Half Yearly Report

30 March 2011

LED International Holdings Limited

("LED" or the "Company")

Interim Results

For the six-month ended 31 December 2010

LED (AIM: LED) and its subsidiaries (together the "Group"), the AIM listed specialised led company, announces its interim results for the six month period ended 31 December 2010.

Overview

·; Increased Revenue of HK$16,503,000 (approximately £1,320,000) (2009: HK$14,515,000).

·; Increase in Loss Attributable to Shareholders of HK$6,966,000 (approximately £556,000) (2009: HK$5,101,000) caused by rising manufacturing and production costs and relocation of manufacturing plant.

·; Joint venture established using the "Green Pearl" brand relating to high and mid power led lighting solutions with a number of negotiations in progress with potential customers under energy management contracts in the hotel, real estate, education and retail (bookstores, chain stores, petrol stations etc.) sectors.

For further information:

Thomas Li, Executive Chairman,commented: "The Board remains confident in the Group's long-term growth potential and considers that the overall operations of the Group remain sound. The Group has endeavoured to diversify its sources of revenues and customers both domestic market in China and overseas."

Notes to Editors:

LED International Holdings Limited and its subsidiaries specialise in the development, manufacture and sale of low powered led screens, outdoor signs, lamps, lighting and building illumination; and high powered / medium powered led energy efficient indoor and outdoor lighting products.

For more information, please visit: http://www.led-intl.com 

CHAIRMAN'S STATEMENT

INTRODUCTION

LED (AIM: LED) and its subsidiaries (together the "Group") specialise in the development, manufacture and sale of low powered led screens, outdoor signs, lamps, lighting and building illumination as well as high powered / medium powered led energy efficient indoor and outdoor lighting products. The Board of Directors (the "Board") is pleased to report on the unaudited interim results of the Group for the six-month ended 31 December 2010.

OPERATING REVIEW

The global business environment recovered gradually from the financial crisis throughout the period under review and, like many other business, our operating performance picked up quite slowly caused by the general slowdown in China's domestic and export markets. The Group experienced a loss for the six-month ended 31 December 2010. This was mainly attributable to a reduction in export and domestic sales orders from the Group's customers as a result of a general economic slowdown during the financial period, and a conservative approach over negotiating sales orders in view of the deteriorating credit quality of overseas customers.

As a result of the above factors, the Board is continuing to implement measures to diversify sources of revenue and to reduce expenditure, control production costs and expand the customer base in different areas, such as overseas markets, where there is demand for higher value products. The Board considers that the overall Group's operations remain sound.

FINANCIAL REVIEW

Revenue and loss attributable to shareholders for the six-month ended 31 December 2010 amounted to approximately HK$16,503,000 (approximately £1,320,000) (2009: HK$14,515,000) and HK$6,966,000 (approximately £556,000) (2009: HK$5,101,000) respectively. During the financial period ended 31 December 2010, the Group achieved a steady growth in operating revenue by HK$1,988,000 (approximately £159,000)over H1: 2009. The steady growth was contributed mainly by organic and steady growth of major customers' export sales. However, the reduction in gross profit by HK$716,000 (approximately £57,000) from previous periods was compensated by rising manufacturing and production costs especially after removal of manufacturing plant to new manufacturing site, as set out under the heading of Change of Principal Place of Business below.

Continuing operating revenue for the period generated from led element products mainly supplied to major home appliance manufacturers in China, was increased by HK$1,988,000 (approximately £159,000)from the same period in 2009. The Group strengthened its product quality control and customer relationship with the existing major customers and attempted to diversify through sources of revenue and customers during the financial period.

Operating gross margin of led element products of approximately 5% was achieved during the financial period, 5% lower than 2009, due to rising manufacturing and production costs.

The Group continued to strengthen its controls on continuing operating expenditures during the financial period.

In response to the intense competition in led products in China, the Group has worked to strengthen its research and development capabilities through the acquisition of Strongbase New Shenzhen Limited to further raise its brand profile to distinguish itself from generic led product suppliers, as contained under the headings of Acquisition of Subsidiary and Joint Venture below.

CONTRACT UPDATE

Since 30 June 2010, the North Point Project has been substantially completed. The final installment of approximately HK$1,129,000 (approximately £90,000), net of deductions and retentions, due to the Company has not been yet received as a result of certain technical issues. The Board has endeavored to resolve those technical issues with the owner of the North Point Project and the Board expects that the Company will receive this sum upon satisfactory resolution of those technical issues, as agreed by both parties, which is expected by the Board to be end of the current financial year. The Company will continue to work hard to coordinate with the Project owner to carry out final completion checks.

