Interim Reports 2024

Contents

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Management Discussion and Analysis

BUSINESS REVIEW

The Group was principally engaged in three businesses: (i) energy business which comprised mainly the trading of energy-related products; (ii) operation of digital energy trading parks; and (iii) drilling services during the six months ended 30 June 2024 (the "Current Period").

The Group's revenue during the Current Period was approximately HK$128.72 million, representing a significant increase of approximately 822.25% as compared to approximately HK$13.96 million for the corresponding period in 2023 (the "Corresponding Period"). The gross profit during the Current Period was approximately HK$4.42 million (2023 interim: gross profit of approximately HK$12.50 million), representing a significant decrease of approximately 64.61% or HK$8.07 million.

Energy business

The Group, having taken into account the best interest of the Company and its shareholders, has temporarily suspended a substantial part of its energy business since October 2021 due to the exposure of energy business to a higher risk resulting from the volatility in the prices of crude oil and certain petrochemicals and the economic uncertainty subsequent to the prolonged COVID-19 pandemic worldwide and the military conflict between Ukraine and Russia.

Since July 2023, the Group has resumed its energy business after considering that the global oil price and certain petrochemicals price have become relatively stable.

The Group entered into purchase agreements with suppliers to produce specific energy-related products and made certain prepayments to suppliers before delivery and entered into sales agreements with customers to sell the specific energy- related products with its own discretion.

During the Current Period, the revenue and the gross margin derived from the energy trading business was approximately HK$122.88 million (2023 interim: nil), and 0.49% (2023 interim: nil). The increase in revenue was mainly due to the Group having just resumed this business since July 2023 and the low gross margin is due to keen competition in the industry.

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Management Discussion and Analysis

Operation of digital energy trading parks

The business operation of the digital energy trading parks has been rapidly expanding since its commencement in the second half of 2020. The Group has signed cooperation agreements with various entities in 16 cities/regions of China, and successfully introduced not less than 600 enterprises into the digital energy trading parks as at the date of this report. The operation and service business of digital energy trading parks generates stable income to the Group through: (1) receiving fixed service fees from enterprises in the trading parks on an annual basis;

1. receiving service fees based on the value-added services provided to the enterprises in the trading parks; and (3) applying for tax incentives or financial subsidies from local governments based on the economic benefits of the operation of the trading parks.

During the Current Period, the revenue derived from the operation of digital energy trading parks was approximately HK$5.84 million (2023 interim: approximately HK$13.96 million). The Company believes that the digital energy trading parks business will continue to contribute economic benefits and bring new opportunities for the energy trading business of the Group in the future.

Drilling Services

The Group has completed drilling services of certain oil wells through its wholly- owned subsidiary, Ningxia Deliheng Oil and Gas Technology Service Company* ( 寧夏德力恒油氣技術服務有限公司) ("Ningxia Deliheng") in 2021. Ningxia Deliheng had entered into the SL16-5-4and SL27 Well Agreement in late 2019 with Beijing Huaye Jinquan Petroleum Energy Technology Development Company Limited, Yanchi Branch* (北京華燁金泉石油能源技術開發有限公司鹽池分公司) ("Beijing Huaye") pursuant to which Ningxia Deliheng provided drilling services of 19 oil wells for Beijing Huaye for the purpose of extraction of oil under the SL16-5-4 and SL27 Well Agreement. The drillings were commenced by 4 June 2021 and has been completed in June 2021.

The Group has further entered into a new drilling service agreement with Beijing Huaye to provide drilling services for 63 oil wells with a contract sum of over RMB748 million in the second half of 2021. As certain conditions precedent have not yet been fulfilled, the new drilling services of the 63 oil wells of the Group has been deferred and has not yet commenced at the date of this report.

During the Current Period, the revenue derived from the drilling services business was nil (2023 interim: nil).

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Management Discussion and Analysis

PROSPECTS

Looking forward to the second half of 2024, the risk of stagflation in the global economy is expected to increase and the overall market conditions will remain uncertain. The Group expects to face various challenges such as price fluctuation in oil and certain petrochemicals caused by the continuation of the military conflict between Ukraine and Russia and the economic uncertainty subsequent to the prolonged COVID-19 pandemic.

1. Energy Business
   The Group will continue to explore opportunities of development of energy-related products and services in order to strengthen the energy business and to enhance the business competitiveness and profitability. The Group will endeavour to have business cooperation with large state-owned enterprises in order to minimize the risk of energy business. The Group will also closely monitor the global oil price fluctuation.
2. Digital Trading Industry Park Operation
   The Group has been successful in developing the "digital trading industry park" operation service for the petrochemical energy industry and has signed cooperative contracts with various enterprises in 16 cities and regions of China to co-build the Jintai Energy Digital Trading Industry Park since its commencement. The Group has introduced not less than 600 enterprises to the digital park. The Group aims to achieve an operation of 30 industry digital parks, introducing more than 2,000 enterprises. The Group will continue to broaden its customer base to the digital trading industry in order to achieve a sustainable growth in the future.
3. Business Expansion
   The Group will continue to explore new investment and business opportunities in various fields including oil exploration and development.

To cope with the challenging environment, the Group will continue to identify and evaluate various development opportunities to strengthen our competitive advantages through deployment of more resources for capturing the market potentials and broaden its source of revenue so as to create value for shareholders. The board (the "Board") of directors ("Directors") are confident to achieve sustainable growth and bring greater returns to our shareholders in the long run.

