C&D Property Management Group Co., Ltd — Proxy Solicitation & Information Statement 2006

Apr 18, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Good Fellow Group Limited, you should at once hand this circular and the enclosed form of proxy to the purchaser(s) or the transferee(s), or to the bank, licensed securities dealer or other agent through whom the sale or the transfer was effected for transmission to the purchaser(s) or the transferee(s).

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

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

GOOD FELLOW GROUP LIMITED 金威集團控股有限公司[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 910)

(1) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; AND

(2) VERY SUBSTANTIAL ACQUISITION RELATING TO THE ECOLOGICAL FORESTRY BUSINESS

Financial Adviser to Good Fellow Group Limited

Kingston Corporate Finance Limited

A notice convening the special general meeting to be held at Unit 708, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong, on Monday, 8 May 2006 (or any adjournment thereof) at 11:00 a.m. is set out on pages 187 to 189 of this circular. Form of proxy for use in the special general meeting is enclosed. Whether or not you propose to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding of the special general meeting or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the special general meeting or any adjourned meeting thereof, should you so desire.

• For identification purposes only

18 April 2006

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Proposed Increase in Authorised Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Very Substantial Acquisition – The Ecological Forestry Business . . . . . . . . . . . . . . . . . . . . . .	6
Shareholding Structure of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Restoration of Public Float . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
The SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Procedures for Demanding a Poll by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
Appendix I – Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Appendix II – Accountants’ Report on Strong Lead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	77
Appendix III – Accountants’ Report on Beijing WFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	97
Appendix IV – Pro Forma Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	120
Appendix V – Valuation Report on Assets Proposed to be Acquired by the Group. . . . . .	130
Appendix VI – Valuation of Pending Patent Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	153
Appendix VII – Valuation Report on Property Interests of the Group . . . . . . . . . . . . . . . . . .	156
Appendix VIII – General Information of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	180
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	187

DEFINITIONS

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

• “Acquisition Agreement”

the agreement dated 26 October 2005 entered into by the Company and the Vendors in relation to the Proposed Acquisition

• “Acquisition Supplemental the supplemental agreement supplementing the Acquisition Agreement” Agreement entered into between the Company and the Vendors on 20 January 2006

• “Announcement” the announcement dated 20 January 2006 made by the Company in relation to the (1) Proposed Increase in Authorised Share Capital and (2) Proposed Acquisition

• “associate”

• has the meaning ascribed to it in the Listing Rules

• “Beijing WFC”

• 北京萬富春森林資源發展有限公司 (Beijing Wan Fu Chun Forest Resources Development Company Limited) (formerly known as 北京唯美生態科技投資有限公司 and 北京唯美星科貿易有限 公司 ), a company incorporated in the People’s Republic of China on 17 September 2001, which is a Sino-Foreign joint venture owned as to 70% by the Vendors and as to 30% by 菲菲森旺資 源開發有限公司 (FeiFei SenWang Resources Development Co., Ltd)

• “Company” Good Fellow Group Limited, a company incorporated in Bermuda whose shares are listed on the Main Board of the Stock Exchange

• “Completion” completion of the Acquisition Agreement in accordance with the terms thereof

• “connected person” has the meaning ascribed to it in the Listing Rules

• “Consideration”

• consideration for the Proposed Acquisition in the sum of HK$560 million to be paid by the Company to the Vendors

• “Consideration Share(s)” 580,000,000 Shares to be issued by the Company as part of the Consideration for the Proposed Acquisition

• “Conversion Shares”

• 1,753,333,333 Shares to be issued upon conversion of the Convertible Notes, if exercised in full

• “Convertible Notes” collectively the Restricted Convertible Note and Unrestricted Convertible Note, to be issued by the Company in an aggregate principal amount of HK$210.4 million with an exercise price of HK$0.12 per Share

– 1 –

DEFINITIONS

“Directors” directors of the Company “FeiFei” 菲菲森旺資源開發有限公司(FeiFei SenWang Resources Development Co., Ltd), a PRC entity incorporated on 31 March 2004, the owners of which are PRC enterprises “Group” the Company and its subsidiaries “HK$” Hong Kong dollars “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Latest Practicable Date” 13 April 2006, being the latest practicable date for the purpose of ascertaining certain information for inclusion in this circular

• “Latest Trading Day” 26 October 2005, being the last trading day prior to the suspension of trading in the Shares pending the release of the Announcement

• “Letter of Intent” the Letter of Intent dated 10 October 2005 entered into between the Company and the Vendors in connection with the Proposed Acquisition

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “Profit Guarantee” the audited consolidated net profit after tax of Beijing WFC prepared in accordance with Hong Kong GAAP compliance for the Profit Guarantee Period which shall not be less than HK$200 million

• “Profit Guarantee Period” a period of two financial years ending 31 December 2006 and 31 December 2007

• “Promissory Loan Notes” the remaining payment of HK$230 million of the Consideration after the cash payment and the issue of the Consideration Shares and Convertible Notes, of which HK$138 million was due to Vendor A and HK$92 million was due to Vendor B

• “Proposed Acquisition” the proposed acquisition by the Company from the Vendors of 100% shareholding interest in Strong Lead pursuant to the Acquisition Agreement

• “Proposed Increase in propose to increase its existing authorised share capital to Authorised Share Capital” HK$650,000,000 divided into 6,500,000,000 Shares by the creation of an additional 1,500,000,000 unissued Shares of HK$0.10 each

• “PRC”

the People’s Republic of China which shall, for the purpose of this circular, exclude Hong Kong, the Macau Special Administration Region at the PRC and Taiwan

– 2 –

DEFINITIONS

• “Restricted Convertible Note” partial of the Convertible Notes in principal amount of HK$100 million to be issued as part of the Consideration which will be put under security to the Company for performance by the Vendors of the Profit Guarantee under which the Vendors undertake not to exercise the rights attaching the portion of denomination in the balance of HK$ 100 million on the Convertible Notes up to end of the period of the Profit Guarantee

• “Share(s)” ordinary share(s) of HK$0.10 each in the existing share capital of the Company

• “Shareholder(s)” holder(s) of the Shares

• “SGM” a special general meeting of the Company to be convened to approve the Proposed Increase in Authorised Share Capital, Proposed Acquisition, and the issue of Consideration Shares and Convertible Notes

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Strong Lead” Strong Lead Investments Limited, a company incorporated on 8 August 2005 in the British Virgin Islands and whose sole asset is 70% equity interest in Beijing WFC

• “Takeovers Code” the Hong Kong Code on Takeovers and Mergers

• “Vendor A” Leading Power International Limited, a company incorporated in the British Virgin Island on 10 August 2005, which, to the best of the Directors’ knowledge, information and belief having made reasonable enquiries, (i) is principally engaged in investment holding and (ii) together with its beneficial owner are third parties independent of the Company and its connected persons and their respective associates

• “Vendor B” Total Victory Investments Limited, a company incorporated in the British Virgin Island on 8 August 2005, which, to the best of the Directors’ knowledge, information and belief having made reasonable enquiries, (i) is principally engaged in investment holding and (ii) together with its beneficial owner are third parties independent of the Company and its connected persons and their respective associates

“Vendors”

Vendor A and Vendor B

• “Unrestricted Convertible Note” Partial of the Convertible Notes in principal amount of HK$110.4 million to be issued as part of the Consideration under which the Vendors shall have the rights at any time and from time to time, following the date of issue of the Convertible Note, to convert the whole or any part of the outstanding principal amount into Conversion Shares, subject to the conditions set out in the Acquisition Agreement.

“%” or “per cent”

percentage

– 3 –

LETTER FROM THE BOARD

GOOD FELLOW GROUP LIMITED 金威集團控股有限公司[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 910)

Executive Directors: Mr. Ng Leung Ho (Chairman) Ms. Lee Ming Hin Mr. Hu Xiaoming Mr. Wang Weining

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Non-executive Director: Mr. Ng Leung Tung

Independent Non-executive Directors: Mr. Zou Zi Ping Mr. Lo Cheung Kin Mr. Zhu Jian Hong

Head Office and principal place of business in Hong Kong: Unit 1906 Nanyang Plaza 57 Hung To Road Kwun Tong Kowloon Hong Kong

18 April 2006

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; AND

(2) VERY SUBSTANTIAL ACQUISITION RELATING TO THE ECOLOGICAL FORESTRY BUSINESS

INTRODUCTION

It was announced on 20 January 2006 that the Board intended to put forward proposals to the Shareholders in relation to the: (1) Proposed Increase in Authorised Share Capital and (2) Proposed Acquisition.

The purpose of this circular is to provide you with further information regarding, among other things, the (i) Proposed Increase in Authorised Share Capital; (ii) Proposed Acquisition and other disclosures in connection with the Proposed Acquisition required pursuant to the Listing Rules in respect

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LETTER FROM THE BOARD

of the very substantial acquisition; and (iii) valuation report on Beijing WFC, principally including the proprietary technical know-how underlying accelerated plant growth, the saplings inventories, the leased agricultural premise in Shangtong province; and the pine tree forests in Shanxi province. Further, this circular also contains a notice of SGM which shall be convened for the purpose of considering and, if thought fit, approving the resolutions in relation to the aforesaid proposals and the issue of Consideration Shares and Convertible Note.

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

As at the Latest Practicable Date, the authorised share capital of the Company is HK$500,000,000 divided into 5,000,000,000 Shares, of which 2,938,607,600 Shares have been issued and fully paid or credited as fully paid. In order to accommodate future expansion and growth of the Group and facilitate the Proposed Acquisition, the Directors propose to increase its existing authorised share capital to HK$650,000,000 divided into 6,500,000,000 Shares by the creation of an additional 1,500,000,000 unissued Shares of HK$0.10 each.

The proposed increase in the authorised share capital of the Company is conditional upon the passing of an ordinary resolution by the Shareholders at the SGM, and no Shareholder is required to abstain from voting on such resolution. Accordingly, it is not conditional upon the passing of any resolutions approving the Proposed Acquisition nor the issue of the Consideration Shares and Convertible Notes in relation to the Proposed Acquisition at the SGM.

Effect of the proposed increase in authorised share capital of the Company

The following table shows the authorised share capital of the Company as at the Latest Practicable Date and immediately before and after the proposed increase in the authorised share capital of the Company:

			Immediately	Immediately
			after the proposed increase
	As at the Latest		in authorised	share capital
	Practicable Date		of the Company
	Number of		Number of
	Existing		Existing
	Shares	HK$	Shares	HK$
Authorised	5,000,000,000	500,000,000	6,500,000,000	650,000,000
Total issued	2,938,607,600	293,860,760	2,938,607,600	293,860,760
Total unissued	2,061,392,400	206,139,240	3,561,392,400	356,139,240

– 5 –

LETTER FROM THE BOARD

VERY SUBSTANTIAL ACQUISITION – THE ECOLOGICAL FORESTRY BUSINESS

Acquisition Agreement and Acquisition Supplemental Agreement

Date: 26 October 2005 and 20 January 2006

Parties:

Purchaser: the Company

Vendors: Leading Power International Limited (Vendor A) and Total Victory Investments Limited (Vendor B), respectively, beneficially own 60% and 40% shareholding interests in Strong Lead respectively.

The Company confirms that, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendors and their respective ultimate beneficiaries is a third party independent of the Company and its connected persons and their respective associates. To the knowledge of the Directors, each of the Vendors and its beneficial shareholders are independent of 菲菲 森旺資源開發有限公司 (FeiFei SenWang Resources Development Co., Ltd), the minority equity holder of Beijing WFC.

Assets to be acquired

The entire beneficial interest in Strong Lead, a company incorporated in the British Virgin Islands, whose sole asset is a 70% equity interest in Beijing WFC, a sino-foreign joint venture company, which is principally engaged in the business of tree planting and management, manufacture and distribution of forest products as timber and bark materials.

For further information on Beijing WFC, please refer to the section headed “Information on Beijing WFC” in this circular.

Consideration

The Consideration of HK$560 million shall be satisfied by:

• (i) as to HK$50 million in cash, being the total cash consideration of HK$30 million and HK$20 million payable to Vendor A and Vendor B respectively, which will be released to the Vendors as payment of part of the Consideration upon completion of the Proposed Acquisition;

• (ii) as to HK$69.6 million by issue of 580,000,000 Consideration Shares to the Vendors upon completion of the Proposed Acquisition (i.e. equivalent to HK$0.12 per Consideration Share), of which 348,000,000 Consideration Shares will be issued to Vendor A and 232,000,000 Consideration Shares will be issued to Vendor B; and

• (iii) as to HK$210.4 million by issue of Convertible Notes with a conversion price at HK$0.12 to the Vendors upon completion of the Proposed Acquisition, of which Convertible Notes with principal amount of HK$126.24 million will be issued to Vendor A and Convertible Notes with principal amount of HK$84.16 million will be issued to Vendor B; and

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LETTER FROM THE BOARD

• (iv) as to the remaining balance of HK$230 million in the form of non-interest bearing Promissory Loan Notes due to the Vendors which will be repaid in the following manner:

• (a) HK$78 million and HK$52 million to Vendor A and Vendor B respectively, repayable on demand at any time starting from 1 October 2006;

• (b) HK$30 million and HK$20 million to the Vendor A and Vendor B respectively, repayable on demand at any time starting from 1 April 2007; and

• (c) HK$30 million and HK$20 million to the Vendor A and Vendor B respectively, repayable on demand at any time starting from 1 July 2007.

The Company intends to finance repayment of the Promissory Notes with the Group’s internal financial resources and any future profit distributable from Beijing WFC.

As at the Latest Practicable Date, two separate deposits of HK$20 million and HK$30 million being the aggregate cash consideration of HK$50 million have been deposited by the Company as a refundable interest-bearing earnest money in October 2005 and November 2005 with an escrow agent who shall act as a stakeholder and hold such deposits until completion of the Acquisition Agreement whereupon such deposits will be released to the Vendors as payment of part of the Consideration as stipulated in the Acquisition Agreement. Interest income to be earned on the earnest money is not fixed and the actual interest income to be refunded to the Company upon completion of the Proposed Acquisition will be subject to prevailing term rate offered by the bank after deduction of handling charges (i.e. 10% of the actual interest) by the escrow agent.

To the best of the Directors’ knowledge, information and belief having made reasonable enquiries, the escrow agent and its ultimate beneficial owner are third parties independent of the Company and its connected persons and their respective associates. The cash consideration of HK$50 million was financed by internal resources of the Group.

The exercise price of HK$0.12 of the Convertible Notes and the issue price of HK$0.12 per Consideration Shares represent:

• (i) a discount of approximately 21.57% to the closing price of HK$0.153 per Share as quoted on the Stock Exchange on the Latest Trading Day;

• (ii) a discount of approximately 20.74% to the 5-day average closing price of approximately HK$0.1514 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Latest Trading Day;

• (iii) a discount of approximately 22.33% to the 10-day average closing price of approximately HK$0.1545 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Latest Trading Day; and

• (iv) a discount of approximately 54.72% to the closing price of HK$0.265 per share as quoted on the Stock Exchange on the Latest Practicable Date.

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LETTER FROM THE BOARD

Based on the closing price of the Shares of HK$0.265 on the Latest Practicable Day, the value of the Consideration Shares amounts to approximately HK$154 million. The Consideration Shares represents approximately 19.74% of the existing issued share capital of the Company and approximately 16.48% of the then issued share capital of the Company as enlarged by the issue of the Consideration Shares. The issue of the Consideration Shares is subject to the approval of Shareholders at the SGM.

The Conversion Shares represents approximately 59.67% of the existing issued share capital of the Company and approximately 33.26% of the then issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Conversion Shares. The issue of the Convertible Notes is subject to the approval of Shareholders at the SGM.

An application will be made to the Stock Exchange for the listing of and permission to deal in the Consideration Shares and Conversion Shares which will rank pari passu with the existing Shares.

The Consideration was determined with reference to the asset value of Beijing WFC and the Profit Guarantee and after arm’s length negotiation between the Company and the Vendors. The basis in respect of the issue price of the Consideration Shares and the conversion price of the Convertible Notes were determined between the Company and the Vendors, among other things, after arm’s length negotiations with reference to the Company’s recent share price performance at the time when the Letter of Intent was entered into between the Company and the Vendors.

As at the Latest Practicable Date, save for the options to subscribe for 224,200,000 new Shares in the Company, the Company has no outstanding options, warrants or convertible instruments to subscribe for any Shares.

The Convertible Notes

The terms of the Convertible Notes have been negotiated on arm’s length basis and the principal terms of which are summarized below:

Principal amount

HK$210.4 million

Interest

At the rate of 1.5% per annum accrued on a day to day basis on the outstanding principal amount, payable semi-annually in arrears.

Maturity

• 4 years from the date of issue.

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LETTER FROM THE BOARD

Denomination

In multiple of HK$100,000

Form

Registered form only

Conversion Price

HK$0.12 per Share, which is subject to adjustment for, among other matters, sub-division or consolidation of New Shares, bonus issues, rights issues and other dilutive events.

The overriding principle as set out in the Stock Exchange’s letter dated 5 September 2005 is that no adjustment to the exercise price or number of shares should be to the advantage of share option scheme participants without prior shareholders’ approval. The adjustment that will be made to the conversion price if and only if in the event of, among other things, sub-division or consolidation of New Shares, bonus issues, rights issues and other dilutive events. Nevertheless, the Directors believe that the adjustment considerations set out in the Acquisition Agreement in general accord with the overriding principle.

Conversion

The holders of the Convertible Notes may convert the whole or any part of the principal amount of the relevant Convertible Note outstanding into Conversion Shares at the price of HK$0.12 per Conversion Share provided that an integral multiple of HK$100,000 be converted at any time and save that if the outstanding principal amount of the relevant Convertible Note is less than HK$100,000, the whole (but not part only) of the outstanding principal amount of the relevant Convertible Note must be converted.

The Vendors together with parties acting in concert with them within the meaning of the Takeovers Code shall not control 30% or more of the voting rights in the Company upon full or partial conversion of the outstanding principal amount of the Convertible Notes, subject to their respective conditions set out in the Acquisition Agreement.

Pursuant to the Acquisition Agreement, the holder(s) of the Convertible Notes is/are restricted to exercise the conversion rights attaching on the Convertible Notes to the extent that no holder(s) of the Convertible Notes will become a controlling Shareholder.

The issue of the Convertible Notes and the Conversion Shares upon conversion thereof shall be subject to the passing of the relevant resolution at the SGM. An application will be made to the Stock Exchange for the listing of and permission to deal in the Conversion Shares.

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LETTER FROM THE BOARD

Conversion period

The Vendors undertake not to exercise the rights attaching on the Restricted Convertible Notes up to end of the Profit Guarantee Period whereas the holders of the Unrestricted Convertible Notes shall have the rights at any time and from time to time, following the date of issue of the Convertible Notes, to convert the whole or any part of the outstanding principal amount into Conversion Shares, subject to the conditions set out in the Acquisition Agreement.

Ranking

The Conversion Shares will rank pari passu in all respects among themselves and with all other Shares in issue on the date of such allotment and issue.

Redemption by the Company

The Company shall have the right to redeem the whole or any part of the outstanding principal amount of the Convertible Notes at any time.

Transferability

The Convertible Notes are freely transferable, provided that the holders of the Convertible Note must inform the Company of each transfer or assignment made by them. The Company undertakes to notify the Stock Exchange if any of the Convertible Notes is transferred to a connected person (as defined in the Listing Rules).

Events of default

All Convertible Notes contain an event of default provision which provides that on the occurrence of certain events of default (e.g. repayment overdue, insolvency, liquidation and suspension of trading on the Stock Exchange for a continuous period of 30 trading days due to the default of the Company) specified in the Convertible Notes, each of the holders of the Convertible Notes shall be entitled to demand for immediate repayment of the principal amount outstanding under the relevant Convertible Note.

Guarantees

The Vendors undertake to the Company that:

• (1) the audited consolidated net profit after tax of Beijing WFC prepared in accordance with Hong Kong GAAP compliance for the Profit Guarantee Period shall not be less than HK$200 million. The Restricted Convertible Note will be put under security to the Company for permanence of the Profit Guarantee and the Vendors undertake not to exercise the rights attaching on the Restricted Convertible Notes up to the expiry of the Profit Guarantee Period. The Vendors will compensate the Company in cash for any shortfall between the Profit Guarantee and the audited consolidated net profit after tax of Beijing WFC prepared in accordance with Hong Kong GAAP compliance for the Profit Guarantee Period. The

– 10 –

LETTER FROM THE BOARD

compensation amount will be calculated on the basis of the shortfall percentage of the total Consideration. In the event that the Restricted Convertible Notes under security to the Company is not sufficient to cover the compensation amount due to the shortfall from the Profit Guarantee, the Vendors will be liable to pay the Company in cash for any outstanding compensation amount after deducted from the Restricted Convertible Notes. Based on the Directors’ assessment of likelihood of Beijing WFC in meeting the Profit Guarantee, the Directors are satisfied that there is reasonable assurance of Beijing WFC’s fulfillment of the Profit Guarantee with the contractual provisions put in place to safeguard compensation to the Company should the Profit Guarantee cannot be fulfilled by Beijing WFC; and

• (2) the fair market value of the assets of Beijing WFC, as assessed by an independent appraiser in Hong Kong in a valuation report, shall be not less than HK$1 billion or such other value as may be agreed between the Company and the Vendors. Where the appraised value of the assets held by Beijing WFC is less than HK$1 billion, the Company shall have its sole discretion to decide whether to proceed with the Proposed Acquisition without consent from the Vendors.

Conditions

The completion of the Acquisition Agreement is conditional upon fulfillment of the following conditions:

• (i) the passing of relevant resolution at the SGM by the Shareholders for approving the Acquisition Agreement and the transactions contemplated therein;

• (ii) the representations, warranties and undertakings given by the Vendors in the Acquisition Agreement remaining true, correct and not misleading in all respects as at the completion date of the Proposed Acquisition;

• (iii) the Stock Exchange granting listing of and permission to deal in the Consideration Shares and the Conversion Shares to be issued upon conversion of the Convertible Notes; and

• (iv) the Proposed Acquisition not being deemed to be a reverse takeover (within the meaning under the Listing Rules) by the Stock Exchange pursuant to the Listing Rules.

In the event that the conditions are not fulfilled on or about 18 June 2006 or such other later date as may be agreed between the parties, the Acquisition Agreement shall forthwith be of no further effect, in which all the obligations of the parties shall be released and the parties shall have no claims against each other in respect of the Acquisition Agreement.

Equity interests in Beijing WFC

Beijing WFC, a company incorporated in the People’s Republic of China on 17 September 2001, is currently a sino-foreign joint venture company owned as to 70% and 30% respectively by the Vendors and FeiFei. Immediately after completion of the Proposed Acquisition, the Company will own 70% equity interest in Beijing WFC while FeiFei will continue to own 30% equity interest in Beijing WFC.

