Almana Limited - Proxy Solicitation & Information Statement 2008

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

This circular is for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) 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.

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

If you have sold or transferred all your shares in China Asean Resources Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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China Asean Resources Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 8186)

VERY SUBSTANTIAL ACQUISITION – ACQUISITION OF THE SECOND FOREST IN CAMBODIA; VERY SUBSTANTIAL DISPOSAL – SUB-CONCESSION OF 10% OF THE FIRST FOREST

Financial Adviser

Commerzbank AG Hong Kong Branch

A notice convening the SGM to be held at Grand Hyatt Hong Kong, 1 Habour Road, Hong Kong on Wednesday, 28 May 2008 at 9:30 a.m. is set out on pages 157 to 158 of this circular. A form of proxy for use at the SGM is enclosed. If you intend to attend and vote at the SGM or any adjourned meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to the share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Ltd., at Rooms 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as practicable, but in any event not less than 48 hours before the time appointed for holding such meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting should you so wish.

The circular will remain on the “Latest Company Announcements” page of the GEM website at www.hkgem.com for 7 days from the date of its posting.

9 May 2008

CHARACTERISTICS OF GEM

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 of the Stock Exchange 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
Definitions . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the	Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Appendix I	–	Financial information of the Group . . . . . . . . . . . . . . . . . .	22
Appendix II	–	Accountants’ report on Agri-Industrial Crop. . . . . . . . . . .	79
Appendix III	–	Unaudited pro forma financial information . . . . . . . . . . .	89
Appendix IV	–	Valuation report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	107
Appendix V	–	Technical report on the Second Forest . . . . . . . . . . . . . . . .	121
Appendix VI	–	Reports on forecasts underlying the valuation. . . . . . . . . .	145
Appendix VII	–	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	148
Notice of SGM	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	157

– ii –

DEFINITIONS

“Acquisition”	the proposed acquisition by Forest Glen of the entire
	issued share capital of Agri-Industrial Crop from the
	Vendor pursuant to the Acquisition Agreement
“Acquisition Agreement”	the conditional sale and purchase agreement between
	Forest Glen, the Company and the Vendor dated 20
	March 2008 in respect of the Acquisition
“Agri-Industrial Crop”	Agri-Industrial Crop Development (Cambodia) Co., Ltd.,
	a company incorporated in Cambodia with limited
	liability
“Announcement”	the announcement of the Company dated 20 March 2008
	relating to the Announcement
“associates”	the meaning ascribed to it in the GEM Listing Rules
“Board”	the board of Directors
“Bonds”	bonds to be issued by the Company with an aggregate
	principal amount of up to HK$70 million to settle part of
	the Consideration
“BVI”	British Virgin Islands
“Cambodia”	Kingdom of Cambodia
“(Cambodia) Tong Min”	(Cambodia) Tong Min Group Engineering Co., Ltd., a
	company incorporated in Cambodia and a wholly-owned
	subsidiary of the Company
“Cash Consideration”	HK$80 million in cash to be paid to settle part of the
	Consideration
“CCASS”	the Central Clearing and Settlement System established
	and operated by HKSCC
“Company”	China Asean Resources Limited, a company with limited
	liability incorporated in Bermuda, the issued shares of
	which are listed on GEM

– 1 –

DEFINITIONS

“Completion”	completion of the Acquisition Agreement, being the fifth	completion of the Acquisition Agreement, being the fifth
	business day after the conditions set out in	the
	Acquisition Agreement have been fulfilled or waived	(as
	the case may be), or such other date as the parties to	the
	Acquisition Agreement may agree in writing
“connected person”	the meaning ascribed to it in the GEM Listing Rules
“Consideration”	the aggregate consideration of HK$270 million for	the
	Acquisition
“Consideration Shares”	the 200,000,000 new Shares proposed to be issued	at
	HK$0.60 per Share to settle part of the Consideration
“Cooperation Agreement”	the agreement dated 20 March 2008 entered into between
	the Company and Qiong Hai Agriculture in relation to	the
	Sub-concession
“Directors”	the directors of the Company
“Earnest Money”	the earnest money of HK$15 million paid by	the
	Company pursuant to the MOU
“Enlarged Group”	the Group immediately after completion of	the
	Acquisition
“First Forest”	the forest owned by the Company pursuant to the sale and
	purchase agreement dated 25 July 2007 (details of which
	was disclosed in the Company’s circular dated	7
	September 2007) with a site area of 9,965 hectares
	(equivalent to approximately 99.65 million sq.m.) located
	in Kratie District, Kratie Province, Cambodia
“Forest Glen”	Forest Glen Group Limited, a company incorporated in
	BVI with limited liability and a wholly-owned subsidiary
	of the Company
“GEM”	Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	the Rules Governing the Listing of Securities on GEM
“Group”	the Company and its subsidiaries
“HKSCC”	Hong Kong Securities Clearing Company Limited

– 2 –

DEFINITIONS

“Hong Kong” “Independent Third Party(ies)”

the Hong Kong Special Administrative Region of PRC

person(s) or company(ies) and their respective ultimate beneficial owner(s) which, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, are third parties independent of and not connected with, the Company, any director, chief executive, management shreaholders or substantial shareholders of the Company and its subsidiaries or any of their respective associates and is not a party acting in concert (as defined in the Takeovers Code) with and is independent of the vendors of the First Forest, management Shareholder(s) (as defined under the GEM Listing Rules) and substantial Shareholders (as defined under the GEM Listing Rules)

“Independent Valuer” BMI Appraisals Limited, an Independent Third Party and a valuer engaged by the Company to conduct the Valuation
“Issue Price” HK$0.60 per Share, being the issue price of the Consideration Shares
“Last Trading Day” 20 March 2008, being the last trading day prior to the release of the Announcement
“Latest Practicable Date” 7 May 2008, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information herein
“MOU”
the non legally-binding memorandum of understanding entered into between the Company and the Vendor on 14 November 2007 which set out the preliminary understanding in relation to the Acquisition
“PRC” the People’s Republic of China, which for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region and Taiwan

“Qiong Hai Agriculture” (Qiong Hai Xin Neng Agriculture Development Company Limited*), a company incorporated in PRC and an Independent Third Party

– 3 –

DEFINITIONS

“Second Forest”	the forest with a site area of 9,555 hectares (equivalent to
	approximately 95.55 million sq.m.) located in Kratie
	District, Kratie Province, Cambodia and is adjacent to the
	First Forest
“SFO”	Securities and Futures Ordinance, Chapter 571 of the
	Laws of Hong Kong
“SGM”	the special general meeting of the Company to be
	convened and held for the Shareholders to consider and
	approve (among other things), if thought fit, the
	transactions contemplated under the Acquisition
	Agreement (including the allotment and issue of the
	Consideration Shares) and the Cooperation Agreement
“Share(s)”	share(s) of HK$0.01 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of Shares
“Specific Mandate”	a specific mandate proposed to be granted to the
	Directors in relation to the issue of the 200,000,000
	Consideration Shares by the Shareholders at the SGM
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Sub-concession”	the subleasing of the Sub-divided Concession Land to
	Qiong Hai Agriculture by the Group for an initial period
	of approximately 70 years pursuant to the Cooperation
	Agreement
“Sub-divided Concession Land”	the approximately 1,000 hectares (equivalent to
	approximately 10.00 million sq.m.) of land located in the
	First Forest under the Sub-concession
“Takeovers Code”	The Codes on Takeovers and Mergers of the Securities
“Technical Adviser”	and Futures Commission (the Research Institute of Tropical Forestry of China Academy of
	Forestry*), the technical advisory firm appointed by the
	Company to perform a technical review on the Second
	Forest, which is an Independent Third Party

– 4 –

DEFINITIONS

“Technical Report”	the technical report on the Second Forest prepared	the technical report on the Second Forest prepared	the technical report on the Second Forest prepared	by the
	Technical Adviser
“Valuation”	valuation of Agri-Industrial Crop as at	31 March 2008 as
	stated in the Valuation Report
“Valuation Report”	the valuation report on Agri-Industrial	Crop prepared by
	the Independent Valuer
“Vendor”	(Mr. Zhang Zhengwei*),	being	the	sole
	shareholder of Agri-Industrial Crop and an Independent
	Third Party
“sq.m.”	square metres
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“US$”	United States dollars, the lawful currency of		the United
	States
“%”	per cent.

* for identification only

All amounts in US$ have been translated in HK$ at the rate of US$1 = HK$7.8 in this circular for illustration purpose only.

– 5 –

LETTER FROM THE BOARD

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China Asean Resources Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 8186)

Executive Directors: LI Nga Kuk, James (Chairman) LI Wo Hing (Chief Executive Officer) LI Tai To, Titus

Non-executive Director: CHEN Minshan Independent non-executive Directors: FAN Wan Tat TAM Wai Leung, Joseph CHAN Kim Chung, Daniel

Registered office: Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Principal place of business: Office B 21st Floor Teda Building 87 Wing Lok Street Hong Kong

9 May 2008

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION – ACQUISITION OF THE SECOND FOREST IN CAMBODIA; VERY SUBSTANTIAL DISPOSAL – SUB-CONCESSION OF 10% OF THE FIRST FOREST

INTRODUCTION

On 20 March 2008, Forest Glen, a wholly-owned subsidiary of the Company, entered into the legally-binding Acquisition Agreement with the Vendor, pursuant to which, Forest Glen conditionally agreed to purchase and the Vendor conditionally agreed to dispose of the entire issued share capital of Agri-Industrial Crop for an aggregate consideration of HK$270 million to be satisfied as to HK$80 million in cash (which is expected to be financed by internal resources of the Group), as to HK$120 million by the issue of 200,000,000 Consideration Shares at the Issue Price of HK$0.60 per Consideration Share (which is equivalent to the weighted average of the prices of the placing of the Shares conducted by the Company to raise funds from institutional and professional investors in July 2007) and as to the remaining HK$70 million by the issue of the Bonds.

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LETTER FROM THE BOARD

On the same date, (Cambodia) Tong Min, a wholly-owned subsidiary of the Company, entered into the Cooperation Agreement with Qiong Hai Agriculture, pursuant to which, (Cambodia) Tong Min has conditionally agreed to sub-lease to Qiong Hai Agriculture the Sub-divided Concession Land of approximately 1,000 hectares (equivalent to approximately 10.0 million sq.m.), representing approximately 10% of the total site area of the First Forest, for a term of approximately 70 years from 24 March 2008 to 11 November 2077, being the expiry date of the exclusive forest exploitation rights granted to the Group in respect of the First Forest, at a cash consideration of US$10.00 million (equivalent to approximately HK$78.00 million). Both the Acquisition Agreement and the Cooperation Agreement are not inter-conditional upon each other.

Since the relevant percentage ratios (as defined under the GEM Listing Rules) in respect of (i) the Acquisition are greater than 100% and (ii) the Sub-concession are greater than 75%, the Acquisition and the Sub-concession constitute a very substantial acquisition and a very substantial disposal, respectively, for the Company under Chapter 19 of the GEM Listing Rules. Accordingly, the transactions contemplated under the Acquisition Agreement and the Cooperation Agreement are subject to the Shareholders’ approval at the SGM.

Since no Shareholders have any material interest in the Acquisition Agreement and the Cooperation Agreement, no Shareholders are required to abstain from voting in respect of the resolutions relating to the Acquisition Agreement and the Cooperation Agreement at the SGM.

The purpose of this circular is to provide you with details of, among other things, (i) the Acquisition Agreement and (ii) the Cooperation Agreement; together with (iii) the accountants’ report on Agri-Industrial Crop; (iv) the unaudited pro-forma financial information on the Group as adjusted by the Acquisition and the Sub-concession; (v) the Valuation Report; (vi) the Technical Report; (vii) a notice convening the SGM.

THE ACQUISITION AGREEMENT

Date

20 March 2008

Parties to the Acquisition Agreement

(i) Forest Glen, being the purchaser and a wholly-owned subsidiary of the Company
(ii) the Vendor, an Independent Third Party
(iii) the Company

The Vendor is the sole shareholder of Agri-Industrial Crop and to the best of the Directors’ knowledge, belief, and having made all reasonable enquiries, the Company has not had any prior transactions with the Vendor.

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LETTER FROM THE BOARD

Asset to be acquired

The entire issued share capital of Agri-Industrial Crop, an investment company incorporated in Cambodia on 17 September 2007.

Conditions precedent to completion of the Acquisition Agreement

Completion of the Acquisition Agreement is not conditional on the Cooperation Agreement and is subject to the satisfaction of the following conditions precedent:

(i) Forest Glen being satisfied with the results of the due diligence review of Agri-Industrial Crop;
(ii) the legal opinions, in form and substance satisfactory to Forest Glen, to be issued by the legal advisers in such jurisdiction (including Cambodia) in relation to, among other things, the ownership and business of Agri-Industrial Crop as may be required by Forest Glen;
(iii) the GEM Listing Committee having granted the listing of, and permission to deal in the Consideration Shares;
(iv) all other approvals, consents and acts required being obtained and completed or, as the case may be, the relevant waiver from compliance with any of such provisions being obtained from the relevant authority;
(v) the Board approving and authorizing, among other things, the transactions contemplated the Acquisition Agreement, including the allotment and issue of the Consideration Shares and the issue of the Bonds (if applicable);
(vi) the passing of an ordinary resolution by the Shareholders at the SGM for the approval of the transactions contemplated under the Acquisition Agreement, including the allotment and issue of the Consideration Shares and the grant of the Specific Mandate;
(vii) all necessary consents and approvals required to be obtained on part of the Vendor, Forest Glen and the Company in respect of the transactions contemplated under the Acquisition Agreement having been obtained;
(viii)none of the warranties set out in the Acquisition Agreement having been breached in any material respect (or, if capable of being remedied, has not been remedied), or is misleading or untrue in any material respect;
(ix) obtaining the approval from the Ministry of Commerce of Cambodia in relation to the transfer of the entire issued share capital of Agri-Industrial Crop from the Vendor to Forest Glen; and
(x) obtaining the exclusive exploitation rights of the Second Forest by Agri-Industrial Crop.

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LETTER FROM THE BOARD

If the conditions set out above are not fulfilled or, as the case may be, waived (in respect of conditions (i), (ii) and (viii) only) by Forest Glen on or before 12:00 noon on 30 June 2008 or such later date as Forest Glen, the Company and the Vendor may agree from time to time, the obligations of the parties to the Acquisition Agreement shall cease and determine (save and except for certain provisions such as confidentiality) and neither party shall have any claim under the Acquisition Agreement against the others of them save in respect of any antecedent breaches of the Acquisition Agreement. Conditions numbered (iii), (iv), (v), (vi), (vii), (ix) and (x) may not be waived by any of the parties thereto.

Completion of the Acquisition Agreement

Completion of the Acquisition Agreement shall take place on the fifth business day after the date of fulfillment (or waiver) of the last of the above conditions or such other date as may be agreed in writing among the parties to the Acquisition Agreement.

As at the Latest Practicable Date, conditions numbered (v) and (vii) have been fulfilled.

Upon completion, Agri-Industrial Crop will become a wholly-owned subsidiary of the Company and its financial results (including assets and liabilities, and profit and loss) will be consolidated into the Company’s consolidated financial statements. It is expected that the issue of the Consideration Shares pursuant to the Acquisition Agreement will not result in any change in control (as defined under the GEM Listing Rules) of the Company.

Consideration

The aggregate consideration for the Acquisition is HK$270 million which will be satisfied as to:

(i) HK$80 million as the Cash Consideration;
(ii) HK$120 million by the issue of 200,000,000 Consideration Shares to the Vendor (or his nominees) at the issue price of HK$0.60 per Consideration Share; and

(iii) HK$70 million by the issue of the Bonds to the Vendor (or his nominees) by the Company.

The Consideration of HK$270 million was determined after arm’s length negotiation amongst the parties to the Acquisition Agreement, with reference to, particularly, the Valuation on the fair market value of Agri-Industrial Crop as at 31 March 2008 of approximately HK$1,810 million as stated in the Valuation Report. The principal assumptions (details of which are set out in the Valuation Report contained in Appendix IV to this circular) upon which the Valuation is prepared include, among others, (i) Agri-Industrial Crop being granted the exclusive forest exploitation right in respect of the Second Forest by the Cambodian government; (ii) the operation of Agri-Industrial Crop to be carried out on a continuous basis for a term of 70 years under the exclusive exploitation right of the Second Forest and there being no major changes in the business environment that Agri-Industrial Crop is currently

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LETTER FROM THE BOARD

and/or will be operating in; (iii) there being no significant fluctuation regarding the prices for both timber and rubber from the existing market prices and their respective assumed growth rates. The Valuation Report is prepared based on the Technical Report and researches conducted by the Independent Valuer. The Consideration represented a discount of approximately 85.08% to the Valuation, which is calculated by discounting the future cash flow derived from the Second Forest to the Group.

In view of the substantial discount of the Valuation, the synergies to be created between the First Forest and the Second Forest and the further strengthening of the Group’s natural resources business in Cambodia, the Directors (including the independent non-executive Directors) have considered the terms and conditions of the Acquisition Agreement, in particular, the Consideration, are fair and reasonable and the entering into of the Acquisition Agreement is in the interest of the Company and the Shareholders as a whole.

The Cash Consideration

Pursuant to the MOU signed on 14 November 2007, the Earnest Money of HK$15 million had been paid by the Company. The remaining balance of the Cash Consideration of HK$65 million is expected to be financed by internal resources of the Group. In addition, under the Acquisition Agreement, an additional HK$20 million has also been paid to the Vendor as refundable deposit (the “Refundable Deposit”) upon signing of the Acquisition Agreement. The remaining HK$45 million will be paid to the Vendor upon Completion. In the event the Acquisition Agreement is terminated pursuant to the Acquisition Agreement, the Vendor shall refund the Earnest Money and the Refundable Deposit without interest to the Group within seven business days after termination of the Acquisition Agreement. As at the Latest Practicable Date, the Refundable Deposit has been paid by the Company.

The Consideration Shares

As at the Latest Practicable Date, there are 1,705,000,000 Shares in issue, the 200,000,000 Consideration Shares represent approximately (i) 11.73% of the existing issued share capital of the Company and (ii) 10.50% of the issued share capital of the Company as enlarged by the Consideration Shares. The 200,000,000 Consideration Shares will be allotted and issued upon Completion under the Specific Mandate which is proposed to be granted by the Shareholders to the Directors at the SGM.

The Issue Price was determined after arm’s length negotiation between the Company and the Vendor and:

(i) represents a premium of approximately 233.33% over the closing price of HK$0.18 per Share on the Last Trading Day;
(ii) represents a premium of approximately 200.00% over the average closing price of approximately HK$0.20 per Share for the last 5 trading days up to and including the Last Trading Day; and

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LETTER FROM THE BOARD

(iii) represents a premium of approximately 140.00% over the average closing price of approximately HK$0.25 per Share for the last 30 trading days up to and including the Last Trading Day;
(iv) represents a premium of approximately 150.00% over the closing price of approximately HK$0.24 per Share on the Latest Practicable Date;
(v) represents a premium of approximately 150% over the audited consolidated net asset value of the Company per Share of approximately HK$0.24 as at 31 December 2007 (based on the audited consolidated net assets value of approximately HK$405.14 million as at 31 December 2007 and the total number of 1,705,000,000 Shares as at the Latest Practicable Date); and
(vi) is equivalent to the weighted average of the prices of the placing of the Shares conducted by the Company to raise funds from institutional and professional investors in July 2007.

In view of the above, the Directors (including the independent non-executive Directors) consider that the Issue Price and the allotment and issue of the Consideration Shares are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Lock-up period

The 200,000,000 Consideration Shares are subject to a lock-up period of 6 months from the date of issue. The Vendor has undertaken that, during the aforesaid lock-up period, the Vendor and/or his nominees will not sell, transfer, assign, mortgage, pledge or otherwise dispose of the interest in such number of the 200,000,000 Consideration Shares.

The Bonds

Pursuant to the Acquisition Agreement, the Company will issue the Bonds in the principal amount of HK$70 million upon Completion. The Bonds will include terms to the following effect:

Principal amount : HK$70 million Issue date : On the date of Completion, which under the Acquisition Agreement is provided to be the fifth business day after the date of fulfillment (or waiver) of the last condition set out in the Acquisition Agreement or such other date as the parties to the Acquisition Agreement may agree in writing as detailed in the paragraph headed “Conditions Precedent to completion of the Acquisition Agreement” under the section headed “The Acquisition Agreement”

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LETTER FROM THE BOARD

Maturity date : The date falling the second anniversary of the date of issue of the Bonds Interest rate : 2% per annum, payable on a semi-annual basis Transferability : Subject to the applicable laws and regulations, the Bonds may be transferred or assigned in whole or in part in integral multiples of HK$1 million to any party other than a connected person of the Company Redemption : The Company shall have the right at any time during the period commencing from the date immediately following the issue date of the Bonds and expiring on the maturity date thereof to redeem the whole or part of the outstanding Bonds in integral multiples of HK$1 million at the principal amount (together with interest accrued thereon and not yet settled) of the Bonds to be redeemed

The holder(s) of the Bonds shall not have any rights to request for the redemption of the whole or any part of the Bonds (save under circumstances when there is an event of default)

There will not be any premium or discount to the repayment obligations under the Bonds for any early redemption

Mandatory redemption : The instrument constituting the Bonds contained an events of default provision which provides that on the occurrence of certain events of default specified therein (including, among other things, default made by the Company in the performance of the instrument constituting the Bonds; dissolution of the Company and/or its major subsidiaries; disposal of all or substantially all of the assets by the Company or a receiver is appointed of or a distress is levied on the assets of the Company), holder of the Bonds may, unless such event of default has been waived in writing by it, by notice in writing require the Company to redeem the whole (but not part) of the outstanding principal amount of the Bonds at the principal amount (together with interest accrued thereon and not yet settled) of the outstanding Bonds

– 12 –

LETTER FROM THE BOARD

Purchase of the Bonds : The Company or its subsidiaries may at any time and from time to time before the maturity date of the Bonds elect to purchase the Bonds from the holder(s) thereof at any price as agreed between them. However, the Company or its subsidiaries is not obliged to purchase such Bonds, and will do so only if the proposed price and other terms are fair and reasonable and in the interest of the Company and the Shareholders as a whole. In addition, if such purchase proceeds, the Company will ensure compliance with the applicable requirements of the GEM Listing Rules

INFORMATION ON AGRI-INDUSTRIAL CROP AND THE SECOND FOREST

Agri-Industrial Crop is an investment company with limited liability incorporated in Cambodia on 17 September 2007 and its entire issued share capital is wholly-owned by the Vendor. The principal business scopes of Agri-Industrial Crop are exploitation of the Second Forest (including forest clearing and processing of salvage logs into wood products) and rubber tree plantation for subsequent latex production therein. According to the audited financial information of Agri-Industrial Crop (as disclosed in Appendix II to this circular), since the date of its incorporation up to 29 February 2008, Agri-Industrial Crop has not recorded any revenue and recorded a net loss before and after tax of approximately US$0.01 million (equivalent to approximately HK$0.08 million), respectively. As at 29 February 2008, the audited total assets and net assets of Agri-Industrial Crop amounted to US$1.10 million (equivalent to approximately HK$8.58 million) and US$0.99 million (equivalent to approximately HK$7.72 million), respectively. After Completion, Agri-Industrial Crop will become a wholly-owned subsidiary of the Company and its financial results will be consolidated into the consolidated financial statements of the Company.

The Second Forest has a total site area of approximately 9,555 hectares (equivalent to approximately 95.55 million sq.m.) with a timber reserve of approximately 2.31 million cubic metres. The Second Forest is located in Kratie District, Kratie Province, Cambodia and is adjacent to the First Forest owned by the Group. Upon Completion, Agri-Industrial Crop will be responsible for the initial clearing up of the Second Forest and the tree logged from the Second Forest will be processed by the production facilities established by the Group into different wood products such as sawn wood and other value added wood products (such as flooring materials) for subsequent export by the Group.

As advised by the Cambodian legal advisers to the Company, an Independent Third Party, the relevant provincial government of Cambodia has issued a land certificate to Agri-Industrial Crop in respect of the Second Forest and upon completion of certain administrative procedures with the relevant Cambodian government authorities, Agri-Industrial Crop will be granted the exclusive forest exploitation rights for a term of 70 years. Based on the relevant laws and regulations of Cambodia, the Cambodian legal advisers to the Company are of the view that all the administrative works in respect of the granting of the said exclusive forest exploitation rights of the Second Forest are in their final process and that there is no material legal impediment for Agri-Industrial Crop to obtain the exclusive exploitation rights in respect of the Second Forest. The Vendor has confirmed that no premium will be required to be paid by the Company in connection with obtaining the exclusive forest exploitation rights of the Second Forest from the Cambodian government.

– 13 –

LETTER FROM THE BOARD

THE SUB-CONCESSION AND THE COOPERATION AGREEMENT

Date

20 March 2008

Parties to the Cooperation Agreement

(i) (Cambodia) Tong Min, a wholly-owned subsidiary of the Company
(ii) Qiong Hai Agriculture, an Independent Third Party, and to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Qiong Hai Agriculture is independent of the Vendor and was approached through the Company’s business network.

Major terms of the Cooperation Agreement

Under the Cooperation Agreement, the Sub-divided Concession Land of approximately 1,000 hectares (equivalent to approximately 10 million sq.m.), representing approximately 10% of the total site area of the First Forest, will be subleased to Qiong Hai Agriculture by the Group for a term of approximately 70 years from 24 March 2008 to 11 November 2077, being the expiry date of the exclusive forest exploitation rights granted to the Group in respect of the First Forest, at a cash consideration of US$10.00 million (equivalent to approximately HK$78.00 million). In the event that the period of the exclusive forest exploitation right of the First Forest is extended by the Cambodian government, Qiong Hai Agriculture has the right to extend the term of the Cooperation Agreement up to the extended expiry date without any further consideration, provided that Qiong Hai Agriculture has given (Cambodia) Tong Min a written notice at least one year prior to the expiration date of the Sub-concession under the Cooperation Agreement.

Qiong Hai Agriculture is principally engaged in the forestry business. It will initially clear up the existing trees in the Sub-divided Concession Land and subsequently carry out the rubber tree plantation for production of latex during the term of the Cooperation Agreement. The Group will have the first right to process the salvage logs obtained by Qiong Hai Agriculture from the Sub-divided Concession Land, while Qiong Hai Agriculture undertakes that it will utilise its distribution network to assist the Group in the sale of its wood products obtained from the First Forest and the Second Forest and the latex produced from the subsequent rubber plantation in to PRC.

Conditions Precedent to completion of the Cooperation Agreement

Completion of the Cooperation Agreement is not conditional on completion of the Acquisition Agreement and is subject to the satisfaction of the following conditions precedent:

(i) payment of the first annual land fee by (Cambodia) Tong Min in connection with the First Forest as determined by the Ministry of Economy and Finance of Cambodia; and
(ii) the passing of an ordinary resolution by the Shareholders at the SGM for the approval of the transactions contemplated under the Cooperation Agreement.

As at the Latest Practicable Date, condition numbered (i) has been fulfilled.

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LETTER FROM THE BOARD

Consideration of the Sub-concession

The consideration of the Sub-concession of US$10.00 million (equivalent to approximately HK$78.00 million) is determined after arm’s length negotiation between the Group and Qiong Hai Agriculture and having taken into account of (i) the consideration of HK$208.36 million paid by the Company in connection with the acquisition of the First Forest and (ii) the land premium paid by the Group of approximately HK$55 million to the Cambodian government for obtaining the exclusive exploitation right to the First Forest; (iii) the Sub-divided Concession Land accounting for approximately 10% of the total area of the First Forest; (iv) the Group having not logged any of the trees located in the Sub-divided Concession Land prior to the Sub-concession; and (v) the Sub-divided Concession Land had a book value of approximately HK$25.92 million as at 31 December 2007 based on the audited financial information of (Cambodia) Tong Min. The management of the Company has confirmed that no trees have been logged in the Sub-divided Concession Land since completion of the acquisition of the First Forest by the Group in October 2007, and therefore, no operating profit and/or loss (both before and after taxation and extraordinary items) has been derived from the Sub-divided Concession Land (for details of the financial information relating to the Sub-concession, please also refer to the unaudited pro forma financial information contained in Appendix III to this circular). On this basis, it is estimated that the Sub-concession will (i) decrease the Group’s intangible assets (forest exploitation rights) of approximately HK$25.92 million; (ii) increase the Group’s cash balance by HK$78 million. As such, it is estimated that the Group will record a gain on disposal of approximately HK$52.08 million. The Company intends to use the entire cash proceeds from the Sub-concession in the development of the Group’s natural resources business in Cambodia.

The Directors consider that the arrangement under the Cooperation Agreement will not only result in Qiong Hai Agriculture having the same interest in the First Forest as the Group, but will also establish a long-term cooperative relationship with Qiong Hai Agriculture to allow the Group to leverage on Qiong Hai Agriculture’s distribution network for the sale of the Group’s wood and/or latex related products. All of these, together with the cash proceeds from the Sub-concession to be received by the Group as additional funding for its future development in the natural resources business in Cambodia, the potential gain on disposal of approximately HK$52.08 million and the fact that the consideration upon acquisition of the First Forest has represented a substantial discount to its valuation (as detailed in the Company’s circular dated 7 September 2007), the Directors (including the independent non-executive Directors) considered that the terms of the Cooperation Agreement, including the consideration of the Sub-concession of US$10.00 million (equivalent to approximately HK$78.00 million) are fair and reasonable and the Sub-concession is in the interest of the Company and the Shareholders as a whole.

The consideration will be payable by Qiong Hai Agriculture as to (i) US$4.00 million by 31 March 2008 (the “First Purchase Money”) and (ii) the remaining US$6 million by three equal installments on 30 June, 30 September and 31 December 2008, respectively. Within 90 days from receipt of the First Purchase Money, (Cambodia) Tong Min will be required to make registration with the relevant Cambodian government authorities. As at the Latest Practicable Date, the Company has received the First Purchase Money of US$4.00 million from Qiong Hai Agriculture.

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LETTER FROM THE BOARD

CURRENT STATUS OF THE FIRST FOREST AND REASONS FOR AND BENEFITS OF THE ACQUISITION AND DISPOSAL

Since completion of the acquisition of the First Forest in October 2007, the Group has expanded its business from provision of medical devices to natural resources business in Cambodia.

Industry background

Timber and rubber are two of the most common raw materials being applied in a wide range of industries. According to International Tropical Timber Organization (“ITTO”), the production and domestic consumptions of timbers in PRC were approximately 98.8 million and 128.9 million cubic metres in 2006 respectively, representing a shortfall of approximately 30.1 million cubic metres. ITTO estimated that the production and domestic consumptions of timbers in PRC would reach approximately 105.5 million and 135.9 million cubic metres respectively by 2007, representing a shortfall of approximately 30.4 million cubic metres. The strong demand for natural resources has also been reflected in PRC’s consumption of rubber. According to China Rubber Industry Association, for the nine months ended 30 September 2007, consumption of rubber amounted to approximately 1.8 million cubic metres, representing a growth rate of approximately 25.2% as compared to the corresponding period in the previous year.

Demand for and the selling prices of timber and rubber are also often considered to be positively correlated with the overall economic condition. According to the National Bureau of Statistics of PRC, PRC recorded a gross domestic product (“GDP”) value of approximately RMB24,661.9 billion for 2007, representing a growth rate of approximately 17.8% from 2006. In particular, the GDP derived from the secondary industry, namely, the manufacturing sector, was approximately RMB12,138 billion for 2007, representing a growth rate of approximately 19.0% as compared to 2006. Given the rapid economic development in PRC, it is expected that the growth in the manufacturing and consumer sectors is expected to continue to drive the selling prices of both timber and rubber.

Reasons for and benefits of the Acquisition and current status of the First Forest

After completion of the acquisition of the First Forest in October 2007, the Company has been continuously making significant progress in the development of the First Forest, including the establishment of the access roads to the First Forest and the production lines of its sawn wood factory. The production lines of the Group’s sawn wood factory have commenced operations and commercial sale of sawn wood is expected to commence in June 2008. Upon Completion, the Company will obtain additional forest resources of approximately 9,555 hectares and its timber reserve will also be increased by approximately 2.31 million cubic metres.

Given the existing production and logging facilities of the Group and close proximity in both the geographic locations and the timber categories between the First Forest and the Second Forest, the management of the Company considers that the Acquisition will create substantial

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LETTER FROM THE BOARD

synergistic value to speed up the expansion of the Group’s natural resources business in Cambodia and due to (i) economy of scale for the Company’s wood logging facilities and better utilization of the Group’s production capacity in its sawn wood factory and the wood flooring factory; (ii) transportation of the timbers logged from the First Forest and the Second Forest can be arranged in a more systematic and efficient manner; and (iii) a more efficient and productive planning of the future rubber plantation (hence the subsequent latex production) can be achieved. Based on the above, the Directors (including the non-executive Directors) are of the view that the Acquisition is in the interest of the Company and the Shareholders as a whole.

Reasons for and benefits of the Sub-concession

CHANGE IN THE SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below are the shareholding structures of the Company as at (i) as at the Latest Practicable Date and (ii) immediately after the issue of the Consideration Shares:

People Market Management Limited (Note 1) Mr. Li Wo Hing Mr. Li Nga Kuk, James Mr. Li Tai To, Titus* Ms. Zhang Jie (Note 2) Mr. Pen Sophal (Note 2) Vendor Other Public Shareholders	As at the Latest Practicable Date No. of Shares % 193,360,000 11.34 37,470,000 2.20 32,800,000 1.92 16,400,000 0.96 266,666,667 15.64 133,333,333 7.82 – – 1,024,970,000 60.12 1,705,000,000 100.00	Immediately after the issue of the Consideration Shares No. of Shares % 193,360,000 10.15 37,470,000 1.97 32,800,000 1.72 16,400,000 0.86 266,666,667 14.00 133,333,333 7.00 200,000,000 10.50 1,024,970,000 53.80 1,905,000,000 100.00	Immediately after the issue of the Consideration Shares No. of Shares % 193,360,000 10.15 37,470,000 1.97 32,800,000 1.72 16,400,000 0.86 266,666,667 14.00 133,333,333 7.00 200,000,000 10.50 1,024,970,000 53.80 1,905,000,000 100.00
			100.00

* The executive Directors

Note 1: A company incorporated in the BVI which is owned as to approximately 70.58% by Mr. Li Wo Hing

Note 2: Ms. Zhang Jie and Mr. Pen Sophal were the vendors of the First Forest

– 17 –

LETTER FROM THE BOARD

IMPLICATION OF THE LISTING RULES

Since the relevant percentage ratios (as defined under the GEM Listing Rules) in respect of the (i) Acquisition are greater than 100% and (ii) the Sub-concession are greater than 75%, the Acquisition and the Sub-concession constitute a very substantial acquisition and a very substantial disposal, respectively for the Company under Chapter 19 of the GEM Listing Rules and, accordingly, the transactions contemplated under the Acquisition Agreement and the Cooperation Agreement are subject to the Shareholders’ approval at the SGM.

FINANCIAL IMPACT OF THE ACQUISITION

Upon completion of the Acquisition, Agri-Industrial Crop will become an indirectly whollyowned subsidiary of the Company and the financial results of Agri-Industrial Crop will be consolidated into the Company’s consolidated financial statements. The followings sets out, for illustrative purposes only, the key financial information of the Group and the unaudited pro forma financial information of the Group as adjusted by the Acquisition (details of which are disclosed in Appendix III to this circular).

	The Group
	(Before completion
	of the Acquisition)	The Group
	as at	as adjusted
	31 December 2007	by the Acquisition
	(HK$’000)	(HK$’000)
Total assets	474,815	671,921
Total liabilities	(69,675)	(139,675)
Minority interests	(6,875)	(6,875)
Net asset value (including minority interests)	405,140	532,246
Gearing ratio (total liabilities/total assets)	14.67%	20.79%

Based on the unaudited pro forma financial information, it is estimated that the Group’s consolidated total assets after completion of the Acquisition will be increased to approximately HK$197.11 million which mainly attributable to, among others, (i) the investment of the Company in Agri-Industrial Crop of HK$270 million; and (ii) the payment of the Cash Consideration of HK$80 million. The total liabilities of the Group, as a result of the Acquisition, is estimated to be increased by HK$70.00 million due to the issue of Bonds. As such, the net assets value of the Enlarged Group is estimated to be approximately HK$532.25 million and the gearing ratio of the Enlarged Group would be approximately 20.79%. After completion of the Acquisition, profit (or loss) derived from the Second Forest will be consolidated into the financial statements of the Group.

