THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in the Company, you should at once hand this circular and the accompanying form of proxy to the purchaser or to the licensed securities dealer or registered institution in securities or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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

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

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SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 8083)

PROPOSED RIGHTS ISSUE OF NOT LESS THAN 1,637,829,232 RIGHTS SHARES AND NOT MORE THAN 1,656,925,232 RIGHTS SHARES AT HK$0.01 PER RIGHTS SHARE IN THE PROPORTION OF FOUR RIGHTS SHARES FOR EVERY EXISTING SHARE HELD AND THE WHITEWASH WAIVER

Underwriter

Mr. Cheung Wai

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

South China Capital Limited

A letter from the Board is set out on page 5 to 22 of this circular. A letter from the Independent Board Committee is set out on page 23 of this circular. A letter from South China Capital, the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 24 to 42 of this circular.

A notice convening the SGM to be held at Function Room III, Ground Floor, City Garden Hotel, 9 City Garden Road, North Point, Hong Kong at 10:00 am on Friday, 22 February 2008 is set out on pages 129 to 130 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the share registrar of the Company, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17/F., Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of SGM. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM should you so wish.

It should be noted that the Underwriting Agreement (as defined herein) contains provisions granting the Underwriter (as defined herein), by notice in writing, the right to terminate its obligations thereunder on the occurrence of certain events. These events are set out in the paragraph headed “Termination of the Underwriting Agreement” on pages 13 to 14 of this circular. If the Underwriting Agreement is terminated by the Underwriter or does not become unconditional, the Rights Issue (as defined herein) will not proceed.

The Shares (as defined herein) will be dealt in on an ex-rights basis from Monday, 18 February 2008. Dealing in the Rights Shares in the nil-paid form will take place from Wednesday, 27 February to Wednesday, 5 March 2008 (both dates inclusive). If the conditions of the Rights Issue are not fulfilled on or before Wednesday, 12 March 2008 (or such later time and/or date as the Company and the Underwriter may agree in writing), or the Underwriting Agreement is terminated, the Rights Issue will not proceed and the Rights Issue will lapse.

Any person contemplating buying or selling the Shares from the date of the Announcement (as defined herein) up to the date on which all the conditions of the Rights Issue are fulfilled, and any dealings in the Rights Shares in their nil-paid form between Wednesday, 27 February to Wednesday, 5 March 2008 (both dates inclusive), shall bear the risk that the Rights Issue may not become unconditional or may not proceed.

Any shareholder or other persons contemplating dealings in the Shares or nil-paid Rights shares, who is in any doubt about his/her/its position, is recommended to consult his/her/its own professional advisers.

* For identification purposes only

28 January 2008

CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (“GEM”) OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “EXCHANGE”)

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

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

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

– i –

	Page
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	iii
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Letter from South China Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix I – Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43
Appendix II – Unaudited Pro-forma Financial Information. . . . . . . . . . . . . . . . . .	103
Appendix III – Additional Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .	112
Appendix IV – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	115
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	129

Accompany document – Form of Proxy for the SGM

– ii –

EXPECTED TIMETABLE

The expected timetable for the Rights Issue set out below is indicative. Any consequential changes to the expected timetable will be published by way of public announcement.

2008

Despatch of circular with notice of SGM to Shareholders . . . . . . . . . . . Monday, 28 January Last day of dealings in existing Shares on a cum-rights basis . . . . . . . . Friday, 15 February Commencement date of trading on an ex-rights basis . . . . . . . . . . . . . Monday, 18 February Latest time for lodging transfers of Shares in order to qualify for the Rights Issue . . . . . . . . . . . . . 4:00 p.m. on Tuesday, 19 February Register of members closes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Wednesday to Friday) 20 February to 22 February (both days inclusive) Latest time for lodging forms of proxy for the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Wednesday, 20 February SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Friday, 22 February Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 22 February Announcement of results of the SGM . . . . . . . . . . . . . . by 11:00 p.m. on Friday, 22 February Despatch of the Rights Issue Documents . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 25 February Register of members re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 25 February First day of dealings in nil-paid Rights Shares . . . . . . . . . . . . . . . . . Wednesday, 27 February Latest time for splitting nil-paid Rights Shares . . . . . . . . . . 4:00 p.m. on Friday, 29 February Last day of dealings in nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . Wednesday, 5 March Latest time for acceptance of, and payment for Rights Shares and application for excess Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4:00 p.m. on Monday, 10 March Latest time for terminating the Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . .4:00 p.m. on Wednesday, 12 March Announcement of results of acceptance and excess applications of the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 14 March Refund cheques in respect of wholly or partially unsuccessful applications for excess Rights Shares to be despatched on or before . . . . . . . . . . . . . . . . . . . . . . . Monday, 17 March

Certificates for fully-paid Rights Shares expected to be dispatched on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 17 March Dealings in fully-paid Rights Shares on the Stock Exchange to commence on . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 19 March

– iii –

DEFINITIONS

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

“Announcement”	an announcement of the Company dated 18 December
	2007
“associates”	has the meaning ascribed to it under the GEM Listing
	Rules
“Board”	the board of Directors
“business day”	any day (other than a Saturday) on which commercial
	banks are generally open for ordinary business in Hong
	Kong
“CCASS”	the Central Clearing and Settlement System established
	and operated by HKSCC
“Companies Ordinance”	the Company Ordinance (Chapter 32 of the Laws of
	Hong Kong)
“Company”	SYSCAN Technology Holdings Limited, a company
	incorporated in Bermuda with limited liability and the
	shares of which are listed on the Stock Exchange
“Director(s)”	director(s) of the Company
“Executive”	the Executive Director of the Corporate Finance
	Division of the SFC or any delegate of the Executive
	Director
“Final Acceptance Date”	10 March 2008 or such other date as Mr. Cheung and
	the Company may agree as the last date for acceptance
	and payment in respect of provisional allotments under
	the Rights Issue
“GEM”	the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	the Rules Governing the Listing of Securities on the
	GEM
“Group”	the Company and its subsidiaries
“Hong Kong”	Hong Kong Special Administrative Region of the
	People’s Republic of China

– 1 –

DEFINITIONS

“Independent Board Committee” an independent committee of the Board consisting of three independent non-executive Directors to advise the Independent Shareholders in respect of the Rights Issue and the Whitewash Waiver
“Independent Financial Adviser” or “South China Capital”
South China Capital Limited being a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity as set out in Schedule 5 to the SFO and an independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders
“Independent Shareholder(s)” shareholder(s) of the Company, other than Mr. Cheung and Simrita Investments Limited, any of their associates and parties acting in concert with any of them and any other persons interested or involved in the Rights Issue and the Underwriting Agreement and the Whitewash Waiver
“Last Trading Day”
11 December 2007, being the last trading day before the suspension of the trading of the Shares on the Stock Exchange prior to the release of this announcement
“Latest Practicable Date” 25 January 2008, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Mr. Cheung” or “Underwriter” Mr. Cheung Wai, the chairman and a substantial shareholder of the Company through his personal and corporate interests holds 41.18% existing issued share capital of the Company
“Options” the share options granted by the Company to subscribe for an aggregate of 4,774,000 Shares outstanding as at the date of this announcement pursuant to the share option scheme(s) adopted by the Company
“Overseas Shareholders” Shareholders with registered address (as shown in the register of members of the Company on the Record Date) which are outside Hong Kong

“PRC” the People Republic of China, which for the purpose of this circular, shall exclude Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

– 2 –

DEFINITIONS

“Prospectus”	the prospectus to be issued by the Company in relation
	to the Rights Issue
“Qualifying Shareholder(s)”	the Shareholder(s), other than the Overseas
	Shareholder(s), whose name(s) appear(s) on the
	register of members of the Company on the Record
	Date
“Record Date”	22 February 2008 or such other date as may be agreed
	between the Company and Mr. Cheung, being the
	record date for determining entitlement to the Rights
	Issue
“Relevant Period”	the period commencing on 18 June 2007 (being the
	date falling six months immediately prior to the date
	of Announcement) and ending on the Latest Practicable
	Date
“Rights Issue”	the proposed issue of the Rights Shares on the basis of
	four Rights Shares for every existing Share held on
	the Record Date at the Subscription Price, pursuant to
	the terms and conditions of the issue
“Rights Issue Documents”	the Prospectus, the provisional allotment letter and
	the form of application for excess Rights Shares
“Rights Share(s)”	new Share(s) to be allotted and issued in respect of
	the Rights Issue
“SFC”	Securities and Futures Commission of Hong Kong
“SFO”	Securities and Futures Ordinance, Chapter 571 of the
	laws of Hong Kong
“SGM”	the special general meeting of the Company to be
	convened to approve,inter alia, the Rights Issue and
	the Whitewash Waiver
“SGM Documents”	circular and proxy form to be dispatched to
	Shareholders for the purpose of,inter alia, convening
	the SGM
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital
	of the Company
“Shareholder(s)”	holder(s) of the Share(s)

– 3 –

DEFINITIONS

“Share Options” options granted by the Company to subscribe for Shares pursuant to the Company’s share option scheme A, share option scheme B and share option scheme C which was adopted on 2 March 2000, 2 March 2000 and 26 April 2002 respectively

“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Subscription Price” the subscription price of HK$0.01 per Rights Share “Takeovers Code” The Hong Kong Code on Takeovers and Mergers
“Trading Day” a day on which the Stock Exchange is open for trading

“Underwriting Agreement” the conditional agreement dated 11 December 2007 entered into between the Company and Mr. Cheung relating to the underwriting and other arrangements in respect of the Rights Issue (as supplemented by a letter dated 17 December 2007 entered into by the same parties amending certain terms of the Rights Issue)

“Whitewash Waiver” a waiver from the Executive pursuant to Note 1 to the Notes on dispensations from Rule 26 of the Takeovers Code in respect of the obligation of Mr. Cheung and parties acting in concert with him to make a mandatory general offer for all the Shares not already owned by Mr. Cheung or parties acting in concert with him which would otherwise arise as a result of Mr. Cheung subscribing for Rights Shares under the terms of the Underwriting Agreement

“HK$” Hong Kong dollars, the lawful currency of Hong Kong “%” per cent.

The contents of the Company’s website will not form part of this circular. The Directors will not be responsible for the accuracy or completeness of the information of third parties included in this circular.

For the purpose of this circular, unless otherwise indicated, the exchange rates at HK$7.8=US$1.00 and HK$1=RMB1 have been used, where applicable, for the purpose of illustration only and do not constitute a representation that any amount has been, could have been or may be exchanged.

For ease of reference, the names of certain PRC entities have been included in this circular in both English and Chinese languages. The English names are the unofficial translation of their respective Chinese names, and in the event of any inconsistency, the Chinese version shall prevail.

– 4 –

LETTER FROM THE BOARD

==> picture [42 x 47] intentionally omitted <==

SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 8083)

Executive Directors: Cheung Wai Zhang Ming

Independent Non-Executive Directors: Fong Chi Wah Jin Qingjun Wang Ruiping

Registered office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Head Office and Principal Place of Business: Unit C, 21st Floor Seabright Plaza 9–23 Shell Street North Point Hong Kong

28 January 2008

To the Shareholders,

Dear Sir or Madam,

INTRODUCTION

Proposed Rights Issue

It was announced in the Announcement that (i) on 18 December 2007, the Company proposes to raise not less than approximately HK$16.38 million and not more than approximately HK$16.57 million before expenses by way of the Rights Issue of not less than 1,637,829,232 Rights Shares and not more than 1,656,925,232 Rights Shares at a price of HK$0.01 per Rights Share on the basis of four Rights Shares for every existing Share held on the Record Date.

* For identification purposes only

– 5 –

LETTER FROM THE BOARD

The net proceeds of the Rights Issue will amount to not less than approximately HK$14.63 million and not more than approximately HK$14.82 million. The Company intends to use the net proceeds from the Rights Issue as general working capital.

The Company will provisionally allot four Rights Shares in nil-paid form for every existing Share held by the Qualifying Shareholders on the Record Date. Fractional entitlements will not be allotted but will be aggregated and sold for the benefit of the Company. As at the Latest Practicable Date, the Options were outstanding. Save for the Options, there were no outstanding options, warrants or securities convertible or exchangeable into Shares as at the date hereof.

The Rights Shares (other than the Rights Shares to be allotted in respect of the Shares beneficially owned by Mr. Cheung) will be fully underwritten by Mr. Cheung, based on the terms and conditions set out in the Underwriting Agreement. Details of the major terms and conditions of the Underwriting Agreement are set out in the section headed “Underwriting Arrangements” of this circular.

Whitewash Waiver

In the event that Mr. Cheung is called upon to take up his obligations under the Underwriting Agreement in full, the aggregate shareholding interests of Mr. Cheung and parties acting in concert with him will be increased from about 41.18% as at the Latest Practicable Date to about 88.24% immediately after completion of the Rights Issue (assuming no Share Options are exercised before the Record Date). Under Rule 26 of the Takeovers Code, the fulfillment of Mr. Cheung’s proposed underwriting commitment will trigger a mandatory offer by Mr. Cheung and parties acting in concert with him for all the securities of the Company other than those already owned by Mr. Cheung and parties acting in concert with him. An application has been made by Mr. Cheung and parties acting in concert with him to the Executive for the Whitewash Waiver from the obligation to make a mandatory general offer for the Shares as a result of the Rights Issue and any Rights Shares to be taken up under the Underwriting Agreement pursuant to Note 1 of the Notes on Dispensations from Rule 26 of the Takeovers Code. The Executive has indicated the Whitewash Waiver will be granted subject to the approval of the Independent Shareholders on a vote taken by way of a poll at the SGM. If the Whitewash Waiver is not granted by the Executive, the Rights Issue will not proceed.

General

An Independent Board Committee comprising the independent non-executive Directors, namely Mr. Fong Chi Wah, Mr. Jin Qingjun (who has an interest in 50,000 Shares of the Company as at the Latest Practicable Date), Mr. Wang Ruiping, has been established to advise the Independent Shareholders on the terms of the Rights Issue and the Whitewash Waiver. In connection therewith, the independent financial adviser, South China Capital Limited, has been appointed to advise the Independent Board Committee and Independent Shareholders on the terms of the Rights Issue and the Whitewash Waiver.

– 6 –

LETTER FROM THE BOARD

The purpose of this circular is to set out, among other things, (i) details of the Rights Issue and the Whitewash Waiver; (ii) a letter from South China Capital containing its advice to the Independent Board Committee on the Rights Issue and Whitewash Waiver; (iii) the recommendation of the Independent Board Committee to the Shareholders regarding the Rights Issue and Whitewash Waiver; and (iv) a notice of SGM.

THE RIGHTS ISSUE

Issue Statistics

Basis of Rights Issue: Four Rights Shares for every Share held on the Record Date Number of Shares in issue: 409,457,308 Shares as at the Latest Practicable Date Number of Shares which Up to 4,774,000 Shares may be issued pursuant to the share option scheme(s): Number of Rights Shares: Not less than 1,637,829,232 Rights Shares and not more than 1,656,925,232 Rights Shares Subscription Price: HK$0.01 per Rights Share, payable in full upon acceptance

The number of Rights Shares which may be issued pursuant to the Rights Issue will be increased in proportion to any additional Shares which will be issued and allotted on or before the Record Date, including Shares which may be issued and allotted to holders of Share Options pursuant to an exercise of the subscription rights attaching to the Share Options. As at the date of this circular, there were outstanding Share Options for up to 4,774,000 Shares which may be exercised on or before the Record Date. If all of the subscription rights attaching to such Share Options are exercised and Shares are issued and allotted pursuant to such exercise on or before the Record Date, the number of issued Shares will be increased to 414,231,308 Shares and the number of Rights Shares which may be issued pursuant to the Rights Issue will be increased to 1,656,925,232 Rights Shares. Other than these Share Options, the Company has no other outstanding options, warrants or convertible securities as at the Latest Practicable Date. No Shares shall be allotted or issued between the date of this circular up to and including the Record Date.

The Company expects to raise not less than approximately HK$16.38 million and not more than approximately HK$16.57 million before expenses through the Rights Issue based on not less than 1,637,829,232 Rights Shares and not more than 1,656,925,232 Rights Shares at a price of HK$0.01 per Rights Share.

– 7 –

LETTER FROM THE BOARD

Qualifying Shareholders

The Company will send the Rights Issue Documents to Qualifying Shareholders

only.

To qualify for the Rights Issue, a Shareholder must be registered as a member of the Company on the Record Date. In relation to holders of the Share Options (i) they must exercise their respective subscription rights attaching to the Share Options in accordance with the relevant procedures specified in the applicable rules of the Share Options Scheme(s) on or before the Record Date; and (ii) they must be registered as the holders of the Shares allotted pursuant to the exercise of the subscription rights of the Share Options on or before the Record Date.

In order to be registered as a member at the close of business on the Record Date, Shareholders must lodge any transfers of Shares (together with the relevant share certificates) with the Company’s share registrar in Hong Kong no later than 4:00 p.m. on 19 February 2008.

The share registrar of the Company in Hong Kong is:

Computershare Hong Kong Investor Services Limited

Rooms 1712–1716, 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

Closure of Register of Members

The register of members of the Company will be closed from 20 February 2008 to 22 February 2008, both dates inclusive. No transfers of Shares will be registered during this period.

Subscription Price

The Subscription Price for the Rights Shares is HK$0.01 per Rights Share, payable in full when a Qualifying Shareholder accepts his/her/its provisional allotment under the Rights Shares or applies for excess Rights Shares or when a transferee of nil-paid Rights Shares subscribes for the Rights Shares.

The Subscription Price represents:

a discount of approximately 97.22% to the closing price of HK$0.36 per Share as quoted on the Stock Exchange on the Last Trading Day;
a discount of approximately 87.50% to the theoretical ex-rights price of approximately HK$0.08 per Share based on the closing price of HK$0.36 per Share as quoted on the Stock Exchange on the Last Trading Day;

– 8 –

LETTER FROM THE BOARD

a discount of approximately 97.30% to the average closing price of approximately HK$0.37 per Share as quoted on the Stock Exchange for the last ten Trading Days up to and including the Last Trading Day;
a discount of approximately 97.9% to the closing price of HK$0.495 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Subscription Price was arrived at after arm’s length negotiations between the Company and Mr. Cheung. The Directors considers the Subscription Price is fair and reasonable as far as Shareholder’s concern, since the Rights Issue is extended to all Qualifying Shareholders on the same basis, no Qualifying Shareholders will have materials disadvantages on such. The Directors also consider that it is a general market practice to issue rights shares at a discount to the market price of the Shares and in order to enhance the attractiveness of the Rights Issue and to encourage the Shareholders to participate in the Rights Issue and to share the potential growth of the Company, the discount on the Subscription Price to the current market price of the Shares as proposed is appropriate and the Rights Issue is in the interest of the Company and the Shareholders as a whole.

Status of the Rights Shares

The Rights Shares, when allotted, issued and fully-paid, will rank pari passu in all respects with the then existing Shares in issue. Holders of such Rights Shares will be entitled to receive all future dividends and distributions which are declared, made or paid after the date of allotment and issue of the Rights Shares.

Nil-paid Rights Shares will be traded in board lots of 4,000 Shares. Dealing in the Rights Shares in both their nil-paid and fully-paid forms registered in the register of the Company in Hong Kong will be subject to the payment of stamp duty in Hong Kong.

Share Certificates and refund cheques for Rights Issue

Subject to the fulfillment of the conditions of the Rights Issue, share certificates for all fully-paid Rights Shares are expected to be posted on or before 17 March 2008 to those who have accepted and (where applicable) applied for, and paid for the Rights Shares, by ordinary post at their own risk. Refund cheques in respect of wholly or partially unsuccessful applications for excess Rights Shares (if any) are expected to be posted on or before 17 March 2008 by ordinary post to the applicants at their own risk.

Rights of Overseas Shareholders

The Rights Issue Documents will not be registered under the applicable securities legislation of any jurisdiction other than Hong Kong. If the registered address of any of the Shareholders as shown on the register of members of the Company as at the Record Date is in a territory other than Hong Kong, the Directors will, in compliance with Rules 17.41(1) of the GEM Listing Rules, seek legal advice as to whether or not it would be or might be unlawful or impracticable to offer the Rights Shares in such places without registration of the Rights Issue Document and/or compliance with any legal or regulatory

– 9 –

LETTER FROM THE BOARD

requirements or special formalities in such places. Subject to the legal advices, the Directors will exclude the Overseas Shareholders from the Rights Issue only if they consider that it is necessary or expedient not to offer the Right Shares to the Overseas Shareholders on account either of the legal restrictions under the laws of the place of the his/her registered address or the requirements of the relevant regulatory body or stock exchange in that place. The Company will send copies of the Prospectus to the Overseas Shareholders for their information only, the Company will not send any provisional allotment letters and forms of application for excess Rights Shares to them.

Arrangements will be made for Rights Shares which would otherwise have been provisionally allotted to the Overseas Shareholders to be sold in the market in their nilpaid form as soon as practicable after dealings in the nil-paid Rights Shares commence and before dealings in nil-paid Right Shares end, if a premium (net of expenses) can be obtained. The proceeds of such sale, less expenses, of more than HK$100 will be paid to the relevant Overseas Shareholders in Hong Kong dollars pro rata to their respective shareholdings as soon as practicable. The Company will retain individual amounts of HK$100 or less for its own benefit.

Fractions of Rights Shares

The Company will not provisionally allot fractions of Rights Shares (nil-paid and fully-paid). The Company will sell in the market any such Rights Shares created from the aggregation of fractions of Rights Shares (if a premium, net of expenses, can be obtained), and will retain the proceeds for its own benefit.

Applications for excess Rights Shares

Qualifying Shareholders shall be entitled to apply for any unsold entitlements of Overseas Shareholders, any unsold Rights Shares created by adding together fractions of Rights Shares and any Rights Shares provisionally allotted but not accepted by Qualifying Shareholders. Application may be made by completing the form of application for excess Rights Shares and lodging the same with a separate remittance for the excess Rights Shares being applied for. The Directors will allocate the excess Rights Shares at their discretion on a fair and reasonable basis on the following principles:

(1) preference will be given to applications for less than a board lot of Rights Shares where they appear to the Directors that such applications are made to round up odd-lot holdings to whole-lot holdings;
(2) subject to availability of excess Rights Shares after allocation under principle (1) above, the excess Rights Shares will be allotted to Qualifying Shareholders based on a sliding scale with reference to the number of the excess Rights Share applied by them (that is, Qualifying Shareholders applying for smaller number of Rights Shares are allocated with a higher percentage of successful application but will receive less number of Rights Share; whereas Qualifying Shareholders applying for large number of Rights Shares are allocated with a smaller percentage of successful application but will receive higher number of Rights Shares).

– 10 –

LETTER FROM THE BOARD

Shareholders with their Shares held by a nominee company should note that the Board will regard the nominee company as a single Shareholder according to the register of members of the Company. Accordingly, Shareholders should note that the aforesaid arrangement in relation to the application for excess Rights Shares will not be extended to beneficial owners individually. Shareholders with their Shares held by a nominee company are advised to consider whether they would like to arrange for registration of the relevant Shares in the name of the beneficial owner(s) prior to the Record Date.

Mr. Cheung, his associates and parties acting in concert with him including Simrita Investments Limited have not indicated whether they will apply for any excess Rights Shares.

The latest time for acceptance of, and payment for, Rights Shares and application for excess Rights Shares is expected to be at 4:00 p.m. on 10 March 2008, or such later date as may be agreed between the Company and Mr. Cheung.

Application for listing

The Company will apply to the GEM Listing Committee of the Stock Exchange for the listing of, and permission to deal in the Rights Shares, in both their nil-paid and fullypaid forms.

Subject to the grant of listing of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms on the Stock Exchange as well as compliance with the stock admission requirements of HKSCC, the Rights Shares in both their nil-paid and fully-paid forms will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the respective commencement dates of dealings in the Rights Shares in their nil-paid and fully-paid forms on the Stock Exchange or such other dates as determined by HKSCC.

Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rule of CCASS and CCASS Operational Procedures in effect from time to time.

All necessary arrangements will be made to enable the Rights Shares in both their nil-paid and fully-paid forms to be admitted into CCASS.

None of the securities of the Company is listed or dealt in any other stock exchange other than the Stock Exchange and no such listing or permission to deal is being or is proposed to be sought.

– 11 –

LETTER FROM THE BOARD

UNDERWRITING ARRANGEMENTS

Underwriting Agreement

Date:

11 December 2007 (as supplemented by a letter dated 17 December 2007 entered into by the same parties amending certain terms of the Rights Issue)

Underwriter:

Mr. Cheung, the chairman and a substantial Shareholder of the Company who directly and indirectly holds approximately 41.18% existing issued share capital of the Company and 1,000,000 outstanding Share Options

Number of Rights Shares underwritten:

not less than 963,339,596 Rights Shares (assuming no outstanding Share Options are exercised before the Record Date and excluding the Rights Shares to be issued to and accepted by Mr. Cheung) and not more than 978,435,596 Rights Shares (assuming full exercise of the outstanding Share Options before the Record Date and excluding the Rights Shares to be issued to and accepted by Mr. Cheung and his associate)

Commission:

1.00% of the aggregate Subscription Price in respect of the number of Rights Shares underwritten

Pursuant to the Underwriting Agreement, Mr. Cheung has agreed to underwrite the Rights Shares which have not been taken up and fully-paid for up to 4:00 p.m. on the Final Acceptance Date. Accordingly, the Rights Issue is fully underwritten.

The commission payable to Mr. Cheung was determined after arm’s length negotiations between the Company and Mr. Cheung and based on normal commercial terms. Since Mr. Cheung is a substantial Shareholder and the chairman of the Company, the Underwriting Agreement constitutes a connected transaction of the Company under Rule 20.31(3)(c) of the GEM Listing Rules. As the Company has complied with Rule 10.31(2) of the GEM Listing Rules, the connected transaction is exempted from the reporting, announcement and independent shareholders’ approval requirements contained in Chapter 20 of the GEM Listing Rules.

Undertaking by Mr. Cheung

As at the Latest Practicable Date, Mr. Cheung is the beneficial owner of an aggregate of 168,622,409 Shares, of which 149,882,409 Shares are registered under his own name and 18,740,000 Shares are registered under Simrita Investments Limited (Mr. Cheung Wai, being the sole director), a company wholly and beneficially owned by him, and the owner of Share Options to subscribe for 1,000,000 Shares.

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LETTER FROM THE BOARD

Subject to the Underwriting Agreement becoming unconditional and not being terminated in accordance with its terms, Mr. Cheung has irrevocably undertaken to the Company that at least 168,622,409 Shares beneficially owned by him shall remain registered in his (or his nominee’s) names from the date of the Announcement up to and inclusive of the Final Acceptance Date and that he shall accept or procure acceptance of his entitlement to the Rights Shares which shall be provisionally allotted to him as the holder or beneficial owner of such Shares under the Rights Issue.

Termination of the Underwriting Agreement

It should be noted that the Underwriting Agreement contains provisions entitling Mr. Cheung, by notice in writing, to terminate his obligations thereunder at any time prior to 4:00 p.m. on the second business day following the Final Acceptance Date, if:

(a) the success of the Rights Issue would be materially and adversely affected by:
(i) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of similar nature including without limitation abolition or repeal of any existing law or regulation which may materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole; or
(ii) the occurrence, happening, coming into effect, change or becoming public knowledge of any event or circumstances of a local, national or international event or change, (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic, or other nature (whether or not ejusdem generis (i.e. of the same kind) with any of the foregoing) or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities market which may in the reasonable opinion of Mr. Cheung materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or may materially and adversely prejudice the success of the Rights Issue or otherwise makes it inexpedient or inadvisable to proceed with the Rights Issue; or
(b) any adverse change in market conditions (including without limitation suspension or material restriction on trading in securities on the Stock Exchange) which is likely to materially and adversely affect the success of the Rights Issue or otherwise makes it inexpedient or inadvisable to proceed with Rights Issue; or
(c) any change in the circumstances of the Company or any member of the Group which would materially and adversely affect the prospects of the Company; or

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LETTER FROM THE BOARD

(d) the Company commits any material breach of or omits to observe any of the material obligations or undertakings expressed to be assumed by it under the Underwriting Agreement; or
(e) Mr. Cheung shall receive notification of, or shall otherwise become aware of, the fact that any of the representations or warranties contained in the Underwriting Agreement was, in any material respect when given, untrue or inaccurate or would in any material respect be untrue or inaccurate if repeated and Mr. Cheung shall, in his reasonable opinion, after full consultation with the Company, determine that any such untrue representation or warranty represents or is likely to represent a material adverse change in the financial or trading position or prospects of the Group taken as a whole or is otherwise likely to have a materially prejudicial effect on the Rights Issue; or
(f) the Company shall, after any matter or event referred to in the relevant clauses of the Underwriting Agreement has occurred or come to Mr. Cheung’s attention, fail promptly to send out any announcement or circular or take any actions (after the despatch of the Rights Issue Documents), in such manner (and as appropriate with such contents) as Mr. Cheung may reasonably request for the purpose of preventing the creation of a false market in the Shares.