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LETTER FROM THE BOARD

Introduction of Beijing WFC

Beijing WFC is principally engaged in the business of tree planting and management, manufacture and distribution of forest products as timber and bark materials since 26 September 2005. However, the principal business of Beijing WFC prior to its acquisition by Strong Lead on 5 September 2005 was not related to tree plantation and management, and had been fully discontinued.

Ecological Forestry Business of Beijing WFC

Based on the information available to the Company following the due diligence exercise conducted with the Vendors in respect of Beijing WFC, Beijing WFC operates by making use of the genetically modified tree species Broussonetia Papyriferalvent in its plantation process that can be applied for ecological and forestry purposes. The genetically modified tree specie Broussonetia payriferalvent is a Moraceae plant (桑科植物 ) under the category of Deciduous Trees (落葉喬木 ) and its highly resistance characteristic of the genetically modified tree species allow trees to grow in environments unfavourable to other plants. This ability brings economic efficiency and better productivity to Beijing WFC for higher land utilization and lower labour costs. The trees also facilitate the growth of a kind of soil microorganism that may serve to improve the quality of infertile and polluted land on which the plantation is carried out, as well as lowering the carbon dioxide level in the surrounding atmosphere.

Agricultural Land in Shantong Province

In view of the technical know-how advantages, Beijing WFC plans to extensively plant the genetically modified tree species in Shantong Province, principally catering for high domestic demand in wood pulp from the paper making industry in the PRC. It is anticipated that the majority of sales by Beijing WFC will be mainly downstream manufacturers of wood pulp and paper in the PRC. Moreover, Beijing WFC will consider to export its products to overseas countries like Japan and Korea and take advantage of the demand for high quality papers in those overseas countries.

The first plantation cycle will begin in the second quarter of the year and the whole plantation process will be executed in a step-wise manner in approximately 50,000 Chinese mu of land planted each month. For a total agricultural land of 300,000 Chinese mu in Shantong Province, it will take a period of no less than 6 months to cover the whole agricultural premise. Since the first plantation cycle will commence in the second quarter of the year, Beijing WFC is in the process of preparing and commercializing the Broussonetia Papyriferalvent based products at this stage. Based on the existing agricultural premise in Shantong Province, it is expected that the first anniversary output capacity for the tree specie before taking into account normal wastage may reach as much as approximately 300,000 tons of timbers and 30,000 tons of bark materials.

Based on the information available to the Company, Beijing WFC is the legitimate owner of the technical know-how underlying accelerated plant growth and held, amongst other things, (i) agricultural land under 50 years’ lease term of approximately 300,000 Chinese mu in Shantong province and (ii) stock of saplings of not less than 100 million in number that are intended to be utilized in planting the genetically modified tree species Broussonetia Papyriferalvent. The Company has obtained PRC legal opinion which confirms that the validity of the land use right entitled by Beijing WFC over the subject agricultural land does not contravene legality within the PRC regime. Presently, Beijing WFC has a leased office in Beijing, the PRC which currently houses approximately 50 staff serving its managerial and technical departments and sapling rearing facilities. The management of Beijing WFC intends to utilize local labor in Shantong province on a subcontracting basis in the plantation process, harvesting and processing.

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LETTER FROM THE BOARD

Coupled with the proprietary technical know-how and owned rearing capacity, it is intended that the supply of sapling for the plantation of the genetically modified tree species Broussonetia Papyriferalvent will be met mainly through internal rearing capacity of Beijing WFC. The tree plantation and harvesting process that was mainly performed in the field does not require a factory setting. The harvesting process and subsequent processing into tree trunk and bark, etc., are relatively straightforward and delivery of timbers to the customers will be arranged immediately after completion of harvesting in order to minimize necessary warehousing. Nevertheless, the management of Beijing WFC intends to set aside an insignificant portion of the agricultural land in Shantong province for constructing a small workshop which will enhance the bark separation and screening process. In addition, Beijing WFC will also undertake the lease of additional rearing facilities as circumstance warrant in order to further satisfy production capacity.

Man-made standing pine forest in Shanxi Province

In addition to the ecological forestry business to be carried out by Beijing WFC in Shantong Province, the two forest lands – 山西省昔陽縣東風林場 (Shanxi Xiyang Dongfeng Forest Farm) and 山西省昔陽縣國營碧霞觀林場 (Shanxi Xiyang State-run Bixiaguan Forest Farm) that were transferred from FeiFei to Beijing WFC pursuant to ＜轉讓協議＞ (Transfer Agreement) dated 16 August 2005, has a total land area of approximately 40,923 Chinese mu and 6,167.5 Chinese mu, respectively. According to a forestry survey report issued by a PRC forestry survey institute in July 2005, the living pine trees of different maturities grown on the two forest lands are estimated to have an aggregate bulk volume of approximately 370,000 cubic meters of timbers.

The Directors are of the view that the living pine tree operation is independent of and secondary to the tree plantation and management of the genetically modified tree specie Broussonetia Papyriferalvent in Shantong Province, which is the principal business operation of Beijing WFC. The living pine trees reared in the aforesaid forest fields can be utilized as raw material for various sectors of the craftsmanship industry.

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LETTER FROM THE BOARD

Financial information of Beijing WFC

The following table sets out a summary of the audited consolidated financial results of Beijing WFC for the two years ended 31 December 2004 and the nine months ended 30 September 2005:

	For the year ended	For the year ended	For the nine months ended
	31 December 2003	31 December 2004	30 September 2005
	(HK$’000)	(HK$’000)	(HK$’000)
Profit/(loss) before tax	–	–	325,873
Profit/(loss) after tax	320	(27)	321,033
		As at 31 December	As at 30 September
	2003	2004	2005
	(HK$’000)	(HK$’000)	(HK$’000)
Net assets	9,567	9,540	369,035

As set out above, Beijing WFC had an audited consolidated net profit of approximately 321 million for the nine months ended 30 September 2005, which is mainly attributable to non-recurring exceptional gain on extinguishment of indebtedness due to minority equity holder of Beijing WFC.

Management discussion and analysis of the results of Strong Lead and Beijing WFC

Business review of Beijing WFC the year ended 31 December 2003

For the year ended 31 December 2003, Beijing WFC recorded a turnover of approximately HK$970,000 and a net profit of approximately HK$320,000. During the year under review, the revenue of Beijing WFC was derived from the trading of grocery equipments in the geographical segment of the PRC. These business operations have since been fully discontinued and all related principal business assets were disposed of by the end of the year. In presenting the financial information including the accountant’s report on Beijing WFC, these financial results attained by Beijing WFC during the year under review are all classified as discontinued operations. The Directors consider that the results recorded by Beijing WFC during the year under review are not indicative of its future performance due to the change in business as discussed below.

Business review of Beijing WFC for the year ended 31 December 2004

For the year ended 31 December 2003, Beijing WFC remained dormant in its operations and has not derived any turnover from its operations. The previously undertaken business operations in the trading of grocery equipment have been fully ceased during this period. A net loss of approximately HK$27,000 was recorded during the year, which mainly represents expenses incurred and not matched against corresponding revenue. These financial results attained by Beijing WFC during the year are all classified as discontinued operations in presenting the financial information of Beijing WFC.

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LETTER FROM THE BOARD

Business review of Beijing WFC for the nine months ended 30 September 2005

During the period under review, an enlargement in the equity base of Beijing WFC was made through the capital injection of RMB 40 million. In addition, the business operations of Beijing WFC have changed from the previously applicable trading of grocery equipments to tree plantation and management, manufacture and distribution of forestry products. Pursuant to the new business venture, Beijing WFC has entered into arrangement for the procurement of various related principal business assets of patent in application; paper mulberry saplings and man-made standing pine forests; etc., for commencing its new forestry business. This business however remained at a pre-commencement preparation stage throughout the period and accordingly the company has not derived any turnover from the sale of forestry products during the period.

A net profit of approximately HK$321.0 million was recorded for the period, mainly attributable to non-current exceptional gain on extinguishments of indebtedness due to minority holder of the company in the amount of approximately HK$245.9 million; which was executed pursuant to the overall arrangements for re-structuring the assets and equity interests in Beijing WFC in preparation for its future business undertakings in forestry. The directors anticipate that transactions of similar nature will not be continued into the foreseeable future. In addition, gains on re-measurement of fair value of pine trees in the amount of approximately HK$81.6 million was recorded during this period, contributing to the overall profit recorded for the period under review. Gain on re-measurement of fair value of pine trees represents the excess of their appraised fair value at 30 September 2005 over the historical cost of procurement. Re-measurement is made of the fair value of these biological assets at each balance sheet date through the use of professional appraisal and any gain or loss arising from re-measurement is taken to the income statement for the period in which they arise.

Business review of Strong Lead for the period from 8 August 2005 (date of incorporation) to 31 December 2005

Strong Lead was incorporated in the British Virgin Islands as a private company with limited liability on 8 August 2005. On 5 September 2005, Strong Lead entered into contract for the acquisition of a 70 per cent equity interests in Beijing WFC and became its holding company. During this period, the business of Strong Lead group, inclusive of Beijing WFC, remained at a pre-commencement preparation stage and accordingly has not derived any turnover from the sale of forestry products.

A net profit of approximately HK$478.4 million was recorded for the period, mainly attributable to a HK$500.6 million non-recurrent exceptional gain recognized for the excess of fair value of net identifiable assets acquired over the cost of acquisition in respect of Strong Lead’s acquisition of equity interests in Beijing WFC. In addition, gains on extinguishments of indebtedness due to ultimate beneficiary shareholders of Strong Lead in the amount of approximately HK$33.6 million was recorded during this period, and contributed to the overall profit recorded for the period under review. The directors anticipate that transactions of similar nature will not be continued into the foreseeable future.

Pre-operating expenditures of approximately HK$14.6 million was incurred and charged to the income statement during the period. These expenditures principally include fostering and maintenance cost for paper mulberry saplings and expenditures incurred in preparing the agricultural land for future plantation. Other expenses incurred during this period mainly include amortization of patent in application and paper mulberry saplings in the amount of approximately HK$13.6 million and HK$26.7 million, respectively.

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LETTER FROM THE BOARD

At 31 December 2005, the Strong Lead group maintained over 138 million of paper mulberry saplings of various propagation in its various sapling rearing facilitates held under lease in the PRC. These were being fostered for further growth and diversification and will be available for rearing the genetically modified tree specie Broussonetia Payriferalevent. In addition, Strong Lead group maintained in the Shanxi province of the PRC standing forests of Chinese pine trees of approximately 382,000 cubic meters by volume in aggregate. Approximately 32.5 per cent and 58.1 per cent, respectively, of the flocks of standing pine trees have reached full maturity and near maturity and are ready for harvest.

During the period under review, the working capital of Beijing WFC was financed mainly with advances from the minority equity holder who confirmed its intention of not demanding repayment until Strong Lead and Beijing WFC has the financial and liquidity capacity to proceed with settlement of the indebtedness. As at 31 December 2005, Strong Lead group sustained a net current liability position of approximately HK$86.3 million. Notwithstanding the net current liability position, the majority of the underlying liabilities of deferred revenue and amount due to the minority equity holder however do not impose an immediate burden of cash outflow to the Strong Lead group. The Directors consider that Beijing WFC’s existing operations in pine wood sales will readily avail cash resources to Strong Lead Group.

Reasons for the Proposed Acquisition

The Group is principally engaged in design, manufacture and sale of quality men’s and ladies’ wear and apparel items, manufacture uniforms for government authorities, state enterprises and other corporate customers, and investment holding.

In order to complement with the highly competitive apparel market, the Directors consider the diversification of business into new areas of high-growth potential will be in the best interest of its shareholders. The Company takes initiative in identifying business opportunities in new emerging industries that will broaden its revenue sources. With availability of adequate cash resources, the Company is well poised to seize new business opportunities in the Proposed Acquisition for the prospect of which the Board has assessed as promising. The Directors consider that the Proposed Acquisition will improve the Group’s earnings base and asset quality due to the consolidation of the net profit and net assets of Beijing WFC into the Group and bring an increase in the liabilities of the Group due to the issue of the Convertible Notes. The Directors believe that the terms of the Proposed Acquisition are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

At this stage, the Directors have no existing intention to discontinue the Company’s existing garment business and expect that these businesses will continue into the foreseeable future. Accordingly, the Directors confirm that save as diversification into the ecological forestry business, there will be no change in the existing principal businesses of the Group immediately subsequent to completion of the Proposed Acquisition.

After the Proposed Acquisition has been consummated, the Company intends to maintain the employment of the existing management team of Beijing WFC who will be arranged to provide all relevant training along with sharing their expertise with the Company in respect of the knowledge of the ecological forestry business.

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LETTER FROM THE BOARD

The board of directors of the Company currently comprise of 8 members including 4 executive directors, 1 non-executive director and 3 independent non-executive directors. The Company intends to appoint no more than one new executive director from the existing management of Beijing WFC after completion of the Proposed Acquisition, for the purpose of expertise sharing on the ecological forestry business.

Relevant issues in relation to Beijing WFC

1) Business risk of Beijing WFC

The business of Beijing WFC is subject to the usual agricultural risk of hazards from fire, wind and insect. The ecological forestry business of Beijing WFC is at its initial business stage and involves considerable uncertainties as to its future viability. The successful implementation of Beijing WFC’s business plan will rely heavily on, amongst other things, the procurement of required infrastructure and agricultural equipments and the successful completion of pre-plantation ground works which may be necessary for certain portion of the agricultural premises. Attendance to these requirements may necessitate Beijing WFC successfully obtaining additional funding to finance these requirements that may or may not be obtained. In addition, the changes that may be effected in the legislative and regulatory requirements for the forestry business in the PRC could impart adverse implications on the viability of the operations. These legislative and regulatory changes may require Beijing WFC to apply for new licenses, permits, etc., for plantation and harvesting rights for which there is no assurance of successful application by Beijing WFC.

2) Agricultural land in Shantong province

The agricultural land in Shantong province is a military site owned by 中國人民解放軍濟南軍區 黃河三角州生產建設基地 (The Huanghe River Delta’s production & construction base for Ji’nan Military Region of the People’s Liberation Army of China) and the land use right of the subject agricultural land has been allotted to Beijing WFC on the basis of a 50 year term lease pursuant to 土地承包合同 (Land Contract) dated 18 October 2005. The Huanghe River Delta’s production & construction base for Ji’nan Military Region of the People’s Liberation Army of China is an approved unit equivalent to the status of provincial government and has the full right of entitlement to enter into contracts which involve a lease of land under its jurisdiction in accordance with《中國人民解放軍房地產管理條例》 (Administrative Regulations for Estate of the People’s Liberation Army of China) and 《軍用土地使用權轉讓管理暫行 規定》 (Provisional Administrative Regulations for the Transfer of Military Land Use Right). Moreover, the subject agricultural land does not require the issue of new 土地使用權證 (Land use right certificate) or application for approval by 國土局 (PRC Land Bureau) but requires only completion of all relevant procedures within the military troops.

Furthermore, the subject agricultural land in Shantong province leased by Beijing WFC is not an 農村土地 (Agricultural land), including farm land, forest land, grass fields and other lands for agricultural use, on the basis of 農民集體所有 (Farmer mass-ownership) and 國家所有 (PRC State-ownership) as defined under Clause 2 of 《中華人民共和國農村土地承包法》(The Agricultural Land Contract Law of The People’s Republic of China) and therefore the subject agricultural premise in Shantong province is not subject to the Agricultural Land Contract Law of The People’s Republic of China which is normally

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LETTER FROM THE BOARD

applicable to ordinary leased lands. Owing to the specialized nature of the subject agricultural land, there is an absence of public records which otherwise the legal title of the agricultural land would have been normally available for inspection.

In addition, the subject agricultural land in Shantong province leased by Beijing WFC from the Huanghe River Delta’s production & construction base for Ji’nan Military Region of the People’s Liberation Army of China is an enrolled agricultural field (originally an enrolled horse rearing site). The Company has further obtained PRC legal opinion which confirms that《軍隊房地產經營管理規定》(Operation and Management Rules of Military Estate) is not applicable to the underlying Land Contract dated 18 October 2005 (as entered into between Beijing WFC and the Huanghe River Delta’s production & construction base for Ji’nan Military Region of the People’s Liberation Army of China for the lease of the subject agricultural land in Shantong province) because Operation and Management Rules of Military Estate is only applicable to property interests held under the direct jurisdiction of property management departments of military troops (軍隊房地產管理部門直接管理的房地產) and property trading activities carried out under the jurisdiction of other departments of military troops (軍隊其他單位管理的房地產 ). On the other hand, property-related business activities carried out by 在編農場 (Enrolled agricultural fields), 軍馬場 (Horse rearing sites), 企業化工廠 (Industrial factories), 軍人服務社 (Military service communities) and 企業化招待所 (Corporate hospitality units) are also not subject to Operation and Management Rules of Military Estate.

Nevertheless, the Company has further obtained PRC legal opinion which confirms that Beijing WFC is legitimately valid and legally entitled to the land use right of the subject agricultural land over the lease term as set out in the Land Contract dated 18 October 2005.

On the other hand, the saplings inventories held by Beijing WFC will be principally utilized for direct plantation during the forthcoming Spring season into the subject agricultural land in Shantong province for the purpose of rearing the genetically modified tree specie Broussonetia payriferalvent. The Directors understand that the biological assets of genetically modified tree specie Broussonetia payriferalvent grown by Beijing WFC will be carried in the financial statements at fair value in accordance with Generally Accepted Accounting Principles in Hong Kong. For this purpose, the Directors intend to appoint independent surveyor and appraiser to assess the fair value of these biological assets at each financial year-end date. For the fair value of the genetically modified tree specie Broussonetia payriferalvent held by Beijing WFC as at the interim financial date, Beijing WFC also intends to make an annual assessment based on the professional projections of the reported volume as set out in the latest surveyor report (for each financial year). Coupled with the plantation records maintained by and experience of Beijing WFC for the genetically modified tree specie, the Directors believe that the management of Beijing WFC will be able to arrive at a reasonable estimate of fair value of these biological assets that will be reflected in the Company’s interim financial statements in accordance with Hong Kong GAAP compliance.

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LETTER FROM THE BOARD

• 3) Man-made standing pine forest in Shanxi province

The two subject forest lands – 山西省昔陽縣東風林場 (Shanxi Xiyang Dongfeng Forest Farm) and 山西省昔陽縣國營碧霞觀林場 (Shanxi Xiyang State-run Bixiaguan Forest Farm) were originally State-owned and were transferred to FeiFei pursuant to the two ＜承包協議＞ (Contract Agreements) dated 28 December 2004 and 27 June 2005, respectively and the subject transfers had been properly registered in the ownership transfer section of the forest ownership certificates dated 22 July 2005 with the initial forestry administration 山西省昔陽縣林業局 (Shanxi Xiyang Forestry Administration). Subsequently, the subject forest fields were transferred from FeiFei to Beijing WFC pursuant to ＜轉讓 協議＞ (Transfer Agreement) dated 16 August 2005 and the subject transfers were also properly registered in the ownership transfer section of the forest ownership certificates dated 22 August 2005 with Shanxi Xiyang Forestry Administration.

Pursuant to the Contract Agreements dated 28 December 2004 and 27 June 2005 which underline the two forest ownership certificates (昔林證字 (2005)第 0000000000號 and 昔林證字 (2005)第 0000000002號 ), the two subject forest lands are owned by 國家所有 (State-owned) and administrated under the basis of 全民所有制 (people’s ownership). As such, the Company has further obtained PRC legal opinion that confirms the Contract Agreements dated 28 December 2004 and 27 June 2005 are subject to《中華人民共和國土地管理法》(The Land Administration Law of The People’s Republic of China), 《中華人民共和國森林法》(The Forest Law of The People’s Republic of China), 《中華人民共 和國森林法實施條例》(Implement Regulation of The Forest Law of The People’s Republic of China) and the State Ministry’s 《關於加快林業發展的決定》(The Decision Regarding Accelerate Forest Development). Since the two subject forest lands are owned by the State and administrated under the basis of people’s ownership, they are not an 農村土地 (agricultural land), including farm land, forest land, grass fields and other lands for agricultural use, on the basis of 農民集體所有 (Farmer massownership) and 國家所有 (PRC State-ownership) as defined under Clause 2 of the Agricultural Land Contract Law of The People’s Republic of China and therefore the Contract Agreements underlying the two subject forest lands in Shanxi province are not subject to the Agricultural Land Contract Law of The People’s Republic of China.

On the other hand, although Beijing WFC has completed all relevant procedures for the forest ownership titles pursuant to the forest ownership certificates （昔林證字 (2005)第 0000000000號 –and– 昔林證字 (2005)第 0000000002號）for Shanxi Xiyang Dongfeng Forest Farm and Shanxi Xiyang Staterun Bixiaguan Forest Farm, Beijing WFC is legally entitled to 林地、林木使用權 (Forest Land and Tree Use Right) but not entitled to the ownership rights 林地、林木所有權 (Forest Land and Tree Ownership) since the ownership rights to the two subject forest lands belong to the PRC State. Beijing WFC as assignee of Shanxi Xiyang Dongfeng Forest Farm and Shanxi Xiyang State-run Bixiaguan Forest Farm (縣級國營林場 – County State-Run Forest Farm) held the leasehold use rights to the two subject forest lands in accordance with 《中華人民共和國森林法》 (The Forest Law of The People’s Republic of China). It should be noted that Beijing WFC will be subject to a compensation fee of approximately RMB235,000 upon replanting of the forest after full harvest of the existing pine trees grown on the two subject forest lands.

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LETTER FROM THE BOARD

Upon transfer of leasehold rights of from Shanxi Xiyang Dongfeng Forest Farm and Shanxi Xiyang State-run Bixiaguan Forest Farm to Beijing WFC as assignee, Beijing WFC has the legal rights to operate the forestry business on the two subject forest lands during the leasehold term, including but not limited to the harvesting rights and entitlement to benefits derived from the timber harvested in the two subject forest lands in accordance with the confirmation issued by Shanxi Xiyang Forestry Administration on 10 January 2006.

Nevertheless, the Company has further obtained PRC legal opinion that confirms Beijing WFC has completed all relevant procedures for the forest ownership title in accordance with 《國家林業局關於恊 用新版全國統一式樣林權證的通知》(The Notice Regarding Commence Using New Version State-wide Unified Form of Forest Ownership Certificate enacted by State Forestry Administration) and 《林木和林 地權屬登記管理辦法》(Administrative Registration Measures for the forest tree and forest land ownership) and has obtained the full entitlement to the land use right of the two subject forest lands and is legitimately valid and legally entitled to proceed forestry business on the two subject forest lands.

The Directors understand that the biological assets of pine trees grown by Beijing WFC will be carried in the financial statements at fair value in accordance with Generally Accepted Accounting Principles in Hong Kong. For the fair value of pine trees held by Beijing WFC as at the interim financial date, Beijing WFC intends to make an annual assessment based on the professional projections of the reported volume as set out in the latest surveyor report (for each financial year). Coupled with the plantation records maintained by and experience of Beijing WFC for the pine trees, the Directors believe that the management of Beijing WFC will be able to arrive at a reasonable estimate fair value of these biological assets that will be reflected in the Company’s interim financial statements in accordance with Hong Kong GAAP compliance.