ACQUISITION OF SUBSIDIARY

On 29 July 2008, the Company acquired a 100 per cent. equity interest in Strongbase New Shenzhen Limited ("Strongbase New"), a specialist in led and led related products, accessories and appliances. Strongbase New has both R&D and manufacturing expertise in relation to led related products and possesses numerous patents and other intellectual property rights for led products and led applications. Its product offering includes led devices, displays, lighting and appliances. The acquisition of Strongbase New allows the Group to broaden its product offering to include higher specification products for both its domestic markets and international customers. It will also provide the Group with access to new intellectual property for further product development.

Furthermore, Strongbase New is being used to develop and expand the Group's existing business in developing led lighting solutions.

The aforesaid acquisition is in the process of application of legal title transfer and change of business scope and the Board expects that this would be completed by end of the current financial year.

JOINT VENTURE

On 27 May 2010, the Company entered into a joint venture agreement to develop and expand its existing business in developing led lighting solutions (the "Joint Venture"). The Joint Venture Partners have knowledge, experience and industry contacts in the led lighting business and the Company hopes to leverage this collective expertise to capitalise on the potential opportunities available both internationally and within China.

The Company's wholly owned subsidiary, LED International Energy Conservation Holdings Limited, which has legally ownership of LED International Green Energy Corporation Limited ("LED Green") is being used as the corporate vehicle for the Joint Venture. The Company has a majority stake (60%) in the Joint Venture. LED Green has procured a source of supplies from CREE, Inc., a leading supplier of led products and components, for recurring purchases of led components at a competitive cost. Furthermore, Strongbase New has also procured the registration of its own brand name "Green Pearl" to enhance market penetration into China. The Company is confident that its strict product quality control and competitive pricing will allow it to launch a range of exclusive products in China and overseas markets.

Initial revenues of approximately HK$776,000 (approximately £62,000) were generated during the period under review and further contracts have been signed since the start of the current financial year.

In order to effectively implement its expansion strategy the Group is in negotiation with DBS Bank (Hong Kong) Limited, a regional bank in Hong Kong in relation to the provision of certain banking facilities.

AUTHORISED SHARE CAPITAL

On 12 July 2010, the authorised share capital of the Company was increased from HK$35.0 million divided into 350 million shares of the Company of HK$0.10 each to HK$70.0 million divided into 700 million shares of HK$0.10 each. 

LOAN FACILITY WITH PING AN BANK COMPANY, LIMITED

As announced on 24 February 2011, post-the period end, Ping An Bank Company, Limited has provided a loan of RMB3.0 million (approx. £282,000) (the "Loan") to the Company's wholly owned subsidiary, Kepu Electronic Technology (Shenzhen) Company, Limited ("Kepu"). The Loan has been used to augment Kepu's working capital position and facilitate its organic growth plans.

The Loan expires twelve months from drawdown and attracts interest at 10.0 per cent. above the prevailing lending rate per annum determined by the People's Bank of China. Kepu is required to repay the Loan by monthly installments of RMB50,000 (approx. £4,700) commencing six months from drawdown with the remaining balance (plus accrued interest) payable at the end of the Loan facility. The Loan is secured by a first charge over Rooms 1014-1016, Shen Hua Commercial Building, 2018 Jia Bin Road, Luohu District, Shenzhen, the People's Republic of China (the "Property"), currently occupied and used by the Company's led lighting solutions operating company, Strongbase New.

The Property is owned by the family of the Company's Chairman, Mr. Thomas Li.

DIRECTORS' DEALINGS IN SHARES

Grant of Management Share Options

On 22 July 2010 the Company granted Mr. Thomas Li and Mr. Stephen Chan respectively share options over 5,000,000 new ordinary shares of HK$0.10 each in the Company (the "Ordinary Shares") each (the "First Options"). The exercise price for the First Options is the average closing price of the Ordinary Shares for the past four quarters up to June 2010, being 1.595 pence per share, being a premium of 0.345 pence to the share price prior to the date of grant.

As announced on 14 January 2011, the Company granted Mr. Thomas Li and Mr. Stephen Chan respectively share options over 5,000,000 new Ordinary Shares (the "Second Options") each. The purpose of the Second Options is to incentivise and retain the executive directors during the current key phase in the development of the Company. The exercise price for the Second Options is 1.6313 pence per share, being the average closing price of LED's ordinary shares for the past four quarters ending on 31 December 2010. The Second Options are exercisable for 5 years from the date of grant and the exercise of the Second Options is not conditional.

Exercise of Management Share Options

On 15 December 2010, Mr. Thomas Li and Mr. Stephen Chan exercised the First Options in full.