Mr. Cheung shall be entitled (but not bound) by notice in writing to the Company to elect to treat such matter or event as releasing and discharging him from his obligations under this Agreement.

In the event that the Underwriting Agreement shall have been terminated, the Rights Issue will not proceed.

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LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE COMPANY AND APPLICATION FOR THE GRANTING OF THE WHITEWASH WAIVER

The changes in shareholding structure of the Company before and after completion of the Rights Issue are as follows:

(i) Assuming no Share Option is exercised prior to the Record Date

As at the date of the Latest Practicable Date Shares % Mr. Cheung and parties acting in concert Mr. Cheung 149,882,409 36.61% Simrita Investments Limited 18,740,000 4.58% Sub-total 168,622,409 41.18% Public 240,834,899 58.82% Total 409,457,308 100.00%	Shareholding immediately after completion of the Rights Issue (assuming no Share Options were exercised prior to the Record Date and all Qualifying Shareholders have taken up the Rights Shares in full) Shares % 749,412,045 36.61% 93,700,000 4.58% 843,112,045 41.18% 1,204,174,495 58.82% 2,047,286,540 100.00%	Shareholding immediately after completion of the Rights Issue (assuming no Share Options were exercised prior to the Record Date and Mr. Cheung has taken up the Rights Shares in full) Shares % 1,712,751,641 83.66% 93,700,000 4.58% 1,806,451,641 88.24% 240,834,899 11.76% 2,047,286,540 100.00%	Shareholding immediately after completion of the Rights Issue (assuming no Share Options were exercised prior to the Record Date and Mr. Cheung has taken up the Rights Shares in full) Shares % 1,712,751,641 83.66% 93,700,000 4.58% 1,806,451,641 88.24% 240,834,899 11.76% 2,047,286,540 100.00%
			100.00%

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LETTER FROM THE BOARD

(ii) Assuming the Share Option were fully exercised prior to the Record Date

As at the date of the Latest Practicable Date Shares % Mr. Cheung and parties acting in concert Mr. Cheung 149,882,409 36.61% Simrita Investments Limited 18,740,000 4.58% Sub-total 168,622,409 41.18% Public 240,834,899 58.82% Total 409,457,308 100.00%	Shareholding (assuming all the Share Options were exercised before the Rights Issue) Shares % 150,882,409 36.42% 18,740,000 4.52% 169,622,409 40.95% 244,608,899 59.05% 414,231,308 100.00%	Shareholding immediately after completion of the Rights Issue (assuming all the Share Options were exercised prior to the Record Date and all Qualifying Shareholders have taken up the Rights Shares in full) Shares % 754,412,045 36.42% 93,700,000 4.52% 848,112,045 40.95% 1,223,044,495 59.05% 2,071,156,540 100.00%	Shareholding immediately after completion of the Rights Issue (assuming all the Share Options were exercised prior to the Record Date and Mr. Cheung has taken up the Rights Shares in full) Shares % 1,732,847,641 83.67% 93,700,000 4.52% 1,826,547,641 88.19% 244,608,899 11.81% 2,071,156,540 100.00%	Shareholding immediately after completion of the Rights Issue (assuming all the Share Options were exercised prior to the Record Date and Mr. Cheung has taken up the Rights Shares in full) Shares % 1,732,847,641 83.67% 93,700,000 4.52% 1,826,547,641 88.19% 244,608,899 11.81% 2,071,156,540 100.00%
				100.00%

WHITEWASH WAIVER

In the event that Mr. Cheung is called upon to take up his obligations under the Underwriting Agreement in full, the aggregate shareholding interests of Mr. Cheung and parties acting in concert with him will be increased from about 41.18% as at the Latest Practicable Date to about 88.24% immediately after completion of the Rights Issue (assuming no Share Options are exercised before the Record Date). Under Rule 26 of the Takeovers Code, the fulfillment of Mr. Cheung’s proposed underwriting commitment will trigger a mandatory offer by Mr. Cheung and parties acting in concert with him for all the securities of the Company other than those already owned by Mr. Cheung and parties acting in concert with him. An application has been made by Mr. Cheung and parties acting in concert with him to the Executive for the Whitewash Waiver from the obligation to make a mandatory general offer for the Shares as a result of the Rights Issue and any Rights Shares to be taken up under the Underwriting Agreement pursuant to Note 1 of the Notes on Dispensations from Rule 26 of the Takeovers Code. The Executive has indicated that the Whitewash Waiver will be granted subject to the approval of the Independent Shareholders on a vote taken by way of a poll at the SGM. If the Whitewash Waiver is not granted by the Executive, the Rights Issue will not proceed.

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LETTER FROM THE BOARD

If the aggregate shareholding interests of Mr. Cheung and parties acting in concert with him after the completion of the Rights Issue are in the range of 30% to 50% of the enlarged issued share capital of the Company, they will be subject to the 2% creeper as set out in the Takeovers Code.

If the aggregate shareholding interests of Mr. Cheung and parties acting in concert with him after the completion of the Rights Issue exceed 50% of the enlarged issued share capital of the Company, Mr. Cheung and parties acting in concert with him can acquire further Shares without triggering a mandatory offer.

Shareholders and public investors should note that the above shareholding changes are for illustration purposes only and the actual changes in the shareholding structure of the Company upon completion of the Rights Issue are subject to various factors, including the results of acceptance of the Rights Issue. The Company will take appropriate arrangement to ensure maintenance of sufficient public float upon completion of the Rights Issue. In the event that the Company fails to comply with Rule 11.23 of the GEM Listing Rules, the trading of the Shares will be suspended at the request by the Stock Exchange.

DIRECTOR’S DEALING IN SHARES

On 11 October 2007, Mr. Cheung, at a consideration of HK$0.36 per Share, disposed (i) 40,000,000 Shares (representing approximately 9.77% equity interests of the Company) personally owned by him; (ii) a company which beneficially owned by him and was interested in 19,200,000 Shares (representing approximately 4.69% equity interests of the Company); and (iii) 3,300,000 Shares (representing approximately 0.80% equity interests of the Company) held by Simrita Investments Limited. To the best of the Director’s knowledge and belief, the above disposal of Shares were made to the independent third parties of the Company and has no relationship with Mr. Cheung and his concert parties. Save as disclosed above, none of Mr. Cheung or any parties acting in concert with him has acquired any voting rights in the Company or has dealt in any Shares for the six months prior to the date of the Announcement and up to the Latest Practicable Date.

CONDITIONS OF THE RIGHTS ISSUE

The Rights Issue is conditional upon, among other things, the following conditions (which are not capable of being waived by any party to the Underwriting Agreement):

(i) the passing by Independent Shareholders at the SGM to be convened, in compliance with the Takeovers Code, of an ordinary resolution to approve the Whitewash Waiver taken by way of a poll;
(ii) the passing by Independent Shareholders at the SGM to be convened, in compliance with the GEM Listing Rules, of an ordinary resolution to approve the Rights Issue by way of a poll;

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LETTER FROM THE BOARD

(iii) the posting of the SGM Documents (in the form duly approved by the Stock Exchange and the SFC) to the Shareholders on the posting date of the SGM Documents;
(iv) the SFC having granted the Whitewash Waiver to Mr. Cheung together with any party acting in concert with him, if any, to the effect that Mr. Cheung together with any party acting in concert with him, if any, the obligation to make a mandatory offer under Rule 26 of the Takeovers Code in connection with the Rights Issue on or before the Final Acceptance Date is waived;
(v) the filing with the Registrar of Companies in Bermuda one copy of the Rights Issue Documents and all other documents to be attached thereto duly signed by either all Directors or one of the Directors (for and on behalf of all the Directors) and otherwise in compliance with the Companies Act;
(vi) the delivery to the Stock Exchange and registration with the Registrar of Companies in Hong Kong respectively one copy of each of the Rights Issue Documents duly signed by two Directors (or by their agents duly authorized in writing) as having been approved by resolution of the Board (and all other documents required to be attached thereto) not later than the date of despatch of the Rights Issue Documents and otherwise in compliance with the GEM Listing Rules and the Companies Ordinance;
(vii) the posting of the Rights Issue Documents to the Qualifying Shareholders and the posting of copies of the Prospectus stamped “For Information Only” to Overseas Shareholders on the date of despatch of the Rights Issue Documents;
(viii) the GEM Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment), and not having revoked, listing of, and permission to deal in the Rights Shares by not later than last day for acceptance of, and payment for the Rights Shares;
(ix) compliance with and performance of all the undertakings and obligations of Mr. Cheung under the Underwriting Agreement;
(x) the execution and returning of the undertakings by Mr. Cheung and his associate to undertake subscription of Rights Shares in proportion to their current shareholding in the Company, which will be not less than 674,489,636 Rights Shares and not more than 678,489,636 Rights Shares;
(xi) the obtaining of the necessary permission of the Bermuda Monetary Authority for the issue of the Rights Shares, if so required.

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LETTER FROM THE BOARD

In the event that the above conditions not being fulfilled on or before the respective dates aforesaid (or such later date or dates as may be agreed between the Company and Mr. Cheung), all obligations and liabilities of the parties under the Underwriting Agreement shall cease and no party shall have any claim against the others (save for any antecedent breaches thereof).

WARNING OF THE RISKS OF DEALING IN SHARES AND THE NIL-PAID RIGHTS SHARES

The last day of dealings in the Shares on a cum-rights basis is 15 February 2008. Existing Shares will be dealt with on an ex-rights basis from 18 February 2008. To qualify for the Rights Issue, a Qualifying Shareholder’s name must appear on the register of members of the Company on the Record Date, which is currently expected to be on 22 February 2008 or such other date as may be agreed between the Company and Mr. Cheung, and has an address in Hong Kong which appears on the register of members of the Company on the Record Date. In order to be registered as a member of the Company on the Record Date, any transfers of Shares must be lodged for registration by 4:00 p.m. on 19 February 2008.

The Rights Shares are expected to be dealt with in their nil-paid form from 27 February 2008 to 5 March 2008, both dates inclusive. Any dealings in the Shares or Rights Shares from the date of the Announcement up to the date on which all conditions of the Rights Issue are fulfilled, and any dealing in the Rights Shares in their nil-paid form are accordingly at the investors’ own risk. Shareholders or other persons contemplating any dealings in the Shares or Rights Shares in their nil-paid form are recommended to consult their own professional advisors.

REASONS FOR THE RIGHTS ISSUE AND USE OF PROCEEDS

The Company is an investment holding company and its subsidiaries are principally engaged in the design, research, development, manufacturing and distribution of optical image capturing devices and related components.

The Group has suffered from making losses attributable to equity holders of approximately HK$23.0 million, HK$99.4 million and HK$11.6 million respectively for the last three years ended 31 December 2006.

Referring to the announcement and circular made by the Company dated 8 November 2007 and 30 November 2007 respectively, the Group has disposed its 55% equity interests in SYSCAN Manufacturing (a former indirect wholly-owned subsidiary of the Company) for the repayment of debts owned by SYSCAN Optoelectronics. The Directors are of the view that although the disposal of 55% equity interests in SYSCAN Manufacturing can ease its financial burden, the Group would not have sufficient working capital to enable it to operate as a going concern in the foreseeable future. In order to actively develop new products and seek for strategic partners to bring in new revenue for the Group, The Directors are exploring every opportunity to raise additional working capital including equity or debt financing to enhance its capital base. However, due to its poor results in

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LETTER FROM THE BOARD

the last few years and no further valuable assets available for banks as security, the Directors are of the view that such financing are not feasible. In view of the above, the Directors consider that it is more prudent to finance the Group’s long-term growth with long-term funding by way of Rights Issue. The Rights Issue will allow all the Qualifying Shareholders to have an equal opportunity to participate in the enlargement of the capital base of the Company, thereby also maintaining their proportionate interests in the Company and allowing them to dispose of their Rights Shares in nil-paid form in the market. Accordingly, the Directors consider that it is in the interests of the Company and its Shareholders as a whole to raise the capital through the Rights Issue.

The estimated gross proceeds from the Rights Issue will not be less than approximately HK$16.38 million. The estimated amount of expenses of the Rights Issue is approximately HK$1.75 million, which include, underwriting commission, legal fees, financial advisory fees, printing fees, prospectus registration fees and related expenses, which are payable by the Company. The estimated net proceeds from the Rights Shares of not less than HK$14.63 million will be used by the Group as general working capital so as to continue to carry on the existing business activities, that is, design, research, development, manufacturing and distribution of optical image capturing devices and related components.

The Company has not conducted any fund raising activity during the past 12 months.

Mr. Cheung has no intention to make any changes to the businesses of the Group and intends to continue the Group’s business. Mr. Cheung has no intention to make any changes to the deployment of the Company’s fixed assets and has no intention to discontinue the employment of the employees of the Company and its subsidiaries.

The underwriting of the Rights Issue by Mr. Cheung is to signify the controlling Shareholder’s strong support of and commitment to the development of the Group.

INFORMATION ON MR. CHEUNG

As at Latest Practicable Date, Mr. Cheung beneficially owns 168,622,409 Shares which constitute approximately 41.18% of the issued share capital of the Company. Being the chairman of the Company, he is responsible for the overall strategic planning for the Group’s business development, in particular that for the Group’s China business. He has over 30 years of business and management experiences in the electronics and computer industry in the PRC and overseas markets.

LISTING STATUS OF THE COMPANY

In the event that less than minimum prescribed percentage applicable to the Company are held by the public immediately after the Completion of the Rights Issue, the Directors will undertake to the Stock Exchange to take appropriate steps as soon as possible following the completion of the Rights Issue if no public shareholders take up the Rights Shares to ensure that there will be at least the minimum prescribed percentage of Shares held by the public as required by the GEM Listing Rules. As the Company is unable to ascertain at

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LETTER FROM THE BOARD

this stage the level of acceptances of the Rights Shares by the Shareholders, the Company have not decided the exact steps/actions that will be taken after the completion of the Rights Issue to restore the public float of the Shares, if required. Notwithstanding this, the Company has considered that the appropriate course of actions to take will include placing down of sufficient number of Shares by Mr. Cheung and parties acting in concert with him for this purpose. The Company will issue a separate announcement as and when necessary regarding the decision of any such placing down, if the circumstances warrant.

ADJUSTMENT TO THE SUBSCRIPTION PRICE OF THE SHARE OPTIONS

Pursuant to 3 separate share option schemes adopted by the Company on 2 March 2000, 2 March 2000 and 26 April 2002 respectively, adjustments to the outstanding Share Options are required to be made upon the Rights Issue becoming unconditional. Further details on the adjustments will be set out in the Prospectus and an announcement will be made by the Company when appropriate.

SGM

There is set out on pages 129 to 130 of this circular a notice convening the SGM to be held at 10:00 a.m. on 22 February 2008 at Function Room III, Ground Floor, City Garden Hotel, 9 City Garden Road, North Point, Hong Kong at which ordinary resolutions will be proposed to consider and, if thought fit, by the Shareholders to approve (i) the Rights Issues and (ii) the Whitewash Waiver. In view of the interests of Mr. Cheung in the Rights Issue, the Underwriting Agreement and the Whitewash Waiver and being a controlling shareholder of the Company, Mr. Cheung and his associates and parties acting in concert with any of him (i.e. Simrita Investments Limited, a company wholly and beneficially owned by Mr. Cheung) shall abstain from voting in the SGM.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit it with the share registrar of the Company, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17/F., Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of SGM. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM should you so wish.

RECOMMENDATION

Your attention is drawn to the letter from each of the Independent Board Committee set out on page 23 of this circular which contains its recommendation to the Independent Shareholders as to voting at the SGM in relation to (i) the Rights Issue and (ii) the Whitewash Waiver.

Your attention is also drawn to the letter from South China Capital which contains its advice to the Independent Board Committee and the Independent Shareholders as regards the Rights Issue and the Whitewash Waiver. The text of the letter from South China Capital is set out on pages 24 to 42 of this circular.

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LETTER FROM THE BOARD

ADDITIONAL INFORMATION

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

By order of the Board SYSCAN Technology Holdings Limited Cheung Wai Chairman

– 22 –

LETTER FROM INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Shareholders in relation to the Rights Issue and Whitewash Waiver.

==> picture [42 x 47] intentionally omitted <==

SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 8083)

28 January 2008

To the Independent Shareholders to the Rights Issue

Dear Sir/Madam,

We have been appointed to advise you in respect of (i) the Rights Issue and (ii) the Whitewash Waiver, details of which are set out in the letter from the Board on pages 5 to 22 of the circular of the Company dated 28 January 2008 (the “Circular”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless specified otherwise.

We wish to draw your attention to the letter from the Board as set out on pages 5 to 22 of this Circular and the letter from South China Capital as set out on pages 24 to 42 of the Circular.

Having taken into account the advice and recommendation of South China Capital, we consider that (i) the terms of the Rights Issue; and (ii) the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole and are fair and reasonable as far as the Shareholders are concerned. Accordingly, we recommend the Shareholders to vote in favour of the resolutions to be proposed at the SGM to approve (i) the Rights Issue and (ii) the Whitewash Waiver.

Yours faithfully, For and on behalf of the

Independent Board Committee

Mr. Fong Chi Wah Mr. Jin Qingjun Mr. Wang Ruiping Independent Non-Executive Directors

* For identification purposes only

– 23 –

LETTER FROM SOUTH CHINA CAPITAL

Set out below is the text of a letter received from South China Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, regarding the Rights Issue and the Whitewash Waiver for the purpose of inclusion in this circular.

South China Capital Limited 28/F., Bank of China Tower No. 1 Garden Road Central Hong Kong

28 January 2008

To: The independent board committee and the independent shareholders of SYSCAN Technology Holdings Limited

Dear Sirs,

PROPOSED RIGHTS ISSUE OF NOT LESS THAN 1,637,829,232 RIGHTS SHARES AND NOT MORE THAN 1,656,925,232 RIGHTS SHARES AT HK$0.01 PER RIGHTS SHARE IN THE PROPORTION OF FOUR RIGHTS SHARES FOR EVERY EXISTING SHARE HELD AND THE WHITEWASH WAIVER APPLICATION

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in connection with the Rights Issue and the Whitewash Waiver, details of which are set out in the letter from the Board (the “Board Letter”) contained in the circular dated 28 January 2008 issued by the Company to the Shareholders (the “Circular”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

The Board announced on 18 December 2007 that the Company proposed to raise not less than approximately HK$16.38 million and not more than HK$16.57 million before estimated expenses of approximately HK$0.9 million by issuing not less than 1,637,829,232 Rights Shares and not more than 1,656,925,232 Rights Shares at the Subscription Price of HK$0.01 per Rights Share on the basis of four Rights Shares for every existing Share held by the Qualifying Shareholders on the Record Date. The Rights Shares will be fully underwritten by Mr. Cheung in accordance with the terms and conditions under the Underwriting Agreement.

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LETTER FROM SOUTH CHINA CAPITAL

In the event that Mr. Cheung is required to subscribe for the Rights Shares in full pursuant to the Underwriting Agreement, the aggregate shareholding interests of Mr. Cheung and the parties acting in concert with him in the Company will be increased from approximately 41.18% to 88.24% upon completion of the Rights Issue based on the enlarged issued share capital of the Company (assuming none of the outstanding Options are exercised on or before the Record Date). Accordingly, the underwriting by Mr. Cheung of the Rights Shares may trigger a mandatory general offer obligation for Mr. Cheung under Rule 26 of the Takeovers Code for all the securities of the Company not already held by him and parties acting in concert with him.

A formal application has been made by Mr. Cheung to the Executive for the Whitewash Waiver pursuant to Note 1 on Dispensations from Rule 26 of the Takeovers Code. The Executive has indicated that the Whitewash Waiver would be granted if the same is approved by the Independent Shareholders by way of poll at the SGM. In view of (i) the interests of Mr. Cheung in the Rights Issue, the Underwriting Agreement and the Whitewash Waiver; and (ii) Mr. Cheung being a controlling shareholder of the Company, Mr. Cheung and his associates, and the parties acting in concert with any of them (i.e. Simrita Investments Limited, a company wholly and beneficially owned by Mr. Cheung) shall abstain from voting at the SGM.

It is a condition precedent to the Rights Issue that the Whitewash Waiver is granted by the Executive. If the Whitewash Waiver is not granted by the Executive or if any of the conditions of the Rights Issue is not fulfilled, the Rights Issue will not proceed.

An Independent Board Committee comprising Mr. Fong Chi Wah, Mr. Jin Qingjun and Mr. Wang Ruiping (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Rights Issue and the Underwriting Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Rights Issue is in the ordinary and usual course of business of the Company; (iii) whether the Rights Issue and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole; and (iv) how the Independent Shareholders should vote on the relevant resolution(s) to approve the Rights Issue, the Underwriting Agreement and the transactions contemplated thereunder, and the Whitewash Waiver at the SGM. All the members of the Independent Board Committee have confirmed to the Company that they are independent with respect to the aforementioned transactions and thus are suitable to advise the Independent Shareholders. We, South China Capital, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in all these respects.

BASIS OF OUR OPINION

In formulating our advice and recommendation to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely

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LETTER FROM SOUTH CHINA CAPITAL

and wholly responsible, are true, complete and accurate in all material respects at the time when they were made and continue to be so as at the date of the despatch of the Circular. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiries and careful considerations. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our recommendation in compliance with Rule 13.80 of the Listing Rules.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in the Circular misleading.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our recommendation. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, the Underwriter, their subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Rights Issue and the Whitewash Waiver. In addition, we have no obligation to update this opinion to take into account events occurring after the issue of this letter. Nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

(I) THE RIGHTS ISSUE

Principal Factors and Reasons Considered

In arriving at our opinion in respect of the Rights Issue, we have taken into consideration the following principal factors and reasons:

Background of and reasons for the Rights Issue

(1) Business and financial information on the Group

The Group’s business is in the field of optical electronic industry, and is principally engaged in the design, research, development, manufacturing and distribution of optical image capturing devices and related components.

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Tabularised below is a summary of the unaudited and audited consolidated financial information of the Group as extracted from (i) the third quarterly report of the Company for the nine months ended 30 September 2007; (ii) the interim report of the Company for the six months ended 30 June 2007 (the “2007 Interim Report”); and (iii) the annual report of the Company for the year ended 31 December 2006 (the “2006 Annual Report”):

				For the nine
	For the year	ended		months ended
Consolidated	31 December		Year-on-year	30 September
Income Statement	2006	2005	change	2007
	HK$’000	HK$’000	%	HK$’000
	(audited)	(audited)		(unaudited)
Turnover	92,690	66,555	39.27	62,006
Gross profit	24,977	24,196	3.23	6,611
Loss attributable to equity
holders of the Company	(11,600)	(99,435)	(88.33)	(8,903)
	As at
	31 December		Year on year	As at
Consolidated Balance Sheet	2006	2005	change	30 June 2007
	HK$’000	HK$’000	%	HK$’000
	(audited)	(audited)		(unaudited)
Net asset value (“NAV”)	15,535	18,501	(16.03)	8,498
				(Note)
Cash and cash equivalents	4,919	8,140	(39.57)	4,888
Current ratio (Current assets/
current liabilities)	0.24 times	0.18 times	35.08	0.69 times

Note: As referred to in the announcement of the Company dated 17 July 2007, the Company entered into a subscription agreement with Luck Fame International Investment Holdings Limited (“Luck Frame”), which is an independent investor, on 28 June 2007 pursuant to which Luck Frame had agreed to subscribe for 80% of the shares of SYSCAN Manufacturing for a consideration of RMB184 million. Such consideration was intended to be used to repay a loan of approximately RMB144 million owed by the Group to Bank of China (the “Loans”). There was a reduction in the Group’s NAV as at 30 June 2007 due to the adjustments made to reflect the aforementioned transaction. However, as referred to in the announcement of the Company dated 23 October 2007, the said subscription agreement was subsequently cancelled since Luck Frame had defaulted on payment of the consideration to the Group. Shareholders should therefore note that the NAV of the Group as at 30 June 2007 did not represent a true and fair view of the Group’s net assets position.

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As depicted from the above table, the Group recorded an audited total turnover of approximately HK$92.69 million for the year ended 31 December 2006, representing an increase of approximately 39.27% as compared to the prior year. Nevertheless, the Directors confirmed that such increase had levelled off during the 2007 financial year due to the fact that the optical electronic industry has been matured and remains sluggish.

The above table also shows that the Group had been making losses for the two years ended 31 December 2006 and the nine months ended 30 September 2007. In this regard, we also noted from the audited annual reports of the Company for past few years that the Group has been suffering from losses since it was listed on GEM in 2000. For the year ended 31 December 2006, the Group recorded a considerable drop in the loss attributable to equity holders of the Company as compared to the prior year. As advised by the Directors, such improvement was mainly due to the one-off gain on disposal of certain plant and machinery and patents which mounted to approximately HK$15.90 million during the 2006 financial year. In addition, there was a drastic reduction in the general and administrative expenses and the research and development expenses respectively. In view of the persistent losses made by the Group, the Directors consider that the Group has an imminent endowment need for financial resources to revitalise its business operation. According to the Directors, since the business of the Group requires high investment costs on research and development and the business environment of the optical electronic industry is likely to continue to be highly competitive in the future, the Group shall not be able to turnaround its existing loss making position unless new capital is being injected into the Group shortly. In addition, new capital is also required for the Group to explore new technologies and products in the future such that the Group may diversify its existing business even though no concrete plan has been finalised yet.

Regarding the assets and liabilities position of the Group, we noted that the Group’s total bank balance and cash in hand as at 31 December 2006 was substantially lower than the prior year end date. As at 30 June 2007, the Group had minimal bank balance and cash of approximately HK$4.89 million. Upon our further enquiry, the Directors also confirmed that the Group’s total bank balance and cash in hand was amounted to approximately HK$77.37 million as at 30 November 2007. We also noted that the NAV of the Group as at 31 December 2006 had decreased by approximately 16.03% as compared to the prior year. In addition, as confirmed by the Directors and as extracted from Appendix III to the Circular under the section headed “Indebtedness Statement”, the Group’s total borrowings were summed up to approximately HK$119.40 million as at 30 November 2007, of which approximately HK$81.52 million had already been settled by the Group in December 2007. Based on the above, we are of the view that the Group’s financial and liquidity position was dire. Moreover, given also the persistent losses incurred by the Group and the sluggish business environment which the Group is currently facing, the Group as mentioned above has an imminent endowment need for financial

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resources to revitalise its business operation and the continuity of research and development on its existing and new products, such as the 2D barcode technology which has various applications, like mobile phones and the ticketing verification system. Having all these being the case, the Directors expect that the Group would encounter difficulties in improving its future business operation in the event that it fails to obtain immediate substantial funding.

(2) Reasons for the Rights Issue

With reference to the Board Letter and the announcement of the Company dated 8 November 2007, the Group has disposed of 55% equity interest in SYSCAN Manufacturing for the repayment of debts owned by SYSCAN Optoelectronics (the “Disposal”). The gross proceeds from the Disposal were approximately HK$132.83 million, of which approximately HK$120.75 million will be used by the Group to repay the Loans. The Directors are of the view that although the Disposal can reduce the financial burden of the Group, the Group may not have sufficient working capital to operate in the foreseeable future. As confirmed by the Directors, the Disposal was completed on 27 December 2007. Based on the working capital forecast of the Group for the next 12 months as prepared and provided to us by the Company, we noted that the Directors estimated that the operating cost of the Group will be approximately HK$11 million per month and the Directors expected that the net proceeds from the Disposal and the Rights Issue are necessary for the Group to sustain its operation for the next twelve months. As also confirmed by the Directors, while the Group does not have any further fund raising plan for the future, the Group may consider diversifying its business when appropriate investment opportunities occur. In view of the persistent loss making record and the sluggish business environment which the Group is currently facing, and the dire financial and liquidity position of the Group as detailed under the paragraph headed “Business and financial information on the Group” in this letter, we consider that although the Rights Issue is not in the ordinary and usual course of business of the Company, the reasons for the Rights Issue is justifiable and the Rights Issue is still in the interests of the Company and the Shareholders as a whole.