4) Forest ownership certificates

In performing its due diligence review of the business of Beijing WFC, the Directors have become aware that the underlying Transfer Agreement has not been dated. The Company has further obtained PRC legal opinion that confirms the missing date for the Transfer Agreement does not affect its legality and validity which was further ratified in a supplementary memorandum.

The Directors are also noted that the irregularities with the underlying forest ownership certificates was assigned with document number of “zero” i.e. 0000000000. Having made enquiries with Shanxi Xiyang Forestry Administration and the management of Beijing WFC, the Company understands that Shanxi Xiyang Forestry Administration released a new number set in 2005 for the forest ownership certificates in respect of the ownership transfer. Since there were not any transfer of forest land in the county before the subject transfer, the subject transfer was actually the first transaction in the county and therefore it was assigned with document number of “zero” i.e. 0000000000, which is the first in a series of sequential document number for all subsequent transfers. The Company’s legal advisers as to the PRC law did not note any exception in respect of such document number.

The Directors are also aware that the entry for new forest owner under the box ＜森林使用權權 利人＞ (The owner of forest use right) in the forest ownership certificates have not been completed but was reflected as an update to the ownership transfer section in the forest ownership certificates. Upon enquiry, the Directors understand that there was no new issue of forest ownership certificates for the

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LETTER FROM THE BOARD

transfer of forest ownership to Beijing WFC and Beijing WFC has further obtained a confirmation ＜關 於林權証填寫格式的說明＞ (The Illustration for writing form of the forest ownership certificates) issued by Shanxi Xiyang Forestry Administration on 6 December 2005 according to which Shanxi Xiyang Forestry Administration has confirmed that they continued to adopt the traditional practice for the register of transfer in the forest ownership certificates and has intentionally left blank the identity of the forest title in the view that the old format of the certificate does not have a column for the entry of forest ownership title. Upon transfer of forest title to new forest owners, the entry of the relevant particulars in the ownership transfer section of the original forest ownership certificate constitutes sufficient acknowledgement of legal validity of the subject transfer and therefore the entry of the identity of the new forest owner under the box (The owner of forest use right) is unnecessary. In addition, Shanxi Xiyang Forestry Administration has also confirmed that a update to ownership transfer section is in compliance with the relevant registration procedures and policies and therefore issue of new forest ownership certificate is unnecessary.

The Company has further obtained PRC legal opinion regarding the format of forest ownership certificates. As stated in the PRC legal opinion, there are new requirements for the format of forest ownership certificates subsequent to the release of 國家林業局在林資 [2000] 159號文（國家林業局關 於實行全國統一林權證式樣的通知）(The approval of the Lin Zi [2000] No. 159 (The Notice Regarding Implementation State-wide Unified Form of Forest Ownership Certificate enacted by State Forestry Administration)). The State Forestry Bureau (國家林業局 ) had released 林資發 [2004] 168號文《國家 林業局關於啟用新版全國統一式樣林權證的通知》(The approval of the Lin Zi Fa [2004] No. 168 (The Notice Regarding Commence Using New Version State-wide Unified Form of Forest Ownership Certificate enacted by State Forestry Administration)) in 2004 which set out revisions to the format of forest ownership certificates and has specifically set out in the latest version of forest ownership certificates that the forest ownership certificates should only be taken to the initial forestry administration by which the certificates were issued for the purpose of forest ownership transfer. Similarly, the State Forestry Bureau’s《林木和林地權屬登記管理辦法》(Administrative Registration Measures for the forest tree and forest land ownership) also requires that the new forest owner should contact the initial forestry administration by which the certificates were issued for the purpose of forest ownership transfer. As such, the Directors understand that only registration of changes for forest ownership is required but not the issue of new certificate. Furthermore, pursuant to the Illustration for writing form of the forest ownership certificates issued by Shanxi Xiyang Forestry Administration, it also set out that issuance of new forest ownership certificate is unnecessary so long as updated ownership information as an entry to the ownership transfers section in the forest ownership certificates is provided with seal where it involves changes in ownership after initial issue of forest land certificates. The Company has further obtained PRC legal opinion that confirms issue of new forest ownership certificate is unnecessary so long as the application for the forest ownership transfer was made to the initial issuing authority of registration in accordance to Administrative Registration Measures for the forest tree and forest land ownership issued by 國家林業局 (State Forestry Administration). In addition, only in certain less usual situations including the re-planting of forest upon its full harvest and fundamental changes (such as revision of lease terms and change in the categories of forest trees grown on the site) will warrant an issue of new forest ownership certificate; otherwise, no new forest ownership certificate will be issued under normal circumstances.

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LETTER FROM THE BOARD

IMPLICATIONS FROM THE LISTING RULES

The Proposed Acquisition constitutes a very substantial acquisition in respect of the Company under the Listing Rules. The Proposed Acquisition and the issue of Consideration Shares and Convertible Notes which will be included in the resolutions in respect of the Proposed Acquisition are subject to the Shareholders’ approval at the SGM. The Company will, in compliance with the Listing Rules, convene the SGM to seek the approval of the Shareholders on the Proposed Acquisition and the issue of Consideration Shares and Convertible Notes in respect of the Proposed Acquisition. An application will be made to the Listing Committee of the Stock Exchange for the listing of, permission to deal in the Consideration Shares and the Conversion Shares. To the best knowledge, information and belief of the Directors, and having made all reasonable enquiries, the Vendors and their respective ultimate beneficiaries are the third parties independent of the Company and any of its connected persons and their respective associates. The Directors are of the view and confirm that the controlling Shareholder does not have any interest in the transactions mentioned in this circular which is different from the interest of the other Shareholders and therefore no Shareholder is required to abstain from voting in respect of the Proposed Acquisition at the SGM.

SHAREHOLDING STRUCTURE OF THE COMPANY

The following is the shareholding structure of the Company immediately before and after issue of the Consideration Shares and Convertible Notes (assuming the Convertibles Notes were exercised in full) in relation to the Proposed Acquisition.

Mr. Ng Leung Ho and his associates (Note 1) Vendors: Vendor A Vendor B Subtotal Public Total	Existing shareholdings (Number of Shares) 1,023,036,000 – – 1,915,571,600 2,938,607,600	Immediately after completion of the Proposed Acquisition and issue of Consideration Shares but assuming no Convertible Notes were exercised % (Number of Shares) 34.81 1,023,036,000 0 348,000,000 0 232,000,000 0 580,000,000 65.19 1,915,571,600 100.00 3,518,607,600	Immediately after completion of the Proposed Acquisition and issue of Consideration Shares but assuming the Convertible Notes were exercised in full into Conversion Shares % (Number of Shares) 29.08 1,023,036,000 9.89 1,400,000,000 6.59 933,333,333 16.48 2,333,333,333 54.44 1,915,571,600 100.00 5,271,940,933	% 19.40 26.56 17.70 44.26 36.34
				100.00

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LETTER FROM THE BOARD

• Note: Mr. Ng Leung Ho is beneficially interested in an aggregate of 1,023,036,000 Shares comprising (i) corporate interest in 960,000,000 Shares held through Golden Prince Group Limited which wholly owned by Mr. Ng Leung Ho; and (ii) personal interest in 63,036,000 Shares. Mr. Ng Leung Ho is also deemed to be interested in 27,200,000 underlying Shares upon full exercise of options to subscribe for Shares in the Company.

The Company confirms that, to the best of the Directors’ knowledge, information and belief having made reasonable enquiries, each of the Vendors and their respective ultimate beneficiaries or their associates did not hold and have not subscribed for or arranged to subscribe for any shares of the Company since October 2004 nor is a subscriber to the Company’s most recent placement of Shares completed in January 2005.

Dilution effect on Shareholders as a result of conversion of any part of the Convertible Notes:

Assuming that the entire maximum principal amount of approximately HK$210.4 million under the Convertible Notes is converted in full at its initial conversion price of HK$0.12 per Conversion Share, a total of approximately 1,753,333,333 Conversion Shares will be issued, representing (i) approximately 59.67% of the existing issued capital of the Company; (ii) approximately 49.83% of the existing issued share capital of the Company as enlarged by the issue of Consideration Shares; and (iii) approximately 33.26% of the existing issued share capital of the Company as enlarged by the issue of Consideration Shares and Conversion Shares.

In view of the future dilution of the Shareholders on the exercise of the conversion rights attaching to the Convertible Notes, the Company will keep the Shareholders informed of the level of dilution and details of conversion after completion of the Proposed Acquisition as follows:

• (a) the Company will make a monthly announcement (the “Monthly Announcement”) on the website of the Stock Exchange. Such announcement will be made on or before the fifth Business Day following the end of each calendar month and will include the following details in a tabular form;

• (i) whether there is any conversion of the Convertible Notes during the relevant month. If yes, details of the conversion(s), including the conversion date, number of Conversion Shares issued, conversion price for each conversion. If there is no conversion during the relevant month, a negative statement to that effect;

• (ii) the number of outstanding principal amount of the Convertible Notes after the conversion, if any;

• (iii) the total number of Shares issued pursuant to other transactions during the relevant month, including Shares issued pursuant to exercise of options under any share option scheme(s) of the Company;

• (iv) the total issued share capital of the Company as at the commencement and the last day of the relevant month; and

• (b) in addition to the Monthly Announcement, if the cumulative amount of the Conversion Shares issued reaches 5% of the issued share capital of the Company as disclosed in the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Convertible Notes (as the case may be) (and thereafter in a multiple of such 5%

– 23 –

LETTER FROM THE BOARD

threshold), the Company will make an announcement on the website of the Stock Exchange including details as stated in (a) above for the period commencing in respect of the Convertible Notes (as the case may be) up to the date on which the total amount of the Conversion Shares amounted to 5% of the issued share capital of the Company as disclosed in the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Convertible Notes (as the case may be).

In respect of conversion of the Convertible Notes held by the holders, the Company will make an announcement in the event any such conversion will result in an increase of its shareholding in the Company by 5%.

RESTORATION OF PUBLIC FLOAT

The Stock Exchange has stated that if, upon completion of the Proposed Acquisition, less than 25% of the Shares are held by the public or if the Stock Exchange believes that:

• a false market exists or may exist in the trading in the Shares; or

• there are too few Shares in public hands to maintain an orderly market;

then it will consider exercising its discretion to suspend trading in the Shares until a sufficient public float is attained.

The Company undertakes that it will make appropriate arrangements to ensure minimum public float of the Company in compliance with the relevant requirements of the Listing Rules.

RECENT DEVELOPMENT OF THE GROUP

Since 2005, to address the fierce competition of the garment business, the Group has rectified its operational management and strengthened and intensified its marketing and promotional effort, with an aim to foster a nationwide sales retail network and broaden the sales channel in the PRC. Through the expansion of sales outlet network across the country on a regional franchised agency basis, the Group has succeeded in setting up an increased number of sales outlets in provincial and municipal levels. The series of promotional initiatives launched by the Group includes the appointment of renowned screen celebrity as the brand image ambassador and rolled out a series of television advertisements to increase customers’ brand awareness. These promotional initiatives also attracted potential franchisers interested in participating in the Group’s garment retailing business. In addition, the Group has made appropriate accommodating measures and successfully seasoned the impact from the retirement of Mr. Ng Leung Tung, the Company’s former deputy chairman and executive director, from direct participation in the Group’s operational management as a result of his personal health concerns. The Directors are pleased to report that signs of recovery are observed for the profit margin of the Group, which has returned to a more satisfactory level as a result of the Group’s efforts.

It is the Group’s business objective to place primary importance to product quality and such aspiration has continued to win recognition for the Group’s products. In December 2005, the Group made the landmark to be awarded the “Chinese Well-known Trademark” by the PRC State Administration for

– 24 –

LETTER FROM THE BOARD

Industry & Commerce. The recognition of the prestigious status for the Group’s “Good Fellow” branding shall further confer competitive advantages in the Group’s development of its garment businesses in the forthcoming year.

FINANCIAL AND TRADING PROSPECTS

The Directors anticipate that the existing garment business of the Group will be continued into the foreseeable future immediately upon completion of the Proposed Acquisition. There are presently no plans for the divestment of these businesses. Leveraging on its own branding; the substantial input in promotions and advertisements over the last year; and the backbone of the expanded regional franchise sales network, the Directors look forward to the upcoming year as a year of rebound for the Group’s core garment retailing business.

The Directors have seen encouraging results from the efforts rendered in streamlining the Group’s operations and signs of returning profitability. However, the fierce competition from both local and foreign competitors and the heavy pricing pressure on the uniform merchandising sector will continue to impose challenge to the Group’s business. In order to complement the highly competitive apparel market, the Directors consider the diversification of business into new areas of high-growth potential will be in the best interest of the Shareholders. The Directors have identified the Strong Lead group’s ecological forestry business as a unique opportunity with highly favorable long-term prospect. The due diligence work performed by the Directors has indicated that the strong demand for quality supply of raw materials to the paper making industry will bring about highly favorable market opportunities to the Strong Lead group, as indicated by the Profit Guarantee of an aggregate net profit after tax of no less than HK$200 million for the two ensuing financial years ending 31 December 2006 and 2007. The Directors are confident that the Group is geared for high growth momentum with diversification into this new business and expect a bright future for the Group.

THE SGM

The SGM will be held to consider and, if thought fit, pass the resolutions to approve the (i) proposed increase in authorised share capital of the Company; and (ii) the Proposed Acquisition and the issue of Consideration Shares and Convertible Notes in relation to the Proposed Acquisition.

Notice of the SGM is set out on pages 187 to 189 of this circular. The SGM will be held at Unit 708, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong on Monday, 8 May 2006 at 11:00 a.m. (or any adjournment thereof). To the best knowledge, information and belief of the Directors, and having made all reasonable enquiries, the Vendors and their respective ultimate beneficiaries are the third parties independent of the Company and any of its connected persons and their respective associates. The Directors are of the view and confirm that the controlling Shareholder does not have any interest in the transactions mentioned in this circular which is different from the interest of the other Shareholders and therefore no Shareholders is required to abstain from voting for the approval of the (i) Proposed Increase in Authorised Share Capital and (ii) Proposed Acquisition and the issue of Consideration Shares and Convertible Notes in relation to the Proposed Acquisition at the SGM.

Shareholders should note that completion of the Proposed Acquisition is conditional. Shareholders and the investing public should exercise caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers .

– 25 –

LETTER FROM THE BOARD

Form of proxy for use at the SGM is enclosed in this circular. Whether or not you are able to attend the SGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon as soon as possible but in any event not later than 48 hours before the time appointed for holding of the SGM. Completion of the form of proxy will not preclude you from attending and voting at the SGM or any adjourned meeting thereof should you so wish.

GENERAL

Fund raising in the 12 months immediately preceding the date of the Acquisition Agreement

			Date of
			general	Intended use
	Announcement	Amount	mandates	of proceeds	Actual use
Description	date	raised	granted	as announced	of proceeds
Placing of 489,000,000	13 January	Approximately	30 November	Net proceeds of	Presently
existing Shares and	2005	HK$97.8	2004	approximately	retained as
top-up subscription		million		HK$95.3	general
of 489,000,000 new				million for	working
Shares in the				general working	capital of
Company				capital of the	the Group
				Group and/or
				any future
				possible
				acquisition

The Stock Exchange is concerned that the ultimate intention of the Company and the Vendors is to inject a business into a listed company which is under the Vendors’ control. The Stock Exchange will closely monitor all future transactions, if any, between the Company and the Vendors and may aggregate such transactions and decide whether the reverse takeover rule should apply. The Stock Exchange may also revisit this matter in the event that there are evidences available to indicate that the Company is under the control of the Vendors. Shareholders and potential investors should also note that the Proposed Acquisition, which is subject to a number of conditions precedent, may or may not be completed. Shareholders and potential investors are reminded to exercise caution when dealing in the securities of the Company.

PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

Bye-laws 73 to 78 of the Bye-laws of the Company set out the procedures under which a poll may be demanded.

The demand for a poll shall not prevent the continuance of a meeting or the transaction of any business other than the question on which the poll has been demanded, and, with the consent of the chairman, it may be withdrawn at any time before the close of the meeting or the taking of the poll, whichever is the earlier and a demand so withdrawn shall not be taken to have invalidated the result of a show of hands declared before the demand was made.

– 26 –

LETTER FROM THE BOARD

RECOMMENDATION

The Directors consider that the (1) Proprosed Increase Authorised Share Capital and (2) the terms, conditions and reasons for the Proposed Acquisition are fair and reasonable and are in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to be proposed at the SGM.

ADDITIONAL INFORMATION

Please refer to the appendices to this circular for additional information.

By order of the Board Good Fellow Group Limited Ng Leung Ho Chairman

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

SUMMARY OF FINANCIAL RESULTS FOR THE THREE YEARS ENDED 30 JUNE 2005 AND SIX MONTHS ENDED 31 DECEMBER 2005

The following financial information has been extracted from the audited financial statements of the Group for each of the three years ended 30 June 2005 and unaudited condensed consolidated financial statements of the Group for the six months ended 31 December 2005:

Six months ended 31 December 2005 HK’000 Turnover 72,422 Cost of sales (57,419) Gross profit 15,003 Other revenue 1,910 Other net (loss)/gain (1,531) Selling and distribution expenses (6,987) Administrative expenses (7,165) Other operating expenses (165) (Loss)/profit from operating activities 1,065 Finance costs (75) Share of (loss)/profits of jointly-controlled entities 1,463 (Loss)/profit before taxation 2,453 Taxation – (Loss)/profit before minority interests 2,453 Minority interests – Net (loss)/profit attributable to shareholders 2,453 Dividends Proposed final – (Loss)/earnings per share Basic HK 0.08 cents Diluted HK 0.08 cents	Year ended 30 June 2005 (audited) HK’000 138,262 (126,716) 11,546 2,722 (3,838) (13,035) (14,853) (101,437) (118,895) (152) (30,838) (149,885) (279) (150,164) – (150,164) – (HK5.61 cents) N/A	Year ended 30 June 2004 (audited) HK’000 189,026 (128,783) 60,243 1,523 654 (9,803) (15,530) (13,898) 23,189 (141) 10,509 33,557 (1,416) 32,141 (1,796) 30,345 4,919 HK1.27 cents HK1.26 cents	Year ended 30 June 2003 (audited) HK’000 208,770 (144,418) 64,352 7,982 5,361 (5,859) (18,090) (9,456) 44,290 (193) 827 44,924 (4,237) 40,687 (331) 40,356 4,725 HK1.71 cents HK1.70 cents

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 30 JUNE 2005

Consolidated Profit and Loss Account

For the year ended 30 June 2005

Notes Turnover 4 Cost of sales Gross profit Other revenue 4 Other net (loss)/gain 6 Selling and distribution expenses Administrative expenses Other operating expenses (Loss)/profit from operating activities 7 Finance costs 9 Share of (losses)/profits of jointly-controlled entities (Loss)/profit before taxation Taxation 10 (Loss)/profit before minority interests Minority interests Net (loss)/profit attributable to shareholders 11 Dividends Proposed final (Loss)/earnings per share 12 Basic Diluted	2005 HK$’000 138,262 (126,716) 11,546 2,722 (3,838) (13,035) (14,853) (101,437) (118,895) (152) (30,838) (149,885) (279) (150,164) – (150,164) – (HK5.61 cents) N/A	2004 HK$’000 189,026 (128,783) 60,243 1,523 654 (9,803) (15,530) (13,898) 23,189 (141) 10,509 33,557 (1,416) 32,141 (1,796) 30,345 4,919 HK1.27 cents HK1.26 cents

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 30 June 2005

Notes Non-current assets Fixed assets 13 Goodwill 14 Interests in jointly-controlled entities 16 Long term investment 17 Current assets Inventories 18 Trade receivables 19 Prepayments, deposits and other receivables Short term investments 20 Pledged bank deposits 23 Bank and cash balances 21 Current liabilities Interest-bearing bank borrowings 22,23 Finance lease payable 24 Trade payables 25 Other payables and accruals Provision for taxation Net current assets Total assets less current liabilities Non-current liabilities Interest-bearing bank borrowings 22,23 Finance lease payable 24 Deferred taxation 26(a) Net assets Capital and reserves Share capital 27 Reserves Proposed final dividends Shareholders’ funds	2005 HK$’000 90,796 – 19,509 – 110,305	2004 HK$’000 94,827 101,886 43,170 6,667 246,550
	33,021 40,719 40,465 14,140 14,760 217,382 360,487 88 120 2,869 8,031 5,156 16,264	46,146 46,156 21,911 10,821 36,690 111,677 273,401 625 203 3,211 7,909 4,738 16,686
		256,715 503,265
	– – 2,954	1,805 112 2,156
	2,954 451,574 294,149 157,425 – 451,574	4,073 499,192 245,958 248,315 4,919 499,192

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 30 June 2005

Notes At 1 July 2003 Arising on exercise of warrants Deficit on revaluation, net of deferred taxation Net profit for the year Final dividends in respect of the previous year approved and paid Proposed final dividends for the year Arising on capital contribution in jointly-controlled entities At 30 June 2004 and 1 July 2004 Currency translation difference Arising on exercise of share options 27 Issue of shares 27 Expenses incurred in connection with issue of shares Repurchase of shares 27 Surplus on revaluation, net of deferred taxation Net loss for the year Final dividends in respect of the previous year approved and paid Share in capital reserve movement of jointly- controlled entities At 30 June 2005 Reserves retained by: Company and subsidiaries Jointly-controlled entities At 30 June 2005 Company and subsidiaries Jointly-controlled entities At 30 June 2004				Reserves				Retained profits HK$’000 166,393 – – 30,345 – (4,919) – 191,819 – – – – – – (150,164) – – 41,655 61,157 (19,502) 41,655 180,483 11,336 191,819	Proposed final dividends HK$’000 4,725 – – – (4,725) 4,919 – 4,919 – – – – – – – (4,919) – – – – – 4,919 – 4,919	Total HK$’000 438,398 35,957 (364) 30,345 (4,725) – (419)
	Share capital HK$’000 236,240 9,718 – – – – – 245,958 – 2,780 48,900 – (3,489) – – – – 294,149 294,149 – 294,149 245,958 – 245,958	Share Subscription premium right account reserve HK$’000 HK$’000 (note i) – 24,543 26,239 – – – – – – – – – – – 26,239 24,543 – – 3,892 – 48,900 – (2,850) – (2,643) – – – – – – – – – 73,538 24,543 73,538 24,543 – – 73,538 24,543 26,239 24,543 – – 26,239 24,543	Fixed asset revaluation reserve HK$’000 6,125 – (364) – – – – 5,761 – – – – – 7,955 – – – 13,716 10,476 3,240 13,716 5,761 – 5,761	Investment property revaluation reserve HK$’000 126 – – – – – – 126 – – – – – 82 – – – 208 208 – 208 126 – 126	Statutory reserve fund HK$’000 (note ii) 1,859 – – – – – – 1,859 – – – – – – – – – 1,859 1,859 – 1,859 1,859 – 1,859	Capital reserve HK$’000 – – – – – – (419) (419) – – – – – – – – 3,923 3,504 – 3,504 3,504 – (419) (419)	Exchange fluctuation reserve HK$’000 (1,613) – – – – – – (1,613) 15 – – – – – – – – (1,598) (1,613) 15 (1,598) (1,613) – (1,613)
										499,192 15 6,672 97,800 (2,850) (6,132) 8,037 (150,164) (4,919) 3,923
										451,574
										464,317 (12,743)
										451,574
										488,275 10,917
										499,192

Notes:

(i) Subscription right reserve represents net proceeds received from issue of warrants.