On 21 January 2011, Mr. Thomas Li and Mr. Stephen Chan exercised share options comprising part of the Second Options over 2,500,000 Ordinary Shares, and 5,000,000 Ordinary Shares respectively (together, the "Option Shares"). Mr. Li retains options over 2,500,000 Ordinary Shares and Mr. Chan does not retain any options over any other Ordinary Shares.

Following the issue of the Options Shares the enlarged issued share capital LED consists of 353,738,267 Ordinary Shares. Mr. Li and Mr. Chan are interested in 104,465,985 Ordinary Shares and 18,220,000 Ordinary Shares respectively, representing 29.53 per cent. and 5.15 per cent. respectively of enlarged share capital.

BOARD CHANGES

Mr. Stephen Chan has been promoted to Chief Executive Officer of the Company with effect from 30 December 2010.

CHANGE OF PRINCIPAL PLACE OF BUSINESS

With effect from 1 October 2010, Kepu Electronic Technology (Shenzhen) Company Limited ("Kepu"), a wholly owned subsidiary, changed its principal place of business to 1st Phase of Zhongxinbao Hi-Tech Park, Xixiang Town, Baoan District, Shenzhen City, Guangdong Province, the People's Republic of China.

CHANGE OF NOMINATED ADVISOR AND BROKER

On 1 December 2010 the Board appointed Allenby Capital Limited as the Company's Nominated Adviser and broker.

DIVIDEND

The Directors are not recommending payment of a dividend for the period under review, and the Board is committed to an ongoing review of the Company's dividend policy.

REGISTRATION OF CORPORATE LOGO

On 11 March 2011, the Trade Marks and Designs Registration Office of the European Union granted the registration of the Company's corporate logo. The trademark registration will expire on 8 July 2020.

CURRENT OUTLOOK AND PROSPECTS

The Board remains confident in the Group's long-term growth potential and considers that the overall operations of the Group remain sound. The Group has endeavoured to diversify its sources of revenues and customers both domestic market in China and overseas. In view of recent fast and dynamic developments in the markets, the Group will pursue different strategies towards different products and markets for the foreseeable future, as set out below.

Low power led display screens and modules

In order to equip and facilitate the Group in meeting customers' orders and demands, Kepu's manufacturing facility has relocated to new production plant and location, as contained under the heading of Change of Principal Place of Business above. The Group intends to strengthen its customer relationship with major customers in China. Currently, Kepu supplies led display screens and modules for major customers' exports of air-conditioners and micro-wave ovens. Kepu has also expanded its products to supply displays for refrigerators bound for the export market. As a result, the Group expects the new business will contribute to the Group's operating revenue for the current financial year. The Group plans to continue to expand the business with its existing major customers and business opportunities with other major potential customers in the market.

High power and mid power led lighting solutions

Following with the formation of the Joint Venture, as set out under the heading of Joint Venture above, the Group endeavours to develop and expand its existing led lighting solutions.

The Group is currently developing and expanding its existing business through the development of led energy saving lighting solutions by offering a series of led light bulbs, led spot lights, led candle lights, led par lights, led tubs and led panels under its registered trademark of "Green Pearl". The Group is currently negotiating with a number of additional potential customers under energy management contracts ("EMC") in the hotel, real estate, education and retail (bookstores, chain stores, petrol stations etc.) sectors and the Group is also negotiating with state-owned enterprises to jointly supply street lights in some major cities in China. In order to launch the EMC model more widely, the Group is in negotiations with certain banks, both regional and Chinese, to provide debt financing. Further announcements will be made in relation to this at the appropriate time.

The Board believes that the Group's expertise in the led sector, as well as its focus on higher value added CREE, Inc. based products, can help the Group to focus on the niche markets such as led street lights integrating with solar power supply and specialised power storage devices. In addition, the Board believes it is a positive indication of the Group's progress in the development of its higher-end led products. The Group is developing higher value added led products, such as led lighting business and to focus on areas where demand will remain strong.

Led real estate advertising screens

Another key objective of the Board is to further develop the Group's expertise in producing high quality, reliable and innovative led products and solutions, and the Board intends to exploit this expertise in the led sector to explore business opportunities in the led related media business. China has a comparatively low per capita spending in outdoor advertising and, coupled with the Chinese government's determination to maintain domestic consumption in 2011, the Board believes there are good opportunities for the Group to enter the outdoor media market and to leverage its led products and established relationships with leading media players in China. The Group is also looking for other sources of outdoor media market overseas.