(3) Financing alternatives available to the Group

As stated in the Board Letter, the Group had not carried out any equity fund raising activity during the past 12 months immediately prior to the date of the Announcement.

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LETTER FROM SOUTH CHINA CAPITAL

We have enquired into the Directors and were informed by the Directors that the Group has considered various methods, namely debt financing and equity financing, for fund raising. However, taking into account that (i) the Group has been recording persistent losses from its business operation since it was listed on GEM in 2000; and (ii) the Group lacks valuable assets for pledging against bank borrowings, the Directors believe that the Group would not be able to obtain additional debts/ bank borrowings not to mention that further debt liabilities would increase the gearing level of the Group which would in turn worsen the financial and liquidity position of the Group. Therefore, the Directors are of the view that debt financing is not considered to be practical to the Group.

With regard to equity financing, the Directors advised that private placement of the Shares under general mandate granted to the Directors would exclude the existing Shareholders’ rights to subscribe for the Shares and the shareholding interests of the existing Shareholders in the Company would be diluted. For this reason, private placement of the Shares is not preferred by the Company. Although both open offer and rights issue would allow all the Shareholders to participate in the enlargement of the capital base of the Company and to maintain their proportionate shareholding interests in the Company, a rights issue would also allow those Shareholders who do not wish to participate in the fund raising of the Company to dispose of their Rights Shares entitlements in the market in a nil-paid form. As a result, the Directors are of the view that it is in the interests of the Company and the Shareholders as a whole to raise funds through the Rights Issue.

Having taken into account the aforementioned shortcomings of all the other financing alternatives in comparison with a rights issue, we concur with the Directors that the Rights Issue is an acceptable and feasible fund raising means currently available for the Company to ease the imminent endowment need of the Group.

(4) Use of proceeds from the Rights Issue

It is estimated that the gross proceeds from the Rights Issue will not be less than approximately HK$16.38 million. The estimated amount of expenses of the Rights Issue is approximately HK$1.75 million, which include, among other things, the underwriting commission, legal fees, financially advisory fees, printing fees, prospectus registration fees and related expenses, which are all payable by the Company.

According to the Board Letter, the net proceeds from the Rights Issues of not less than HK$14.63 million will be used by the Group as general working capital such that the Group can continue to carry on its existing business activities, such as the design, research, development, manufacturing and distribution of optical image capturing devices and related components. As further confirmed by the Directors and based on the working capital forecast

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LETTER FROM SOUTH CHINA CAPITAL

of the Group for the next twelve months as provided to us by the Company, the net proceeds from the Rights Issue is necessary for the Group to carry on its existing business activities and to improve its business operation in the near future.

In conclusion, we noted that (i) the Group has been suffering from persistent losses and is facing a sluggish business environment, and its financial and liquidity position is dire; (ii) the Group shall not have sufficient financial resources to revitalize its business operation should the Group fails to obtain immediate substantial funding; (iii) the Rights Issue is an acceptable and feasible fund raising means currently available for the Company given the shortcomings of all the other financing alternatives; and (iv) the Company intends to apply the net proceeds from the Rights Issue as general working capital such that the Group can continue to carry on its existing business activities and to improve its business operation in the near future. Due to the above reasons, we consider that the Rights Issue is in the interests of the Company and the Shareholders as a whole.

(5) Terms of the Rights Issue

The table below summarises the major terms of the Rights Issue:

Basis of the Rights Issue: Four Rights Shares for every one Share held by the Qualifying Shareholders on the Record Date Number of Shares in issue 409,457,308 Shares as at the Latest Practicable Date: Number of Shares to be Up to 4,774,000 Shares issued upon the exercise of the outstanding Options: Number of Rights Shares to Not less than 1,637,829,232 Rights be issued: Shares (assuming no outstanding Option is exercised on or before the Record Date) and not more than 1,656,925,232 Rights Shares (assuming all the outstanding Options have been exercised on or before the Record Date) Subscription Price: HK$0.01 per Rights Share

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The Subscription Price of HK$0.01 per Rights Share represents:

(a) a discount of approximately 97.98% to the closing price of HK$0.495 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(b) a discount of approximately 90.65% to the theoretical ex-rights price of HK$0.107 per Share based on the closing price of HK$0.495 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(c) a discount of approximately 97.22% to the closing price of HK$0.36 per Share as quoted on the Stock Exchange on the Last Trading Day;
(d) a discount of approximately 87.50% to the theoretical ex-rights price of HK$0.08 per Share based on the closing price of HK$0.36 per Share as quoted on the Stock Exchange on the Last Trading Day;
(e) a discount of approximately 97.22% to the average closing prices of approximately HK$0.36 per Share as quoted on the Stock Exchange on the last five trading days up to and including the Last Trading Day;
(f) a discount of approximately 87.50% to the theoretical ex-rights price of HK$0.08 per Share based on the average closing prices of approximately HK$0.36 per Share as quoted on the Stock Exchange on the last five trading days up to and including the Last Trading Day; and
(g) a discount of approximately 51.82% to the unaudited NAV of approximately HK$0.02 per Share as at 30 June 2007 based on 409,457,308 Shares in issue as at the date of the Announcement.

The Directors confirmed that the Subscription Price was determined after arm’s length negotiation between the Company and Mr. Cheung with reference to the general market practice of issuing rights shares at a discount to the market price of the relevant shares. In this regard, the Board also considered that a substantial discount is necessary to attract the Qualifying Shareholders to take up their Rights Shares entitlements with the hope that the Group shall be able to revitalise its future business performance despite of its persistent loss making record and its dire financial and liquidity position.

In order to assess the fairness and reasonableness of the Subscription Price, we set out below various informative analyses for illustrative purpose:

(i) Review on Share prices

The highest and lowest closing prices and the average daily closing prices of the Shares as quoted on the Stock Exchange in each month

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LETTER FROM SOUTH CHINA CAPITAL

during the period commencing from 1 December 2006 up to and including the Latest Practicable Date (the “Review Period”) are shown as follows:

	Highest	Lowest	Average daily
Month	closing price	closing price	closing price
	HK$	HK$	HK$
2006
December	0.26	0.18	0.20
2007
January	0.22	0.17	0.18
February	0.18	0.15	0.17
March	0.21	0.17	0.18
April	0.59	0.21	0.36
May	0.50	0.39	0.45
June_(Note 1)_	0.41	0.34	0.38
July_(Note 1)_	0.45	0.33	0.38
August	0.43	0.37	0.40
September	0.39	0.32	0.36
October_(Note 2)_	0.62	0.33	0.41
November_(Note 2)_	0.40	0.34	0.37
December (up to and including
the Last Trading Day)	0.38	0.34	0.36
Post-Announcement Period
December (from 19 December to
31 December 2007)	0.57	0.40	0.50
January 2008 (up to and including
the Latest Practicable Date)	0.60	0.47	0.54

Source: the Stock Exchange web-site (www.hkex.com.hk)

Notes:

Trading in the Shares was suspended from 29 June 2007 to 16 July 2007 (both days inclusive).
Trading in the Shares was suspended from 31 October 2007 to 8 November 2007 (both days inclusive).

During the Review Period, the average daily closing price of the Shares ranged from HK$0.17 to HK$0.54 per Share and the Shares had been traded above the Subscription Price. The highest and lowest closing prices of the Shares as quoted on the Stock Exchange were HK0.62 per Share recorded on 18 October 2007 and HK$0.15 per Share recorded on 15 February 2007 respectively during the Review Period. We noted that the highest closing price of the Shares of HK$0.62 represented a premium of approximately 313.33% over the lowest closing price of the Shares of HK$0.15. In addition, the movement of the average daily closing prices

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LETTER FROM SOUTH CHINA CAPITAL

of the Shares did not demonstrate any rising or sliding trend during the Review Period. We are thus of the view that the market price of the Shares is volatile and may be unable to serve as an indicator for the Company’s business performance and the market perception on the Company.

(ii) Review on trading liquidity of the Shares

The average daily number of the Shares traded per month, and the respective percentages of the Shares’ monthly trading volume as compared to (i) the total number of issued Shares held by the public as at the Last Trading Day; and (ii) the total number of issued Shares as at the Last Trading Day during the Review Period are tabulated as follows:

		% of
		the Average
		Volume to	% of the
		total number	Average
		of issued	Volume to
	Average daily	Shares held	total number of
	trading volume	by the public	issued Shares	No. of
	(the “Average	as at the Last	as at the Last	trading days
Month	Volume”)	Trading Day	Trading Day	in each month
		(Note 3)	(Note 4)
	Shares	%	%
2006
December	299,463	0.12	0.07	19
2007
January	139,082	0.06	0.03	22
February	156,667	0.07	0.04	18
March	180,745	0.08	0.04	22
April	1,181,233	0.49	0.29	18
May	413,257	0.17	0.10	21
June_(Note 1)_	501,400	0.21	0.12	19
July_(Note 1)_	439,086	0.18	0.11	11
August	750,843	0.31	0.18	23
September	450,189	0.19	0.11	19
October_(Note 2)_	1,360,971	0.57	0.33	20
November_(Note 2)_	367,945	0.15	0.09	16
December (up to and including
the Last Trading Day)	251,600	0.10	0.06	7
Post-Announcement Period
December (from 19 December	to
31 December 2007)	2,565,072	1.07	0.63	7
January 2008 (up to and including
the Latest Practicable Date)	1,622,219	0.67	0.40	18

Source: the Stock Exchange web-site (www.hkex.com.hk)

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LETTER FROM SOUTH CHINA CAPITAL

Notes:

Trading in the Shares was suspended from 29 June 2007 to 16 July 2007 (both days inclusive).
Trading in the Shares was suspended from 31 October 2007 to 8 November 2007 (both days inclusive).
Based on 240,834,899 Shares held in public hands as at the Last Trading Day.
Based on 409,457,308 Shares in issue as at the Last Trading Day.

The above table illustrated that the average daily trading volume of the Shares per month was thin during the Review Period, with ranges of approximately 0.06% to 1.07% and approximately 0.03% to 0.63% of the total number of issued Shares held by the public as at the Last Trading Day and the total number of issued Shares as at the Last Trading Day respectively. We noted that trading in the Shares had been historically inactive and the Shares were hence rather illiquid. Having this being the case, together with the persistent loss making record and the dire financial and liquidity position of the Group, we concur with the Directors that it would be difficult to attract the Qualifying Shareholders to reinvest in the Company through the Rights Issue if the Subscription Price was not set at relatively substantial discount to the closing prices of the Shares. In view of also that the historical market price of the Shares as concluded under the previous paragraph fails to indicate the Company’s business performance as well as the market perception on the Company and therefore may not serve as a good benchmark to determine the fairness and reasonableness of the Subscription Price, we are of the view that the substantial discount of the Subscription Price is justifiable.

Following the release of the Announcement, we noted that the closing price of the Shares had increased by approximately 54.69% from HK$0.32 per Share as at the Last Trading Day to HK$0.495 per Share as at the Latest Practicable Date. Besides that, trading in the Shares had also become relatively more active following the release of the Announcement. The price movement in the Shares together with the rise in trading volume of the Shares after the release of the Announcement and up to the Latest Practicable Date represent, in our opinion, a positive response from the market to the Rights Issue and reflect the market perception of the potential benefits of the Rights Issue to the Company upon Completion.

(iii) Comparison with other rights issue

As part of our analysis, we have identified rights issue transactions (the “Comparables”) from 1 September 2007 to the Latest Practicable Date by companies listed on the Main Board and GEM of the Stock Exchange. To the best of our knowledge and as far as we are aware of, we found 18 companies which met these criteria. Shareholders should

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LETTER FROM SOUTH CHINA CAPITAL

note that the businesses, operations and prospects of the Company are not the same as the Comparables and thus the Comparables are only used to provide a general reference for the common market practice in rights issue transactions of companies listed in Hong Kong. Summarised below is our relevant finding:

					Premium/
					(Discount)
					of the
				Premium/	subscription
				(Discount)	price over/(to)
				of the	the theoretical
				subscription	ex-rights price	Premium/
				price	per share	(Discount)
				over/(to)	based on the	of the
				closing price	closing price	subscription
				per share on	per share on	price over/(to)
			Market	last trading	last trading	NAV (net
			capitalisation	day prior to	day prior to	of minority
	Stock	Date of	as at the Last	announcement	announcement	interests)	Underwriting
Company name	code	announcement	Trading Day	date	date	per share	commission
			HK$ million	%	%	%	%
See Corporation Limited	491	13 September 2007	67	(52.90)	(27.30 )	(42.44 )	2.50
Cash Financial Services	8122	2 October 2007	979	(40.30)	(32.50 )	7.05	nil
Group Limited
GFT Holdings Limited	1003	10 October 2007	74	(61.62)	(28.64 )	18.20	2.50
Karrie International	1050	11 October 2007	317	(27.18)	(21.05 )	(44.41 )	0.00
Holdings Limited
B.A.L. Holdings Limited	8079	16 October 2007	414	(29.60)	(21.90 )	190.60	2.00
Radford Capital Investment	901	25 October 2007	91	(43.80)	(24.70 )	(81.87 )	2.00
Limited
Sun Man Tai Holdings	433	29 October 2007	249	(54.20)	(43.93 )	(43.16 )	1.00
Company Limited
Willie International Holdings	273	15 November 2007	4,098	(62.07)	(45.00 )	146.84	2.50
Limited
The Wharf (Holdings) Limited	4	28 November 2007	108,250	(26.02)	(23.81 )	(6.86 )	1.25
Freeman Corporation Limited	279	4 December 2007	358	(82.86)	(44.62 )	101.96	2.50
Forefront Group Limited	885	4 December 2007	464	(45.95)	(36.17 )	117.35	2.50
Compass Pacific Holdings	1188	5 December 2007	351	(58.30)	(41.20 )	N/A	2.00
Limited					(Note)
Easyknit Enterprises Holdings	616	6 December 2007	243	(40.20)	(30.70 )	28.72	1.00
Limited
Unity Investments Holdings	913	12 December 2007	383	(87.23)	53.25	(5.08 )	2.50
Limited
Intcera High Tech Group	8041	18 December 2007	723	(88.40)	(79.20 )	(89.93 )	nil
Limited
Trasy Gold Ex Limited	8063	18 December 2007	332	(36.78)	(27.95 )	40.96	2.50
Asia Standard International	129	9 January 2008	2,030	(35.70)	(27.10 )	(67.41 )	2.00
Group Limited
Cheuk Nang (Holdings)	131	11 January 2008	1,521	(17.28)	(15.41 )	(54.39 )	2.50
Limited
Maximum				(17.28)	53.25	190.60	2.50
Minimum				(88.40)	(79.20 )	(89.93 )	0.00
The Company	8083	18 December 2007	147	(97.22)	(87.50 )	(51.82 )	1.00

Source: the Stock Exchange web-site (www.hkex.com.hk)

Note: Compass Pacific Holdings Limited recorded net liabilities as at 30 June 2007.

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LETTER FROM SOUTH CHINA CAPITAL

As shown by the above table, the subscription prices of the Comparables ranged from discounts of approximately 88.40% to 17.28% to the respective closing prices of their shares on the last trading days prior to the release of the rights issue announcements. The Subscription Price, which represents a discount of approximately 97.22% to the closing price of the Shares on the Last Trading Day, does not fall within the said market range.

Moreover, the subscription prices of the Comparables ranged from a discount of approximately 79.20% to a premium of approximately 53.25% to/over the respective theoretical ex-rights prices of their shares on the last trading days prior to the release of the rights issue announcements. The Subscription Price, which represents a discount of approximately 87.50% to the theoretical ex-rights price of the Shares on the Last Trading Day, does not fall within the said market range.

Last but not least, the subscription prices of the Comparables ranged from a discount of approximately 89.93% to a premium of approximately 190.60% to/over their respective NAVs. The Subscription Price, which represents a discount of approximately 51.82% to the unaudited consolidated NAV per Share as at 30 June 2007, falls within the said market range.

As referred to in the Board Letter and as aforementioned, the Subscription Price was determined after arm’s length negotiation between the Company and Mr. Cheung with reference to the general market practice of issuing rights shares at a discount to the market price of the shares. We are aware of such general market practice from the above table even though the Subscription Price represents a deeper discount to the market price of the Shares than those of the Comparables. In this regard, we consider that the level of discount is usually subject to various factors including but not limited to (i) the arm’s length negotiation between the company and the underwriter, and the number of underwriters available; (ii) the current and historical business performance of the company; and (iii) the urgency of the financing need of the company. In the situation of the Rights Issue, we have already detailed the prolonged poor business performance and persistent loss making record of the Group under the paragraph headed “Business and financial information on the Group” in this letter. In addition, the Group is in a dire financial and liquidity position and has an imminent endowment need to revitalise its business operation. In view of the above, we concur with the Directors that the Subscription Price is fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM SOUTH CHINA CAPITAL

(6) Undertakings from the Underwriter and the underwriting arrangements

As at the Latest Practicable Date, Mr. Cheung and the parties acting in concert with him were beneficially interested in 168,622,409 Shares, representing approximately 41.18% of the existing issued share capital of the Company and Mr. Cheung is a holder of the outstanding Options to subscribe for 1,000,000 Shares. Pursuant to the irrevocable undertaking by Mr. Cheung, Mr. Cheung will take up all his entitlements (including those of his connected parties) under the Rights Issue of 674,489,636 Rights Shares (but not more than 678,489,636 Rights Shares in the event that all the outstanding Options held by the Underwriter have been exercised on or before the Record Date) (the “Irrevocable Undertaking”).

Pursuant to the Underwriting Agreement, Mr. Cheung, being the Underwriter, has also conditionally agreed to fully underwrite all the Rights Shares of not less than 963,339,596 Rights Shares (assuming none of the outstanding Options are exercised on or before the Record Date and excluding the Rights Shares to be issued to or accepted by Mr. Cheung) and not more than 978,435,596 Rights Shares (assuming all the outstanding Options have been exercised on or before the Record Date and excluding the Rights Shares to be issued to or accepted by Mr. Cheung) with an underwriting commission of 1% of the Subscription Price on the underwritten Rights Shares.

From the Comparables as detailed in the table under the previous paragraph, we noted that the underwriting commission to be received by the Underwriter from the Rights Issue of 1% falls within the range of commissions of 0% to 2.5% received by underwriters in other rights issue. In view of the above, the underwriting arrangement and the commission rate for the Rights Issue are in line with common market practice. Moreover, we consider the Irrevocable Undertaking and Mr. Cheung being the sole Underwriter of the Rights Issue to be a proof of the controlling shareholder’s continual support to the Group regardless of the Group’s persistent loss making record and its dire financial and liquidity position as discussed under previous sections in this letter.

In addition, we have also reviewed the other terms of the Rights Issue and the Underwriting Agreement and are not aware of any terms which are uncommon to normal market practice. Accordingly, we are of the view that the terms of the Rights Issue and the Underwriting Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

(7) Dilution effect on the shareholding interests of the Independent Shareholders

All Qualifying Shareholders are entitled to subscribe for the Rights Shares. For those Qualifying Shareholders who take up their entitlements in full under the Rights Issue, their shareholding interests in the Company will remain unchanged after the Rights Issue.

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LETTER FROM SOUTH CHINA CAPITAL

The Qualifying Shareholders who do not accept the Rights Issue can, subject to the then prevailing market conditions, consider selling their nilpaid rights to subscribe for the Rights Shares in the market,. In such case the Qualifying Shareholders do not subscribe for the Rights Shares and their shareholding interests in the Company will be diluted by a maximum of 47.06 percent point (assuming none of the outstanding Options are exercised on or before the Record Date) upon completion of the Rights Issue.

Meanwhile, the Qualifying Shareholders who wish to increase their shareholdings in the Company through the Rights Issue may (i) subject to availability, acquire additional nil-paid rights in the market; and (ii) apply for the excess Rights Shares since the Rights Issue also allows for excess application of the Rights Shares.

We are aware of the aforementioned potential dilution to the Independent Shareholders’ shareholding interests in the Company. Nonetheless, we consider that the foregoing should be balanced against by the following factors:

the Independent Shareholders are offered a chance to express their view on the terms of the Rights Issue and the Underwriting Agreement through their votes at the SGM;
the Qualifying Shareholders have their choice whether to accept the Rights Issue or not;
the Qualifying Shareholders have the opportunity to realize their nil-paid rights to subscribe for the Rights Shares in the market;
the Rights Issue offers the Qualifying Shareholders a chance to subscribe for their pro-rata Rights Shares for the purpose of maintaining their respective existing shareholdings in the Company at a relatively low price as compared to the historical and prevailing market price of the Shares; and
those Qualifying Shareholders who choose to accept the Rights Issue in full can maintain their respective existing shareholdings in the Company after the Rights Issue.

Having considered the above and that the Group is in such dire financial and liquidity position and has an imminent endowment need, we consider the potential dilution effect on the shareholding interests of the Independent Shareholders, which may only happen in the worst case scenario, to be justifiable.

– 39 –

LETTER FROM SOUTH CHINA CAPITAL

(8) Financial effects of the Rights Issue

(i) Effect on NTAV

A statement of unaudited pro forma adjusted consolidated net tangible asset value (“NTAV”) of the Group based on the unaudited consolidated NTAV of the Group as at 31 May 2007 as if the Rights Issue had been completed on 31 May 2007 is set out in Appendix II to the Circular (the “Statement”).

The unaudited consolidated NTAV and NTAV per Share of the Group were approximately HK$7.18 million and HK$0.018 respectively as at 31 May 2007 according to the Statement and based on 409,457,308 Shares in issue as at the Last Trading Day. Upon completion of the Rights Issue, the unaudited pro forma adjusted consolidated NTAV and NTAV per Share of the Group would increase by approximately 228.10% to approximately HK$23.56 million and decrease by approximately 34.38% to approximately HK$0.012 per Share respectively based on the Statement.

In light of that the Rights Issue would enlarge the capital base of the Group, we consider that the Rights Issue is in the interests of the Company and the Shareholders as a whole.

(ii) Effect on gearing position

The gearing ratio of the Group, being calculated by total borrowings divided by NTAV, was approximately 9.03 times as at 31 May 2007. As mentioned under the above paragraph, the unaudited pro forma adjusted consolidated NTAV of the Group would increase upon completion of the Rights Issue but the total borrowings of the Group are not expected to change. Consequently, the gearing position of the Group would be relieved and the Directors expect that the Group would enjoy more financial flexibility afterwards and hence we consider that the Rights Issue is in the interests of the Company and the Shareholders as a whole.

(iii) Effect on liquidity

As advised by the Directors, the total cash and bank balances of the Group was approximately HK$77.37 million as at 30 November 2007. As the net proceeds from the Rights Issue will be applied as general working capital of the Group, the Group’s liquidity position would be improved upon completion of the Rights Issue. We consider such improvement in liquidity to be in the interests of the Company and the Shareholders as a whole.

– 40 –

LETTER FROM SOUTH CHINA CAPITAL

It should be noted that the aforementioned analyses are for illustrative purpose only and does not purport to represent how the financial position of the Company will be upon completion of the Rights Issue.

(II) THE WHITEWASH WAIVER

In the event that Mr. Cheung is required to subscribe for the Rights Shares in full pursuant to the Underwriting Agreement, the aggregate shareholding interests of Mr. Cheung and the parties acting in concert with him in the Company will be increased from approximately 41.18% to 88.24% upon completion of the Rights Issue based on the enlarged issued shares capital of the Company (assuming none of the outstanding Options are exercised on or before the Record Date). Accordingly, the underwriting by Mr. Cheung of the Rights Issue may trigger a mandatory general offer obligation under Rule 26 of the Takeovers Code for all the securities of the Company not already held by him and the parties acting in concert with him.

A formal application has been made by Mr. Cheung to the Executive for the Whitewash Waiver pursuant to Note 1 on Dispensations from Rule 26 of the Takeovers Code. The Executive has indicated that the Whitewash Waiver would be granted if the same is approved by the Independent Shareholders by way of poll at the SGM. In view of (i) the interests of Mr. Cheung in the Rights Issue, the Underwriting Agreement and the Whitewash Waiver; and (ii) Mr. Cheung being a controlling shareholder of the Company, Mr. Cheung and his associates, and the parties acting in concert with any of them (i.e. Simrita Investments Limited, a company which is wholly and beneficially owned by Mr. Cheung) shall abstain from voting at the SGM.

Shareholders should note in the event that the shareholding interests in the Company of Mr. Cheung and his associates, and the parties acting in concert with any of them exceed 50% upon completion of the Rights Share and the Whitewash Waiver is approved by the Independent Shareholders and granted by the Executive, Mr. Cheung and his associates, and the parties acting in concert with any of them may increase their shareholdings in the Company without incurring any further obligation under Rule 26 of the Takeovers Code to make a general offer.

Given the aforementioned potential benefits of the Rights Issue to the Company and the terms of the Rights Issue and the Underwriting Agreement being fair and reasonable so far as the Independent Shareholders are concerned, we are of the opinion that the approval of the Whitewash Waiver, which is a prerequisite for the completion of the Rights Issue, is in the interests of the Company and the Shareholders as a whole and is fair and reasonable for the purpose of proceeding with the Rights Issue.

– 41 –

LETTER FROM SOUTH CHINA CAPITAL

RECOMMENDATION ON THE RIGHTS ISSUE AND THE WHITEWASH WAIVER

Having taken into account the above principal factors and reasons, we consider that the terms of the Rights Issue and the Underwriting Agreement are on normal and commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned. Furthermore, the Rights Issue is in the interests of the Company and the Shareholders as a whole even though it is not in the ordinary and usual course of business of the Company. Accordingly, we advise the Independent Board Committee to advise the Independent Shareholders, and we advise the Independent Shareholders to vote in favour of the relevant resolution(s) at the SGM to approve the Rights Issue, the Underwriting Agreement and the transactions contemplated thereunder.

Taking into consideration the reasons and benefits of for the Rights Issue and that the Rights Issue is conditional upon the grant of the Whitewash Waiver, we consider that the Whitewash Waiver is in the interests of the Company and the Shareholders as whole. Accordingly, we advise the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution in relation to the Whitewash Waiver at the SGM. We also recommend the Independent Shareholders to vote in favour of the resolution to approve the Whitewash Waiver at the SGM.

Yours faithfully, For and on behalf of South China Capital Limited Graham Lam

Director

– 42 –

APPENDIX I

FINANCIAL INFORMATION

1. SUMMARY OF FINANCIAL STATEMENTS

Financial Summary

The following is a summary of the audited financial statements of the Group for each of the three years ended 31 December 2006 and the unaudited financial results of the Company for the three months ended 31 March 2007, the six months ended 30 June 2007, and the nine months ended 30 September 2007 (the “Financial Periods”), together with the comparative figures for the corresponding period in 2006, as extracted from the audited financial statements of the Company as set out in the Company’s annual reports for each of the two years ended 31 December 2006, the first quarter report of the Company for the three months ended 31 March 2007, the second quarter report of the Company for the six months ended 30 June 2007, and the third quarter report of the Company for the nine months ended 30 September 2007.

