially held as to 100.00% 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.

4. Each of GDC Technology Pte Ltd, GDC Technology China Limited, GDC Technology (Hong Kong) Limited and GDC Technology (USA), LLC was held as to 100.00% by GDC Tech. As GDC Tech was held as to 22.47% by Greater Appeal, each of GDC Technology Pte Ltd, GDC Technology China Limited, GDC Technology (Hong Kong) Limited and GDC Technology (USA), LLC was deemed to be held as to 22.47% by Greater Appeal.

5. Shenzhen GDC Tech was beneficially held as to 100.00% by GDC Tech which included its beneficial interests of 51.00% and 49.00% held in Shenzhen GDC Tech through its nominees, Chen Zheng and Shenzhen IDMT, respectively. As GDC Tech was held as to 22.47% by Greater Appeal, Shenzhen GDC Tech was deemed to be held as to 22.47% by Greater Appeal.

6. Beijing GDC Tech was beneficially held as to 100.00% by Shenzhen GDC Tech. As Shenzhen GDC Tech was deemed to be beneficially held as to 22.47% by Greater Appeal, Beijing GDC Tech was deemed to be held as to 22.47% by Greater Appeal.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company was aware of any other person or corporation who had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who/which 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.

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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:

• (i) the agreement dated 30 January 2009 entered into between 天津首方投資管理有限公司 (Tianjin Capital Steel Investment Management Company Limited) (“ tianjin Capital Steel ”, a 90% indirect subsidiary of the Company) and 中國東方資產管理公司石家莊辦事 處 (China Orient Asset Management Corporation Shijiazhuang Branch) (the “ Vendor ”) in relation to the acquisition by Tianjin Capital Steel of non-performing loans extended to 河北長天集團有限公司 (Hebei Chang Tian Group Limited) (“ Chang tian* ”) and interests accrued thereon with a carrying amount of approximately RMB41.5 million (equivalent to approximately HK$47.1 million) for a consideration of RMB9 million (equivalent to approximately HK$10.2 million);

• (ii) the agreement dated 30 January 2009 entered into between Tianjin Capital Steel and the Vendor in relation to the acquisition by Tianjin Capital Steel of the non-performing loans extended to 河北劉伶醉酒廠 (Hebei Liu Ling Zui Distillery*), an enterprise established in the PRC and a wholly-owned subsidiary of Chang Tian, and interests accrued thereon with a carrying amount of approximately RMB66.5 million (equivalent to approximately HK$75.6 million) for a consideration of RMB19 million (equivalent to approximately HK$21.6 million);

• (iii) the agreement dated 9 January 2009 entered into between Shenzhen IDMT, a wholly foreign owned enterprise established in the PRC and an indirect non-wholly owned subsidiary of the Company, and 中國電影集團公司 (China Film Group Corporation) (“ China film ”) in relation to the disposal of 445 units of digital cinema equipments by Shenzhen IDMT to China Film for cash at a total consideration of RMB223,791,600 (equivalent to approximately HK$254 million);

• (iv) the agreement dated 23 December 2008 entered into between GDC Holdings Limited (“ GdC Holdings ”), an indirect non-wholly owned subsidiary of the Company, Southern International Limited (“ Southern international ”) and Keen Front Group Limited in relation to the granting of the facility of RMB100 million (equivalent to approximately HK$113.6 million) by GDC Holdings and/or its designated company to Southern International, and the granting of call options by Southern International to GDC Holdings and/or its designated company;

• (v) the supplemental agreement dated 22 September 2008 entered into between Shougang GDC Media Holding Limited, an indirect non-wholly owned subsidiary of the Company, and China Film, in relation to the sale of digital cinema equipments to 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), which was subsequently agreed to be terminated by both parties on 28 November 2008;

• For identification purpose only

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• (vi) the share transfer agreement dated 20 August 2008 entered into between 首方投資管理(深 圳)有限公司 (Capital Steel Investment (China) Ltd.), a wholly foreign owned enterprise established in the PRC and an indirect wholly-owned subsidiary of the Company, and 深 圳市嘉殷達投資有限公司 (Shenzhen Jiayinda Investment Company Limited) (“ Shenzhen Jiayinda ”), in respect of the transfer of 20% equity interest in the registered capital of South China Leasing from Shenzhen Jiayinda to Capital Steel Investment (China) Ltd. at a consideration of RMB31,755,150 (equivalent to approximately HK$36.1 million); and

• (vii) the co-operation agreement dated 12 August 2008 entered into between the Company and 中國光大投資管理公司 (China Everbright Investment Management Corporation) for the establishment of a joint venture company in Tianjin, the PRC to engage in the acquisition and management of non-performing assets in the PRC.

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.

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-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 Production and Partners Multimedia, SAS (“ p&pm ”) 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 had 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 Coproduction 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, and claim 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

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Appendix V

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. GDC Entertainment has written to the arbitrator seeking directions for the further conduct of the arbitration, including the service of pleadings in the arbitration.

Effective from 1 May 2008, GDC Entertainment has been struck off but can be restored at any time up to ten years after the strike off date.

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.

6. expertS And ConSentS

name Qualification Cachet Certified Public Certified Public Accountants Accountants Limited Greater China Appraisal Limited An independent professional property valuer

name

Each of Cachet Certified Public Accountants Limited and Greater China Appraisal Limited 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 Cachet Certified Public Accountants Limited and Greater China Appraisal Limited 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 Cachet Certified Public Accountants Limited and Greater China Appraisal Limited did not have any direct or indirect interest in any asset which had been, since 31 December 2008, 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 are proposed to be acquired or disposed of by or leased to any member of the Group.

7. miSCellAneoUS

• (a) The registered office of the Company is at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda and the principal place of business of the Company in Hong Kong is at Rooms 1101-4, 11th Floor, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong.

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• (b) The Company’s Hong Kong branch share registrars and transfer office is Tricor Tengis Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (c) 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 Chartered Secretaries and an associate member of the Hong Kong Institute of Bankers. She holds a master degree in business administration and a master degree in arts.

• (d) The English text of this circular shall prevail over the Chinese text.

8. doCUmentS AVAilABle for inSpeCtion

Copies of the following documents will be available for inspection during normal business hours at the Company’s principal office in Hong Kong at Rooms 1101-4, 11th Floor, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong from the date of this circular up to and including 23 November 2009:

• (a) the bye-laws of the Company;

• (b) the material contracts referred to under the section headed “Material Contracts” in this appendix;

• (c) the written consents referred to under the section headed “Experts and Consents” in this appendix;

• (d) the annual reports of the Company for years ended 31 December 2007 and 31 December 2008 and the interim report of the Company for the six months ended 30 June 2009;

• (e) the valuation report issued by Greater China Appraisal Limited on the Aircrafts as set out in Appendix III to this circular;

• (f) the letter from the reporting accountants regarding the un-audited pro forma financial information of the Group as set out in Appendix IV to this circular;

• (g) the Sale and Purchase Agreement; and

• (h) the Lease Agreements.

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