APPRECIATION

Finally, on behalf of the Board, I would like to thank our customers, suppliers and shareholders for their continued support of LED International Holdings Limited. I would also like to acknowledge the hard work of the management and all the staff for their contribution and dedication to the Company.

Thomas Li

Executive Chairman

LED INTERNATIONAL HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

LED INTERNATIONAL HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2010

LED INTERNATIONAL HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

1. GENERAL INFORMATION

LED International Holdings Limited (the "Company") was domiciled and incorporated in Hong Kong with limited liability under the Hong Kong Companies Ordinance. The addresses of the Company's registered office and principal place of business are Suite 911, 9/F Exchange Tower, 33 Wang Chiu Road, Kowloon Bay, Kowloon.

The principal activities of the Company are investment holding, and specialise in the development, manufacture and sale of low powered led screens, outdoor signs, lamps, lighting and building illumination, and high powered/ medium powered led energy efficient indoor and outdoor lighting products. The principal activities of its subsidiaries are set out in note 6 to the interim financial information.

On 23 October 2006, the Company was admitted to trading on the Alternative Investment Market ("AIM") of the London Stock Exchange.

The interim financial information is presented in Hong Kong dollars ("HK$"), which is the same as the functional currency of the Company, and all values are rounded to the nearest thousand except when otherwise indicated.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The interim financial information has been prepared in accordance with all applicable International Financial Reporting Standards ("IFRSs"), which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards and Interpretations and comply with the AIM Rules issued by the London Stock Exchange. In addition, the interim financial information includes applicable disclosures required by the Hong Kong Companies Ordinance. A summary of the significant accounting policies adopted by the Group is set out below.

(b) Basis of preparation of interim financial information

The interim financial information for the six-month ended 31 December 2010 comprises the Company and its subsidiaries (together referred to as the "Group"). The 2010 interim financial report of the Company has not been audited or reviewed by the Company's auditor.

The measurement basis used in the preparation of the interim financial information is the historical cost basis.

The preparation of interim financial information in conformity with IFRSs requires management to make judgments, 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 judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Basis of preparation of interim financial information (continued)

The condensed interim financial statements have been prepared in accordance with the requirements of the AIM Rules for Companies. As permitted, the Company has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing this interim financial information. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 30 June 2010, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The interim financial information set out above does not constitute statutory accounts. It has been prepared on a going concern basis in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union.

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 IFRSs that have significant effect on the interim financial information and major sources of estimation uncertainty are discussed in Note 19.

 (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 interim financial information 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 interim financial information. 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.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

3. REVENUE

The Group is principally engaged in assembly and manufacturing of LED element products. The revenue recognised for the six-month ended 31 December 2010 and 2009 were as follows:

4. SEGMENT INFORMATION

Adoption of IFRS 8 Operating Segments

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. In contrast, the predecessor standard (IAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical), using a risks and returns approach, with the entity's "system of internal financial reporting to key management personnel" serving only as the starting point for the identification of such segments. The adoption of IFRS 8 has not changed the identification of the Group's reportable segments.

Products from which reportable segments derive their revenues

The Group's reportable segments under IFRS 8 are as follows:

Operations

• LED display screens

• LED element products

Information regarding the above segments in accordance with IFRS 8 is reported below.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

4. SEGMENT INFORMATION (CONTINUED)

Segment revenues and results

The following is an analysis of the Group's revenue and results from operations by reportable segment.

Revenue reported above represents revenue generated from external customers. There were no inter-segment sales during the six-month ended 31 December 2010.

Segment loss represents the loss incurred by each segment without allocation of central administration costs including directors' salaries, finance costs and income tax expense. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

4. SEGMENT INFORMATION (CONTINUED)

Segment assets and liabilities

For the purposes of monitoring segment performance and allocating resources between segments:

• all assets are allocated to reportable segments other than unallocated assets including deposit for acquisition of Strongbase New Shenzhen Limited and certain bank balances. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments; and

• all liabilities are allocated to reportable segments other than current tax liabilities and unallocated liabilities including interest payable, amount due to a director and loan from a director. Liabilities for which reportable segments are jointly liable are allocated in proportion to segment assets.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

5. LOSS PER SHARE

The calculation of the basic and diluted loss per share attributable to owners of the Company is based on the following data:

The denominators used are the same as those detailed above for both basic and diluted loss per share.

The diluted loss per share equals the basic loss per share because there was no potential dilutive share.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

6. SUBSIDIARIES

The particulars of the subsidiaries at 31 December 2010 are as follows:

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

7. CASH AND CASH EQUIVALENTS

At 31 December 2010, cash and bank balances include an fixed deposit of HK$10,000,000 (30 June 2010: Nil) which has been pledged to a bank for the banking facilities granted to the Group.