Turnover Profit/(loss) before tax Income tax expense Profit/(loss) after tax Minority Interest Earnings/(loss) per share Dividends	(Unaudited) For the 3 months ended 31 March 2006 2007 HK$’000 HK$’000 20,239 19,038 (4,572) (1,707) (7) – (4,579) (1,707) 111 – HK(4.4) cents HK(0.4) cents – –	(Unaudited) For the 6 months ended 30 June 2006 2007 HK$’000 HK$’000 38,052 42,625 (11,974) (4,193) (7) – (11,981) (4,193) 229 – HK(11.5) cents HK(1) cents – –	(Unaudited) For the 9 months ended 30 September 2006 2007 HK$’000 HK$’000 60,073 62,006 (15,302) (8,903) (7) – (15,309) (8,903) 332 – HK(3.7) cents HK(2.2) cents – –	(Audited) For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 192,339 66,555 92,690 (23,876) (100,081) (13,048 (7) (7) (2 (23,883) (100,088) (13,050 843 653 1,450 HK(22.5) cents HK(97.1) cents HK(4.6) cents – – –	(Audited) For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 192,339 66,555 92,690 (23,876) (100,081) (13,048 (7) (7) (2 (23,883) (100,088) (13,050 843 653 1,450 HK(22.5) cents HK(97.1) cents HK(4.6) cents – – –
					(2 (13,050
					1,450 HK(4.6) cents

					–

Notes:

1a. With respect to the financial statements of the Company for the year ended 31 December 2006, the auditor of the Company (“CCIF CPA Limited”) stated in their report, as extracted from the annual report of the Company for the year ended 31 December 2006, that:

In forming our opinion, we have considered the adequacy of the disclosure made in note 2 to the financial statements which describes the liquidity issues and financial difficulties experienced by the Group and the measures undertaken by the Group to ensure that adequate cash resources are available to the Group. Specifically, the Group is dependent upon the continuing financial support of its major bank to renew its credit facility of RMB120,000,000 (equivalent HK$120,000,000), which became due on 22 April 2006. As explained in note 32 to the financial statements, the Group defaulted in respect of the repayment of the bank loan from its major banker and the related interest, the total amount of RMB121,240,000 (equivalent HK$116,577,000) became repayable on demand. The major banker had applied to the court in Guangdong, mainland China, to freeze the leasehold land included in the property under development of the Group. The Company continues to negotiate with the major banker for the rescheduling or extension of the existing loan currently in default. On the assumption that the negotiations continue successfully and the major banker would renew its credit facilities and withdraw the writ and there are successful outcome of other measures undertaken as described in note 2 to the financial statements, the directors consider that the Group will be able to meet in full its financial obligations as they fall due in the foreseeable future.

– 43 –

APPENDIX I

FINANCIAL INFORMATION

The consolidated financial statements have been prepared on a going concern basis, the validity of which depends upon the continuing financial support from its major banker and successful outcome of the measures undertaken as descried in note 2 to the financial statements to ensure that adequate cash resources are available to meet the Group’s future working capital and financial requirements. The financial statements do not include any adjustments that may be necessary should the implementation of the above measures be unsuccessful. We consider that appropriate disclosures have been made. However, in view of the extent of the material uncertainties relating to the measures mentioned above that may cast significant doubt on the Group’s ability to continue as a going concern, we have disclaimed our opinion. The financial statements do not include any adjustments that would be necessary if the various measures as described above fail to take place. Any adjustment to the financial statements may have a consequential significant effect on the loss for the year and net assets as at 31 December 2006.

1b. With respect to the financial statements of the Company for the year ended 31 December 2005, the auditor of the Company stated in their report, as extracted from the annual report of the Company for the year ended 31 December 2005, that:

In forming our opinion, we have considered the adequacy of the disclosure made in note 2(b) to the financial statements which describes the liquidity position of the Group. The Group is dependent upon the financial support of its banks and on its ability to renew its credit facility of RMB120 million, which falls due on 22 April 2006, with its major banker. However, as explained in note 38(a) (the “Post Balance Sheet Events”) to the financial statements, the Group defaulted in respect of the repayment of the bank loan from its major banker and the related interest totalling HK$116.5 million and such amounts had become repayable on demand. The major banker had applied to the court in Guangdong, mainland China, to freeze the leasehold land included in the property under development of the Group. The Company is currently negotiating with the major banker for the rescheduling or extension of the existing loan currently in default. On the assumption that negotiations would be successful and the major banker would renew its credit facilities and withdraw the writ, the directors consider that the Group will be able to meet in full its financial obligations as they fall due for the foreseeable future.

The financial statements have been prepared on a going concern basis, the validity of which depends upon continuing financial support from its bankers and creditors, the Company’s ability to renew its credit facilities from the major banker, the availability of additional external funding and the attainment of profitable and positive cash flow operations to meet the Group’s future working capital and financial requirements. The financial statements do not include any adjustments that may be necessary should the implementation of the above measures be unsuccessful. We consider that appropriate disclosures have been made. However, in view of the extent of the fundamental uncertainty relating to whether the going concern is appropriate, we have disclaimed our opinion.

1c (i). With respect to the financial statements of the Company for the year ended 31 December 2004, the auditor of the Company stated in their report, as extracted from the annual report of the Company for the year ended 31 December 2004, that:

On 29 March 2004, SYSCAN Imaging Limited (“SIL”) and SYSCAN Inc., wholly-owned subsidiaries of the Company, entered into a share exchange agreement (“Share Exchange Agreement”) with an overseas listed company and its principal shareholder, pursuant to which the principal shareholder of the overseas listed company and SIL agreed to exchange shares between the overseas listed company and SYSCAN Inc.. SIL exchanged 100% equity interest in SYSCAN Inc. for 81.23% equity interest in the overseas listed company so that upon completion of the share exchange arrangement, the Company would indirectly hold 81.23% equity interest in the overseas listed company. In addition, SIL agreed to grant an option to the overseas listed company, pursuant to which the overseas listed company had the right to acquire from SIL the entire issued capital of SYSCAN Manufacturing Limited (“SML”) at a consideration of not less than USD16 million (equivalent to approximately HK$124.8 million) during a period of 2 years commencing from the date of completion of the Share Exchange Agreement.

On 2 April 2004, the overseas listed company announced that it had completed the acquisition of 100% of the issued and outstanding capital stock of Syscan, Inc.. As at 31 December 2004, the register of members of the overseas listed company listed SIL as holding 81.23% of the overseas listed company.

– 44 –

APPENDIX I

FINANCIAL INFORMATION

However, on 12 May 2004, the directors of the Company announced in Hong Kong that the Share Exchange Agreement constituted a discloseable transaction for the Company under the GEM Listing Rules and that the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) had indicated that the transactions contemplated pursuant to the Share Exchange Agreement to be a proposed spin-off (the “Proposed Spin-off”) of Syscan Inc. and SML and “therefore the transactions and the Proposed Spin-off would be conditional on, inter alia, the approval of the GEM Listing Committee and the Shareholders”. Syscan Inc. is a major subsidiary of the Company (as defined in the GEM Listing Rules), the transactions constituted a material dilution of the Company’s interest in SYSCAN Inc.. The announcement also stated that the Company would apply for the approval of the Stock Exchange to proceed with the Proposed-Spin-off. For further details, please refer to the announcement made by the Company on 12 May 2004.

In November 2004, the Stock Exchange was informed that the shares of Syscan Inc. had not been and will not be transferred to the overseas listed company; unless and until the Proposed Spin-off and the transactions were approved by the GEM Listing Committee and the independent shareholders of the Company.

On 26 January 2005, the directors of the Company wrote to the overseas listed company to terminate the Share Exchange Agreement. On even date, the directors of the Company announced in Hong Kong that the “Share Exchange Agreement was terminated on 26 January 2005 given that to date, almost 10 months after the signing of the Share Exchange Agreement, the Proposed Spin-off has not yet been approved by the GEM Listing Committee”.

To date, we are not aware of any reply from the overseas listed company to the Company confirming consent to terminating the Share Exchange Agreement.

Due to the conflicting information as indicated in the preceding paragraphs, inadequate and inconclusive information regarding the shareholder of Syscan Inc. as at 31 December 2004, in the absence of any conclusive and overriding evidence confirming whether the information released by the directors of the Company would legally and conclusively prevail over the information released by the overseas listed company and in the absence of any legal opinion on the validity and enforceability of the Share Exchange Agreement; therefore we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2004 and the loss and cash flows of the Group for the year then ended. There were also no other satisfactory audit procedures that we could adopt to obtain sufficient evidence regarding the consolidation of the financial results of SYSCAN Inc. into the Group. Any adjustments may have a consequential significant effect on the loss for the year and net assets of the Group at 31 December 2004.

1c (ii). In forming our opinion, we have considered the appropriateness of preparing the financial statements on a going concern basis. Note 2 to the financial statements explains that the directors are satisfied that the Group will be able to meet its financial obligations in full as and when they fall due in the foreseeable future provided that the creditor banks continue to extend the bank borrowings and facilities to the Group in the future. As the directors are confident that the Group will be able to continue in operational existence in the foreseeable future, the financial statements have been prepared on a going concern basis. However, there is no sufficient appropriate audit evidence to substantiate the above underlying assumptions adopted by the directors and therefore we have been unable to conclude whether the going concern basis is appropriate for the Group.

If the going concern basis is not appropriate, adjustments would have been made to reclassify noncurrent assets and liabilities as current assets and liabilities respectively, to reduce the values of assets to their immediate recoverable amounts and to provide for any further liabilities which might arise. Such adjustments may have a significant consequential effect on the loss for the year and net assets of the Group at 31 December 2004.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

There were no exceptional or extraordinary items during the Financial Periods.
No dividend was paid or declared by the Company for each of the three years ended 31 December 2006 and the nine months ended 30 September 2007.

– 45 –

APPENDIX I

FINANCIAL INFORMATION

2. AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006

Set out below are the audited consolidated income statements and financial positions for each of the two financial years ended 31 December 2005 and 31 December 2006, which are extracted from the annual report of the Company for the year ended 2006.

Consolidated Income Statements

For the year ended 31 December 2006

Note Turnover 7 Cost of sales Gross profit Other revenue 7 Selling and distribution expenses General and administrative expenses Research and development expenses Other operating expenses 8(c) Loss from operations Finance costs 8(a) Gain on deemed disposal of a subsidiary Loss on disposal of subsidiaries Negative goodwill on acquisition of a subsidiary Share of losses of associates Loss before taxation 8 Income tax 10 Loss for the year Attributable to: Equity holders of the Company Minority interests Loss per share – Basic 12(a) – Diluted 12(b)	Note Turnover 7 Cost of sales Gross profit Other revenue 7 Selling and distribution expenses General and administrative expenses Research and development expenses Other operating expenses 8(c) Loss from operations Finance costs 8(a) Gain on deemed disposal of a subsidiary Loss on disposal of subsidiaries Negative goodwill on acquisition of a subsidiary Share of losses of associates Loss before taxation 8 Income tax 10 Loss for the year Attributable to: Equity holders of the Company Minority interests Loss per share – Basic 12(a) – Diluted 12(b)	2006 HK$’000 92,690 (67,713) 24,977 22,724	2006 HK$’000 92,690 (67,713) 24,977 22,724	2006 HK$’000 92,690 (67,713) 24,977 22,724	2005 HK$’000 66,555 (42,359) 24,196 4,376
		(5,953) (19,819) (4,657) (21,959)			(10,450) (57,348) (39,195) (23,797)
		(52,388) (4,687) (7,419) – (377) – (565) (13,048) (2) (13,050) (11,600) (1,450) (13,050) (4.6) cents N/A			(130,790) (102,218) (4,644) 2 (472) 8,911 (1,660) (100,081) (7) (100,088) (99,435) (653) (100,088) (97.1) cents N/A

– 46 –

APPENDIX I

FINANCIAL INFORMATION

Consolidated Balance Sheet

As at 31 December 2006

Note Non-current assets Intangible assets 13 Goodwill 14 Property, plant and equipment 15 Property under development 16 Interest in associates 18 Available-for-sale investments 19 Current assets Inventories 20 Trade receivables 21 Prepayments, deposits and other receivables 22 Due from an associate 23 Cash and cash equivalents 24 Current liabilities Bank loans, secured 25 Trade payables 26 Accruals and other payables 27 Due to a director 28 Due to associates 23 Net current liabilities Total assets less current liabilities Non-current liabilities Bank loans, secured 25 Net assets Capital and reserves Share capital 30 Reserves 31 Total equity attributable to the equity holders of the Company Minority interests Total equity	2006 HK$’000 877 – 14,073 157,229 33,134 – 205,313 3,097 11,918 40,669 – 4,919 60,603 144,084 24,840 37,890 4,590 38,579 249,983 (189,380) 15,933 (398) 15,535 4,095 11,440 15,535 – 15,535	2005 HK$’000 2,551 – 23,154 141,134 32,403 9,342 208,584 5,860 8,286 1,680 17,512 8,140 41,478 137,999 25,707 28,369 – 39,040 231,115 (189,637) 18,947 (446) 18,501 1,024 16,027 17,051 1,450 18,501

– 47 –

APPENDIX I

FINANCIAL INFORMATION

Balance Sheet

As at 31 December 2006

Note
Non-current assets
Interest in subsidiaries
17
Current assets
Prepayments, deposits and other receivables
22
Cash and cash equivalents
Current liabilities
Accruals and other payables
Due to a director
28
Net current assets/(liabilities)
Total assets less current liabilities
Non-current liabilities
Financial guarantee contract
29
Net liabilities
Capital and reserves
Share capital
30
Reserves
31
Deficiency in equity

2006
2005
HK$’000
HK$’000
(As restated)
–
50,640
35,616
460
11
9
35,627
469
4,204
1,980
4,240
–
8,444
1,980
27,183
(1,511)
27,183
49,129
(132,020)
(116,577)
(104,837)
(67,448)
4,095
1,024
(108,932)
(68,472)
(104,837)
(67,448)

– 48 –

APPENDIX I

FINANCIAL INFORMATION

Consolidated Statement of Changes in Equity

For the year ended 31 December 2006

At 1 January 2005 Effect of adoption HKFRS 3 on negative goodwill Exchange adjustments Deemed disposal of a subsidiary Disposal of a subsidiary Acquisition of a subsidiary Loss for the year At 31 December 2005 At 1 January 2006 Shares issued arising from open offer_(note 30)_ Exchange adjustments Loss for the year At 31 December 2006		Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Total HK$’000 115,307 564 580 26 9 – (99,435 ) 17,051 17,051 9,212 872 (11,600) 15,535	Minority interests HK$’000 5,807 – – 24 (221) (3,507) (653) 1,450 1,450 – – (1,450) –	Total equity HK$’000 121,114 564 580 50 (212 ) (3,507) (100,088 ) 18,501 18,501 9,212 872 (13,050 ) 15,535
	Share capital HK$’000 1,024 – – – – – – 1,024 1,024 3,071 – – 4,095	Share premium HK$’000 – – – – – – – – – 6,141 – – 6,141	Capital reserve HK$’000 198,068 – – (2) – – – 198,066 198,066 – – – 198,066	Statutory reserve fund HK$’000 439 – – – – – – 439 439 – – – 439	Exchange reserve HK$’000 1,272 – 580 28 9 – – 1,889 1,889 – 872 – 2,761	Accu- mulated losses HK$’000 (85,496 ) 564 – – – – (99,435 ) (184,367 ) (184,367 ) – – (11,600 ) (195,967 )

– 49 –

APPENDIX I

FINANCIAL INFORMATION

Consolidated Cash Flow Statement

For the year ended 31 December 2006

Note NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES Loss before taxation Adjustment for: Amortisation of intangible assets Depreciation of property, plant and equipment Gain on deemed disposal of subsidiaries 34(a) Impairment of positive goodwill Finance costs Interest income Gain on disposal of non-current assets Loss on disposal of subsidiaries 34(b) Loss on disposal of property, plant and equipment Reversal of impairment loss on trade receivables Impairment losses on trade and other receivables Write-down of inventories Negative goodwill on acquisition of a subsidiary 34(c) Share of loss of associates Reversal of impairment loss on amount due from associate Impairment loss on available-for-sale investment Impairment loss on amount due from an associate Trade payables written off OPERATING PROFIT/(LOSS) BEFORE WORKING CAPITAL CHANGES Increase in inventories (Increase)/decrease in trade receivables (Increase)/decrease in prepayments, deposits and other receivables Increase in due to a director Increase/(decrease) in trade payables Increase in accruals and other payables CASH OUTFLOW FROM OPERATIONS Oversea tax paid Interest received Interest paid NET CASH OUTFLOW FROM OPERATING ACTIVITIES	2006 HK$’000	2006 HK$’000	2005 HK$’000
	(13,048) 513 5,877 – – 7,419 (114) (15,904) 377 208 (1,793) – 376 – 565 – 1,560 19,886 (1,412)		(100,081) 470 6,383 (2) 3,869 4,644 (73) – 472 3,079 – 20,191 29,235 (8,911) 1,660 (733) – – (456)
	4,510 (3,909) (11,393) (34,518) 4,590 6,255 20,289 (14,176) (2) 114 (1,649) (15,713)		(40,253) (2,779) 14,814 3,436 – (3,095) 15,560 (12,317) (7) 73 (7,751) (20,002)

– 50 –

APPENDIX I

FINANCIAL INFORMATION

Note CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Additions to property under development Cash outflow from deemed disposal of a subsidiary 34(a) Cash (outflow)/inflow from disposal of subsidiaries 34(b) Cash inflow from acquisition of subsidiaries 34(c) (Increase)/decrease in due from/to associates NET INFLOW FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Repayment of bank loans, secured Shares issued arising from open offer NET CASH INFLOW/(OUTFLOW) FROM FINANCING ACTIVITIES DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENT AT BEGINNING OF YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES, NET CASH AND CASH EQUIVALENT AT END OF YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances	2006 HK$’000	2006 HK$’000	2005 HK$’000
	(897) 20,955 (5,440) – (4,487) – (1,634)		(1,762) 12,961 (7,762) (8) 23 4,062 3,535
	8,497 (2,063) 9,212 7,149 (67) 8,140 (3,154) 4,919 4,919		11,049
			(2,691) –
			(2,691) (11,644) 23,162 (3,378) 8,140 8,140

– 51 –

APPENDIX I

FINANCIAL INFORMATION

Notes to the Financial Statements

For the year ended 31 December 2006

1. CORPORATE INFORMATION

SYSCAN Technology Holdings Limited (“the Company”) was incorporated in Bermuda on 17 August 1999 as an exempted company with limited liability under the Companies Act 1981 of Bermuda (as amended). Its shares have been listed on The Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (“GEM”) since 14 April 2000.

The Company is an investment holding company. Its subsidiaries are principally engaged in the design, research, development, manufacture and distribution of optical image capturing devices, chips and other optoelectronic products.

The business of the Company and its subsidiaries (“the Group”) is characterized by constant technological change and new product and service development. Inherent in the Group’s business are various risks and uncertainties, including risks associated with the technology industry, history of losses, uncertain profitability and the ability to raise additional capital.

2. BASIS OF PREPARATION – MATERIAL UNCERTAINTIES RELATING TO THE GOING CONCERN BASIS

The Group sustained consolidated loss attributable to equity holders of the Company of HK$11,600,000 (2005: HK$99,435,000) for the year ended 31 December 2006. At 31 December 2006, the Group had consolidated net current liabilities of HK$189,380,000 (2005: HK$189,637,000) and bank loans of HK$144,482,000 (2005: HK$138,445,000) of which of HK$132,020,000 (2005: HK$116,577,000) were overdue as at the balance sheet date.

During the year, the Group experienced financial difficulties and was unable to repay the bank loans. Certain trade creditors took legal actions against the Group demanding for repayment of amounts due to them (see note 7). As explained in note 32 to the financial statements, the major bank had applied to the court in Guangdong, mainland China, to freeze the land, which was pledged as collateral for the bank loans of RMB120,000,000 (equivalent HK$120,000,000), plus the outstanding interest due as at 31 December 2006 at RMB12,020,000 (equivalent HK$12,020,000).

In view of the liquidity problems faced by the Group, the directors have adopted the following measures with the view to improve the Group’s overall financial and cash flow position and to maintain the Group’s existence on a going concern basis:

(a) the directors are currently negotiating with the major banker for the rescheduling and extension of the existing loan with the outstanding interest of HK$120,000,000 and HK$12,020,000 respectively for a total of HK$132,020,000 which was already overdue as at the balance sheet date;
(b) the directors are seeking support from the banker to further extend the payment term of the bank loan of HK$12,000,000, the current term of which will expire on 28 March 2007;
(c) the directors have identified and have been negotiating with potential purchasers to realize certain major assets of the Group; and
(d) the directors have adopted various cost control measures to reduce various general and administrative and other operating expenses.

In the opinion of the directors, in light of the measures adopted, the Group will have sufficient cash resources to satisfy its future working capital and other financing requirements. Accordingly, the directors are of the view that it is appropriate to prepare the financial statements on a going concern basis.

Should the Group be unable to achieve the above and fail to continue in business as a going concern, adjustments would have to be made to restate the values of the assets to their immediate recoverable amounts, to provide for any further liabilities which might arise, and to reclassify non-current assets and liabilities as current assets and liabilities, respectively. The effects of these adjustments have not been reflected in the financial statements.

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3. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of Compliance

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong, the disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on the GEM.

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for current accounting period of the Group and the Company. The accounting policies of the Group and Company after the adoption of these new and revised HKFRSs have been summarised below.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 41). The following standards, amendments and interpretations are mandatory for accounting periods beginning on or after 1 January 2006. Except for HKAS 39 and HKFRS 4 Amendment – Financial Guarantee Contracts, all others are not relevant to the Group’s operations:

HKAS 19 Amendment – Actuarial Gains and Losses, Group Plans and Disclosures;
HKAS 21 Amendment – Net Investment in a Foreign Operation;
HKAS 39 Amendment – Cash Flow Hedge Accounting of Forecast Intragroup Transactions;
HKAS 39 Amendment – The Fair Value Option;
HKAS 39 and HKFRS 4 Amendment – Financial Guarantee Contracts;
HKFRS 6 – Exploration for and Evaluation of Mineral Resources;
HKFRS 1 – Amendment – First-time Adoption of Hong Kong Financial Reporting Standards and HKFRS 6 Amendment, Exploration for and Evaluation of Mineral Resources;
HKFRS-Int 4 – Determining whether an Arrangement contains a Lease; and
HKFRS-Int 5 – Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds.

(b) Basis of Preparation of the Financial Statements

The consolidated financial statements for the year ended 31 December 2006 comprise the Company and its subsidiaries (collectively referred to as the “Group”) and the Group’s interest in associates.

The measurement basis used in the preparation of the financial statements is the historical cost basis except that the financial instruments classified as available-for-sale are stated at their fair value (see note 3(j)).

The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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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.

Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 5.

(c) Subsidiaries

Subsidiaries are entities controlled by the group. Control exists when the group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the company, whether directly or indirectly through subsidiaries, and in respect of which the group has not agreed any additional terms with the holders of those interests which would result in the group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity holders of the company. Minority interests in the results of the group are presented on the face of the consolidated income statement as an allocation of the total income statement for the year between minority interests and the equity shareholders of the company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the group has been recovered.

In the company’s balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see note 3(m)).

(d) Associates

An associate is an entity in which the group or company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

An investment in an associate is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost and adjusted thereafter for the post acquisition change in the group’s share of the associate’s net assets, unless it is classified as held for sale. The consolidated income statement includes the group’s share of the post-acquisition, post-tax results of the associates for the year, including any impairment loss on goodwill relating to the investment in associates recognised for the year (see notes 3(e) and 3(m)).

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When the group’s share of losses exceeds its interest in the associate, the group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the associate. For this purpose, the group’s interest in the associate is the carrying amount of the investment under the equity method together with the group’s long-term interests that in substance form part of the group’s net investment in the associate.

Unrealised profits and losses resulting from transactions between the group and its associates are eliminated to the extent of the group’s interest in the associate, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in the income statement.

(e) Goodwill

Goodwill represents the excess of the cost of a business combination or an investment in an associate over the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is no longer amortised but tested annually for impairment. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the interest in the associates.

An excess of the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination or an investment in an associate is recognised immediately in the income statement.

On disposal of a cash generating unit, an associate during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

(f) Property, Plant and Equipment

The following items of property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 3(m)):

The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads.

Gain or losses arising from the retirement or disposal of an item of plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the items and are recognised in income statement on the date of retirement or disposal.

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:

–	Buildings situated on leasehold land are depreciated over the shorter
	of the unexpired term of lease and their estimated useful lives,
	being no more than 50 years after the date of completion.
–	Plant and machinery	10	to 20%
–	Furniture, fixtures and equipment	20	to 33%
–	Motor vehicles		20%
–	Leasehold improvement		5%

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

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(g) Lease Assets

(i) Classification of assets leased to the group

Assets that are held by group under leases which transfer to the group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the group are classified as operating leases, with the following exceptions:

land held for own use under an operating lease, the fair value of which cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease. For the purposes, the inception of the lease is the time that the lease was first entered into by the group, or taken over from the previous lessee.
(ii) Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the leases are charged to income statement in equal in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to income statement in the accounting period in which they are incurred.

The cost of acquiring land held under an operating lease is amortised on a straightline basis over the period of the lease term (see note 3(f)).

(h) Intangible Assets (Other than Goodwill)

Intangible assets that are acquired by the group are stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 3(m)).

Amortisation of intangible assets with finite useful lives is charged to income statement on a straight-line basis over the assets’ estimated useful lives. The patents and intellectual property rights are amortised from the date they are available for use and their estimated useful lives on average of 10 years.

Both the period and method of amortisation are received annually.

Intangible assets are not amortised while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortisation of intangible assets with finite lives as set out above.

(i) Property under Development

Property under development are stated at cost, which includes land costs and construction costs incurred and other costs attributable to the construction of the related assets and other related expenses capitalised during the development period, less any impairment losses. No depreciation is provided in respect of properties under development until the construction work is completed.

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(j) Other Investments in Debt and Equity Securities

The group’s and the company’s policies for investments in debt and equity securities, other than investments in subsidiaries and associates, are as follows:

Investments in debt and equity securities are initially stated at cost, which is their transaction price unless fair value can be more reliably estimated using valuation techniques whose variables include only data from observable markets. Cost includes attributable transaction costs, except where indicated otherwise below. These investments are subsequently accounted for as follows, depending on their classification.

Investments in securities held for trading are classified as current assets. Any attributable transaction costs are recognized in the income statement as incurred. At each balance sheet date the fair value is remeasured, with any resultant gain or loss being recognized in the income statement.

Dated debt securities that the group and/or the company have the positive ability and intention to hold to maturity are classified as held-to-maturity securities. Held-to-maturity securities are stated in the balance sheet at amortised cost less impairment losses (see note 3(m)).

Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognized in the balance sheet at cost less impairment losses (see note 3(m)).

Investments in securities which do not fall into any of the above categories are classified as available-for-sale securities. At each balance sheet date the fair value is remeasured, with any resultant gain or loss being recognized directly in equity, except foreign exchange gains and losses in respect of monetary items such as debt securities which are recognized directly in the income statement. Where these investments are interest-bearing, interest calculated using the effective interest method is recognized in the income statement. When these investments are derecognized or impaired (see note 3(m)), the cumulative gain or loss previously recognized directly in equity is recognized in the income statement.

Investments are recognised/derecognised on the date the group commits to purchase/ sell the investments or they expire.

(k) Trade and Other Receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for bad and doubtful debts (see note 3(m)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts (see note 3(m)).

(l) Inventories

Inventories are stated at the lower of cost and net realisable value.

Cost is calculated using the weighted average cost formula and comprises all costs of purchases, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(m) Impairment of Assets

(i) Impairment of investments in debt and equity securities and other receivables

Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortised cost or are classified as availablefor-sale securities are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, any impairment loss is determined and recognized as follows:

For trade and other current receivables carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through income statement. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

For available-for-sale securities, the cumulative loss that has been recognized directly in equity is removed from equity and is recognized in the income statement. The amount of the cumulative loss that is recognized in the income statement is the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that asset previously recognized in the income statement.

Impairment losses recognized in the income statement in respect of available-for-sale equity securities are not reversed through income statement. Any subsequent increase in the fair value of such assets is recognized directly in equity.

Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognized. Reversals of impairment losses in such circumstances are recognized in the income statement.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired.

property, plant and equipment;
intangible assets;
investment in subsidiaries; and
goodwill.

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

Calculation of recoverable amount

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

–

Recognition of impairment losses

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

–

Reversals of impairment losses

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

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

(iii) Interim financial reporting and impairment

Under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, the group is required to prepare an interim financial report in compliance with HKAS 34, Interim, financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see note 3(m)).

(n) Cash and Cash Equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.

(o) Income Tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in the income statement except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity.

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

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that many support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

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

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

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the company or the group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

in the case of current tax assets and liabilities, the company or the group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
the same taxable entity; or

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–

different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(p) Translation of Foreign Currencies

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in income statement, except those arising from foreign currency borrowings used to hedge a net investment in a foreign operation which are recognised directly in equity (see note 6(a)).

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.

The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items, including goodwill arising on consolidation of foreign operations acquired on or after 1 January 2005, are translated into Hong Kong dollars at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in a separate component of equity. Goodwill arising on consolidation of a foreign operation acquired before 1 January 2005 is translated at the foreign exchange rate that applied at the date of acquisition of the foreign operation.

On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity which relate to that foreign operation is included in the calculation of the income statement on disposal.