(ii) In accordance with the relevant People’s Republic of China (“PRC”) regulations, the subsidiaries of the Group established in the PRC are required to transfer a certain percentage of the profit after taxation, if any, to a statutory reserve fund. Subject to certain restrictions as set out in the relevant PRC regulations, the statutory reserve fund may be used to offset the accumulated losses, if any, of the subsidiaries.

– 31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 30 June 2005

CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit from operating activities Adjustments for: Interest income Dividend income from listed investments Net unrealised loss on short term investments Net realised loss on disposal of short term investments Depreciation Amortisation of goodwill Loss on disposal of fixed assets Surplus on revaluation of leasehold land and buildings, net Deficit on revaluation of investment properties, net Impairment loss on goodwill Impairment loss on long term investment Operating (loss)/profit before working capital changes Decrease in inventories Decrease in trade receivables Decrease in prepayments, deposits and other receivables Decrease in trade payables Increase in other payables and accruals Cash (used in)/generated from operations Hong Kong profits tax refunded/(paid) Overseas taxes paid Net cash (outflow)/inflow from operating activities	2005 HK$’000 (118,895) (1,517) (67) 4,951 – 6,550 10,694 – (215) 4,053 61,942 6,667 (25,837) 13,125 5,437 626 (342) 122 (6,869) 147 (8) (6,730)	2004 HK$’000 23,189 (855) – 1,808 514 7,055 8,700 2 (1,125) – – – 39,288 4,211 1,849 16,643 (2,994) 2,211 61,208 (2,893) (338) 57,977

– 32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement (Continued)

For the year ended 30 June 2005

CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets Acquisition of additional equity interest in a subsidiary Capital contribution for the establishment of jointly-controlled entities Acquisition of short term investments Proceeds from disposal of short term investments Proceeds from disposal of fixed assets Decrease/(increase) in pledged bank deposits Interest received Dividend received from listed investments Net cash inflow/(outflow) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Repayment of bank loans Other loans advanced by the Group Repayment of other loans to the Group Capital element of finance lease rental payments Interest element on finance lease rental payments Proceeds from exercise of share options Proceeds from exercise of warrants Proceeds from issue of shares Expenses on issue of shares Repurchase of shares Interest paid Dividends paid Net cash inflow from financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS AT END OF YEAR Bank and cash balances Bank overdrafts, secured	2005 HK$’000 (761) – – (8,270) – – 21,930 1,517 67 14,483 (2,102) (6,500) 16,570 (195) (17) 6,672 – 97,800 (2,850) (6,132) (135) (4,919) 98,192 105,945 111,349 217,294 217,382 (88) 217,294	2004 HK$’000 (929) (88,000) (133) – 3,711 8 (1,242) 855 – (85,730) (278) – – (181) (36) – 35,957 – – – (105) (4,725) 30,632 2,879 108,470 111,349 111,677 (328) 111,349

– 33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

For the year ended 30 June 2005

Notes Non-current assetsa Interests in subsidiaries 15 Current assets Bank and cash balances Current liabilities Other payables and accruals Net current assets Net assets Capital and reserves Share capital 27 Reserves 29 Proposed final dividends Shareholders’ funds	2005 HK$’000 350,838	2005 HK$’000 350,838	2004 HK$’000 305,907
	44,314 38		58 19
	44,276 395,114 294,149 100,965 – 395,114		39 305,946 245,958 55,069 4,919 305,946

– 34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

For the year ended 30 June 2005

1. CORPORATE INFORMATION

The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

The principal place of business of the Company is located at Unit 1906, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong.

The principal activity of the Company is investment holding. The principal activities of the Company’s subsidiaries are set out in note 15 to the financial statements.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

Basis of preparation

These financial statements have been prepared in accordance with accounting standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the periodic remeasurement of leasehold land and buildings, investment properties and short term investments, as further explained below.

Impact of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards

For full convergence with International Financial Reporting Standards, the HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (collectively, “new HKFRSs”) which are effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 30 June 2005.

The Group has made a preliminary assessment of the impact of these new HKFRSs and has so far concluded that the adoption of Hong Kong Financial Reporting Standards (“HKFRS”) 2 “Share-based payment”, Hong Kong Accounting Standard (“HKAS”) 40 “Investment property” and HK(SIC) Interpretation (“HK(SIC)-INT”) 21 “Income taxes – Recovery of revalued non-depreciable assets” will have the following impact on the Group’s financial statements.

HKAS 40 and HK(SIC)-INT 21

Under the existing accounting policy, movements in fair value of the Group’s investment properties are dealt with as movements in the investment property revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on a portfolio basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged. HKAS 40 requires changes in the fair value of investment properties to be recognised directly in the profit and loss account in accordance with the fair value model in HKAS 40. HK(SIC)-INT21 requires the provision of deferred taxation on these changes in fair value to be calculated at applicable profits tax rates. Upon adoption of the new accounting policies for accounting period beginning on or after 1 January 2005, the opening balance of retained profits as at 1 July 2005 will increase by HK$208,000 (2004: HK$126,000) to reflect all of the Group’s previous investment property revaluation reserve relating to investment properties, while the investment property revaluation reserve will decrease by HK$208,000 (2004: HK$126,000).

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKFRS 2

HKFRS 2 “Share-based payment” requires to determine the fair value of all share-based payments to employees as remuneration and recognise as expense in the profit and loss account. This treatment will result in an increase in loss as such items have not been recognised as expenses under the current accounting policy. Under the specific transitional provisions of HKFRS 2, this treatment will apply to equity-settled share-based payment transactions where shares, share options or other equity instruments were granted after 7 November 2002 and had not yet vested on 1 January 2005 and to liabilities arising from share-based payment transactions existing on 1 January 2005.

The Group is in the process of making an assessment of the potential impact of the other new HKFRSs but is not yet in a position to determine the impact of these new HKFRSs on the results of operations and financial position of the Group.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 30 June each year.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders in the operating results and net assets of the subsidiaries.

3. PRINCIPAL ACCOUNTING POLICIES

Subsidiaries

A subsidiary is a company whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The Company’s investments in subsidiaries are stated at cost less any impairment losses. The results of subsidiaries are included in the Company’s profit and loss account to the extent of dividends received and receivable.

Jointly-controlled entities

A joint venture company is a company set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture company operates as a separate entity in which the Group and the other parties have an interest. A jointly-controlled entity is a joint venture company which is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture company’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

The Group’s share of the post-acquisition results and reserves of jointly-controlled entities is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in jointlycontrolled entities are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

Goodwill

Goodwill arising on acquisition of subsidiaries represents the excess of the cost of the acquisition over the Group’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition.

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life of not exceeding 20 years.

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On disposal of subsidiaries, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant consolidated reserves, as appropriate.

The carrying amount of goodwill is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated at the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years.

A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Fixed assets and depreciation

• (i) Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are intended to be held on a long term basis for their investment potential, any rental income being negotiated at arm’s length. Such properties are not depreciated and are stated at their open market values on the basis of annual professional valuations performed at the end of each financial year. Changes in the values of investment properties are dealt with as movements in the investment property revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on a portfolio basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged.

On disposal of an investment property, the relevant portion of the investment property revaluation reserve realised in respect of previous valuations is released to the profit and loss account.

• (ii) Other fixed assets

Fixed assets, other than investment properties are stated at cost or valuation less accumulated depreciation and any impairment losses. The cost of an asset 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 fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the profit and loss account 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 the fixed asset, the expenditure is capitalised as an additional cost of that asset.

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Changes in the values of fixed assets, other than investment properties, are dealt with as movements in the fixed asset revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged. On disposal of a revalued asset, the relevant portion of the revaluation reserve realised in respect of previous valuations is transferred to retained profits as a movement in reserves.

Depreciation is calculated on the straight-line basis to write off the cost or valuation of each asset, less any estimated residual value, over the following estimated useful lives:

Leasehold land and buildings The shorter of 40 years and the lease terms Plant and machinery 10 years Furniture, office equipment and motor vehicles 10 years

The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Leased assets

• (i) Finance leases

Leases that transfer substantially all the risks and rewards of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the profit and loss account so as to provide a constant periodic rate of charge over the lease terms.

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance lease, but are depreciated over their estimated useful lives.

• (ii) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Rentals payable under the operating leases are charged to the profit and loss account on the straight-line basis over the lease terms.

Long term investments

Long term investments in unlisted equity securities, intended to be held for a continuing strategic or long term purpose, are stated at cost less any impairment losses, on an individual investment basis.

When impairments in values have occurred, the carrying amounts of the securities are reduced to their fair values, as estimated by the directors, and the amounts of the impairments are charged to the profit and loss account for the period in which they arise. Where the circumstances and events which led to the impairments in values cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future, the amounts of the impairments previously charged are credited to the profit and loss account to the extent of the amounts previously charged.

Short term investments

Short term investments are investments in equity securities held for trading purposes and are stated at their fair values on the basis of their quoted market prices at the balance sheet date, on an individual investment basis. The gains or losses arising from changes in the fair value of a security are credited or charged to the profit and loss account in the period in which they arise.

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Inventories

Inventories are stated at the lower of cost and net realisable value after allowance for obsolete or slow-moving items. Cost is determined on the first-in, first-out basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads based on a normal level of operating activities. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash at banks and on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group has a present 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 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 is remote.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

• (i) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

• (ii) rental income, on a time proportion basis over the lease terms;

• (iii) interest income, on a time proportion basis, taking into account the principal outstanding and the effective interest rate applicable; and

• (iv) dividend income, when the shareholders’ right to receive payment has been established.

Dividends

Final dividends proposed by the directors are classified as a separate allocation of retained profits within the capital and reserves section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability.

Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

– 39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Employee benefits

• (i) Employee leave entitlements

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity or paternity leave are not recognised until the time of leave.

• (ii) Retirement benefits scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for all those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the Group’s subsidiaries which operate in the PRC are required to participate in a central retirement benefits scheme (the “PRC Scheme”) operated by the respective local municipal governments. These subsidiaries are required to contribute a certain sum of money as calculated under the relevant rules specified by the relevant PRC local government authorities to the PRC Scheme to fund the employees’ retirement benefits. The contributions are charged to the profit and loss account as they become payable.

• (iii) Share option scheme

The financial impact of share options granted under the share option scheme is not recorded in the Company’s or the Group’s balance sheet until such time as the options are exercised, and no charge is recorded in the profit and loss account or balance sheet for their cost. Upon the exercise of share options, equity is increased by the amount of the proceeds received. Options which are cancelled prior to their exercise date, or which lapse, are deleted from the register of outstanding options.

Translation of foreign currencies

Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable exchange rates ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of overseas subsidiaries and jointly-controlled entities are translated into Hong Kong dollars using the net investment method. The profit and loss accounts of overseas subsidiaries and jointly-controlled entities are translated into Hong Kong dollars at the weighted average exchange rates for the year, and their balance sheets are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

Deferred taxation

Deferred taxation is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries and jointly-controlled entities, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

– 40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred taxation is charged or credited to the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred taxation is also dealt with in equity.

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.

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. Segment revenue, expenses, results, 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 enterprises within a single segment.

Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year.

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

4. TURNOVER AND REVENUE

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

Turnover Sales of goods Other revenue Dividend income from listed investments Interest income Rental income Others Total revenue	Group 2005 2004 HK$’000 HK$’000 138,262 189,026	Group 2005 2004 HK$’000 HK$’000 138,262 189,026	Group 2005 2004 HK$’000 HK$’000 138,262 189,026
	67 1,517 259 879		– 855 259 409
	2,722 140,984		1,523 190,549

5. SEGMENTAL INFORMATION

Segmental information is presented by way of two segment formats: (i) on a primary segment reporting basis, by geographical segment; and (ii) on a secondary segment reporting basis, by business segment.

The principal activity of the Group is the manufacture and sale of garment, which is managed according to the geographical location of the Group’s customers.

Each of the Group’s geographical segments, based on the location of customers, represents a strategic business unit that offers products to customers located in different geographical areas which are subject to risks and returns that are different from those of other geographical segments.

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) Geographical segments based on the location of customers

In determining the Group’s geographical segments, revenue, results, assets and liabilities are attributed to the segment based on the location of the customers.

The following tables represent revenue, (loss)/profit and certain assets, liabilities and expenditure information for the Group’s geographical segments.

Segment revenue: External sales Inter-segment sales Total revenue Segment results Unallocated revenue and other net (loss)/gain Unallocated expenses (Loss)/profit from operating activities Finance costs Share of (losses) /profits of jointly-controlled entities (Loss)/profit before taxation Taxation (Loss)/profit before minority interests Minority interests Net (loss)/profit attributable to shareholders	The PRC (excluding Hong Kong and Macau) 2005 2004 HK$’000 HK$’000 115,522 156,818 19,025 27,755 134,547 184,573 (26,977) 36,063	Hong Kong 2005 2004 HK$’000 HK$’000 22,740 32,208 1,271 1,855 24,011 34,063 (6,872) 273	Elimination 2005 2004 HK$’000 HK$’000 – – (20,296) (29,610) (20,296) (29,610)	Consolidated 2005 2004 HK$’000 HK$’000 138,262 189,026 – – 138,262 189,026 (33,849) 36,336 (1,116) 2,177 (83,930) (15,324) (118,895) 23,189 (152) (141) (30,838) 10,509 (149,885) 33,557 (279) (1,416) (150,164) 32,141 – (1,796) (150,164) 30,345	Consolidated 2005 2004 HK$’000 HK$’000 138,262 189,026 – – 138,262 189,026 (33,849) 36,336 (1,116) 2,177 (83,930) (15,324) (118,895) 23,189 (152) (141) (30,838) 10,509 (149,885) 33,557 (279) (1,416) (150,164) 32,141 – (1,796) (150,164) 30,345
					189,026
					36,336 2,177 (15,324)
					23,189 (141) 10,509
					33,557 (1,416)
					32,141 (1,796)
					30,345

– 42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment assets Goodwill Interests in jointly-controlled entities Long term investment Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Capital expenditure Depreciation and amortisation Provision for doubtful debts Provision for obsolete inventories Impairment losses	The PRC (excluding Hong Kong and Macau) 2005 2004 HK$’000 HK$’000 250,885 263,891 – – – – – – – – 250,885 263,891 11,130 5,264 – – 11,130 5,264 737 881 6,062 6,556 3,522 2,059 13,000 – – –	Hong Kong 2005 2004 HK$’000 HK$’000 111,429 89,928 – – – – – – – – 111,429 89,928 2,734 1,776 – – 2,734 1,776 24 48 488 499 – – 421 – – –	Unallocated 2005 2004 HK$’000 HK$’000 – – – 101,886 19,509 43,170 – 6,667 88,969 14,409 108,478 166,132 – – 5,354 13,719 5,354 13,719 – 88,133 10,694 8,700 – – – 68,609 –	Consolidated 2005 2004 HK$’000 HK$’000 362,314 353,819 – 101,886 19,509 43,170 – 6,667 88,969 14,409 470,792 519,951 13,864 7,040 5,354 13,719 19,218 20,759 761 89,062 17,244 15,755 3,522 2,059 13,421 – 68,609 –	Consolidated 2005 2004 HK$’000 HK$’000 362,314 353,819 – 101,886 19,509 43,170 – 6,667 88,969 14,409 470,792 519,951 13,864 7,040 5,354 13,719 19,218 20,759 761 89,062 17,244 15,755 3,522 2,059 13,421 – 68,609 –
					519,951
					7,040 13,719
					20,759
					89,062
					15,755
					2,059
					–
					–

(b) Geographical segments based on the location of assets

Additional information in respect of segment assets and cost for capital expenditure, based on the location of assets, is as follows:

Segment assets Capital expenditure	The PRC (excluding Hong Kong and Macau) 2005 2004 HK$’000 HK$’000 211,103 352,567 734 89,014	Hong Kong 2005 2004 HK$’000 HK$’000 199,153 102,244 24 48	Macau 2005 2004 HK$’000 HK$’000 60,536 65,140 3 –	Consolidated 2005 2004 HK$’000 HK$’000 470,792 519,951 761 89,062	Consolidated 2005 2004 HK$’000 HK$’000 470,792 519,951 761 89,062
					89,062

(c) Business segments

No business segment information has been disclosed as the Group is solely engaged in the manufacture and sale of garments.

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. OTHER NET (LOSS)/GAIN

Surplus on revaluation of leasehold land and buildings Deficit on revaluation of investment properties, net Net realised loss on disposal of short term investments	Group 2005 2004 HK$’000 HK$’000 215 1,168 (4,053) – – (514) (3,838) 654

7. (LOSS)/PROFIT FROM OPERATING ACTIVITIES

The Group’s (loss)/profit from operating activities is arrived at after charging/(crediting) the following:

		Group	Group
	2005		2004
	HK$’000		HK$’000
Amortisation of goodwill
(included in other operating expenses)	10,694		8,700
Auditors’ remuneration	735		750
Cost of inventories sold	126,716		128,783
Depreciation
– owned assets	6,440		6,945
– leased assets	110		110
Exchange loss	6		88
Gross rental income	(259)		(259)
Less: Outgoings	8		10
Net rental income	(251)		(249)
Impairment loss on goodwill
(included in other operating expenses)	61,942		–
Impairment loss on long term investment
(included in other operating expenses)	6,667		–
Loss on disposal of fixed assets	–		2
Minimum lease payments under
operating leases on
leasehold land and buildings	544		110
Net unrealised loss on short term investments	4,951		1,808
Provision for doubtful debts	3,522		2,059
Provision for obsolete inventories	13,421		–
Staff costs (excluding directors’ emoluments)
Wages and salaries	9,472		7,756
Retirement benefits scheme contributions	338		271

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. DIRECTORS’ AND FIVE HIGHEST PAID INDIVIDUALS’ EMOLUMENTS

(a) Directors’ emoluments

Details of emoluments of the directors of the Company for the year disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Section 161 of the Hong Kong Companies Ordinance are as follows:

Name of director Executive directors Mr. Ng Leung Ho Mr. Ng Leung Tung Ms. Lee Ming Hin Mr. Hu Xiaoming Mr. Wang Weining Non-executive director Mr. Ng Leung Tung Independent non-executive directors Mr. Lo Cheung Kin Mr. Zou Zi Ping Mr. Zhu Jian Hong Total 2005 Total 2004	Fees HK$’000 – – – – – – 33 33 3 69 66	Salaries, allowances and benefits in kind HK$’000 825 375 675 144 240 300 – – – 2,559 2,080	Discretionary bonus HK$’000 – – – – – – – – – – –	Retirement benefits scheme contributions HK$’000 12 6 12 – – 6 – – – 36 36	2005 Total emoluments HK$’000 837 381 687 144 240 306 33 33 3 2,664	2004 Total emoluments HK$’000 792 662 662 – – – 33 33 –
						2,182

• Mr. Ng Leung Tung has been re-designated to non-executive director since 3 January 2005.

There was no arrangement under which a director of the Company waived or agreed to waive any remuneration during the year.

During the year, no emoluments were paid by the Group to the directors of the Company as an inducement to join, or upon joining the Group, or as compensation for loss of office.

(b) Five highest paid individuals

The emoluments of the five individuals with highest emoluments in the Group for the year included three (2004: three) directors, details of whose emoluments have been disclosed above.

Details of the emoluments of the remaining two (2004: two) non-director, highest paid individuals for the year are as follows:

Salaries, allowances and benefits in kind Discretionary bonus Retirement benefits scheme contributions	2005 HK$’000 1,175 – 24 1,199	2004 HK$’000 1,021 – 23
		1,044

The remuneration of each of the remaining two (2004: two) non-director, highest paid employees fell within the band of HK$ Nil – HK$1,000,000.

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. FINANCE COSTS

Interest on bank loans and overdrafts Interest on a finance lease Total finance costs 10. TAXATION Hong Kong profits tax – current – over provision in previous year – deferred Overseas tax – current – under provision in previous year	Group 2005 2004 HK$’000 HK$’000 135 105 17 36 152 141 Group 2005 2004 HK$’000 HK$’000 6 400 – (585) – (7) – 1,608 273 – 279 1,416

Hong Kong profits tax had been provided at 17.5% based on the estimated assessable profit for the year. Taxes on profits assessable elsewhere had been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

The taxation on the Group’s (loss)/profit before taxation differs from the theoretical amount that would arise using the Hong Kong profits tax rate is as follows:

(Loss)/profit before taxation Tax at Hong Kong profits tax rate of 17.5% Tax effect of income that is not taxable in determining taxable profit Tax effect of expenses that are not deductible in determining taxable profit Tax effect of utilisation of tax losses not previously recognised Tax effect of unused tax loss not recognised Under/(over) provision of tax in previous year Effect of different tax rates of subsidiaries operating in other jurisdictions Taxation charge

Group 2005 2004 HK$’000 HK$’000 (149,885) 33,557 (26,230) 5,872 (378) (2,328) 25,537 4,711 – (4) 1,627 531 273 (585) (550) (6,781) 279 1,416

11. NET (LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The net loss attributable to shareholders for the year ended 30 June 2005 dealt with in the financial statements of the Company was approximately HK$1,403,000 (2004: profit of HK$4,521,000).

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. (LOSS)/EARNINGS PER SHARE

(a) Basic (loss)/earnings per share

The calculation of basic (loss)/earnings per share is based on the net loss attributable to shareholders of HK$150,164,000 (2004: profit of HK$30,345,000) and the weighted average of 2,677,388,449 ordinary shares (2004: 2,393,347,677) in issue during the year.

(b) Diluted (loss)/earnings per share

No diluted loss per share has been presented for the year ended 30 June 2005 since the assumed exercise of the Company’s outstanding share options would have no dilutive effect on loss per share.

The calculation of diluted earnings per share for the year ended 30 June 2004 is based on the net profit attributable to shareholders of HK$30,345,000 and the weighted average of 2,406,540,832 ordinary shares after adjusting for the effects of all dilutive potential ordinary shares, as if all the outstanding share options granted by the Company had been exercised at the date of issuance.