Cash and bank balances also include an amount of approximately HK$196,000 (30 June 2010: HK$445,000) denominated in Chinese Yuan Renminbi ("RMB"). RMB is not freely convertible into foreign currencies and the remittance of funds out of the Mainland China is subject to exchange restrictions imposed by the PRC government.

8. BORROWINGS

Note:

The bank borrowings of RMB1,060,000 as at 31 December 2010 (equivalent to approximately HK$1,258,000 were repayable within one year. The bank borrowings were interest bearing at the benchmark lending rate of the People's Bank of China and were secured by a charge over the property owned by a key management personnel of a subsidiary.

9. LOAN FROM A DIRECTOR

The amount was unsecured, carried interest at a rate of three month LIBOR plus 4% per annum and repayable on 7 September 2011.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

10. SHARE CAPITAL

Authorised and issued share capital

During the year ended 30 June 2010, a total of 19,635,927 Ordinary Shares were issued upon the exercise in total of 19,635,927 share options at an exercise price of HK$0.10.

During the year ended 30 June 2010, convertible loan notes with a principal amount of HK$8,500,000 were converted into 37,845,058 Ordinary Shares at a conversion price of 1.8 pence per each Ordinary Share.

5,000,000 Ordinary Shares were issued at a placing price of GBP0.015 per each Ordinary Share in February 2010 and 78,000,000 Ordinary Shares were issued at a placing price of GBP0.02 per each Ordinary Share in March 2010 for cash to increase working capital of the company.

On 7 April 2010, the company issued 1,579,778 ordinary shares of HK$0.10 each at a price of approximately HK$0.19 per each ordinary share for cash to increase working capital of the company.

On 12 July 2010, the authorised share capital of the Company was increased from HK$35 million divided into 350 million shares of the Company of HK$0.10 each to HK$70 million divided into 700 million shares of HK$0.10 each.

On 15 December 2010, Mr. Thomas Li and Mr. Stephen Chan exercised share options over 5,000,000 Ordinary Shares each. These options were awarded on 22 July 2010 at a price of 1.595 pence per Ordinary Share.

The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All Ordinary Shares rank equally with regards to the Company's residual assets.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

11. SHARE-BASED PAYMENT TRANSACTIONS

The Company's management option agreement is established for the purpose of providing incentives to the directors and the employees of the Group. On 16 October 2006, 13,687,009 share options in aggregate were granted at an exercise price of 10 pence per ordinary share to the Group's management. Pursuant to the management option agreement, the share options shall be exercised as follows: (i) the first third of the shares may be subscribed for following the first anniversary of admission to AIM on 23 October 2006; (ii) the second third of the shares may be subscribed for following the second anniversary of admission to AIM on 23 October 2006; and (iii) the final third of the shares may be subscribed for following the third anniversary of admission to AIM on 23 October 2006.

Under the option agreement entered into with Corporate Synergy Plc dated 16 October 2006, 5,474,802 share options in aggregate were granted to Corporate Synergy Plc in settlement of their corporate finance fees and commissions at an exercise price of 10 pence per ordinary share in respect of the first 2,737,401 shares and at an exercise price of 12.5 pence per ordinary share in respect of the remaining 2,737,401 shares. The options granted shall be exercised in whole or in part at any time in the period of 5 years from the date of admission to AIM on 23 October 2006.

On 18 May 2009, 4,363,539 share options were granted for nil consideration to the Group's management at an exercise price of 10 HK cents per ordinary share. New Management Options shall be exercised in whole or in part at any time in the period from the date of grant on 18 May 2009 to 3 June 2019. The share options have been exercised during the year ended 30 June 2010.

On 3 June 2009, 17,454,158 share options in aggregate were granted for nil consideration to the Group's management at an exercise price of 10 HK cents per ordinary share. New management options shall be exercised in whole or in part at any time in the period from the date of grant on 3 June 2009 to 3 June 2019. The share options have been exercised during the year ended 30 June 2010.

On 22 July 2010, 10,000,000 share options were granted to the Company's management at an exercise price of 1.595 pence per ordinary share. The new management options shall be exercised in whole or in part at any time in the period from the date of grant on 22 July 2010 to 22 July 2015. The share options have been exercised during the six-month ended 31 December 2010.

The number of shares in respect of which options had been granted and remained outstanding at 31 December 2010 was 13,043,287 (30 June 2010: 9,025,273), representing approximately 3.8% (2009: 2.7%) of the issued shares of the Company at that date, as follows:

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

11. SHARE-BASED PAYMENT TRANSACTIONS (CONTINUED)

Notes:

(a) Certain share options were lapsed upon the resignation of the directors and the employee of the Group.