(q) Financial Guaranees Issued, Provision and Contingent Liabilities

(i) Financial guarantees issued are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

Where the group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognized as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognized in accordance with the group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognized in the income statement on initial recognition of any deferred income.

The amount of the guarantee initially recognized as deferred income is amortised in the income statement over the term of the guarantee as income from financial guarantees issues. In addition, provisions are recognized in accordance with note 3(q)(iii) if and when (i) it become probable that the holder of the guarantee will call upon the group under the guarantee, and (ii) the amount of that claim on the group is expected to exceed the amount currently carried in trade and other payables in respect of the guarantee i.e. the amount initially recognized, less accumulated amortization.

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(ii) Contingent liabilities acquired in business combinations

Contingent liabilities acquired as part of a business combination are initially recognized at fair value, provided the fair value can be reliably measured. After their initial recognition at fair value, such contingent liabilities are recognized at the higher of the amount initially recognized, less accumulated amortization where appropriate, and the amount that would be determined in accordance with note 3(q)(iii). Contingent liabilities acquired in a business combination that cannot be reliably fair valued are disclosed in accordance with note 3(q)(iii).

(iii) Other provisions and contingent liabilities

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

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

(r) Borrowing Costs

Borrowing costs are expensed in the income statement in the period in which they are incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale.

The capitalization of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

(s) Related Parties

For the purposes of these financial statements, a party is considered to be related to the group if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the group or exercise significant influence over the group in making financial and operating policy decisions, or has joint control over the group;
(ii) the group and the party are subject to common control;
(iii) the party is an associate of the group or a joint venture in which the group is a venturer;
(iv) the party is a member of key management personnel of the group or the group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;

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(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of the group or of any entity that is a related party of the group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

(t) Employee Benefits

(i) Short term employee benefit and contributions to defined contribution retirement plans.

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is defined and the effect would be material, these amounts are stated at their present values.

(ii) Retirement benefit scheme

The group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the Scheme. Contributions are made based on a percentage of the employee’s basic salaries and are charged to the income statement as they become payable in accordance with the rules of the Scheme. The assets of the Scheme are held separately from those of the group in independently administrated funds. The group’s employer contributions vest fully with the employees when contributed to the Scheme, except for the group’s employer voluntary contributions, which are refunded to the group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the Scheme.

(iii) Share-based compensation

The group operates an equity-settled share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

(u) Segment Reporting

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

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In accordance with the group’s internal financial reporting, the group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format.

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

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

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, corporate and financing expenses and minority interests.

(v) Interest-bearing Borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in income statement over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

(w)

Trade and Other Payables

Trade and other payables are initially recognised as fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(x) Revenue Recognition

Provided it is probable that the economic benefits will flow to the group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in the income statement as follows:

(i) Sales of goods

Revenue is recognized when goods are delivered at the customers’ premises which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

(ii) Rental income from operating leases

Rental income receivable under operating leases is recognized in the income statement in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognized in the income statement as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are incurred.

– 64 –

APPENDIX I

FINANCIAL INFORMATION

(iii) Government grants

Grants and subsidies from the government are recognized at their fair values when there is reasonable assurance that the grant/subsidy will be received and all attached conditions are complied with. Grant or subsidy that compensation the group for expenses incurred are recognized as revenue, on a systematic basis in the same periods in which the expenses are incurred. Where the grant or subsidy relates to an asset, the fair value is deducted in arriving at the carrying amount of the related asset.

(iv) Interest income

Interest income is recognized as it accrues using the effective interest method.

4. CHANGES IN ACCOUNTING POLICIES

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the group.

Note 3 to the financial statements summarises the accounting policies of the Group after the adoption of these developments to the extent that they are relevant to the Group. The following sets out information on the significant changes in accounting policies for the current and prior accounting periods reflected in these financial statements.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 41) except for HK(IFRIC) 10, Interim financial reporting and impairment which is effective for accounting periods beginning on or after 1 November 2006.

HKAS 39 and HKFRS 4 Amendment:

The fair value of financial guarantee contracts is recognised in the balance sheet on the date when HKAS 39 was initially adopted by the Group (i.e. 1 January 2005) by initially adopted by adjusting the accumulated losses.

Effects of change in accounting policies on the Company’s balance sheet

The adoption of HKAS 39 and HKFRS 4 Amendment has the following impact on the Company’s balance as at 1 January 2005 and 31 December 2005:

(Increase)/decrease in liabilities/equity – Financial guarantee contract – Accumulated losses	31/12/2005 HK$’000 (1,192) 1,192	1/1/2005 HK$’000 (115,385) 115,385

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will by definition, seldom equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

– 65 –

APPENDIX I

FINANCIAL INFORMATION

(a) Property, plant and equipment and property under development

The Group assesses annually whether property, plant and equipment and property under development have any indication of impairment. The recoverable amounts of property, plant and equipment and property under development have been determined based on value-in-use calculations. These calculations require the use of judgements and estimates.

(b) Write-down of inventories

Inventories are written down to net realisable value based on an assessment of the realisability of inventories. Write-downs on inventories are recorded where events or changes in circumstances indicate that the balances may not be realised. The identification of write-downs requires the use of judgements and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of inventories and write-downs of inventories in the periods in which such estimate has been changed.

(c) Provision for trade receivables

In determining whether any of the trade receivable is impaired, significant judgement is required. In making this judgement, the Group evaluates, among other factors, the duration and extent by all means to which the amount will be recovered.

6. FINANCIAL RISK MANAGEMENT

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the group’s business. These risks are limited by the Group’s financial management policies and practices described below:

(a) Foreign currency risk

The Group mainly operates in mainland China, the United States of America and Hong Kong. Most of the Group’s transactions, assets and liabilities are dominated in Renminbi (“RMB”), United States Dollars and Hong Kong Dollars. RMB is not freely convertible into other foreign currencies.

Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. The Group manages its foreign risks by performing regular review and monitoring its foreign exchange exposures.

(b) Interest rate risk

The Group’s income and operating cash flows are substantially independent of changes in market interest rates as the Group has no significant interest-bearing assets. The Group’s exposure to changes in interest rates is mainly attributable to its bank loans. Bank loans at variable rates expose the Group to cash flow interest-rate risk. Bank loans at fixed rates expose the Group to fair value interest-rate risk. Details of the Group’s bank loans have been disclosed in note 25 to the financial statements.

The Group has not used any interest rate swaps to hedge its exposure to interest rate risk.

(c) Credit risk

The Group’s has a certain concentration of credit risk in relation to its single customer for sales to the United States of America. At 31 December 2006, the trade receivables due from this single customer accounted for 54% of the total gross trade receivables of the Group.

– 66 –

APPENDIX I

FINANCIAL INFORMATION

(d) Liquidity risk

The Group’s objective is to maintain a balance between the continuity of funding and the flexibility through the use of bank loans (see note 25).

7. TURNOVER AND OTHER REVENUE

The principal activities of the Group are design, research, development, manufacture and distribution of optical image capturing devices, chips and other optoelectronic products.

Turnover represents the amounts received and receivable for goods sold to outside customers excluding value-added taxes, less returns and allowances.

Turnover Sales of merchandise – Optical image capturing devices – Modules of optical image capturing devices – Chips and other optoelectronic products Other revenue Exchange gain, net Interest income Others Rental income Reversal of impairment loss on trade receivables Subsidy income_(note i) Gain on disposal of non-current assets(note ii) Trade payables written off(note iii)_	2006 HK$’000 84,530 – 8,160 92,690 495 114 792 1,498 1,793 716 15,904 1,412 22,724	2005 HK$’000 48,094 5,745 12,716
		66,555

		74 73 1,455 928 – 1,390 – 456
		4,376

Notes: (i) During the year ended 31 December 2006, the Group received cash subsidies from certain mainland China government bodies totaling of HK$716,000 (2005: HK$1,390,000). These cash subsidies were for the Group’s development of certain products.

(ii) On 31 December 2006, the Company entered into an agreement (the “Agreement”) with a former subsidiary. Pursuant to the Agreement, the Company disposed certain plant and machinery and patents to settle the amount owed by the Group. The disposal resulted in a gain of HK$15,904,000.
(iii) During the year ended 31 December 2006, certain trade creditors with outstanding balance amounted to RMB2,342,000 (equivalent HK$2,296,000) took legal actions against the Group demanding for repayment of amounts due to them. As part of the settlement agreement, these creditors in total waived RMB1,440,000 (equivalent HK$1,412,000) for immediate settlement. The waiver was accounted for as other revenue in the consolidated income statement.

– 67 –

APPENDIX I

FINANCIAL INFORMATION

8. LOSS BEFORE TAXATION

Loss before taxation was arrived at after charging/(crediting) the following items:

(a) Finance costs: Interest on bank loans repayable within 5 years Interest on bank loans repayable after 5 years Less:_amounts capitalised into property under development(note)_	2006 HK$’000 12,113 316 12,429 (5,010) 7,419	2005 HK$’000 7,716 35 7,751 (3,107) 4,644

Note: During the year ended 31 December 2006, interest on bank loans repayable within 5 years of HK$5,010,000 (2005: HK$3,107,000) was capitalised as construction expenditure included in property under development. The borrowing costs have been capitalized at a rate of 7% to 9% per annum (2005: 2% to 8% per annum).

(b) Staff costs: Salaries and allowance (including directors’ emoluments) Retirement costs (c) Other operating expenses: Reversal of impairment loss on amount due from an associate Impairment loss on amount due from an associate Impairment loss on trade and other receivables Impairment loss on available-for-sale investment Amortisation of intangible assets Impairment loss on goodwill	2006 HK$’000 16,633 409 17,042 – 19,886 – 1,560 513 – 21,959	2005 HK$’000 23,114 428 23,542 (733) – 20,191 – 470 3,869 23,797

– 68 –

APPENDIX I

FINANCIAL INFORMATION

		2006	2005
		HK$’000	HK$’000
(d)	Other items:
	Auditor’s remuneration
	– audit services	480	410
	– other services	710	–
	Cost of inventories_(note)_	67,713	42,359
	Depreciation	5,877	6,383
	Loss on disposal of subsidiaries	377	472
	Loss on disposal of property, plant and equipment	208	3,079
	Share of losses of associates	565	1,660
	Gain on deemed disposal of a subsidiary	–	(2)
	Negative goodwill on acquisition of a subsidiary	–	(8,911)
	Write-down of inventories	376	29,235
	Operating lease rentals of premises	829	1,967

Note: Cost of inventories included HK$5,033,000 (2005: HK$3,872,000) relating to staff costs and depreciation, which amount was also included in the respective total amounts disclosed separately above for each of these types of expenses.

9. DIRECTORS’ AND SENIOR EXECUTIVES’ REMUNERATION

(a) Directors’ remuneration disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as follows:

Executive directors Chan Man Ching_(note)_ Cheung Wai Independent non-executive directors Fong Chi Wah Lo Wai Ming Jin Qingjun	For the year ended 31 December 2006 Salaries, allowances and benefits Retirement Fees in kind contributions Total HK$’000 HK$’000 HK$’000 HK$’000 – 503 12 515 – 1,344 12 1,356 120 – – 120 120 – – 120 120 – – 120 360 1,847 24 2,231	For the year ended 31 December 2006 Salaries, allowances and benefits Retirement Fees in kind contributions Total HK$’000 HK$’000 HK$’000 HK$’000 – 503 12 515 – 1,344 12 1,356 120 – – 120 120 – – 120 120 – – 120 360 1,847 24 2,231
		2,231

– 69 –

APPENDIX I

FINANCIAL INFORMATION

Executive directors Chan Man Ching Cheung Wai Darwin Hu_(note) Zhang Fu(note)_ Independent non-executive directors Fong Chi Wah Lo Wai Ming Jin Qingjun	For the year ended 31 December 2005 Salaries, allowances and benefits Retirement Fees in kind contributions Total HK$’000 HK$’000 HK$’000 HK$’000 – 468 12 480 – 1,374 12 1,386 – 203 – 203 – 24 1 25 120 – – 120 120 – – 120 120 – – 120 360 2,069 25 2,454	For the year ended 31 December 2005 Salaries, allowances and benefits Retirement Fees in kind contributions Total HK$’000 HK$’000 HK$’000 HK$’000 – 468 12 480 – 1,374 12 1,386 – 203 – 203 – 24 1 25 120 – – 120 120 – – 120 120 – – 120 360 2,069 25 2,454
		2,454

Note: Mr. Darwin Hu, Mr. Zhang Fu and Mr. Chan Man Ching resigned as directors on 19 January 2005, 31 March 2005 and 31 December 2006 respectively.

(b) The five highest paid employees during the year included two (2005: two) directors, details of the remuneration paid to the remaining three (2005: three) are as follows:

Salaries, allowances and benefits in kind Retirement costs	2006 HK$’000 1,218 – 1,218	2005 HK$’000 3,354 –
		3,354

During the year, no remuneration were paid to the five highest paid individuals (including directors and other employees) as inducement to join or upon joining the Group or as compensation for loss of office.

The remuneration of the remaining three highest paid employees falls within the following band:

HK$Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	2006 Number of individuals 3 – 3	2005 Number of individuals 1 2
		3

– 70 –

APPENDIX I

FINANCIAL INFORMATION

10. INCOME TAX EXPENSE

No provision for Hong Kong profits tax has been provided for in the financial statements as the Group did not derive any assessable profit in Hong Kong for the year (2005: Nil).

No provision for United States federal income tax has been provided for in the financial statements as the Group did not derive any assessable profit in the United States of America. However, a subsidiary was liable to the California State income tax of HK$2,000 (2005: HK$7,000), being the minimum amount for the company in a tax loss position.

No provision for mainland China enterprise income tax has been provided for in the financial statements as the Group did not derive any assessable profits in mainland China for the year (2005: Nil).

(a) Reconciliation between tax expense and accounting loss at applicable tax rates:

Loss before taxation Notional tax on loss before taxation, calculated at the rates applicable to loss in the tax jurisdictions concerned Tax effect of non-taxable income Tax effect of non-deductible expenses Tax effect of unused tax losses not recognized Utilization of previously unrecognised tax losses Actual tax expense	2006 HK$’000 (13,048) (15,211) (838) 273 21,401 (5,623) 2	2005 HK$’000 (100,081) (16,659) (4) 3,860 12,810 – 7

(b) Deferred tax

No provision for deferred taxation has been made as the effect of all temporary differences at the balance sheet date to the Group is immaterial.

The Group has tax losses of approximately HK$239,205,000 (2005: HK$395,610,000) which are available for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognized in respect of these losses as they have arisen in subsidiaries that have been loss-making for a number of years. The tax losses arising from subsidiaries established in mainland China can be carried forward for five years immediately after the respective accounting year, all other tax losses do not expire under current tax legislation.

11. LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

During the year ended 31 December 2006, the consolidated loss attributable to equity holders of the Company included the loss of HK$46,601,000 (2005: as restated HK$5,802,000) dealt with in the financial statements of the Company.

12. LOSS PER SHARE

(a) The calculation of basic loss per share for the year ended 31 December 2006 is as follows:

Net loss attributable to equity holders of the Company Weighted average number of ordinary shares in issue during the year Loss per share – Basic	2006 HK$’000 (11,600) Number of shares ’000 251,283 (4.6)cents	2005 HK$’000 (99,435) Number of shares ’000 102,364 (97.1)cents

(b) No diluted loss per share is presented as the outstanding employee share options had an anti-dilutive effect on the basic loss per share for both years.

– 71 –

APPENDIX I

FINANCIAL INFORMATION

13. INTANGIBLE ASSETS

Group

Cost At 1/1/2005 Exchange adjustments At 31/12/2005 At 1/1/2006 Exchange adjustments Disposals_(see note 7) At 31/12/2006 Amortisation At 1/1/2005 Exchange adjustments Amortisation for the year At 31/12/2005 At 1/1/2006 Exchange adjustments Amortisation for the year Written back on disposal(see note 7)_ At 31/12/2006 Net book value At 31/12/2006 At 31/12/2005	Patents HK$’000 2,745 53 2,798 2,798 112 (2,910) – 858 17 343 1,218 1,218 57 382 (1,657) – – 1,580	Intellectual property rights HK$’000 1,415 27 1,442 1,442 58 – 1,500 335 9 127 471 471 21 131 – 623 877 971	Total HK$’000 4,160 80 4,240 4,240 170 (2,910) 1,500 1,193 26 470 1,689 1,689 78 513 (1,657) 623 877 2,551

(a) At 31 December 2006, intangible assets with carrying value HK$877,000 (2005: HK$971,000) has been pledged to secured the Group’s bank loans (see note 25).

(b) The amortization charge for the year is included in “other operating expenses” in the consolidated income statement.

– 72 –

APPENDIX I

FINANCIAL INFORMATION

14. GOODWILL

Group

Cost At 1/1/2005 Effect of adoption HKFRS 3 on negative goodwill_(note) Acquisition of a subsidiary(see note 34(c)) Recognised in income statement At 31/12/2005 and 31/12/2006 Accumulated impairment losses At 1/1/2005 Effect of adoption HKFRS 3 on negative goodwill(note)_ Impairment loss At 31/12/2005 and 31/12/2006 Carrying amount At 31/12/2006 At 31/12/2005	Positive goodwill HK$’000 4,487 – – – 4,487 618 – 3,869 4,487 – –	Negative goodwill HK$’000 (602) 602 (8,911) 8,911 – (38) 38 – – – –	Total HK$’000 3,885 602 (8,911) 8,911 4,487 580 38 3,869 4,487 – –

Note: In accordance with the transitional provisions of HKFRS 3, the Group has eliminated the carrying amounts of accumulated amortization as at 1 January 2005 against the cost of goodwill as at the same date and to derecognise the carrying amounts of negative goodwill existing prior to 1 January 2005 against accumulated losses as at 1 January 2005.

– 73 –

APPENDIX I

FINANCIAL INFORMATION

15. PROPERTY, PLANT AND EQUIPMENT

Group

Land and building held Leasehold for own use improvement (note a) HK$’000 HK$’000 Cost At 1/1/2005 24,961 2,951 Exchange adjustments 526 – Additions – – Disposals (17,355) – Addition of a subsidiary – – Disposal of subsidiaries – – At 31/12/2005 8,132 2,951 At 1/1/2006 8,132 2,951 Exchange adjustments 421 – Additions – – Disposals – – Disposal of subsidiaries – – At 31/12/2006 8,553 2,951 Accumulated depreciation At 1/1/2005 3,711 2,951 Exchange adjustments 53 – Charge for the year 875 – Disposals (2,824) – Disposal of subsidiaries – – At 31/12/2005 1,815 2,951 At 1/1/2006 1,815 2,951 Exchange adjustments 83 – Charge for the year 510 – Disposals – – Disposal of subsidiaries – – At 31/12/2006 2,408 2,951 Net book value At 31/12/2006 6,145 – At 31/12/2005 6,317 –	Furniture, fixtures and equipment HK$’000 8,371 140 353 (702) 1,078 (76) 9,164 9,164 271 337 (74) (440) 9,258 2,937 44 1,075 (329) (28) 3,699 3,699 121 848 (33) (166) 4,469 4,789 5,465	Plant and machinery HK$’000 38,443 516 1,409 (364) – – 40,004 40,004 1,163 197 (10,002) (1,077) 30,285 25,791 194 4,043 – – 30,028 30,028 451 4,256 (5,954) (246) 28,535 1,750 9,976	Motor vehicles HK$’000 4,389 55 – (1,951) 490 – 2,983 2,983 60 363 (307) – 3,099 2,361 15 390 (1,179) – 1,587 1,587 27 263 (167) – 1,710 1,389 1,396	Total HK$’000 79,115 1,237 1,762 (20,372) 1,568 (76) 63,234 63,234 1,915 897 (10,383) (1,517) 54,146 37,751 306 6,383 (4,332) (28) 40,080 40,080 682 5,877 (6,154) (412) 40,073 14,073 23,154

– 74 –

APPENDIX I

FINANCIAL INFORMATION

Notes:

(a) As the land and building held for own use cannot be allocated reliably between the land and building elements and it is cleared that only the land element is operating lease, the entire lease is classified as a finance lease and accounted for under HKAS 16 in accordance with HKAS 17.
(b) The land and building are located in Shenzhen, mainland China, and are used as research and development centre of the Group and are held under medium lease term. All land and building and plant and machinery are pledged as collateral for the Group’s bank loans (see note 25(b)).
(c) The plant and machinery disposed during the year represented the settlement of amount owed by the Group (see note 7).

16. PROPERTY UNDER DEVELOPMENT

Group

At 1/1/2005 Exchange adjustments Additions At 31/12/2005 At 1/1/2006 Exchange adjustments Additions At 31/12/2006 At 31/12/2005	Construction Land expenditure HK$’000 HK$’000 49,992 77,815 960 1,498 – 10,869 50,952 90,182 50,952 90,182 2,039 3,606 – 10,450 52,991 104,238 50,952 90,182	Total HK$’000 127,807 2,458 10,869
		141,134
		141,134 5,645 10,450
		157,229

		141,134

The leasehold land is located in Shenzhen, mainland China, for a period of 50 years up to July 2051. At 31 December 2006, the leasehold land was pledged for the bank loans granted to the Group (see note 25(a)).

17. INTEREST IN SUBSIDIARIES

Company

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries _Less:_impairment losses	2006 HK$’000 74,698 100,878 – 175,576 (175,576) –	2005 HK$’000 74,698 92,986 (3,544
		164,140 (113,500
		50,640

– 75 –

APPENDIX I

FINANCIAL INFORMATION

(a) The amounts due from/(to) subsidiaries are unsecured and interest free. The Company has agreed not to demand for repayment of the amounts due from the subsidiaries until the subsidiaries are financially capable to do so.
(b) The impairment losses represented the write-down of investment cost and amount due from subsidiaries of HK$74,698,000 and HK$100,878,000, respectively.

The following list contains only the particulars of subsidiaries which principally affected the results, assets or liabilities of the Group.

		Particulars of	Percentage of equity	Percentage of equity
	Place of	issued and	interest attributable
	incorporation/	paid up	to the	Group
Name of company	operations	capital	Directly	Indirectly	Principal activities
SYSCAN Holdings Limited	British Virgin Islands/	US$3	100%	–	Investment holding
	Hong Kong
SYSCAN Digital Systems	British Virgin Islands/	US$24,500	–	100%	Investment holding
Co., Ltd.	Hong Kong
SYSCAN InterVision Limited	Hong Kong/	HK$15,000,000	–	100%	Trading of optical image
	mainland China				capturing devices and
					modules
SYSCAN Lab., Limited	Hong Kong/	HK$10,000	–	100%	Design and development of
	mainland China				image sensor modules
SYSCAN Manufacturing	British Virgin Islands/	US$1	–	100%	Investment holding
Limited	Hong Kong
深圳市矽感科技有限公司	mainland China	US$10,000,000	–	100%	Design, development,
(Shenzhen SYSCAN					manufacture and sale of
Technology Co., Ltd.) *					optoelectronic products
深圳矽感光電有限公司	mainland China	US$6,000,000	–	100%	Property holding
(SYSCAN Optoelectronics
Technology (Shenzhen)
Co., Ltd.) *
深圳市旭感數碼系統有限公司mainland China		RMB15,000,000	–	100%	Design, development,
(SYSCAN Digital Systems					manufacture and sale of
Co., Ltd.) *					optoelectronic products

These companies are wholly owned foreign enterprises established in mainland China.

18. INTEREST IN ASSOCIATES

Group

Share of net assets	2006 HK$’000 33,134	2005 HK$’000 32,403

– 76 –

APPENDIX I

FINANCIAL INFORMATION

The following list contains only the particulars of associates, all of which are unlisted corporate entities, which principally affect the results, assets or liabilities of the Group:

			Percentage of equity
	Place of	Particulars of	interest attributable
	incorporation/	paid up	to the Group
Name of associate	and operations	registered capital	Directly Indirectly	Principal activities
浙江矽感科技有限公司_(i)_	mainland China	RMB50,000,000	– 40%	Development of computer
				products
深圳市旭感和誠信息技術	mainland China	RMB45,000,000	– 40%	Development of computer
有限公司 (ii)				products

Notes:

(i) 浙江矽感科技有限公司 is a joint venture company established in mainland China to be operated for 20 years up to 2024.

(ii) 深圳市旭感和誠信息技術有限公司 is a joint venture company established in mainland China to be operated for 14 years up to 2018.

Summary of financial information on associates is as follows:

2006 100% Group’s effective interest 2005 100% Group’s effective interest	Assets HK$’000 95,980 38,392 105,107 42,041	Liabilities HK$’000 13,145 5,258 24,091 9,638	Equity HK$’000 82,835 33,134 81,016 32,403	Revenue HK$’000 20,180 8,072 6,275 2,510	Loss for the year HK$’000 (1,413) (565)

					(4,150) (1,660)

19. AVAILABLE-FOR-SALE INVESTMENTS

Group

Group
CMOS Sensor, Inc.(i) GFG Asia Alliance Holdings Co., Ltd.(ii)	2006 HK$’000 – – –	2005 HK$’000 7,782 1,560
		9,342

Notes:

(i) During the year, the equity interest of 16.1% in CMOS Sensor, Inc., a company incorporated in California, the United States of America, was disposed together with the subsidiaries as disclosed in note 34(b).

(ii) At 31 December 2006, full impairment was made to the investment of US$200,000 (equivalent HK$1,560,000) in the preference stocks of GFG Asia Alliance Holdings Co., Ltd., a company incorporated in British Virgin Islands.

20. INVENTORIES

Group

Raw materials Work-in-progress Finished goods _Less:_write-down of inventories	2006 HK$’000 17,823 5,614 12,553 35,990 (32,893) 3,097	2005 HK$’000 21,767 2,600 13,467
		37,834 (31,974)
		5,860

– 77 –

APPENDIX I

FINANCIAL INFORMATION

21. TRADE RECEIVABLES

Group

The Group normally grants to its customers credit periods ranging from one to three months. Aging analysis of the Group’s trade receivables is as follows:

0 to 1 month 1 to 2 months 2 to 3 months 3 to 6 months 6 to 12 months Over 12 months _Less:_impairment losses for bad and doubtful debts	2006 HK$’000 12,193 – – – – 9,617 21,810 (9,892) 11,918	2005 HK$’000 8,444 887 40 111 884 9,266 19,632 (11,346) 8,286

The carrying amounts of trade receivables approximate their fair values and are mainly denominated in United States Dollars.

22. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Group and Company

Included in the prepayments, deposits and other receivables was receivable of US$4,500,000 (equivalent HK$35,100,000) due from the purchaser in connection with the disposal of certain subsidiaries of which the disposal was constituted a very substantial disposal of the Company as outlined in the circular dated 25 April 2006. The amount was repayable on or before 30 June 2007.

23. DUE FROM/(TO) ASSOCIATES

Due from an associate _Less:_impairment loss on amount due from an associate Due to associates	2006 HK$’000 20,284 (20,284) – (38,579)	2005 HK$’000 19,131 (1,619) 17,512 (39,040)

The amounts due from/(to) associates are unsecured, interest free and repayable on demand.

– 78 –

APPENDIX I

FINANCIAL INFORMATION

24. CASH AND CASH EQUIVALENTS

Group

Included in cash and cash equivalents are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

RMB	2006 HK$’000 4,300	2005 HK$’000 2,283

25.

BANK LOANS, SECURED

Group

As at 31 December 2006, the bank loans, secured, were repayable as follows:

Bank loans On demand_(note a)_ Within 1 year After 1 year but within 5 years After 5 years Current portion of bank loans Non-current portion of bank loans	2006 HK$’000 132,020 12,064 258 140 144,482 (144,084) 398	2005 HK$’000 116,577 21,422 237 209
		138,445 (137,999
		446

(a) Included in the bank loans on demand, there were bank loan of HK$120,000,000 (2005: HK$115,385,000) and outstanding interest of HK$12,020,000 (2005: HK$1,192,000).

At 31 December 2006, the bank loan was secured by the leasehold land included in property under development of HK$52,991,000 (2005: HK$50,952,000) (see note 16).

The leasehold land has been frozen by the court in mainland China following the legal action taken by the bank (see note 32).