13. FIXED ASSETS

Group

Cost or valuation At beginning of year Additions (Deficit)/surplus on revaluation At end of year Accumulated depreciation At beginning of year Provided during the year Written back on revaluation At end of year Net book value At 30 June 2005 At 30 June 2004 Analysis of cost or valuation of the At end of year At cost At 30 June 2005 valuation At beginning of year At cost At 30 June 2004 valuation	Investment properties HK$’000 14,790 – (3,881) 10,909 – – – – 10,909 14,790 above assets is – 10,909 10,909 – 14,790 14,790	Leasehold land and buildings HK$’000 57,220 – 4,110 61,330 – 1,529 (1,529) – 61,330 57,220 as follows: – 61,330 61,330 – 57,220 57,220	Plant and machinery HK$’000 45,389 49 – 45,438 28,773 4,015 – 32,788 12,650 16,616 45,438 – 45,438 45,389 – 45,389	Furniture, office equipment and motor vehicles HK$’000 10,633 712 – 11,345 4,432 1,006 – 5,438 5,907 6,201 11,345 – 11,345 10,633 – 10,633	Total HK$’000 128,032 761 229 129,022 33,205 6,550 (1,529) 38,226 90,796 94,827 56,783 72,239 129,022 56,022 72,010 128,032

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s investment properties and leasehold land and buildings included above are held under the following lease terms:

Investment properties at valuation: Medium term lease in Hong Kong Medium term lease outside Hong Kong Leasehold land and buildings at valuation: Medium term lease in Hong Kong Medium term lease outside Hong Kong	Group 2005 2004 HK$’000 HK$’000 1,650 1,100 9,259 13,690 10,909 14,790 15,170 6,240 46,160 50,980 61,330 57,220 72,239 72,010	Group 2005 2004 HK$’000 HK$’000 1,650 1,100 9,259 13,690 10,909 14,790 15,170 6,240 46,160 50,980 61,330 57,220 72,239 72,010
		1,100 13,690
		14,790
		6,240 50,980
		57,220 72,010

At 30 June 2005, the Group’s investment properties in Hong Kong and the PRC were revalued on market value at approximately HK$1,650,000 and HK$9,259,000 respectively by LCH (Asia-Pacific) Surveyors Limited (“LCH”), a firm of independent chartered surveyors.

At 30 June 2005, the Group’s leasehold land and buildings in Hong Kong were revalued on market value, based on their existing use, at HK$15,170,000 by LCH.

At 30 June 2005, the Group’s leasehold land and buildings in Macau were revalued on market value, based on their existing use, by LCH at HK$630,000.

At 30 June 2005, the Group’s leasehold land and buildings in the PRC were revalued on a depreciated replacement cost basis by LCH at HK$45,530,000.

Had the Group’s leasehold land and buildings held in Hong Kong been carried at historical cost less accumulated depreciation, their carrying value would have been approximately HK$7,526,000 (2004: HK$7,754,000).

Had the Group’s leasehold land and buildings held outside Hong Kong been carried at historical cost less accumulated depreciation, their carrying value would have been approximately HK$48,307,000 (2004: HK$49,691,000).

The net book value of the Group’s fixed assets held under finance lease, included in the total amount of furniture, office equipment and motor vehicles as at 30 June 2005, amounted to approximately HK$682,000 (2004: HK$792,000).

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. GOODWILL

The amount of goodwill capitalised as an asset, arising from the acquisitions of equity interests in subsidiaries, are as follows:

Cost At beginning of year Adjustment of consideration_(note b) At end of year Accumulated amortisation and impairment losses At beginning of year Amortisation for the year Impairment loss for the year(note a and c)_ At end of year Net book value At 30 June 2005 At 30 June 2004	Group HK$’000 121,912 (29,250) 92,662 20,026 10,694 61,942 92,662 – 101,886

The goodwill represents the considerations paid over the net assets of two previously acquired subsidiaries of the Group, namely, Hi-Tech Market Limited (“Hi-Tech Market”) and Charming World Investments Limited (“Charming World”).

• (a) Hi-Tech Market holds 36% indirect equity interest in Global Network Corporation, which is principally engaged in computer software and network system development. The directors had carried out annual reviews as to the valuation of Global Network Corporation at each previous financial year ends. During the year, a patented computer algorithm of Global Network Corporation used in compression of digital data, that once had demonstrated a promising market, cannot successfully convinced the directors as to its future profitability. Accordingly, the carrying value of goodwill related with acquisition of Hi-Tech market amounted to HK$30,475,000 at year end was fully impaired.

In addition, the Group’s investment cost in Global Network Corporation amounted to approximately HK$6,667,000 was fully impaired during the year (Note 17).

• (b) Charming World has 40% equity interest in Putian Keneng High Technology Co., Ltd. (while the remaining 60% equity interset in Putian Keneng High Technology Co., Ltd. was already held by the Group), which in turn has 55% equity interest in a jointly-controlled entity of the Group named Zhongke Nanotech Engineering Center Co., Ltd.. (“Zhongke Nanotech”). In March 2004, the Group had acquired the entire equity interest in Charming World with a total consideration of HK$98,000,000 subject to adjustment in the event that Zhongke Nanotech fail to attain a guaranteed profit. Details of the adjustment and guaranteed profit are disclosed in the Company’s circular to its shareholders of 13 April 2004. Goodwill adjustment of HK$29,250,000 was adjusted for the year ended 30 June 2005.

• (c) Zhongke Nanotech and its subsidiaries (“Zhongke Nanotech Group”) were principally engaged in the development and sales of nano materials and transfer of related technology. Zhongke Nanotech Group owned certain patented technologies related with application and manufacturing of nano-metric materials, which had once demonstrated promising profitability. However, Zhongke Nanotech Group cannot meet the guaranteed profit for the year ended 30 June 2004 as described in (b) above. In addition, the performance of Zhongke Nanotech Group during the year ended 30 June 2005 had showed that the turnover and profitability were not as stable as originally expected. Based on the directors’ assessment, the carrying amount of the related goodwill of HK$31,467,000 was fully impaired.

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from a subsidiary	Company 2005 2004 HK$’000 HK$’000 64,522 64,522 286,316 241,385 350,838 305,907	Company 2005 2004 HK$’000 HK$’000 64,522 64,522 286,316 241,385 350,838 305,907
		305,907

At 30 June 2005, the amount due from a subsidiary is unsecured, interest-free and is not repayable before 30 June 2006.

Particulars of the Company’s principal subsidiaries as at 30 June 2005 are as follows:

	Place of	Paid-up	Percentage
	incorporation/	share/	of equity
	establishment	registered	attributable to	Principal
Name	and operation	capital	the Company	activities
Directly held
Holt Hire	British Virgin	Ordinary	100%	Investment
Holdings Limited	Islands (“BVI”)	US$3		holding
Indirectly held
Able Business	BVI	Ordinary	100%	Investment
Developments Limited		US$10		holding
Cannon Ape Company	Hong Kong	Ordinary	100%	Property
Limited		HK$10,000		holding
Charming World Investments	BVI	Ordinary	100%	Investment
Limited		US$2		holding
Clothes Galore Limited	BVI	Ordinary	100%	Intellectual
		US$1		property holding
Digital 910 Limited	Hong Kong	Ordinary	100%	Investment
		HK$10,000		holding
Fancy Spirit Limited	Hong Kong	Ordinary	100%	Property
		HK$2		holding
Fujian Good Fellow	The PRC	Registered	100%	Trading of
Fashion Co., Ltd.		RMB10,000,000		garments
Fujian Yingfu-Kerun	The PRC	Registered	100%	Investment
Software Co., Ltd.		HK$15,000,000		holding
Good Country	Hong Kong	Ordinary HK$2	100%	Property
Investment Limited		Non-voting		holding and
		deferred		trading of
		HK$10,000		securities
Good Fellow (Macau)	Macau	MOP100,000	100%	Trading of
Commercial Offshore Limited				garments
Good Fellow Fashion	Hong Kong	Ordinary	100%	Distribution of
(Group) Limited		HK$10,000		garments
Good Fellow Garment	The PRC	Registered	100%	Manufacture
(Fujian) Co., Ltd.		US$5,000,000		and sale of
				garments

– 50 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

	Place of	Paid-up	Percentage
	incorporation/	share/	of equity
	establishment	registered	attributable to	Principal
Name	and operation	capital	the Company	activities
Hi-Tech Market Limited	BVI	Ordinary	100%	Investment
		US$100		holding
Huatong Garment	The PRC	Registered	100%	Manufacture
Co., Ltd. Putian		US$600,000		and sale of
				garments
Putian Keneng High	The PRC	Registered	100%	Investment
Technology Co., Ltd.		RMB55,600,000		holding

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

16. INTERESTS IN JOINTLY-CONTROLLED ENTITIES

		Group
	2005		2004
	HK$’000		HK$’000
Share of net assets, unlisted	19,509		43,170

Particulars of the principal jointly-controlled entities as at 30 June 2005 are as follows:

			Percentage of
			ownership
	Form of	Place of	interest
	business	establishment	attributable	Principal
Name	structure	and operation	to the Group	activities
中科納米技術工程中心	Corporated	The PRC	55%	Development and
有限公司				sales of nano
(Zhongke Nanotech Engineering				materials and
Center Co., Ltd.*)				transfer of
				related technology
中科納米技術工程	Corporated	The PRC	68.5%	Development and
（蘇州）有限公司				sales of nano
(Zhongke Nanotech Engineering				materials and
(Suzhou) Co., Ltd.*)				transfer of
				related technology
北京中科納米高彈材料	Corporated	The PRC	38.5%	Manufacture and
有限公司				sales of nano
(Beijing Zhongke Nanotech				high-elastic
High-elastic Material Co., Ltd.*)				plastic and
				materials
北京時代科能科技開發	Corporated	The PRC	44%	Dormant
有限公司
(Beijing Shidai Keneng Technology
Development Co., Ltd.*)
(formerly known as
北京時代科能化工材料
有限公司(Beijing Shidai Keneng
Chemical Co., Ltd.*)

– 51 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Percentage of
			ownership
	Form of	Place of	interest
	business	establishment	attributable	Principal
Name	structure	and operation	to the Group	activities
中科安康醫療用品有限公司	Corporated	The PRC	35.4%	Sales of nano
(Beijing Zhongke Health Medical				medical products
Products Co., Ltd.*)
蘇州中科納米高彈材料	Corporated	The PRC	34.9%	Development and
有限公司				sales of nano
(Suzhou Zhongke Nanotech				high elastic plastic
High-elastic Material Co., Ltd.*)

* For identification only

17. LONG TERM INVESTMENT

Unlisted investment outside Hong Kong, at cost Less: Impairment loss Particulars of the investee company are as follows:	Group 2005 2004 HK$’000 HK$’000 6,667 6,667 6,667 – – 6,667	Group 2005 2004 HK$’000 HK$’000 6,667 6,667 6,667 – – 6,667
		6,667

			Percentage of
			equity
	Place of	Paid-up	attributable	Principal
Name	establishment	registered capital	to the Group	activities
Global Network	The PRC	RMB20,000,000	36%	Computer
Corporation				software and
				network system
				development

(a) The above investment is not equity-accounted for in accordance with Statement of Standard Accounting Practice 10 “Accounting for investments in associates” because the directors of the Company consider that the Group has no significant influence on the daily financial and operating decisions of Global Network Corporation.

(b) Investment cost was fully impaired in current year due to reason as mentioned in note 14(a) to the financial statements.

18. INVENTORIES

Raw materials Work in progress Finished goods	Group 2005 2004 HK$’000 HK$’000 15,933 18,228 645 1,355 16,443 26,563 33,021 46,146	Group 2005 2004 HK$’000 HK$’000 15,933 18,228 645 1,355 16,443 26,563 33,021 46,146
		46,146

At 30 June 2005, the carrying amount of inventories that are carried at net realisable value is approximately HK$9,040,000 (2004: HK$ Nil).

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. TRADE RECEIVABLES

The Group normally allows credit terms to established customers ranging from 30 to 120 days.

An aging analysis of the trade receivables as at the balance sheet date, based on the date of recognition of the sales, is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days 20. SHORT TERM INVESTMENTS Securities listed in Hong Kong, at market value	Group 2005 2004 HK$’000 HK$’000 18,189 14,958 5,731 10,973 5,422 10,688 11,377 9,537 40,719 46,156 Group 2005 2004 HK$’000 HK$’000 14,140 10,821

At 30 June 2005, securities with market value of approximately HK$7,847,000 (2004: HK$Nil) have been pledged to a bank for the Group’s banking facilities (Note 23) .

21. BANK AND CASH BALANCES

At 30 June 2005, the bank and cash balances of the Group denominated in Renminbi (“RMB”) amounted to approximately HK$86 million (2004: HK$73 million). Conversion of RMB into foreign currencies is subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations.

22. INTEREST-BEARING BANK BORROWINGS

Note Bank overdrafts, secured 23 Bank loans, secured and repayable: Within one year In the second year In the third to fifth years, inclusive Beyond five years Portion classified as current liabilities Non-current portion	Group 2005 2004 HK$’000 HK$’000 88 328 – 297 – 306 – 977 – 522 88 2,430 (88) (625) – 1,805	Group 2005 2004 HK$’000 HK$’000 88 328 – 297 – 306 – 977 – 522 88 2,430 (88) (625) – 1,805
		2,430 (625)
		1,805

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. BANKING FACILITIES

At 30 June 2005, the Group’s banking facilities were secured by the following:

• (i) the Group’s bank deposits of approximately HK$14,760,000 (2004: HK$36,690,000);

• (ii) the Group’s short term investments of approximately HK$7,847,000 (2004: HK$Nil); and

• (iii) corporate guarantees given by the Company to the extent of HK$13,500,000 (2004: HK$16,800,000).

24. FINANCE LEASE PAYABLE

The Group leases a motor vehicle for general business purposes. The lease is classified as a finance lease and has remaining lease term of seven months as at 30 June 2005.

At 30 June 2005, the total future minimum lease payments under the finance lease and its present value were as follows:

Group

Amounts payable: Within one year In the second year Total minimum finance lease payments Future finance charges Total net finance lease payable Portion classified as a current liability Non-current portion	Minimum lease payments 2005 HK$’000 123 – 123 (3) 120 (120) –	Present value of minimum lease payments 2005 HK$’000 120 – 120	Minimum lease payments 2004 HK$’000 212 123 335 (20) 315 (203) 112	Present value of minimum lease payments 2004 HK$’000 203 112
				315

25. TRADE PAYABLES

The Group normally obtains credit terms ranging from 30 to 120 days from its suppliers.

An aging analysis of the trade payables as at the balance sheet date, based on the receipt of goods purchased, is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	Group 2005 2004 HK$’000 HK$’000 1,950 1,206 39 707 34 276 846 1,022 2,869 3,211	Group 2005 2004 HK$’000 HK$’000 1,950 1,206 39 707 34 276 846 1,022 2,869 3,211
		3,211

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. DEFERRED TAXATION

• (a) The following are the deferred tax liabilities and (assets) recognised by the Group and movement thereon during the current and prior periods:

Balance at 1 July 2003 Credited to profit and loss account for the year Credited to equity for the year Balance at 30 June 2004 Charged to equity for the year Balance at 30 June 2005	Accelerated tax depreciation HK$’000 – (7) – (7) – (7)	Group Revaluation of properties HK$’000 2,298 – (135) 2,163 798 2,961	Total HK$’000 2,298 (7) (135)
			2,156 798
			2,954

• (b) At the balance sheet date the Group has unused tax losses of approximately HK$20,109,000 (2004: HK$8,209,000) available for offset against future profits. No deferred tax asset in relation to tax losses has been recognised due to the unpredictability of future taxable profit streams. These tax losses may be carried forward indefinitely.

27. SHARE CAPITAL

Ordinary shares of HK$0.10 each Authorised: Issued and fully paid: At beginning of year Shares issued on exercise of share options_(note i) Shares issued on exercise of warrants Issue of shares(note ii) Repurchase of shares(note iii)_ At end of year	Number of shares 2005 2004 ’000 ’000 5,000,000 5,000,000 2,459,575 2,362,395 27,800 – – 97,180 489,000 – (34,888) – 2,941,487 2,459,575	Ordinary share capital 2005 2004 HK$’000 HK$’000 500,000 500,000 245,958 236,240 2,780 – – 9,718 48,900 – (3,489) – 294,149 245,958	Ordinary share capital 2005 2004 HK$’000 HK$’000 500,000 500,000 245,958 236,240 2,780 – – 9,718 48,900 – (3,489) – 294,149 245,958
			236,240 – 9,718 – –
			245,958

Notes:

• (i) During the year ended 30 June 2005, options were exercised to subscribe for 27,800,000 shares in the Company at a total consideration of HK$6,672,000 of which HK$2,780,000 was credited to share capital and the balance of HK$3,892,000 was credited to the share premium account. These shares rank pari passu in all respects with the other shares in issue.

• (ii) On 13 January 2005, Golden Prince Group Limited (“Golden Prince”), the entire issued share capital of which is directly wholly owned by Mr. Ng Leung Ho, the Chairman and executive director of the Company, entered into a placing agreement with an independent placing agent for the placement of 489,000,000 ordinary shares of the Company owned by Golden Prince at a price of HK$0.20 per share. Pursuant to a top-up subscription agreement of the same date, Golden Prince subscribed for 489,000,000 new ordinary shares of the Company at a price of HK$0.20 per share. The placement of shares raised total consideration of approximately HK$94,950,000 (net of issuing expenses) to provide general working capital for the Group and/or for any future possible acquisition, which is yet to be identified.

• (iii) During the year ended 30 June 2005, the Company repurchased 34,888,000 ordinary shares on The Stock Exchange of Hong Kong Limited. All these repurchased shares were cancelled during the year.

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Details of these repurchases are as follows:

Number of shares Price per share repurchased Highest Lowest HK$ HK$ October 2004 9,608,000 0.33 0.21 February 2005 7,000,000 0.18 0.17 March 2005 10,326,000 0.14 0.13 April 2005 7,954,000 0.13 0.12 34,888,000	Aggregate price paid $’000 2,477 1,218 1,437 1,000
	6,132

28. SHARE OPTION SCHEMES

On 25 October 1998, the Company adopted a share option scheme (the “Old SO Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Old SO Scheme include directors and employees of the Company and its subsidiaries as determined by the directors of the Company.

In compliance with the amendments to the Listing Rules, the directors of the Company consider that it is in the interest of the Company to terminate the Old SO Scheme and to adopt a new share option scheme (the “New SO Scheme”). An ordinary resolution was passed at the annual general meeting of the Company held on 23 November 2001 for the approval of the said adoption of the New SO Scheme and termination of the Old SO Scheme. Pursuant to the amendments to the Listing Rules, no further options may be granted under the Old SO Scheme thereunder but in other respects, the provisions of the Old SO Scheme remain in force and all outstanding options granted continue to be valid and exercisable in accordance therewith.

(a) Old SO Scheme

As mentioned above, the Old SO Scheme was terminated on 23 November 2001 and no further options may be offered thereunder. The following share options were outstanding under the Old SO Scheme during the year:

Name or category of participant Director Mr. Ng Leung Ho Notes:	Number of share option Date of Exercise Exercise At 1 Exercise of At 30 grant of period of price of July 2004 share options June 2005 share options share options share options (note (i)) HK$ 7,200,000 – 7,200,000 1 February 1999 1 May 1999 – 0.1 24 October 2008	Price of the Company’s shares (note (ii))
		At grant At exercise date of date of options options HK$ HK$ 0.330 N/A

(i) The vesting period of the share options is from the date of the grant until the commencement of the exercise period.

• (ii) The price of the Company’s shares disclosed as at the date of the grant of the share options is the Stock Exchange closing price on the trading day immediately prior to the date of the grant of the share options.

• (iii) The above disclosed exercise price of share options of HK$0.10 has been adjusted for the effect of sub-division of shares accomplished subsequent to the grant of the subject share options.

• (iv) During the year, no share options were lapsed or cancelled.

At 30 June 2005, the Company had 7,200,000 share options outstanding under the Old SO Scheme. The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 7,200,000 additional ordinary shares of the Company and additional share capital of HK$720,000.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) New SO Scheme

The New SO Scheme is adopted for the purpose of providing incentives and rewards to eligible participants for their contribution to the success of the Group’s operations. Eligible participants of the New SO Scheme include directors and employees of the Company and its subsidiaries. The New SO Scheme will, unless otherwise cancelled or amended, remain in force for 10 years from 23 November 2001.

The maximum number of unexercised share options currently permitted to be granted under the New SO Scheme is an amount equivalent, upon their exercise, to 30% of the shares of the Company in issue at any time. The maximum number of shares issuable under share options to each eligible participant in the New SO Scheme within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

Share options granted to a director or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors of the Company. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time and with an aggregate value (based on the price of the Company’s shares at the date of the grant) in excess of HK$5 million, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within the date specified in the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the directors of the Company, and commences after a certain vesting period and ends on a date which is not later than 10 years from the date of the grant of the share options or the expiry date of the New SO Scheme, if earlier.

The exercise price of the share options is determinable by the directors of the Company, but may not be less than the higher of: (i) the closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheet on the date of the offer of grant, which must be a trading day; (ii) the average closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheets for the five trading days immediately preceding the date of the offer of the grant; and (iii) the nominal value of the Company’s shares.

Movements in share options during the year are as follows:

At beginning of year Granted_(note i) Exercised(note ii)_ At end of year Options vested and unexercised at 30 June	2005 Number – 244,800,000 (27,800,000) 217,000,000 217,000,000	2004 Number – – –
		–
		–

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(i) Details of share options granted during the year: Exercise Exercise period price per share HK$ 10 January 2005 – 23 November 2011 0.24 (ii) Details of share options exercised during the year: Exercise Exercise date price per share HK$ 13 January 2005 0.24 14 January 2005 0.24	2005 Number 244,800,000 Proceeds received HK$’000 5,772 900 6,672	2004 Number –
		2005 Number 24,050,000 3,750,000
		27,800,000

Terms of unexpired and unexercised share options under new so scheme at balance sheet date are as follows:

Name or category Exercise Exercise price of participant Date of grant period per share HK$ Directors 10 January 2005 10 January 2005 – 0.24 23 November 2011 Mr. Ng Leung Ho Mr. Ng Leung Tung Ms. Lee Ming Hin Mr. Hu Xiaoming Mr. Wang Weining Employees 10 January 2005 10 January 2005 – 0.24 23 November 2011 Total	2005 Number 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000 100,000,000 117,000,000 217,000,000	2004 Number – – – – –
		–
		–
		–

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. RESERVES

Company

At 1 July 2003 Arising on exercise of warrants Net profit for the year Proposed final dividends At 30 June 2004 and 1 July 2004 Arising on exercise of share options –note 27(i) Issue of shares –note 27(ii) Expenses incurred in connection with issue of shares Repurchase of shares –note 27(iii) Net loss for the year –note 11 At 30 June 2005	Share premium account HK$’000 – 26,239 – – 26,239 3,892 48,900 (2,850) (2,643) – 73,538	Subscription right reserve HK$’000 (note i) 24,543 – – – 24,543 – – – – – 24,543	Retained profits HK$’000 4,685 – 4,521 (4,919) 4,287 – – – – (1,403) 2,884	Total HK$’000 29,228 26,239 4,521 (4,919)
				55,069 3,892 48,900 (2,850) (2,643) (1,403)
				100,965

Note (i) Subscription right reserve represents net proceeds received from issue of warrants.

