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Incorporated in 1983, Magnus Energy Group Ltd. Magnus began its humble roots as a sub-contractor undertaking electrical installations. In a span of 20 years, Magnus has built an established track record as a provider of quality and reliable mechanical and electrical engineering services. With the stiff operating conditions & cyclical nature of the construction business, a strategic decision was made in 2003 to shift its business focus. Over the past 18 months, Magnus has taken significant strides in transforming from a M&E Company to become a major regional player in the oil, gas and energy industry. The main core business of Magnus and its subsidiaries today comprises oil and gas equipment distribution and coal mining; and it has established a presence in China, Indonesia and Australia. Read in the proper context of the progress we have made, the financial performance for the past year is, therefore, simply the prologue. The main story begins now. We are excited by what the present and the future holds and the challenge of what we envision our Group will become.

In the current state of the global economy, we believe that what creates winning companies will depend on how readily they can adapt and respond to the changing dynamics of energy supply and demand. While returns from the oil, gas and energy industry have in recent times yielded high rates of return-on-investment, the risks are also higher and greater. However, strategically planned and properly executed, we believe the returns and yield to shareholders will far outweigh the risks. Activity in the oil and gas industry continues to be positively impacted by growing demand for energy in the region and worldwide.

In general, we expect our clients capital and maintenance budgets for their facilities will continue to increase annually at double-digit rates, being driven by demand and positive project economics. We are well positioned to take advantage of these trends through our oil and gas equipment division operating mainly through our main operating entity in this business division the Mid-Continent Equipment Group Pte Ltd which we acquired in 2004. That was the first phase of what can be considered to be the putative turnaround of the Group.

The second phase of our restructuring and turnaround is our executed and planned investments in the coal, oil and gas industry in Indonesia and China. The Group has successfully completed the acquisition of PT Deefu Chemical Indonesia which holds 95% interest in PT Batubara Selaras Sapta, which owns and operates the rights to mine and extract coal from the Kuaro coal formation located at Kabupaten Pasir, East Kalimantan, Indonesia. The concession owned is for 30 years commencing from the first production day. In coal mining, Magnus will be incurring capital expenditure in the second half of 2006 in the newly acquired coal concessions in East Kalimantan, Indonesia. Demand for energy in developing Asia Pacific countries is projected to grow at 3.2% annually. Oil, gas and coal will continue to dominate as the sources of energy, accounting for about 80% share of the total energy demand from now until 2030.

In October 2006, we completed the acquisition of 75% interest in Songyuan Yongda Oilfields Exploration and Technology Co Ltd, an oil and gas company with producing oilfields having proven reserves of 43 million barrels of crude oil. The oilfields are in the Jilin Province and 3 oilfields covering about 17 sq km are already in operation under revenue sharing contract with China National Petroleum Corp.

Generally, we expect that any future acquisitions could be larger in scope and will provide either additional competencies, or growth into new geographical regions. We aim to expand the capabilities already in place and expect to remain primarily involved with energy-related projects and services over the next several years. We will also look to expand in other new sectors of the energy industry if opportunities arise.