(b) The fair value of 13,687,009share options granted on 16 October 2006 was determined by the management to be approximately HK$733,000 with reference to a valuation performed by an independent firm of professional valuers using the Black-Scholes option pricing model. The inputs into the model included the share price of 4.236 pence per share on the date of grant, the exercise price of 10 pence per share, expected volatility of 32.05%, expected option life of 3 to 4 years, no expected dividend and estimated annualized risk free interest rate of 4.99% to 5.06%.

(c) The fair value of 2,737,401share options granted on 16 October 2006 with the exercise price of 10 pence was determined by the management to be approximately HK$150,000 with reference to a valuation performed by an independent firm of professional valuers using the Black-Scholes option pricing model. The inputs into the model included the share price of 4.236 pence per share on the date of grant, the exercise price of 10 pence per share, expected volatility of 32.05%, expected option life of 2.5 years, no expected dividend and estimated annualized risk free interest rate of 4.89%.

(d) The fair value of 2,737,401share options granted on 16 October 2006 with the exercise price of 12.5 pence was determined by the management to be approximately HK$92,000 with reference to a valuation performed by an independent firm of professional valuers using the Black-Scholes option pricing model. The inputs into the model included the share price of 4.236 pence per share on the date of grant, the exercise price of 12.5 pence per share, expected volatility of 32.05%, expected option life of 2.5 years, no expected dividend and estimated annualized risk free interest rate of 4.89%.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

11. SHARE-BASED PAYMENT TRANSACTIONS (CONTINUED)

(e) The share options granted by the Company during the year ended 30 June 2007 included share options granted to the Group's nominated advisor and broker for services rendered. As the services rendered by the nominated advisor and broker are similar to those rendered by the Group's employees, the nominated advisor and broker is considered as "employees and others providing similar services" under the context of IFRS 2. Accordingly, the fair values of the share options granted to the Group's nominated advisor and broker during the year ended 30 June 2007 were measured on the same basis as those granted to employees as disclosed in note (b) above.

(f) The fair value of 4,363,539share options granted on 18 May 2009 was determined by the management to be approximately HK$274,000 with reference to a valuation performed by an independent firm of professional valuers using the Black-Scholes option pricing model. The inputs into the model included the share price of 0.65 pence (approximately 7.735 HK cents) per share on the date of grant, the exercise price of 10 HK cents per share, expected volatility of 125.36%, expected option life of 5.02 years, no expected dividend and estimated annualized risk free interest rate of 2.42%. The 4,363,539 share options exercised during the year ended 30 June 2010 resulted in the issue of 4,363,539 ordinary shares of HK$0.10 each in the share capital of the Company. The weighted average closing price of the shares of the Company immediately before the dates on which the share options were exercised was 1.99 pence.

(g) The fair value of 17,454,158share options granted on 3 June 2009 was determined by the management to be approximately HK$2,368,000 with reference to a valuation performed by an independent firm of professional valuers using the Black-Scholes option pricing model. The inputs into the model included the share price of 1.30 pence (approximately 16.445 HK cents) per share on the date of grant, the exercise price of 10 HK cents per share, expected volatility of 131.16%, expected option life of 5 years, no expected dividend and estimated annualized risk free interest rate of 2.64%. The 15,272,388 share options exercised during the year ended 30 June 2010 resulted in the issue of 15,272,388 ordinary shares of HK$0.10 each in the share capital of the Company. The weighted average closing price of the shares of the Company immediately before the dates on which the share options were exercised was 1.99 pence.

(h) The fair value of 10,000,000share options granted on 22 July 2010 was determined by the management to be approximately £159,500 with reference to the market value on the date of grant.

12. CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from the six-month ended 31 December 2010.

The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

12. CAPITAL RISK MANAGEMENT (CONTINUED)

The capital structure of the Group consists of net debt (which includes bank overdrafts, bank borrowings, convertible loan notes and loan from a director), cash and bank balances and equity attributable to owners of the Company (comprising issued share capital, share premium, reserves and accumulated losses).

Gearing ratio

The gearing ratio at the end of the reporting period was as follows:

13. FINANCIAL RISK MANAGEMENT

Exposure to credit, liquidity, interest rate and foreign currency risks arises in the normal course of the Group's business. The Group's exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

(a) Credit risk

The Group's credit risk is primarily attributable to trade and other receivables. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.