(b) Other than the bank loan on demand as mentioned above, the remaining bank loans were secured by:
(i) the Group’s leasehold land and buildings included in the property, plant and equipment with net book value of HK$6,145,000 (2005: HK$6,317,000) (see note 15);
(ii) the Group’s intangible assets with net book value of HK$877,000 (2005: HK$971,000) (see note 13);
(iii) the Group’s plant and machinery included in property, plant and equipment with net book value of HK$1,750,000 (2005: HK$9,976,000) (see note 15); and
(iv) the personal guarantee given by Mr. Cheung Wai, the director of the Company.
(c) All of the Group’s bank loans were denominated in RMB. At 31 December 2006, the bank loans bore interest at a rate of 7% to 9% per annum (2005: 2% to 8% per annum).

– 79 –

APPENDIX I

FINANCIAL INFORMATION

26. TRADE PAYABLES

Group

The aged analysis of trade payables is as follows:

0 to 1 month 1 to 2 months 2 to 3 months 3 to 6 months 6 to 12 months Over 12 months	2006 HK$’000 3,193 2,151 2,333 2,670 26 14,467 24,840	2005 HK$’000 3,653 1,531 1,102 1,196 1,009 17,216
		25,707

The carrying amounts of trade payables approximate their fair values and are mainly denominated in RMB.

27. ACCRUALS AND OTHER PAYABLES

Group

Included in the accruals and other payables is an amount of HK$5,000,000 being an advance from an independent third party who being a potential purchaser to acquire certain assets of the Group. The amount is unsecured, interest free and repayable on demand.

28. DUE TO A DIRECTOR

Group and Company

The amount due to a director is unsecured, interest free and repayable on demand.

29. FINANCIAL GUARANTEE CONTRACT

Company

The carrying amount of the financial guarantee contract recognised in the Company’s balance sheet in accordance with HKAS 39 and HKFRS 4 Amendment was HK$132,020,000 (2005: (as restated) HK$116,577,000). The financial guarantee contract was eliminated on consolidation.

– 80 –

APPENDIX I

FINANCIAL INFORMATION

30. SHARE CAPITAL

Group and Company

Authorised: Ordinary shares of HK$0.01 each Issued and fully paid: Ordinary shares of HK$0.01 each At 1 January Shares issued arising from open offer_(note)_ At 31 December	2006 Number of shares Amount HK$’000 20,000,000,000 200,000 102,364,000 1,024 307,093,000 3,071 409,457,000 4,095	Number of shares 20,000,000,000 102,364,000 – 102,364,000	2005 Amount HK$’000 200,000

			1,024 –
			1,024

Note:

On 15 February 2006, the Company entered into an underwriting agreement with the Company Chairman and Chief Executive Officer, Mr. Cheung Wai, as the Underwriter, who already owned approximately 10.78% of the issued share capital of the Company as at the date of the Company’s announcement, in respect of a proposed open offer to raise a funding of not less than HK$9,200,000 and not more than HK$10,300,000, before expenses of approximately HK$900,000 by way of an open offer, of not less than 307,092,981 offer shares and not more than 341,667,881 offer shares at the subscription price of HK$0.03 per open offer share on the basis of 3 offer shares for every 1 share held by the qualifying shareholders. The Underwriter has irrevocably undertaken to the Company to take up the excluded offer shares as his entitlement under the open offer. The above transaction was detailed in the Company’s announcement dated 28 February 2006.

On 7 July 2006, 28 valid applications for assured allotment were received for an aggregate of 120,090,572 offer shares. As the open offer was undersubscribed, Mr. Cheung Wai as the Underwriter fulfilled his obligation to take up a total of 187,002,407 offer shares. As a result, 307,092,981 ordinary shares were allotted for a consideration of HK$9,213,000 of which HK$3,071,000 was credited to share capital and the balance of HK$6,141,000 was credited to the share premium account.

– 81 –

APPENDIX I

FINANCIAL INFORMATION

31. RESERVES

Group

At 1/1/2005 Effect of adoption HKFRS 3 on negative goodwill Exchange adjustments Deemed disposal of a subsidiary Disposal of a subsidiary Loss for the year At 31/12/2005 At 1/1/2006 Exchange adjustments Share premium_(note 30)_ Loss for the year At 31/12/2006 Reserves retained by: Company and subsidiaries Associates At 31/12/2006 Company and subsidiaries Associates At 31/12/2005	Capital reserve (note a) HK$’000 198,068 – – (2) – – 198,066 198,066 – – – 198,066 198,066 – 198,066 198,066 – 198,066	Share premium HK$’000 – – – – – – – – – 6,141 – 6,141 6,141 – 6,141 – – –	Statutory reserve fund (note b) HK$’000 439 – – – – – 439 439 – – – 439 439 – 439 439 – 439	Exchange Accumulated reserve losses HK$’000 HK$’000 1,272 (85,496) – 564 580 – 28 – 9 – – (99,435) 1,889 (184,367) 1,889 (184,367) 872 – – – – (11,600) 2,761 (195,967) 2,761 (193,700) – (2,267) 2,761 (195,967) 1,889 (182,665) – (1,702) 1,889 (184,367)	Total HK$’000 114,283 564 580 26 9 (99,435) 16,027 16,027 872 6,141 (11,600) 11,440 13,707 (2,267) 11,440 17,729 (1,702) 16,027

Notes:

(a) Capital reserve mainly represented the difference between the nominal value of the ordinary shares issued by the Company and the aggregate of the share capital and share premium of a subsidiary acquired through an exchange of shares pursuant to the reorganization completed on 27 March 2000.
(b) As stipulated by regulations in mainland China, Shenzhen SYSCAN Technology Co., Ltd. is required to appropriate 10% of its after-tax profit (after offsetting prior year losses) to a general reserve fund until the balance of the fund reaches 50% of its capital and thereafter any further appropriation is optional.

– 82 –

APPENDIX I

FINANCIAL INFORMATION

Company

At 1/1/2005, as previously reported Prior year adjustment_(note 4) At 1/1/2005, as restated Loss for the year, as previously reported Prior year adjustment(note 4) Loss for the year, as restated At 31/12/2005 At 1/1/2006 Loss for the year Share premium(note 30)_ At 31/12/2006	Contributed surplus (note a) HK$’000 70,121 – 70,121	Contributed surplus (note a) HK$’000 70,121 – 70,121	Share Accumulated premium losses HK$’000 HK$’000 – (17,406) – (115,385) – (132,791)	Share Accumulated premium losses HK$’000 HK$’000 – (17,406) – (115,385) – (132,791)	Share Accumulated premium losses HK$’000 HK$’000 – (17,406) – (115,385) – (132,791)	Share Accumulated premium losses HK$’000 HK$’000 – (17,406) – (115,385) – (132,791)	Total HK$’000 52,715 (115,385) (62,670)
	– –		– –		(4,610) (1,192)		(4,610) (1,192)
	– 70,121 70,121 – – 70,121		– – – – 6,141 6,141		(5,802) (138,593) (138,593) (46,601) – (185,194)		(5,802) (68,472) (68,472) (46,601) 6,141 (108,932)

Note:

(a) Contributed surplus of the Company represents the difference between the nominal value of the ordinary shares issued by the Company and the net asset value of subsidiaries acquired through an exchange of shares pursuant to a group reorganisation completed on 27 March 2000.

Under the Companies Act 1981 of Bermuda (as amended) contributed surplus is distributable to shareholders subject to the condition that the Company cannot declare or pay a dividend or make a distribution out of contributed surplus if (i) it is, nor would after the payment be, unable to pay its liabilities as they become due or (ii) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium.

The Company had no reserves available for distribution to shareholders as at 31 December 2006.

32. LITIGATION

On 6 January 2006, the major banker, Bank of China (“BOC”), Shenzhen, mainland China, took legal action against the Company and Syscan Optoelectronics Technology (Shenzhen) Co., Limited (“SOT”), an indirect wholly owned subsidiary of the Company, in respect of SOT’s default on repayment of interest of RMB1,200,000 (equivalent HK$1,153,000) accrued up to 21 December 2005 on a bank loan of RMB120,000,000 (equivalent HK$115,385,000) granted from BOC on 22 April 2005. BOC claimed against the Company and SOT for repayment of the loan and accrued interest totalling RMB121,240,000 (equivalent HK$116,577,000) as at 31 December 2005 and applied to freeze the leasehold land of SOT. On 2 March 2006, the Company received a writ of summons issued from the Guangdong Province Higher People’s Court lodged by BOC against the Company and SOT for the above claim. The above transaction was detailed in the Company’s announcement dated 3 March 2006.

At 31 December 2006, the loan and accrued interest totaled RMB132,020,000 (equivalent HK$132,020,000) (see note 25(a)).

– 83 –

APPENDIX I

FINANCIAL INFORMATION

33. EMPLOYEE SHARE OPTIONS

The Company has three employee share option schemes, namely Share Option Scheme A, Share Option Scheme B and Share Option Scheme C.

On 2 March 2000, the Company adopted Share Option Scheme A and Scheme B under which share options to subscribe for shares of the Company may be granted under the terms and conditions stipulated in Scheme A and Scheme B.

Share Option Scheme A ceased to be effective (save for the options already granted but unexercised) upon the initial listing of the Company on 14 April 2000. At the annual general meeting of the Company held on 26 April 2002, shareholders of the Company approved the adoption of a new Share Option Scheme C and the termination of Share Option Scheme B (save for the options already granted but unexercised).

Under Share Option Scheme A, the Company may grant options to employees of the Group (including directors of the Company) and consultants of the Group to subscribe for a maximum of 5,278,400 ordinary shares of HK$0.01 each, at exercise prices ranging from HK$0.2422 to HK$0.4844 per ordinary share.

Under Share Option Scheme B, the Company may grant options to employees of the Group (including directors of the Company) to subscribe for ordinary shares of HK$0.01 each, subject to a maximum of 30% of the nominal value of the issued share capital of the Company from time to time, excluding for this purpose shares issued on the exercise of options. The subscription price will be determined by the Company’s Board of Directors, and will not be less than the higher of (i) the nominal value of the ordinary shares, (ii) the average of the closing price of the ordinary shares quoted on the GEM on the five business days immediately preceding the date of grant, and (iii) the closing price of ordinary shares quoted on the GEM on the date of grant, which must be a business day.

Under Share Option Scheme C, the Company may grant options to employees of the Group (including directors of the Company) or at the absolute discretion of the directors to invite any person who has contributed to the Group’s business to take up options to subscribe for ordinary shares of HK$0.01 each, subject to a maximum of 30% of the nominal value of the issued share capital of the Company from time to time, excluding for this purpose shares issued on the exercise of options. The subscription price will be determined by the Company’s Board of Directors, and will not be less than the higher of (i) the nominal value of the ordinary shares, (ii) the average of the closing price of the ordinary shares quoted on the GEM on the five business days immediately preceding the date of grant, and (iii) the closing price of ordinary shares quoted on the GEM on the date of grant, which must be a business day.

– 84 –

APPENDIX I

FINANCIAL INFORMATION

The following table disclosed details of the Company’s share options under Share Option Scheme A, Share Option Scheme B and Share Option Scheme C and the movements during the year ended 31 December 2006.

Subscription price Date of grant Exercise period per share (a) I. Share Option Scheme A Other employees and optionees 2 March 2000 2 March 2000 to HK$0.2422 1 March 2010 II. Share Option Scheme B Directors 19 June 2000 19 June 2001 to HK$1.65 18 June 2010 4 December 2000 4 December 2001 to HK$0.508 3 December 2010 17 January 2001 17 January 2002 to HK$1.03 16 January 2011 Other employees and optionees 12 July 2000 12 July 2001 to HK$1.23 11 July 2010 4 December 2000 4 December 2001 to HK$0.508 3 December 2010 17 January 2001 17 January 2002 to HK$1.03 16 January 2011 13 August 2001 13 August 2002 to HK$1.38 12 August 2011	Beginning of year 2,148,000 2,148,000 1,000,000 50,000 1,800,000 2,850,000 85,000 70,000 930,000 470,000 1,555,000 4,405,000	Granted before 7/7/2006 – – – – – – – – – – – –	Lapsed before 7/7/2006 – – – – – – – – – – – –	Exercised before 7/7/2006 – – – – – – – – – – – –	Adjusted on 7/7/2006 2,148,000 2,148,000 1,000,000 50,000 1,800,000 2,850,000 85,000 70,000 930,000 470,000 1,555,000 4,405,000	Granted after 7/7/2006 – – – – – – – – – – – –	Lapsed after 7/7/2006 – – – (100,000 ) – (100,000 ) – – – – – (100,000 )	Exercised after 7/7/2006 – – – – – – – – – – – –	End of year 4,296,000
									4,296,000

									2,000,000 – 3,600,000
									5,600,000
									170,000 140,000 1,860,000 940,000
									3,110,000
									8,710,000

– 85 –

APPENDIX I

FINANCIAL INFORMATION

Subscription price Date of grant Exercise period per share (a) III. Share Option Scheme C Directors 14 May 2002 14 May 2003 to HK$0.706 13 May 2012 12 November 2002 12 November 2003 to HK$0.5 11 November 2012 Other employees and optionees 14 May 2002 14 May 2003 to HK$0.706 13 May 2012 14 August 2002 14 August 2003 to HK$0.5 13 August 2012 12 November 2002 12 November 2003 to HK$0.5 11 November 2012 26 March 2003 26 March 2004 to HK$0.5 25 March 2013 13 August 2003 13 August 2004 to HK$0.5 12 August 2013 Total share options	Beginning of year 50,000 200,000 250,000 1,610,000 1,535,000 150,000 1,147,000 280,000 4,722,000 4,972,000 11,525,000	Granted before 7/7/2006 – – – – – – – – – – –	Lapsed before 7/7/2006 – – – – – – – – – – –	Exercised before 7/7/2006 – – – – – – – – – – –	Adjusted on 7/7/2006 50,000 200,000 250,000 1,610,000 1,535,000 150,000 1,147,000 280,000 4,722,000 4,972,000 11,525,000	Granted after 7/7/2006 – – – – – – – – – – –	Lapsed after 7/7/2006 (100,000 ) (400,000 ) (500,000 ) (20,000 ) – – – – (20,000 ) (520,000 ) (620,000 )	Exercised after 7/7/2006 – – – – – – – – – – –	End of year – –
									–
									3,200,000 3,070,000 300,000 2,294,000 560,000
									9,424,000
									9,424,000

									22,430,000

(a) Following the completion of the open offer of the Company (see note 30), adjustments have been made to the subscription price of and the number of shares to be allotted and issued upon full exercise of the subscription rights attaching to the outstanding share options of the Company in accordance with the terms of the Share Options Schemes with effect from 7 July 2006. The share options had been adjusted in accordance with the terms in the Share Options Schemes, the requirements set out in Rule 23.03 (13) of the GEM Listing Rules and the supplementary guidance issued by the Stock Exchange on 5 September 2005 regarding adjustments of the share options.

The adjustments to share options were detailed in the Company’s announcement dated 2 November 2006.

– 86 –

APPENDIX I

FINANCIAL INFORMATION

(b) The adjusted subscription price and number of shares

Name of the Share Option Scheme Share Option Scheme A Share Option Scheme B Share Option Scheme C	Original subscription per share HK$ 0.4844 3.30 2.06 2.46 1.016 2.75 1.412 1.00	Original number of shares 2,148,000 1,000,000 2,730,000 85,000 120,000 470,000 1,660,000 3,312,000	Adjusted subscription price per share HK$ 0.2422 1.65 1.03 1.23 0.508 1.38 0.706 0.50	Adjusted number of shares 4,296,000 2,000,000 5,460,000 170,000 240,000 940,000 3,320,000 6,624,000

34. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Net cash outflow from deemed disposal of a subsidiary

Net liabilities disposed of: Property, plant and equipment Inventories Trade receivables Prepayments, deposits and other receivables Cash and bank balances Trade payables Accruals and other payables Minority interests Net liabilities Reserve released Capital reserve Exchange reserve Gain on deemed disposal of a subsidiary Consideration Satisfied by: Cash consideration Analysis of the net outflow of cash and cash equivalents in respect of the deemed disposal of a subsidiary Cash consideration received _Less:_Cash and bank balances disposed of Net outflow of cash and cash equivalents in respect of the deemed disposal of a subsidiary	2006 HK$’000 – – – – – – – – – – – – – – – – – –	2005 HK$’000 48 1,603 18 1,160 8 (1,707 (1,182 24
		(28 (2 28
		(2 2
		–
		–

		– 8
		(8

– 87 –

APPENDIX I

FINANCIAL INFORMATION

(b) Net cash (outflow)/inflow from disposal of subsidiaries

Net assets disposed of: Property, plant and equipment Available-for-sale investment Trade receivables Inventories Prepayments, deposits and other receivables Cash and bank balances Bank loans Trade payables Other payables and accruals Minority interest Net assets Reserve released Exchange reserve Loss on disposal of subsidiaries Consideration Satisfied by: Cash consideration Analysis of the net (outflow)/inflow of cash and cash equivalents in respect of the disposal of subsidiaries Cash consideration received _Less:_Cash and bank balances disposed of Net (outflow)/inflow of cash and cash equivalents in respect of the disposal of subsidiaries	2006 HK$’000 1,105 7,782 9,554 6,296 30,630 4,487 (7,902) (1,189) (15,289) – 35,474 3 35,477 (377) 35,100 35,100 – (4,487) (4,487)	2005 HK$’000 – – – 10 697 29 – – – (221) 515 9 524 (472) 52 – 52 (29) 23

On 25 November 2005, the Company entered into an agreement with Mr. Wan Han (“Mr. Wan”), an independent third party, pursuant to which the Company agreed to dispose of the entire share of Syscan Imaging Limited (“SIL”) at a consideration of US$4,500,000 (equivalent HK$35,100,000). On 7 March 2006, the Company and Mr. Wan entered into a supplemental agreement in connection with the same transaction.

The disposal constituted a very substantial disposal of the Company as outlined in the circular dated 25 April 2006. On 18 May 2006, the disposal was approved by the shareholders at the Special General Meeting.

– 88 –

APPENDIX I

FINANCIAL INFORMATION

The directors had no access to the books and records of SIL and its subsidiaries (the “Disposed Group”) except for the unaudited management account for the period from 1 January 2006 to 18 May 2006 (date of disposal) (the “unaudited management account”). Accordingly, the result for the period from 1 January 2006 to 18 May 2006 has been incurred in the consolidated income statement. Based on the net assets value as at 18 May 2006, the loss on disposal of the Disposed Group amounted to HK$377,000 was accounted for in the consolidated income statement and other amounts related to the Disposed Group included in the consolidated cash flow statement.

(c) Net cash inflow from acquisition of a subsidiary

2006
HK$’000
Fair value of identiable assets/(liabilities) acquired:
Property, plant and equipment
–
Inventories
–
Trade receivables
–
Prepayments, deposits and other receivables
–
Cash and bank balances
–
Trade payables
–
Accruals and other payables
–
Minority interests
–
Net assets
–
Negative goodwill
–
Total consideration
–
Satisfied by:
Cash consideration
–
Analysis of the net inflow of cash and cash equivalents
in respect of the acquisition of a subsidiary
Cash and bank balances acquired
–
Cash consideration
–
Net inflow of cash and cash equivalent in respect of
the acquisition of a subsidiary
–

2005
HK$’000
1,568
663
6,500
4,171
4,062
(3,801)
(7,759)
3,507
8,911
(8,911)
–
–
4,062
–
4,062

– 89 –

APPENDIX I

FINANCIAL INFORMATION

35. EMPLOYEE RETIREMENT BENEFITS

From 1 December 2000, the Group had arranged for its Hong Kong employees to join the Mandatory Provident Fund Scheme (“the MPF Scheme”), a defined contributed scheme managed by an independent trustee. Under the MPF Scheme, each of the Group and its employees makes monthly contributions to the scheme at 5% of the employees’ earnings as defined under the Mandatory Provident Fund legislation, subject to a cap of HK$1,000 per month and thereafter contributions are voluntary.

As stipulated by rules and regulations in mainland China, the Group contributes to statesponsored retirement plans for its employees in mainland China. The Group contributes approximately 9% (2005: approximately 9%) of the basic salaries of its employees, and has no further obligations for the actual payment of pension or post-retirement benefits beyond the annual contributions. The state-sponsored retirement plans are responsible for the entire pension obligations payable to retired employees.

During the year ended 31 December 2006, the aggregate contributions of the Group to the aforementioned retirement benefit schemes were approximately HK$409,000 (2005: HK$428,000). At 31 December 2006, there were no forfeitures available to offset the Group’s future contributions (2005: Nil).

36. SEGMENT REPORTING

Segment information is presented in respect of the group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting.

(a) Business segment

The Group comprises the following main business segments:

(i) Optical image capturing devices unit: the manufacturing and selling of optical image capturing devices.
(ii) Modules unit: the manufacturing and selling of modules of optical image capturing devices.
(iii) Chips and other optoelectronic products unit: the manufacturing and selling of chips and other optoelectronic products.

– 90 –

APPENDIX I

FINANCIAL INFORMATION

Optical image capturing devices unit 2006 2005 HK$’000 HK$’000 Revenue 84,530 48,094 Segment result (4,964) (59,830 ) Unallocated operating income and expenses Loss from operation Finance costs Negative goodwill on acquisition of a subsidiary Gain on deemed disposal of a subsidiary Loss on disposal of subsidiaries Share of losses of associates Income tax Loss for the year Depreciation and amortization 5,827 4,952 Impairment loss on – goodwill – 3,869 – available-for-sale investments 1,560 – Segment assets 242,506 180,699 Segment liabilities 228,338 167,330 Capital expenditure 818 1,273	Modules unit 2006 2005 HK$’000 HK$’000 – 5,745 – (7,148) – 592 – – – – – 21,588 – 19,990 – 152	Chips and other optoelectronic products unit 2006 2005 HK$’000 HK$’000 8,160 12,716 (479 ) (15,819 ) 563 1,309 – – – – 23,410 47,775 22,043 44,241 79 337	Consolidated 2006 2005 HK$’000 HK$’000 92,690 66,555 (5,443) (82,797 ) 756 (19,421 ) (4,687) (102,218 ) (7,419) (4,644) – 8,911 – 2 (377) (472 ) (565) (1,660) (2) (7) (13,050) (100,088 ) 6,390 6,853 – 3,869 1,560 – 265,916 250,062 250,381 231,561 897 1,762

(b) Geographical segment

The Group’s business is managed on a worldwide basis, but participates in four principal economic environments. The United States of America is a major market for all of the group’s businesses, and it is the location of most of its customers.

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of assets. No segment capital expenditures by geographical location is presented as the majority of the group’s capital expenditures incurred during the year are located in mainland China.

– 91 –

APPENDIX I

FINANCIAL INFORMATION

Revenue Segment assets	mainland China 2006 2005 HK$’000 HK$’000 13,276 14,054 217,913 217,724	The United States of America 2006 2005 HK$’000 HK$’000 77,116 44,629 – 29,745	Others 2006 2005 HK$’000 HK$’000 2,298 7,872 48,003 2,593	Consolidated 2006 2005 HK$’000 HK$’000 92,690 66,555 265,916 250,062	Consolidated 2006 2005 HK$’000 HK$’000 92,690 66,555 265,916 250,062

					250,062

37. MATERIAL RELATED PARTY TRANSACTIONS

(a) Key management personnel remuneration

The key management personnel of the group are the directors of the Company. Details of the remuneration paid to them are set out in note 9 to the financial statements.

(b) Other related party transactions

			2006	2005
		Note	HK$’000	HK$’000
Rental expenses	paid/payable to a director	(i)	–	72

Note:

(i) The amount of rent charged under the lease was determined with reference to amount charged by the director, Mr. Cheung Wai to third party.

38. COMMITMENTS

(a) Capital commitments outstanding at 31 December 2006 not provided for in the Group’s financial statements were as follows:

	2006	2005
	HK$’000	HK$’000
Contracted but not provided for	–	4,292

(b) Operating lease commitments

At 31 December 2006, the Group’s total minimum lease payment under non-cancellable operating leases are payable as follows:

– Within one year – In the second to fifth years	2006 HK$’000 37 – 37	2005 HK$’000 936 37
		973

(c) The Company did not have capital and operating lease commitments as at the balance sheet date.

– 92 –

APPENDIX I

FINANCIAL INFORMATION

39. FUTURE OPERATING LEASE ARRANGEMENTS

At 31 December 2006, the Group’s total future aggregate minimum lease receipts under noncancellable operating leases are receivables as follows:

– Within one year – In the second to fifth years	2006 HK$’000 371 177 548	2005 HK$’000 628 393
		1,021

40. COMPARATIVE FIGURES

Certain comparative figures have been adjusted or re-classified as a result of the changes in accounting policies and/or to conform with the current’s year presentation. Further details on the changes in accounting policies are disclosed in note 4 to the financial statements.

41. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE, FOR THE YEAR ENDED 31 DECEMBER 2006

The Group has not early applied the following amendments, new standard and interpretations that have been issued but are not yet effective. The directors of the company anticipate that the application of these standards or interpretations will have no material impacts on the financial statements of the company.

HKAS 1 (Amendment) Capital Disclosures[1] HKFRS 7 Financial Instruments: Disclosures[1] HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[2] HK(IFRIC)-Int 8 Scope of HKFRS 2[3] HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives[4] HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment[5] HK(IFRS)-Int 11 HKFRS 2 – Group and Treasury Share Transfer[6]

1 Effective for annual periods beginning on or after 1 January 2007 2 Effective for annual periods beginning on or after 1 March 2006 3 Effective for annual periods beginning on or after 1 May 2006 4 Effective for annual periods beginning on or after 1 June 2006 5 Effective for annual periods beginning on or after 1 November 2006 6 Effective for annual periods beginning on or after 1 March 2007

– 93 –

APPENDIX I

FINANCIAL INFORMATION

3. FINANCIAL INFORMATION

The following is the Financial Information of the Group as at 31 December 2004, 2005 and 2006 and 31 May 2007 and for each of the years ended 31 December 2004, 2005 and 2006 and the five months ended 31 May 2006 and 2007.

It should be noted that the figures as stated below are different from the figures as shown in the published accounts. This is because the consolidated income statements below were presented in such a way that the results of the disposal group were segregated and regarded as discontinued operations. The figures for the continuing operations and the discontinued operations add up to the figures as shown in the relevant published figures. Accordingly, no adjustment was made by the Reporting Accountants against the figures as shown in the published accounts.