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LETTER FROM THE BOARD

FINANCIAL IMPACT OF THE SUB-CONCESSION

The following sets out, for illustrative purpose only, the key financial information of the Group and the unaudited pro forma financial information of the Group as adjusted by the Sub-concession (details of which are disclosed in Appendix III to this circular).

	The Group (Before
	completion of the
	Sub-concession)	The Group
	as at	as adjusted
	31 December 2007	by the Sub-concession
	(HK$’000)	(HK$’000)
Total assets	474,815	526,895
Total liabilities	(69,675)	(69,675)
Minority interests	(6,875)	(6,875)
Net asset value (including minority
interests)	405,140	457,220
Gearing ratio (total liabilities/total assets)	14.67%	13.22%

The Sub-concession will result in the total non-current asset of the Group decreased by the net assets value of the Sub-divided Concession Land of approximately HK$25.92 million as at 31 December 2007 while the cash proceed of US$10.00 million (equivalent to approximately HK$78.00 million) from the Sub-concession will increase the cash and bank balances of the Group by the same amount. Accordingly, the net assets value of the Group will be increased by approximately HK$52.08 million, representing the gain from the Sub-concession. The gearing ratio of the Group after the Sub-concession is estimated to be approximately 13.22%.

Since (i) the initial clearing stage of the First Forest is expected to last for approximately 5 years and (ii) the Sub-concession will result in the Group having recorded a gain on disposal (which will be classified as “other revenue” as according to the pro forma financial information contained in Appendix III to this circular), both the Company and the vendors of the First Forest have agreed that the Sub-concession will not affect the profit guarantee (“Profit Guarantee”) arrangement under the sale and purchase agreement in relation to the acquisition of the First Forest dated 25 July 2007 (details of which were disclosed in the Company’s circular dated 7 September 2007), as such gain will be included in the audited net profit after tax and minority interest but before extraordinary and exceptional items of (Cambodia) Tong Min (namely, the basis for determining the Profit Guarantee) for the year ending 31 December 2008 and the Group will continue to explore the remaining area of the First Forest after the Sub-concession in order to meet the Profit Guarantee.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

As disclosed in the Company’s annual report for the year ended 31 December 2007 (the “2007 Annual Report”), following the acquisition of the First Forest in October 2007, the Company has built access roads and various support facilities to facilitate the logging process of the Group which commenced in February 2008. In addition, the commercial production of sawn timber has been commissioned in March 2008, whereas machinery orders for the wood flooring factory have been placed and production is expected to begin in the second half of 2008.

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LETTER FROM THE BOARD

Furthermore, as detailed in the section headed “Reasons for and benefits of the Acquisition and current status of the First Forest” to this circular, given the close proximity in both the geographic location and the timber categories between the First Forest and the Second Forest, the management of the Company is of the view that the Acquisition will create substantial synergistic value to speed up the expansion of the Group’s natural resources business in Cambodia. All of these, together with the continuous demand for natural resources (such as timer and rubber), the management of the Company considers that the Acquisition will not only increase the forest resources of the Group by 9,555 hectares, but will also contribute positively to the Enlarged Group’s future profitability and financial performance. The cash proceeds from the Sub-concession of US$10 million (equivalent to approximately HK$78 million) will also provide the Group with additional working capital for its future business development, thus further enhance the Group’s capital for its development in the natural resource business.

In addition, as disclosed in the 2007 Annual Report, the Group will continue to develop its existing medical and pharmaceutical businesses and the management of the Company expects that sales of medical equipment will further increase in 2008. For the Group’s drug development business, the Group intends to seek approval for commencing Phase I clinical trial for its anti-cancer product in 2008. The Group will also finish the fitting out and installation of machineries in Nanjing, PRC and seek GMP clearance from the State Food and Drug Administration of PRC and continue to support the plantation development in Guilin for long term investment purpose.

LISTING OF THE SHARES TO BE ISSUED

Application will be made by the Company to the Stock Exchange for the listing of, and the permission to deal in the Consideration Shares.

Subject to the granting of the listing of, and permission to deal in, the Consideration Shares on the Stock Exchange, the Consideration Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect form the commencement date of dealings in the Consideration Shares on the Stock Exchange or such other date 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 Rules of CCASS and CCASS Operational Procedures in effect from time to time.

THE SGM

The notice convening the SGM of the Company to be held at Grand Hyatt Hong Kong, 1 Habour Road, Hong Kong on Wednesday, 28 May 2008 at 9:30 a.m. for the Shareholders to consider and, if thought fit, approving and the Acquisition Agreement and the Cooperation Agreement the respective transactions contemplated thereunder, (including but not limited to the issue and allotment of the Consideration Shares and the issue of the Bonds to the Vendor as part of the consideration upon completion under the Acquisition Agreement) is set out on pages 157 to 158 of this circular.

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LETTER FROM THE BOARD

Form of proxy for use in the SGM is enclosed with this circular. If Shareholders are not able to attend the SGM, they are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible to the share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Ltd., at Room 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the meeting. Completion and return of the form of proxy will not preclude Shareholders from attending and voting in person at the meeting or any adjournment thereof should they wish to do so.

PROCEDURES FOR DEMANDING A POLL AT THE SGM

Pursuant to the bye-laws of the Company, a resolution put to the vote at the SGM shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

(a) by the chairman of the meeting; or
(b) by at least three shareholders present in person or by its duly authorised corporate representative or by proxy for the time being entitled to vote at the meeting; or
(c) by any shareholder or shareholders present in person or by its duly authorised corporate representative or by proxy and representing not less than one-tenth of the total voting rights of all the shareholders having the right to vote at the meeting; or
(d) by any shareholder or shareholders present in person or by its duly authorised corporate representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

RECOMMENDATION

Based on the above, the Directors (including the independent non-executvie Directors) consider that (i) the Acquisition and the transactions contemplated under the Acquisition Agreement (including the allotment and issue of the Consideration Shares and the issue of the Bonds); and (ii) the Sub-concession and the transactions contemplated under the Cooperation Agreement are in the best interests of the Company and its Shareholders as a whole and, accordingly, recommend the Shareholders to vote in favor of the relevant resolutions in respect of the Acquisition Agreement and the Cooperation Agreement at the SGM.

ADDITIONAL INFORMATION

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

Yours faithfully,

On behalf of the Board of Directors Li Nga Kuk, James Chairman

– 21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION

Set out below is a summary of the results, assets and liabilities of the Group as extracted from the annual reports of the Company for the three years ended 31 December 2005, 2006 and 2007. An unqualified opinion in respect of the audited financial statements of the Group has been issued for each of the three years ended 31 December 2005, 2006 and 2007.

RESULTS

Turnover Loss before taxation Taxation Loss for the year Loss per share (Hong Kong cents) Basic	Year ended 31 December 2007 2006 2005 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) 38,443 34,979 36,081 (21,874) (26,743) (2,301) (24) (211) – (21,898) (26,954) (2,301) (2.12) (3.52) (0.26)	Year ended 31 December 2007 2006 2005 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) 38,443 34,979 36,081 (21,874) (26,743) (2,301) (24) (211) – (21,898) (26,954) (2,301) (2.12) (3.52) (0.26)	Year ended 31 December 2007 2006 2005 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) 38,443 34,979 36,081 (21,874) (26,743) (2,301) (24) (211) – (21,898) (26,954) (2,301) (2.12) (3.52) (0.26)
	(21,874) (24)	(26,743) (211)	(2,301 –
	(21,898) (2.12)	(26,954) (3.52)

ASSETS AND LIABILITIES

Total assets Total liabilities Minority interests Net assets attributable to equity holders of the Company	As 2007 HK$’000 (Audited) 474,815 (69,675) (6,875) 398,265	at 31 December 2006 2005 HK$’000 HK$’000 (Audited) (Audited) 134,558 157,058 (33,799) (32,870) (6,339) (3,734) 94,420 120,454

– 22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL STATEMENTS

Set out below are the audited financial statements of the Group together with accompanying notes as extracted from the annual report of the Company for the year ended 31 December 2007.

“Consolidated Income Statement

Year ended 31 December 2007

Notes Turnover 4 Cost of services/sales Gross profit Other revenue 5 Selling and distribution expenses Administrative expenses Impairment loss recognised in respect of: Biological assets 15 Inventories 20 Intangible assets 17 Other operating expenses Loss from operations Finance costs 6 Loss before taxation 6 Taxation 7 Loss for the year Attributable to: Equity holders of the Company 32 Minority interests 32 Loss per share (Hong Kong cents) Basic 11	2007 HK$’000 38,443 (18,789)	2006 HK$’000 34,979 (14,080) 20,899 2,135 (6,939) (10,239) – (710) (29,667) (1,951) (26,472) (271) (26,743) (211) (26,954) (29,378) 2,424 (26,954) (3.52)
	19,654 4,114 (11,790) (25,178) (6,785) – – (1,645) (21,630) (244) (21,874) (24)	20,899 2,135 (6,939 (10,239 – (710 (29,667 (1,951
		(26,472 (271
		(26,743 (211
	(21,898)
	(21,989) 91	(29,378 2,424
	(21,898) (2.12)

– 23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 December 2007

Notes Non-current assets Property, plant and equipment 13 Biological assets 15 Construction in progress 14 Interests in leasehold land held for own use under operating leases 16 Intangible assets 17 Current assets Inventories 20 Trade and other receivables 21 Deposits with bank 24 Cash at bank and on hand 25 Current liabilities Trade and other payables 28 Bank loan 26 Taxation 30 Net current assets Net assets Capital and reserves Share capital 31 Reserves 32(a) Total equity attributable to: Equity holders of the Company Minority interests 32(a) Total equity	2007 HK$’000 7,379 88 18,189 2,563 287,161	2006 HK$’000 7,473 2,426 6,447 2,509 28,090
	315,380 6,019 54,016 – 99,400 159,435 69,391 – 284 69,675 89,760	46,945
		5,234 12,422 57,928 12,029
		87,613
		30,075 3,484 240
		33,799
		53,814
	405,140	100,759

	17,050 381,215 398,265 6,875	8,350 86,070
		94,420 6,339
	405,140	100,759

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

At 31 December 2007

Notes Non-current assets Property, plant and equipment 13 Investment in subsidiaries 19 Current assets Trade and other receivables 21 Amounts due from subsidiaries 22 Cash at bank and on hand 25 Current liabilities Trade and other payables 28 Amounts due to subsidiaries 29 Net current assets Net assets Capital and reserves Share capital 31 Reserves 32(b) Total equity	2007 HK$’000 – 261,335	2006 HK$’000 49 55,755
	261,335 15,107 133,548 67,839 216,494 2,173 117,271 119,444 97,050	55,804
		15 84,468 121
		84,604
		1,016 79,792
		80,808
		3,796
	358,385	59,600

	17,050 341,335	8,350 51,250
	358,385	59,600

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

Year ended 31 December 2007

	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$’000 120,454 3,344 (29,378) 94,420	Minority interests HK$’000 3,734 181 2,424 6,339	Total HK$’000 124,188 3,525 (26,954)
Share capital HK$’000 8,350 – – 8,350	Share premium Contributed surplus HK$’000 HK$’000 70,733 5,265 – – – – 70,733 5,265		Capital reserve HK$’000 – – – –	Exchange reserve HK$’000 2,724 3,344 – 6,068	Retained profits HK$’000 33,382 – (29,378) 4,004
								100,759

8,350 4,000 700 1,670 2,330 – – – –	70,733 71,200 12,460 113,560 121,160 (9,330) – – –	5,265 – – – – – – – –	– – – – – – 1,875 – –	6,068 – – – – – – 6,209 –	4,004 – – – – – – – (21,989)	94,420 75,200 13,160 115,230 123,490 (9,330) 1,875 6,209 (21,989)	6,339 – – – – – – 445 91	100,759 75,200 13,160 115,230 123,490 (9,330) 1,875 6,654 (21,898)
17,050	379,783	5,265	1,875	12,277	(17,985)	398,265	6,875	405,140

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

Year ended 31 December 2007

Notes Cash flows from operating activities Loss before taxation Adjustments for: Depreciation Impairment losses recognised in respect of: Biological assets Inventories Intangible assets Amortisation of prepaid lease payments Amortisation of intangible assets: Forest exploitation rights Others Employees share options scheme Bad debts written off Interest income on financial assets not at fair value through the income statement Finance costs Operating profit/(loss) before changes in working capital (Increase)/decrease in inventories (Increase)/decrease in trade and other receivables Increase in trade and other payables Decrease in amount due to a director Cash generated from/(used in) operations and net cash from/(used in) operating activities Cash flows from investing activities Capital expenditure: Property, plant and equipment Interests in leasehold land held for own use under operating leases Construction in progress Biological assets Aquisition of a subsidiary 18 Forest exploitation rights (Increase)/decrease in placement of deposits with banks Interest received Net cash used in investing activities	2007 HK$’000 (21,874) 1,044 6,785 – – 123 3,757 364 1,875 1,088 (2,279) 244	2006 HK$’000 (26,743) 1,235 – 710 29,667 39 – 346 – 756 (1,207) 271 5,074 257 120 1,756 (200) 7,007 (460) (164) (4,781) (2,426) – – (3,185) 1,207 (9,809)
	(8,873) (1,651) (41,540) 9,508 – (42,556) (447) – (8,764) (4,534) (50,000) (27,300) 62,153 2,279 (26,613)	5,074 257 120 1,756 (200
		7,007
		(460 (164 (4,781 (2,426 – – (3,185 1,207
		(9,809

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Cash flows from financing activities Interest paid New share placement Top-up placement Redemption of bonds Shares issue expenses Proceeds from a new bank loan Repayment of bank loan Net cash from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at end of the year 25	2007 HK$’000 (244) 115,890 122,830 (70,000) (9,330) – (3,484) 155,662 86,493 12,029 878 99,400	2006 HK$’000 (271) – – – – 3,484 (4,326) (1,113) (3,915) 15,398 546 12,029

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

1. GENERAL

The Company is a public limited liability company incorporated in Bermuda and its shares are listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The principal activity of the Company is investment holding. The principal activities and other particulars of the subsidiaries are set out in note 19 to the financial statements.

2. CHANGES IN ACCOUNTING POLICIES

(a) Adoption of New and Revised Hong Kong Financial Reporting Standards

The Hong Kong Institute of Certified Public Accountants (“HKICPA”) has issued a number of new and revised Hong Kong Financial Reporting Standards (“HKFRSs”), which is a collective term that includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations that are first effective or available for early adoption for the current accounting period of the Group and the Company.

There have been no significant changes to the accounting policies applied in the financial statements for the years presented as a result of these developments. However, as a result of the adoption of HKFRS 7, Financial instruments: Disclosures and the amendments to HKAS 1, Presentation of financial statements: Capital disclosures , there have been some additional disclosures provided as set out below.

As a result of the adoption of HKFRS 7, the financial statements include expanded disclosures given the significance of the Group’s financial instruments and the nature and extent of risks arising from those instruments, compared with the information previously required to be disclosed by HKAS 32, Financial instruments: Disclosure and presentation .

The amendment to HKAS 1 introduces additional disclosure requirements to provide information on the level of capital and the Group’s and the Company’s objectives, policies and processes for managing capital.

Both HKFRS 7 and the amendment to HKAS 1 do not have any material impact on the classification, recognition and measurement of the amounts recognised in the financial instruments.

The Group has not applied any new standards or interpretations that are not yet effective for the current accounting period.

(b) Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 December 2007

Up to the date of issue of the financial statements, the HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective for the year ended 31 December 2007 and which have not been adopted in these financial statements.

The Group is in the process of making assessments of what the impact of these amendments, new standards and new interpretations are expected to be in the period of initial application. So far it has concluded that the adoption thereof is unlikely to have a significant impact on the Group’s results of operations and financial position.

HKFRS 8, Operating segments may result in new or amended disclosures in the financial statements. HKAS 1, Presentation of Financial Statements (revised December 2007) will have an impact on the presentation of the Group’s financial statements. Both standards will be effective for annual periods beginning on or after 1 January 2009.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These financial statements have been prepared in accordance with all applicable HKFRSs issued by the HKICPA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on GEM of the Stock Exchange. A summary of the significant accounting policies adopted by the Group is set out below.

(b) Basis of preparation of the financial statements

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities at fair values through the income statement.

The preparation of financial statements in conformity with HKFRSs 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.

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.

Judgments 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 40.

(c) Basis of consolidation

The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries made up to 31 December each year.

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 profits but only to the extent that there is no evidence of impairment.

Capital reserves arising on consolidation, which represent the deficit of costs over fair values attributed to the net assets of subsidiaries acquired, are credited directly to reserves on consolidation.

(d) Goodwill

Goodwill represents the excess of the cost of a business combination 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 accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment.

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

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(e) Subsidiaries and minority interests

A subsidiary is a company in which the Group, directly or indirectly, holds more than half of the issued share capital or controls more than half of the voting power or controls the composition of the board of directors. Subsidiaries are considered to be controlled if the Company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from their activities.

An investment in a controlled subsidiary is included in the consolidated financial statements from the date that control commences until the date that control ceases.

Minority interests represent the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly through subsidiaries, and are presented in the consolidated balance sheet and statement of changes in equity 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 profit or loss for the year between minority interests and the equity holders of the Company.

Where losses applicable to a minority interest exceeds 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 any impairment losses.

(f) Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment and the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

The gain or loss arising from the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the item and is recognised in the income statement. Any related revaluation surplus is transferred from the revaluation reserve to retained profits.

Depreciation is provided to write off the cost or valuation 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:

Medical equipment	Shorter of 6 years and the remaining terms of the agreements
	with hospitals
Buildings	Shorter of 50 years and the remaining terms of the leases
Office, computers and other equipment	5 years
Motor vehicles	5 years

Both the useful life of assets and their residual values, if any, are reviewed annually.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(g) Construction in progress

Construction in progress is stated at cost, which comprises construction expenditure, including interest costs and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest costs during the construction period, and the cost of related equipment. Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use, notwithstanding any delays in the issue of the relevant commissioning certificate by the appropriate authorities.

No depreciation is provided in respect of construction in progress. Upon completion and commissioning for operation, depreciation will be provided at the appropriate rates specified in note 3(f) above.

(h) Intangible assets (other than goodwill)

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources and the intention to complete development. The expenditure capitalised includes the costs of materials, direct labour and an appropriate proportion of overheads. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses. Other development expenditure is recognised as an expense in the period in which it is incurred.

Forest exploitation right, medical research projects and other 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. Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

Subsequent expenditure on an intangible asset after its purchase or its completion is recognised as an expense when it is incurred unless it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance and this expenditure can be measured and attributed to the asset reliably. If these conditions are met, the subsequent expenditure is added to the cost of the intangible asset.

Amortisation of intangible assets with finite life is charged to the income statement on the straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortised from the date they are available for use and their estimated useful lives are as follows:

Forest exploitation rights	70 years
Medical research projects	5 to 10 years
Other intangible assets	5 to 10 years

Both the period and method of amortisation are reviewed annually.

(i) Impairment of assets

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there are any indications that these assets have suffered impairment losses. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(j) 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 purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable 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.

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 is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(k) 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. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement.

(l) Taxation

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.

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 is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Tax rates enacted or substantively enacted at the balance sheet date are used to determine deferred tax.

Deferred tax liabilities are provided in full on all taxable temporary differences while deferred tax assets are recognised to the extent it is probable that future taxable profits will be available against which the temporary differences can be utilised.

A deferred tax asset is also recognised for the carryforward of unused tax losses, to the extent it is probable that taxable profits will be available against which the carryforward of the unused tax losses can be utilised.

(m) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts, 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 doubtful debts.

(n) Interest-bearing borrowings

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

(o) Trade and other payables

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(p) Provisions and contingent liabilities

Provisions are recognised for 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 expenditures 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 non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(q) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue can be measured reliably, revenue is recognised in the income statement as follows:

(i) Medical service fees

Medical service fees are recognised at the time when services are rendered, net of business taxes.

(ii) Sales of goods

Sales of goods are recognised when goods are delivered and title has passed. Revenue excludes value-added tax and is after deduction of any trade discounts.

(iii) Research and development service income

Revenue is recognised when the outcome on a research and development contract can be measured reliably. Revenue from a fixed price research and development contract is recognised using the percentage of completion method, measured by reference to the percentage of contract costs incurred to date to estimated total contract costs for the contract. When the outcome of a research and development contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that are probable will be recoverable.

(iv) Interest income

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

(r) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases.

Rental payables under operating leases are charged to the income statement on the straight-line basis over the periods of the relevant leases.

Land lease prepayments are stated at cost less accumulated amortisation and any impairment, and are amortised over the remaining lease terms on the straight-line basis to the income statement.

(s) Employee benefits

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

Salaries, annual bonuses, paid annual leave, contributions to defined contribution 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 deferred and the effect would be material, these amounts are stated at their present values.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(ii) Defined benefit retirement plan obligations

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. Contributions are made based on a percentage of the employees’ 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 an independently administered fund. The Group’s contributions as employer vest fully with the employees when contributed into the Scheme.

The Group has joined a mandatory central pension scheme organised by the PRC government for certain of its employees, the assets of which are held separately from those of the Group. Contributions made are based on a percentage of the eligible employees’ salaries and are charged to the income statement as they became payable, in accordance with the rules of the Scheme. The employer’s contributions vest fully once they are made.

(iii) Share-based payments

The fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in a capital reserve within equity. The fair value is measured at grant date using the binomial lattice model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the options, the total estimated fair value of the options is spread over the vesting period, taking into account the probability that the options will vest.

During the vesting period, the number of share options that is expected to vest is reviewed. Any adjustment to the cumulative fair value recognised in prior years is charged/credited to the income statement for the year of the review, with a corresponding adjustment to the capital reserve. On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of options that vest (with a corresponding adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the company’s shares. The equity amount recognised in capital reserve until either the option is exercised (when it is transferred to share premium account) or the option expires (when it is released directly to retained profits).

(t) Foreign currencies

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency.

(ii) Transactions and balances

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 the income statement.

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 values are translated using the foreign exchange rates ruling at the dates the fair values were 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 are translated into Hong Kong dollars at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly as a separate component of equity.

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 profit or loss on disposal.

(u) 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 capitalised 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.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The capitalisation 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.

(v) 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;
(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.

(w) 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.

In accordance with the Group’s internal financial reporting systems, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these financial statements.

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 entities 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, tax balances and corporate and financing expenses.

(x) Biological assets

Biological assets are living animals and/or plants managed by the Group which is involved in the agricultural activities of transformation of biological assets for sale, into agricultural produce, or into additional biological assets. Biological assets are measured at fair value less estimated point-of-sale costs at initial recognition and less any impairment losses at each balance sheet date. The fair value of biological assets are determined based on either the present value of expected net cash flows from the biological assets discounted at a current market-determined pre-tax rate or the market price with reference to the species, growing condition, cost incurred and expected yield of the crops.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The agricultural produce is initially measured at fair value less estimated point-of-sale costs at the time of harvest. The fair value of agricultural produce is measured at the market prices in the local market. The fair value less estimated point-of-sale costs at the time of harvest is deemed as the cost of agricultural produce for further processing.

The gain or loss arising on initial recognition of biological asset at fair value less estimated point-of-sale costs and any impairment losses is recognised in the consolidated income statement for the period in which it arises.

(y) Convertible notes

Convertible notes that can be converted to equity share capital at the option of the holder, where the number of shares that would be issued on conversion and the value of the consideration that would be received at that time do not vary, are accounted for as compound financial instruments which contain both a liability component and an equity component.

At initial recognition the liability component of the convertible notes is measured as the present value of the future interest and principal payments, discounted at the market rate of interest applicable at the time of initial recognition to similar liabilities that do not have a conversion option. Any excess of proceeds over the amount initially recognised as the liability component is recognised as the equity component. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds.

The liability component is subsequently carried at amortised cost. The interest expense recognised in the income statement on the liability component is calculated using the effective interest method. The equity component is recognised in the capital reserve until either the note is converted or redeemed.

If the note is converted, the capital reserve, together with the carrying amount of the liability component at the time of conversion, is transferred to share capital and share premium as consideration for the shares issued. If the note is redeemed, the capital reserve is released directly to retained profits.

4. TURNOVER

Turnover represents service fees arising from the provision of medical equipment services and sales of related accessories, net of respective taxes; the sale value of medical equipment, net of value-added tax; and service fees arising from the provision of medical research and development services, net of business tax.

Pursuant to various agreements with hospitals in the People’s Republic of China (the “PRC”), the Group agrees to locate certain medical equipment at the relevant hospitals and, in return, share the medical service fees arising from the utilisation of the medical equipment after deducting the related direct expenses.

Turnover recognised during the year is analysed as follows:

Medical equipment service fees and sales of related accessories Sales of medical equipment Research and development service fees	2007 HK$’000 112 38,243 88 38,443	2006 HK$’000 5,669 27,994 1,316
		34,979

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. OTHER REVENUE

Bank interest income Interest income on financial assets not at fair value through the income statement Foreign exchange loss Miscellaneous 6. LOSS BEFORE TAXATION Loss before taxation is arrived at after charging: Finance costs: Interest expense on bank loan Interest expense on bonds Total interest expense on financial liabilities not at fair value through the income statement Staff costs: Staff costs (including directors’ remuneration in Note 8) Wages and salaries Share options granted to a director and employees Staff retirement benefits Average number of employees during the year (2007: 227; 2006: 198) Other items: Cost of inventories (Note 20) Depreciation Bad debts written off Auditors’ remuneration Audit services Other services Operating lease charges in respect of office premises Amortisation of prepaid lease payments Amortisation of intangible assets: Forest exploitation rights Others Research and development costs Impairment losses recognised in respect of: Biological assets Inventories Intangible assets	2007 HK$’000 2,279	2006 HK$’000 1,207 1,207 (1) 929 2,135 2006 HK$’000 271 – 271 6,098 – 17 6,115 14,192 1,235 756 693 34 547 39 – 346 1,941 – 710 29,667
	2,279 – 1,835	1,207 (1 929
	4,114 2007 HK$’000 155 89 244
	8,657 1,875 795	6,098 – 17
	11,327 18,437 1,044 1,088 1,059 344 415 123 3,757 364 1,630 6,785 – –

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. TAXATION

(a) Taxation in the consolidated income statement represents:

								2007	2006
								HK$’000	HK$’000
Current	tax	–	PRC	tax	for	the	year	24	211

(i) Hong Kong Profits Tax

No provision for Hong Kong Profits Tax has been made as the Group did not have assessable profits chargeable to such tax during the year.

(ii) PRC Income Tax

The Company’s subsidiary, Tat Lung Medical Treatment (Shenzhen) Ltd. (“Tat Lung Treatment”), located in the Shenzhen Special Economic Zone (“SSEZ”) in the PRC, is subject to PRC Income Tax at the reduced rate of 15% (2006: 15%). Another subsidiary, Sinnowa Medical Science & Technology Company Ltd. (“Sinnowa”), is subject to PRC Income Tax of 33% (2006: 33%). According to the relevant income tax rules and regulations in the PRC, Tat Lung Treatment and Sinnowa obtained approval from the state tax bureau that they are entitled to 100% relief from PRC Income Tax in the first and second years and 50% relief for the third to fifth years, commencing from the first profitable year after the offset of deductible losses incurred in prior years, if any.

No provision for PRC Income Tax has been made for the Company’s other subsidiaries, China Best Drugs Research (Nanjing) Ltd. (“China Best”), China Best Pharmaceutical (Nanjing) Company Ltd. (“CB Pharmaceutical”) and Guilin Simei Biotechnology Ltd. (“Guilin Simei”) as they did not have assessable profits for the year determined in accordance with the relevant income tax rules and regulations in the PRC.

(iii) Cambodia Tax on Profit

No provision for Cambodia Tax on Profit has been made for the Company’s subsidiary, (Cambodia) Tong Min Group Engineering Co., Ltd. (“(Cambodia) Tong Min”) as it did not have any assessable profits for the year determined in accordance with the relevant tax rules and regulations in Cambodia.

(b) Reconciliation between taxation and loss before taxation at applicable tax rates:

Loss before taxation Notional tax on loss before taxation, calculated at the rates applicable to the countries concerned Tax effect of non-deductible expenses Tax effect of concession period Taxation for the year	2007 HK$’000 % (21,874)	2007 HK$’000 % (21,874)	2006 HK$’000 % (26,743)	2006 HK$’000 % (26,743)
	(5,312) 5,446 (110)	24.3 (24.9) 0.5	(3,425) 6,116 (2,480)	12.8 (22.9 9.3
	24	(0.1)	211	(0.8

The tax rate applicable to the Group’s operations in Hong Kong is 17.5% (2006: 17.5%). Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries. The applicable income tax rate for Cambodia is 20%. The applicable income tax rate for the Group’s PRC operations is 33% (2006: 33%) except for a subsidiary which is located in SSEZ in the PRC for which the applicable income tax rate is 15% (2006: 15%). These tax rates are taken into account in the preparation of the Group’s tax reconciliation.

(c) No provision for deferred taxation is deemed necessary as the Group does not have any material deductible or taxable temporary differences (2006: HK$ Nil).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. DIRECTORS’ REMUNERATION

Directors’ remuneration disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance are as follows:

Executive directors Li Nga Kuk, James Li Wo Hing Li Tai To, Titus Non-executive director Chen Minshan Independent non- executive directors Guo Guoqing Fan Wan Tat Tam Wai Leung, Joseph Chan Kim Chung, Daniel	Directors fees 2007 2006 HK$’000 HK$’000 – – – – – – 60 60 – 28 60 60 60 60 60 32 240 240	Salaries, allowances and benefits in kind 2007 2006 HK$’000 HK$’000 152 152 – – 152 152 – – – – 200 – 68 – 32 – 604 304	Employees share options scheme (Note) 2007 2006 HK$’000 HK$’000 – – 188 – – – – – – – – – – – – – 188 –	Total 2007 2006 HK$’000 HK$’000 152 152 188 – 152 152 60 60 – 28 260 60 128 60 92 32 1,032 544	Total 2007 2006 HK$’000 HK$’000 152 152 188 – 152 152 60 60 – 28 260 60 128 60 92 32 1,032 544
					544

The remuneration of each of the directors is within the Nil – $1,000,000 band.

No emoluments were paid by the Group to directors as an inducement to join or upon joining the Group or as compensation for loss of office during the year ended 31 December 2007.

The Executive Directors entered into service contracts with the Company for an initial period of three years commencing on 1 December 2001. Thereafter, they are appointed for one year terms of renewal with the Board’s approval.

Note:

These represents the estimated value of share options granted to the directors under the Company’s share option scheme. The value of theses share options is measured according to the Group’s accounting policies for share-based payment transactions as set out in note 3(s)(iii).

The details of these benefits in kind, including the principal terms and number of options granted, are disclosed under the paragraph “Share option scheme” in the directors’ report and note 35.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, one (2006: two) is director whose emolument is disclosed in note 8. The aggregate of the emoluments in respect of the remaining four (2006: three) individuals are as follows:

Basic salaries, allowances and other benefits Discretionary bonuses Employees share options scheme Retirement benefit scheme contributions	2007 HK$’000 399 12 1,313 11 1,735	2006 HK$’000 498 12 – 17
		527

The emoluments of the remaining four (2006: three) individuals with the highest emoluments are within the following band:

			2007	2006
			Number of	Number of
			individuals	individuals
Nil	–	$1,000,000	4	3

10. LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The consolidated loss attributable to equity holders of the Company includes a loss of HK$20,840,000 (2006: HK$6,365,000) which has been dealt with in the financial statements of the Company.

11. LOSS PER SHARE

(a) Basic loss per share

The calculation of basic loss per share for the year ended 31 December 2007 is based on the loss attributable to equity holders of the Company of HK$21,989,000 (2006: loss of HK$29,378,000) divided by the weighted average number of 1,035,036,000 (2006: 835,000,000) ordinary shares in issue during the year,

Weighted average number of ordinary shares

Issued ordinary shares at 1 January Effect of issue of shares (Note 31) Effect of conversion of shares (Note 31) Effect of new share placement (Note 31) Effect of top-up placement (Note 31) Weighted average number of ordinary shares at 31 December	2007 ’000 835,000 77,808 12,850 64,055 45,323 1,035,036	2006 ’000 835,000 – – – –
		835,000

(b) Diluted loss per share

No diluted loss per share for the years ended 31 December 2007 and 2006 have been presented because there were no potential dilutive ordinary shares in existence during the respective years.

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. SEGMENT INFORMATION

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 segments

The Group comprises the following main business segments:

Medical services: provision of medical equipment for the treatment of cancer.

Sales of medical equipment: manufacture and sale of medical equipment.

Research and development: development of drugs.

Natural resources: forestry business and rubber plantation for latex production.

Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)	Medical services Sales of medical equipment Research and development Natural resources Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue from external customers 112 5,669 38,243 27,994 88 1,316 – – – – 38,443 34,979 Segment results (770) 1,669 (1,036) 6,204 (1,153) (30,467) (5,501) – – – (8,460) (22,594) Unallocated operating income and expenses (13,170) (3,878) Loss from operations (21,630) (26,472) Finance costs (244) (271) Taxation (24) (211) Loss for the year (21,898) (26,954) Attributable to: Equity holders of the Company (21,989) (29,378) Minority interests 91 2,424 (21,898) (26,954)
(770)	1,669	(1,036)	6,204	(1,153)	(30,467)	(5,501)	–	–	–	(8,460) (13,170) (21,630) (244) (24) (21,898) (21,989) 91	(22,594) (3,878)
											(26,472) (271) (211)
											(26,954)
											(29,378) 2,424
										(21,898)	(26,954)

– 42 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Medical services Sales of medical equipment Research and development Natural resources Unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Depreciation for the year 83 378 606 367 242 237 – – 113 253 Impairment losses for the year: Biological assets – – – – – – – – 6,785 – Inventories – 710 – – – – – – – – Intangible assets – – – – – 29,667 – – – – Bad debts written off 109 – 972 727 7 29 – – – – Amortisation for the year: Forest exploitation rights – – – – – – 3,757 – – – Other intangible assets – – 364 346 – – – – – – Prepaid lease payments – – 41 39 – – – – 82 – Segment assets 9,069 60,027 31,277 26,324 39,008 31,466 279,337 – – – Unallocated assets Total assets Segment liabilities (2,628) (2,122) (11,633) (8,265) (745) (615) (27,334) – – – Unallocated liabilities Total liabilities Capital expenditure incurred during the year – 5 6,906 392 – – 263,126 – 9,181 7,434	Medical services Sales of medical equipment Research and development Natural resources Unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Depreciation for the year 83 378 606 367 242 237 – – 113 253 Impairment losses for the year: Biological assets – – – – – – – – 6,785 – Inventories – 710 – – – – – – – – Intangible assets – – – – – 29,667 – – – – Bad debts written off 109 – 972 727 7 29 – – – – Amortisation for the year: Forest exploitation rights – – – – – – 3,757 – – – Other intangible assets – – 364 346 – – – – – – Prepaid lease payments – – 41 39 – – – – 82 – Segment assets 9,069 60,027 31,277 26,324 39,008 31,466 279,337 – – – Unallocated assets Total assets Segment liabilities (2,628) (2,122) (11,633) (8,265) (745) (615) (27,334) – – – Unallocated liabilities Total liabilities Capital expenditure incurred during the year – 5 6,906 392 – – 263,126 – 9,181 7,434	Medical services Sales of medical equipment Research and development Natural resources Unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Depreciation for the year 83 378 606 367 242 237 – – 113 253 Impairment losses for the year: Biological assets – – – – – – – – 6,785 – Inventories – 710 – – – – – – – – Intangible assets – – – – – 29,667 – – – – Bad debts written off 109 – 972 727 7 29 – – – – Amortisation for the year: Forest exploitation rights – – – – – – 3,757 – – – Other intangible assets – – 364 346 – – – – – – Prepaid lease payments – – 41 39 – – – – 82 – Segment assets 9,069 60,027 31,277 26,324 39,008 31,466 279,337 – – – Unallocated assets Total assets Segment liabilities (2,628) (2,122) (11,633) (8,265) (745) (615) (27,334) – – – Unallocated liabilities Total liabilities Capital expenditure incurred during the year – 5 6,906 392 – – 263,126 – 9,181 7,434	Medical services Sales of medical equipment Research and development Natural resources Unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Depreciation for the year 83 378 606 367 242 237 – – 113 253 Impairment losses for the year: Biological assets – – – – – – – – 6,785 – Inventories – 710 – – – – – – – – Intangible assets – – – – – 29,667 – – – – Bad debts written off 109 – 972 727 7 29 – – – – Amortisation for the year: Forest exploitation rights – – – – – – 3,757 – – – Other intangible assets – – 364 346 – – – – – – Prepaid lease payments – – 41 39 – – – – 82 – Segment assets 9,069 60,027 31,277 26,324 39,008 31,466 279,337 – – – Unallocated assets Total assets Segment liabilities (2,628) (2,122) (11,633) (8,265) (745) (615) (27,334) – – – Unallocated liabilities Total liabilities Capital expenditure incurred during the year – 5 6,906 392 – – 263,126 – 9,181 7,434	Medical services Sales of medical equipment Research and development Natural resources Unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Depreciation for the year 83 378 606 367 242 237 – – 113 253 Impairment losses for the year: Biological assets – – – – – – – – 6,785 – Inventories – 710 – – – – – – – – Intangible assets – – – – – 29,667 – – – – Bad debts written off 109 – 972 727 7 29 – – – – Amortisation for the year: Forest exploitation rights – – – – – – 3,757 – – – Other intangible assets – – 364 346 – – – – – – Prepaid lease payments – – 41 39 – – – – 82 – Segment assets 9,069 60,027 31,277 26,324 39,008 31,466 279,337 – – – Unallocated assets Total assets Segment liabilities (2,628) (2,122) (11,633) (8,265) (745) (615) (27,334) – – – Unallocated liabilities Total liabilities Capital expenditure incurred during the year – 5 6,906 392 – – 263,126 – 9,181 7,434	Medical services Sales of medical equipment Research and development Natural resources Unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Depreciation for the year 83 378 606 367 242 237 – – 113 253 Impairment losses for the year: Biological assets – – – – – – – – 6,785 – Inventories – 710 – – – – – – – – Intangible assets – – – – – 29,667 – – – – Bad debts written off 109 – 972 727 7 29 – – – – Amortisation for the year: Forest exploitation rights – – – – – – 3,757 – – – Other intangible assets – – 364 346 – – – – – – Prepaid lease payments – – 41 39 – – – – 82 – Segment assets 9,069 60,027 31,277 26,324 39,008 31,466 279,337 – – – Unallocated assets Total assets Segment liabilities (2,628) (2,122) (11,633) (8,265) (745) (615) (27,334) – – – Unallocated liabilities Total liabilities Capital expenditure incurred during the year – 5 6,906 392 – – 263,126 – 9,181 7,434	Medical services Sales of medical equipment Research and development Natural resources Unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Depreciation for the year 83 378 606 367 242 237 – – 113 253 Impairment losses for the year: Biological assets – – – – – – – – 6,785 – Inventories – 710 – – – – – – – – Intangible assets – – – – – 29,667 – – – – Bad debts written off 109 – 972 727 7 29 – – – – Amortisation for the year: Forest exploitation rights – – – – – – 3,757 – – – Other intangible assets – – 364 346 – – – – – – Prepaid lease payments – – 41 39 – – – – 82 – Segment assets 9,069 60,027 31,277 26,324 39,008 31,466 279,337 – – – Unallocated assets Total assets Segment liabilities (2,628) (2,122) (11,633) (8,265) (745) (615) (27,334) – – – Unallocated liabilities Total liabilities Capital expenditure incurred during the year – 5 6,906 392 – – 263,126 – 9,181 7,434	Medical services Sales of medical equipment Research and development Natural resources Unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Depreciation for the year 83 378 606 367 242 237 – – 113 253 Impairment losses for the year: Biological assets – – – – – – – – 6,785 – Inventories – 710 – – – – – – – – Intangible assets – – – – – 29,667 – – – – Bad debts written off 109 – 972 727 7 29 – – – – Amortisation for the year: Forest exploitation rights – – – – – – 3,757 – – – Other intangible assets – – 364 346 – – – – – – Prepaid lease payments – – 41 39 – – – – 82 – Segment assets 9,069 60,027 31,277 26,324 39,008 31,466 279,337 – – – Unallocated assets Total assets Segment liabilities (2,628) (2,122) (11,633) (8,265) (745) (615) (27,334) – – – Unallocated liabilities Total liabilities Capital expenditure incurred during the year – 5 6,906 392 – – 263,126 – 9,181 7,434	Medical services Sales of medical equipment Research and development Natural resources Unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Depreciation for the year 83 378 606 367 242 237 – – 113 253 Impairment losses for the year: Biological assets – – – – – – – – 6,785 – Inventories – 710 – – – – – – – – Intangible assets – – – – – 29,667 – – – – Bad debts written off 109 – 972 727 7 29 – – – – Amortisation for the year: Forest exploitation rights – – – – – – 3,757 – – – Other intangible assets – – 364 346 – – – – – – Prepaid lease payments – – 41 39 – – – – 82 – Segment assets 9,069 60,027 31,277 26,324 39,008 31,466 279,337 – – – Unallocated assets Total assets Segment liabilities (2,628) (2,122) (11,633) (8,265) (745) (615) (27,334) – – – Unallocated liabilities Total liabilities Capital expenditure incurred during the year – 5 6,906 392 – – 263,126 – 9,181 7,434	Medical services Sales of medical equipment Research and development Natural resources Unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Depreciation for the year 83 378 606 367 242 237 – – 113 253 Impairment losses for the year: Biological assets – – – – – – – – 6,785 – Inventories – 710 – – – – – – – – Intangible assets – – – – – 29,667 – – – – Bad debts written off 109 – 972 727 7 29 – – – – Amortisation for the year: Forest exploitation rights – – – – – – 3,757 – – – Other intangible assets – – 364 346 – – – – – – Prepaid lease payments – – 41 39 – – – – 82 – Segment assets 9,069 60,027 31,277 26,324 39,008 31,466 279,337 – – – Unallocated assets Total assets Segment liabilities (2,628) (2,122) (11,633) (8,265) (745) (615) (27,334) – – – Unallocated liabilities Total liabilities Capital expenditure incurred during the year – 5 6,906 392 – – 263,126 – 9,181 7,434	Consolidated 2007 2006 HK$’000 HK$’000 1,044 1,235 6,785 – – 710 – 29,667 1,088 756 3,757 – 364 346 123 39	Consolidated 2007 2006 HK$’000 HK$’000 1,044 1,235 6,785 – – 710 – 29,667 1,088 756 3,757 – 364 346 123 39
9,069	60,027	31,277	26,324	39,008	31,466	279,337	–	–	–	358,691 116,124	117,817 16,741
(2,628) –	(2,122) 5	(11,633) 6,906	(8,265) 392	(745) –	(615) –	(27,334) 263,126	– –	– 9,181	– 7,434	474,815	134,558

										(42,340) (27,335)	(11,002 (22,797
										(69,675) 279,213	(33,799

											7,831

(b) Geographical segments

The Group’s business is managed on a worldwide basis, but participates in three principal economic environments. The PRC is a major market for all of the Group’s businesses, except for natural resources, and it is the location of most of its medical services, sales of medical equipment and research and development services conducted. Russia is another major market for sales of medical equipment, apart from the PRC. In Cambodia, the only business is the natural resources business where the operations are yet to be conducted during the year ended 31 December 2007.

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers, while segment assets is based on the geographical location of the assets.

Revenue from external customers Segment assets	The PRC 2007 2006 HK$’000 HK$’000 17,366 23,765 The PRC 2007 2006 HK$’000 HK$’000 112,506 134,345	Russia 2007 2006 HK$’000 HK$’000 6,767 203 Hong Kong 2007 2006 HK$’000 HK$’000 82,972 213	Others 2007 2006 HK$’000 HK$’000 14,310 11,011 Cambodia 2007 2006 HK$’000 HK$’000 279,337 –	Consolidated 2007 2006 HK$’000 HK$’000 38,443 34,979 Consolidated 2007 2006 HK$’000 HK$’000 474,815 134,558

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. PROPERTY, PLANT AND EQUIPMENT

(a) The Group

Buildings HK$’000 6,940 29 18 – (894) 246	Medical equipment HK$’000 11,068 – – (10,728) – 169	Motor vehicles HK$’000 2,292 – – – – 53	Plant, machinery and equipment HK$’000 1,865 431 – – – 62	Total HK$’000 22,165 460 18 (10,728) (894) 530 11,551 11,551 447 (105) 753 12,646 13,323 1,235 (10,728) 248 4,078 4,078 1,044 (105) 250 5,267 7,379 7,473
6,339 6,339 – – 463 6,802 590 8 – 21 619 619 220 – 54 893	509 509 – (105) 14 418 10,729 278 (10,728) 164 443 443 23 (105) 10 371	2,345 2,345 139 – 112 2,596 1,087 507 – 24 1,618 1,618 352 – 74 2,044	2,358 2,358 308 – 164 2,830 917 442 – 39 1,398 1,398 449 – 112 1,959	11,551
				11,551 447 (105 753
				12,646
				13,323 1,235 (10,728 248
				4,078
				4,078 1,044 (105 250
				5,267
5,909 5,720	47 66	552 727	871 960

Cost adjustment represents the adjustment on building cost transferred from construction in progress during the year 2004 upon final settlement of related construction contract.

– 44 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) The Company

Motor vehicles HK$’000 803	Plant, machinery and equipment HK$’000 115	Total HK$’000 918
803 616 160 776 776 27 803	115 70 23 93 93 22 115	918
		686 183
		869
		869 49
		918
– 27	– 22	–

		49

(c) At 31 December 2007, one of the buildings amounting to HK$5,865,000 (2006: HK$5,676,000) had been pledged to a bank as security for Group’s bank borrowings and banking facilities.
(d) All buildings of the Group are situated in the PRC.

14. CONSTRUCTION IN PROGRESS

Balance at beginning of the year Additions Cost adjustments* Transfer to property, plant and equipment (Note 13(a)) Exchange adjustments Balance at end of the year	The Group 2007 2006 HK$’000 HK$’000 6,447 760 11,272 4,781 – 894 – (18) 470 30 18,189 6,447	The Group 2007 2006 HK$’000 HK$’000 6,447 760 11,272 4,781 – 894 – (18) 470 30 18,189 6,447
		6,447

* Cost adjustment represents the adjustment on building cost transferred from construction in progress during the year 2004 upon final settlement of the related construction contract.

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. BIOLOGICAL ASSETS

Cost/Valuation At 1 January 2006 Additions At 31 December 2006 At 1 January 2007 Additions Impairment loss Exchange adjustments At 31 December 2007	Trees in plantation forest HK$’000 – 2,426
	2,426
	2,426 4,534 (6,785 (87
	88

Biological assets represent trees in a plantation forest and are stated at fair values less estimated point-of-sale costs and impairment losses, if any. The trees in the plantation forest are Osmanthus Frangans, commonly referred to as Tea Olive trees ( ) in Guilin, the PRC. The Group experienced losses on its plantation development due to the poor climate conditions, including drought earlier in the year and the more recent heavy snow storms affecting Central and Southern China. In the light of such damage, particularly to young plants, the Board reassessed its plantation development plans and made an impairment loss of HK$6,785,000 for the year.

16. INTERESTS IN LEASEHOLD LAND HELD FOR OWN USE UNDER OPERATING LEASES

Cost At 1 January 2006 Additions Exchange adjustments At 31 December 2006 Additions Exchange adjustments At 31 December 2007 Accumulated amortisation At 1 January 2006 Charge for the year Exchange adjustments At 31 December 2006 Charge for the year Exchange adjustments At 31 December 2007 Net book value At 31 December 2007 At 31 December 2006	The Group HK$’000 2,386 164 85
	2,635 – 191
	2,826

	83 39 4
	126 123 14
	263

	2,563

	2,509

(a) The leasehold land assets held by the Group are under medium term leases and situated in the PRC.

(b) At 31 December 2007, one of the leasehold land assets amounting to HK$1,109,000 (2006: HK$1,074,000) had been pledged to a bank as security for Group’s bank borrowings and banking facilities.

– 46 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

17. INTANGIBLE ASSETS

Forest exploitation rights HK$’000 – –	Medical research projects HK$’000 83,940 67	Others HK$’000 2,413 55	Total HK$’000 86,353 122
– 208,360 54,600 –	84,007 – – 145	2,468 – – 180	86,475 208,360 54,600 325
262,960	84,152	2,648	349,760

– – – – – – 3,757	27,625 29,667 – – 57,292 – –	745 – 2 346 1,093 93 364	28,370 29,667 2 346
			58,385 93 4,121
3,757 259,203 –	57,292 26,860 26,715	1,550 1,098 1,375	62,599

			287,161

			28,090

Forest exploitation rights

The Group acquired an exclusive right to exploit the forest located in Kratie District, Kratie Province, Cambodia (the “Forest”) for a period of 70 years during the year ended 31 December 2007. The forest exploitation rights are stated at cost less accumulated amortisation and impairment losses.

Amortisation of forest exploitation rights are charged to the income statement on the straight-line basis over the assets’ estimated useful lives of 70 years. At 31 December 2007, the directors of the Company reviewed the carrying values of the forest exploitation rights, taking into account an independent valuation report prepared by a professional valuer. Based on the assessment and the valuation report, the directors are of the opinion that there are currently no indications that the values of the forest exploitation rights may be impaired.

Medical research projects

In 2003, the Group acquired certain in-process medical research projects. The acquisition cost was allocated to each individual medical research project based on its estimated fair value at the acquisition date, after taking into account an independent valuation of these medical research projects.

At 31 December 2006, the directors of the Company reviewed the carrying value of these medical research projects individually, taking into account an updated independent valuation report, the future development resources required, the stage of completion and the risks surrounding the successful development and commercialisation of the projects. While there is inherent uncertainty over the outcome of these projects, based on their assessment, the directors consider that an impairment loss of HK$29,667,000 is required for the year ended 31 December 2006.

At 31 December 2007, the directors of the Company reassessed the carrying value of the remaining project, by using the same methodology as described above. Based on the reassessment, the directors consider that there is currently no indication that the remaining project may be impaired and therefore, no impairment loss has been made for the year ended 31 December 2007.

– 47 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

18. ACQUISITION OF A SUBSIDIARY

On 22 October 2007, China Cambodia Resources Limited, a wholly-owned subsidiary of the Group, acquired the entire equity interest of (Cambodia) Tong Min for a total consideration of HK$208,360,000. The fair values of the net assets acquired were as follows:

Intangible assets – Forest exploitation rights Amount due from directors Net assets acquired Satisfied by: Cash Bonds (Note 27(i)) Convertible bonds (conversion price HK$0.188) (Note 27(ii)) Consideration shares (issue price HK$0.188) (Note 31) Total consideration	Book value HK$’000 – 39 39	Fair value adjustment HK$’000 208,360 (39) 208,321	Fair value to the Group HK$’000 208,360 –
			208,360

			50,000 70,000 13,160 75,200
			208,360

19. INVESTMENTS IN SUBSIDIARIES

Unlisted shares, at cost Less: Impairment losses	The Company 2007 2006 HK$’000 HK$’000 268,872 56,300 (7,537) (545) 261,335 55,755	The Company 2007 2006 HK$’000 HK$’000 268,872 56,300 (7,537) (545) 261,335 55,755
		55,755

– 48 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following list contains the particulars of subsidiaries of the Group. All of these are controlled subsidiaries as defined under note 3(e) and have been consolidated into the Group’s financial statements.

	Place of					Issued
	incorporation/	Group’s	Percentage of equity			capital/
	establishment	effective	held by the	held	by	paid-in	Registered	Principal
Name of company	and operation	holding	Company	subsidiary		capital	capital	activities	*Notes*
Future Asia	British Virgin	100%	100%		–	US$20,000	US$50,000	Investment
Management Ltd.	Islands							holding
	(“B.V.I.”)
Tat Lung Medical	Hong Kong	100%	–	100%		HK$142,900	HK$142,900	Investment
Treatment								holding
Technology Limited
Tat Lung Medical	PRC	100%	100%		–	US$300,000	US$300,000	Development of	(i)
Treatment								software for
(Shenzhen) Ltd.								medical
								equipment
China Best Drugs	PRC	75%	–	100%		US$3,000,000	US$3,000,000	Research and	(ii)
Research (Nanjing)								development of
Ltd.								medicine and
								drugs
Sinnowa Medical	PRC	65%	65%		–	US$1,500,000	US$1,500,000	Manufacture and	(iii)
Science and								sale of medical
Technology Co.								equipment
Ltd.
Medical China	B.V.I.	75%	75%		–	US$100	US$50,000	Investment
Technology Ltd.								holding
CB Pharmaceutical	PRC	100%	100%		–	US$4,800,000	US$5,000,000	Manufacture and	(iv)
(Nanjing) Co., Ltd.								sale of
								medicine and
								drugs
Guilin Simei and	PRC	100%	100%		–	US$1,000,000	US$1,000,000	Development and	(v)
Biotechnology Ltd.								sale of tropical
								plants for
								Chinese drugs
								and medicine
								usage
China Cambodia	B.V.I.	100%	100%		–	US$1	US$50,000	Investment	(vi)
Resources Limited								holding
(formerly known as
“Allied Luck
Worldwide
Limited”)
(Cambodia) Tong Min	Cambodia	100%	–	100%		US$1,000,000	US$1,000,000	Forestry business	(vii)
Group Engineering								and
Co., Ltd.								development of
								rubber
								plantation for
								latex production

Notes:

(i) The subsidiary is a wholly foreign-owned enterprise set up to provide medical equipment, medical equipment software and related services.

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) The subsidiary is a wholly foreign-owned enterprise established in Nanjing, the PRC and was set up to establish a research center for medicine and drugs. Pursuant to a research projects acquisition and reorganisation agreement with Miss Guo Ping (“Miss Guo”) dated 6 December 2002, the subsidiary acquired certain medical research projects from Miss Guo. Upon the completion of the reorganisation, the Group retained a 75% shareholding in the subsidiary while the remaining 25% shareholding was held by Miss Guo.
(iii) The subsidiary is a sino-foreign enterprise set up to establish a medical equipment production line in Nanjing, the PRC. As at 31 December 2007 and 2006, the Company’s total investment in this subsidiary amounted to US$975,000.
(iv) The subsidiary is a wholly foreign-owned enterprise established in Nanjing, the PRC. On 13 June 2006, the registered capital of the Company increased from US$4,000,000 to US$5,000,000. During the year ended 31 December 2006, the Company injected US$800,000 as capital contributions. verified US$500,000 capital contribution and issued the capital verification report on 16 June 2006. The remaining injection of US$300,000 has not yet been verified by a PRC registered certified public accountant at the balance sheet date. The Company did not make any further injection to this subsidiary for the year ended 31 December 2007. As at 31 December 2007, the Company’s total investment in this subsidiary amounted to US$4,800,000.
(v) The subsidiary is a wholly foreign-owned enterprise established in Guilin, the PRC. During the year, the Company injected US$540,000 as capital contribution. This injection has been verified by and the capital verification report was issued on 28 June 2007. As at 31 December 2007, the Company’s total investment in this subsidiary amounted to US$1,000,000.
(vi) The subsidiary was incorporated on 26 June 2007 and is the holding company of (Cambodia) Tong Min.
(vii) The subsidiary is a wholly foreign-owned enterprise established in Cambodia, and was acquired by the Group on 22 October 2007 for an aggregate consideration of HK$208,360,000 (Note 18). It is currently an investment company and undertakes logging/timber operations and is in the process of developing the rubber plantation for production of latex products.

20. INVENTORIES

(a) Inventories comprise:

Raw materials Work in progress Finished goods	The Group 2007 2006 HK$’000 HK$’000 3,483 2,325 434 1,026 2,102 1,883 6,019 5,234	The Group 2007 2006 HK$’000 HK$’000 3,483 2,325 434 1,026 2,102 1,883 6,019 5,234
		5,234

(b) An analysis of the amount of inventories recognised as expense is as follows:

Carrying amount of inventories sold Write-down of inventories	The Group 2007 2006 HK$’000 HK$’000 18,437 13,482 – 710 18,437 14,192	The Group 2007 2006 HK$’000 HK$’000 18,437 13,482 – 710 18,437 14,192
		14,192

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. TRADE AND OTHER RECEIVABLES

Trade debtors Other receivables and prepayments Deposits paid (Note 37) Amount due from an officer (Note 23) Loans and receivables	The Group 2007 2006 HK$’000 HK$’000 4,370 4,243 14,771 8,179 15,000 – 19,875 – 54,016 12,422	The Company 2007 2006 HK$’000 HK$’000 – – 107 15 15,000 – – – 15,107 15	The Company 2007 2006 HK$’000 HK$’000 – – 107 15 15,000 – – – 15,107 15
			15

All of the trade and other receivables are expected to be recovered or recognised as an expense within one year.

Included in trade and other receivables are trade debtors (net of impairment losses for bad and doubtful debts) with the following ageing analysis as at the balance sheet date:

Within 3 months from the date of billing 3 to 6 months from the date of billing 6 to 12 months from the date of billing	The Group 2007 2006 HK$’000 HK$’000 3,518 1,771 322 1,496 530 976 4,370 4,243	The Group 2007 2006 HK$’000 HK$’000 3,518 1,771 322 1,496 530 976 4,370 4,243
		4,243

Trade debts are normally due within 90 days from the date of billing.

22. AMOUNTS DUE FROM SUBSIDIARIES

Particulars of the amounts due from subsidiaries, disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance, are as follows:

Name Medical China Technology Ltd. China Cambodia Resources Limited	2007 HK$’000 84,468 49,080 133,548	2006 Maximum amount outstanding during the year HK$’000 HK$’000 84,468 84,468 – 49,080 84,468

The amounts due are unsecured, interest-free and repayable on demand.

23. AMOUNT DUE FROM AN OFFICER

Particulars of the amount due from an officer, disclosed pursuant to Section 161 of the Companies Ordinance, are as follows:

			Maximum
			amount
			outstanding
Name	2007	2006	during the year
	HK$’000	HK$’000	HK$’000
Mr. Zhang Zhenzhong (“Mr. Zhang”)	19,875	–	19,906

Mr. Zhang is the chief executive officer of (Cambodia) Tong Min. The amount represented the general funding for preliminary operations in Cambodia. The amount is unsecured, interest-free and repayable on demand. The amount was fully settled on 15 March 2008.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. DEPOSITS WITH BANKS

The deposits with banks for the year ended 31 December 2006 are denominated in Renminbi (“RMB”) and kept in the PRC.

The conversion of the RMB balances into foreign currencies and the transfer of these balances out of the PRC are subject to the rules and regulations on foreign exchange control promulgated by the PRC government.

During the year ended 31 December 2007, the deposits with banks have been utilised or transferred to other bank accounts.

25. CASH AND CASH EQUIVALENTS

Cash at bank and on hand 26. BANK LOAN Within one year or on demand	The Group 2007 2006 HK$’000 HK$’000 99,400 12,029	The Company 2007 2006 HK$’000 HK$’000 67,839 121 The Group 2007 2006 HK$’000 HK$’000 – 3,484	The Company 2007 2006 HK$’000 HK$’000 67,839 121 The Group 2007 2006 HK$’000 HK$’000 – 3,484

			2006 HK$’000 3,484

The bank loan for the year ended 31 December 2006 was secured by buildings and leasehold land assets of the Group with an aggregate carrying value of HK$6,750,000. There is no outstanding bank loan as at 31 December 2007.

27. OTHER INTEREST BEARING BORROWINGS

(i) Bonds

On 22 October 2007, the Company issued HK$70,000,000 bonds as part of the consideration for the acquisition of (Cambodia) Tong Min. The bonds are unsecured, interest bearing at 2% per annum and repayable on 21 October 2009. All the bonds were redeemed by the Company on 14 November 2007.

(ii) Convertible bonds

At 1 January 2007 Liability component of convertible bonds issued during the year Transfer to share capital and share premium upon conversion At 31 December 2007	Total HK$’000 – 7,698 (7,698)
	–

On 22 October 2007, the Company issued 13,160,000 convertible bonds as part of the consideration for the acquisition of (Cambodia) Tong Min. The convertible bonds have a face value of HK$13,160,000 and the maturity date is 21 October 2014. The convertible bonds bear interest at 2% per annum and are unsecured. The fair values of the liability component and the equity component of the convertible bonds were calculated using a market interest rate for a similar convertible bond as if they were issued at 30 June 2007. The fair value of the liability component and the equity component of the convertible bonds amounted to HK$7,698,000 and HK$5,462,000, respectively.

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The rights of the bondholders to convert the bonds into ordinary shares are as follows:

Conversion rights are exercisable at any time up to maturity at the bondholders’ option.
Holders of the convertible bonds will have the right to convert them, in whole or in part (generally in the amount of integral multiples of HK$1 million) into shares at HK$0.188 per conversion share before the maturity date.

On 26 October 2007, the bondholders converted all the convertible bonds into 70,000,000 shares at HK$0.188. The liability component of the convertible bonds have been transferred to share capital and share premium accounts accordingly.

28. TRADE AND OTHER PAYABLES

Trade creditors Other payables and accrued liabilities Amount due to minority shareholder (Note 36) Financial liabilities measured at amortised cost	The Group 2007 2006 HK$’000 HK$’000 3,854 2,630 61,067 27,445 4,470 – 69,391 30,075	The Company 2007 2006 HK$’000 HK$’000 – – 2,173 1,016 – – 2,173 1,016	The Company 2007 2006 HK$’000 HK$’000 – – 2,173 1,016 – – 2,173 1,016
			1,016

All of the trade and other payables are expected to be settled within one year.

Included in trade and other payables are trade creditors with the following ageing analysis as at the balance sheet date:

Due within 3 months or on demand Due after 3 months but within 6 months Due after 6 months but within 1 year	The Group 2007 2006 HK$’000 HK$’000 2,183 1,097 620 123 1,051 1,410 3,854 2,630	The Group 2007 2006 HK$’000 HK$’000 2,183 1,097 620 123 1,051 1,410 3,854 2,630
		2,630

29. AMOUNTS DUE TO SUBSIDIARIES

The amounts due are unsecured, interest-free and have no fixed terms of repayment.

30. TAXATION

Taxation in the consolidated balance sheet represents:

				The
				2007	2006
				HK$’000	HK$’000
Provision	for	PRC	taxes	284	240

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. SHARE CAPITAL

Shares of HK$0.01 each Authorised At beginning of the year Increase during the year At end of the year Issued and fully paid At beginning of the year New share placement Top-up placement Issue of shares Conversion of shares At end of the year	2007 No. of Shares Amount ’000 HK$’000 2,000,000 20,000 3,000,000 30,000 5,000,000 50,000 835,000 8,350 167,000 1,670 233,000 2,330 400,000 4,000 70,000 700 1,705,000 17,050	2006 No. of Shares Amount ’000 HK$’000 2,000,000 20,000 – – 2,000,000 20,000 835,000 8,350 – – – – – – – – 835,000 8,350	2006 No. of Shares Amount ’000 HK$’000 2,000,000 20,000 – – 2,000,000 20,000 835,000 8,350 – – – – – – – – 835,000 8,350
			20,000

			8,350 – – – –
			8,350

(i) Pursuant to an ordinary resolution passed at a special general meeting of the Company held on 2 October 2007, the authorised ordinary share capital of the Company was increased from HK$20,000,000 to HK$50,000,000 by the creation of an additional 3,000,000,000 ordinary shares of HK$0.01 each.
(ii) On 14 August 2007, the share capital of the Company was increased to HK$10,020,000 following the placement of 167,000,000 new shares.
(iii) On 22 October 2007, the Company increased its amount of share capital to HK$16,350,000 by the allotment of 233,000,000 Top-up shares and 400,000,000 consideration shares.
(iv) On 26 October 2007, the holders of convertible bonds converted 70,000,000 conversion shares and the amount of share capital further increased to HK$17,050,000.

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. RESERVES

(a) The Group

Share premium Contributed surplus HK$’000 HK$’000 70,733 5,265 – – – – 70,733 5,265	Share premium Contributed surplus HK$’000 HK$’000 70,733 5,265 – – – – 70,733 5,265	Capital reserve HK$’000 – – – –	Exchange reserve HK$’000 2,724 3,344 – 6,068	Retained profits HK$’000 33,382 – (29,378) 4,004	Total HK$’000 112,104 3,344 (29,378) 86,070	Minority interests HK$’000 3,734 181 2,424 6,339	Total HK$’000 115,838 3,525 (26,954)
							92,409

70,733 71,200 12,460 113,560 121,160 (9,330) – – –	5,265 – – – – – – – –	– – – – – – 1,875 – –	6,068 – – – – – – 6,209 –	4,004 – – – – – – – (21,989)	86,070 71,200 12,460 113,560 121,160 (9,330) 1,875 6,209 (21,989)	6,339 – – – – – – 445 91	92,409 71,200 12,460 113,560 121,160 (9,330) 1,875 6,654 (21,898)
379,783	5,265	1,875	12,277	(17,985)	381,215	6,875	388,090

(b) The Company

Share premium HK$’000 70,733 – 70,733	Contributed surplus HK$’000 5,265 – 5,265	Capital reserve HK$’000 – – –	Accumulated losses HK$’000 (18,383) (6,365) (24,748)	Total HK$’000 57,615 (6,365)
				51,250

70,733 71,200 12,460 113,560 121,160 (9,330) – –	5,265 – – – – – – –	– – – – – – 1,875 –	(24,748) – – – – – – (20,840)	51,250 71,200 12,460 113,560 121,160 (9,330) 1,875 (20,840)
379,783	5,265	1,875	(45,588)	341,335

(a) The application of the share premium account is governed by Bye-Law 140(A) of the Company’s Bye-Laws and the Companies Act 1981 of Bermuda (“Companies Act”).

(b) Pursuant to a reorganisation in 2001, the Company became the holding company of the Group. The excess of the consolidated net assets represented by the shares acquired over the nominal value of the shares issued by the Company in exchange under the reorganisation was transferred to contributed surplus. Contributed surplus is available for distribution to shareholders subject to the provisions of section 54 of the Companies Act.

– 55 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(c) The exchange reserve has been set up and is dealt with in accordance with accounting policy adopted for foreign currency translations.
(d) The capital reserve comprises the fair value of the actual or estimated number of unexercised share options granted to employees of the Company recognised in accordance with the accounting policy adopted for share-based payments in (note 3(s)(iii)).
(e) At 31 December 2007 and 2006, the Company had no reserves available for distribution to shareholders.

33. COMMITMENTS

(a) Capital commitments

Capital commitments outstanding at 31 December 2007 contracted but not provided for in the financial statements were as follows:

Capital contributions to subsidiaries Property, plant and equipment	The Group 2007 2006 HK$’000 HK$’000 1,560 5,758 12,133 11,365 13,693 17,123	The Group 2007 2006 HK$’000 HK$’000 1,560 5,758 12,133 11,365 13,693 17,123
		17,123

(b) Operating lease commitments

At 31 December 2007, the total future minimum lease payments under non-cancellable operating leases in respect of land and buildings are payable as follows:

Within 1 year After 1 year but within 5 years After 5 years	2007 HK$’000 257 220 251 728	2006 HK$’000 460 108 314
		882

The Group leases a number of properties under operating leases. The leases typically run for an initial period of one or two years, with options to renew the lease when all terms are renegotiated. The leases do not include contingent rentals.

34. EMPLOYEE RETIREMENT BENEFITS

Defined contribution retirement plan

(a) Hong Kong

The Group operates a Mandatory Provident Fund Scheme (the “MPF scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance and not previously covered by a defined benefit retirement plan. The MPF scheme is a defined contribution retirement plan administered by independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$20,000. Contributions to the plan vest immediately.

(b) The PRC

The PRC subsidiaries of the Group participate in a mandatory central pension scheme organised by the PRC government for certain of its employees, the assets of which are held separately from those of the Group. Contributions made are based on a percentage of the eligible employee salaries and are charged to the income statement as they became payable, in accordance with the rules of the scheme. The employer contributions vest fully once they are made.

Under the above schemes, retirement benefits of existing and retired employees are payable by the relevant scheme administrators and the Group has no further obligations beyond the annual contributions.

– 56 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The aggregate amount of employer contributions by the Group in respect of retirement benefit schemes dealt with in the income statement of the Group is disclosed in note 6 to the financial statements.

35. EMPLOYEES SHARE OPTIONS SCHEME

Pursuant to a written resolution passed by all the shareholders of the Company on 14 December 2001, the Company had conditionally approved and adopted a share option scheme (the “Share Option Scheme”).

The principal terms of the Share Option Scheme are set out in the Company’s prospectus dated 19 December 2001.

Pursuant to a resolution passed at a meeting of all independent non-executive directors on 12 October 2007, the Group granted share option of 40,000,000 shares to a director and employees of the Group under the Share Option Scheme. As at 31 December 2007, no share option was exercised.

(a) The terms and conditions of the grants that existed during the year are as follows:

Options granted to a director: – on 12 October 2007 Options granted to employees: – on 12 October 2007 Total share options	Numbers of instruments Vesting conditions Contractual life of options 4,000,000 One year from the date of grant 6 years 36,000,000 One year from the date of grant 6 years 40,000,000

(b) The exercise price of the share option is HK$0.45. Both the director and employees did not exercise the share option during the year ended 31 December 2007 as the options can only be exercised after one year from the date of grant.

(c) Fair value of share options and assumptions

The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. The estimate of the fair value of the share options granted is measured based on a binomial lattice model.

Fair value of share options and assumptions


Fair value of share options and assumptions	2007
Fair value at grant date	HK$0.23
Share price	HK$0.43
Exercise price	HK$0.45
Expected volatility	101.49%
Risk-free interest rate (based on Exchange Fund Notes)	4.170%

The amount of fair value of share option recognised for the year ended 31 December 2007 is HK$1,875,000.

36. MATERIAL RELATED PARTY TRANSACTIONS

(a) Transactions and balances

The Group had the following significant business transactions with connected parties and related companies which are subject to common control during the year:

		2007	2006
	Notes	HK$’000	HK$’000
Advance to an officer	(i)	19,875	–
Amount due to Innova	(ii)	4,470	–
Management fee to Innova		3,364	–

Notes:

(i) The Group advanced to Mr. Zhang, the Chief Executive Officer of (Cambodia) Tong Min an amount of HK$19,875,000 as funding for preliminary operations in Cambodia. This advance is unsecured, interest-free, and repayable on demand. The amount was fully settled on 15 March 2008.

– 57 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(ii) During the year ended 31 December 2007, the Group owes Innova an amount of HK$4,470,000. Innova is a minority shareholder of Sinnowa. The amount is unsecured, interest-free and has no fixed terms of repayment.

The directors of the Company are of the opinion that the above transactions with the related parties were conducted on normal commercial terms and in the ordinary course of business.

Apart from the above, there were no other material related party transactions entered into by the Group during the year.

(b) Key management personnel remuneration

Remuneration for key management personnel of the Group, including amounts paid to the Group’s directors as disclosed in note 8 and certain of the highest paid employees as disclosed in note 9, is as follows:

Short-term employee benefits Employees share options scheme	2007 HK$’000 844 188 1,032	2006 HK$’000 544 –
		544

Total remuneration is included in “staff costs” (Note 6).

37. POST BALANCE SHEET EVENTS

On 14 November 2007, the Company entered into a non-legally binding Memorandum of Understanding (“MOU”) for the acquisition of the entire equity interest of Agri-Industrial Crop Development (Cambodia) Co., Ltd. (“Agri-Industrial Crop”). An earnest money of HK$15 million was paid to the vendors as deposit. Further to the MOU and on 9 January 2008, the Company entered into the In-Principle Agreement for the Acquisition.

On 20 March 2008, a wholly owned subsidiary of the Company formally entered into a legally-binding acquisition agreement with the Vendors, where the Vendors agreed to dispose of the entire issued share capital of Agri-Industrial Crop for an aggregate consideration of HK$270 million to the Group.

Further to the Acquisition and on the same date, another wholly owned subsidiary of the Company, entered into a Cooperation Agreement with a third party, pursuant to which the Group has conditionally agreed to sub-lease 10% of the total site area of the First Forest, at a cash consideration of US$10 million for a term of approximately 70 years.

Reference is made to the Company’s announcements on 14 November 2007, 9 January 2008, 14 March 2008, 18 March 2008 and 20 March 2008. Unless otherwise defined herein, terms used in this result announcement shall have the same meanings as those defined in the announcements as referred.