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Management Discussion and Analysis

FINANCIAL REVIEW

Results of Operations

Revenue

During the Current Period, the revenue of the Group increased significantly to approximately HK$128.72 million (2023 interim: approximately HK$13.96 million), representing an increase of approximately 822.25% as compared to the Corresponding Period. The increase in revenue was mainly attributable to the temporary suspension of the energy trading business since October 2021 the same of which was resumed since July 2023 and was partially net off by the decrease in revenue derived from the operation of digital energy trading parks. In the Current Period, revenue derived from the energy trading business was approximately HK$122.88 million while there was no revenue generated in the Corresponding Period. Revenue derived from operation of digital energy trading parks was approximately HK$5.84 million in the Current Period, representing a decrease of approximately 58.18% as compared with the revenue of approximately HK$13.96 million in the Corresponding Period. The decrease in revenue from the operation of digital energy trading parks was primarily attributable to the challenging business environment.

Net Loss

During the Current Period, the Group recorded a net loss attributable to the owner of the Company of approximately HK$11.62 million (2023 interim: net loss of approximately HK$42.52 million). The net loss in the Current Period was mainly attributable to the decrease in revenue and segment loss derived from the operation of digital energy trading parks.

Operating Costs

The operating costs were approximately HK$15.86 million during the Current Period (2023 interim: approximately HK$16.72 million), representing a decrease of approximately 5.18% as compared to the Corresponding Period. The decrease was mainly due to the decrease in depreciation charge on property, plant and equipment and right-of-use assets during the Current Period.

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Management Discussion and Analysis

Finance Costs

The finance costs of the Group were approximately HK$5.48 million during the Current Period, representing a decrease of approximately 31.41% as compared with approximately HK$7.99 million for the Corresponding Period. The decrease was mainly due to the default interest accrued on the Convertible Notes recognised in the Corresponding Period while there was no such amount in the Current Period. The Convertible Notes matured in July 2022 and the third supplemental deed was signed by the relevant parties and ordinary resolutions approving the same have been passed by the shareholders of the Company in May 2023. Default interest was recognised for this in the Corresponding Period.

Loss per Share

For the Current Period, the basic loss per share was approximately HK$0.26 cents (2023: basic loss per share of approximately HK$0.95 cents), representing a decrease of approximately 72.68% as compared with the Corresponding Period.

FINANCIAL POSITION

Trade and Other Receivables and Prepayments

As at 30 June 2024, the Group's trade and other receivables and prepayments were approximately HK$4.57 million (as at 31 December 2023: approximately HK$276.61 million). The decrease was mainly due to subsequent settlement of trade receivables and subsequent utilization of prepayments to suppliers during the Current Period.

Liquidity and Financial Resources

As at 30 June 2024, the Group had cash and cash equivalents of approximately HK$282.88 million (as at 31 December 2023: approximately HK$25.23 million), which were mainly denominated in Hong Kong dollars (HK$), US dollars (US$) and Renminbi (RMB).

As at 30 June 2024, the Group's net current assets were approximately HK$208.79 million (as at 31 December 2023: approximately HK$220.11 million). The Group's current ratio, being the ratio of total current assets to total current liabilities, was approximately 3.65 as compared to approximately 3.69 as at 31 December 2023.

The Group had bank and other borrowings of approximately HK$13.39 million (as at 31 December 2023: approximately HK$13.39 million) which were denominated in Renminbi and Hong Kong dollars. The aforesaid bank and other borrowings was accounted for current liabilities of the Group and repayable within one year.

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Management Discussion and Analysis

On 20 March 2023, the Company entered into the third supplemental deed for the amendments to the terms and conditions of the Convertible Notes, and ordinary resolutions approving the same have been passed by the shareholders of the Company on 5 May 2023. Pursuant to the third supplemental deed, the Convertible Notes will be redeemed on 17 July 2025 and the interest on the notes was charged at 8% per annum until the settlement date. Except for the above, all other terms of the Convertible Notes remain unchanged. As at 30 June 2024, the carrying amount of the principal and the interest payables of the Convertible Notes issued by the Group was approximately HK$141.40 million (as at 31 December 2023: approximately HK$136.22 million).

The Group had issued bonds in the principal amount of approximately RMB23.48 million as consideration for the acquisition of entire interest of Lijin Shuntong Logistics Company Limited (利津順通物流有限公司) in August 2020. The bonds bear interest at 5% per annum, payable on the maturity date of 23 October 2023. On 12 October 2023, the Company entered into a supplemental agreement with the bondholder, Mr. Chen Qiusan, to extend the maturity date of the bonds to 23 March 2024 while other terms remain unchanged. All outstanding amount under the bonds was settled on 23 March 2024. As at 31 December 2023, the carrying amount of bonds was approximately HK$29.85 million.

Capital Structure and Gearing Ratio

As at 30 June 2024, the total number of issued shares of the Company was 4,455,020,888 shares (as at 31 December 2023: 4,455,020,888).

As at 30 June 2024, the share capital and equity attributable to owners of the Company amounted to approximately HK$5.57 million and approximately HK$67.75 million respectively (as at 31 December 2023: approximately HK$5.57 million and approximately HK$84.76 million respectively).

As at 30 June 2024, the gearing ratio of the Group was approximately 228% (as at 31 December 2023: approximately 212%), which was computed by dividing the total borrowings of approximately HK$154.78 million (as at 31 December 2023: approximately HK$179.45 million) by the equity attributable to the owners of the Company of approximately HK$67.75 million (as at 31 December 2023: approximately HK$84.76 million).

Pledge on the Group's assets

As at 30 June 2024, no assets of the Group have been pledged as security for the borrowings of the Group (as at 31 December 2023: nil).

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