Consolidated Income Statements of the Group

Notes CONTINUING OPERATIONS Revenue 4, 5 Cost of sales Gross profit Other income 5 Selling and distribution expenses General and administrative expenses Research and development expenses Other operating expenses Loss from continuing operations Finance costs 7 Gain on deemed disposal of subsidiaries 34(a) Loss on disposal of subsidiaries 34(b) Negative goodwill on acquisition of a subsidiary 34(c) Share of losses of associates Loss before taxation 6 Tax 10 Loss for the year/period from continuing operations	Year 2004 HK$’000 Audited 79,917 (52,516) 27,401 35,158 (16,058) (14,130) (13,758) (14,977) 3,636 (2,902) 4,228 (9,440) – (42) (4,520) (7) (4,527)	ended 31 December 2005 2006 HK$’000 HK$’000 Audited Audited 66,555 92,690 (42,359) (67,713) 24,196 24,977 2,331 4,530 (10,450) (5,953) (49,329) (19,753) (39,195) (4,657) (13,476) (21,959) (85,923) (22,815) (3,635) (5,120) 2 – (472) (377) 8,911 – (1,660) (565) (82,777) (28,877) (7) (2) (82,784) (28,879)	Five months ended 31 May 2006 2007 HK$’000 HK$’000 Unaudited Audited 25,035 36,446 (22,924) (31,950) 2,111 4,496 3,081 1,602 (1,144) (1,650) (11,288) (5,634) (657) (1,492) (22,973) (1,594) (30,870) (4,272) (4) (618) – – (377) – – (468) – (31,719) (4,890) (28) (27) (31,747) (4,917)

– 94 –

APPENDIX I

FINANCIAL INFORMATION

Notes DISCONTINUED OPERATION Profit/(Loss) for the year/period from a discontinued operation 11 Loss for the year/period Attributable to: Equity holders of the Company 12 Minority interests Loss per share attributable to ordinary equity holders of the Company: 13 Basic – For loss for the year/period – For loss from continuing operations Diluted – For loss for the year/period – For loss from continuing operations Dividends	Year 2004 HK$’000 Audited (19,356) (23,883) (23,040) (843) (23,883) (22.5 cents) (3.6 cents) N/A N/A –	ended 31 December 2005 2006 HK$’000 HK$’000 Audited Audited (17,304) 15,829 (100,088) (13,050) (99,435) (11,600) (653) (1,450) (100,088) (13,050) (97.1 cents) (4.6 cent) (80.2 cents) (10.9 cents) N/A N/A N/A N/A – –	Five months ended 31 May 2006 2007 HK$’000 HK$’000 Unaudited Audited 18,852 398 (12,895) (4,519) (12,738) (4,519) (157) – (12,895) (4,519) (12.4 cents) (1.1 cents) (30.9 cents) (1.2 cents) N/A N/A N/A N/A – –

– 95 –

APPENDIX I

FINANCIAL INFORMATION

Consolidated Balance Sheets of the Group

Notes NON CURRENT ASSETS Intangible assets 14 Goodwill 15 Property, plant and equipment 16 Property under development 17 Interest in associates 19 Available-for-sale investments 20 Investment securities 21 CURRENT ASSETS Inventories 22 Trade receivables 23 Prepayments, deposits and other receivables 24 Due from an associate 19 Cash and cash equivalents 25 Assets of a disposal group classified as held for sale 11 Total current assets CURRENT LIABILITIES Bank loans, secured 26 Trade payables 27 Accruals and other payables 28 Due to a director 29 Due to associates 19 Liabilities directly associated with assets classified as held for sale 11 Total current liabilities NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON CURRENT LIABILITIES Bank loans, secured 26 NET ASSETS	31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 Audited Audited Audited 2,967 2,551 877 3,305 – – 41,364 23,154 14,073 127,807 141,134 157,229 34,377 32,403 33,134 – 9,342 – 9,342 – – 219,162 208,584 205,313 33,355 5,860 3,097 23,167 8,286 11,918 16,467 1,680 40,669 – 17,512 – 23,162 8,140 4,919 96,151 41,478 60,603 – – – 96,151 41,478 60,603 140,520 137,999 144,084 27,164 25,707 24,840 8,763 28,369 37,890 – – 4,590 17,136 39,040 38,579 193,583 231,115 249,983 – – – 193,583 231,115 249,983 (97,432) (189,637) (189,380) 121,730 18,947 15,933 (616) (446) (398) 121,114 18,501 15,535	31 May 2007 HK$’000 Audited 854 – 12,417 – 35,216 – – 48,487 1,362 7,162 57,044 5 5,728 71,301 175,403 246,704 19,397 19,850 40,980 5,868 39,601 125,696 161,460 287,156 (40,452) 8,035 – 8,035

– 96 –

APPENDIX I

FINANCIAL INFORMATION

Notes EQUITY Total equity attributable to the equity holders of the Company Issued capital 31 Reserves Minority interests Total equity	31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 Audited Audited Audited 1,024 1,024 4,095 114,283 16,027 11,440 115,307 17,051 15,535 5,807 1,450 – 121,114 18,501 15,535	31 May 2007 HK$’000 Audited 4,095 3,940
		8,035
		–
		8,035

– 97 –

APPENDIX I

FINANCIAL INFORMATION

Balance Sheets of the Company

Notes NON CURRENT ASSETS Interest in subsidiaries 18 CURRENT ASSETS Prepayments, deposits and other receivables 24 Cash and cash equivalents CURRENT LIABILITIES Accruals and other payables Due to a director 29 NET CURRENT ASSETS/ (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON CURRENT LIABILITIES Financial guarantee 30 NET LIABILITIES EQUITY Issued capital 31 Reserves 32	31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 Audited Audited Audited 54,057 50,640 – 460 460 35,616 11 9 11 471 469 35,627 789 1,980 4,204 – – 4,240 789 1,980 8,444 (318) (1,511) 27,183 53,739 49,129 27,183 (115,385) (116,577) (132,020) (61,646) (67,448) (104,837) 1,024 1,024 4,095 (62,670) (68,472) (108,932) (61,646) (67,448) (104,837)	31 May 2007 HK$’000 Audited – 35,701 3 35,704 3,681 4,240 7,921 27,783 27,783 (141,569) (113,786) 4,095 (117,881) (113,786)

– 98 –

APPENDIX I

FINANCIAL INFORMATION

Consolidated Statements of Changes in Equity of the Group

Share capital HK$’000 Audited Balance at 1 January 2004 1,024 Elimination of accumulated losses – Exchange adjustments – Equity contribution by a minority shareholder – Deemed disposal of a subsidiary – Disposal of a subsidiary – Loss for the year – Balance at 31 December 2004 1,024 Balance at 1 January 2005 1,024 Effect of adoption HKFS 3 on negative goodwill – 1,024 Exchange adjustments – Deemed disposal of a subsidiary – Disposal of a subsidiary – Acquisition of a subsidiary – Loss for the year – Balance at 31 December 2005 1,024		Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Total HK$’000 Audited 138,667 – (313) – – (7) (23,040) 115,307 115,307 564 115,871 580 26 9 – (99,435) 17,051	Minority interests HK$’000 Audited 1,518 – – 4,386 746 – (843) 5,807 5,807 – 5,807 – 24 (221) (3,507) (653) 1,450	Total equity HK$’000 Audited 140,185 – (313) 4,386 746 (7) (23,883) 121,114 121,114 564 121,678 580 50 (212) (3,507) (100,088) 18,501
		Share premium account HK$’000 Audited 79,107 (79,107) – – – – – – – – – – – – – – –	Capital reserves HK$’000 Audited 198,068 – – – – – – 198,068 198,068 – 198,068 – (2) – – – 198,066	Statutory reserves fund HK$’000 Audited 439 – – – – – – 439 439 – 439 – – – – – 439	Exchange reserve HK$’000 Audited 1,592 – (313) – – (7) – 1,272 1,272 – 1,272 580 28 9 – – 1,889	Accumul- ated losses HK$’000 Audited (141,563) 79,107 – – – – (23,040) (85,496) (85,496) 564 (84,932) – – – – (99,435) (184,367)

– 99 –

APPENDIX I

FINANCIAL INFORMATION

Share capital HK$’000 Audited Balance at 1 January 2006 1,024 Shares issued arising from open offer (note 31) 3,071 Exchange adjustments – Loss for the year – Balance at 31 December 2006 4,095 Balance at 1 January 2007 4,095 Exchange adjustments – Loss for the period – Balance at 31 May 2007 4,095		Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Total HK$’000 Audited 17,051 9,212 872 (11,600) 15,535 15,535 (2,981) (4,519) 8,035	Minority interests HK$’000 Audited 1,450 – – (1,450) – – – – –	Total equity HK$’000 Audited 18,501 9,212 872 (13,050) 15,535 15,535 (2,981) (4,519) 8,035
		Share premium account HK$’000 Audited – 6,141 – – 6,141 6,141 – – 6,141	Capital reserves HK$’000 Audited 198,066 – – – 198,066 198,066 – – 198,066	Statutory reserves fund HK$’000 Audited 439 – – – 439 439 – – 439	Exchange reserve HK$’000 Audited 1,889 – 872 – 2,761 2,761 (2,981) – (220)	Accumul- ated losses HK$’000 Audited (184,367) – – (11,600) (195,967) (195,967) – (4,519) (200,486)

– 100 –

APPENDIX I

FINANCIAL INFORMATION

Consolidated Cash Flow Statements

Notes CASH FLOWS FROM OPERATING ACTIVITIES Loss for the year/period Adjustment for: Tax – continuing operations – discontinued operation 11 Adjustments for: Amortisation of intangible assets Amortisation of negative goodwill Amortisation of goodwill Depreciation of property, plant and equipment Impairment loss of goodwill 6 Finance costs 7 Interest income 5 Loss/(Gain) on disposal of property, plant and equipment 6 Gain on disposal of intangibles assets and machinery 34(d) Gain on deemed disposal of subsidiaries 34(a) Loss on disposal of subsidiaries 34(b) Negative goodwill on acquisition of a subsidiary 34(c) Impairment loss on trade and other receivables 6 Write-back of impairment loss on trade and other receivables 6 Write-down of inventories 6 Share of loss of associates Write-back of impairment loss of an associate 6 Write-back of impairment loss on inventories 6 Impairment loss on an available- for-sale investment 6 Impairment loss on amount due from an associate 6 Trade payables written off Operating (loss)/profit before working capital changes Decrease/(increase) in inventories Decrease/(increase) in trade receivables Decrease/(increase) in prepayments, deposits and other receivables Increase in amount due to a director Increase/(decrease) in trade payables Increase/(decrease) in other payables Cash generated from/(used in) operations Interest received Interest paid Overseas taxes paid Net cash inflow/(outflow) from operating activities	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 (23,883) (100,088) (13,050) 7 7 2 – – – (23,876) (100,081) (13,048) 494 470 513 (30) – – 204 – – 6,245 6,383 5,877 – 3,869 – 5,636 4,644 7,419 (88) (73) (114) (595) 3,079 208 – – (15,904) (4,228) (2) – 9,440 472 377 – (8,911) – 14,977 20,191 – – – (1,793) – 29,235 376 42 1,660 565 – (733) – (2,000) – – – – 1,560 – – 19,886 – (456) (1,412) 6,221 (40,253) 4,510 12,912 (2,779) (3,909) 1,430 14,814 (11,393) (5,616) 3,436 (34,518) – – 4,590 10,945 (3,095) 6,255 11,216 15,560 20,289 37,108 (12,317) (14,176) 88 73 114 (7,710) (7,751) (1,649) (7) (7) (2) 29,479 (20,002) (15,713)	Five months ended 31 May 2006 2007 HK$’000 HK$’000 (12,895) (4,519) 28 27 20 25 (12,847) (4,467) 65 51 – – – – 2,449 1,977 – – 4 618 (3) (14) – – – – – – 377 – – – – 1,594 (1,312) – 5,715 – 468 – – – – – – 1,619 – – – (3,465) (241) (7,445) 2,756 (15,604) 3,162 (6,601) (18,965) 3 1,278 4,172 (4,990) 47,465 7,750 18,525 (9,250) 3 14 (4) (618) (48) (52) 18,476 (9,906)

– 101 –

APPENDIX I

FINANCIAL INFORMATION

Notes CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from disposal of long term investment Additions to property under development Cash outflow from deemed disposal of a subsidiary 34(a) Cash inflow/(outflow) from disposal of a subsidiary 34(b) Cash inflow from acquisition of a subsidiary 34(c) Decrease/(increase) in interests in associates and amounts due from/to associates Net cash inflow/(outflow) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Inception/(Repayment) of short term bank loans Repayment of interest-bearing borrowings Shares issued arising from open offer Equity contribution by a minority shareholder of a subsidiary Net cash inflow/(outflow) from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 (2,991) (1,762) (897) 1,006 12,961 20,955 4,717 – – (2,027) (7,762) (5,440) (1,200) (8) – (4,048) 23 (4,487) – 4,062 – (42,527) 3,535 (1,634) (47,070) 11,049 8,497 12,073 (2,435) (2,063) (152) (256) – – – 9,212 4,386 – – 16,307 (2,691) 7,149 (1,284) (11,644) (87) 24,759 23,162 8,140 (313) (3,378) (3,154) 23,162 8,140 4,919 23,162 8,140 4,919	Five months ended 31 May 2006 2007 HK$’000 HK$’000 – (165) – 85 – – (2,598) – – – (4,487) – – – (16,301) 1,017 (23,386) 937 8,636 10,579 – – – – – – 8,636 10,579 3,726 1,610 8,140 4,919 (2,483) (801) 9,383 5,728 9,383 5,728

– 102 –

APPENDIX II UNAUDITED PRO-FORMA FINANCIAL INFORMATION

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The following unaudited pro forma financial information of the Group has been prepared to illustrate the effect of the proposed rights issue (the “Rights Issue”) of not less than 1,637,829,232 rights shares (the “Right Share(s)”) and not more than 1,656,925,232 Rights Shares of the Company at a price of HK$0.01 per Rights Share on the basis of four Rights Shares for each existing share of the Company held.

The unaudited pro forma income statement and cash flow statement of the Group are prepared based on the audited income statement and cash flow statement of the Group for the year ended 31 December 2006 as extracted from the annual report of the Company and as if the Rights Issue have been completed on 1 January 2006.

The unaudited pro forma balance sheet of the Group is prepared based on the balance sheet of the Group as at 31 May 2007 as extracted from a circular of the Company dated 30 November 2007 and as if the Rights Issue have been completed on the balance sheet date.

The unaudited pro forma financial information is prepared to provide information on the Group as a result of the completion of the Rights Issue. It is prepared for illustrative purpose only in accordance with Paragraph 31 of Chapter 7 of the GEM Listing Rules to provide the investors with further information to illustrate the effect on the Group after the Rights Issue and it does not purport to represent what the results, cash flows or financial position of the Group as on the completion of the Rights Issue.

– 103 –

APPENDIX II UNAUDITED PRO-FORMA FINANCIAL INFORMATION

(i) Unaudited pro forma consolidated income statement of the Group for the year ended 31 December 2006 as if the Rights Issue had been completed on 1 January 2006

	The Group		The Group
	Year ended		Year ended
	31 December	Pro forma	31 December
	2006	adjustments	2006
	HK$’000	HK$’000	HK$’000
	Audited	Note (a)	Unaudited
CONTINUING OPERATIONS
Revenue	92,690		92,690
Cost of sales	(67,713)		(67,713)
Gross profit	24,977		24,977
Other income	4,530		4,530
Selling and distribution expenses	(5,953)		(5,953)
General and administrative expenses	(19,753)		(19,753)
Research and development expenses	(4,657)		(4,657)
Other operating expenses	(21,959)		(21,959)
Loss from continuing operations	(22,815)		(22,815)
Finance costs	(5,120)		(5,120)
Loss on disposal of a subsidiary	(377)		(377)
Share of profits and losses of associates	(565)		(565)
Loss before taxation	(28,877)		(28,877)
Tax	(2)		(2)
Loss for the year from
continuing operations	(28,879)		(28,879)
DISCONTINUED OPERATION
Profit for the year from
a discontinued operation	15,829		15,829
Loss for the year	(13,050)		(13,050)
Attributable to:
Equity holders of the Company	(11,600)		(11,600)
Minority interests	(1,450)		(1,450)
	(13,050)		(13,050)

– 104 –

APPENDIX II UNAUDITED PRO-FORMA FINANCIAL INFORMATION

(ii) Unaudited pro forma consolidated balance sheet of the Group as at 31 May 2007 as if the Rights Issue had been completed on 31 May 2007

	The Group	Pro forma	The Group
	31 May 2007	adjustments	31 May 2007
	HK$’000	HK$’000	HK$’000
	Audited	Note (a)	Unaudited
NON CURRENT ASSETS
Intangible assets	854		854
Property, plant and equipment	12,417		12,417
Interest in associates	35,216		35,216
	48,487		48,487
CURRENT ASSETS
Inventories	1,362		1,362
Trade receivables	7,162		7,162
Prepayments, deposits and
other receivables	57,044		57,044
Due from associates	5		5
Cash and cash equivalents	5,728	16,380	22,108
	71,301		87,681
Assets of a disposal group
classified as held for sale	175,403		175,403
Total current assets	246,704		263,084

– 105 –

APPENDIX II UNAUDITED PRO-FORMA FINANCIAL INFORMATION

	The Group	Pro forma	The Group
	31 May 2007	adjustments	31 May 2007
	HK$’000	HK$’000	HK$’000
	Audited	Note (a)	Unaudited
CURRENT LIABILITIES
Bank loans, secured	19,397		19,397
Trade payables	19,850		19,850
Accruals and other payables	40,980		40,980
Due to a director	5,868		5,868
Due to associates	39,601		39,601
	125,696		125,696
Liabilities directly associated
with assets classified as
held for sale	161,460		161,460
Total current liabilities	287,156		287,156
NET CURRENT LIABILITIES	(40,452)		(24,072)
NET ASSETS	8,035		24,415
EQUITY
Total equity attributable
to the equity holders of the Company
Issued capital	4,095	16,380	20,475
Reserves	3,940		3,940
	8,035		24,415
Minority interests	–		–
Total equity	8,035		24,415

– 106 –

APPENDIX II UNAUDITED PRO-FORMA FINANCIAL INFORMATION

(iii) Unaudited pro forma consolidated cash flow statement of the Group for the year ended 31 December 2006 as if the Rights Issue had been completed on 1 January 2006

CASH FLOWS FROM OPERATING ACTIVITIES Profit/(Loss) for the year Adjustment for: Tax Adjustments for: Amortisation of intangible assets Depreciation of property, plant and equipment Finance costs Interest income Loss on disposal of property, plant and equipment Gain on disposal of intangibles assets and machinery Gain on deemed disposal of subsidiaries Loss on disposal of subsidiaries Write-back of impairment loss on trade receivables Write-down of inventories Share of profits and losses of associates Impairment loss on an available-for-sale investment Impairment loss on amount due from an associate Trade payables written off Operating profit before working capital changes Increase in inventories Increase in trade receivables Increase in prepayments, deposits and other receivables Increase in amount due to a director Increase in trade payables Increase in other payables Cash used in operations Interest received Interest paid Overseas taxes paid Net cash outflow from operating activities	The Group Year ended 31 December Pro forma 2006 adjustments HK$’000 HK$’000 Audited Note (a) (13,050) 2 (13,048) 513 5,877 7,419 (114) 208 (15,904) – 377 (1,793) 376 565 1,560 19,886 (1,412) 4,510 (3,909) (11,393) (34,518) 4,590 6,255 20,289 (14,176) 114 (1,649) (2) (15,713)	The Group Year ended 31 December 2006 HK$’000 Unaudited (13,050) 2 (13,048) 513 5,877 7,419 (114) 208 (15,904) – 377 (1,793) 376 565 1,560 19,886 (1,412) 6,694 (3,909) (11,393) (34,518) 4,590 6,255 20,289 (14,176) 114 (1,649) (2) (15,713)

– 107 –

APPENDIX II UNAUDITED PRO-FORMA FINANCIAL INFORMATION

The Group
Year ended
31 December
Pro forma
2006
adjustments
HK$’000
HK$’000
Audited
Note (a)
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property, plant and equipment
(897)
Proceeds from disposal of property,
plant and equipment
20,955
Additions to property under development
(5,440)
Cash outflow from disposal of a subsidiary
(4,487)
Increase in interests in associates
(1,634)
Net cash inflow from investing activities
8,497
CASH FLOWS FROM
FINANCING ACTIVITIES
Repayment of amounts due from
the Disposal Group
–
Repayment of short term bank loans
(2,063)
Proceeds from issue of shares from
an open offer
9,212
Proceeds from issue of shares from
the Rights Issue
–
Net cash inflow from financing activities
7,149
NET DECREASE IN CASH AND
CASH EQUIVALENTS
(67)
Cash and cash equivalents at beginning of year
8,140
Effect of foreign exchange rate changes, net
(3,154)
CASH AND CASH EQUIVALENTS
AT END OF YEAR
4,919
ANALYSIS OF THE BALANCES OF
CASH AND CASH EQUIVALENTS
Cash and bank balances
4,919

The Group
Year ended
31 December
2006
HK$’000
Unaudited
(897)
20,955
(5,440)
(4,487)
(1,634)
8,497
–
(2,063)
9,212
16,380
23,529
16,313
8,140
(3,154)
21,299
21,299

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

(a) This adjustment reflects the net proceeds from the proposed Rights Issue of 1,637,829,232 Right Shares of the Company at a price of HK$0.01 per Right Share on the basis of four Rights Shares for each existing share of the Company held assuming that the Rights Issue had taken place on 31 May 2007.

– 108 –

APPENDIX II UNAUDITED PRO-FORMA FINANCIAL INFORMATION

2. ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

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28 January 2008

The Directors SYSCAN Technology Holdings Limited

Dear Sirs,

We report on the unaudited pro forma financial information of SYSCAN Technology Holdings Limited (the “Company”, and together with its subsidiaries, referred to as the “Group”) set out on pages 103 to 108 in Appendix II to the circular dated 28 January 2008 (the “Circular”) issued by the Company in connection with the proposed rights issue (the “Rights Issue”) of not less than 1,637,829,232 rights shares (the “Right Share(s)”) and not more than 1,656,925,232 Rights Shares of the Company at a price of HK$0.01 per Right Share on the basis of four Rights Shares for each existing share of the Company held. The pro forma financial information is unaudited and has been prepared by the Directors of the Company, solely for illustrative purposes, to provide information about how the Rights Issue, as described in the accompanying introduction to the unaudited pro forma financial information of the Group might have affected the historical financial information in respect of the Group. The basis of preparation of the unaudited pro forma financial information is set out in the accompanying introduction and notes to the unaudited pro forma financial information of the Group.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS OF THE COMPANY AND REPORTING ACCOUNTANTS

It is the responsibility solely of the Directors of the Company to prepare the pro forma financial information in accordance with Paragraph 31 of Chapter 7 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

– 109 –

APPENDIX II UNAUDITED PRO-FORMA FINANCIAL INFORMATION

It is our responsibility to form an opinion, as required by the GEM Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

BASIS OF OPINION

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the Directors 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 31 of Chapter 7 of the GEM Listing Rules.

Our work did not constitute an audit or review made in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants. We do not express any such assurance on the unaudited pro forma financial information.

The unaudited pro forma financial information is for illustrative purposes only, based on the directors’ judgements and assumptions, and because of its nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 May 2007 or at any future date; or the results and cash flows of the Group for the year ended 31 December 2006 or for any future periods.

– 110 –

APPENDIX II UNAUDITED PRO-FORMA FINANCIAL INFORMATION

OPINION

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled 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 31 of Chapter 7 of the GEM Listing Rules.

Yours faithfully, CACHET CERTIFIED PUBLIC ACCOUNTANTS LIMITED

Certified Public Accountants Hong Kong Chan Yuk Tong

Practising Certificate Number P03723

– 111 –

APPENDIX III

ADDITIONAL FINANCIAL INFORMATION

1. INDEBTEDNESS STATEMENT

As at 30 November 2007, the Group had the following outstanding borrowings:

Secured bank loans_(note 1) Due to a director(note 2) Due to associates(note 2)_ Total borrowings	HK$’000 81,993 1,781 35,621
	119,395

Notes:

(1) Included in the bank loans is a bank loan due to Bank of China (“BOC”), Shenzhen, the PRC, of approximately RMB77,380,000 (approximately HK$81,522,000) as at 30 November 2007, representing the outstanding loan principal of approximately RMB65,500,000 (approximately HK$68,775,000) and interest payable of approximately RMB11,880,000 (approximately HK$12,747,000). The bank loan was secured by the property under development of approximately HK$174,654,000 held by a then indirect sub-group of the Company. The loan principal and the interest payable were repaid by the Group in December 2007.

Other than the bank loan as mentioned above, the remaining bank loans were secured by:

(i) the Group’s leasehold land and buildings included in the property, plant and equipment with the net book value of approximately HK$6,000,000;
(ii) the Group’s intangible assets with net book value of approximately HK800,000;
(iii) the Group’s plant and machinery included in property, plant and equipment with the net book value of approximately HK$4,500,000; and
(iv) a personal guarantee given by Mr. Cheung Wai, the director of the Company.
(2) The amounts due to the director and the associates are unsecured and interest-free. The director and the associates have agreed not to demand repayment from the Group until the Group is in a position to do so without affecting the Group’s working capital position.

Contingent Liabilities

On 6 January 2006, BOC took a legal action against the Company and SYSCAN Optoelectronics Technology (Shenzhen) Co., Limited (“SYSCAN Optoelectronics”), a wholly-owned subsidiary of SYSCAN Manufacturing Limited (“SYSCAN MANUFACTURING”) and an indirectly wholly-owned subsidiary of the Company, in respect of SYSCAN Optoelectronics’ default on repayment of interest accrued up to 21 December 2005 on the bank loan granted by BOC on 22 April 2005. BOC claimed against the Company and SYSCAN Optoelectronics for the repayment of the loan and accrued interest and applied to freeze the leasehold land of SYSCAN Optoelectronics. On 2 March 2006, the Company received a writ of summons issued from the Guangdong Provincial Higher People’s Court lodged by BOC against the Company and SYSCAN Optoelectronics for the above claim. The above transaction was detailed in the Company’s announcement dated 3 March 2006.

– 112 –

APPENDIX III

ADDITIONAL FINANCIAL INFORMATION

As at the date of this circular, all the outstanding loan principal and interest payable to BOC had been repaid and the Directors expect that the writ will be withdrawn by early 2008.

Disclaimer

Save as aforesaid, the Group did not have, as at the close of business on 30 November 2007, any outstanding mortgages, charges, debentures or other loan capital, bank loans and overdrafts or other similar indebtedness, liabilities under acceptance or acceptable credits, obligations under hire purchase contracts or finance leases, guarantees or other material contingent liabilities.

2. MATERIAL CHANGE SINCE 31 DECEMBER 2006

As at the Latest Practicable Date, save for the share transfer agreement dated 30 October 2007 entered into between the Company, Syscan Manufacturing, the Company’s indirect wholly-owned subsidiary and Rise Brillion for, among other things, the transfer of 27,500 shares of Syscan manufacturing by the Company to Rise Brillion, as disclosed in the announcement dated 8 November 2007, the Directors were not aware of any material change in the financial or trading position or outlook of the Group since 31 December 2006, the date to which the latest published audited consolidated financial statements of the Group were made up.

3. WORKING CAPITAL

Taking into account the net proceeds from the Rights Issue, the fact that a Director and an associate of the Company have agreed not to demand repayment of the amounts due by the Group to them until the Group is financially capable to do so without affecting its working capital position, and the existing financial resources available to the Group, the Directors are of the opinion that the Group has sufficient working capital for its present requirements for at least the next 12 months from the date of this Circular.

4. MANAGEMENT DISCUSSION AND ANALYSIS

The Group recorded a turnover of approximately HK$19,757,000 for the three-month period ended 30 September 2007, representing a decrease of approximately 10% over the same period last year. The gross profit margin for the third quarter of this year was about 8%, as compared to that of 19% for the same period last year.

Loss attributable to shareholders for the three-month period ended 30 September 2007 amounted to approximately HK$4,709,000, which represents an increase of approximately 45% over the same period in 2006.

During the Relevant Period, the Group has continued its effort in strengthening its research and development team on existing, as well as, new products including the 2D barcode technology and concentrated on the promotion and marketing for the 2D barcode technology application.

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APPENDIX III

ADDITIONAL FINANCIAL INFORMATION

5. FINANCIAL AND TRADING PROSPECT OF THE GROUP

Facing the tough and competitive IT industry, the Group will actively cut down its general overheads and production cost, and will actively develop different products in order to bring in more revenue to the Group.

After several years’ intensive research and development activities over the 2D barcode technology, it is expected that real life application of the technology would be crystallized. The management is confident that the Company would become a major service provider in the 2D barcode application business within the PRC market.

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APPENDIX IV

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquires, confirm that, to the best of their knowledge and belief: (1) the information contained in this circular is accurate and compete in all material respects and not misleading; (2) there are no other matters the omission of which would make any statement in this circular misleading; and (3) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

2. SHARE CAPITAL AND OPTIONS

(a) Share capital

The authorized and issued capital of the Company as at the Latest Practicable Date were, and immediately following completion of the Rights Issue (assuming no outstanding Share Options are exercised prior to the Record Date) will be, as follows:

Authorized: 20,000,000,000 Shares Issued and fully paid: 409,457,000 Shares as at 31 December, 2006 1,637,829,232 Rights Share to be issued pursuant to the Rights Issue (assuming no Share Options are Exercised prior to the Record Date) 2,047,286,232 Shares upon completion of the Rights Issue	HK$ 200,000,000.00

	4,094,570.00 16,378,292.00
	20,472,862.00

All the Shares presently in issue rank pari passu in all respects as regards voting, dividends and return of capital. The Rights Shares to be allotted and issued will, when issued and fully paid, rank passu in all respects with the existing Shares.

No Shares have been issued since 31 December 2006 (i.e. the end of the last financial year of the Company).

Save as disclosed in this circular in respect of (i) the Rights Issue set out in the letter from the Board in this circular; and (ii) the Share Options set out in this appendix, no share or loan capital of the Company has been issued or is proposed to be issued for cash or otherwise and no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any

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GENERAL INFORMATION

such capital since 31 December, 2006 (the date to which the latest audited consolidated financial statements of the Company were made up). The Company had no debt securities in issue as at the Latest Practicable Date.