38. CAPITAL RISK MANAGEMENT

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

Consistent with industry practice, the Group monitors its capital structure on the basis of gearing ratio. For this purpose the Group defines gearing ratio as total indebtedness by adjusted capital. Total indebtedness includes bank overdrafts, bank loans, finance lease liabilities, bonds and other interest bearing securities. Adjusted capital comprises all components of equity and redeemable preference shares, other than amounts recognized in equity relating to cash flow hedges, less unaccrued proposed dividends.

The Group’s strategy was to maintain the gearing ratio at 0% to 100% which was consistent to that of prior years. In order to maintain the ratio, the Group may adjust the amount of dividends paid to shareholders, issue new shares, repurchase of shares, raise new debt financing or sell assets to reduce debt.

The gearing ratio of the Group was 0% and 3.7% as at 31 December 2007 and 31 December 2006, respectively. The improving gearing ratio in the financial year under review was due to the full repayment of bank loan and change of loan term with China Merchant Bank. Under the new banking facility, the Group was granted general banking facility of HK$4,806,000, and was secured by buildings and leasehold land assets of the Group. The change of term provides greater flexibility for the Group to manage the liquidity and interest expenses. The Company did not draw any available banking facility at 31 December 2007.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. FINANCIAL RISKS MANAGEMENT

Exposure to credit and other 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) Credit risk

Credit risk is the risk that financial loss arises from the failure of a customer or counterparty to meet its obligations under a contract. It arises principally from merger and acquisition as well as trading. The Group has dedicated policies and procedures in place to control and monitor the risk from all such activities.

(b) Liquidity risk

Liquidity management is essential to ensure the Group has the ability to meet its obligations as they fall due. It is the Group’s policy to maintain a strong liquidity position by properly managing the liquidity structure of its assets, liabilities and commitments so that cash flows are appropriately balanced and all funding obligations are comfortably met.

The maturity profile of the Group’s financial liabilities as at the balance sheet date, based on the contracted undiscounted payments, was as follows:

2007

Trade and other payables 2006 Bank loans Trade and other payables	Carry amount HK$’000 69,391 Carry amount HK$’000 3,484 30,075 33,559	Within 1 year or on demand HK$’000 69,391

		Within 1 year or on demand HK$’000 3,484 30,075
		33,559

(c) Market risk

Market risk is the risk that foreign exchange rates, interest rates and equity, and indices will move and result in profits or losses for the Group. The objective of the Group’s market risk management is to manage and control market risk exposures in order to optimize return on risk.

(i) Foreign exchange risk

The Group exposures to market risk primarily arise from the effective foreign currency risk management. The Group operates mainly in Hong Kong, Cambodia and the PRC and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to Renminbi and United States dollars. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.

The Group does not hedge its foreign currency risks with Renminbi. However, management monitors the foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

The Group does not hedge its foreign currency risks with United States dollars as the rate of exchange between Hong Kong dollars and United States dollars is pegged and fixed within a range. Permanent changes in foreign exchange rates would have an impact on consolidated financial statements.

As at 31 December 2007, the Group had no outstanding hedging instruments (2006: HK$Nil).

(ii) Interest rate risk

The Group is not subject to any interest rate risk as all interest bearing debts have been fully settled. The Board has set out capital management policy which is focus on the control of interest bearing debts. Following the well-defined policy, the gearing ratio is set to be under the adjusted capital and this will minimize the Group exposure to interest rate volatility.

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(iii) Equity risk

The Group’s equities exposure was mainly in long-term equity investments which are reported as investment in subsidiaries by the Company as set out in note 19 to the financial statements. All equities held are more than 50% controlling interest and are held for long term investment purpose. They are not subject to volatility arises from short-term fluctuation.

40. ACCOUNTING ESTIMATES AND JUDGMENTS

Key sources of estimation uncertainty

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

(i) Provision against slow-moving inventories

Provision for slow-moving inventories is made based on the aging and estimated net realisable value of inventories. The assessment of the provision amount required involves management judgments and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will impact the carrying value of inventories and the provision charge/write-back in the period in which such estimate has been changed.

(ii) Provision for doubtful debts

Provision for doubtful debts is made based on assessment of the recoverability of trade and other receivables. The identification of doubtful debts requires management judgments and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will impact the carrying value of the receivables and doubtful debt expenses/write-back in the period in which such estimate has been changed.

(iii) Impairment of intangible assets, biological assets and property, plant and equipment

The carrying value of the intangible assets, biological assets and property, plant and equipment is reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable in accordance with the accounting policies as disclosed in note 3(i) to the financial statements. The recoverable amount of the intangible assets, biological assets and property, plant and equipment is the greater of fair value less costs to sell and value in use, the calculations of which involve the use of estimates.

(iv) Fair value estimation

The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.”

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3. MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP

Set out below is the management discussion and analysis extracted from the Company’s annual reports for each of the three years ended 31 December 2005, 2006 and 2007.

For the year ended 31 December 2007

Financial Review

The Group’s annual turnover for the year ended 31 December 2007 amounted to approximately HK$38,443,000, representing an increase of 9.9% as compared with the corresponding year in 2006. For the year ended 31 December 2007, the Group’s sustained a loss attributable to equity holders of the Company of approximately HK$21,989,000 (2006: HK$29,378,000). Included in the loss for the year were the impairment loss for the plantation development in Guilin, China of HK$6,785,000, expenses incurred in placement of new shares for the acquisition of (Cambodia) Tong Min of HK$3,238,000 and the initial amortization charge of the forest exploitation rights in Cambodia of HK$3,757,000.

The operating expenses for the year ended 31 December 2007 decreased by 8.3% to HK$45,398,000 from HK$49,506,000 as compared with that of the corresponding period last year.

Other revenue for the year ended 31 December 2007 amounted to approximately HK$4,114,000, representing an increase of 92.7% as compared with the corresponding period last year. The increase was mainly attributable to an increase in interest income for the year.

The basic loss per share for the year ended 31 December 2007 was 2.12 Hong Kong cents (2006: 3.52 Hong Kong cents).

At 31 December 2007, there is no outstanding bank loan of the Group (2006: HK$3,484,000).

Capital Structure

As at 31 December 2007, the total number of issued ordinary shares and the issued share capital of the Company were 1,705,000,000 (2006: 835,000,000) and HK$17,050,000 (2006: HK$8,350,000) respectively. During the year, the Company increased its issued share capital by the allotment of 167,000,000 New Placement Shares, 233,000,000 Top-up Shares, 400,000,000 Consideration Shares and 70,000,000 Conversion Shares.

Capital Management

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and other interest bearing securities. Adjusted capital comprises all components of equity and redeemable preference shares, other than amounts recognized in equity relating to cash flow hedges, less unaccrued proposed dividends.

During 2007, the Group’s strategy, which was unchanged from 2006, was to maintain the gearing ratio at 0% to 100%. In order to maintain or adjust the ratio, the Group may adjust the amount of dividends paid to shareholders, issue new shares, repurchase of shares, raise new debt financing or sell assets to reduce debt.

Our gearing ratio was 0% and 3.7% as at 31 December 2007 and 31 December 2006, respectively. The improving gearing ratio in the financial year under review was due to the full repayment of bank loan and change of loan term with China Merchant Bank. Under the new banking facility, the Group was granted general banking facility of HK$4,806,000, payable on demand, with interest at market prevailing rate as fixed by the People’s Bank of China from time to time and 10% of interest so charged. The facility was secured by buildings and leasehold land assets of the Group in the balance sheet with an aggregate carrying value of HK$6,974,000 at 31 December 2007 (2006: HK$6,750,000). The change of term provides greater flexibility of the Group in managing the liquidity and interest expenses. Undrawn facility as at 31 December 2007 amounted to HK$4,806,000 compared to HK$1,068,000 as at 31 December 2006.

Financial Resources, Borrowings, Banking Facilities and Liquidity

As at 31 December 2007, the Group had total assets of approximately HK$474,815,000 (2006: HK$134,558,000) which were financed by current liabilities of approximately HK$69,675,000 (2006: HK$33,799,000) and equity attributable to equity holders of the Company of approximately HK$398,265,000 (2006: HK$94,420,000).

The current assets of the Group amounted to approximately HK$159,435,000 (2006: HK$87,613,000) of which approximately HK$99,400,000 (2006: HK$69,957,000) were cash and bank deposits. The current liabilities of the Group amounted to approximately HK$69,675,000 (2006: HK$33,799,000) of which approximately HK$69,391,000 (2006: HK$30,075,000) were trade and other payables and HK$284,000 (2006: HK$240,000) was provision for income tax. There is no outstanding bank loan of the Group at 31 December 2007 (2006: HK$3,484,000). During the year, the Group negotiated new banking facility from China Merchant Bank, was granted general banking facility of HK$4,806,000, payable on demand, with interest charged at market prevailing rate as fixed by the People’s Bank of China from time to time and 10% of interest so charged. The facility was secured by the Group’s buildings and leasehold land assets of the Group in the balance sheet with an aggregate carrying value of HK$6,974,000 at 31 December 2007 (2006: HK$6,750,000).

The Group generally finances its operations with internally generated resources. The Group’s policy is to place surplus fund with banks on deposits with maturity within one year.

The net assets value per share as at 31 December 2007 was HK$0.24 (2006: HK$0.12).

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Capital Commitment, Significant Investments and Material Acquisitions and Disposals

During the year ended 31 December 2007, the Company acquired the entire share capital of (Cambodia) Tong Min with the approval by independent shareholders in the SGM on 2 October 2007. Following completion of the Acquisition of (Cambodia) Tong Min in October 2007, the Group has expanded into the forestry business in Cambodia and is expected to receive the economic benefit derived from the initial clearing up of the forest and the subsequent rubber plantation for 70 years from 2007.

On 9 January 2008, the Group entered into the non-binding In-Principle Agreement with the Vendor. Pursuant to which, the Group may acquire the entire share capital of Agri-Industrial Crop with total consideration of the Acquisition will be not more than HK$300 million and will be satisfied by way of cash (to be financed by the internal resources of the Group), bond and new Shares to be issued by the Company, which, if so issued, will be issued at an issue price of HK$0.60 per share, being the weighted average of the prices of the placing of the Shares conducted by the Company in July 2007, or a combination of any of the above, subject to finalisation of the valuation report prepared by the Independent Valuer.

Agri-Industrial Crop is an investment company incorporated in Cambodia and its principal business scopes are exploitation of the Second Forest (including forest clearing and processing of salvage logs into wood products) and rubber tree plantation for the subsequent latex production therein. The Second Forest is adjacent to the First Forest currently owned by the Group and has a site area of approximately 9,555 hectares (equivalent to approximately 95.55 million sq.m.).

There was no disposals of subsidiaries and affiliated companies during the year.

As at 31 December 2007, the Group had outstanding capital commitment of approximately HK$13,693,000 (2006: HK$17,123,000).

Risk Management

Risk management is an integral part of the operation management. The Group has put in place an effective risk management framework to ensure risks undertaken are properly managed. Operating in sales and development of medical drugs and medical equipment as well as forest exploitation business, the Group faces a wide spectrum of risks, the most important types are being credit, liquidity, market and operational risks. The Group’s risk management framework includes the establishment of policies and procedures to identify and analyse risks and to set appropriate risk control limits. The risk management policies and major control limits are approved by the board of directors. Risk limits are monitored and controlled continually by internal control department by means of reliable and up-to-date management information systems. The management of various types of risks is well coordinated at the Board level.

Credit risk

Credit risk is the risk that financial loss arises from the failure of a customer or counterparty to meet its obligations under a contract. It arises principally from merger and acquisition as

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well as trading. The Group has dedicated policies and procedures in place to control and monitor the risk from all such activities.

The internal control department function is mandated to provide centralized management of credit risk through:

formulating credit policies on approval process, post-disbursement monitoring and collection process;
issuing guidelines on setting of credit payment terms to customers and acceptability of warranty, undertaking or deposit from customers;
reviewing the repayment of account receivable by aging analysis;
monitoring the largest exposures by customers;
providing advice and guidance to business units on various credit-related issues.

The Group undertakes ongoing credit analysis and monitoring at several levels. Special attention is paid to long-outstanding trade receivable. Provision on impairment loss is made semi-annually. Collection and recovery units are established by the Group to provide customers with intensive support in order to maximize recoveries of long-outstanding trade receivable. Management regularly performs an assessment of the adequacy of the established impairment provisions by conducting a detailed review of the aging analysis, comparing performance and pastdue statistics against historical trends.

Liquidity risk

The Group has established policies and procedures to monitor and control its liquidity position on a monthly basis by adopting a cash flow management approach. The approach seeks to forecast committed cash inflows and outflows of the business and results in a monthly net funding requirement which indicates the financing needs for any period within the scope of the forecast conditions.

Market risk

Foreign exchange risk

The Group exposures to market risk primarily arise from the effective foreign currency risk management. The Group operates mainly in Hong Kong, Cambodia and the PRC and is

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FINANCIAL INFORMATION OF THE GROUP

exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Chinese Renminbi and the United States dollars. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.

The Group does not hedge its foreign currency risks with Chinese Renminbi. However, management monitors the foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

The Group does not hedge its foreign currency risks with United States dollars as the rate of exchange between Hong Kong dollars and the United States dollars is pegged and fixed within a range. Permanent changes in foreign exchange rates would have an impact on consolidated financial statements.

As at 31 December 2007, the Group had no outstanding hedging instruments (2006: HK$Nil).

Interest rate risk

The Group is not subject to any interest rate risk as all interest bearing debts has been fully settled. The Board has set out capital management policy which is focus on the control of interest bearing debts. Following the well-defined policy, the gearing ratio is set to be under the adjusted capital and this will minimize the Group exposure to interest rate volatility.

Equity risk

The Group’s equities exposure was mainly in long-term equity investments which are reported as investment in subsidiaries set out in note 19 to the financial statements. All equities held are more 50% with controlling interest and are for long term investment. They are not subject to volatility arises from short term fluctuation.

Operational risk

Operational risk is the risk of loss arising through fraud, unauthorized activities, error omission, inefficiency, system failure or from external events. It is inherent to every business organization and covers a wide spectrum of issues. The Group manages its operational risk through a controls-based environment in which the processes and controls are documented, authorization is independent and transactions are reconciled and monitored. This is supported by periodic independent review of the internal control department. The operational risk management framework comprises assignment of responsibilities at senior management level, assessment of risk factors inherent in each business and operations units, information systems to record operational losses and analysis of loss events. Operational risk is mitigated by adequate insurance coverage on assets and business losses. To reduce the impact and interruptions to business activities caused by natural disaster, back-up systems and contingency plans are in place for all business and critical operational functions. Operational risk management is coordinated by the Chief Operating officer of business units and monitored by the Internal Control Department.

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Employees’ information and benefit scheme for the employees

As at 31 December 2007, the Group has 227 (2006: 198) employees. The total amounts of employees remuneration, including that of the directors, for the years ended 31 December 2007 and 2006 were approximately HK$11,327,000 and HK$6,115,000 respectively.

On 12 October 2007, the Company granted Share Options for 40,000,000 shares to employees of the Group at an exercise price of HK$0.45 per share during the period from 12 October 2008 to 12 October 2014 under its Share Option Scheme. The total share options granted included 4,000,000 to a director, Mr. Li Wo Hing.

In addition to the Share Option Scheme adopted by the Company on 14 September 2001, the Group also provides a mandatory provident fund scheme for its staff in Hong Kong in compliance with requirements under the Mandatory Provident Fund Scheme Ordinance and pays retirement fund to its employees in the PRC according to the relevant regulation of PRC.

Pursuant to the relevant labor rules and regulations in the PRC, the PRC subsidiaries of the Group participates in a defined contribution retirement benefit scheme (the “Scheme”) organized by the municipal government whereby the subsidiaries are required to contribute to the Scheme to fund the retirement benefits of the eligible employees. The government of the PRC is responsible for the entire pension obligations payable to retired employees. The Group is not liable to any retirement benefits payment beyond the contributions to the Scheme.

Contingent Liabilities

As at 31 December 2007, the Group and the Company did not have any material outstanding contingent liabilities.

Business Review

Acquisition of (Cambodia) Tong Min

Since the acquisition of (Cambodia) Tong Min in October 2007, the Group made significant progress in the development of the concession area measuring 9,965 hectares in Kratie Province, Cambodia. Access roads connecting the concession area and National Highway No. 7 were completed at the time of this report, as well as supporting infrastructure such as worker’s accommodation, fresh water wells and a timber yard.

Development of the market and application of RFAS in the PRC

The Group’s RFAS radio frequency treatment business experienced a reduction in revenue as the number of co-operation contracts with the PRC hospitals declined. The promotion of the Group’s “Multi-bullet, multi-hold drug injection system” in PRC hospitals progressed slower than expected. All these affected the Group’s revenue and profit for the year.

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Manufacturing and sales of medical equipment

The sales of medical equipment made good progress during the year. Sales of medical equipment increased by 36.6% to HK$38,243,000 as compared to the previous year. The sale increase had a positive effect to the Group’s revenue. The Board expects sales will continue to increase in the year 2008, as the Group expands and strengthens its sales and after sales service teams. However, there will be downward pressure on the unit selling price due to the strong market competition and the weakening of the US dollar against RMB.

Research, development and sales of drugs

After due evaluation of the current conditions in the PRC pharmaceutical market, in particular, the tightening of drug approval requirements by the State Food and Drug Administration (“SFDA”), the Group decided to focus its research and development efforts on a Category One anti-cancer product. During the year, testing of clinical trial sample batches was completed by the provincial SFDA. The National Centre for Drug Evaluation has received the test report and completed the drug’s technical assessment. Submission documents seeking approval to commence clinical trials are being prepared.

Manufacturing and sales of drugs and medicines

The construction of a new factory building and its annexure designed to manufacture drugs and medicines in Nanjing have been completed. Production machineries and air control system are in the process of being installed.

Plantation development in Guilin

Last year, the Group experienced losses for its plantation development in Guilin, China due to the poor climate condition. The drought condition resulted in losses, in particular, of young plants. With the recent heavy snow storms in Southern and Central China, there were further damages. The Board reassessed the plantation development plan and made provision of impairment loss of HK$6,785,000 for the year.

Outlook

Following the acquisition of (Camboida) Tong Min in October 2007, clearing of the forest area commenced in February 2008, and the first sawn timber production line was commissioned in March 2008. The Directors anticipate that an annual sawn timber processing capacity of approximately 25,000 cubic metres will be in place by the third quarter of 2008. Machinery orders for a wood flooring material factory with an annual capacity of 50,000 cubic metres have also been placed and production is expected to commence in the second half of 2008.

Concurrent with its logging progress, the Group has secured purchase orders for the sale of sawn timbers and wood flooring materials totaling US$32 million (equivalent to approximately HK$249.6 million) for delivery in 2008 and 2009. The Directors are confident of procuring additional purchase orders as the Group ramp up its production volume.

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FINANCIAL INFORMATION OF THE GROUP

The Group has reached in-principal agreement to acquire a second concession area measuring approximately 9,555 hectares, which is contiguous to the first concession area. The Directors believe that the acquisition of the second concession area will create substantial synergistic value in logging, wood processing, transportation and logistics, and rubber plantation. The Directors also believe the acquisition will strengthen the Group’s market position in the natural resources industry in Cambodia, and improve the Group’s business profile and financial performance in the future.

The Group will continue developing its existing medical and pharmaceutical businesses and forecast that sales of medical equipment will further increase in the coming year. In the drug development business, we will seek approval to commence Phase I clinical trial for our principal product this year. In Nanjing, we will finish the fitting out and installation of machineries and seek GMP clearance from the SFDA. In Guilin, the Group will continue to support the plantation development for long term investment purpose.

For the year ended 31 December 2006

Financial Review

The Group’s annual turnover for the year ended 31 December 2006 amounted to approximately HK$34,979,000, representing a decrease of 3% as compared to that for the year ended 31 December 2005. For the year ended 31 December 2006, the Group sustained a net loss attributable to equity holders of the Company of approximately HK$29,378,000 (2005: HK$2,167,000).

The operating expenses for the year ended 31 December 2006 increased by 100% from HK$24,766,000 to HK$49,506,000 as compared to 2005. This increase was mainly attributable to the impairment loss on intangible assets of HK$29,667,000 (which was made according to the Group’s accounting policies and for prudence purposes).

Other revenue for the year ended 31 December 2006 amounted to approximately HK$2,135,000, representing an increase of 7.9% as compared to 2005.

The basic loss per share for the year ended 31 December 2006 was 3.52 Hong Kong cents, compared to 0.26 Hong Kong cent for the year ended 31 December 2005.

As at 31 December 2006, the Group had a bank loan outstanding in the amount of approximately HK$3,484,000 (2005: HK$4,326,000). The loan was obtained from a PRC Authorised Credit Union and was secured by buildings and leasehold land assets of the Group in the balance sheet with an aggregate carrying value of HK$6,750,000 at 31 December 2006.

Capital Structure

As at 31 December 2006, the total number of issued ordinary shares and the issued share capital of the Company were 835,000,000 (2005: 835,000,000) and HK$8,350,000 (2005: HK$8,350,000), respectively.

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Financial Resources, Borrowings, Banking Facilities and Liquidity

As at 31 December 2006, the Group had total assets of approximately HK$134,558,000 (2005: HK$157,058,000) which were financed by current liabilities of approximately HK$33,799,000 (2005: HK$32,870,000) and equity attributable to equity holders of the Company of approximately HK$94,420,000 (2005: HK$120,454,000).

The current assets of the Group amounted to approximately HK$87,613,000 (2005: HK$87,170,000) of which approximately HK$69,957,000 (2005: HK$68,267,000) were cash and bank deposits. The current liabilities of the Group amounted to approximately HK$33,799,000 (2005: HK$32,870,000) of which approximately HK$30,075,000 (2005: HK$28,320,000) were trade and other payables, HK$3,484,000 (2005: HK$4,326,000) was a short term loan and HK$240,000 (2005: HK$24,000) was taxation. The Group obtained the said short term loan from a PRC Authorised Credit Union with pledge of certain assets security on 15 June 2006.

The Group finances its operations with internally generated resources and it is Group policy to place surplus funds with banks on deposit with maturities not exceeding one year. An interest in leasehold land and building with a value of HK$6,750,000 (2005: HK$7,426,000) is charged to secure the Group’s short term loan. The gearing ratio of the Group is calculated on the basis of the short term loan over total assets. As at 31 December 2006, the Group had a gearing ratio of 2.6% (2005: 2.8%).

The net assets value per share as at 31 December 2006 was HK$0.12 (2005: HK$0.15).

Capital Commitments, Significant Investments and Material Acquisitions and Disposals

During the year ended 31 December 2006, the Company had no significant new investments and there were no material acquisitions or disposals of subsidiaries and affiliated companies.

As at 31 December 2006, the Group had outstanding capital commitments of approximately HK$17,123,000 (2005: HK$14,780,000).

Foreign Exchange Exposure and Hedging Instruments

The Group’s transactions are mainly denominated in Renminbi, Hong Kong dollars and United States dollars. During the year under review, the Group has not entered into any hedging arrangements.

As at 31 December 2006, the Group had no outstanding hedging instruments (2005: HK$Nil).

Employees’ Information and Benefit Schemes for the Employees

As at 31 December 2006, the Group has 198 (2005: 177) employees. The total amounts of employees remuneration, including that of the directors, for the years ended 31 December 2006 and 2005 were approximately HK$6,115,000 and HK$4,631,000, respectively.

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FINANCIAL INFORMATION OF THE GROUP

In addition to a Share Option Scheme approved and adopted by the Company on 14 September 2001, the Group also provides a mandatory provident fund scheme for its staff in Hong Kong in compliance with requirements under the Mandatory Provident Fund Scheme Ordinance and pays into retirement funds for its employees in the PRC according to the relevant PRC regulations.

Pursuant to the relevant labor rules and regulations in the PRC, the PRC subsidiaries of the Group participate in defined contribution retirement benefit schemes (the “Schemes”) organised by the municipal governments of the PRC (the “PRC government”) whereby the subsidiaries are required to contribute to the Schemes to fund the retirement benefits of eligible employees. The PRC government is responsible for the entire pension obligations payable to retired employees. The Group is not liable to any retirement benefits payment beyond its contributions to the Schemes.

Contingent Liabilities

As at 31 December 2006, the Group and the Company did not have any outstanding contingent liabilities.

Business Review

Development of the market and application of RFAS in the PRC

The Group’s RFAS radio frequency treatment business continued to decrease under pressure of keen competition in the PRC market. The number of RFAS tumour therapeutic centers operated by the Group with hospitals in the PRC dropped to 2 for the year ended 31 December 2006. The promotion of the “Multi-bullet, Multi-hole Drug Injection System”, which the Group had obtained an agency fee in 2005 has been slow, as hospitals need time to get used to such new treatment technologies and equipment.

Manufacture and sales of medical equipment

The Group’s sales of medical equipment achieved HK$27,994,000 for the year ended 31 December 2006, an increase of 79% as compared to that of the corresponding year of 2005. The Group has applied for 16 new patents for its medical equipment in the PRC and 6 have been obtained. In order to strengthen sales, 9 new sales offices have been set up in major cities in the PRC. In respect of overseas markets, Group products are being sold to more than 60 countries.

Research, development and sales of drugs

The Group has been working on research and development for 16 Chinese and Western drugs/medicines since 2003. After due evaluation of current conditions for the drugs and medicines market, the Group has decided to postpone research and development on 9 drugs/medicines, in order to concentrate its resource on the research and development of a particular principal product. During the year, the Group made full provision for impairment of the aforesaid 9 drugs/medicines based on its accounting policies and for the sake of prudence.

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Manufacturing and sales of drugs and medicines

The first phase construction work of the drugs and medicines manufacturing factory has been substantially completed by the end of 2006. The second phase of the construction programme has commenced in 2007.

Outlook

The Group will continue to expand its sales network of medical testing equipment, in order to boost sales volumes in both its local and overseas markets. Also, more effort will be placed to promote the application of the “Multi-bullet, Multi-hole Drug Injection System” to PRC hospitals in the treatment of tumors. The second phase construction work of the drugs and medicines manufacturing factory is expected to be completed by the third quarter of 2007. We predict that trial production can be launched by the end of 2007, which will provide a manufacturing base for the Group’s research and development projects once granted approval by the relevant authority. All these factors are expected to increase the future revenue stream of the Group.

For the year ended 31 December 2005

Financial Review

The Group’s annual turnover for the year ended 31 December 2005 was approximately HK$36,081,000, representing an increase of 14% as compared to that for the year ended 31 December 2004. For the year ended 31 December 2005, the Group sustained a net loss attributable to equity holders of the Company of approximately HK$2,167,000, as compared to a net profit attributable to equity holders of the Company of approximately HK$3,560,000 for the year ended 31 December 2004.

The basic loss per share for the year ended 31 December 2005 was 0.26 Hong Kong cents, while basic earnings per share was 0.43 Hong Kong cents for the year ended December 2004.

Capital Structure

As at 31 December 2005, the total number of issued ordinary shares and the issued share capital of the Company were 835,000,000 (2004: 835,000,000) and HK$8,350,000 (2004: HK$8,350,000) respectively.

Financial Resources, Borrowings, Banking Facilities and Liquidity

As at 31 December 2005, the Group had total assets of approximately HK$157,058,000 (2004: HK$189,747,000) which were financed by current liabilities of approximately HK$32,870,000 (2004: HK$69,255,000) and equity attributable to equity holders of the Company of approximately HK$120,454,000 (2004: HK$116,708,000).

The current assets of the Group amounted to approximately HK$87,170,000 (2004: HK$114,017,000) of which approximately HK$68,267,000 (2004: HK$100,282,000) were cash and bank deposits. The current liabilities of the Group amounted to approximately

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HK$32,870,000 (2004: HK$69,255,000) of which approximately HK$28,320,000 (2004: HK$65,561,000) were trade and other payables, HK$4,326,000 (2004: HK$1,880,000) was short term loan and HK$24,000 (2004: HK$24,000) was provision for income tax. The short term loan of the Group was obtained from a PRC Authorised Credit Union on 11 April 2005.

The Group generally finances its operations with internally generated resources. The Group’s policy is to place surplus fund with banks on deposits with maturity period within one year. The said loan was secured against the Group’s leasehold land with carrying amount of HK$1,075,000 (2004: HK$1,089,000). The gearing ratio of the Group is calculated on the basis of short term loan over total assets. As at 31 December 2005, the Group had a gearing ratio of 2.8% (2004: 0.99%).

The net assets per share as at 31 December 2005 was HK$0.15 (2004: HK$0.14).

Capital Commitment, Significant Investments and Material Acquisitions and Disposals

The Company’s wholly-owned subsidiary, Guilin Simei Biotechnology Ltd., was incorporated on 28 March 2005 with registered capital of US$1,000,000. The intended principal activity of the subsidiary is the development and sale of tropical plants for Chinese drugs and medicine usages.

Apart from the aforesaid investment in subsidiary, the Company had no other significant investment and there was no other material acquisition and disposals of subsidiaries and affiliated companies during the year ended 31 December 2005.

As at 31 December 2005, the Group had outstanding capital commitment of approximately HK$14,780,000 (2004: HK$28,860,000).

Foreign Exchange Exposure and Hedging Instruments

The Group’s transactions are denominated in Renminbi, Hong Kong dollars and United States dollars. During the year under review, the exchange rates of such currencies have been stable. The Group has not entered into any hedging arrangements.

As at 31 December 2005, the Group had no outstanding hedging instruments (2004: HK$Nil).

Employees’ Information and Benefit Scheme for the Employees

As at 31 December 2005, the Group has 177 (2004: 146) employees. The total of employees remuneration, including that of the directors, for the years ended 31 December 2005 and 31 December 2004 amounted to approximately HK$4,631,000 and HK$4,007,000 respectively.

In addition to the Share Option Scheme, which was conditionally approved and adopted by the Company on 14 September 2001, the Group also provides a mandatory provident fund scheme for its staff in Hong Kong in compliance with requirements under the Mandatory Provident Fund Scheme Ordinance and pays retirement fund to its employees in the PRC according to the relevant regulations in the PRC.

– 72 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Pursuant to the relevant labour rules and regulations in the PRC, the PRC subsidiaries of the Group participate in a defined contribution retirement benefit scheme (the “Scheme”) organised by the municipal government of the PRC (the “PRC government”) whereby the subsidiaries are required to contribute to the Scheme to fund the retirement benefits of the eligible employees. The PRC government is responsible for the entire pension obligations payable to retired employees. The Group is not liable to any retirement benefits payment beyond the contributions to the Scheme.

Contingent Liabilities

As at 31 December 2005 and 2004, the Group and the Company did not have any outstanding contingent liabilities.

Business Review

Development of the market and application of RFAS in the PRC

As a result of the Group’s initial promotional efforts in the PRC market, RFAS radio frequency treatment technology and its related equipment have been widely used by hospitals in the PRC to treat patients suffering from liver cancer, lung cancer and kidney cancer. However, our RFAS radio frequency treatment business is now facing rigorous competition as more and more local and foreign manufacturers entered the market. As such, prices of these equipments have dropped significantly over the year. Meanwhile, a shift in the PRC government’s policies which now discourages the cooperation between non-state-owned companies and the hospitals had severely hampered the Group’s effort in obtaining new cooperation contracts with domestic hospitals. Without new cooperation contracts to make up for the expired contracts, the revenue generated from the business dropped remarkably. As at 31 December 2005, the number of RFAS tumour therapeutic centres established by the Group with hospitals in the PRC dropped to 21 as compared to 56 in the previous year. The Group is the sales agent for the “Multi-bullet, Multi-hole Drug Injection System”. The promotion of this product has been slowed down as the hospitals needed more time than expected to adopt and get used to the new treatment technology and equipment.

Manufacture and sales of medical testing equipment

The Group has successfully developed various new types of testing equipment which include three new items in the automatic biochemical analyzers D series, one new item in spectrophotometers, one new item in the Hematology Analyzers, one new item in the electrolyte analyzers and one new item in the semi-automatic biochemical analyzers. In addition, approximately 30 new types of testing reagents have been developed, which are mostly near completion with only a few still being tested.

As for domestic market promotion, the Group held a seminar which was attended by experts and officials from the Ministry of Health, where the Group’s medical testing equipment were met with favourable comments from those experts. This inevitably gave a big boost to the nation-wide promotion of our products. During the year, three new representative offices were established in the PRC together with recruitment of a group of highly competent agents as marketing support team. As for overseas market development, our products have been sold to more than 40 countries. The sales of medical testing equipment increased by 56% to approximately HK$15,634,000 as compared to the previous year.

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Research, development and sales of drugs

The Group has proceeded with the research and development of Chinese and western drugs and medicines as planned, among which two Chinese drugs have finished clinical trials, two Chinese drugs have finished research work pending for clinical trials, one is still on clinical trial, three are undergoing toxin tests and one western drug has obtained production approval.

Research and development of 3-dimensional laparoscopes

The development of its prototype has been completed and is now in the process of clinical testing. In consideration of clinical response, we are improving the size of the micro-video camera used in the 3-dimensional laparoscope.

Outlook

RFAS’s market development and application in the PRC

In view of the fact that the RFAS radio frequency tumor treatment technology has been widely used in the hospitals in the PRC for liver cancer and that it has not been extended to the treatment of other types of tumors though it can achieve excellent results in those fields too, the Group plans to introduce the RFAS radio frequency tumor treatment technology into the treatment of kidney cavity tumor, bone tumor and lung tumor, with reference to the application experience in the western countries. The Multi-bullet, Multi-hole Drug Injection System has been applied in more than 100 treatment cases, and achieved better results in treating 5-7 cm liver tumors as compared to that through surgical operation and RFAS radio frequency tumor treatment technology. In 2006, the Group will place more efforts in the promotion of this technology and make contribution to the treatment of patients to whom other therapies did not produce satisfactory results.

Manufacture and sale of medical testing equipment

To boost sales volume in both local and overseas markets, the Group envisages in its outlook planning that:

Supported by better quality of product, increased productivity and improved marketing preparations made last year, the sales volume of the automatic biochemical analyzers D series in 2006 shall increase greatly;
The gross profit margin on sales will increase further as a result of the improvement in product quality and the reduction of cost of the semi-automatic biochemical analyzers; and
The overall profitability of the Group will improve, as the Group will focus on efforts to increase the sales of existing well-developed products and a reduction in the expenditure on new product development and promotion.

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Research, development and sales of drugs

The Group will take brisk steps to submit two Chinese drugs, which have gone through clinical trials, to the State Food and Drug Administration for production approval, and commence relevant clinical trials for drugs that have completed pre-clinical research. Meanwhile, the Group will seek opportunities to cooperate with other domestic drug manufacturers and study the possibility of joint-production of products which have been granted production approvals to increase the Group’s revenue.

Research and development of 3-dimensional laparoscopes

As scheduled, the improvement of the micro-video camera and its clinical testing will be completed in 2006 and submitted for approval thereafter.”

4. MANAGEMENT DISCUSSION AND ANALYSIS ON THE ENLARGED GROUP

Financial review

Agri-Industrial Crop is a newly established company and was incorporated in Cambodia on 17 September 2007. It is an investment company and since its date of incorporation up to 29 February 2008, it has not recorded any revenue and incurred immaterial administration expense, which have resulted in an audited net loss of approximately US$0.01 million for the period. As at 29 February 2008, the net assets position of Agri-Industrial Crop amounted to approximately US$0.99 million. The principal business scopes of Agri-Industrial Crop are exploitation of the Second Forest (including forest clearing and processing of salvage logs into wood products) and rubber tree plantation for subsequent latex production therein. Upon completion of the Acquisition, it will become a wholly-owned subsidiary of the Company and its financial results will be consolidated into the Company’s consolidated financial statements.

Capital structure

As at 29 February 2008, the issued share capital of Agri-Industrial Crop amounted to US$1.00 million, whilst the issued share capital of the Company amounted to HK$17.05 million as at 31 December 2007. After completion of the Acquisition, it is expected that the issued share capital and the share premium will be, in aggregate, increased by HK$120 million as a result of the issue of the 200 million Consideration Shares.

Capital management

After completion of the Acquisition, the Enlarged Group will follow the Group’s policy in capital management, namely, to safeguard the Group’s ability to continue as a going concern, so as to provide returns for Shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial resources, borrowings, banking facilities and liquidity

After the Completion, it is estimated that the total assets of the Enlarged Group would amount to approximately HK$671.92 million, comprising forest exploitation rights of approximately HK$536.30 million, cash and bank balance of approximately HK$34.41 million as well as trade and other receivables of approximately HK$39.02 million. Based on the unaudited pro forma financial information of the Enlarged Group, the current liabilities of the Enlarged Group would amount to approximately HK$69.68 million comprising mainly trade and other payables of approximately HK$69.39 million. The non-current liabilities of the Enlarged Group would amount to HK$70.00 million which represent the issue of the Bonds.