30. CONTINGENT LIABILITIES

The Company has given guarantees in favour of certain banks to the extent of HK$13,500,000 (2004: HK$16,800,000) in respect of banking facilities granted to certain subsidiaries of the Company. At 30 June 2005, the banking facilities utilised by these subsidiaries amounted to approximately HK$88,000 (2004: HK$2,431,000).

31. OPERATING LEASE ARRANGEMENTS

(a) As lessor

At 30 June 2005, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2005 2004 HK$’000 HK$’000 – 249 – 662 – 911	Group 2005 2004 HK$’000 HK$’000 – 249 – 662 – 911
		911

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) As lessee

At 30 June 2005, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2005 2004 HK$’000 HK$’000 426 54 1,870 86 2,296 140	Group 2005 2004 HK$’000 HK$’000 426 54 1,870 86 2,296 140
		140

32. COMMITMENTS

At 30 June 2005, the Group had commitments, so far as not provided for in the consolidated financial statements, as follows:

Capital commitments in relation to Group’s interests in jointly-controlled entities Contracted but not provided for Group’s share of capital commitments of jointly-controlled entities Contracted but not provided for	Group 2005 2004 HK$’000 HK$’000 7,600 7,600 13,935 15,486	Group 2005 2004 HK$’000 HK$’000 7,600 7,600 13,935 15,486
		15,486

33. EVENTS AFTER THE BALANCE SHEET DATE

On 26 October 2005, the Company entered into a sale and purchase agreement with two parties (the “Vendors”) in relation to an acquisition of a target company which holds 70% equity interest in a sino-foreign joint venture company principally engaged in the business of tree planting and management, manufacture and distribution of forest products such as timber and wood pulp. Pursuant to the sale and purchase agreement, the total consideration for the aforesaid acquisition is HK$560 million which shall be satisfied by (i) as to HK$50 million in cash to the Vendors; (ii) as to HK$69.6 million by issue of 580,000,000 new ordinary shares in the Company to the Vendors (i.e. equivalent to HK$0.12 per share); (iii) as to HK$210.4 million by issue of convertible notes with a conversion price at HK$0.12 to the Vendors; and (iv) the remaining balance of HK$230 million will be left as promissory loan note payable to the Vendors. A press announcement as well as a circular to the Company’s shareholders setting out details of the proposed acquisition will be released in due course.

34. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 28 October 2005.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

UNAUDITED CONDENSED FINANCIAL STATEMENTS OF THE GROUP FOR THE SIX MONTHS ENDED 31 DECEMBER 2005

CONDENSED CONSOLIDATED INCOME STATEMENT

for the six months ended 31 December 2005

Notes Turnover 2, 3 Cost of sales Gross profit Other revenue Other net loss Selling and distribution expenses Administrative expenses Other operating expenses Profit/(Loss) from operations 3, 4 Finance costs 5 Share of profits of jointly-controlled entities Profit/(Loss) before taxation Income tax 6 Profit/(Loss) for the period Earnings/(Loss) per share 7 Basic Diluted	Six months ended 31 December 2005 2004 (Unaudited (Unaudited) and restated) HK$’000 HK$’000 72,422 72,172 (57,419) (67,217) 15,003 4,955 1,910 735 (1,531) (2,266) (6,987) (7,118) (7,165) (7,984) (165) (12,019) 1,065 (23,697) (75) (90) 1,463 786 2,453 (23,001) – ( 258) 2,453 (23,259) HK0.08 cent (HK0.95 cent) HK0.08 cent N/A

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

Notes NON-CURRENT ASSETS Property, plant and equipment 8 Investment properties Prepaid lease payments Long term deposit Interests in jointly-controlled entities 9 CURRENT ASSETS Inventories Trade and bills receivables 10 Prepayments, deposits and other receivables Prepaid lease payments Financial assets at fair value through profit or loss Pledged bank deposits Bank and cash balances CURRENT LIABILITIES Interest-bearing bank borrowings Finance lease payable Trade payables 11 Other payables and accruals Provision for taxation NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITY Deferred tax NET ASSETS CAPITAL AND RESERVES Share capital 12 Reserves 13 TOTAL EQUITY	31 December 2005 (Unaudited) HK$’000 66,906 1,650 4,560 50,000 20,166 143,282 48,318 42,430 26,430 125 7,359 10,894 183,803 319,359 – – 3,017 8,830 5,681 17,528 301,831 445,113 691 691 444,422 293,861 150,561 444,422	30 June 2005 (Audited and restated) HK$’000 63,897 10,909 4,620 – 19,509
		98,935
		33,021 40,719 40,465 125 14,140 14,760 217,382
		360,612
		88 120 2,869 8,031 5,156
		16,264
		344,348
		443,283 691
		691
		442,592
		294,149 148,443
		442,592

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

NET CASH FROM/(USED) IN OPERATING ACTIVITIES NET CASH (USED)/FROM INVESTING ACTIVITIES NET CASH USED IN FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS CASH AND BANK BALANCES	Six months ended 31 December 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 5,332 (17,490) (41,107) 13,353 (356) (2,762) (36,131) (6,899) 217,294 111,349 2,640 – 183,803 104,450 183,803 104,450

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Total shareholders’ equity as at 1 July Repurchase of shares Net profit/(loss) for the period Exchange difference on translation of foreign operations recognised directly in equity Share of reserve movement of jointly controlled entities Tax refund credit of capital nature Dividends Total shareholders’ equity as at 31 December	Six months ended 31 December 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 442,592 496,083 (309) (2,430) 2,453 (23,259) 884 – (1,198) – – 759 – (4,919) 444,422 466,234

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31 December 2005

1. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES

The unaudited condensed consolidated interim financial statements have been prepared in accordance with Hong Kong Accounting Standard (the “HKAS”) No.34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of Appendix 16 to the Rules of Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”).

The principal accounting policies adopted in the preparation of these condensed interim financial statements are consistent with those used in the annual financial statements for the year ended 30 June 2005, except that the Group has changed certain of its accounting policies following its adoption of certain new/revised Hong Kong Financial Reporting Standards (“HKFRSs”) and Hong Kong Accounting Standards (“HKASs”) (collectively referred to as the “new HKFRSs”) which are effective for accounting periods commencing on or after 1 January 2005. Changes to the Group’s accounting policies and the effect of adopting these new policies, which have been reflected in these interim financial statements, are set out below. Certain comparative amounts in the condensed interim financial statements have been restated or reclassified to conform to current presentation.

Owner-occupied leasehold interest in land

The principal effect of adoption of HKAS 17 “Leases” is in relation to the classification of the Group’s interest in leasehold land. HKAS 17 requires the classification of interest in leasehold land as an operating lease if the title of the land is not passed to the Group by the end of the lease term. Prepaid lease payments for land held under operating leases are recognized as an expense on a straight-line basis over the lease term. The adoption of HKAS 17 results in a change in reclassification of certain of the Group’s fixed assets to lease premium for land; and the restatement of certain amount for leasehold land from revalued amount to original cost of payments, which is amortised over the lease term. The effect of respective adoption of this new accounting standard resulted in an increase of non-current portion and current portion of prepaid lease payments by approximately HK$4,620,000 and HK$125,000, respectively; a decrease of fixed assets and fixed assets revaluation reserve of HK$15,990,000 and HK$8,400,000, respectively; a decrease in deferred tax liability of HK$2,263,000; and a decrease in retained earnings of HK$582,000 at the beginning of the period. The comparative amounts have been restated to conform to the revised accounting policies.

Financial instruments

In the current period, the Group adopted for the first time HKAS 32 “Financial Instruments: Disclosure and Presentation” and HKAS 39 “Financial Instruments: Recognition and Measurement”. The adoption of these new HKASs has resulted in a change in accounting policy for the recognition, measurement, de-recognition and disclosure of financial instruments. Following the adoption of HKASs 32 and 39, the financial assets of the Group has been classified into the respective categories of financial assets at fair value through profit and loss; availablefor-sale financial assets; loans and receivables; and held-to-maturity financial assets. The classification depends on the purpose for which the assets are held.

• Held-to-maturity investments comprised of non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity. The investments are carried at amortized cost using the effective interest method less provision for impairment.

• Financial assets at fair value through profit or loss, including those held for trading, are designated at inception and measured at fair value. Changes in fair value are recognized in the income statement in the period in which they arise. The fair value is based on the quoted market price without any deduction for estimated future selling costs and provisions. Derivatives are also categorized as held for trading unless they are designated as hedges.

• Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are carried at amortized cost using effective interest method, less provision for impairment, if any and accounted for in the income statement.

• Available-for-sale financial assets are non-derivative financial assets so designated and not classified under any of the above categories. These financial assets are carried at fair value and changes in fair value are recognized directly in the equity until the financial asset is de-recognized, at which time the cumulative gain or loss previously recognized in equity shall be recognized in the income statement.

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At 30 June 2005, the Group held short term securities investment held for trading purpose that are stated at their fair values on the basis of quoted market prices at the balance sheet date, on an individual investment basis. The gains or losses arising from changes in fair value of a security are credited or charged to the profit and loss account in the period in which they arise. Commencing the current financial period, as a result of the adoption of the new HKASs, the Group has reclassified these securities investment as “financial assets at fair value through profit or loss”. The reclassification has no material effect on the results of the Group for the current and prior periods.

Share-based payments

In the current period, the Group has applied HKFRS 2 “Share-based Payments” which requires an expense to be recognized where the Group buys goods or obtain services in exchange for shares or rights over shares (“equitysettled transactions”), or in exchange for other assets equivalent in value to a given number of shares or rights over shares (“cash-settled transactions”). Prior to the application of HKFRS 2, the Group did not recognize the financial effect of share options until they are exercised. As a result of the adoption of this new HKFRS, the Group’s accounting policy has been revised for the recognition of the fair value of share options granted as an expense. In respect of share options outstanding as at 30 June 2005, in accordance with the relevant transitional provisions of HKFRS 2, the Group was not required to account for these outstanding share options in accordance with this new HKFRS, as they were either granted on or before 7 November 2002 or granted after 7 November 2002 and fully vested before 1 July 2005. The Group however has evaluated that had the provisions of HKFRS 2 been applied to its outstanding share options there will be no material financial impact on the results of the Group for current or prior accounting periods.

Investment properties

In prior financial periods, changes in fair value of the Group’s investment properties are dealt with as movements in the investment property revaluation reserve, unless the total of this reserve is insufficient to cover a deficit when the excess will be charged to the income statement. Commencing the current period, the Group has adopted HKAS 40 “Investment property” and according to its provisions has elected to use the fair value model that requires gains or losses arising from changes in the fair value of investment properties to be recognized directly in the profit and loss for the period in which they arise. The retrospective adoption of the new HKAS resulted in an increase of retained profits brought forward of approximately HK$208,000 and decrease of investment property revaluation reserve of approximately HK$208,000. Comparative figures have also been restated to conform to the revised accounting policies.

Potential impact on new HKFRSs not yet effective

The Group has commenced considering the potential impact of the following new standards or interpretations that have been issued but are not yet effective, but is not yet in a position to determine whether these standards or interpretations would have a significant impact on how its results of operations and financial position are prepared and presented. These standards and interpretations may result in changes in the future as to how the results and financial position are prepared and presented.

HKAS 1 (Amendment) Capital disclosures[1] HKAS 19 (Amendment) Actuarial gains and Losses, group plans and disclosures[2] HKAS 21 (Amendment) Net Investment in a foreign operation[2] HKAS 39 (Amendment) Cash flow hedge accounting of forecast intragroup transactions[2] HKAS 39 (Amendment) The fair value option[2] HKAS 39& HKFRS 4 (Amendments) Financial guarantee contracts[2] HKFRS 6 Exploration for and evaluation of mineral resources[2] HKFRS 7 Financial instruments: disclosures[1] HK(IFRIC) – INT 4 Determining whether an arrangement contains a lease[2] HK(IFRIC) – INT 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds[2] HK(IFRIC) – INT 6 Liabilities arising from participating in a specific market – waste electrical and electronic equipment[3] HK(IFRIC) – INT 7 Applying the restatement approach under HKAS 29 financial reporting in hyperinflationary economies[4]

1 Effective for annual periods beginning on or after 1 January 2007. 2 Effective for annual periods beginning on or after 1 January 2006. 3 Effective for annual periods beginning on or after 1 December 2005. 4 Effective for annual periods beginning on or after 1 March 2006.

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. TURNOVER

Turnover represents the net invoiced value of goods sold, after allowance for returns and trade discounts. All significant intra-group transactions have been eliminated on consolidation.

3. SEGMENT INFORMATION

(a) Geographical segments

In determining the Group’s geographical segments, revenue and results are attributed to the segment based on the location of the customers.

Group

For the six months ended 31 December

The PRC (excluding Hong Kong and Macau) 2005 2004 HK$’000 HK$’000 Segment revenue: External sales 65,063 58,687 Inter-segment sales 3,647 15,356 Total revenue 68,710 74,043 Segment results 15 (8,521) Unallocated revenue and other net gain/(loss) Unallocated expenses Profit/(Loss) from operation Finance costs Share of profits of jointly-controlled entities Profit/(Loss) before taxation Income tax Net profit/(loss) for the period	Hong Kong 2005 2004 HK$’000 HK$’000 7,359 13,485 – 1,686 7,359 15,171 2,663 (135)	Elimination 2005 2004 HK$’000 HK$’000 – – (3,647) (17,042) (3,647) (17,042)	Consolidation 2005 2004 HK$’000 HK$’000 72,422 72,172 – – 72,422 72,172 2,678 (8,656) 379 (1,531) (1,992) (13,510) 1,065 (23,697) (75) (90) 1,463 786 2,453 (23,001) – (258) 2,453 (23,259)

(b) Business segments

The Group has been operating in a single business segment, manufacture and sale of apparel, throughout the period.

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PROFIT/(LOSS) FROM OPERATIONS

The Group’s profit/(loss) from operations are arrived at after charging/(crediting):

	Six months ended	Six months ended
	31 December
	2005	2004
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Amortisation of goodwill	–	5,256
Amortisation of prepaid lease payment	60	124
Depreciation of property plant and equipment	3,280	3,468
Realised loss on disposal of short term investment	450	–
Interest income	(1,434)	(444)
Unrealised gain on short term investments	–	(84)
Unrealised loss on short term investments	1,081	2,550

5. FINANCE COSTS

Interest on bank loans and overdrafts Interest on a finance lease	Six months ended 31 December 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 72 80 3 10 75 90	Six months ended 31 December 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 72 80 3 10 75 90
		90

6. INCOME TAX

Current: Hong Kong Elsewhere Deferred Tax charge for the period	Six months ended 31 December 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 – – – 117 – 141 – 258	Six months ended 31 December 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 – – – 117 – 141 – 258
		258

No provision for Hong Kong profits tax was made as the Group had no assessable profit in Hong Kong.

Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. EARNINGS/(LOSS) PER SHARE

The calculation of basic earnings per share for six months ended 31 December 2005 is based on the Group’s net profit for the period of approximately HK$2,453,000 (2004: net loss of HK$23,259,000 as adjusted) and the weighted average number of 2,938,736,296 (2004: 2,453,139,293) ordinary shares in issue during the period.

The calculation of diluted earnings per share for six months ended 31 December 2005 is based on the Group’s net profit for the period of approximately HK$2,453,000 and the weighted average number of 2,940,473,991 ordinary shares after adjusting for the effects of all dilutive potential ordinary shares of the Company’s share options outstanding during the period.

No diluted loss per share is presented for the period of six months ended 31 December 2004 as the result of the exercise of potential ordinary shares during the period would have been anti-dilutive.

8. PROPERTY, PLANT AND EQUIPMENT

During the period, additions of property, plant and equipment amounted to approximately HK$5,666,000 (2004: HK$1,265,000) inclusive of construction in progress in the amount of HK$5,611,000.

9. INTERESTS IN JOINTLY-CONTROLLED ENTITIES

	31 December	30 June
	2005	2005
	(Unaudited)	(Audited)
	HK$’000	HK$’000
Share of net assets, unlisted	20,166	19,509

Particulars of the jointly-controlled entity which account principally for the results and net assets shared by the Group are as follow:

				Percentage of
				ownership
			Place of	interest
		establishment		attributable	Principal
Name	Legal entity	and operations		to the Group	activities
中科納米技術工程	Sino-foreign equity		The PRC	55%	Development
中心有限公司	joint venture				and sale of
(Zhongke Nanotech					nano materials
Engineering Center					and transfer of
Co., Ltd.*)					related technology
中科納米技術工程	Sino-foreign equity		The PRC	68.5%	Development
（蘇州）有限公司	joint venture				and sale of
(Zhongke Nanotech					nano materials
(Suzhou) Co., Ltd.*)					and transfer of
					related technology

• For identification only

10.

TRADE AND BILLS RECEIVABLES

The Group normally allows credit terms to established customers ranging from 30 to 120 days. An aging analysis of the trade receivables as at the balance sheet date, based on the date of recognition of the sales, is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	31 December 2005 (Unaudited) HK$’000 18,721 6,341 7,218 10,150 42,430	30 June 2005 (Audited) HK$’000 18,189 5,731 5,422 11,377
		40,719

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. TRADE PAYABLES

The Group normally obtains credit terms ranging from 30 to 120 days from its suppliers. An aging analysis of the trade payables as at the balance sheet date, based on the receipt of good purchased, is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days SHARE CAPITAL Authorised: 5,000,000,000 ordinary shares of HK$0.10 each Issued and fully paid: 2,938,607,600 (30 June 2005: 2,941,487,600) ordinary shares of HK$0.10 each	31 December 2005 (Unaudited) HK$’000 1,532 88 384 1,013 3,017 31 December 2005 (Unaudited) HK$’000 500,000 293,861	30 June 2005 (Audited) HK$’000 1,950 39 34 846
		2,869
		30 June 2005 (Audited) HK$’000 500,000
		294,149

12. SHARE CAPITAL

During the period, the Company repurchased on the Stock Exchange of Hong Kong Limited in aggregate 2,880,000 of its ordinary shares of HK$0.1 each at a total consideration before expenses of approximately HK$307,000. All these repurchased shares were cancelled during the period.

Share options

The Company operates a share option scheme for eligible participants, including Directors and employees of the Company and its subsidiaries, for the subscription of new shares in the Company. A summary of the terms of the Company’s share option scheme was included in the Company’s 2005 annual report. The Company has not granted any share options under its existing share option scheme during the period.

At 31 December 2005, the Company had 7,200,000 share options outstanding and exercisable at a price of HK$0.1 per share. These outstanding share options were granted under a previously effective share option scheme, which was terminated on 23 November 2001. The share options however remain outstanding and exercisable. The exercise in full of outstanding share options, the expiry date of which being 28 October 2008, would result in issue and allotment of 7,200,000 additional ordinary shares in the Company under its present capital structure.

At 31 December 2005, the Company had 217,000,000 share options outstanding and exercisable at a price of HK$0.24 per share. These outstanding share options were granted under a share option scheme approved and adopted by shareholders of the Company on 23 November 2001. The exercise in full of outstanding share options, the expiry date of which being 23 November 2011, would result in issue and allotment of 217,000,000 additional ordinary shares in the Company under its present capital structure.

– 70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. RESERVES

Group At 1 July 2005 As originally stated Prior year adjustments (note) As restated Net profit for the period Repurchase of shares Share of reserve movement of Jointly-controlled entities Exchange difference on foreign operations At 31 December 2005	Investment Fixed Share Subscription property asset Premium right revaluation revaluation account reserve reserve reserve HK$’000 HK$’000 HK$’000 HK$’000 73,538 24,543 208 13,716 – – (208) (8,400) 73,538 24,543 – 5,316 – – – – (21) – – – – – – (1,198) – – – – 73,517 24,543 – 4,118	Statutory reserve fund HK$’000 1,859 – 1,859 – – – – 1,859	Capital reserve HK$’000 3,504 – 3,504 – – – – 3,504	Exchange fluctuation reserve HK$’000 (1,598) – (1,598) – – – 884 (714)	Retained profits HK$’000 41,655 (374) 41,281 2,453 – – – 43,734	Total HK$’000 157,425 (8,982
						148,443
						2,453 (21 (1,198 884
						150,561

Note : The prior year adjustments are principally the result of the adoption of various new HKFRSs that first became effective for the Group commencing the current period.

14. COMMITMENTS

As at 31 December 2005, the Group had the following capital commitments contracted but not provided for:

Group Contractor costs Investment in jointly-controlled entities Group’s share of capital commitments of jointly-controlled entities Contractor costs	31 December 2005 (Unaudited) HK$’000 7,280 7,892 587 15,759	30 June 2005 (Audited) HK$’000 – 7,600 13,935
		21,535

15. COMPARATIVE AMOUNTS

Following the adoption of certain new HKFRSs, which became effective for the first time during the six months ended 31 December 2005, the presentation in the current period’s financial statements has been modified in order to conform to the requirements of those new accounting standards. Comparative amounts have been reclassified and restated in order to achieve a consistent presentation. The principal balances being reclassified and restated are set out in note 1 “Basis of preparation and principal accounting policies” to these interim financial statements.

– 71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

INDEBTEDNESS

Borrowings

At the close of business on 31 March 2006, being the latest practicable date for the purpose of this indebtedness statement prior to printing of this prospectus, the Group did not have any interest-bearing borrowings.

Securities

At as 31 March 2006, the Group’s unused banking facilities were secured by the Group’s bank deposits of approximately HK$11,000,000 and corporate guarantees given by the Company to the extent of 13,500,000.

Disclaimer

Save as aforesaid, and apart from intra-group liabilities and normal accounts payable in the ordinary course of business of the Group, the Group did not have any outstanding indebtedness in respect of any mortgages, charges, debentures or other loan capital, bank loans and overdrafts, loans, debts securities or other similar indebtedness, or hire purchase commitments, finance lease commitments, guarantees or other material contingent liabilities as at the close of business on 31 March 2006.

Capital Structure

As at the Latest Practicable Date, the capital structure of the Company is constituted exclusively of 2,938,607,600 ordinary shares of HK$ 0.10 each. Apart from options to subscribe for Shares, there are no other capital instruments in issue.

Working Capital

The Directors are of the opinion, that, based on the present available facilities, internal resources of the Group, the banking facilities to be arranged for the finance of the Proposed Acquisition and in the absence of unforeseeable circumstances, the Enlarged Group will have sufficient working capital to satisfy its requirement for the next twelve months.

Contingent Liability

As at the Latest Practicable Date, the Group had no material contingent liability.

Foreign exchange and interest rate exposure

The majority of the Group’s transactions and borrowings are denominated in Hong Kong dollars and Renminbi, and therefore the Group’s exposure to exchange rate fluctuation is relatively insignificant. In general, the Group mainly utilizes its Renminbi income receipt for operating expenditures in China and does not use any financial instruments for hedging purpose.

– 72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group has no significant exposure to interest rate fluctuation owing to its present low level of borrowings. The Convertible Notes and Promissory Loan Notes to be issued upon completion of the Proposed Acquisition either are non-interest bearing or bear interest at fixed interest rate and accordingly do not impose additional interest rate exposure to the Group as a result of the Proposed Acquisition.