(b) Share Options

The Company has three employee share option schemes, namely Share Option Scheme A, Share Option Scheme B and Share Option Scheme C (collectively the “Schemes”). As a result of the Open Offer on 7 July 2006 and as at 30 June 2007, details of all the share options (including the options granted to the directors of the Company disclosed above in the sub-section “Long positions in underlying shares of the Company” under the section “DIRECTORS AND EXECUTIVE’S INTERESTS”) under the Schemes are as follows:

Scheme A

Subscription Date of Exercise price per Class of optionees grant period share Director, chief executive, – – – management shareholders or substantial shareholders or their respective associates Optionees with options – – – granted in excess of the individual limited Employees working 2 March 2000 2 March 2000 to HK$0.2422 under continuous 1 March 2010 employee contracts Suppliers of goods – – – and services All other optionees 2 March 2000 2 March 2000 to HK$0.2422 1 March 2010	Beginning of year – – 2,008,000 – 2,288,000 4,296,000	Number Granted during the six-month period – – – – – –	of underlying shares Lapsed Exercised during the during the six-month six-month period period – – – – (1,896,000 ) – – – (2,288,000 ) – (4,184,000 ) –	Balance as at 30 June 2007 – – 112,000 – –
				112,000

– 116 –

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GENERAL INFORMATION

Scheme B

Subscription Date of Exercise price per Class of optionees grant period share Director, chief executive, 19 June 2000 19 June 2001 HK$1.65 management shareholders or to substantial shareholders or 18 June 2010 their respective associates 17 January 2001 17 January 2002 HK$1.03 to 16 January 2011 Optionees with options 4 December 2000 4 December 2001 HK$0.508 granted in excess of to the individual limited 3 December 2010 Employees working 12 July 2000 12 July 2001 HK$1.23 under continuous to employee contracts 11 July 2010 4 December 2000 4 December 2001 HK$0.508 to 3 December 2010 17 January 2001 17 January 2002 HK$1.03 to 16 January 2011 13 August 2001 13 August 2002 HK$1.38 to 12 August 2011 Suppliers of goods – – – and services All other optionees 4 December 2000 4 December 2001 HK$0.508 to 3 December 2010 17 January 2001 17 January 2002 HK$1.03 to 16 January 2011	Beginning of year 2,000,000 3,600,000 – 170,000 140,000 1,860,000 940,000 – – – 8,710,000	Number Granted during the six-month period – – – – – – – – – – –	of underlying shares Lapsed Exercised during the during the six-month six-month period period (1,000,000 ) – (3,600,000 ) – – – (150,000 ) – (100,000 ) – (1,700,000 ) – (880,000 ) – – – – – – – (7,430,000 ) –	Balance as at 30 June 2007 1,000,000 – – 20,000 40,000 160,000 60,000 – – –
				1,280,000

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GENERAL INFORMATION

Scheme C

Subscription Date of Exercise price per Class of optionees grant period share Director, chief executive, – – – management shareholders or substantial shareholders or their respective associates Optionees with options – – – granted in excess of the individual limited Employees working 14 May 2002 14 May 2003 HK$0.706 under continuous to employee contracts 13 May 2012 14 August 2002 14 August 2003 HK$0.50 to 13 August 2012 12 November 2002 12 November HK$0.50 2003 to 11 January 2012 26 March 2003 26 March 2004 HK$0.50 to 25 March 2013 13 August 2003 13 August 2004 HK$0.50 to 12 August 2013 Suppliers of goods – – – and services All other optionees 14 May 2002 14 May 2003 HK$0.706 to 13 May 2012 14 August 2002 14 August 2003 HK$0.50 to 13 August 2012 12 November 2002 12 November HK$0.50 2003 to 11 January 2012	Beginning of year – – 2,940,000 1,670,000 100,000 2,294,000 560,000 – 260,000 1,400,000 200,000 9,424,000	Number Granted during the six-month period – – – – – – – – – – – –	of underlying shares Lapsed Exercised during the during the six-month six-month period period – – – – (2,080,000 ) – (980,000 ) – (100,000 ) – (1,622,000 ) – (560,000 ) – – – (60,000 ) – (400,000 ) – (200,000 ) – (6,042,000 ) –	Balance as at 30 June 2007 – – 860,000 690,000 – 632,000 – – 200,000 1,000,000 –
				3,382,000

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GENERAL INFORMATION

3. INTEREST OF DIRECTORS AND CHIEF EXECUTIVE OF THE COMPANY

Interests or Short Positions of Directors in the Share Capital 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 and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which had 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 he was taken or deemed to have under such provisions of the SFO) or which were required pursuant to section 352 of the SFO, to be entered in the register referred therein or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by directors, to be notified to the Company and the Stock Exchange were as follows:

Long position in Shares

			Number of Shares held	Number of Shares held
						Percentage
						of issued
	Personal	Family	Corporate	Other		share
Name	interests	interests	interests	interests	Total	capital
Mr. Cheung	149,882,409	–	18,740,000	–	168,622,409	41.18%
Mr. Jin Qingjun	50,000	–	–	–	50,000	0.01%

Note:

18,740,000 Shares are held by Simrita Investments Limited, a company incorporated in the British Virgin Islands with limited liability and is wholly and beneficially owned by Mr. Cheung Wai.
Save as disclosed above, Mr. Cheung and his parties acting in concert do not own or control any Shares as at the Last Practicable Date.

Long positions in underlining Shares (Share options granted to the Directors)

			Number of Share
	Date of	Exercise	Options held as at the
Name	grant	price	Latest Practicable Date	Exercise period
Mr. Cheung	19 June 2000	HK$1.65	1,000,000	19 June 2001 to 18 June 2010

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APPENDIX IV

GENERAL INFORMATION

Persons who have an interest or short position which is disclosed under Division 2 and 3 of Part XV of the SFO and substantial Shareholders

As at the Latest Practicable Date, so far as is known to the Directors or chief executive of the Company, no persons had an interest or a short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or who is expected, directly or indirectly, to be 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 the Company.

4. DEALINGS IN SECURITIES

(a) Directors

Save for the disclosure as stated under the section headed “Director’s dealing in Shares” under “Letter from the Board” in this circular and entering into in the Underwriting Agreement by Mr. Cheung, none of the Directors and parties acting in concert with them had dealt in any securities of the Company during the six months prior to the date of the Announcement, up to and including the Latest Practicable Date.

(b) The Underwriter

Save for the disclosure as stated under the section headed “Director’s dealing in shares” under “Letter from the Board” in this circular and entering into the Underwriting Agreement by Mr. Cheung none of Mr. Cheung and parties acting in concert with him had acquired any voting rights in the Company or had dealt in any securities of the Company during the Relevant Period. Mr. Cheung has also undertaken that he, and the parties acting in concert with him, shall not deal in the Shares until the conclusion of the SGM on 22 February 2008 to approve the Whitewash Waiver.

As at the Latest Practicable Date, any Rights Shares acquired by the Underwriter and parties acting in concert with it in pursuance of the Underwriting Agreement were not intended to be transferred, charged or pledged to any other person.

As at the Latest Practicable Date, there were no arrangements of the kind referred to in the third paragraph of Note 8 to Rule 22 of the Takeovers Code between Mr. Cheung or parties acting in concert with him and any other person.

(c) Others

No person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company, or with any person who is an associate of the Company by virtue of classes (1) to (4) of the definition of associate under the Takeovers Code during the period between the date of the Announcement and the Latest Practicable Date.

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APPENDIX IV

GENERAL INFORMATION

None of the subsidiaries of the Company, pension fund of the Company or of a subsidiary of the Company, nor any fund managed on a discretionary basis by any fund manager connected with the Company, nor an adviser to the Company as specified in class (2) of the definition of associate under the Takeover Code had dealt in any securities of the Company during the period between the date of the Announcement and the Latest Practicable Date.

5. CLAIMS AND LITIGATIONS

As at the Latest Practicable Date, save and except for the litigation as disclosed in Note 37 of the Accountant’s Report on page 92 of this circular, no member of the Group was engaged in any litigation or arbitration of material importance and there was no litigation or claims of material importance known to the Directors to be pending or threatened by or against any member of the Group.

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any of its subsidiaries or associated companies which (i) (including both continuous and fixed term contracts) have been entered into or amended within 6 months before the date of the Announcement; (ii) are continuous contracts with a notice period of 12 months or more; (iii) are fixed term contracts with more than 12 months to run irrespective of the notice period; or (iv) are not determinable by the Group within one year without payment of compensation (other than statutory compensation).

7. OTHER INTERESTS OF DIRECTORS

(i) As the Latest Practicable Date, the Directors are Mr. Cheung Wai, Mr. Zhang Ming, who are executive Director, and Mr. Fong Chi Wah, Mr. Jin Quinjun and Mr. Wang Ruiping, who are independent non-executive Director.
(ii) As the Latest Practicable date, none of the Directors was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date which is significant in relation to the business of the Group.
(iii) As at the Latest Practicable Date, none of the Directors have any interests, either direct or indirect, in any assets which have been acquired or disposed of or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2006, being the date to which the latest published audited financial statements of the Company were made up.

8. INTERESTS OF OTHER PARTIES

None of the subsidiaries of the Company, nor pension funds of the Company or of a subsidiary of the Company, nor any fund managed on a discretionary basis by any fund manager connected with the Company, nor an adviser to the Company as specified in class (2) of the definition of associate under the Takeover Code had any interest in the securities of the Company as at the Latest Practicable Date.

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GENERAL INFORMATION

As at the Latest Practicable Date, there was no agreement, arrangement or understanding (including any compensation arrangement) between Mr. Cheung and other persons that the Rights Shares to be acquired by Mr. Cheung under the Underwriting Agreement will be transferred, charged or pledged to that person.

As at the Latest Practicable Date, there was no agreement, arrangement or understanding (including any compensation arrangement) existing between Mr. Cheung or his concert parties and any of the Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Rights Issue and/or the Whitewash Waiver.

As at the Latest Practicable Date, there was no agreement or arrangement between any Directors and any other person which is conditional on or dependent upon the Underwriting Agreement or the Whitewash Waiver or otherwise connected with the Underwriting Agreement or the Whitewash Waiver.

As at the Latest Practicable Date, none of the Shareholders has irrevocable committed itself to vote for or against the Rights Issue and/or the Whitewash Waiver. Mr. Cheung and parties acting in concert with it will abstain from voting on the ordinary resolution approving the Rights Issue and the Whitewash Waiver. Save as aforesaid, as at the Latest Practicable Date, none of the Directors had indicated their intention, in respect of their own beneficial shareholdings, if any, to vote for or against the Rights Issue and/or the Whitewash Waiver.

9. COMPETING INTERESTS

The Directors are not aware of, as at the Latest Practicable Date, any business or interests of each Director, management shareholder and the respective associates of each that competes or may compete with the business of the Group and any other conflicts of interests which any such person has or may have with the Group.

10. MATERIAL CONTRACTS

The following contracts (not being contracts enter into under the ordinary course of business of the Group) have been entered into by the Group after the date the two years immediately preceding the date of the Announcement and up to the Latest Practicable Date and are or may be material:

(i) the supplemental agreement dated 7 March 2006 entered into between the Company and the Purchaser for the purpose of postponing the Long Stop Date and revising the payment schedule of the consideration of the Sale Shares by the Purchaser under the Agreement;

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GENERAL INFORMATION

(ii) the underwriting agreement dated 15 February 2006 between the Company and Mr. Cheung Wai in respect of underwriting of the open offer by the Company 19 June 2006 in respect of not less than 307,092,981 and not more than 341,677,981 new shares of the Company at HK$ 0.03 per offer Share;
(iii) the irrevocable undertaking dated 15 February 2006 signed by Mr. Cheung Wai in favour of the Company in respect of his undertaking to accept the Shares provisionally allotted to him pursuant to the Open Offer;
(iv) the loan agreement dated 23 February 2006 between the Company and Mr. Cheung Wai in respect of a loan in the sum of HK$9,400,000 advanced by Mr. Cheung Wai to the Company on 13 February 2006;
(v) the share subscription agreement dated 28 June 2007 among the Company, SYSCAN Manufacturing and Luck Fame International Investment Holdings Limited (“Luck Fame”) in respect of Luck Fame’s subscription for 40,000 shares of US$1 each in SYSCAN Manufacturing’s share capital at the consideration of RMB184,000,000;
(vi) the share transfer agreement dated 30 October 2007 among the Company, SYSCAN Manufacturing Limited and Rise Billion Investment Limited in respect of 27,500 shares of SYSCAN Manufacturing Limited transferred to Rise Billion Investment Limited at a consideration of RMB126,500,000; and
(vii) the underwriting agreement dated 11 December 2007 (as supplemented by a letter dated 17 December 2007), enter into between Mr. Cheung Wai and the Company in respect of the Rights Issue.

11. QUALIFICATION OF EXPERT AND CONSENT

The following are the qualifications of the experts who have given opinion or advice which is contained in this circular:

Name

Qualification

South China Capital

a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity as set out in Schedule 5 to the SFO

Cachet Certified Public Certified public accountants Accountants Limited

As at the Latest Practicable Date, South China Capital and Cachet Certified Public Accountants Limited have given and have not withdrawn its written consent to the issue of this circular with the inclusion therein a copy of its advance and/or references to its name, in the form and context in which they respectively appear. The statements made by South China Capital and Cachet Certified Public Accountants Limited are given as at the date of this circular for incorporation herein.

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APPENDIX IV

GENERAL INFORMATION

As at the Latest Practicable Date, South China Capital and Cachet Certified Public Accountants Limited did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of the Group, nor did they have any interests, either direct or indirect, in any assets which have been acquired or disposed of or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2006, being the date to which the latest published audited financial statements of the Company were made up.

12. MISCELLANEOUS

(i) As at the Latest Practicable Date, there was no benefit to be given to any Director as compensation for loss of office or otherwise in connection with the Rights Issue and/or Whitewash Waiver.
(ii) Saved for the Underwriting Agreement, there were no contract or agreement entered into by Mr. Cheung or any member of the Group subsisting as at the Latest Practicable Date in which any of the Directors has a material personal interest and which is significant in relation to the business of the Group as a whole.
(iii) The qualified accountant and company secretary of the Company is Mr. Fung Kwok Leung. Mr. Fung holds an Honours Degree in Accountancy from the Hong Kong Polytechnic University and is a fellow member of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants.
(iv) The compliance officer of the Company appointed pursuant to Rule 5.19 of the GEM Listing Rules is Mr. Cheung Wai. Mr. Cheung holds a bachelor degree in electronic engineering from China Central Institute of Technology in the PRC.
(v) The registered office of the Company is situated at Canon’s Court, 22 Victoria Street, Hamilton, HM12, Bermuda. The principal place of business and head office of the Company in Hong King is situated at unit C, 21/F, Seabright Plaza, 9–23 Shell Street, North Point, Hong Kong.
(vi) The branch share registrar and transfer office of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited, at Shop 1712–1716, 17/F., Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.
(vii) In the event of inconsistency, the English text of this circular and the form of proxy shall prevail over the Chinese text.
(viii) The Company established an audit committee on 2 May 2000 with written terms of reference in compliance with Rule 5.28 of the GEM Listing Rules. The duties of the audit committee include (1) reviewing, in draft form, the

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GENERAL INFORMATION

Company’s annual report and accounts, half-year report and quarterly reports and providing advice and comments thereon to the Board; and (2) reviewing and supervising the Company’s financial reporting and internal control procedures. The audit committee comprises three independent non-executive directors namely, Messrs. Fong Chi Wah, Jin Qingjun and Wang Ruiping. Further details of the members of the audit committee are set out below:

Mr. Fong Chi Wah , aged 45, is a Certified Practising Accountant (Australia), a Chartered Financial Analyst, a member of the Institute of Certified Management Accountants, Australia and a member of Hong Kong Institute of Directors. Mr. Fong has over 21 years of extensive experience in various sectors of financial industry, including direct investment, project and structured finance, and capital markets with focus on the PRC and Hong Kong. Mr. Fong was previously a director of Baring Capital (China) Management Limited and held various management positions in ING Bank. Mr. Fong was also an executive director of Grand Investment International Limited, a company listed on the Stock Exchange. Mr. Fong is currently an executive director of National Investment Fund Limited, a company listed on the Stock Exchange.

Mr. Fong holds a bachelor’s degree in management science (economics) from Lancaster University, United Kingdom, a master’s degree in business administration from Warwick University, United Kingdom, a master’s degree in investment management from the Hong Kong University of Science and Technology and a master’s degree in practising accounting from Monash University, Australia.

Mr. Jin Qingjun , aged 50, is currently a partner of King & Wood, solicitors and attorneys in PRC. He has over 20 years of rich experience in the fields of finance, securities, investment, intellectual property, real estate, corporate, maritime, insolvency and litigation as well as foreign investment related areas. Mr. Jin was the founder and Managing Partner of Shu Jin & Co., solicitors and attorneys in PRC. He has previously worked as Attorney for C & C Law Office in PRC, as Foreign Attorney for Clyde & Co., British solicitors, and Johnson Stokes & Master, solicitors in Hong Kong. Presently, Mr. Jin acts as legal consultant for various financial institutions, securities companies, listed companies and overseas corporations such as the World Bank Group International Finance Corporation. He is now also acting as independent director of two listed in the PRC namely Success Information Industry (Group) Stock Co., Ltd. (成功信息產業（集團）股份有限公司 ), a company listed on the Shenzhen stock exchange and China United Travel Stock Co., Ltd. (國旅聯合股份有限公司 ), a company listed on the Shanghai stock exchange. He is also an independent director of a sino-US investment management firm, namely INVESCO Great Wall Securities Fund Management Co., Ltd. (景順長城基金管理有限公司 ). Mr. Jin is one of the first lawyers who was granted the license to advise on securities transactions in PRC. He holds a bachelor’s degree in English from Anhui University and a master degree of Laws in International Laws from China University of Political Science & Law. He is the Adjunct

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APPENDIX IV

GENERAL INFORMATION

Professor of China University of Political Science & Law, and an Arbitrator of China International Economic and Trade Arbitration Commission and Shenzhen Arbitration Commission. Mr. Jin is also a member of various law societies and associations namely China Law Society, China International Law Association, China Maritime Law Association, D.C. Bar of the United States of America, WTO Committee of All China Lawyers Association and Inter Pacific Bar Association.

Mr. Wang Ruiping , aged 45, is a managing director of TDR Capital International Limited and an independent non-executive director of China Huali Holding Limited since March 2003, a company listed in Shenzhen stock exchange. Mr. Wang has over 15 years of investment banking and investment management experience. He also has profound experience of investments in China via listings on domestic and foreign stock exchanges. He has previously worked as executive director of Softbank Investment International (Strategic) Limited, vice president of Greater China Investment banking of Deutsche Bank and assistant director of Standard Chartered (Asia) Limited in charge of investment banking business in mainland China. Mr. Wang was working for China International Trust and Investment Corporation before joining Standard Chartered Asia Limited. Mr. Wang holds a master degree in Economics from Nankai University of China.

13. OTHER CORPORATE INFORMATION

Principal bankers The Hongkong and Shanghai Banking Corporation Limited 1 Queen’s Road Central Hong Kong Bank of China (Hong Kong) Limited Shop 1 & 2 Healthy Village 668 King’s Road Hong Kong Authorized representatives Mr. Cheung Wai Flat 6, 20/F Block E, Ching Tai Court Tsing Yi Hong Kong

Mr. Fung Kwok Leung Flat C, 12/F, The Bloomsville 51 Nga Tsin Wai Road Kowloon City Kowloon Hong Kong

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APPENDIX IV

GENERAL INFORMATION

Legal adviser Anthony Siu & Co. Room 1604 Nine Queen’s Road Central Hong Kong Auditor Cachet Certified Public Accountants Limited 13/F, Neich Tower 128 Gloucester Road Wan Chai Hong Kong Underwriter Mr. Cheung Wai Flat 6, 20/F Block E, Ching Tai Court Tsing Yi Hong Kong Simrita Investments Limited Room 2201–2203, 22/F World Wide House Central, Hong Kong

14. MARKET PRICES

(a) The highest and lowest closing prices of the Shares quoted on the Stock Exchange during the period between 18 June 2007, being the date falling six months prior to the date of the Announcement, and ending on the Latest Practicable Date were 0.620 per Share on 18 October 2007 and HK$0.320 per Share on 7 September 2007 respectively.
(b) The table below sets out the closing prices of the Shares on the Stock Exchange on the last trading day of each calendar month during the period commencing six calendar months immediately preceding the date of the Announcement and ending on the Latest Practicable Date:

Date	Closing price
	(HK$)
31 December 2007	0.495
30 November 2007	0.335
30 October 2007	0.380
28 September 2007	0.390
31 August 2007	0.380
31 July 2007	0.430
28 June 2007	0.370

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GENERAL INFORMATION

(c) The closing price of the Shares on the Stock Exchange on 11 December 2007, being the last day on which the Shares were traded before the suspension of trading on 12 December 2007 at the request of the Company, was HK$0.36.
(d) The closing price of the Shares on the Stock Exchange on the Latest Practicable Date was HK$0.495.

15. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of the Company at Unit C, 21st Floor, Seabright Plaza, 9-23 Shell Street, North Point, Hong Kong during normal business hours (9:00 a.m. – 5:30 p.m.) on any weekday up to and including 10 March 2008 and the same will be uploaded at the Company’s website (www.syscangroup.com) and website of The Securities and Futures Commission of Hong Kong (www.sfc.hk) until (and including) the date of the SGM:

(i) the bye-laws of the Company;
(ii) the Underwriting Agreement;
(iii) all material contracts referred to in the paragraph headed “Material contracts” in this Appendix III;
(iv) the written consent referred to in the paragraph headed “Qualification of Expert and Consent” in this Appendix III;
(v) the letter from South China Capital to the Independent Board Committee and Independent Shareholders, the text of which is set out on pages 23 to 42 of this circular;
(vi) the comfort letter from Cachet Certified Public Accountants Limited on the unaudited pro forma financial Information of the Group. The text of which is set out in Appendix II to this circular;
(vii) the annual reports of the Company for each of the financial years ended 31 December 2005 and 2006 respectively;
(viii) the letter from the Independent Board Committees, the texts of which are set out on page 23 of this circular;
(ix) this circular.

– 128 –

NOTICE OF SGM

==> picture [42 x 47] intentionally omitted <==

SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 8083)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the “SGM”) of SYSCAN Technology Holdings Limited (the “Company”) will be held at Function Room III, Ground Floor, City Garden Hotel, 9 City Garden Road, North Point, Hong Kong on Friday, 22 February 2008 at 10:00 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following ordinary resolution:

ORDINARY RESOLUTION

“ THAT subject to and conditional upon the obligations of Mr. Cheung Wai (“Mr. Cheung”) under the underwriting agreement dated 11 December 2007 (as supplemented by a letter dated 17 December 2007 entered into by the same parties amending certain terms of the Right Issue) (“Underwriting Agreement”) between the Company and Mr. Cheung (a copy of the Underwriting Agreement has been produced to this meeting and marked “A” and initialed by the chairman of the meeting for the purpose of identification) becoming unconditional:
(i) the terms of the Underwriting Agreement be and is hereby approved;
(ii) the issue by way of rights of not less than 1,637,829,232 and not more than 1,656,925,232 new Shares (“Rights Shares”) of HK$0.01 each in the share capital of the Company (“Shares”) pursuant to an offer by way of rights to holders of Shares in the Company (“Shareholders”) at the subscription price of HK$0.01 per Rights Share (“Rights Issue”) in the proportion of 4 Shares for every existing Share held by Shareholders whose names appear on the register of members of the Company on 22 February 2008 (“Record Date”) other than those Shareholders whose addresses on the register of members of the Company are outside Hong Kong on the Record Date and whom the directors of the Company (“Directors”), after making relevant enquiry, consider their exclusion from the Rights Issue to be necessary or expedient on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that

* For identification purposes only

– 129 –

NOTICE OF SGM

place, on and subject to the terms and conditions set out in the circular to the Shareholders dated 28 January 2008 (“Circular”) and on such other terms and conditions as may be determined by the Directors be and is hereby approved; and

(iii) the Directors be and are hereby authorized to issue and allot the Rights Shares on terms as set out in the Circular and to do all such acts and things, to sign and execute all such further documents and to take such steps as the Directors may in their absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Rights Issue and the Underwriting Agreement or any of the transactions contemplated thereunder.”
“ THAT , conditional upon the passing of the resolution numbered 1, the whitewash waiver (“Whitewash Waiver”) applied by Mr. Cheung (as defined in the ordinary resolution numbered 1) together with parties acting in concert with it to the Securities and Futures Commission, pursuant to Note 1 of the Notes on Dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers, waiving any obligation on the part of Mr. Cheung and parties acting in concert with it to make a mandatory general offer for all the securities of the Company other than those already owned or agreed to be acquired by Mr. Cheung and parties acting in concert with it in the event that Mr. Cheung is required to subscribe for 40,945,731 or more Rights Shares under the obligations of the Underwriting Agreement, be and is hereby approved and that the directors of the Company be and are hereby authorised to do all things and acts and sign or execute all such documents as they deem desirable in connection with the Whitewash Waiver.”

By order of the Board SYSCAN Technology Holdings Limited Cheung Wai Chairman

Hong Kong, 28 January 2008

Principal place of business and head office in Hong Kong:

Unit C, 21/F.,

Seabright Plaza 9–23 Shell Street North Point, Hong Kong

– 130 –

AI assistant

Youzan Technology Limited — Proxy Solicitation & Information Statement 2008

51261_rns_2008-01-28_f3841817-51bf-4447-875e-61f12fa445d7.pdf

SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

Underwriter

Mr. Cheung Wai

South China Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

INTRODUCTION

Proposed Rights Issue

Whitewash Waiver

General

THE RIGHTS ISSUE

Issue Statistics

Qualifying Shareholders

Computershare Hong Kong Investor Services Limited

Closure of Register of Members

Subscription Price

Status of the Rights Shares

Share Certificates and refund cheques for Rights Issue

Rights of Overseas Shareholders

Fractions of Rights Shares

Applications for excess Rights Shares

Application for listing

UNDERWRITING ARRANGEMENTS

Underwriting Agreement

Undertaking by Mr. Cheung

LETTER FROM THE BOARD

Termination of the Underwriting Agreement

SHAREHOLDING STRUCTURE OF THE COMPANY AND APPLICATION FOR THE GRANTING OF THE WHITEWASH WAIVER

(i) Assuming no Share Option is exercised prior to the Record Date

(ii) Assuming the Share Option were fully exercised prior to the Record Date

WHITEWASH WAIVER

DIRECTOR’S DEALING IN SHARES

CONDITIONS OF THE RIGHTS ISSUE

WARNING OF THE RISKS OF DEALING IN SHARES AND THE NIL-PAID RIGHTS SHARES

REASONS FOR THE RIGHTS ISSUE AND USE OF PROCEEDS

INFORMATION ON MR. CHEUNG

LISTING STATUS OF THE COMPANY

ADJUSTMENT TO THE SUBSCRIPTION PRICE OF THE SHARE OPTIONS

SGM

RECOMMENDATION

ADDITIONAL INFORMATION

SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

PROPOSED RIGHTS ISSUE OF NOT LESS THAN 1,637,829,232 RIGHTS SHARES AND NOT MORE THAN 1,656,925,232 RIGHTS SHARES AT HK$0.01 PER RIGHTS SHARE IN THE PROPORTION OF FOUR RIGHTS SHARES FOR EVERY EXISTING SHARE HELD AND THE WHITEWASH WAIVER APPLICATION

INTRODUCTION

BASIS OF OUR OPINION

LETTER FROM SOUTH CHINA CAPITAL

(I) THE RIGHTS ISSUE

Principal Factors and Reasons Considered

Background of and reasons for the Rights Issue

(2) Reasons for the Rights Issue

(3) Financing alternatives available to the Group

(iii) Comparison with other rights issue

(i) Effect on NTAV

(ii) Effect on gearing position

(iii) Effect on liquidity

(II) THE WHITEWASH WAIVER

RECOMMENDATION ON THE RIGHTS ISSUE AND THE WHITEWASH WAIVER

1. SUMMARY OF FINANCIAL STATEMENTS

Financial Summary

2. AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006

Consolidated Income Statements

Consolidated Balance Sheet

Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Financial Statements

1. CORPORATE INFORMATION

2. BASIS OF PREPARATION – MATERIAL UNCERTAINTIES RELATING TO THE GOING CONCERN BASIS

3. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of Compliance

(b) Basis of Preparation of the Financial Statements

(c) Subsidiaries

(d) Associates

(e) Goodwill

Youzan Technology Limited Proxy Solicitation & Information Statement 2008