As at 31 March 2008, the Enlarged Group had a secured bank loan of approximately HK$4,990,000, which was repayable within one year and was secured by the Group’s building and leasehold land assets with an aggregate carrying value of approximately HK$7,170,000 as at 31 March 2008. The secured bank loan was covered by general banking facility of the same amount from China Merchant Bank, which is payable on demand, and charged at market prevailing rate as fixed by the People’s Bank of China from time to time and 10% of interest so charged. Such banking facility was secured by the Group’s building and leasehold land assets. It is also estimated that the gearing ratio of the Enlarged Group (calculated as the total assets divided by the total liabilities) would be approximately 20.79%.

Significant investment held

Details of the Group’s subsidiaries as at 31 December 2007 were disclosed on note 19 of the 2007 Annual Report which was disclosed in this Appendix under the section headed “Audited Financial Statements”. As at the Latest Practicable Date, Agri-Industrial Crop did not have any significant investment.

Material acquisitions and disposal

Details of the Group’s material acquisition and disposal of subsidiaries and affiliated companies for the preceding 3 years was disclosed on the section headed “Summary of Financial Information” to this Appendix. Agri-Industrial Crop has not made any material acquisition or disposal of subsidiaries and affiliated companies since its incorporation up to the Latest Practicable Date.

Employees information

The total number of employees of the Group as at 31 December 2007 and Agri-Industrial Crop as at 29 February 2008 amounted to 277 and nil respectively. For the year ended 31 December 2007, the Group has incurred total staff cost of approximately HK$11.33 million. AgriIndustrial Crop has not incurred any staff cost since its date of incorporation up to 29 February 2008.

– 76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AFTER COMPLETION OF THE SUB-CONCESSION (THE “REMAINING GROUP”)

Financial review

Under the Cooperation Agreement, the Group will sublease the Sub-divided Concession Land to Qiong Hai Agriculture for a term of 70 years up to 11 November 2077. After the Sub-concession, the Group will continue its natural resources business in the remaining area of the First Forest (and the Second Forest after completion of the Acquisition). Having taken into account the net book value of the Sub-divided Concession Land of approximately HK$25.92 million and the consideration of the Sub-concession of US$10 million (equivalent to approximately HK$78.0 million), the Group will record a gain of disposal of approximately HK$52.08 million as a result of the Sub-concession.

Liquidity and financial resources

It is expected that the Sub-concession will decrease the intangible assets (forest exploitation rights) of the Group by HK$25.92 million and will increase the cash and bank balance by approximately HK$78.0 million due to the receipt of the cash consideration. As such, the total asset and net asset value of the Remaining Group are estimated to be approximately HK$526.90 million and HK$457.22 million, respectively.

The non-current assets and current assets of the Remaining Group is estimated to be approximately HK$289.46 million and HK$237.44 million, respectively. The Remaining Group’s non-current assets comprises mainly the forest exploitation rights (intangible assets) of approximately HK$233.28 million and its current assets mainly comprises cash and bank balance of approximately HK$177.40 million.

As at 31 March 2008, the Group had a bank borrowing of approximately HK$4,990,000, and the Sub-concession will not result in any increase in bank borrowing and/or liabilities of the Remaining Group.

After the Sub-concession, the gearing ratio (calculated as the total liabilities divided by the total assets) of the Remaining Group would be approximately 13.22%.

Employee information

The management of the Company expected that the Sub-concession will not result in any increase/decrease on the number of the Group’s employee.

– 77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. INDEBTEDNESS

Borrowings

As at the close of business on 31 March 2008, the Enlarged Group had a secured bank loan of HK$4,990,000 which was repayable within one year. Such bank loan was secured by the Group’s buildings and leasehold land assets with an aggregate carrying value of HK$7,170,000 as at 31 March 2008.

Collateral

As at 31 March 2008, the Enlarged Group did not pledge any of its assets to creditors apart from the borrowings as mentioned above.

Contingent liabilities

As at 31 March 2008, the Enlarged Group did not have any material contingent liabilities.

Capital commitments and other commitments

At the close of business on 31 March 2008, commitments of the Enlarged Group in respect of capital contributions to the subsidiaries, acquisitions of property, plant and equipment and operating leases amounted to approximately HK$12 million, all of which were contracted for but not provided for. The Directors plan to finance the above commitments by internally generated funds of the Group.

Save as disclosed in the above paragraphs and apart from intra-group liabilities and normal trade payables, at the close of business on 31 March 2008, the Enlarged Group did not have any loan capital issued and outstanding or agreed to be issued, debt securities, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, obligations under hire purchases contracts or finance leases, guarantees, or other material contingent liabilities.

The Directors have confirmed that save as disclosed above, there has been no material change in the indebtedness and contingent liabilities of the Enlarged Group since 31 March 2008 up to the Latest Practicable Date.

7. WORKING CAPITAL SUFFICIENCY

The Directors are satisfied after due and careful enquiry that, after taking into account the existing cash and bank balances, the Enlarged Group has sufficient working capital for its present requirements after the Acquisition and Sub-concession, that is for at least 12 months from the date of this circular, in the absence of unforeseeable circumstances.

8. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirm that there were no material adverse change in the financial or trading position of the Group since 31 December 2007 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

– 78 –

ACCOUNTANTS’ REPORT ON AGRI-INDUSTRIAL CROP

APPENDIX II

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Kennic L. H. Lui & Co. Ltd.

Certified Public Accountants (Practising)

5/F, Ho Lee Commercial Building, 38-44 D’ Aguilar Street, Central, Hong Kong

9 May 2008

The Directors China Asean Resources Limited Block B, 21st Floor, Teda Building No. 87 Wing Lok Street Sheung Wan, Hong Kong

Dear Sirs,

INTRODUCTION

We set out below our report on the financial information relating to Agri-Industrial Crop Development (Cambodia) Co., Ltd. (“Agri-Industrial Crop”) including the income statement, statement of changes in equity and cash flow statement for the period from 17 September 2007 (Date of Incorporation) to 29 February 2008 (the “relevant period”), and the balance sheet as at 29 February 2008 (collectively, the “Financial Information”) for inclusion in the shareholders’ circular of China Asean Resources Limited (the “Company”) dated 9 May 2008 (the “Circular”).

Agri-Industrial Crop was incorporated on 17 September 2007 as a limited liability company in the Kingdom of Cambodia (“Cambodia”) and has not carried on any business since the date of its incorporation. Pursuant to the conditional sale and purchase agreement dated 20 March 2008 entered into between Forest Glen Group Limited (“Forest Glen”), a directly held wholly-owned subsidiary of the Company as at the date of this report, and Mr Zhang Zhengwei (the “Vendor”), the sole legal and beneficial owner of the entire issued share capital of Agri-Industrial Crop, Forest Glen will acquire from the Vendor his 100% equity interest in Agri-Industrial Crop (the “Acquisition Agreement”).

BASIS OF PREPARATION

The Financial Information has been prepared by the directors of Agri-Industrial Crop based on the unaudited management financial statements for the relevant period. No audited financial statements have been prepared by Agri-Industrial Crop since its incorporation. The Financial Information is prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), which is a collective term that 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”).

– 79 –

APPENDIX II ACCOUNTANTS’ REPORT ON AGRI-INDUSTRIAL CROP

DIRECTORS’ RESPONSIBILITY

The directors of Agri-Industrial Crop during the relevant period are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with the HKFRSs. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the Financial Information that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to express an opinion on the Financial Information based on our examination and to report our opinion to you. We have carried out appropriate audit procedures in respect of the unaudited management financial statements of Agri-Industrial Crop in accordance with Hong Kong Standards on Auditing issued by the HKICPA and carried out such additional procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

OPINION

In our opinion, the Financial Information set out below, for the purpose of this report, gives a true and fair view of the results and cash flows of Agri-Industrial Crop for the relevant period and of the state of affairs of Agri-Industrial Crop as at 29 February 2008.

– 80 –

ACCOUNTANTS’ REPORT ON AGRI-INDUSTRIAL CROP

APPENDIX II

A. FINANCIAL INFORMATION

Income Statement

		Period from
		17 September 2007
		(Date of
		Incorporation) to
		29 February
		2008
	Notes	USD’000
Turnover	4	–
Administrative expenses		(10)
Loss before taxation	5	(10)
Taxation	7	–
Loss for the period		(10)

Balance Sheet
		As at
		29 February 2008
	Notes	USD’000
Current Assets
Deposit	8	1,100
Bank balances		1
		1,101
Current liabilities
Amount due to a director	9	111
Net current assets and net assets		990

Capital and reserves
Share capital	10	1,000
Accumulated losses		(10)
		990

The accompanying notes form part of the financial information.

– 81 –

APPENDIX II ACCOUNTANTS’ REPORT ON AGRI-INDUSTRIAL CROP

Statement of Changes in Equity

		Period from
		17 September 2007
		(Date of
		Incorporation) to
		29 February
		2008
	Notes	USD’000
Issue of shares during the period	10	1,000
Loss for the period		(10)
Equity balance at end of the period		990

Cash Flow Statement
		Period from
		17 September 2007
		(Date of
		Incorporation) to
		29 February 2008
	Notes	USD’000
Cash flows from operating activities
Loss before taxation and operating loss
before changes in working capital		(10)
Increase in deposits		(1,100)
Increase in amount due to a director		111
Cash used in operations and net cash used in
operating activities		(999)
Cash flows from investing activities		–
Cash flows from financing activities
Issue of shares	10	1,000
Net cash from financing activities		1,000
Net effect on cash and cash equivalents and
balances of cash and cash equivalents at end
of the period		1

The accompanying notes form part of the financial information.

– 82 –

APPENDIX II ACCOUNTANTS’ REPORT ON AGRI-INDUSTRIAL CROP

B. NOTES TO THE FINANCIAL INFORMATION

1. General

Agri-Industrial Crop is a private limited liability company incorporated in Cambodia on 17 September 2007. The address of its registered office and principal place of business is No. 175 BIS, Street 155, Sangkat Toul Tompong 1, Khan Chamkar Mon, Phnom Penh City, Cambodia.

Agri-Industrial Crop is currently an investment company and intends to in the future to undertake forest clearing operations together with the processing of salvage logs into wood products and to develop a rubber tree plantation for the production of latex products. This is to be achieved under exclusive rights to exploit a designated forest area which is located at Kratie Province in Cambodia (the “Forest”) and is adjacent to a forest owned by the Group. Agri-Industrial Crop has yet to commence active operations as at 29 February 2008.

In the opinion of the directors of Agri-Industrial Crop, Mr Zhang Zhengwei is the ultimate controlling shareholder of Agri-Industrial Crop.

2. Basis of Preparation

(a) Statement of compliance

The Financial Information has been prepared in accordance with all applicable HKFRSs issued by the HKICPA and accounting principles generally accepted in Hong Kong. This has involved preparing the Financial Information under the historical cost convention, as modified by the revaluation of financial assets and liabilities at fair values through the income statement.

The preparation of Financial Information in conformity with HKFRSs 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.

A summary of the significant accounting policies adopted by Agri-Industrial Crop is set out in note 3.

(b) Possible impact of amendments, new standards and interpretations issued but not yet effective for the relevant period ended 29 February 2008

Up to the date of issue of the Financial Information, the HKICPA has issued a number of amendments, new standards and new interpretations which are not effective for the accounting period ended 29 February 2008 and which have not been adopted in the Financial Information.

Insofar as Agri-Industrial Crop is only at a start-up stage and has not yet commenced active operations, these amendments, new standards and new interpretations have no impact on its results of operations and financial position.

3. Significant Accounting Policies

(a) Other receivables

Other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for bad and doubtful debts, 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.

(b) Other payables

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

– 83 –

ACCOUNTANTS’ REPORT ON AGRI-INDUSTRIAL CROP

APPENDIX II

(c) Foreign currencies

Items included in the Financial Information are measured using the currency of the primary economic environment in which Agri-Industrial Crop operates (the “functional currency”). The Financial Information of Agri-Industrial Crop is presented in United States dollars (“USD”) which is the functional and presentation currency of Agri-Industrial Crop.

Transactions in foreign currencies are recorded in the functional currency at the rate of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rate of exchange ruling at the balance sheet date. Any resulting exchange differences are included in the income statement.

(d) Impairment

At each balance sheet date, Agri-Industrial Crop reviews the carrying amounts of assets to determine whether there are indications that any assets have suffered impairment losses. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

(e) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amounts when Agri-Industrial Crop 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.

(f) Taxation

Income tax for the period comprises current tax and movements in deferred tax assets and liabilities. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

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

Deferred tax liabilities are provided in full on all taxable temporary differences while deferred tax assets are recognised only to the extent it is probable that future taxable profits will be available against which the temporary differences can be utilised.

A deferred tax asset is also recognised for the carryforward of unused tax losses to the extent it is probable that future taxable profits will be available against which the carryforward of the unused tax losses can be utilised.

(g) Cash and cash equivalents

– 84 –

APPENDIX II

ACCOUNTANTS’ REPORT ON AGRI-INDUSTRIAL CROP

(h) Related parties

For the purposes of the Financial Information, a party is considered to be related to Agri-Industrial Crop if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control Agri-Industrial Crop or exercise significant influence over it in making financial and operating policy decisions, or has joint control over it;
(ii) Agri-Industrial Crop and the party are subject to common control;
(iii) the party is an associate of Agri-Industrial Crop or a joint venture in which it is a venturer;
(iv) the party is a member of the key management personnel of Agri-Industrial Crop or its parent company, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individual(s);
(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 individual(s); or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of Agri-Industrial Crop or of any entity that is a related party thereto.

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.

4. Turnover

Agri-Industrial Crop has not yet commenced active operations and, therefore, did not generate any turnover during the relevant period.

5. Loss before Taxation

	Period from
	17 September 2007
	(Date of
	Incorporation) to
	29 February 2008
	USD’000
Loss before taxation is arrived at after charging:
Auditor’s remuneration	–
Depreciation	–
Staff costs	–

6. Directors’ Emoluments and Five Highest Paid Employees

Agri-Industrial Crop did not pay any directors’ emoluments and did not incur any staff costs during the relevant period and there were no arrangements under which a director waived or agreed to waive any remuneration during the relevant period.

7. Taxation

(a) No provision for Cambodia Income Tax has been made as Agri-Industrial Crop did not have any assessable profits for the year determined in accordance with the relevant tax rules and regulations in Cambodia.
(b) Agri-Industrial Crop is subject to Cambodia income tax at 20%. Agri-Industrial Crop intends to apply for investment incentives, including tax holidays privileges, to the Council for the Development of Cambodia (“CDC”) According to the relevant income tax rules and regulations, it is entitled to 100% relief from Cambodian Income Tax, commencing from the earlier of the first profitable year or three years from the commencement of business (i.e. first sale). The duration of these holiday periods are from 3 to 6 years.

– 85 –

APPENDIX II

ACCOUNTANTS’ REPORT ON AGRI-INDUSTRIAL CROP

Loss before taxation Notional tax on loss before taxation, calculated at the statutory rate of 20% Tax effect of non-deductible expenses Taxation for the period	Period from 17 September 2007 (Date of Incorporation) to 29 February 2008 USD’000 (10

	(2 2
	–

(d) There were no deferred tax assets or liabilities at the balance sheet date.

8. Deposits

The amount represents deposits paid to the Cambodian government to acquire forest exploitation rights.

9. Amount due to a Director

The amount due is unsecured, non-interest bearing and is expected to be settled within one year.

10. Share Capital

	29 February 2008
	USD’000
Registered, issued and fully paid:
1,000 ordinary shares of Riels 4,000,000 each	1,000

On incorporation, the registered capital of Agri-Industrial Crop was fixed at 4,000,000,000 Riels divided into 1,000 shares in which each share has a face value of 4,000,000 Riels.

All the 1,000 shares were allotted and issued to Mr Zhang Zhengwei.

11. Capital Risk Management

Agri-Industrial Crop’s primary objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

Consistent with industry practice, Agri-Industrial Crop monitors its capital structure on the basis of its gearing ratio. For this purpose, Agri-Industrial Crop defines gearing ratio as total indebtedness divided by adjusted capital. Total indebtedness includes bank overdrafts, bank loans, finance lease liabilities, bonds and other interest bearing securities. Adjusted capital comprises all components of equity and redeemable preference shares, other than amounts recognised in equity relating to cash flow hedges, less proposed dividends.

The strategy of Agri-Industrial Crop is to maintain the gearing ratio at 0% to 50%, and, in order to do so, may adjust the amount of dividends paid to shareholders, issue new shares, repurchase shares, raise new debt financing or sell assets to reduce debt.

The gearing ratio of Agri-Industrial Crop was 0% as at 29 February 2008.

– 86 –

ACCOUNTANTS’ REPORT ON AGRI-INDUSTRIAL CROP

APPENDIX II

12. Financial Risk Management

The financial assets, which include deposit and bank balances, of Agri-Industrial Crop are all classified as “Loans and receivables”. The financial liabilities which comprise amount due to a director are classified as “Financial liabilities measured at amortised cost”.

Exposure to credit and liquidity risk can arise in the normal course of business of Agri-Industrial Crop. These risks are limited by financial management policies and practices described below.

(a) Credit risk

Credit risk primarily involves the financial losses which could arise from the failure of customers or counterparties to meet obligations under contracts. This could occur principally from the selling of wood and latex products. Agri-Industrial Crop has dedicated polices and procedures in place to control and monitor the risk from all such activities.

(b) Liquidity risk

Liquidity management is essential to ensure Agri-Industrial Crop has the ability to meet its obligations as they fall due. Its policy is to maintain a strong liquidity position by properly managing the liquidity structure of its assets, liabilities and commitments so that cash flows are appropriately balanced and all funding obligations can be honoured.

The maturity profile of the financial liabilities of Agri-Industrial Crop as at the balance sheet date, was as follows:

						Within 1 year
					Carrying amount	or on demand
					USD’000	USD’000
Amount	due	to	a	director	111	111

C. SUBSEQUENT EVENTS

(i) Pursuant to the Acquisition Agreement dated 20 March 2008 entered into between Forest Glen Group Limited (“Forest Glen”), a directly held wholly-owned subsidiary of the Company as at the date of this report and the legal and beneficial owner of the entire issued share capital of Agri-Industrial Crop, Forest Glen will acquire the vendor’s 100% equity interest in Agri-Industrial Crop for a total consideration of HK$270 million.

Agri-Industrial Crop is in the process of obtaining the exploitation rights in respect of a forest located in Kratie Province in Cambodia from the Cambodian government. As at the date of this report, Agri-Industrial Crop had already obtained a land certificate from the Cambodian government. Upon completion of certain administrative procedures as required by the relevant government authorities, Agri-Industrial Crop will be granted the exclusive forest exploitation rights for a term of 70 years. The vendor confirms that no further premiums will be required to be paid by Agri-Industrial Crop in connection with obtaining the rights from the Cambodian government.

Upon completion of the Acquisition, which is subject to the approval of the Company’s shareholders at a special general meeting to be held on 28 May 2008, Agri-Industrial Crop will become a wholly-owned subsidiary of the Company.

– 87 –

APPENDIX II

ACCOUNTANTS’ REPORT ON AGRI-INDUSTRIAL CROP

(ii) On 30 April 2008, the sole shareholder and director of Agri-Industrial Crop, Mr Zhang Zhengwei (“Mr Zhang”), signed a letter of undertaking to indemnify the payment of balance of premium for the forest exploitation and land use rights amounted to US$0.8 million (equivalent to approximately HK$6,240,000). On the same date, Mr Zhang also signed a letter of waiver with Agri-Industrial Crop that he agreed to waive the outstanding loan principal together with the related interest and other costs thereon, if any, due to him by Agri-Industrial Crop upon the completion of the Acquisition.

D. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Agri-Industrial Crop in respect of any period subsequent to 29 February 2008.

Yours faithfully

Kennic L. H. Lui & Co. Ltd.

Certified Public Accountants (Practising)

Lau Wu Kwai King, Lauren Practising certificate number: P02651 Hong Kong

– 88 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION

1. Unaudited Pro-Forma Financial Information of the Enlarged Group in respect of the Acquisition

Set out herein are the pro forma balance sheet, income statement and cash flow statement of the Enlarged Group (being China Asean Resources Limited (the “Company”) and its subsidiaries (the “Group”), and Agri-Industrial Crop Development (Cambodia) Co., Ltd. (“Agri-Industrial Crop”)), which have been prepared on the basis of the notes set out below for the purpose of illustrating the effect of the Acquisition as if it had taken place on 31 December 2007 for the pro forma balance sheet and for the year ended 31 December 2007 for the pro forma income statement and cash flow statement.

The pro forma financial information has been prepared for illustrative purposes only and, because of its hypothetical nature, may not give a true picture of the financial position, financial results and cash flows of the Enlarged Group had the Acquisition been completed as at 31 December 2007 or at any future date.

– 89 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

I. Unaudited pro forma balance sheet of the Enlarged Group

The Group as at 31 December 2007 HK$’000 (Note 1) 7,379 88 18,189 – 2,563 259,203 26,860 1,098 315,380 6,019 54,016 99,400 159,435 69,391 284 69,675 89,760 – –		Pro forma adjustments	Pro forma adjustments	Pro forma adjustments
	Agri- Industrial Crop as at 29 February 2008 HK$’000 (Note 1) – – – – – – – – – – 8,580 8 8,588 866 – 866 7,722 – –		Other adjustments		#4 HK$’000 (Note 2(iv)) – – – – – – – – – – – – – (7,106) – (7,106) 7,106 – –	Unaudited pro forma balance sheet as at 31 December 2007 HK$’000 7,379 88 18,189 – 2,563 536,301 26,860 1,098
		#1 HK$’000 (Note 2(i)) – – – 270,000 – – – – 270,000 – (15,000) (65,000) (80,000) – – – (80,000) (70,000) (70,000)	#2 HK$’000 (Note 2(ii)) – – – (270,000) – 262,278 – – (7,722) – – – – – – – – – –	#3 HK$’000 (Note 2(iii)) – – – – – 14,820 – – 14,820 – (8,580) – (8,580) 6,240 – 6,240 (14,820) – –
						592,478
						6,019 39,016 34,408
						79,443
						69,391 284
						69,675
						9,768
						(70,000
						(70,000
405,140	7,722	120,000	(7,722)	–	7,106	532,246

17,050 381,215 398,265 6,875	7,800 (78) 7,722 –	2,000 118,000 120,000 –	(7,800) 78 (7,722) –	– – – –	– 7,106 7,106 –	19,050 506,321
						525,371 6,875
405,140	7,722	120,000	(7,722)	–	7,106	532,246

– 90 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

II. Unaudited pro forma income statement of the Enlarged Group

Pro forma adjustments

		Pro forma adjustments	Pro forma adjustments	Pro forma adjustments	Pro forma adjustments	Pro forma adjustments	Pro forma adjustments

Turnover Cost of service/sales Gross profit Other revenue Selling and distribution expenses Administrative expenses Impairment loss recognised in respect of biological assets Other operating expenses Profit/(Loss) from operations Finance costs Profit/(Loss) before taxation Taxation Profit/(Loss) for the year/period Attributable to: Equity holders of the Company Minority interests	The Group for the year ended 31 December 2007 HK$’000 (Note 1) 38,443 (18,789) 19,654 4,114 (11,790) (25,178) (6,785) (1,645) (21,630) (244) (21,874) (24)	Agri- Industrial Crop from 17 September 2007 (date of incorporation) to 29 February 2008 HK$’000 (Note 1) – – – – – (78) – – (78) – (78) –		Other adjustments		#4 HK$’000 (Note 2(iv) – – – 7,106 – – – – 7,106 – 7,106 –	Unaudited pro forma income statement for the year ended 31 December 2007 HK$’000 38,443 (18,789
			#1 HK$’000 (Note 2(i)) – – – – – – – – – – – –	#2 HK$’000 (Note 2(ii)) – – – – – – – – – – – –	#3 HK$’000 (Note 2(iii)) – – – – – – – – – – – –
							19,654 11,220 (11,790 (25,256 (6,785 (1,645
							(14,602 (244
							(14,846 (24
	(21,898)	(78)	–	–	–	7,106	(14,870

	(21,989) 91	(78) –	– –	– –	– –	7,106 –	(14,961 91
	(21,898)	(78)	–	–	–	7,106	(14,870

– 91 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

III. Unaudited pro forma cash flow statement of the Enlarged Group

The Group for the year ended 31 December 2007 HK$’000 (Note 1) (21,874) 1,044 6,785 123 3,757 364 1,875 1,088 (2,279) – 244 (8,873) (1,651) (41,540) 9,508 (42,556)	The Group for the year ended 31 December 2007 HK$’000 (Note 1) (21,874) 1,044 6,785 123 3,757 364 1,875 1,088 (2,279) – 244 (8,873) (1,651) (41,540) 9,508 (42,556)		Pro forma adjustments	Pro forma adjustments	Pro forma adjustments
	) ) ) ) ) )	Agri- Industrial Crop from 17 September 2007 (date of incorporation) to 29 February 2008 HK$’000 (Note 1) (78) – – – – – – – – – – (78) – (8,580) 866 (7,792)		Other adjustments		#4 HK$’000 (Note 2(iv)) 7,106 – – – – – – – – (7,106) – – – – – –	Unaudited pro forma cash flow statement for the year ended 31 December 2007 HK$’000 (14,846) 1,044 6,785 123 3,757 364 1,875 1,088 (2,279) (7,106) 244
			#1 HK$’000 (Note 2(i)) – – – – – – – – – – – – – 15,000 – 15,000	#2 HK$’000 (Note 2(ii)) – – – – – – – – – – – – – – – –	#3 HK$’000 (Note 2(iii)) – – – – – – – – – – – – – – – –
(8,873 (1,651 (41,540 9,508							(8,951) (1,651) (35,120) 10,374
(42,556							(35,348)

– 92 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

Pro forma adjustments

		Pro forma adjustments	Pro forma adjustments	Pro forma adjustments	Pro forma adjustments	Pro forma adjustments	Pro forma adjustments	Pro forma adjustments
		Other adjustments Agri- Industrial Crop from 17 September 2007 (date of incorporation) to 29 February 2008 #1 #2 #3 #4 Unaudited pro forma cash flow statement for the year ended 31 December 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 1) (Note 2(i)) (Note 2(ii)) (Note 2(iii)) (Note 2(iv)) ) – – – – – (447) ) – – – – – (8,764) ) – – – – – (4,534) ) – (80,000) – – – (130,000) ) – – – – – (27,300) – – – – – 62,153 – – – – – 2,279 ) – (80,000) – – – (106,613) ) – – – – – (244) 7,800 – – – – 7,800 – – – – – 115,890 – – – – – 122,830 ) – – – – – (70,000) ) – – – – – (9,330) ) – – – – – (3,484) 7,800 – – – – 163,462 8 (65,000) – – – 21,501 – – – – – 12,029 – – – – – 878
Cash flows from investing activities Capital expenditure: Property, plant and equipment Construction in progress Biological assets Acquisition of a subsidiary Forest exploitation rights Decrease in placement of deposits with banks Interest received Net cash used in investing activities Cash flows from financing activities Interest paid Issue of shares New share placement Top-up placement Redemption of bonds Shares issue expenses Repayment of bank loan Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year/period Effect of foreign exchange rate changes Cash and cash equivalents at end of the year/period	The Group for the year ended 31 December 2007 HK$’000 (Note 1) (447 (8,764 (4,534 (50,000 (27,300 62,153 2,279	) ) ) ) ) ) ) ) ) )	Agri- Industrial Crop from 17 September 2007 (date of incorporation) to 29 February 2008 HK$’000 (Note 1) – – – – – – – – – 7,800 – – – – – 7,800 8 – –		Other adjustments		#4 HK$’000 (Note 2(iv)) – – – – – – – – – – – – – – – – – – –	Unaudited pro forma cash flow statement for the year ended 31 December 2007 HK$’000 (447) (8,764) (4,534) (130,000) (27,300) 62,153 2,279
				#1 HK$’000 (Note 2(i)) – – – (80,000) – – – (80,000) – – – – – – – – (65,000) – –	#2 HK$’000 (Note 2(ii)) – – – – – – – – – – – – – – – – – – –	#3 HK$’000 (Note 2(iii)) – – – – – – – – – – – – – – – – – – –
	(26,613							(106,613)
	(244 – 115,890 122,830 (70,000 (9,330 (3,484							(244) 7,800 115,890 122,830 (70,000) (9,330) (3,484)
	155,662							163,462
	86,493 12,029 878							21,501 12,029 878
	99,400		8	(65,000)	–	–	–	34,408

– 93 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

IV. Notes to the unaudited pro forma financial information of the Enlarged Group

1. Basis of preparation

The pro forma financial information is prepared based on the consolidated balance sheet as at 31 December 2007 and the consolidated income statement and cash flow statement for the year ended 31 December 2007 of the Group extracted from the Group’s published 2007 Annual Report, and the audited balance sheet as at 29 February 2008 and the income statement and cash flow statement for the period from 17 September 2007 (date of incorporation) to 29 February 2008 of Agri-Industrial Crop extracted from the Accountants’ Report set out in Appendix II to this Circular, after making certain pro forma adjustments that are summarised in note 2 below.

For the purpose of preparing the unaudited pro forma financial information of the Enlarged Group, the audited balance sheet of Agri-Industrial Crop as at 29 February 2008 and the income statement and cash flow statement of Agri-Industrial Crop for the period from 17 September 2007 (date of incorporation) to 29 February 2008 were translated at the exchange rate of USD1=HK$7.8 which approximates the exchange rate as at 29 February 2008.

2. Pro forma adjustments

(i) Funding for the Acquisition

The total funding for the Acquisition is HK$270,000,000 which is proposed to be satisfied as to HK$80,000,000 by cash, of which HK$15,000,000 has already been paid by the Company as Earnest Money pursuant to the Memorandum of Understanding dated 14 November 2007 with the remaining HK$65,000,000 to be financed by internal resources of the Group, as to HK$120,000,000 by the issue of 200,000,000 ordinary shares of HK$0.01 each (the “Consideration Shares”) of the Company at the issue price of HK$0.60 per share and the remaining balance as to HK$70,000,000 by the issue of bonds by the Company.

The share premium of HK$118,000,000 arising from the issuance of the Consideration Shares is recorded in reserves. This adjustment is not expected to have a continuing effect on the Enlarged Group.

(ii) Elimination of investment in Agri-Industrial Crop

On consolidation, the related investment cost of the Group in Agri-Industrial Crop amounting to HK$270,000,000 is eliminated against the Group’s entire equity interest in Agri-Industrial Crop, being the net asset value of Agri-Industrial Crop of approximately HK$7,722,000. Accordingly, estimated goodwill amounting to approximately HK$262,278,000, representing the underlying cost of forest exploitation rights is recognised as a result of the Acquisition. In view of the substance of the Acquisition in Agri-Industrial Crop represented by the exploitation rights of using the forest located at Kratie Province in Cambodia (the “Forest”), the amount is recognised as an intangible asset of the Enlarged Group, versus recognising it as goodwill.

The Group will apply the purchase method to account for the Acquisition whereby the identifiable assets and liabilities of Agri-Industrial Crop will be recorded at their fair values at the date of completion, and all the capital and reserves of Agri-Industrial Crop upon completion of the Acquisition will be eliminated.

(iii) Payment of premium for the forest exploitation and land use rights

The total premium for the forest exploitation and land use rights of the Second Forest paid or payable to the Cambodian government amount to US$1.9 million (equivalent to approximately HK$14,820,000), of which US$1.1 million (equivalent to approximately HK$8,580,000) had already been paid by Agri-Industrial Crop and reallocated from deposits, and US$0.8 million (equivalent to approximately HK$6,240,000) is classified as trade and other payables.

(iv) Undertaking of balance of premium for the forest exploitation and land use rights and waiver of outstanding loan due to the sole shareholder and director of Agri-Industrial Crop

On 30 April 2008, the sole shareholder and director of Agri-Industrial Crop, Mr Zhang Zhengwei (“Mr Zhang”), signed a letter of undertaking to indemnify the payment of balance of premium for the forest exploitation and land use rights amounted to US$0.8 million (equivalent to approximately HK$6,240,000). On the same date, Mr Zhang also signed a letter of waiver with Agri-Industrial Crop that he agreed to waive the outstanding loan principal together with the related interest and other costs thereon, if any, due to him by Agri-Industrial Crop upon the completion of the Acquisition.

Both of the above are regarded as an integral part to the transaction covered by the Sale and Purchase Agreement. The unaudited pro forma adjustment reflects such waiver of indebtedness as if it had taken place as at 31 December 2007. This adjustment is not expected to have a continuing effect on the Enlarged Group.

– 94 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION

2. Unaudited Pro-Forma Financial Information of the Remaining Group in respect of the Sub-concession

Set out herein are the pro forma net assets statement and income statement of the Remaining Group (being China Asean Resources Limited (the “Company”) and its subsidiaries (the “Group”), after the Sub-concession of 10% of the First Forest), which have been prepared on the basis of the notes set out below for the purpose of illustrating the effect of the Sub-concession as if it had taken place on 31 December 2007 for the pro forma net assets statement and for the year ended 31 December 2007 for the pro forma income statement.

The pro forma income statement and net assets statement have been prepared for illustrative purposes only and, because of its hypothetical nature, may not give a true picture of the financial position and financial results of the Remaining Group had the Sub-concession been completed as at 31 December 2007 or at any future date.

– 95 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

I. Unaudited pro forma net assets statement of the Remaining Group

The Group as at 31 December 2007 HK$’000 (Note 1) Non-current assets Property, plant and equipment 7,379 Biological assets 88 Construction in progress 18,189 Interests in leasehold land held for own use under operating leases 2,563 Intangible assets – Forest exploitation rights 259,203 – Medical research projects 26,860 – Others 1,098 315,380 Current assets Inventories 6,019 Trade and other receivables 54,016 Cash at bank and on hand 99,400 159,435 Current liabilities Trade and other payables 69,391 Taxation 284 69,675 Net current assets 89,760 NET ASSETS 405,140	Pro forma adjustment Unaudited pro forma net assets statement as at 31 December 2007 HK$’000 HK$’000 (Note 2) – 7,379 – 88 – 18,189 – 2,563 (25,920) 233,283 – 26,860 – 1,098	Pro forma adjustment Unaudited pro forma net assets statement as at 31 December 2007 HK$’000 HK$’000 (Note 2) – 7,379 – 88 – 18,189 – 2,563 (25,920) 233,283 – 26,860 – 1,098
315,380 6,019 54,016 99,400 159,435 69,391 284 69,675 89,760	(25,920) – – 78,000 78,000 – – – 78,000	289,460
		6,019 54,016 177,400
		237,435
		69,391 284
		69,675
		167,760
405,140	52,080	457,220

– 96 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

II. Unaudited pro forma income statement of the Remaining Group

The Group for the year ended 31 December 2007 HK$’000 (Note 1) 38,443 (18,789)	Pro forma adjustment HK$’000 (Note 2) – –	Unaudited pro forma income statement for the year ended 31 December 2007 HK$’000 38,443 (18,789) 19,654 56,194 (11,790) (25,178) (6,785) (1,645) 30,450 (244) 30,206 (24) 30,182 30,091 91 30,182
19,654 4,114 (11,790) (25,178) (6,785) (1,645) (21,630) (244) (21,874) (24)	– 52,080 – – – – 52,080 – 52,080 –	19,654 56,194 (11,790 (25,178 (6,785 (1,645
		30,450 (244
		30,206 (24
(21,898)	52,080
(21,989) 91	52,080 –	30,091 91
(21,898)	52,080

– 97 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

III. Notes to the unaudited pro forma financial information of the Remaining Group

1. Basis of preparation

The pro forma financial information is prepared based on the consolidated balance sheet as at 31 December 2007 and the consolidated income statement for the year ended 31 December 2007 of the Group extracted from the Group’s published 2007 Annual Report, after making the pro forma adjustment that is summarised in note 2 below.

2. Pro forma adjustment

Profit from Sub-concession of the First Forest

The adjustment represents the estimated profit from the Sub-concession of the First Forest of approximately HK$52,080,000 which is calculated based on (i) the consideration of US$10 million (equivalent to approximately HK$78,000,000) and (ii) the adjusted carrying amount of the Sub-concession of the First Forest as at 31 December 2007 of approximately HK$25,920,000 (representing the cost of the Sub-concession of the First Forest of approximately HK$26,296,000 less accumulated amortisation of approximately HK$376,000), as if the Sub-concession of the First Forest had been completed on 31 December 2007.