In respect of trade receivables, individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customers' past history of making payments when due and current liability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customers operates. Trade receivables are due within 30 to 90 days from the date of billing. Normally, the Group does not obtain collateral from customers.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

13. FINANCIAL RISK MANAGEMENT (CONTINUED)

(a) Credit risk (Continued)

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer rather than the industry or country in which the customers operate and therefore significant considerations of credit risk primarily arise when the Group has significant exposure to individual customers.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet after deducting any impairment allowance. The Group does not provide any guarantees which would expose the Group or the Company to credit risk.

(b) Liquidity risk

The Group's policy is to regularly monitor its current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.

In meeting its current liquidity requirements, the Group has reached the agreements with the key creditors, which would be due within twelve months from the balance sheet date, to reschedule the repayments. In the longer term, the Group has been discussing with prospective investors to obtain new working capital and meet its liquidity requirements.

(c) Interest rate risk

Other than the amount due to a director, the Group has no other significant interest bearing assets and liabilities. The Group's income and operating cash flows are substantially independent of changes in market interest rates.

(d) Foreign currency risk

The Group has minimal exposure to foreign currency risk as most of its business transactions, assets and liabilities are denominated in a functional currency of the operations (i.e. Hong Kong dollars and Chinese Yuan Renminbi). The Group currently does not have a foreign currency hedging policy in respect of foreign currency transactions, assets and liabilities. The Group monitors its foreign currency exposure closely and considers hedging significant foreign currency exposure should the need arise.

(e) Fair values

The carrying amounts of the Group's financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 December 2010.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

14. MATERIAL RELATED PARTY TRANSACTIONS

(a) Key management personnel remuneration

Remuneration for key management personnel of the Group is as follows:

 (b) Other related party transactions

In addition to the transactions and balances disclosed elsewhere in the interim financial information, the Group had the following significant transactions with related parties during the six-month period:

15. ACQUISITION OF SUBSIDIARY

On 29 July 2008, the Company acquired a 100 per cent. equity interest in StrongbaseNew Shenzhen Limited ("Strongbase New"), a specialist in led and led related products, accessories and appliances. Strongbase New has both R&D and manufacturing expertise in relation to led related products and possesses numerous patents and other intellectual property rights for led products and led applications. Its product offering includes led devices, displays, lighting and appliances. The acquisition of Strongbase New allows the Group to broaden its product offering to include higher specification products for both its domestic markets and international customers. It will also provide the Group with access to new intellectual property for further product development.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

15. ACQUISITION OF SUBSIDIARY (CONTINUED)

Furthermore, Strongbase New is being used to develop and expand the Group's existing business in developing led lighting solutions.

On 29 July 2008, the Company issued 16,025,000 Ordinary Shares of HK$0.10 each at HK$0.156 as a partial consideration of HK$2,500,000. A partial consideration of HK$2,000,000 was paid in cash to the seller during the year ended 30 June 2009. The remaining balance of consideration HK$1,000,000 will be paid in cash within 3 years from the completion of the acquisition.

The aforesaid acquisition is in the process of application of legal title transfer and change of business scope and the Board expects that this would be completed by end of the current financial year

16. COMMITMENTS

(a) Capital commitments outstanding at 31 December 2010 not provided for in the interim financial information were as follows:

(b) At 31 December 2010, the total future minimum lease payments under non-cancellable opening leases are payable as follows:

Operating lease payments represent rentals payable by the subsidiaries for the manufacturing plants and office premises. Leases are negotiated, and rentals fixed, for an average term from one to three years. No arrangements have been entered into for contingent rental payments.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

17. CONTINGENT LIABILITIES

From 2006 onwards, the Group's subsidiary, Shenzhen China-LED Photo-Technology Limited ("Shenzhen LED"), qualified as a small-scale VAT taxpayer by Shenzhen Municipal Nanshan District State Tax Bureau under the PRC tax laws and continues to be subject to 6% VAT on its taxable sales revenue. VAT is payable when the right to receive sale proceeds is established when delivery of goods is made to the buyer. The Group has been delaying reporting and paying VAT to the state tax bureau since 2006 and has carried a VAT payable of approximately HK$17,236,000, equivalent to RMB15,177,000 (30 June 2010: HK$17,236,000, equivalent to RMB15,177,000) as at 31 December 2010. According to the tax laws, a penalty may be charged up to a maximum of five times the VAT tax liability plus late payment interest of 0.05% per day on unpaid VAT amounts may be imposed by the state tax bureau. In addition, those persons involved could be severely punished subject to criminal proceedings. In the absence of any reliable information on penalties and/or late payment interest that the state tax bureau may charge against the Group, the directors of the Company are unable to estimate the amounts potentially payable for the late payment of VAT as at 31 December 2010.