No material changes

The directors confirmed that there has been no material change in the indebtedness of the Group since 31 March 2006.

NO MATERIAL ADVERSE CHANGE

The directors confirm that there has been no material adverse change in the financial or trading position of the Group since 30 June 2005 (being the date to which the latest audited financial statements of the Group were made up).

MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS OF THE GROUP

Review of operations, management analysis and discussion

Business review for the year ended 30 June 2003

For the financial year ended 30 June 2003, the Group recorded a sales turnover of HK$208.7 million and a net profit attributable to shareholders of HK$40.3 million. The gross profit margin for the year was 30.7 % and the earnings per share were HK1.71 cents per share.

The year under review witnessed the dramatic outbreak of the Severe Acute Respiratory Syndrome (“SARS”) that adversely affected the retail industry and many other facets of the economy in the affected districts. The resulting diminished market spending in the PRC and the postponed customer orders and shipments have contributed to the Group’s 16% decline in sales turnover from the preceding year.

During the year under review, the Group’s adopted a prudent approach towards market investment, which cushioned it against the volatile market movement during the SARS period. At the same time, a lesser gain from short-term investments was realized during the year. The sales turnover level of the Group however remains satisfactory and adequate in well covering the overheads.

On the side of Hi-Tech business of software compression, in December 2002, the underlying technology was enrolled as “Supplier of the China Government Procurement”. A series of information compression technology products generated from the technological application was then being officially enrolled as the relevant technology standards to be adopted by the Chinese Government.

The major investment made during the year covers the new area of nano-technology. The Group’s investment in this area was a collaborative effort through joint venture undertaking with the top-notch Chinese Academy of Science. Various patents in applications of nano-technologies were filed and the ground works for business launching was being attended to during the year. Nevertheless, the nanotechnology investments were still in its launching stage and the profit contribution made during the year is minimal.

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In retrospect, the year 2003 is a relatively stable year despite signs of diminishing sales turnover was first being observed following years of continuous growth.

Business review for the year ended 30 June 2004

For the financial year ended 30 June 2004, the Group recorded a sales turnover of HK$189.0 million and a net profit attributable to shareholders of HK$30.3 million. The gross profit margin for the year was 31.8 % and the earnings per share were HK 1.27 cents per share.

During the year under review, the Group’s sales turnover has experienced a decline from the preceding year mainly due to the carry-over effect of reduced sales order received by the Group during the period of the outbreak of SARS, which negatively impacted the Group’s business during the first half of the financial year 2004. In addition, the Group also recorded diminished dividends income and gains from disposal of investment during the year. Nevertheless, the Group managed to maintain an overall profitable operation despite the challenging environment.

To strengthen the Group’s sales and marketing of garments in the PRC, the Group increased its promotional and marketing activities, with an aim to strengthen its corporate identity and brand awareness. The Group actively expanded its reach in the PRC market through the establishment of more sales outlets in major cities and provinces of Beijing and Shixi. These activities accounted for the bulk of the increase in selling and distribution expenses of HK$3.9 million for the year.

The overall decline in profitability was however partially offset by profit contribution from the Group’s investment in nano-technology business. In arriving at net profit for the year under review, sharing in profits of jointly-controlled entities of HK$10.5 million has been included. During the year under review, the Group’s joint venture undertaking in nano-technology business made progress and saw the commercialized application of nano-technology through various contracts with leading PRC manufacturers and companies, covering textile, biotechnology, and building and construction materials. The profits achieved by the joint venture during the year mainly arise from transfer contracts for various nano-technology applications as well as sale of Nano high elastic plastics.

In respect of the Group’s investment in Hi-Tech business of software compression, progress are made during the year in July 2004 when the PRC Bureau of Information Technology Industrialization recommended the PRC State Ministry to incorporate the underlying technology as the standard of China office software fundamental technology and the standard of computer information compression technology. Notwithstanding, certain business development of the Group’s investment vehicle was still in progress and no profit distribution has been made to the Group for the year.

Overall, the year 2004 has recorded a decline in financial performance of the Group’s garment business, but the effort input by management has proven critical in maintaining the profitability of the Group’s business.

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Business review for the year ended 30 June 2005

For the financial year ended 30 June 2005, the Group recorded turnover of HK$138.3 million, representing a 27 per cent decrease from the preceding year. The gross profit margin for the year was reduced down to the level of 8 % to 9 %. A net loss of HK$150.1 million was recorded for the year under review and the loss per share was HK 5.61 cents per share.

The decrease in turnover was mainly the result of increasingly fierce competition in the PRC apparel and uniform market. Along with reduced sales, the Group’s profit margin is also severely hampered which was mainly due to heavy pricing pressure and absorption of factory overhead over lesser units of production. Meanwhile, the retirement of Mr. Ng Leung Tung, the Company’s former deputy chairman and executive director, from direct participation in garment operation and management for reason of personal health concern; and the unfavourable emerging factor of group orders in the PRC adopting the form of open bid tender which negatively affected profit margin, all had implications on the Group’s operations.

In the order of turning around and streamlining the Group’s garment business, efforts and resources are deployed in promulgating sales network in major cities in the PRC on a provincial agency basis. The Group’s effort in bolstering its sales and marketing initiatives includes the appointment of renowned screen celebrity as spokesperson for the Group’s products and rolled out a series of television commercials and exhibitions to enhance its market share in the PRC. These efforts account for the further increase in selling and distribution expenses for the year by approximately HK$3.2 million

During the year, the Group’s high-tech investment in nano-technology has undergone a period of consolidation whereby several major proposed contracts are still in negotiation and have not proceeded to the stage where revenue can be recognized. The Group’s share of Zhongke Nanotech’s operational loss for the year amounted to HK$30.8 million.

In addition, a substantial increase in other operating expenses of HK$87.5 million was recorded for the year, mainly due to non-recurrent write-off of business goodwill in respect of investment in hightech business of Nano technology and software compression. Notwithstanding that the series of information technology compression products launched by the Group’s investment vehicle had been scientifically proven to execute superior electronic data compression, severe difficulty has been experienced in opening up the PRC market due to the very high rate of counterfeit copies and other problematic situations with the PRC software market. The current year set-back in financial performance of the Group’s nanotechnology investments also highlighted the fluctuation in earnings in respect of this high-tech industry segment. Upon liaison with the auditors, the Board concurred with a full write-off of the investment and business goodwill involved of these investments.

As a result mainly of the above factors, the Group recorded a net loss of HK$150.2 million for the year. The adverse factors contributing to the Group’s loss position however are of non-recurrent nature and management anticipates a turning around for the upcoming year.

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Business review for the six months ended 31 December 2005

For the six months ended 31 December 2005, the Group’s turnover was approximately HK$72,422,000, representing a slight increase of approximately 0.35% over the same interim period for 2004. During the period, the Group made progress in its financial performance and recorded net profit in the amount of approximately HK$2,513,000, representing earnings per share of HK 0.08 cent.

During the period under review, price competition from newly introduced competitors who open new shops in bustling areas were on the rise. Despite the fierce competition in the PRC apparel and uniform market, mainly because of the Group’s effort in rectifying its operations and promulgating a nationwide sales network, the Group’s profit margin has rebound to a more healthy level.

Through the expansion of sales network to the neighboring areas on a regional franchised agency basis, the Group has succeeded in setting up an increased number of sales outlets in provincial and municipal levels. Accompanying the implementation of effective risk and resource sharing with the franchisee agents, results were achieved during the period that enable the Group to concentrate on products with higher profit margin. In addition, the Group has made appropriate accommodating measures and successfully seasoned the impact from the retirement of Mr. Ng Leung Tung, the Company’s former deputy chairman and executive director, from direct participation in the Group’s operational management as a result of his personal health concerns. These measures have proven to be successful in turning around the Group’s operations. On the side of uniform merchandising, these business continued to account for certain proportion of the Group’s business. However, the profit margin remained in a relatively low level owing to various market factors and heavy price bidding peculiar to this market segment. The Group sees its future direction in shifting from the uniform segment to more emphasis on products under the Group’s own brand name.

In arriving at the net profit for the current period, sharing in profits of the Group’s joint venture investment in nano-technology in the amount of HK$ 1,463,000 has been included. The profit for the period were derived mainly from the sale of Nano metallic paint; Nano interior and exterior paint; and Nano paste as successfully commercialized by Zhongke Nanotech’s second industrialization plant in Suzhou.

Overall, signs of recovery are being observed for the Group’s profit margin, which has returned to a more satisfactory level. In December 2005, the Group made the landmark to be awarded the “Chinese Well-known Trademark” by the PRC State Administration for Industry & Commerce. The recognition of the prestigious status for the Group’s “Good Fellow” branding shall further confer competitive advantages in the Group’s development of its garment businesses in the forthcoming year.

– 76 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

Accountants’ Report on Strong Lead Investments Limited

JOHNNY CHAN & CO. LIMITED

Certified Public Accountants

509 Bank of America Tower 12 Harcourt Road, Central Hong Kong Tel : 2522 2922 Fax: 2522 2977

==> picture [66 x 104] intentionally omitted <==

18 April 2006

The Board of Directors Good Fellow Group Limited Hong Kong

Dear Sirs,

We set out below our report regarding the financial information of (the “Financial Information) regarding Strong Lead Investments Limited (“Strong Lead”) and its subsidiary (hereinafter collectively referred to as the “Strong Lead Group”) for the period from 8 August 2005 (date of incorporation) to 31 December 2005 (the “Relevant Period”) for inclusion in the circular dated 18 April 2006 issued by Good Fellow Group Limited (the “Company”) in connection with a proposed acquisition of the entire shareholding interests in Strong Lead (the “Circular”).

Strong Lead is a company incorporated in the British Virgin Islands as a private company with limited liability and currently holds a 70 per cent equity interest in the paid-up registered capital of 北京 萬富春森林資源發展有限公司(Beijing Wan Fu Chun Forest Resources Development Company Limited) (“Beijing WFC”) which was established on 17 September 2001 in the People’s Republic of China (the “PRC”) and registered as a sino-foreign equity joint venture on 26 September 2005. As at the date of this report, the particulars of Beijing WFC which is Strong Lead’s sole subsidiary are as follows:

				Portion of nominal
		Date and Place of		value of registered
	Form of	establishment	Registered and	capital held by	Principal
Company	business structure	and operation	fully paid capital	Strong Lead	activities
Beijing WFC	Sino-foreign	7 September 2001	RMB50,000,000	70%	Tree plantation
	equity joint	The PRC			and management,
	venture				manufacture and
					distribution of
					forestry products

For the purpose of this report, we have undertaken an independent audit of the underlying financial statements of Strong Lead and Strong Lead Group for the Relevant Period in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”)

– 77 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

and have carried out such additional procedures as we considered necessary in accordance with the Auditing Guidelines 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA and, where considered appropriate, made adjustments and/or additional disclosures considered necessary in order for the Financial Information and the notes thereto to conform with the accounting principles generally accepted in Hong Kong.

The consolidated income statement, the consolidated cash flow statement, and the consolidated statement of changes in equity of Strong Lead Group for the Relevant Period and the balance sheets of Strong Lead and Strong Lead Group as at 31 December 2005 as set out in this report have been prepared in accordance with the basis and accounting policies as set out in note 1 of Section 5 below.

The Financial Information is the responsibility of the directors of Strong Lead who approve their issuance. The Directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information together with the notes thereto, to form an independent opinion on such information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereto give, for the purpose of this report, a true and fair view of the state of affairs of Strong Lead and Strong Lead Group as at 31 December 2005 and of the profit and cash flows of Strong Lead Group for the Relevant Period.

1. CONSOLIDATED INCOME STATEMENT

The following is a summary of the consolidated income statement of Strong Lead Group for the Relevant Period, which is presented on the basis set out in note 1 under Section 5 below:

Notes Turnover 2 Other revenue 2 Other gains 3 Administrative expenses Other operating expenses Profit before taxation 4 Income tax expenses 7 Net profit for the period Attributable to: Equity shareholders of Strong Lead Minority interests	HK$’000 – 3 534,326 (971) (54,963) 478,395 – 478,395 495,174 (16,779) 478,395

– 78 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

2. BALANCE SHEETS

The following is a summary of the balance sheet of Strong Lead and consolidated balance sheet of Strong Lead Group as at 31 December 2005, which is presented on the basis set out in note 1 under Section 5 below:

		Strong Lead
		Group	Strong Lead
	Notes	HK$’000		HK$’000
Non-current assets
Property, plant and equipment	9	5,686		–
Biological assets	10	307,722		–
Patent in application	11	530,251		–
Prepaid lease payments	12	9,151		–
Investment in a subsidiary	13	–		33,654
		852,810		33,654
Current assets
Prepayments and other receivables		120		–
Bank and cash balances		3,002		1
		3,122		1
Current liabilities
Accruals and other payables		2,585		–
Amount due to minority interests	14	37,993		–
Deferred revenue	15	48,916		–
		89,494		–
Net current assets/(liabilities)		(86,372)		1
Total assets less current liabilities		766,438		33,655
Non-current liabilities
Deferred tax liabilities	16	59,045		–
NET ASSETS		707,393		33,655
Capital and reserves
Share capital	17	1		1
Reserves	18	495,174		33,654
Equity attributable to shareholders
of Strong Lead		495,175		33,655
Minority interests		212,218		–
TOTAL EQUITY		707,393		33,655

– 79 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

3. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The following is a summary of the consolidated statement of changes in equity of Strong Lead Group for the Relevant Period, which is presented on the basis set out in note 1 under Section 5 below:

Equity attributable to shareholders of Strong Lead

Balance at 8 August 2005 (date of incorporation) Issue of shares Arising on acquisition of partial equity interests in a subsidiary Net profit for the Relevant Period Transfer to reserves Balance at 31 December 2005	Share capital HK$’000 – 1 – – – 1	Retained profits HK$’000 – – – 495,174 (2,796) 492,378	Statutory surplus fund HK$’000 – – – – 2,796 2,796	Total HK$’000 – 1 – 495,174 – 495,175	Minority interests HK$’000 – – 228,997 (16,779) – 212,218	Total HK$’000 – 1 228,997 478,395 –
						707,393

– 80 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

4. CONSOLIDATED CASH FLOW STATEMENT

The following is a summary of the consolidated cash flow statement of Strong Lead Group for the Relevant Period, which is presented on the basis set out in note 1 under Section 5 below:

Operating activities Note Profit before taxation Adjustments for: Excess of fair value of net identifiable assets acquired over the cost of acquisition of a subsidiary Gain on extinguishment of indebtedness due to ultimate beneficiary shareholders Amortisation of patent in application Amortisation of prepaid lease payments Amortisation of paper mulberry saplings Pre-operating expenditures written off Depreciation Operating loss before changes in working capital Increase in prepayments and other receivables Increase in accruals and other payables Net cash used in operating activities Investing activities Purchase of property, plant and equipment Acquisition of a subsidiary net of cash acquired 20 Net cash used in investing activities Financing activities Issue of shares Advance from the ultimate beneficiary shareholders Advance from minority interests Net cash generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at 31 December 2005 Analysis of cash and cash equivalents: Cash and bank balances

HK$’000 478,395 (500,672) (33,654) 13,595 46 26,749 11,075 64 (4,402) (120) 2,509 (2,013) (487) (29,684) (30,171) 1 33,654 1,531 35,186 3,002 – 3,002 3,002 3,002

– 81 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

5. NOTES TO FINANCIAL INFORMATION

1. Basis of preparation and significant accounting policies

The Financial Information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (HKFRSs), which collectively includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (HKASs) and interpretations issued by Hong Kong Institute of Certified Public Accountants (HKICPA), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance.

The Financial Information has been prepared on the going concern basis notwithstanding that the Strong Lead Group has significant net current liabilities at the balance sheet date, as the minority interests creditor has confirmed its intention of not demanding repayment until Strong Lead and its subsidiary has the financial and liquidity capacity to proceed with settlement of these indebtedness.

The HKICPA has issued a number of new and revised HKFRSs that are effective or available for early adoption for accounting periods beginning on or after 1 January 2005. The new and revised HKFRSs have been adopted in presenting the Financial Information.

The presentation of the Financial Information in conformity with HKFRSs requires management to make judgements, estimates and assumption that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those 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 revision and future periods if the revision affects both current and future periods.

The Financial Information has been prepared under the historical cost convention except for the re-measurement of biological assets as explained in the accounting policies set out below.

A summary of the significant accounting policies adopted by Strong Lead Group is set out below.

(a) Subsidiaries

Subsidiaries are entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding or equity holding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over fair value of the acquiror’s interest in the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

In the company’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted by the company on the basis of dividend received and receivable.

– 82 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

• (b) Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the company and when the revenue and costs, if applicable, can be measured reliably, on the following basis:

• (i) revenue from sale of forestry products is recognised when delivery is made and the risks and rewards of ownership have been passed to the customers;

• (ii) interest income is recognised on a time proportion basis on the principal outstanding and at the rate applicable.

• (c) Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and accumulated impairment losses.

Construction in progress is stated at cost, which comprises all direct costs incurred in relation to the construction, less accumulated impairment loss. The cost of construction in progress will not be amortised until it is ready for use and is transferred to a specific category of fixed assets when the construction is completed.

Depreciation is provided to write off the cost or valuation of items of fixed assets, other than construction in progress, over their following estimated useful lives and after taking into account their estimated residual values, using the straight line method:

Plant and machinery	20 years
Furniture, fixtures and equipment	20 years
Motor vehicles	20 years

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are expensed in the income statement during the period in which they are incurred.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit and loss in the period in which it arises.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

• (d) Biological assets

Biological assets represent the carrying value of paper mulberry saplings and pine trees:

Paper mulberry saplings in the absence of an active open market in which they are traded are stated at their initial cost of acquisition and amortised on a straight-line basis over the estimated life hood of two years under appropriate rearing and maintenance conditions. The amortised cost of paper mulberry saplings are transferred to the carrying value of growing paper mulberry trees upon commencement of plantation. Re-measurement of fair value of growing paper mulberry trees are made at the end of each reporting period and changes in the fair value are recognised in the income statement in the period in which they will arise. Upon the harvest and sale of processed paper mulberry trees as timber and other forestry products, the estimated value of the portion of paper mulberry trees harvested is transferred to cost of sales in the income statement.

Pine trees are initially recognised at their historical cost of procurement and subsequently re-measured to their fair value. Re-measurement of their fair value of pine trees is made at the end of each reporting period and changes in the fair value are recognised in the income statement in the period in which they arise. Upon the harvest and sale of processed pine trees as timber and other forestry products, the estimated value of portion of pine trees harvested is transferred to cost of sales in the income statement.

– 83 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

Revenue received from the sale of pre-harvest biological assets are accrued as liability of deferred revenue and are recognised as revenue in the income statement upon the transfer to the customers of the risks and rewards associated with ownership when the harvest and delivery of the forestry products has been made.

(e) Patent in application

Patent in application that is acquired by the company is stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is other than indefinite) and impairment losses. Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

Amortisation of patent in application is charged to income statement on a straight line basis over its estimated useful life unless such life is indefinite. The patent in application is amortised from the date they are available for use and its estimated useful life is 10 years.

Both the period and method of amortisation and any conclusion that the useful life of the patent in application are reviewed annually.

(f) Prepaid lease payments

Prepaid lease payments, which represent up-front payments to acquire operating leases for land use rights, are stated at cost and amortised over 50 years, being the term of the lease, on a straight line basis.

(g) Impairment of assets

• (i) Impairment of tangible assets and intangible assets with finite useful lives

At each balance sheet date, the company reviews the carrying amounts of its tangible and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. 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. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another accounting standard, in which case the impairment loss is treated as a revaluation decrease under that accounting standard.

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 periods. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another accounting standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that other accounting standard.

• (ii) Impairment of intangible assets with indefinite useful lives

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually by comparing their carrying amounts with their recoverable amounts, irrespective of whether there is any indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reducing to its recoverable amount. An impairment loss is recognised as an expense immediately.

When 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 periods.

– 84 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

(h) Taxation

Taxation represents the sum of the tax currently payable and deferred taxation.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other periods, and it further excludes income statement items that are never taxable or deductible.

Deferred taxation is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred income tax is provided in full, using the liability method, at the current tax rate on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements to the extent that a liability or asset is expected to be payable or recoverable in the foreseeable future.

The carrying amount of deferred tax asset is reviewed at each balance sheet date and reducing to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

(i) Pre-operating expenditures

Pre-operating expenditures incurred prior to commencement of plantation is charged to the income statement in the reporting period in which they are incurred.

(j) Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.

(k) Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash at banks 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 company’s cash management are also included as a component of cash and cash equivalents.

• (l) 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.

– 85 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

(m) Provisions and contingent liabilities

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

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

(n) Employee benefits

Salaries, wages, annual bonuses, paid annual leaves and other employment benefits are accrued for in the period 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 value.

The company’s subsidiary participates in a defined contribution pension scheme under the laws of the PRC. Contributions to the scheme are calculated as a percentage of employees’ salaries and wages. The contributions of company’s subsidiary to the scheme are expensed as incurred. The company’s subsidiary has no further obligation in connection with staff’s retirement benefits.

• (o) Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are expensed in the income statement on a straight-line basis over the period of the lease.

(p) Foreign currencies

The consolidated financial information are presented in Hong Kong dollars (HK$), which is the functional currency of the patent company.

In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

In presenting the consolidated financial statements, all separate financial statements of subsidiaries originally presented in a currency different from the presentation currency have been converted into Hong Kong dollars. Assets and liabilities have been translated into Hong Kong dollars at the closing rate at the balance sheet date. Income and expenses have been converted into the group’s presentation currency at the average rates over the reporting period.

(q) Related parties

Parties are considered to be related to the company if the company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the company and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the company where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the company or of any entity that is a related party of the company.

– 86 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

• (r) Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

No business and geographical segments are presented as all the revenue and assets relate to the forestry business in the PRC for the Relevant Period.

2. Turnover and revenue

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

During the Relevant Period neither of Strong Lead nor Beijing WFC has derived any turnover or revenue from the undertaking of its forestry business, which remained at a pre-commencement of plantation stage throughout the Relevant Period.

The only revenue derived by the Strong Lead Group during the Relevant Period includes principally bank deposit interest income of insignificant amount.

3. Other gains

The other gains derived by the Strong Lead Group during the Relevant Period are as follows:

Excess of net identifiable assets acquired over the cost of acquisition of a subsidiary Gain on extinguishment of indebtedness due to ultimate beneficiary shareholders	HK$’000 500,672 33,654
	534,326

4. Profit before taxation

Profit before taxation is arrived at after charging (crediting):

	HK$’000
Auditors’ remuneration	–
Depreciation on property, plant and equipment	64
Amortisation on patent in application	13,595
Amortisation on paper mulberry saplings	26,749
Amortisation on prepaid lease payments	46
Pre-operating expenditures written off	11,075
Operating lease rentals	345
Staff costs	440

5. Directors’ emoluments

Directors’ remuneration disclosed pursuant to the Listing Rules and Section 161 of the Companies Ordinance is as follows:

HK$’000

Fees	–
Other emoluments	–

–

None of the directors has waived any emoluments during the Relevant Period.