Since the actual carrying amount of the Sub-concession of the First Forest on Completion may be different from the amounts used in the preparation of the unaudited pro forma financial information of the Remaining Group, the actual profit or loss from the Sub-concession of the First Forest may be different from the estimated amount as shown above. This adjustment is not expected to have a continuing effect on the Remaining Group.

3. Unaudited Pro-Forma Financial Information of the Enlarged Group and the Remaining Group

Set out herein are the pro forma balance sheet, income statement and cash flow statement of the Enlarged Group and the Remaining Group which have been prepared for the purpose of illustrating the effects of the Acquisition and Sub-concession as if they had taken place on 31 December 2007 for the pro forma balance sheet and for the year ended 31 December 2007 for the pro forma income statement and cash flow statement.

The pro forma financial information has been prepared for illustrative purposes only and, because of its hypothetical nature, may not give a true picture of the financial position, financial results and cash flows of the Enlarged Group and the Remaining Group had the Acquisition and the Sub-concession been completed as at 31 December 2007 or at any future date.

– 98 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

I. Unaudited pro forma balance sheet of the Enlarged Group and the Remaining Group

The Group as at 31 December 2007 HK$’000 (Note 1) 7,379 88 18,189 – 2,563 259,203 26,860 1,098 315,380 6,019 54,016 99,400 159,435 69,391 284 69,675 89,760 – –			Pro forma adjustments	Pro forma adjustments	Pro forma adjustments
	Agri- Industrial Crop as at 29 February 2008 HK$’000 (Note 1) – – – – – – – – – – 8,580 8 8,588 866 – 866 7,722 – –		Other adjustments			#5 HK$’000 (Note 2(ii)) – – – – – (25,920) – – (25,920) – – 78,000 78,000 – – – 78,000 – –	Unaudited pro forma balance sheet as at 31 December 2007 HK$’000 7,379 88 18,189 – 2,563 510,381 26,860 1,098
		#1 HK$’000 (Note 2(i)) – – – 270,000 – – – – 270,000 – (15,000) (65,000) (80,000) – – – (80,000) (70,000) (70,000)	#2 HK$’000 (Note 2(i)) – – – (270,000) – 262,278 – – (7,722) – – – – – – – – – –	#3 HK$’000 (Note 2(i)) – – – – – 14,820 – – 14,820 – (8,580) – (8,580) 6,240 – 6,240 (14,820) – –	#4 HK$’000 (Note 2(i)) – – – – – – – – – – – – – (7,106) – (7,106) 7,106 – –
							566,558
							6,019 39,016 112,408
							157,443
							69,391 284
							69,675
							87,768
							(70,000
							(70,000
405,140	7,722	120,000	(7,722)	–	7,106	52,080	584,326

17,050 381,215 398,265 6,875	7,800 (78) 7,722 –	2,000 118,000 120,000 –	(7,800) 78 (7,722) –	– – – –	– 7,106 7,106 –	– 52,080 52,080 –	19,050 558,401
							577,451 6,875
405,140	7,722	120,000	(7,722)	–	7,106	52,080	584,326

– 99 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

II. Unaudited pro forma income statement of the Enlarged Group and the Remaining Group

The Group for the year ended 31 December 2007 HK$’000 (Note 1) 38,443 (18,789) 19,654 4,114 (11,790) (25,178) (6,785) (1,645) (21,630) (244) (21,874) (24)			Pro forma adjustments	Pro forma adjustments	Pro forma adjustments
	Agri- Industrial Crop from 17 September 2007 (date of incorporation) to 29 February 2008 HK$’000 (Note 1) – – – – – (78) – – (78) – (78) –		Other adjustments			#5 HK$’000 (Note 2(ii)) – – – 52,080 – – – – 52,080 – 52,080 –	Unaudited pro forma income statement for the year ended 31 December 2007 HK$’000 38,443 (18,789
		#1 HK$’000 (Note 2(i)) – – – – – – – – – – – –	#2 HK$’000 (Note 2(i)) – – – – – – – – – – – –	#3 HK$’000 (Note 2(i)) – – – – – – – – – – – –	#4 HK$’000 (Note 2(i) – – – 7,106 – – – – 7,106 – 7,106 –
							19,654 63,300 (11,790 (25,256 (6,785 (1,645
							37,478 (244
							37,234 (24
(21,898)	(78)	–	–	–	7,106	52,080	37,210

(21,989) 91	(78) –	– –	– –	– –	7,106 –	52,080 –	37,119 91
(21,898)	(78)	–	–	–	7,106	52,080	37,210

– 100 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

III. Unaudited pro forma cash flow statement of the Enlarged Group and the Remaining Group

The Group for the year ended 31 December 2007 HK$’000 (Note 1) (21,874) 1,044 6,785 123 3,757 364 1,875 1,088 (2,279) – – 244 (8,873) (1,651) (41,540) 9,508 (42,556)	The Group for the year ended 31 December 2007 HK$’000 (Note 1) (21,874) 1,044 6,785 123 3,757 364 1,875 1,088 (2,279) – – 244 (8,873) (1,651) (41,540) 9,508 (42,556)			Pro forma adjustments	Pro forma adjustments	Pro forma adjustments
	) ) ) ) ) )	Agri- Industrial Crop from 17 September 2007 (date of incorporation) to 29 February 2008 HK$’000 (Note 1) (78) – – – – – – – – – – – (78) – (8,580) 866 (7,792)		Other adjustments			#5 HK$’000 (Note 2(ii)) 52,080 – – – – – – – – – (52,080) – – – – – –	Unaudited pro forma cash flow statement for the year ended 31 December 2007 HK$’000 37,234 1,044 6,785 123 3,757 364 1,875 1,088 (2,279) (7,106) (52.080) 244
			#1 HK$’000 (Note 2(i)) – – – – – – – – – – – – – – 15,000 – 15,000	#2 HK$’000 (Note 2(i)) – – – – – – – – – – – – – – – – –	#3 HK$’000 (Note 2(i)) – – – – – – – – – – – – – – – – –	#4 HK$’000 (Note 2(i)) 7,106 – – – – – – – – (7,106) – – – – – – –
(8,873 (1,651 (41,540 9,508								(8,951) (1,651) (35,120) 10,374
(42,556								(35,348)

– 101 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION

Pro forma adjustments

The Group for the year ended 31 December 2007 HK$’000 (Note 1) (447 (8,764 (4,534 (50,000 (27,300 62,153 – 2,279	Agri- Industrial Crop from 17 September 2007 (date of incorporation) to 29 February 2008 HK$’000 (Note 1) – – – – – – – – – – 7,800 – – – – – 7,800 8 – –		Other adjustments	Other adjustments	Other adjustments	#5 HK$’000 (Note 2(ii)) – – – – – – 78,000 – 78,000 – – – – – – – – 78,000 – –	Unaudited pro forma cash flow statement for the year ended 31 December 2007 HK$’000 (447) (8,764) (4,534) (130,000) (27,300) 62,153 78,000 2,279
		#1 HK$’000 (Note 2(i)) – – – (80,000) – – – – (80,000) – – – – – – – – (65,000) – –	#2 HK$’000 (Note 2(i)) – – – – – – – – – – – – – – – – – – – –	#3 HK$’000 (Note 2(i)) – – – – – – – – – – – – – – – – – – – –	#4 HK$’000 (Note 2(i)) – – – – – – – – – – – – – – – – – – – –
(26,613							(28,613)
(244 – 115,890 122,830 (70,000 (9,330 (3,484							(244) 7,800 115,890 122,830 (70,000) (9,330) (3,484)
155,662							163,462
86,493 12,029 878							99,501 12,029 878
99,400	8	(65,000)	–	–	–	78,000	112,408

– 102 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

IV. Notes to the unaudited pro forma financial information of the Enlarged Group and the Remaining Group

1. Basis of preparation

For the purpose of preparing the unaudited pro forma financial information of the Enlarged Group and the Remaining Group, the audited balance sheet of Agri-Industrial Crop as at 29 February 2008 and the income statement and cash flow statement of Agri-Industrial Crop for the period from 17 September 2007 (date of incorporation) to 29 February 2008 were translated at the exchange rate of USD1=HK$7.8 which approximates the exchange rate as at 29 February 2008.

2. Pro forma adjustments

(i) Details of the pro forma adjustments in respect of the Acquisition are set out under Section IV(2) of “Unaudited Pro-Forma Financial Information of the Enlarged Group in respect of the Acquisition”.
(ii) Details of the pro forma adjustments in respect of the Sub-concession are set out under Section III(2) of “Unaudited Pro-Forma Financial Information of the Remaining Group in respect of the Sub-concession”.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

B. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

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Kennic L. H. Lui & Co. Ltd.

Certified Public Accountants (Practising)

5/F, Ho Lee Commercial Building, 38-44 D’Aguilar Street, Central, Hong Kong

9 May 2008

The Directors

China Asean Resources Limited Block B, 21st Floor, Teda Building No. 87 Wing Lok Street Sheung Wan, Hong Kong

Dear Sirs,

We herein report on the unaudited pro forma income statement, the unaudited pro forma balance sheet and the unaudited pro forma cash flow statement of the Enlarged Group, the unaudited pro forma net assets statement and income statement of the Remaining Group, and the unaudited pro forma income statement, the unaudited pro forma balance sheet and the unaudited pro forma cash flow statement of the Enlarged Group and the Remaining Group as set out in Section A of Appendix III to the shareholders’ circular of China Asean Resources Limited (the “Company”) dated 9 May 2008 (together the “Unaudited Pro Forma Financial Information”), which have been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of 100% equity interest in Agri-Industrial Crop Development (Cambodia) Co., Ltd. (“Agri-Industrial Crop”) and the Sub-concession of the First Forest might have affected the consolidated income statement of the Company and its subsidiaries (hereinafter, collectively, referred to as the “Group”) for the year ended 31 December 2007 and the consolidated balance sheet of the Group as at 31 December 2007. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in Section A of this appendix.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS OF THE COMPANY AND REPORTING ACCOUNTANTS

It is the responsibility solely of the Directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

It is our responsibility to form an opinion, as required by Paragraph 7.31(7) of the GEM Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not

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APPENDIX III

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 work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (HKSIR) 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 contained 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 Unaudited Pro Forma Financial Information has been properly compiled by the Directors of the 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 7.31(1) of the GEM Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgments and assumptions of the directors of the Company, and, because of its hypothetical 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 Enlarged Group and the Remaining Group as at 31 December 2007 or any future date; or
the results of the Enlarged Group and the Remaining Group for the year ended 31 December 2007 or any future periods.

OPINION

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the Directors of the Company on the basis stated;

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APPENDIX III

(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 7.31(1) of the GEM Rules.

Yours faithfully

Kennic L. H. Lui & Co. Ltd.

Certified Public Accountants (Practising)

Lau Wu Kwai King, Lauren

Practising certificate number: P02651 Hong Kong

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VALUATION REPORT

APPENDIX IV

The following is the text of a letter prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuation as at 31 March 2008 of the market value of the 100% equity interest in Agri-Industrial Crop Development (Cambodia) Co., Limited to be acquired by China Asean Resources Limited.

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9 May 2008

The Directors

China Asean Resources Limited

Block B, 21st Floor, Teda Building No. 87 Wing Lok Street Sheung Wan, Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from China Asean Resources Limited (referred to as the “Company”) for us to provide our opinion on the market value of the 100% equity interest in Agri-Industrial Crop Development (Cambodia) Co., Limited (referred to as “Agri-Industrial”) as at 31 March 2008 (the “date of valuation”). Agri-Industrial is expected to be granted an exclusive forest exploitation right of a forest (referred to as the “Forest”) with an area of 9,555 hectares for a term of 70 years in Kratie Province, the Kingdom of Cambodia (referred to as “Cambodia”)

Our valuation has been prepared in accordance to the HKIS Valuation Standards on Trade-Related Business Assets and Business Enterprises issued by The Hong Kong Institute of Surveyors (“HKIS”), published in 2004.

This report includes a description of the background of Agri-Industrial and the Forest, a brief industry overview, the basis of valuation and assumptions. It also explains the valuation methodology applied and presents our conclusion of value.

PURPOSE OF VALUATION

We understand that the purpose of our valuation is to express an independent opinion on the market value of the 100% equity interest in Agri-Industrial as at 31 March 2008 for your acquisition reference purposes.

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VALUATION REPORT

APPENDIX IV

BASIS OF VALUATION

Our valuation has been carried out on the basis of market value. Market value is defined as “the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion” .

BACKGROUND OF AGRI-INDUSTRIAL AND THE FOREST

Agri-Industrial was incorporated in Cambodia with limited liability. As advised by the Cambodian legal advisers to the Company, the relevant provincial government of Cambodia has issued a land certificate to Agri-Industrial in respect of the Forest and upon completion of certain administrative procedures with the relevant Cambodian government authorities, Agri-Industrial will be granted the exclusive forest exploitation right for a term of 70 years.

The exploitation right of the Forest includes, but is not limited to, the clearing up and immediate sale of timber, and the subsequent rubber cultivation and plantations.

The Forest is adjacent to another forest previously acquired by the Company completed on 22 October 2007. It is located in Kratie Province, Cambodia with an area of 9,555 hectares. Kratie Province covers an area of 11,094 km[2] , in which 83% is forest, 8% is agricultural land and 0.5% is red land. Kratie Province consists of five districts, 46 communes and 250 villages, with a population of approximately 290,000 and a population density of 26 persons per km[2] . There is about 70% of the population living along the river and the remaining 30% of the population living in the mountains areas.

Kratie Province is famous for its cultural heritage and natural resources. The Mekong River, one of the major rivers in Cambodia, is about 140 km long flowing through Kratie Province.

The government of Cambodia only selectively opens its forestry industry to foreign investors, and thus there is a high entry barrier for foreigners to invest in the forestry industry in Cambodia.

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APPENDIX IV

Based on the relevant laws and regulations of Cambodia, the Cambodia legal advisers to the Company are of the view that all the administrative works in respect of the granting of the said exclusive exploitation rights of the Forest are in their final process and that there is no material legal impediment for Agri-Industrial to obtain the exclusive exploitation right in respect of the Forest. The Copy of the land certificate of the Forest is shown as follows:

In our valuation, the stand volume of the Forest was based on a technical report named Evaluation Report on the Forest Resource of Kratie, Cambodia (referred to as the “Technical Report”) dated February, 2008, prepared by Mr. Li Yi De, an independent forestry technical consultant of The Research Institute of Tropical Forestry of Chinese Academy of Forestry.

According to the Technical Report, the stand volume was determined by a survey of eight plots having a total area of 24,320 m[2] in the Forest. Details of the eight plots are as follows:

								Habit
Plot	Code	Plot	Area	Height	Slope	Slope	Direction	Description
			(m2)	(m)
A			2,910	100	0-5	South	by East	Sparse woods
B			3,060	100	0-5	South	by East	Sparse woods
C			3,060	100	0-5	South	by East	Sparse woods
D			3,000	100	0-5	South	by East	Sparse woods
E			3,240	100	0-5	South	by East	Sparse woods
F			3,150	100	0-5	South	by East	Sparse woods
G			2,900	100	0-5	South	by East	Sparse woods
H			3,000	100	0-5	South	by East	Sparse woods

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APPENDIX IV

VALUATION REPORT

Different types of timber in the Forest have been categorized into three classes: top-class timber, first-class timber and assortment timber. The classification of the timber is as follows:

No. Class	No. Class	No. Class
1 Top-class timber 2	Rosewoods	Dalbergia sp.
	Non-rosewoods	Sindora cochinensis
3 First-class timber 4 5		Hopea, Shorea obtusa
		Pyinkado, Laurel
		......
6 Assortment timber 7 8 9		Keruing, Meranti
		Cratonxylon ligustrinum, Garcinia
		Mangifera spp., Adina cordifolia
		......

According to the Technical Report, the stand volumes of the Forest with different classes of timbers are as follows:

Class Top-class timber First-class timber Assortment timber Total	Volume in sample plots (m3) 40.4711 336.9295 210.9002 588.3008	Volume per hectare (m3) 16.6411 138.5401 86.7188 241.9000	Stand volume of forest (m3) 159,005.6405 1,323,750.5466 828,598.2503 2,311,354.4374	Volume of DBH (�40cm) (m3) 143,026.1597 1,061,020.9930 663,933.2208 1,867,980.3735	DBH (�40cm) percentage* 89.95 80.15 80.13
					80.82

Percentage[*] , the percentage ratio of the volume of plants of a DBH�40cm to the total volume of this class.

BRIEF INDUSTRY OVERVIEW

In recent years, China has emerged as one of the fastest growing economies in the world. With a record-breaking nominal GDP of RMB20.9 trillion in 2006, China has managed to maintain a double-digit GDP growth for the fourth consecutive year. A wealthier population and higher living standards are the results of this booming economy. The compound annual growth rate of China’s GDP has been rising since 1999. From 2000 and onwards, China’s GDP has been growing at over 8% per year, implying a rapid increase in the consumption power of the nation.

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VALUATION REPORT

APPENDIX IV

China’s GDP Growth Rate (1997-2006)

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Source: National Bureau of Statistics of China

Urbanization in China, as measured by dividing the urban population by the total population, has grown rapidly from 31.9% in 1997 to 43.9% in 2006. The per capita annual consumption expenditure by China’s urban household was approximately RMB4,998 in 2000. This figure had risen to approximately RMB7,943 in 2005, representing a significant increase in consumption expenditure by urban households at a compound annual growth rate of approximately 19.7%.

Per Capita Annual Consumption Expenditure of China Urban Households

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Source: National Bureau of Statistics of China

A similar trend is seen in China’s retail sales figures. The increase in the purchasing power of the China’s urban residents has resulted in a surge in retail sales of consumer goods. Total retail sales of consumer goods in China increased from approximately RMB4,306 billion in 2001 to approximately RMB7,641 billion in 2006. With the strong economic growth and the launch of the 2008 Olympic Games in Beijing, it is expected that there will be a similar level of growth in retail sales in China for the foreseeable future.

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VALUATION REPORT

APPENDIX IV

The Forestry Industry

China’s spectacular economic growth since the last decade has had a dramatic impact throughout the world. It has become a leading nation in terms of its demand for forest products. Domestic supply of industrial wood has failed to keep pace with China’s growing demand.

Between 1997 and 2005, China’s total forest product imports was more than tripled in volume from 40,000,000 m[3] to 134,000,000 m[3] and more than doubled in value. This was a reflection of the country’s own increasing consumption of forest production; the rising international demand for low-cost forest products manufactured in China and China’s inability to meet rising demand through production from its own forests. The trends in Chinese forest products imports are illustrated in the chart as follows:

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Source: Chinese customs statistics

Moreover, the nature of Chinese forest product imports has changed. Throughout the late 1990s, China imported large quantities of plywood. Nowadays, China imports large quantities of raw logs or barely processed wood products to feed its own thriving plywood industry. This is a reflection of the spectacular increase in growth in domestic consumption and the demand for exports on the one hand, and the government’s decision to protect the country’s forests on the other. Details can be referred to from the following chart:

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VALUATION REPORT

APPENDIX IV

It is estimated that the trends of rising imports will continue, possibly for several decades and the forest product imports of China are likely to double in the next 10 years alone. The following figure provides a graphic illustration of three possible scenarios for China’s forest product import trends from 1997 to 2015:

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Source: Chinese customs statistics and FT projections

The Rubber Industry

Rubber is made from latex obtained from the rubber tree (Hevea brasiliensis). Latex is a complex mixture of organic compounds, including various gum resins, waxes, and in some instances, poisonous compounds, suspended in a watery medium with dissolved salts, sugars, tannins, alkaloids, enzymes, and other substances from which the latex can be concentrated, coagulated and vulcanized.

Referring to the China’s Rubber Products Market issued by China Rubber Industry Association, with 18 categories and more than 50,000 types of rubber products, the rubber industry is an important part of China’s national economy. China’s demand for industrial rubber products has grown at a fast pace in the past decade and it is anticipated that in the next five years, both production and demand will continue to grow. China’s nearly two-decade high economic growth has provided the stimulus for the rise in consumption of industrial rubber products.

Since 1990, the country’s consumption of industrial rubber products has grown at a double digit rate of 11.9% annually. It is forecasted that the rapid development of the Chinese machinery and equipment, vehicles, construction, industrial engineering and agricultural sectors will continue to fuel demand for industrial rubber products and to further spur the growth of the industry. Today, Asia is the main source of natural rubber, accounting for around 94% of global output in 2005 and three largest producing countries, including Indonesia, Malaysia and Thailand, together accounted for around 72% of all natural rubber production accordingly.

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VALUATION REPORT

APPENDIX IV

SOURCE OF INFORMATION

For the purpose of our valuation, we have been furnished with the financial and operational data related to Agri-Industrial, which were provided by the senior management of the Company. We have also been provided with various copies of documents related to our valuation, which have been referenced without further verifying with the relevant bodies and/or authorities. We need to state that we are not attorney of laws by nature; therefore, no responsibility is assumed on the aspect of the legality and accuracy of the information provided by the senior management of the Company.

The valuation of Agri-Industrial required consideration of all pertinent factors affecting the economic benefits of Agri-Industrial and its abilities to generate future investment returns. The factors considered in the valuation included, but were not limited to, the following:

The nature and the characteristics of the Forest;
The business nature of Agri-Industrial;
The projected future economic benefits of the Forest;
The continuity of the projected future business operation and sales/distribution network;
The specific economic environment and competition for the market in which AgriIndustrial is exposed to;
Market-derived investment returns of similar businesses; and
The financial and business risks related to Agri-Industrial, including the continuity of income and the projected future result.

Our opinion on the market value of Agri-Industrial is chiefly based on the amount of the stand volume as extracted from the Technical Report, and no responsibility is assumed on the aspect of the accuracy of the information contained in the Technical Report.

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VALUATION REPORT

APPENDIX IV

SCOPE OF WORKS

In the course of our valuation work for Agri-Industrial, we have conducted the following steps to evaluate the reasonableness of the adopted bases and assumptions provided by the senior management of the Company:

Interviewed with the senior management of the Company;
Obtained all relevant financial and operational information of Agri-Industrial;
Studied and based on the content of the supplied materials to arrive at our opinion. It is assumed that the supplied data and information are true and accurate;
Conducted appropriate research/consultation in order to obtain sufficient industrial information to support our valuation. The scope of research/consultation is at our own discretion;
Examined all relevant bases and assumptions of both the financial and operational information of Agri-Industrial, which have been provided by the senior management of the Company;
Held discussions with relevant parties and reviewed various accounting, financial, operational and legal documents in order to get a better understanding of the Forest;
Prepared a business financial model to derive the indicated value of Agri-Industrial; and
Presented all relevant information on the background of Agri-Industrial and the Forest, valuation methodology, source of information, scope of works, major assumptions, comments and our conclusion of value in this report.

VALUATION ASSUMPTIONS

Due to the changing environment in which Agri-Industrial is exposed to, a number of assumptions had to be established in order to sufficiently support our concluded opinion of value of Agri-Industrial. The major assumptions adopted in our valuation were:

There will be no major changes in the existing political, legal, and economic conditions in the jurisdiction where Agri-Industrial is currently or will be exposed to, which will materially affect the revenues attributable to Agri-Industrial;
There will be no major changes in the current taxation law in the jurisdiction related to Agri-Industrial, that the rates of tax payable remain unchanged and that all applicable laws and regulations will be complied with;
Exchange rates and interest rates will not differ materially from those presently prevailing;

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APPENDIX IV

VALUATION REPORT

The financial projections in respect of Agri-Industrial have been prepared on a reasonable basis, reflecting estimates that have been arrived at after due and careful consideration by the senior management of the Company;
Economic conditions will not deviate significantly from economic forecasts;
Agri-Industrial will be granted the exclusive forest exploitation right in respect of the Forest by the Cambodian government;
The operation of Agri-Industrial will be carried out on a continuous basis during the 70-year concession period of the Forest granted by the Cambodian government and no major change in the business environment that Agri-Industrial currently operates and/or will be operating in;
The growth rate for the price of timber adopted is 10.00% per year in the first 10 years of operation, with a sustainable growth rate of 5.00% thereafter, and it is assumed that there will be no significant fluctuations regarding the price of timber from the existing market prices and the forecasted growth rates. The growth rate for the price of timber and the duration of the growth rate was based on the historical timber price growth rates in China and a research report published by Morgan Stanley; and
The growth rate for the price of rubber adopted is 13.73% per year in the first 5 years of operation, with a sustainable growth rate of 5.00% thereafter, and it is assumed that there will be no significant fluctuations regarding the price of rubber from the existing market prices and the forecasted growth rates. The growth rate for the price of rubber was determined by the minimum of the historical growth rates of rubber prices in Indonesia, Malaysia, Thailand and Singapore from 1999 to 2007, and the duration of the growth rate was based on the expectation that the existing shortage for natural rubber will be widened in the next 5 to 7 years according to the International Rubber Study Group.

VALUATION METHODOLOGY

Three generally accepted valuation methodologies have been considered in the valuation. They are the market approach , the cost approach and the income approach .

The market approach provides indications of value by comparing the subject to similar assets that have been sold in the market.

The cost approach provides indications of value by studying the amounts required to recreate the asset for which a value conclusion is desired. This approach seeks to measure the economic benefits of ownership by quantifying the amount of fund that would be required to replace the future service capability of the asset.

The income approach is the conversion of expected periodic benefits of ownership into an indication of value. It is based on the principle that an informed buyer would pay no more for the project than an amount equal to the present worth of anticipated future benefits from the same or a substantially similar asset with a similar risk profile.

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APPENDIX IV

VALUATION REPORT

We considered that the market approach was not appropriate to value Agri-Industrial, as there are insufficient comparable transactions in the market. The cost approach was also regarded not adequate in this valuation, as this approach does not take future growth potential of Agri-Industrial into consideration. Thus, we determined that the income approach was the most appropriate valuation approach for this valuation.

In the valuation, we applied the income approach also known as the discounted cash flow (DCF) method. We determined the market value by applying a discount rate (the cost of capital) in the DCF model to determine the net present value of Agri-Industrial’s future expected cash flows. The expected cash flows were determined from the net profits after tax plus non-cash expenses such as depreciation and amortization expenses and less non-cash incomes, capital expenditures and changes in working capital.

The discount rate takes into account two different types of risks – systematic risks and non-systematic risks. Risks that are correlated with the return from the stock market are referred to as systematic risks. Other risks that are company-specific are referred to as non-systematic risks. We determined the rate of return for systematic risks based on the Capital Asset Pricing Model (CAPM). The CAPM states that an investor requires excess returns to compensate systematic risks but provides no excess return for non-systematic risks.

Under the CAPM, the appropriate rate of return is the sum of the risk-free rate and a related beta times the market risk premium. The CAPM is computed using the following formula (for illustration purpose):

Kc = Rƒ + � (Km – Rƒ)

Where:

Kc			=	the	expected return on capital
Rƒ			=	the	risk-free rate
�			=	the	sensitivity of the firm’s return to the market return
Km			=	the	expected return of the market
_Km _	_– _	Rƒ	=	the	market risk premium

Since the exploitation of the Forest involves two major types of businesses, the clearing up and immediate sale of timber and the subsequent rubber cultivation and plantations, two discount rates were adopted in our valuation for each type of businesses.

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APPENDIX IV

VALUATION REPORT

To determine the discount rate for the clearing up and immediate sale of timber, we adopted the yield rate of the 10-year Central Government Bond of China as at the date of valuation as the risk-free rate, which was 4.12%. Besides, the market risk premium we adopted in the DCF model was 9.11%. The beta of 0.646 was determined as the average of betas of the five comparable companies that are in the forestry industry.

The five comparable companies used to determine the beta for the clearing up and immediate sale of timber are as follows:

Name and Ticker

Business Description

Samling Global Limited (3938 HK) The company is an integrated forest resource and wood products company. Its operations comprise timber harvesting and the management of natural forest concessions.

China Grand Forestry Resources The company grows trees and manufactures timber Group Limited (910 HK) and bark materials, and manufactures apparel and uniforms.

Jilin Forest Industry Company The company’s products include timber, wood Limited (600189 CH) products, formaldehyde, impregnated paper, adhesive, and other related products. Plum Creek Timber Company, Inc. The company grows, harvests and markets timber and (PCL US) logs, and manufactures forest products such as lumber and plywood. Sino-Forest Corporation Limited The company owns rights to manage and operate (TRE CN) hectares of plantations in southern China. The operations include timber harvesting, replanting, maintenance, wood chip processing, marketing and export.

The risk-free rate of 4.12% and the expected return of the market of 13.23% were extracted from Bloomberg. The market risk premium of 9.11% was determined by the expected return of the market subtracted by the risk-free rate. The risk premium of 4.00% was adopted to reflect the additional risk for the early stage of the business and the political and economic instabilities of the place of operation of the Forest.

In respect of non-systematic risks, we considered the size difference (a company-specific risk) between the Company and the selected comparable companies (with reference to “SBBI Valuation Edition 2007 Yearbook”, published by Morningstar, Inc.), and determined that a size premium of 3.88% was adopted. In addition, a risk premium of 4.00% was adopted and therefore the discount rate for the clearing up and immediate sale of timber was calculated as 17.89%.

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APPENDIX IV

VALUATION REPORT

To determine the discount rate for the subsequent rubber cultivation and plantations, we adopted the yield rate of the 10-year Central Government Bond of China as at the date of valuation as the risk-free rate, which was 4.12%. Besides, the market risk premium we adopted in the DCF model was 9.11%. The beta of 0.658 was determined as the average of betas of the five comparable companies that are in the rubber plantation industry. The five comparable companies used to determine the beta for the subsequent rubber cultivation and plantations are as follows:

Name and Ticker

Business Description

GMG Global Limited (GGL SP) The company is an investment holding company whose subsidiaries operate rubber plantation and processing. The company also is a general exporters and importers. Guthrie Ropel Berhad (GUTH MK) The company and its subsidiary companies produce oil palm and rubber on plantations situated in Malaysia. Kumpulan Guthrie Berhad (KGB The company’s has core businesses in plantations (oil MK) palm and rubber), property development, and manufacturing. Tradewinds Plantation Berhad The company is an investment holding company. (TWPB MK) Through its subsidiaries, it cultivates oil palm, rubber, and animal husbandry. Bakrie Sumatera Plantations Tbk, PT The company operates rubber, palm oil, and fresh (UNSP IJ) fruit plantations. It also processes and trades agricultural and industrial products.

In respect of non-systematic risks, we considered the size difference (a company-specific risk) between the Company and the selected comparable companies (with reference to “SBBI Valuation Edition 2007 Yearbook”, published by Morningstar, Inc.), and determined that a size premium of 3.88% was adopted. In addition, a risk premium of 4.00% was adopted and therefore the discount rate for the subsequent rubber cultivation and plantations was calculated as 18.00%.

The concept of marketability deals with the liquidity of an ownership interest, that is, how quickly and easily it can be converted into cash if the owner chooses to sell. The lack of marketability discount reflects the fact that there is no ready market for shares in a closely held company. Ownership interests in closely held companies are typically not readily marketable compared to similar interests in publicly listed companies. Therefore, a share of stock in a privately held company is usually worth less than an otherwise comparable share in a publicly listed company. In the valuation, 20% was used as the discount for lack of marketability, which was based on “Mergerstat Review 2007” published by FactSet Mergerstat LLC.

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VALUATION REPORT

APPENDIX IV

REMARKS

For the purpose of this valuation and in arriving at our opinion of value, we referred to the information provided by the senior management of the Company to estimate our concluded value. We have also sought and received confirmation from the Company that no material facts have been omitted from the information supplied.

To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others, which have been used in formulating this analysis.

Unless otherwise stated, all money amounts stated are in Hong Kong Dollars (HK$).

CONCLUSION OF VALUE

Our conclusion of value is based on accepted valuation procedures and practices that rely substantially on the use of numerous assumptions and the consideration of a lot of uncertainties, not all of which can be easily ascertained or quantified.

Further, whilst the assumptions and consideration of such matters are considered by us to be reasonable, they are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company, Agri-Industrial or us.

Based on our investigation and analysis outlined in this report, it is our opinion that the market value of the 100% equity interest in Agri-Industrial as at 31 March 2008 was HK$1,810,000,000 (HONG KONG DOLLARS ONE THOUSAND EIGHT HUNDRED AND TEN MILLION ONLY) .

We hereby certify that we have neither present nor prospective interest in the Company, Agri-Industrial or the value reported.

Yours faithfully, For and on behalf of

BMI APPRAISALS LIMITED

Dr. Tony Cheng

BSc, MUD, MBA(Finance), MSc(Eng), PhD(Econ),

MHKIS, MCIArb, AFA, SCIFM, FCIM,

MASCE, MIET, MIEEE, MASME, MIIE

Director

Note: Dr. Tony Cheng is a member of the Hong Kong Institute of Surveyors (General Practice), a member of the American Society of Civil Engineers, a member of the American Society of Mechanical Engineers and a member of Institute of Industrial Engineers (U.K.). He has about 10 years’ experience in valuing similar assets or companies engaged in similar business activities as that of Agri-Industrial worldwide.

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APPENDIX V TECHNICAL REPORT ON THE SECOND FOREST

The following is the text of a letter prepared for the purpose of incorporation in this circular received from the Research Institute of Tropical Forestry of China Academy of Forestry* ( ), a technical advisory firm appointed by the Company to perform a technical review on a forest located I Kratie District, Kratie Province, the Kingdom of Cambodia.

9 May 2008

The Directors

China Asean Resources Limited

Block B, 21st Floor, Teda Building No. 87 Wing Lok Street Sheung Wan, Hong Kong

Dear Sirs,

We are appointed by China Asean Resources Limited to conduct an evaluation of forest resource for a forest located at Kratie, Cambodia. This forest is primarily a secondary forest covering an area of 9,555 hectare. The field data acquisition for evaluation of this forest was jointed conducted by our client and us. The client defined 8 sample plots for field survey in December 2007, totally 24,320 square meters with each approximately 3,000 square meters. We conducted on-the-spot survey at this forest at late January 2008 and meanwhile resurveyed two defined sample plots.

The evaluation of the Second Forest was prepared in accordance with (Principle Technical Regulations of Forest Resources Planning, Designing and Research) issued by (the State Forest Administration of the People’s Republic of China), which is applicable for forest field surveying in Asia (including Cambodia) and is in conformity with internationally accepted standards.

1 On-the-spot survey and sample plot survey

1.1 Sample plot survey

The diameter at breast height (DBH) threshold used in the survey was 10 cm.

The field measurement indicators included: timber grade, DBH (cm) and timber length (m).DBH was measured with a loggers tape while timber length was directly estimated (8-10 cm of head log was allowed); the results were filled in the field survey log sheet (Attached Tables 1-8) and details such as sample plot location and GRS positioning were recorded (see Table 1 and Figure 1).

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TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

Table 1 Details of 8 sample plots

						Slope	Habit
Plot	code	Plot	area	Height/m	Slope	direction	description
			m2
A			2910	100	0-5	South by east	Sparse woods
B			3060	100	0-5	South by east	Sparse woods
C			3060	100	0-5	South by east	Sparse woods
D			3000	100	0-5	South by east	Sparse woods
E			3240	100	0-5	South by east	Sparse woods
F			3150	100	0-5	South by east	Sparse woods
G			2900	100	0-5	South by east	Sparse woods
H			3000	100	0-5	South by east	Sparse woods

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==> picture [359 x 72] intentionally omitted <==

Figure 1 Detailed location of 8 sample plots

1.2 On-the-spot survey and sample plot resurvey

On the basis of the 8 sample plots defined by the client, we conducted on-the-spot survey at this forest and meanwhile resurveyed two defined sample plots.

2 Timber grouping

Different types of timbers were grouped by their economic values (see Table 2) with reference to the National Standard for Rosewood GB / T 18107-2000 and the timber markets in Cambodia and China. Three classes were defined: top-class timber (rosewood, non-rosewood), first-class timber and assortment timber. Among which, a limited quantity of top-class timber plants were found at the sample plots and a large percentage of the plants were found to be of the first-class. See Vegetation Composition of Forest for details.

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Table 2 Grouping of different timber classes at field survey

No. Class	No. Class	No. Class
1 Top-class timber 2	Rosewoods	Dalbergia sp.
	Non-rosewoods	Sindora cochinensis
3 First-class timber 4 5		Hopea, Shorea obtusa
		Pyinkado, Laurel
		......
6 Assortment timber 7 8 9		Keruing, Meranti
		Cratonxylon ligustrinum, Garcinia
		Mangifera spp., Adina cordifolia
		......