18. NON-ADJUSTING POST BALANCE SHEET EVENTS

(a) Directors' dealings in shares

Grant and exercise of Management Share Options

On 14 January 2011, the Company granted Mr. Thomas Li and Mr. Stephen Chan respectively share options over 5,000,000 new Ordinary Shares (the "Second Options") each. The purpose of the Second Options is to incentivise and retain the executive directors during the current key phase in the development of the Company. The exercise price for the Second Options is 1.6313 pence per share, being the average closing price of LED's ordinary shares for the past four quarters ending on 31 December 2010. The Second Options are exercisable for 5 years from the date of grant and the exercise of the Second Options is not conditional.

On 21 January 2011, Mr. Thomas Li and Mr. Stephen Chan exercised share options over 2,500,000 Ordinary Shares, and 5,000,000 Ordinary Shares respectively (together, the "Option Shares"). These options were awarded on 13 January 2011 and have an exercise price of 1.6313 pence per Ordinary Share. Mr. Li retains options over 2,500,000 Ordinary Shares and Mr. Chan does not retain any options over any other Ordinary Shares.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

18. NON-ADJUSTING POST BALANCE SHEET EVENTS (CONTINUED)

(b) Loan facility with Ping An Bank, Limited

Ping An Bank Company, Limited has provided a loan of RMB3.0 million (approx. £282,000) (the "Loan") to the Company's wholly owned subsidiary, Kepu Electronic Technology (Shenzhen) Company, Limited ("Kepu"). The Loan has been used to augment Kepu's working capital position and facilitate its organic growth plans.

The Loan expires twelve months from drawdown on 28 January 2011and attracts interest at 10 per cent. above the prevailing lending rate per annum determined by the People's Bank of China. Kepu is required to repay the Loan by monthly installments of RMB50,000 (approx. £4,700) commencing six months from drawdown with the remaining balance (plus accrued interest) payable at the end of the Loan facility. The Loan is secured by a first charge over Rooms 1014-1016, Shen Hua Commercial Building, 2018 Jia Bin Road, Luohu District, Shenzhen, the People's Republic of China (the "Property"), currently occupied and used by the Company's led lighting solutions operating company, Strongbase New.

The Property is owned by the family of the Company's Chairman, Mr. Thomas Li.

19. KEY SOURCES OF ESTIMATION UNCERTAINTY

Note 11 contains information about the assumptions and their risk factors relating to the fair value of share options and warrants granted. Other key sources of estimation uncertainty are as follows:

(a) Impairment of property, plant and equipment and intangible assets

The Group assesses annually whether property, plant and equipment and intangible assets have any indication of impairment in accordance with the relevant accounting policies. If such indication exists, the recoverable amounts of the assets would be determined by reference to value in use and net selling price. Value in use is determined using the discounted cash flow method. Owing to inherent risks associated with estimations in the timing and magnitude of the future cash flows and net selling prices, the estimated recoverable amount of the assets may be different from its actual recoverable amount and profit or loss could be affected by accuracy of the estimations.

(b) Impairment of trade and other receivables

If circumstances indicate that the carrying amount of trade and other receivables may not be recoverable, the assets may be considered impaired and an impairment loss may be recognised. The carrying amounts of trade and other receivables are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. The recoverable amount of trade and other receivables is the estimated future cash flows discounted at the current market rate of return of similar assets. The Group uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount.

LED INTERNATIONAL HOLDINGS LIMITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH ENDED 31 DECEMBER 2010

 19. KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)

(c) Income taxes

The Group is subject to income taxes mainly in the PRC. Significant estimates are required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will affect the income tax provisions in the period in which such determination is made.

 (d) Allowance for slow-moving inventories

An allowance for slow-moving inventories is made based on the ageing and estimated net realisable value of inventories. The assessment of the allowance amount involves judgment and estimates. Where the actual subsequent outcome is different from the original estimate, such difference will affect the carrying value of inventories and any allowance charge or write-back in the period in which the estimate has been changed.

(e) Construction contracts

Revenue and profit recognition on an uncompleted project is dependent on estimating the total outcome of the construction contract, as well as the work done to date. Based on the Group's recent experience and the nature of the construction activity undertaken by the Group, the Group makes estimates of the point at which it considers the work is sufficiently advanced such that the costs to complete and revenue can be reliably estimated. As a result, until this point is reached the amount due to a customer for contract work will not include profit or loss which the Group may eventually realise from the work done to date. In addition, actual outcomes in terms of total cost or revenue may be higher or lower than estimated at the balance sheet date, which would affect the revenue and profit recognised in future years as an adjustment to the amounts recorded to date.

- End of Notes -