3 Forest vegetation composition

The whole forest was basically flat without obvious slopes. This forest primarily consists of sparse secondary woods, which represented 70.63% of the forest. Details are given in Table 3.Both the survey and resurvey of the sample plots were conducted at dry season; sparse vegetation was found beneath the woods (see Attached pictures 1 and 2).

Table 3 Area and percentage of four stand types of the forest

	Area of four
Stand types	stand types	Percentage
	(ha)	(%)
Non-wood stand	1529	16.00
Sparse woods	6749	70.63
Semi-dense woods	1182	12.37
Dense woods	95	0.99

During the on-the-spot survey of this forest and resurvey of the sample plots, the detected top-class timbers (rosewoods) included plants of Dalbergia sp. and Pterocarpus sp. (see attached pictures 4 and 5), which are of certain quantity; the detected top-class timbers (rosewoods) included plants of Sindora cochinensis (see attached picture 6).The first-class timbers were mainly represented by Shorea obtuse and Hopea odorata . Assortment timbers were mainly composed of plants of Keruing and Meranti of Dipterocarpaceae , and Cratonxylon ligustrinum, Garcinia .

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APPENDIX V TECHNICAL REPORT ON THE SECOND FOREST

There were 399 plants in total in the 8 sample plots dominated by those whose DBHs were within the range of 20 to 50 cm, which accounted for 72.6% of all plants. A larger distribution of 30 – 40 cm DBH was found, which accounted for 27.1% (see Figure 2).Most plants in the 8 sample plots had a timber length of 6 – 8 m, representing 65.7% of all plants; the timber length of 6 m claimed a larger share of 31.7%; those whose timber length were between 10 m and 12 m accounted for 29.7% of total plants (see Figure 3).

==> picture [392 x 153] intentionally omitted <==

Figure 2 DBH distribution at 8 sample plots

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==> picture [110 x 75] intentionally omitted <==

Figure 3 Timber length distribution at 8 sample plots

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4 Calculation of forest volume

4.1 Calculation of plant quantity and stand volume in sample plots

The calculation of stand volume of the timbers of three classes top-class timber (rosewood, non-rosewood), first-class timber and assortment timber were carried out in accordance with the Inspection and Measurement Standard for Log Volume (Forestry Administration, Thailand), which also applied in Cambodia. The equation used is as follows:

==> picture [138 x 26] intentionally omitted <==

Where, D (in cm) is the DBH at 1.3m; L (m) is the timber length; V (m[3] ) is the volume.

The survey data of the 8 sample plots was consolidated and sorted out. The quantity of the plants of the three classes within various DBH ranges were worked out and filled into Table 4.

It can be noted in Table 4 that there were totally 399 plants in the 8 sample plots and the larger part of which were in the DBH range of 20 – 50 cm. 221 plants had a DBH lower than 40 cm whereas 178 higher than 40 cm. There was a limited number of top-class timber plants, which was 18 (4.51); most plants were first-class timbers, whose number was 240 (60.15%); there were 141 plants (35.34%) in the assortment class.

Table 4 Quantity of plants of the three classes in 8 sample plots

				Quantity	of plants
	Total
DBH range	plants	Top-class timber		First-class timber		Assortment timber
(cm)		Quantity	percentage	Quantity	percentage	Quantity	percentage
		of plants		of plants		of plants
10-20	14	1	5.56	13	5.42	0	0.00
20-30	99	2	11.11	80	33.33	17	12.06
30-40	108	4	22.22	53	22.08	51	36.17
40-50	82	4	22.22	44	18.33	34	24.11
50-60	41	3	16.67	18	7.50	20	14.18
60-70	28	1	5.56	15	6.25	12	8.51
70-80	17	2	11.11	9	3.75	6	4.26
80-90	6	0	0.00	5	2.08	1	0.71
90-100	0	0	0.00	0	0.00	0	0.00
100-110	4	1	5.56	3	1.25	0	0.00
Total	399	18	100.00	240	100.00	141	100.00
Total percentage**	100.00	–	4.51	–	60.15	–	35.34

Percentage is the percentage ratio of the quantity of timber plants at this DHB to the quantity of total number of plants in this class; the total percentage* is the percentage ratio of the quantity of timber plants in this class to the total number of plants.

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The stand volume of plants at each DBH was derived by multiplying the quantity of plants at each DBS in each class by their corresponding individual volume. Then the stand volume of plants at each DBH was consolidated into the volume within each DBH range and filled into Table 5.Finally, the total stand volume of plants in each class was worked out by summing up the volume of plants within each DBH range in each class.

It can be noted in Table 5 that there was a total volume of 588.3008m[3] within the 24,320m[2] sample plots. The stand volume of plants at a DBH lower than 40 cm was 112.8504 m[3] whereas the stand volume of plants at a DBH larger than 40 cm was 475.4504 m[3] . Among which, the volume of timbers in top-class was the smallest, which was 40.4711 m[3] (6.88%); most timbers were in the first-class, whose volume was 336.9295 m[3] (57.27%); the volume of timbers in assortment class was 210.9002 m[3] (35.85%).

Table 5 Volume of plants of the three classes in 8 sample plots

					Timber volume (m3)	Timber volume (m3)
	Total
DBH range	volume	Top-class		timber	First-class timber		Assortment timber
(cm)	(m3)	Timber	percentage		Timber	percentage	Timber	percentage
		volume			volume		volume
		(m3)			(m3)		(m3)
10-20	2.1537	0.1728		0.43	1.9809	0.59	0.0000	0.00
20-30	35.1147	0.6960		1.72	28.0551	8.33	6.3636	3.02
30-40	75.5821	3.1984		7.90	36.8357	10.93	35.5480	16.86
40-50	110.3853	5.6303		13.91	59.9887	17.80	44.7663	21.23
50-60	96.7517	6.1440		15.18	43.3489	12.87	47.2588	22.41
60-70	102.4619	4.4376		10.96	56.5164	16.77	41.5079	19.68
70-80	87.9088	12.0000		29.65	46.5496	13.82	29.3592	13.92
80-90	39.6354	0.0000		0.00	33.5390	9.95	6.0964	2.89
90-100	0.0000	0.0000		0.00	0.0000	0.00	0.0000	0.00
100-110	38.3072	8.1920		20.24	30.1152	8.94	0.0000	0.00
Total	588.3008	40.4711		100.00	336.9295	100.00	210.9002	100.00
Total percentage**	100.00	–		6.88	–	57.27	–	35.85

Percentage is the percentage ratio of the volume of timber plants at this DHB to the total volume of plants in this class; the total percentage* is the percentage ratio of the volume of timber plants in this class to the total volume of plants.

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APPENDIX V

4.2 Calculation of forest volume

After the volume of plants in each class within each DBH range in the 24,320 m[2] sample plots was worked out (Table 5), the stand volume per hectare was obtained by divided it by 2.432 and was filled into Table 6.

The stand volume per hectare of this forest was 241.9000 m[3] , among which, the volume in top-class was 16.4711 m[3] (6.88%); most timbers were in the first-class, whose volume was 138.5401 m[3] (57.27%); the volume of timbers in assortment class was 86.7188 m[3] (35.85%).

Table 5 The stand volume per hectare of forest

				Stand volume (m3)	Stand volume (m3)
	Volume
	per
DBH range	hectare	Top-class	timber	First-class	timber	Assortment	timber
(cm)	(m3)	V1	V2	V1	V2	V1	V2
10-20	0.8856	0.1728	0.0711	1.9809	0.8145	0.0000	0.0000
20-30	14.4386	0.6960	0.2862	28.0551	11.5358	6.3636	2.6166
30-40	31.0782	3.1984	1.3151	36.8357	15.1463	35.5480	14.6168
40-50	45.3887	5.6303	2.3151	59.9887	24.6664	44.7663	18.4072
50-60	39.7828	6.1440	2.5263	43.3489	17.8244	47.2588	19.4321
60-70	42.1307	4.4376	1.8247	56.5164	23.2387	41.5079	17.0674
70-80	36.1467	12.0000	4.9342	46.5496	19.1405	29.3592	12.0720
80-90	16.2975	0.0000	0.0000	33.5390	13.7907	6.0964	2.5067
90-100	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000
100-110	15.7513	8.1920	3.3684	30.1152	12.3829	0.0000	0.0000
Total	241.9000	40.4711	16.6411	336.9295	138.5401	210.9002	86.7188
Total percentage**	100.00	–	6.88	–	57.27	–	35.85

V1: volume (m[3] ) in the 24,320 m[2] sample plots; V2: Volume (m[3] ) per hectare (10,000 m[2] )

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The total volume of each class within each DBH range and the total volume of the forest were derived by multiplying the volume per hectare with the total forest area of 9,555 hectare. These figures were filled into Table 7 and Table 8.

Table 7 The total volume of forest

				Stand volume (m3)	Stand volume (m3)
	Stand
DBH range	volume	Top-class	timber	First-class timber		Assortment timber
(cm)	(m3) (m3)	V2	V3	V2	V3	V2	V3
10-20	8,461.4557	0.0711	678.9079	0.8145	7,782.5478	0.0000	0.0000
20-30	137,960.7837	0.2862	2,734.4902	11.5358	110,224.5665	2.6166	25,001.7270
30-40	296,951.8245	1.3151	12,566.0827	15.1463	144,722.4394	14.6168	139,663.3025
40-50	433,688.8924	2.3151	22,120.8315	24.6664	235,687.4726	18.4072	175,880.5883
50-60	380,124.4407	2.5263	24,138.9482	17.8244	170,312.1604	19.4321	185,673.3321
60-70	402,559.1414	1.8247	17,434.7325	23.2387	222,045.3209	17.0674	163,079.0880
70-80	345,381.8309	4.9342	47,146.3832	19.1405	182,887.1066	12.0720	115,348.3411
80-90	155,722.2406	0.0000	0.0000	13.7907	131,770.3693	2.5067	23,951.8713
90-100	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000
100-110	150,503.8275	3.3684	32,185.2643	12.3829	118,318.5632	0.0000	0.0000
Total	2,311,354.4374	16.6411	159,005.6405	138.5401	1,323,750.5466	86.7188	828,598.2503
Total (DBH�40cm)	1,867,980.3735	14.9687	143,026.1597	111.0435	1,061,020.9930	69.4854	663,933.2208
percentage*	80.82	89.95	89.95	80.15	80.15	80.13	80.13

V2, volume (m[3] ) per hectare (10,000m[3] ); V3, total volume of forest (m[3] ); percentage*, the percentage ratio of the volume of plants whose DBH�40cm to the volume of total plants.

Table 8 Volume summary of timbers in three classes

			Stand	Volume of
	Volume in	Volume per	volume of	DBH	DBH
Class	sample plots	hectare	forest	(�40cm)	(�40cm)
	(m3)	(m3)	(m3) (m3)	(m3)	percentage*
Top-class timber	40.4711	16.6411	159,005.6405	143,026.1597	89.95
First-class timber	336.9295	138.5401	1,323,750.5466	1,061,020.9930	80.15
Assortment timber	210.9002	86.7188	828,598.2503	663,933.2208	80.13
Total	588.3008	241.9000	2,311,354.4374	1,867,980.3735	80.82

Percentage*, the percentage ratio of the volume of plants of a DBH�40cm to the total volume of this class.

It can be noted in Table 7 and 8 that the total stand volume of this forest was 2,311,354.4374 m[3] , among which, the volume in top-class was 159,005.6405 m[3] ; most timbers were in the first-class, whose volume was 1,323,750.5466 m[3] ; the volume of timbers in assortment class was 828,598.2503 m[3] .

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Among which, as the market price for logs of a DBH lower than 40 cm was low (timbers in this DBH range was put in the assortment class in calculation, with the exception of the top-class timbers); so a separate column was given in Table 7 to accommodate the percentage of stand volume of plants DBH�40 cm so as to facilitate the evaluation of the forest which follows.

The total volume of plants DBH larger than 40cm was 1,867,980.3735m[3] (80.82% of all plants); that of top-class timber was 143,026.1597 m[3] (89.95% of plants in this class); the first-class timber claimed the largest percentage and the volume was 1,061,020.9930 m[3] (80.15% of plants in this class) Given all plants whose DBH was lower than 40 cm (with the exception of the top-class timbers) was calculated into the total volume of the assortment class, the volume of this class would be 1,091,327.8039 m[3] .

5 Comments on rationale of evaluation

Based on accessibility and composites of the forests, eight sample plots were agreed to be surveyed to investigate the resource of the whole forest covering 9,555 hectares in this evaluation.

What needs to be emphasized is that the conclusion of this evaluation was based on the survey results of the eight sample plots which covered 24,320m[2] . The analysis procedure complies with existing calculation method and the methodology is solid. However, in this survey only sparse woods (accounting for 70.63% of the total area) were sampled and the non-wood land (accounting for 16.00% of the total area), semi-dense woods (accounting for 12.73% of the total area) and dense woods (accounting for 0.99% of the total area) were left out; therefore, it is possible that a deviation exists in both the forest volume and the ratio of the three classes of timber as represented by the sample plots. All these factors might have caused a deviation in evaluation of the real value of the whole forest. All the obtained results can adequately be used to describe the real status of these sample plots and they basically reflected the approximate status of the sparse woods which represented 70.63% of the total area. However, they do not fully illustrate the composition of vegetation in the whole forest covering 9,555 hectares, nor the resource status, in particularly those of the semi-dense woods and dense woods.

Li Yide, research fellow

Dr. Xu Han, associate research fellow

Research Institute of Tropical Forestry, Chinese Academy of Forestry

9 May 2008

Note:

Mr. Li Yide enrolled in the Forestry Faculty of Central South Forestry University (currently known as “the Resources and Environment School of Central South Forestry University of Forestry and Technology”) since 1978. He has been working in the Research Institute of Tropical Forestry in Chinese Academy of Forestry since his graduation with a bachelor’s degree in July 1982. He has been studying the ecosystem of tropical forest, with a focus on forest botany, forest ecology, the reservation and monitoring of biodiversity, nature

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Reservation, etc. He was successively promoted as an assistant researcher and a deputy researcher in August 1988 and July 1993 respectively. Later, he was approved as a mentor to postgraduates by Chinese Academy of Forestry in 1994, and he was promoted as a researcher in July 1998. From April to July 1994, he had stayed in Smithsonian Institution in America to study the technological cooperation of the biodiversity monitoring of tropical and subtropical forest. In December 1999, he went to the LTER (the Long Term Ecology Research Network) in America to study the long term monitoring technology of forest ecosystem. In March 2003, he went to Thailand to attend the training for the vegetation restoration technology of tropical secondary forest, which was jointly organized by IUCN/ITTO. He currently acts as a researcher of Chinese Academy of Forestry, the chief expert in the monitoring and evaluation of forest ecological efficiency research, the director of the “State Pilot Station of Key Field Scientific Observations – State Field Scientific Observation and Research Station of Jianfengling Forest Ecosystem in Hainan” (the State Key Field Laboratory) operated by the Ministry of Science and Technology and State Forestry Administration, and a member of the Academic Committee of the Research Institute of Tropical Forestry. Besides, he also holds office as a director of Ecological Society of China and a member of the Long-term Ecology Committee under Ecological Society of China, an executive member of the Forest Ecology Committee of Chinese Society of Forestry, and a director of Ecological Society of Guangdong, a member of Japanese Society of Tropical Ecology and a member of the Evaluation Committee of Guangdong Nature Protection Zone.

Dr. Xu Han holds a double degree in Forestry and Molecular Biology, a Master’s degree in Botany and a Doctor’s degree in Forest Ecology. He has about 3 years’ experience in the researches in taxonomy of tropical forest plants, forest communities and molecular biology possessing, with extensive experience in field surveying. He is principally in charge of intermediate professional and technical work as an assistant researcher in the research team of Mr. Li Yide. He has been participated in various projects leaded by Mr. Li Yide. He has also been participated in various valuations and pre-investment researches of forests in the Kingdom of Cambodia since 2006.

The projects they have been participated include, but not limited to, the following:

the key project of National Natural Science Fund: “Ecosystem Research of Jianfengling Tropical Forest in Hainan” (in the first period from 1982 to 1986), in which he participated in the investigation of plant species and the study of vegetation ecology series;
the project of “Research on Palm Vines” (1985 to 1993) sponsored by International Development Research Center of Canada, in which he participated in the investigation of wild palms and vines and the study of plant species and structure;
the “Seventh Five-Year” key research project of the Ministry of Forestry: “Positioning Research of Ecosystem of Jianfengling Tropical Forest in Hainan” (1986 to 1990), in which he engaged in the research of vegetation ecology;
the key project of Guangdong Ministry of Forestry: “Investigation and Research of the Harm of Heminberlesia pitysophila Takagi to vegetation Status” (1988 to 1989), in which he was responsible for the research of the correlation between the Harm of Heminberlesia pitysophila Takagi and vegetation amount;
the sponsored project of National Natural Science Fund: “Ecosystem Research of Jianfengling Tropical Forest in Hainan” (in the second period from 1989 to 1993), in which he continued to participate in the investigation of plant species and the study of vegetation ecology series;
the “Eighth Five-Year” key research project of the Ministry of Forestry: “Positioning Research of Ecosystem of Jianfengling Tropical Forest in Hainan” (1991 to 1995), in which he engaged in the research of vegetation ecology, with a focus on the plant species botany of tropical forests, botany plant groups, biological strength and productivity;
the sub-title of National Natural Science Fund key project: “Research on the structure and function on the ecosystem of tropical rainforest” (1991 to1995), in which he was in responsible for the research on the formation and structure of the community of forests;
the sub-title of the state key problems to be tackled in the “Eighth Five-Year”: “Research on the discharge volume of CO2 by tropical mountain rainforest” (1992 to 1995), in which he served as the project director and the main researches included the measurement of various factors in the form of CO2 such as forest respiration capacity, woodland CO2 respiration capacity, community growth, and community CO2 assimilation;

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the fourth sub-project “tropical primeval forest protection Demonstration Zone” (1993 to 2000) of the International Tropical Timber Organization (ITTO) – funded project: “Research on the model of the classified operation and perpetual exploration of tropical forest in Hainan Island of China”; He served as a core member of the sub-project and the sub-projects director, in addition to the supervision of comprehensive work, he also specifically responsible for forest ecosystems and biodiversity research, GIS management system development and project planning development, the protection of natural resources in tropical forests;
the National Natural Science Fund Project: “Research on the impact of tropical storm (typhoon) to the hydrological function of tropical forest” (1996 to 1998), in which he engaged on the research on the impact of typhoon to community structure of forest and the destruction of forest resources;
the National Natural Science Fund Project: “Research on the change of CO2 volume in the canopy of tropical mountain rainforest” (1998 to 2000), in which he was responsible for the physiological ecology study;
the National Natural Science Fund Major Projects: “Research on the mechanism of interaction between China’s eastern agricultural land ecosystem and global change” (1998 to 2001), in which he was responsible for the research of the types of tropical ecosystem;
the “9th to 11th Five-Year” key project of the Ministry of Forest: “Jianfengling Tropical Forest Ecosystem Positioning Research” (1996-2010), in which he served as the project leader, and was specifically in charge of the study of long-term monitoring for forest vegetation succession dynamics, biological productivity and biodiversity;
the State Forestry Administration Guide Project: “Research on tropical forest ecosystem positioning stations” (1998 to 2001), in which he served as the project leader;
in 1999, he participated the research of “The further development of the forestry industry in Guangdong” organized by the Guangdong Provincial Political Consultation Committee and the Guangdong Provincial Forestry Department;
the Guangdong Provincial Forestry Department Project: “Guangdong Rare Plant Resources Survey (1998 to 2001)”, in which he served as the deputy director of the project;
the Guangdong Provincial Forestry Bureau projects: “The provincial nature protection zone planning in Luofu Mountain” (1999 to 2000), “Scientific expedition and the overall planning in Baipenzhu – Lianhua Mountain nature protection zone” (2000 to 2001), “Scientific expedition and the overall planning in Lanke Mountain provincial nature protection zone and provincial forest of Antelope Gap Park” (2001 to 2003) and “Scientific expedition and the overall planning in Chenhe Cave provincial nature protection zone” (2003 to 2005), in which he all served as the leader;
the social welfare project of Ministry of Science and Technology: “The supply and demand study on the adjustment of water by tropical forest” (2001 to 2004), in which he served as the leader;
the sub-title of the state technological problems to be tackled in the “10th Five-Year”: “Research on natural forest conservation technology in Hainan forest” (2001-2005), in which he served as the project leader;
the infrastructure platforms project of Ministry of Science and Technology: “Research on the construction of typical field ecological station database” (2002 to 2004), in which he served as the project leader;
the National Natural Science Fund Project: “Research on the conversion of measurement of the data measured in the field on the tropical forest ecosystem” (2004-2006), in which he served as the leader;
the sub-title of the National Natural Science Fund key project: “Tropical forest functional group study” (2005-2008), in which he serves as the leader;
the National Natural Science Fund Project: “Research on the maintaining strategy of low-density populations in tropical rainforest” (2007 to 2009), in which he serves as the main participant;
the sub-title of the infrastructure platform project of the Ministry of Science and Technology: “the protection and sustainable use of tropical plants resource” (2005 to 2006), in which he served as the leader;

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the infrastructure platform project of the Ministry of Science and Technology: “Data Information System Construction of Jianfengling Positioning Station” (2002 to 2007, a total of two phases), in which he served as the leader;
Chinese Academy of Forestry and Research Institute of Tropical Forestry Fund Project: “Classification of Forest Insect Specimens” (2004 to 2006), in which he served as the leader;
APP Sponsored Project: “Major pests and their control strategy for eucalyptus plantation ecosystem” (2004 to 2005), in which he served as the leader;
The Guangdong Provincial Communications Department Meihe Expressway Company funded project: “Meihe expressway ecological and environmental protection research” (2004 to 2006), in which he served as the leader;
The Hainan Provincial Forestry Bureau and Hainan Bawangling State Nature Protection Zone funded project: “The construction and monitoring research of Bawangling forest ecological station” (2006 to 2007), in which he served as the leader;
Guangdong local standard: “The Construction Technical Specification for Nature Protection Zones in Guangdong Province” (2005 to 2006), in which he served as the leader;
Guangzhou local standard: “Guangzhou indicators’ system for health monitoring on forest communities, soil and ecosystem” (2004 to 2006), in which he served as the leader;
the construction planning part of Guangzhou Municipal Forestry Bureau Project: “Guangzhou Municipal Forestry Development Concept Plan, 11th Five-Year Plan and long-term development plan” (2004 to 2006), in which he served as the leader;
the harmful plants census of Guangzhou Municipal Forestry Bureau Project: “Census of harmful organism for forest in Guangzhou” (2006 to 2008), in which he served as the leader;
the State Forestry Administration Project: “Construction of Hainan Jianfengling tropical forest ecosystem positioning station” (2005 to 2007), in which he served as the leader;
the State Forestry Administration Project: “Construction of carbon sinks positioning observation ancillary facilities for Hainan Jianfengling tropical forest ecosystem station” (2006 to 2007), in which he served as the leader;
the State Forestry Administration Project No.948: “Introduction of carbon flux monitoring technology for tropical forest ecosystem” (2007 to 2009), in which he served as the leader;
the State Technology Support Project in the “11th Five-Year”: “Research on carbon flux effective monitoring and assessment of tropical forest ecosystem” (2006 to 2010), in which he served as the leader;
E-platform project of the Ministry of Science and Technology: “Digitization of biological specimens in main protection zones in tropical areas” (2007 to 2009), in which he served as the leader;
the plant specimens collection in Jianfengling area as part of the Ministry of Science and Technology Key Project: “Survey of land and oceanic biological resources in Hainan Island” (2007 to 2009), in which he served as the leader;
the State Field Key Scientific Observation Station of the Ministry of Science and Technology: “The forest ecosystem in Jianfengling Ecological Station and the long-term monitoring research on its environmental factors” (2006 to 2010), in which he served as the leader.

– 132 –

APPENDIX V TECHNICAL REPORT ON THE SECOND FOREST

Appendix

Table 1 Field Sample Plot Investigation Record Sheet

Table 1 Field Sample Plot Investigation Record Sheet (Special-Class Timber= 0, First-Class Timber= 1, and Timber of other classes= 2)

		Girth at	Diameter
	Sample	Breast	at Breast	Length of	Class (0, 1,	Volume of
No.	Plot	Height	Height	Timber	2)	Timber
		(m)	(cm)	(m)		(m)3
1	A	2.50	79.6	12	0	6.0000
2	A	1.73	55.1	9	2	2.1549
3	A	1.20	38.2	8	2	0.9216
4	A	2.40	76.4	10	2	4.6080
5	A	1.67	53.2	10	1	2.2311
6	A	0.84	26.7	7	1	0.3951
7	A	0.84	26.7	7	1	0.3951
8	A	0.90	28.6	8	1	0.5184
9	A	0.90	28.6	7	1	0.4536
10	A	1.40	44.6	8	1	1.2544
11	A	0.97	30.9	8	1	0.5645
12	A	1.70	54.1	9	2	2.0808
13	A	1.15	36.6	8	1	0.8464
14	A	1.60	50.9	10	2	2.0480
15	A	1.87	59.5	11	2	3.0773
16	A	1.60	50.9	10	2	2.0480
17	A	0.87	27.7	12	1	0.7266
18	A	1.06	33.7	7	1	0.6292
19	A	1.00	31.8	8	2	0.6000
20	A	1.60	50.9	10	1	1.9456
21	A	1.43	45.5	8	0	1.3087
22	A	0.93	29.6	7	1	0.4843
23	A	1.70	54.1	10	2	2.3120
24	A	1.40	44.6	10	2	1.4896
25	A	0.95	30.2	8	1	0.5776
26	A	1.48	47.1	10	2	1.7523
27	A	0.64	20.4	11	1	0.3604
28	A	1.50	47.7	8	1	1.4400
29	A	1.34	42.7	8	2	1.1492
30	A	1.50	47.7	9	1	1.6200
31	A	1.00	31.8	7	2	0.5600
32	A	0.80	25.5	6	1	0.3072
33	A	0.82	26.1	6	1	0.3228
34	A	0.58	18.5	6	1	0.1615

– 133 –

TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

		Girth at	Diameter
	Sample	Breast	at Breast	Length of	Class (0, 1,	Volume of
No.	Plot	Height	Height	Timber	2)	Timber
		(m)	(cm)	(m)		(m)3
35	A	1.10	35.0	7	1	0.6776
36	A	1.10	35.0	7	1	0.6776
37	A	1.10	35.0	7	1	0.6776
38	A	1.40	44.6	8	1	1.2544
39	A	2.20	70.0	11	1	4.2592
40	A	1.20	38.2	8	1	0.8640
41	A	1.50	47.7	9	2	1.5300
42	A	3.30	105.0	12	1	10.4544
43	A	0.72	22.9	6	1	0.2488
44	A	1.30	41.4	8	1	1.0816
45	A	1.54	49.0	9	2	1.7076
46	A	0.80	25.5	7	1	0.3584
47	A	1.70	54.1	11	1	2.5432
1	B	2.30	73.2	12	2	5.0784
2	B	1.55	49.3	10	1	1.9220
3	B	2.55	81.2	12	1	6.2424
4	B	2.80	89.1	12	1	7.5264
5	B	1.20	38.2	9	1	0.9792
6	B	0.90	28.6	7	1	0.4536
7	B	0.90	28.6	7	1	0.4536
8	B	1.20	38.2	8	1	0.9216
9	B	2.50	79.6	12	1	6.0000
10	B	0.90	28.6	7	1	0.4536
11	B	2.25	71.6	12	1	4.8600
12	B	1.40	44.6	10	1	1.5680
13	B	1.30	41.4	9	2	1.2168
14	B	0.90	28.6	7	1	0.4536
15	B	1.30	41.4	8	2	1.0816
16	B	1.20	38.2	8	1	0.9216
17	B	1.30	41.4	8	1	1.0816
18	B	0.80	25.5	6	1	0.3072
19	B	1.70	54.1	9	1	2.0808
20	B	2.50	79.6	12	0	6.0000
21	B	1.60	50.9	11	2	2.2528
22	B	1.90	60.5	12	2	3.4656
23	B	1.87	59.5	12	1	3.3570
24	B	0.70	22.3	6	1	0.2352
25	B	0.90	28.6	6	1	0.3888
26	B	1.55	49.3	10	2	1.9220
27	B	1.40	44.6	9	1	1.4112
28	B	1.60	50.9	11	1	2.2528

– 134 –

TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

		Girth at	Diameter
	Sample	Breast	at Breast	Length of	Class (0, 1,	Volume of
No.	Plot	Height	Height	Timber	2)	Timber
		(m)	(cm)	(m)		(m)3
29	B	2.00	63.7	12	1	3.8400
30	B	1.50	47.7	10	1	1.8000
31	B	1.55	49.3	10	1	1.9220
32	B	1.07	34.1	9	1	0.8243
33	B	1.50	47.7	10	1	1.8000
34	B	1.96	62.4	12	2	3.6879
35	B	2.35	74.8	12	2	5.3016
36	B	2.64	84.0	12	1	6.6908
1	C	1.76	56.0	11	2	2.7259
2	C	0.52	16.6	6	1	0.1298
3	C	1.90	60.5	11	2	3.1768
4	C	1.50	47.7	10	1	1.8000
5	C	2.15	68.4	12	0	4.4376
6	C	0.60	19.1	6	1	0.1728
7	C	0.90	28.6	7	1	0.4536
8	C	3.20	101.9	12	1	9.8304
9	C	1.80	57.3	11	2	2.8512
10	C	1.60	50.9	10	0	2.0480
11	C	1.00	31.8	7	1	0.5600
12	C	1.50	47.7	10	1	1.8000
13	C	1.30	41.4	10	1	1.3520
14	C	1.30	41.4	10	1	1.3520
15	C	1.25	39.8	10	1	1.2500
16	C	1.90	60.5	10	2	2.8880
17	C	2.52	80.2	12	2	6.0964
18	C	2.60	82.8	12	1	6.4896
19	C	1.70	54.1	11	2	2.5432
20	C	2.40	76.4	12	1	5.5296
21	C	2.10	66.8	12	2	4.2336
22	C	1.30	41.4	10	1	1.3520
23	C	1.50	47.7	10	2	1.8000
24	C	2.10	66.8	12	1	4.2336
25	C	2.10	66.8	12	1	4.2336
26	C	0.80	25.5	6	1	0.3072
27	C	1.20	38.2	8	1	0.9216
28	C	2.30	73.2	12	2	5.0784
29	C	1.60	50.9	11	2	2.2528
30	C	1.30	41.4	10	2	1.3520
31	C	1.70	54.1	11	2	2.5432
32	C	1.40	44.6	10	2	1.5680
33	C	1.00	31.8	6	1	0.4800

– 135 –

TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

		Girth at	Diameter
	Sample	Breast	at Breast	Length of	Class (0, 1,	Volume of
No.	Plot	Height	Height	Timber	2)	Timber
		(m)	(cm)	(m)		(m)3
34	C	2.62	83.4	12	1	6.5898
1	D	1.20	38.2	8	2	0.9216
2	D	0.90	28.6	6	1	0.3888
3	D	1.00	31.8	7	1	0.5600
4	D	2.00	63.7	12	1	3.8400
5	D	2.00	63.7	12	1	3.8400
6	D	1.90	60.5	11	2	3.1768
7	D	1.90	60.5	11	2	3.1768
8	D	1.70	54.1	11	2	2.5432
9	D	2.20	70.0	12	2	4.6464
10	D	1.20	38.2	8	1	0.9216
11	D	1.30	41.4	8	2	1.0816
12	D	1.30	41.4	8	2	1.0816
13	D	1.90	60.5	11	1	3.1768
14	D	0.60	19.1	6	0	0.1728
15	D	1.90	60.5	12	2	3.4656
16	D	1.20	38.2	8	1	0.9216
17	D	1.90	60.5	12	1	3.4656
18	D	2.20	70.0	12	1	4.6464
19	D	2.00	63.7	12	1	3.8400
20	D	0.90	28.6	7	1	0.4536
21	D	1.00	31.8	7	1	0.5600
22	D	1.90	60.5	12	2	3.4656
23	D	1.60	50.9	10	0	2.0480
24	D	1.63	51.9	10	2	2.1255
25	D	1.90	60.5	12	1	3.4656
26	D	0.90	28.6	7	1	0.4536
27	D	1.20	38.2	8	2	0.9216
28	D	1.80	57.3	12	2	3.1104
29	D	1.60	50.9	11	1	2.2528
30	D	1.30	41.4	8	1	1.0816
31	D	0.50	15.9	6	1	0.1200
32	D	1.40	44.6	9	1	1.4112
33	D	1.40	44.6	9	1	1.4112
34	D	2.30	73.2	12	1	5.0784
35	D	1.15	36.6	8	1	0.8464
36	D	2.50	79.6	12	1	6.0000
37	D	1.70	54.1	11	2	2.5432
38	D	1.40	44.6	10	2	1.5680
39	D	1.60	50.9	10	1	2.0480
40	D	3.20	101.9	10	0	8.1920

– 136 –

TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

		Girth at	Diameter
	Sample	Breast	at Breast	Length of	Class (0, 1,	Volume of
No.	Plot	Height	Height	Timber	2)	Timber
		(m)	(cm)	(m)		(m)3
1	E	3.20	101.9	12	1	9.8304
2	E	1.30	41.4	8	1	1.0816
3	E	1.30	41.4	8	2	1.0816
4	E	0.85	27.1	6	1	0.3468
5	E	0.90	28.6	6	1	0.3888
6	E	1.60	50.9	9	2	1.8432
7	E	1.20	38.2	8	2	0.9216
8	E	2.10	66.8	12	1	4.2336
9	E	1.50	47.7	10	2	1.8000
10	E	1.30	41.4	8	2	1.0816
11	E	0.90	28.6	7	2	0.4536
12	E	0.90	28.6	7	2	0.4536
13	E	1.10	35.0	7	2	0.6776
14	E	1.30	41.4	8	1	1.0816
15	E	0.90	28.6	7	1	0.4536
16	E	0.70	22.3	6	1	0.2352
17	E	0.90	28.6	7	1	0.4536
18	E	1.00	31.8	7	2	0.5600
19	E	1.00	31.8	7	2	0.5600
20	E	1.30	41.4	8	2	1.0816
21	E	0.90	28.6	6	1	0.3888
22	E	1.30	41.4	8	1	1.0816
23	E	1.60	50.9	9	2	1.8432
24	E	0.70	22.3	6	1	0.2352
25	E	0.90	28.6	6	1	0.3888
26	E	1.30	41.4	10	2	1.3520
27	E	0.80	25.5	6	1	0.3072
28	E	1.30	41.4	10	2	1.3520
29	E	1.35	43.0	10	2	1.4580
30	E	1.20	38.2	8	2	0.9216
31	E	2.00	63.7	12	1	3.8400
32	E	0.60	19.1	6	1	0.1728
33	E	1.90	60.5	12	1	3.4656
34	E	1.40	44.6	8	1	1.2544
35	E	0.60	19.1	6	1	0.1728
36	E	0.70	22.3	6	1	0.2352
37	E	1.00	31.8	6	1	0.4800
38	E	1.30	41.4	9	1	1.2168
39	E	2.40	76.4	12	1	5.5296
40	E	1.25	39.8	8	2	1.0000
41	E	1.70	54.1	10	2	2.3120

– 137 –

TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

		Girth at	Diameter
	Sample	Breast	at Breast	Length of	Class (0, 1,	Volume of
No.	Plot	Height	Height	Timber	2)	Timber
		(m)	(cm)	(m)		(m)3
42	E	0.90	28.6	6	1	0.3888
43	E	0.90	28.6	6	1	0.3888
44	E	0.70	22.3	6	1	0.2352
45	E	0.90	28.6	6	2	0.3888
46	E	1.60	50.9	10	0	2.0480
47	E	1.30	41.4	8	2	1.0816
48	E	1.10	35.0	7	1	0.6776
49	E	0.70	22.3	6	1	0.2352
50	E	1.10	35.0	7	1	0.6776
1	F	2.05	65.3	10	1	3.3620
2	F	1.20	38.2	8	1	0.9216
3	F	0.70	22.3	6	1	0.2352
4	F	0.70	22.3	6	1	0.2352
5	F	1.30	41.4	8	1	1.0816
6	F	0.80	25.5	6	2	0.3072
7	F	0.80	25.5	6	1	0.3072
8	F	1.00	31.8	7	2	0.5600
9	F	1.30	41.4	8	1	1.0816
10	F	1.50	47.7	10	2	1.8000
11	F	1.40	44.6	9	1	1.4112
12	F	0.60	19.1	6	1	0.1728
13	F	0.80	25.5	6	0	0.3072
14	F	1.20	38.2	8	2	0.9216
15	F	0.85	27.1	6	1	0.3468
16	F	1.43	45.5	6	1	0.9816
17	F	1.40	44.6	9	2	1.4112
18	F	1.00	31.8	7	2	0.5600
19	F	1.00	31.8	7	2	0.5600
20	F	0.50	15.9	6	1	0.1200
21	F	0.90	28.6	6	1	0.3888
22	F	0.90	28.6	6	1	0.3888
23	F	0.90	28.6	6	2	0.3888
24	F	0.80	25.5	6	1	0.3072
25	F	1.20	38.2	7	1	0.8064
26	F	1.10	35.0	7	0	0.6776
27	F	1.70	54.1	10	1	2.3120
28	F	2.00	63.7	12	2	3.8400
29	F	1.00	31.8	6	1	0.4800
30	F	1.60	50.9	10	1	2.0480
31	F	1.50	47.7	10	1	1.8000
32	F	0.85	27.1	6	1	0.3468

– 138 –

TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

		Girth at	Diameter
	Sample	Breast	at Breast	Length of	Class (0, 1,	Volume of
No.	Plot	Height	Height	Timber	2)	Timber
		(m)	(cm)	(m)		(m)3
33	F	0.80	25.5	6	1	0.3072
34	F	2.20	70.0	12	1	4.6464
35	F	0.80	25.5	6	2	0.3072
36	F	1.40	44.6	8	1	1.2544
37	F	1.70	54.1	7	1	1.6184
38	F	1.80	57.3	12	1	3.1104
39	F	1.90	60.5	12	2	3.4656
40	F	1.00	31.8	7	2	0.5600
41	F	1.20	38.2	8	2	0.9216
42	F	1.00	31.8	6	1	0.4800
43	F	1.00	31.8	6	1	0.4800
44	F	0.90	28.6	6	1	0.3888
45	F	0.75	23.9	6	1	0.2700
46	F	1.25	39.8	8	2	1.0000
47	F	1.60	50.9	10	2	2.0480
48	F	1.20	38.2	9	2	1.0368
49	F	0.90	28.6	6	2	0.3888
50	F	1.00	31.8	6	1	0.4800
51	F	1.40	44.6	8	2	1.2544
52	F	1.00	31.8	7	1	0.5600
53	F	1.20	38.2	7	2	0.8064
54	F	1.30	41.4	7	2	0.9464
55	F	1.50	47.7	10	0	1.8000
56	F	1.00	31.8	6	2	0.4800
57	F	1.00	31.8	6	2	0.4800
58	F	1.20	38.2	8	1	0.9216
59	F	1.00	31.8	6	2	0.4800
60	F	2.20	70.0	12	2	4.6464
61	F	1.20	38.2	8	1	0.9216
62	F	1.80	57.3	12	1	3.1104
63	F	0.85	27.1	6	2	0.3468
1	G	1.40	44.6	8	2	1.2544
2	G	1.00	31.8	7	1	0.5600
3	G	0.80	25.5	6	1	0.3072
4	G	0.80	25.5	6	1	0.3072
5	G	1.00	31.8	6	2	0.4800
6	G	1.10	35.0	7	2	0.6776
7	G	1.43	45.5	8	1	1.3087
8	G	1.30	41.4	8	2	1.0816
9	G	1.10	35.0	7	2	0.6776
10	G	1.10	35.0	7	1	0.6776

– 139 –

TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

		Girth at	Diameter
	Sample	Breast	at Breast	Length of	Class (0, 1,	Volume of
No.	Plot	Height	Height	Timber	2)	Timber
		(m)	(cm)	(m)		(m)3
11	G	0.90	28.6	6	2	0.3888
12	G	0.90	28.6	6	1	0.3888
13	G	0.80	25.5	6	1	0.3072
14	G	1.10	35.0	7	2	0.6776
15	G	1.00	31.8	6	1	0.4800
16	G	1.30	41.4	8	1	1.0816
17	G	1.10	35.0	7	1	0.6776
18	G	0.90	28.6	7	2	0.4536
19	G	1.50	47.7	10	1	1.8000
20	G	0.85	27.1	6	1	0.3468
21	G	1.60	50.9	11	1	2.2528
22	G	0.80	25.5	6	1	0.3072
23	G	0.80	25.5	6	1	0.3072
24	G	1.20	38.2	7	2	0.8064
25	G	1.10	35.0	7	2	0.6776
26	G	0.80	25.5	6	2	0.3072
27	G	0.85	27.1	6	1	0.3468
28	G	0.70	22.3	6	1	0.2352
29	G	1.20	38.2	7	1	0.8064
30	G	1.00	31.8	6	1	0.4800
31	G	1.00	31.8	6	1	0.4800
32	G	1.10	35.0	7	2	0.6776
33	G	1.60	50.9	10	1	2.0480
34	G	1.10	35.0	7	1	0.6776
35	G	1.20	38.2	7	1	0.8064
36	G	0.90	28.6	6	1	0.3888
37	G	0.90	28.6	6	1	0.3888
38	G	0.90	28.6	6	1	0.3888
39	G	0.70	22.3	6	1	0.2352
40	G	0.75	23.9	6	1	0.2700
41	G	1.30	41.4	6	2	0.8112
42	G	1.00	31.8	6	2	0.4800
43	G	1.30	41.4	7	1	0.9464
44	G	1.10	35.0	7	2	0.6776
45	G	1.40	44.6	8	2	1.2544
46	G	1.20	38.2	8	2	0.9216
47	G	0.90	28.6	6	1	0.3888
48	G	1.40	44.6	8	2	1.2544
49	G	1.40	44.6	9	1	1.4112
50	G	1.20	38.2	8	2	0.9216
51	G	1.20	38.2	8	1	0.9216

– 140 –

TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

		Girth at	Diameter
	Sample	Breast	at Breast	Length of	Class (0, 1,	Volume of
No.	Plot	Height	Height	Timber	2)	Timber
		(m)	(cm)	(m)		(m)3
52	G	0.90	28.6	6	0	0.3888
53	G	0.90	28.6	6	1	0.3888
54	G	0.70	22.3	6	1	0.2352
55	G	1.30	41.4	8	0	1.0816
56	G	0.70	22.3	6	1	0.2352
57	G	1.20	38.2	8	0	0.9216
1	H	1.20	38.2	8	2	0.9216
2	H	1.30	41.4	8	1	1.0816
3	H	0.50	15.9	6	1	0.1200
4	H	1.50	47.7	8	0	1.4400
5	H	1.90	60.5	12	2	3.4656
6	H	1.15	36.6	8	1	0.8464
7	H	1.20	38.2	8	2	0.9216
8	H	0.90	28.6	6	2	0.3888
9	H	1.00	31.8	7	2	0.5600
10	H	1.70	54.1	12	1	2.7744
11	H	0.60	19.1	6	1	0.1728
12	H	0.90	28.6	6	1	0.3888
13	H	0.80	25.5	6	1	0.3072
14	H	0.77	24.5	6	1	0.2846
15	H	1.30	41.4	8	2	1.0816
16	H	1.30	41.4	8	2	1.0816
17	H	1.10	35.0	7	0	0.6776
18	H	0.60	19.1	6	1	0.1728
19	H	1.30	41.4	7	2	0.9464
20	H	1.00	31.8	7	2	0.5600
21	H	1.00	31.8	7	2	0.5600
22	H	0.90	28.6	6	1	0.3888
23	H	1.50	47.7	11	1	1.9800
24	H	0.80	25.5	6	1	0.3072
25	H	1.30	41.4	8	1	1.0816
26	H	1.10	35.0	6	2	0.5808
27	H	1.40	44.6	8	1	1.2544
28	H	0.80	25.5	6	1	0.3072
29	H	1.00	31.8	6	1	0.4800
30	H	1.10	35.0	6	1	0.5808
31	H	1.10	35.0	6	2	0.5808
32	H	1.10	35.0	6	2	0.5808
33	H	0.90	28.6	6	1	0.3888
34	H	1.10	35.0	6	1	0.5808
35	H	1.40	44.6	8	1	1.2544

– 141 –

TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

		Girth at	Diameter
	Sample	Breast	at Breast	Length of	Class (0, 1,	Volume of
No.	Plot	Height	Height	Timber	2)	Timber
		(m)	(cm)	(m)		(m)3
36	H	1.00	31.8	8	2	0.6400
37	H	1.30	41.4	8	1	1.0816
38	H	1.20	38.2	8	0	0.9216
39	H	0.90	28.6	6	1	0.3888
40	H	1.00	31.8	6	2	0.4800
41	H	1.60	50.9	11	1	2.2528
42	H	1.20	38.2	6	2	0.6912
43	H	0.70	22.3	6	1	0.2352
44	H	1.00	31.8	6	2	0.4800
45	H	1.00	31.8	6	2	0.4800
46	H	1.40	44.6	8	1	1.2544
47	H	1.20	38.2	8	2	0.9216
48	H	1.00	31.8	8	1	0.6400
49	H	1.20	38.2	8	2	0.9216
50	H	1.80	57.3	12	1	3.1104
51	H	0.90	28.6	6	2	0.3888
52	H	0.90	28.6	6	1	0.3888
53	H	0.80	25.5	6	1	0.3072
54	H	0.90	28.6	6	2	0.3888
55	H	1.40	44.6	9	1	1.4112
56	H	1.00	31.8	7	1	0.5600
57	H	0.90	28.6	6	2	0.3888
58	H	2.00	63.7	12	1	3.8400
59	H	0.90	28.6	6	1	0.3888
60	H	1.00	31.8	6	2	0.4800
61	H	1.00	31.8	6	1	0.4800
62	H	1.20	38.2	8	1	0.9216
63	H	0.70	22.3	6	2	0.2352
64	H	1.05	33.4	6	1	0.5292
65	H	2.00	63.7	12	1	3.8400
66	H	0.50	15.9	6	1	0.1200
67	H	0.90	28.6	6	1	0.3888
68	H	0.90	28.6	6	2	0.3888
69	H	1.10	35.0	6	2	0.5808
70	H	1.10	35.0	6	1	0.5808
71	H	0.70	22.3	6	1	0.2352
72	H	0.60	19.1	6	1	0.1728

– 142 –

APPENDIX V TECHNICAL REPORT ON THE SECOND FOREST

Annex

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Picture 1 Photo no. 1 of the Forest on the sample plot Picture 2 Photo no. 2 of the Forest on the sample plot

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Picture 3 Special-Class Timber-Dalbergia plants

– 143 –

TECHNICAL REPORT ON THE SECOND FOREST

APPENDIX V

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Picture 4 Special-Class Timber-Narra (Bark and seeds)

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Picture 5 Special-Class Timber-Narra Picture 6 Special-Class Timber-Sindoer Sindora (fruit)

– 144 –

REPORTS ON FORECASTS UNDERLYING THE VALUATION

APPENDIX VI

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Kennic L. H. Lui & Co. Ltd.

Certified Public Accountants (Practising)

5/F, Ho Lee Commercial Building, 38-44 D’ Aguilar Street, Central, Hong Kong

9 May 2008

The Directors

China Asean Resources Limited Block B, 21st Floor, Teda Building No. 87 Wing Lok Street Sheung Wan, Hong Kong

Dear Sirs,

We herein report on the calculations of the profit forecasts underlying the business valuation of Agri-Industrial Crop Development (Cambodia) Co., Ltd. (“Agri-Industrial Crop”) (the “Valuation”) dated 9 May 2008 prepared by BMI Appraisals Limited (the “Valuer”) as of 31 March 2008 as set out in Appendix IV of the circular of China Asean Resources Limited (the “Company”) dated 9 May 2008 (the “Circular”) in connection with the very substantial acquisition of a forestry business involving the acquisition of the entire equity interests in Agri-Industrial Crop.

RESPECTIVE RESPONSIBILITIES OF THE DIRECTORS OF THE COMPANY, THE VALUER AND THE REPORTING ACCOUNTANTS

The directors of the Company and the Valuer are solely responsible for the preparation of the discounted cash flows for the Valuation which is regarded as a profit forecast under 19.61 of the Rules Governing the Listing of Securities on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) (the “GEM Listing Rules”).

It is our responsibility to report, as required by 19.62(2) of the GEM Listing Rules, on the calculations of the discounted cash flows on which the Valuation is based. The discounted cash flows do not involve the adoption of accounting policies. The discounted cash flows depend on future events and on a number of assumptions which cannot be confirmed and verified in the same way as past results and not all of which may remain valid throughout the period. We have not reviewed, considered or conducted any work on the appropriateness and validity of the assumptions and express no opinion on the appropriateness and validity of the assumptions on which the discounted cash flows, and thus the Valuation, are based.

– 145 –

REPORTS ON FORECASTS UNDERLYING THE VALUATION

APPENDIX VI

BASIS OF OPINION

We conducted our work with reference to Auditing Guideline 3.341 “Accountants’ Reports on Profit Forecasts” issued by the Hong Kong Institute of Certified Public Accountants. We reviewed the arithmetical accuracy of the Valuation. Our work has been undertaken solely to assist the directors of the Company in evaluating whether the Valuation, so far as the calculations are concerned, has been properly compiled and for no other purpose. We accept no responsibility to any other person in respect of, arising out of or in connection with our work. Our work does not constitute a valuation of Agri-Industrial Crop.

OPINION

Based on our review of the arithmetical accuracy of the Valuation, so far as the calculations are concerned, the Valuation has been properly compiled in accordance with the bases and assumptions made by the Valuer as set out in the “Valuation Assumptions” and “Valuation Methodology” sections of the Valuation, respectively.

Yours faithfully

Kennic L. H. Lui & Co. Ltd.

Certified Public Accountants (Practising)

Lau Wu Kwai King, Lauren

Practising certificate number: P02651 Hong Kong

– 146 –

REPORTS ON FORECASTS UNDERLYING THE VALUATION

APPENDIX VI

9 May 2008

Hong Kong Branch

21st Floor, Hong Kong Club Building 3A Chater Road, Central Hong Kong

The Directors

China Asean Resources Limited Office B 21/F Teda Building 87 Wing Lok Street Hong Kong

Dear Sirs,

We refer to the valuation prepared by BMI Appraisals Limited (the “Valuer”) in relation to the fair value assessment of Agri-Industrial Crop Development (Cambodia) Co., Ltd (“AgriIndustrial Crop”) (the “Valuation”) as set out in Appendix IV to the circular (the “Circular”) issued by China Asean Resources Limited (the “Company”) dated 9 May 2008 and the requirements under Rules 19.62(3) and 19.64(3) of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited.

We understand that the Valuation is prepared based on, among other things, the technical report set out in Appendix V of the Circular.

We have discussed with the Company and the Valuer the basis and assumptions upon which the cash flow projection (the “Projection”) as contemplated under the Valuation has been prepared. We have also reviewed and considered the letter dated 9 May 2008 issued by Kennic L. H. Lui & Co. Ltd. as set out in Appendix VI of the Circular regarding whether the Valuation was compiled properly so far as the calculations are concerned.

On the basis above, we are of the opinion that the Projection, for which you are solely responsible, has been made after your due and careful enquiry.

For and on behalf of

Commerzbank AG Hong Kong Branch

Kenneth Chan

Head of Corporate Finance – Asia Pacific

– 147 –

GENERAL INFORMATION

APPENDIX VII

1. RESPONSIBILITY STATEMENT

This circular, for 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 enquiries, confirm that, to the best of their knowledge and belief:

(i) the information contained in this circular is accurate and complete in all material respects and not misleading;
(ii) there are no other matters the omission of which would make any statement in this circular misleading; and
(iii) 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

As at the Latest Practicable Date, the authorised and issued share capital of the Company, together with changes proposed in this circular, are as follows:

Authorised share capital

Shares 5,000,000,000 (as at the Latest Practicable Date)	HK$ 50,000,000

Issued and fully paid up Shares 1,705,000,000 Existing Shares 200,000,000 Consideration Shares to be issued	HK$ 17,050,000 2,000,000
1,905,000,000	19,050,000

– 148 –

GENERAL INFORMATION

APPENDIX VII

3. DISCLOSURE OF INTERESTS

(a) Disclosure of interests by the Directors and Chief Executive

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they have taken or deemed to have taken under such provisions of the SFO); or (b) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the minimum standards of dealing by Directors as referred to in rule 5.46 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

(i) Long positions in the underlying shares of the Company

Name Dr. Li Nga Kuk, James Mr. Li Wo Hing Mr. Li Tai To, Titus	Number of ordinary shares of HK$0.01 each (the “Shares”) in the share capital of the Company held Nature of interests 32,800,000 Personal 37,470,000 Personal 193,360,000 Corporate (Note)	Percentage of interest 1.92% 2.20% 11.34%
	230,830,000 4,000,000 Option granted but not yet exercised	13.54%

	16,400,000 Personal	0.96%

Note: People Market Management Limited (“PMM”), holding 193,360,000 shares, is owned as to 70.58% by Mr. Li Wo Hing. On 12 October 2007, the Company granted 4,000,000 shares under the Option Scheme to Mr. Li Wo Hing with approval of all independent non-executive directors. Up to the date of this report, no option has been exercised by Mr. Li Wo Hing.

(b) Particulars of Directors’ Service Contracts

On 14 December 2001, all the executive Directors entered into a service contract with the Company for an initial term of three years effective from 1 December 2001 and shall continue thereafter. The executive Directors are committed by the respective service contracts to devote himself exclusively and diligently to the business and interests of the Group and to keep the Board promptly and fully informed of his conduct of business affairs, among other commitments.

– 149 –

APPENDIX VII

GENERAL INFORMATION

The non-executive Directors have entered into a service contract with the Company. Mr. Fan Wan Tat and Chen Minshen have renewed a service contract with the Company for a term of one year commencing on 1 December 2007. The service contract of Mr. Tam Wai Leung, Joseph and Chan Kim Chung, Daniel were renewed for a term of one year commencing on 30 September 2007 and 16 June 2007, respectively.

As at the Latest Practicable Date, no existing or proposed service contracts of Directors with the Enlarged Group specifically provide for compensation on loss of office other than statutory compensation (excluding contracts expiring or terminable by the employer within one year).

Save as disclosed above, as at the Latest Practicable Date:

(i) none of the Directors and chief executive held any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of the SFO) notifiable to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they have taken or deemed to have taken under such provisions of the SFO) or which are required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which are required, pursuant to the minimum standards of dealing by Directors as referred to in rule 5.46 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange;
(ii) none of the Directors had any direct or indirect interests in any assets which have been, since the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by, or leased to any members of the Enlarged Group, or are proposed to be acquired or disposed of by, or leased to any members of the Enlarged Group; and
(iii) none of the Directors is materially interested in any contract or arrangement entered into with any members of the Enlarged Group which contract or arrangement subsists at the date of this circular and which is significant in relation to the business of the Enlarged Group.

(c) Directors’ interests in competing businesses

As at the Latest Practicable Date, no Directors had an interest in the businesses (other than those businesses where the Directors were appointed as directors to represent the interests of the Company and/or any member of the Group) which are considered to compete or are likely to compete, either directly or indirectly, with the businesses of the Group.

– 150 –

GENERAL INFORMATION

APPENDIX VII

4. INTEREST DISCLOSEABLE UNDER THE SFO AND SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, according to the register kept by the Company under Section 336 of the SFO, the following persons and companies were interested in 5% or more in the Shares or underlying Shares which fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO; or were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:

	Number of		Percentage
Name of substantial shareholder	shares held	Capacity	of interests
1. Zhang Jie	266,666,667	Beneficial owner	15.64%
2. PMM (note)	193,360,000	Beneficial owner	11.34%
3. Pen Sophal	133,333,333	Beneficial owner	7.82%
4. UBS AG	119,350,000	Persons having a	7.00%
		security interest
		in shares
5. Keywise Greater China Master Fund	102,270,000	Beneficial owner	6.00%
6. Keywise Capital Management (HK)	102,270,000	Investment	6.00%
Limited		Manager

Note: As at 31 December 2007, PMM owned 193,360,000 shares, representing approximately 11.34% of the issued share capital of the Company. The issued share capital of PMM is owned as to 70.58% by Mr. Li Wo Hing, as to 19.61% by Dr. Li Nga Kuk, James and as to 9.81% by Mr. Li Tai To, Titus. Mr. Li Wo Hing’s indirect interest in the 193,360,000 shares through PMM are also disclosed in the paragraph headed “Directors’ and Chief Executive’s Interests and Short Positions in Shares, Underlying Shares and Debentures”.

Save as disclosed above, so far as was known to the Directors, there were no other persons (other than the Directors or chief executive of the Company) who, as at the Latest Practicable Date, had interests or short positions in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who were, directly or indirectly, beneficially interested in 5% or more of the issued share capital of the Company; or were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

5. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation or arbitration of material importance and no litigation or claims of material importance are known to the Directors to be pending or threatened by or against any members of the Enlarged Group.

– 151 –

GENERAL INFORMATION

APPENDIX VII

6. QUALIFICATION AND CONSENT OF EXPERT

The following are the experts, and their qualifications, who have given opinions contained in this circular:

Name

Qualification

Kennic L. H. Lui & Co. Ltd. Certified Public Accountants BMI Appraisals Limited Independent Valuer Technical Adviser
(The Research Institute of Tropical Forestry of Chinese Academy of Forestry*)
Commerzbank AG Hong Kong Commerzbank AG, acting Branch (“Commerzbank”)

Commerzbank AG, acting through its Hong Kong branch, a licensed bank under the Banking Ordinance and an authorised financial institutional under the SFO to conduct type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities as set out in Schedule 5 to the SFO

for identification purpose only

Each of Kennic L. H. Lui & Co. Ltd., BMI Appraisals Limited, The Research Institute of Tropical Forestry, Chinese Academy of Forestry and Commerzbank have given and have not withdrawn their written consents to the issue of this circular with the inclusion of their reports, letters or opinions as set out in this circular and references to their names in the form and context in which they appear.

As at the Latest Practicable Date, none of Kennic L. H. Lui & Co. Ltd., BMI Appraisals Limited, (The Research Institute of Tropical Forestry of Chinese Academy of Forestry*), and Commerzbank were beneficially interested in the share capital of any member of the Enlarged Group, nor did they have any rights (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group, nor did they have any direct or indirect interest in any assets which were, since 31 December 2007 (being the date to which the latest published audited consolidated financial statements of the Group were made up), acquired or disposed of by or leased to, or proposed to be acquired or disposed of by or leased to, any member of the Enlarged Group.

7. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and management shareholders and their respective associates had any direct or indirect interests in businesses which compete or may compete with the businesses of the Enlarged Group.

– 152 –

GENERAL INFORMATION

APPENDIX VII

8. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business of the Enlarged Group, were entered into by the Enlarged Group within the two years immediately preceding the Latest Practicable Date and are, or may be material:

(i) the Acquisition Agreement;
(ii) the Cooperation Agreement; and
(iii) the sale and purchase agreement dated 25 July 2007 entered into by the Group in relation to the acquisition of the entire issued share capital of (Cambodia) Tong Min beneficially owned by Mr. Zhang Zhenzhong, Mr. Pen Sophal and Ms. Zhang Jie at a consideration of HK$208.36 million.
(iv) the placing and subscription agreement dated 18 July 2007 entered into by the Company, Commerzbank and SBI E2 Capital Securities Limited (“ SBI E2 ”), People Market Management Limited (“ PMM ”), Li Wo Hing and Li Tai To, pursuant to which:
a. Commerzbank and SBI E2 agreed to jointly place, on a best efforts basis, 167,000,000 new Shares to independent placees at HK$0.69 per new Share; and
b. PMM, Li Wo Hing and Li Tai To granted a option (the “ Top-up Option ”) to SBI E2 (for and on its and Commerzbank’s behalf) to place up to 233,000,000 additional Shares owned by PMM, Li Wo Hing and Li Tai To to independent placees at HK$0.53 per Share, which Top-up Option was exercisable within 7 days after the date of such placing and subscription agreement; and
c. PMM, Li Wo Hing and Li Tai To would subscribe for the number of Shares equivalent to the number of Shares placed under the Top-up Option (if it was exercised) up to the maximum of 233,000,000 Shares at HK$0.53 per Share.

9. MISCELLANEOUS

(i) The registered office of the Company is situated at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.
(ii) The head office and principal place of business of the Company in Hong Kong is office B, 21st Floor, Teda Building, 87 Wing Lok Street, Hong Kong.
(iii) The compliance officer of the Company is Mr. Li Wo Hing, MBA, an executive Director.
(iv) The Secretary of the Company is Ms. Lai Tin Yin, Fion, who is a member of the Hong Kong Institute of Certified Public Accountants. Ms. Lai is also the qualified accountant of the Company.

– 153 –

GENERAL INFORMATION

APPENDIX VII

(v) The Company has established an audit committee with written terms of reference which deal with its authority and duties. The committee’s primary duties are to review and to supervise the financial reporting process and internal control systems of the Group and to provide advice and comments to the Directors. As at the Latest Practicable Date, the committee comprises three independent non-executive Directors, namely, Mr. Fan Wan Tat, Mr. Tam Wai Leung, Joseph and Mr. Chan Kim Chung, Daniel. Mr. Fan Wan Tat is the chairman of the committee.
Mr. Fan Wan Tat is a medical doctor in Hong Kong.

Mr. Tam Wai Leung, Joseph is currently the President to the Executive Committee of the Hong Kong Institute of Business Management Ltd. and the Macau Association of Higher Education. He holds a Doctor of Philosophy degree from Preston University, U.S.A. and is a fellow member of the Institute of Cost and Executive Accountants in the U.K. and the Association of Taxation and Management Accountants in Australia.

Mr. Chan Kim Chung, Daniel, is currently the General Manager of Royal Media Limited that is specialized in the provision of consultancy services in software testing and quality assessment. He holds a Doctor of Philosophy degree in computer sciences from the University of Glasgow, United Kingdom and is a Chartered Engineer and a Chartered Information Technology professional of the Engineering Council of the United Kingdom.

(vi) The branch share registrar and transfer agent of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited, at Rooms 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(vii) In the event of any inconsistencies, the English language text of this circular shall prevail over the Chinese language text.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents of the Enlarged Group will be available for inspection during business hours at the principal place of business of the Company in Hong Kong at office B, 21st Floor, Teda Building, 87 Wing Lok Street, Hong Kong, up to and including the date of the SGM:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for the two years ended 31 December 2006 and 2007;
(c) the Accountants’ report on Agri-Industrial Crop, the text of which is set out in Appendix II to this circular;
(d) the unaudited pro forma financial information and the comfort letter thereon issued by Kennic L. H. Lui & Co. Ltd. in relation to the Acquisition and the Sub-concession, the text of each of which is set out in Appendix III to this circular;
(e) the written consents as referred to in the paragraphs headed “Experts and Consents” in this appendix;

– 154 –

GENERAL INFORMATION

APPENDIX VII

(f) the material contracts as referred to in the paragraphs headed “Material Contracts” in this appendix;
(g) the Technical Report prepared by the Technical Adviser, the text of which is set out in Appendix V to this circular;
(h) the Valuation Report prepared by the Independent Valuer, the text of which is set out in Appendix IV to this circular;
(i) the reports on forecasts underlying the Valuation prepared by Commerzbank and Kennic L. H. Lui & Co. Ltd. respectively, the text of both of which are set out in Appendix VI to this circular;
(j) the service contracts of the Directors as referred to in the paragraphs headed “Particulars of Directors’ Service Contracts” in this appendix; and
(k) the written statement signed by Kennic L. H. Lui & Co. Ltd., setting out the adjustments made by them in arriving at the figures shown in the Accountants’ report on AgriIndustrial Crop.

11. DIRECTORS

Executive directors

Dr. Li Nga Kuk, James , aged 62, is an Executive Director, Chairman of the Company responsible for the strategic development of the Group. He graduated from in 1970. He was granted medical doctor’s licenses in Hong Kong and doctor qualification in US in 1981 and 1987 respectively and worked as a medical doctor in the PRC and Hong Kong during 1975 to 1985. Dr. Li was appointed on 7 September 2001.

Mr. Li Wo Hing , MBA, aged 61, is an Executive Director and the Chief Executive Officer of the Company responsible for the daily management of the Group. He has more than 10 years’ experience in the trading of medical products and investment in the PRC. Mr. Li was appointed on 7 September 2001.

Mr. Li Tai To, Titus , aged 68, is an Executive Director and Vice General Manager of the Company responsible for promoting the RFA technology in the PRC. He graduated from and has obtained a medical diploma in Taiwan. He was a surgeon in (Zhenjian Jiaxing No. 2 Hospital). Mr. Li is elder brother of Dr. Li Nga Kuk, James, the Chairman of the Company. Mr. Li was appointed on 7 September 2001.

Non-executive director

Dr. Chen Minshan , aged 43, is a Non-Executive Director. Dr. Chen is a medical doctor and an associate professor, Hepatobiliary Department, Tumor Hospital, Zhong Shan Medical University. Dr. Chen was appointed on 10 December 2001.

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GENERAL INFORMATION

APPENDIX VII

Independent non-executive directors

Mr. Fan Wan Tat , aged 63, is an Independent Non-Executive Director. Mr. Fan is a medical doctor in Hong Kong. Mr. Fan was appointed on 10 December 2001.

Mr. Tam Wai Leung, Joseph , aged 42, is an Independent Non-Executive Director. Mr. Tam is the President to the Executive Committee of the Hong Kong Institute of Business Management Limited. He holds a Doctor of philosophy degree from Preston University, USA. Mr. Tam was appointed on 30 September 2004.

Mr. Chan Kim Chung, Daniel , aged 44, is an Independent Non-Executive Director. Mr. Chan is the General Manager of Royal Media Limited that is specialized in the provision of consultancy services in software testing and quality assessment. He holds a doctor of philosophy degree in computer science from the University of Glasgow, United Kingdom. Mr. Chan was appointed on 16 June 2006.

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NOTICE OF SGM

==> picture [55 x 62] intentionally omitted <==

China Asean Resources Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 8186)

NOTICE IS HEREBY GIVEN that a special general meeting of China Asean Resources Limited (“ Company ”) will be held at Grand Hyatt Hong Kong, 1 Harbour Road, Hong Kong on Wednesday, 28 May 2008 at 9:30 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “ THAT

(a) the acquisition agreement dated 20 March 2008 (the “Acquisition Agreement”) between (i) (Zhang Zhengwei[#] ) (the “Vendor”) as vendor, (ii) Forest Glen Group Limited (the “Purchaser”) as purchaser, (iii) the Company as guarantor of performance of the Acquisition Agreement by the Purchaser, in relation to the acquisition of the entire issued share capital of Agri-Industrial Crop Development (Cambodia) Co., Ltd., a copy of the Acquisition Agreement has been produced to this meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification, and the transactions contemplated by the Acquisition Agreement (including but not limited to the issue and allotment of 200,000,000 new shares of the Company at the price of HK$0.60 each and the issue of the bonds in the principal amount of HK$70,000,000 to the Vendor (or his nominees) as part of the consideration upon completion) be and are hereby approved, confirmed and ratified; and
(b) the directors of the Company be and are hereby authorised to do all other acts and things and execute all documents which they consider necessary or expedient for the implementation of and giving effect to the Acquisition Agreement and the transactions contemplated thereunder.”

2. “ THAT

(a) the sub-concession and cooperation agreement dated 20 March 2008 (the “Cooperation Agreement”) between (Qiong Hai Xin Neng Agriculture Development Company Limited*) as sub-lessee and (Cambodia) Tong Min Group Engineering Co., Ltd. (“(Cambodia) Tong Min”) as sub-lessor, in relation to the subleasing of approximately 1,000 hectares of economic land

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NOTICE OF SGM

concession located in Kratie District, Kratie Province, Cambodia for a term of approximately 70 years, a copy of the Cooperation Agreement has been produced to this meeting marked “B” and signed by the Chairman of the meeting for the purpose of identification, be and are hereby approved, confirmed and ratified; and

(b) the directors of the Company be and are hereby authorised to do all other acts and things and execute all documents which they consider necessary or expedient for the implementation of and giving effect to the Cooperation Agreement and the transactions contemplated thereunder.”

By order of the board of directors of China Asean Resources Limited Li Nga Kuk, James Chairman

Hong Kong, 9 May 2008

Registered office: Head office and principal place Canon’s Court, of business in Hong Kong: 22 Victoria Street, Office B, 21st Floor, Hamilton HM 12, Teda Building, Bermuda 87 Wing Lok Street, Hong Kong

Notes:

A form of proxy to be used for the meeting is enclosed.
Any member entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member. In addition, a proxy or proxies representing either a member who is an individual or a member which is a corporation shall be entitled to exercise the same powers on behalf of the member which he or they represent as such member could exercise.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing, or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was duly authorised to sign such instrument of proxy on behalf of the corporation without further evidence of the facts.
The instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to the Company’s registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, Rooms 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than forty-eight (48) hours before the time appointed for holding the meeting.
Where there are joint holders of any share any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.
No shareholders will abstain from voting for resolutions nos. 1 and 2, both of which can be conducted by way of poll or by show of hands.

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AI assistant

Almana Limited — Proxy Solicitation & Information Statement 2008

51315_rns_2008-05-08_110cf978-a949-4c2b-aa30-faca3fe30af6.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

China Asean Resources Limited

VERY SUBSTANTIAL ACQUISITION – ACQUISITION OF THE SECOND FOREST IN CAMBODIA; VERY SUBSTANTIAL DISPOSAL – SUB-CONCESSION OF 10% OF THE FIRST FOREST

Commerzbank AG Hong Kong Branch

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

China Asean Resources Limited

VERY SUBSTANTIAL ACQUISITION – ACQUISITION OF THE SECOND FOREST IN CAMBODIA; VERY SUBSTANTIAL DISPOSAL – SUB-CONCESSION OF 10% OF THE FIRST FOREST

INTRODUCTION

LETTER FROM THE BOARD

THE ACQUISITION AGREEMENT

Date

Parties to the Acquisition Agreement

Asset to be acquired

Conditions precedent to completion of the Acquisition Agreement

LETTER FROM THE BOARD

Completion of the Acquisition Agreement

Consideration

LETTER FROM THE BOARD

The Cash Consideration

The Consideration Shares

LETTER FROM THE BOARD

Lock-up period

The Bonds

LETTER FROM THE BOARD

LETTER FROM THE BOARD

INFORMATION ON AGRI-INDUSTRIAL CROP AND THE SECOND FOREST

THE SUB-CONCESSION AND THE COOPERATION AGREEMENT

Date

Parties to the Cooperation Agreement

Major terms of the Cooperation Agreement

Conditions Precedent to completion of the Cooperation Agreement

LETTER FROM THE BOARD

Consideration of the Sub-concession

CURRENT STATUS OF THE FIRST FOREST AND REASONS FOR AND BENEFITS OF THE ACQUISITION AND DISPOSAL

Industry background

Reasons for and benefits of the Acquisition and current status of the First Forest

LETTER FROM THE BOARD

Reasons for and benefits of the Sub-concession

CHANGE IN THE SHAREHOLDING STRUCTURE OF THE COMPANY

IMPLICATION OF THE LISTING RULES

FINANCIAL IMPACT OF THE ACQUISITION

FINANCIAL IMPACT OF THE SUB-CONCESSION

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

LETTER FROM THE BOARD

LISTING OF THE SHARES TO BE ISSUED

THE SGM

LETTER FROM THE BOARD

PROCEDURES FOR DEMANDING A POLL AT THE SGM

RECOMMENDATION

ADDITIONAL INFORMATION

1. SUMMARY OF FINANCIAL INFORMATION

RESULTS

ASSETS AND LIABILITIES

2. AUDITED FINANCIAL STATEMENTS

“Consolidated Income Statement

Consolidated Balance Sheet

Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Financial Statements

1. GENERAL

2. CHANGES IN ACCOUNTING POLICIES

(a) Adoption of New and Revised Hong Kong Financial Reporting Standards

(b) Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 December 2007

3. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

(b) Basis of preparation of the financial statements

(c) Basis of consolidation

(d) Goodwill

(e) Subsidiaries and minority interests

(f) Property, plant and equipment

(g) Construction in progress

Almana Limited Proxy Solicitation & Information Statement 2008