– 87 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

6. Five highest paid employees

The five highest paid employees during the Relevant Period are non-directors. The details of the remuneration of these employees are as follows:

	HK$’000
Salaries, allowances and benefits in kind	332

During the Relevant Period, no emoluments were paid by Strong Lead Group to the five highest paid individuals (including directors and employees) as an inducement to join or upon joining Strong Lead Group or as compensation for loss of office.

7. Income tax expense

(a) Taxation charge in the income statement represents:

	HK$’000
Current tax	–
Deferred tax	–

–

Strong Lead is not currently subject to income tax liability in the British Virgin Islands and Hong Kong.

In accordance with the relevant applicable tax regulations of the PRC, Beijing WFC is entitled to full exemption from enterprise income tax for the first three years and 50% reduction in enterprise income tax for the next three years, commencing from the first profitable year after offsetting all unexpired tax losses carried forward from the previous years. Local income tax is exempted during the tax concession years.

• (b) Reconciliation between tax expense and accounting profit:

Profit before taxation Taxation at the income tax rate of 15% Tax effect on non-taxable items Tax effect on non-deductible items Tax effect of tax concessionary treatment Others Tax expense	HK$’000 478,395
	71,759 (77,060 5,523 (79 (143
	–

• (c) As part of the arrangement for the business combination (note 20), Strong Lead and Beijing WFC have obtained tax indemnity from a former equity holder and the minority equity holder of Beijing WFC in respect of any income tax and other tax liability of the operations of Beijing WFC prior to the business combination. These equity holders warranted Strong Lead and Beijing WFC that they would idemnify and hold harmless Strong Lead and Beijing WFC for any such liability which may deemed to have arisen from the discontinued business operations carried out by Beijing WFC prior to the business combination.

8. Pre-operating expenditures

Pre-operating expenditures incurred prior to commencement of plantation including principally fostering and maintenance cost for paper mulberry saplings and expenditures incurred in preparing the agricultural land for future plantation in aggregate of approximately HK$14,573,000 has been written off to the income statement for the Relevant Period.

– 88 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

9. Property, plant and equipment

Group				Furniture,
		Plant		fixtures
		and		and		Motor	Construction
	machinery			equipment		vehicles		in progress		Total
		HK$’000		HK$’000		HK$’000		HK$’000		HK$’000
Cost
Additions		8		479		–		–		487
Arising on acquisition of
a subsidiary		122		1,538		847		2,885		5,392
At 31 December 2005		130		2,017		847		2,885		5,879
Aggregate depreciation
Charge for the Relevant Period		6		18		40		–		64
Arising on acquisition of
a subsidiary		6		32		91		–		129
At 31 December 2005		12		50		131		–		193
Net book value
At 31 December 2005		118		1,967		716		2,885		5,686
As at 31 December 2005, there were no property, plant and equipment						carried at	net realisable value.
Biological assets
										HK$’000
Reconciliation of carrying amounts	of paper mulberry saplings
Increase due to purchases – through acquisition of a subsidiary										213,990
Amortisation for the Relevant Period										(26,749)
Carrying amount at 31 December 2005										187,241
Reconciliation of carrying amounts	of pine trees
Increase due to purchases – through acquisition of a subsidiary										120,481
Carrying amount at 31 December 2005										120,481
Total										307,722

10. Biological assets

The paper mulberry saplings are stated at cost, less amortisation.

Valuation of the biological assets of pine trees as of 31 December 2005 by LCH, a company of chartered surveyors, qualified to provide valuation services in Hong Kong, amounted to RMB125,300,000 (or approximately HK$120,481,000) which approximates the carrying amounts of the pine trees.

The principal activities of Strong Lead Group consist of the business in tree plantation and management, manufacture and distribution of forestry products such as timber and bark material. As at 31 December 2005, Strong Lead Group maintained two categories of biological assets of paper mulberry saplings and pine trees for these business undertakings. During the Relevant Period, Strong Lead Group was engaged in preparation work in its operation and has not derived any revenue from its plantation business. Strong Lead Group has not recognised during the Relevant Period any gain arising from the change in fair value of biological assets as the accumulated fair value changes since the company’s incorporation is insignificant.

– 89 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

Biological assets of paper mulberry saplings

As at 31 December 2005, Strong Lead Group maintained a number of approximately 138 million of consumable biological assets of paper mulberry saplings of various stages of propagation. The majority of these paper mulberry saplings is maintained in the group’s various saplings rearing facilities held under lease in the PRC and are being fostered for further growth and diversification. Strong Lead Group’s paper mulberry saplings are available for future field plantation for rearing the genetically modified tree specie Broussonetia Payriferalvent which is a Moraceae plant under the category of Deciduous Trees. Strong Lead Group’s operations in Broussonetia Payriferalvent remained at a stage of pre-commencement of plantation and there were no harvesting made or output of agricultural produce during the Relevant Period in respect of these operations.

Strong Lead Group’s biological assets of paper mulberry saplings were carried at amortised cost in view of their specialised nature and the absence of an active open market in which market comparable prices are available. Amortisation is provided on the straight-line basis over the estimated live hood of two years under appropriate rearing and maintenance conditions.

Biological assets of man-made standing forests of Chinese Pine Trees

As at 31 December 2005, Strong Lead Group maintained consumable biological assets of standing forests of Chinese pine trees of various maturities of approximately 382,000 cubic meters by volume in aggregate. The two forest fields on which the standing pine trees erected are located in the Shanxi provenance in the PRC. Approximately 124,000 cubic meters and 222,000 cubic meters by volume, respectively, of the flocks of standing pine trees, have reached the stage of full maturity and near maturity and are ready for harvest. There were no harvesting made or output of agricultural produce during the Relevant Period in respect of the group’s forestry operations in pinewoods. The Strong Lead Group has vested interest in contracts for the sale of portion of the preharvest wholesome living pine trees of approximately of HK$48,916,000 by sales value, the delivery of which has not been completed as at 31 December 2005.

Strong Lead Group’s biological assets of standing pine trees were carried at their fair value, which is assessed based on professional appraisal using the market based approach and after accounting for normal rate of harvest recovery, cost of harvesting, transportation cost and other associated cost.

11. Patent in application

Cost: Acquired on acquisition of Beijing WFC At 31 December 2005 Accumulated amortisation: Amortisation for the Relevant Period At 31 December 2005 Net balance as at 31 December 2005	HK$’000 543,846
	543,846
	13,595
	13,595
	530,251

The patent in application are amortised over 10 years on a straight line basis.

Valuation of the patent in application as of 31 December 2005 performed by LCH, a chartered surveyors qualified to provide valuation services in Hong Kong, amounted to RMB565,600,000 (or approximately HK$543,846,000) which approximates the net carrying amount of the patent in application.

– 90 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

12. Prepaid lease payments

Cost Acquired on acquisition of Beijing WFC Accumulated amortisation Acquired on acquisition of Beijing WFC Charge for the Relevant Period As 31 December 2005 Net balance at 31 December 2005 13. Interest in a subsidiary Strong Lead Cost of acquisition of Beijing WFC	HK$’000 9,212
	15 46
	61
	9,151
	HK$’000 33,654

14. Amount due to minority interests

The amount is unsecured and interest-free. The minority interests creditor has confirmed its intention of not demanding repayment until Beijing WFC has the financial and liquidity capacity to proceed with settlement of the indebtedness. The directors consider that the carrying amount due to minority interests approximated its fair value as at 31 December 2005.

15. Deferred revenue

Deferred revenue represents proceeds received from the sale of pre-harvest of wholesome living pine trees. As at 31 December 2005, the harvest of the wholesome living trees underlying the relevant sale contracts and their subsequent processing into forestry products has not been commenced yet. Accordingly the sale proceeds received are wholly deferred until the harvest and delivery of the forestry products has been made when the amounts involved will be recognised as revenue in the income statement.

16. Deferred tax liabilities

The followings are the deferred tax liabilities recognised by the Strong Lead Group and the movement thereon during the Relevant Period:

Balance at 8 August 2005 (date of incorporation) Acquired on acquisition of Beijing WFC Balance at 31 December 2005	Fair value of Amortised biological fair value of assets over patent in historical application procurement over transfer cost consideration HK$’000 HK$’000 – – 4,840 54,205 4,840 54,205	Total HK$’000 – 59,045
		59,045

As at 31 December 2005, Strong Lead Group has unrecognised deferred tax asset of approximately HK$1,905,000 in respect of the excess of the carrying value of biological assets of paper mulberry saplings over historical procurement cost. These deferred tax assets have not been recognised due to the unpredictability of attributable future taxable profit streams.

– 91 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

17. Share capital

Shares of US1 each Authorised: At 31 December 2005 Issued and fully paid: Issue of shares At 31 December 2005	No. of shares 50,000 10 10	HK$ 390,000
		78
		78

At the time of incorporation, 1 share of US$1 each was issued. On 9 August 2005, additional 9 shares of US$1 each were allotted at par for cash to provide for working capital.

18. Reserves

Strong Lead Group

Statutory surplus fund HK$’000 Net profit for the Relevant Period – Transfer to reserves 2,796 Balance at 31 December 2005 2,796 Strong Lead Net profit for the Relevant Period Balance at 31 December 2005 19. Commitments (a) Capital commitments outstanding not provided for in the financial statements were as follows: Contracted for Authorised but not contracted for (b) The total future minimum lease payments under non-cancellable operating leases in respect of rented property and land use rights are payable as follows: Within 1 year After 1 year but within 5 years More than 5 years	Retained profits HK$’000 495,174 (2,796) 492,378 Retained profits HK$’000 33,654 33,654	Total HK$’000 495,174 –
		495,174
		Total HK$’000 33,654
		33,654
		HK$’000 1,923 –
		1,923
		2,463 9,851 110,821
		123,135

– 92 –

ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

20. Business combination

On 5 September 2005, Strong Lead entered into agreement for the acquisition of a 70 per cent equity interests in Beijing WFC for a cash consideration of HK$33,654,000. Beijing WFC is a company engaged in the business of tree plantation and management, manufacture and distribution of forestry products such as timber and bark material. The financial effect of the acquisition is analysed as follow:

Acquiree’s carrying amount HK$’000 Property, plant and equipment 5,392 Accumulated depreciation of property, plant and machinery (129) Biological assets 334,471 Patent in application 95,353 Prepaid lease payments 9,212 Accumulated amortisation of prepaid lease payments (15) Inventories 11,075 Bank and cash balances 3,970 Other payables and accruals (75) Deferred revenue (39,301) Amount due to minority interests (46,078) Deferred tax liabilities (4,840) Net assets acquired 369,035 Represented by: Purchase consideration paid Minority interests in net assets acquired Excess of fair value of net identifiable assets acquired over cost of acquisition of Beijing WFC

Fair value HK$’000 5,392 (129) 334,471 543,846 9,212 (15) 11,075 3,970 (75) (39,301) (46,078) (59,045) 763,323 HK$’000 33,654 228,997 500,672 763,323

Analysis of the net outflow of cash and cash equivalent as a result of the acquisition is as follows:

Purchase consideration paid Bank and cash balance acquired	HK$’000 33,654 (3,970) 29,684

The date of business combination was determined by the directors of Strong Lead as being 30 September 2005 and the consolidation of assets, liabilities and post-acquisition results of Beijing WFC into the financial statements of Strong Lead commenced from 1 October 2005 onwards.

The excess of the fair value of net identifiable assets acquired over cost of acquisition of Beijing WFC, in the amount of HK$500,672,000, has been charged to the income statement in accordance with the provisions of Hong Kong Financial Reporting Standard 3 “Business Combination” under the classification of “Other gains”. Factors contributing to the recognition of the referred fair value excess include principally the discharge amongst the ultimate beneficiary shareholders and vendors of the related business assets themselves of additional considerations which was effected as part of the overall acquisition and asset injection arrangement and not borne by Strong Lead.

The net result of Beijing WFC included in the consolidated income statement since acquisition amounts to a net loss of approximately HK$44,738,000. Had the acquisition been completed at the beginning of the Relevant Period, there would have been no material difference to the revenue and net result attained by Strong Lead Group for the Relevant Period.

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ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

21. Major non-cash transactions

The major non-cash transactions of Strong Lead Group during the Relevant Period principally include the followings:

• (i) the procurement of various business operational assets (note 23) from the minority equity holder of Beijing WFC, out of which waiver has been made for portion of the consideration payable in the amount of HK$245,947,000 (note 23) and the remaining balance payable has been discharged as partial of the liability of amount due to minority interests (note 14).

• (ii) waiver of indebtedness due to ultimate beneficiary shareholders in the amount of HK$33,654,000 (note 23), which was advanced for the purpose of acquisition of partial equity interests in Beijing WFC.

22. Profit attributable to equity holders of Strong Lead

The profit attributable to equity holder of Strong Lead for the Relevant Period and dealt with in its standalone financial statements is HK$33,654,000.

23. Material related party transactions

In addition to the transactions and balances disclosed elsewhere in these Financial Information, Strong Lead Group has entered into the following material related party transactions:

	HK$’000
Waiver of indebtedness due to ultimate beneficiary shareholder	(33,654)
Transaction with minority equity holder of Beijing WFC:
Acquisition of interest in a prepaid lease payments	9,212
Purchase of fixed assets	5,392
Purchase of paper mulberry saplings	213,990
Purchase of pine trees	38,865
Purchase of patent in application	96,154
Purchase of inventories – fertilizers and herbicides	11,075
Waiver of debts	(245,947)

In addition to the foregoing, as part of the arrangement for the acquisition of pine trees forests from the minority equity holder of Beijing WFC, the contractual rights to certain sale contracts of pre-harvest wholesome living trees growing on the forest fields of approximately HK$48,916,000 in aggregate by sales value have been assigned to Beijing WFC along with the transfer of forestry title of the pine tree forests.

The directors consider that Strong Lead is a 60% owned subsidiary of Leading Power International Limited, a company incorporated in the British Virgin Islands and wholly owned by an individual, Karen Liu, a New Zealand passport holder. Leading Power International Limited has not produced any financial statements available for public use since incorporation.

Except for the waiver of indebtedness with ultimate beneficiary shareholders of Strong Lead, the related party transactions are all executed with 菲菲森旺資源開發有限公司 (FeiFei Sen Wang Resources Development Co., Ltd.) (“FeiFei”), a PRC entity that is the minority equity holder of Beijing WFC owning 30% equity interests. The indebtedness being waived was previously due to ultimate beneficiary shareholders of Strong Lead including Karen Liu and Lee Chi Kong. The related party transactions with the FeiFei were completed on or about the beginning of the Relevant Period and pursuant to the overall arrangements for re-structuring the assets and equity interests in Beijing WFC in preparation for its business undertaking in tree plantation and management, manufacture and distribution of forest products. These transactions were all completed in accordance with the terms of the underlying agreements governing these transactions. The directors anticipate that these transactions will not be continued in the foreseeable future.

As at 31 December 2005, the Strong Lead Group has balance due to FeiFei in the amount of HK$37,993,000 which is after the effect of these related party transactions. The terms of the outstanding related party balance is set out in note 14.

The amount of remuneration paid to key management personnel inclusive of directors of Beijing WFC during the Relevant Period amounted to approximately HK$332,000 which comprise of short term employee benefits of salaries.

There has been no provision made for bad or doubtful debts in respect of amounts due from related parties during the Relevant Period.

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ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

24. Financial and operational risk management

1. Financial risk factors

Strong Lead Group’s activities expose it to a variety of financial risks: market risk (including fair value interest risk and price risk), credit risk, liquidity risk, cash flow interest-rate risk. Strong Lead Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Strong Lead Group’s financial performance.

Risk management is carried out by the board of directors of Beijing WFC under policies approved by Strong Lead. The board of directors of Beijing WFC identifies, evaluates and hedges financial risks in close co-operation with the Strong Lead Group’s operating units. The board of directors of Strong Lead provides principles for overall risk management, as well as policies covering specific areas, such as market risk, credit risk and liquidity risk, cash flow interest-rate risk and operation risk.

• (a) Market risk

• (i) Foreign exchange risk

The Strong Lead Group has no significant exposure to foreign exchange risk at this stage of pre-commencement of operation. The directors of Beijing WFC anticipate that future sales of forestry products will be made principally in the PRC to take advantage of the strong domestic demand from manufacturers in the paper making industry. Sales to customers and payment to suppliers will be mainly Renminbi denominated. The directors of Beijing WFC are of the opinion that there is presently no significant exposure in the depreciation of the currency of Renminbi.

• (ii) Price risk

The products of Strong Lead Group are subject to the usual fluctuation with timber log prices. There is presently an absence of futures market for the effective price hedging. The group does not anticipate that prices of timber logs will decline significantly in the foreseeable future as the demand for timber logs kept on soaring in the past few years.

• (b) Credit risk

The Strong Lead Group has no significant concentrations of credit risk for the time being as the group has not yet generated any sales. However, there are policies in place to ensure that its sales are made to customers assessed by management as having appropriate credit standing and the avoidance of over-concentration of credit exposure.

• (c) Liquidity risk

Prudent liquidity management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities. The directors of Strong Lead Group consider that the Beijing WFC’s existing operations in pine wood sales will readily avail cash resources to Strong Lead Group. In addition, the minority equity holder of Beijing WFC has assured Beijing WFC of its continuance of financial support to Beijing WFC until Beijing WFC is in a financial position to repay its debts to the minority equity holder.

• (d) Cash flow and fair value interest rate risk

As the Strong Lead Group has no significant interest-bearing assets, Strong Lead Group’s income and operating cash flows are substantially independent of changes in market interest rates.

2. Operational risk factors

The business of Beijing WFC is subject to the usual agricultural risk of hazards from fire, wind and insect. Forces of nature such as temperature and rain fall may also affect havest efficiency. The directors of Beijing WFC consider that adequate preventive measures are in place and relevant legislation under forestry laws in the PRC will assist in minimizing the exposure. The management of Beijing WFC have additionally evaluated the feasibility to operate its forestry business in various parts of the PRC so as to minimise over-concentration of such operational risk.

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ACCOUNTANTS’ REPORT ON STRONG LEAD

APPENDIX II

25. Critical accounting estimates and judgements

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

1. Estimated impairment of patent in application

Management assess periodically whether the patent in application has suffered any impairment due to change of technologies. Strong Lead Group has not identified any indications that the patent in application has or would have suffered any impairment in term of its value to the Strong Lead Group.

2. Accounting policy and estimated useful lives of paper mulberry saplings

Management estimate the expected live hood for its biological assets of paper mulberry saplings and determine the related amortisation policy. Management concluded that the estimate would not be significantly affected in the foreseeable future under conditions of maintenance with appropriate rearing faculties.

In ascertaining the accounting policy suited for the biological assets of paper mulberry saplings, management have taken into consideration the currently absence of an active open market in which these biological assets are traded and decided that the adoption of an amortisation policy will be appropriate.

3. Useful lives of plant and equipment

Management estimate the expected useful lives for its plant and equipment and determine the related depreciation policy. Management concluded that the estimate would not be significantly affected in the foreseeable future as a result of technical innovations in relation to the forestry industry.

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

Accountants’ Report on Beijing WFC

JOHNNY CHAN & CO. LIMITED

Certified Public Accountants

509 Bank of America Tower 12 Harcourt Road, Central Hong Kong Tel : 2522 2922 Fax: 2522 2977

==> picture [66 x 105] intentionally omitted <==

18 April 2006

The Board of Directors Good Fellow Group Limited Hong Kong

Dear Sirs,

We set out below our report regarding the financial information (the “Financial Information”) regarding 北京萬富春森林資源發展有限公司 (Beijing Wan Fu Chun Forest Resources Development Company Limited) (“Beijing WFC”) (formerly known as 北京唯美生態科技投資有限公司 and 北京 唯美星科貿有限公司 ) for the years ended 31 December 2003 and 31 December 2004, and the nine months period ended 30 September 2005 (the “Relevant Periods”) for inclusion in the circular dated 18 April 2006 issued by Good Fellow Group Limited (the “Company”) in connection with a proposed acquisition of the entire shareholding interests in Strong Lead Investments Limited, a company with limited liability incorporated in the British Virgin Islands on 8 August 2005 (“Strong Lead”) (the “Circular”).

Being WFC was established on 17 September 2001 in the People’s Republic of China (the “PRC”) and registered as a sino-foreign equity joint venture on 26 September 2005. Currently, the nominal value of the registered capital of Beijing WFC is held as to 70 per cent by Strong Lead and 30 per cent by 菲菲 森旺資源開發有限公司 (FeiFei SenWang Resources Development Co., Ltd.), a PRC domestic company. Beijing WFC was previously engaged in the business in the trading of grocery equipments. These former business has since been fully discontinued and commencing 2005 the company has changed its business undertakings to the business in tree planation and management, manufacture and distribution of forestry products.

For the purpose of this report, we have undertaken an independent audit of the underlying financial statements of Beijing WFC for the Relevant Periods in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and have carried out such additional procedures as we considered necessary in accordance with the Auditing Guidelines 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA and, where considered appropriate, made adjustments and/or additional disclosures considered necessary in order for the Financial Information and the notes thereto to conform with the accounting principles generally accepted in Hong Kong.

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

The income statements, the cash flow statements, and the statements of changes in equity of Beijing WFC for the Relevant Periods and the balance sheets of Beijing WFC as at 31 December 2003, 31 December 2004, and 30 September 2005 as set up in this report have been prepared in accordance with the basis and accounting policies as set out in note 1 of Section 5 below.

The Financial Information is the responsibility of the directors of Beijing WFC who approve their issuance. The Directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information together with the notes thereto, to form an independent opinion on such information and to report our opinion to you.

We planned and perform our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the Financial Information are free from material misstatements. However, the evidence available to us was limited in respect of the accumulated deficit of Beijing WFC of HK$368,000 brought forward from 31 December 2002. There were no satisfactory audit procedures that we could adopt to confirm and verify the balance of accumulated deficit of Beijing WFC as at 1 January 2003, and accordingly we are unable to express an opinion as to the correctness of the balance.

Except for any adjustments which might have been found necessary had we been able to obtain sufficient evidence concerning the accumulated deficit brought forward from 31 December 2002, in our opinion the Financial Information together with the notes thereto give, for the purpose of this report, a true and fair view of the state of affairs of Beijing WFC as at 31 December 2003, 31 December 2004, and 30 September 2005 and of the results and cash flows of Beijing WFC for the Relevant Periods.

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

1. INCOME STATEMENT

The following is a summary of the income statement of Beijing WFC for the Relevant Periods, which is presented on the basis set out in note 1 under Section 5 below:”

Notes Continuing operations Turnover 3 Other gains 4 Other operating expenses Profit before taxation 5 Income tax expense 8 Profit for the year/period from continuing operations Discontinued operations Net profit (loss) for the year/period attributable to discontinued operations 9 Net profit (loss) for the year/period	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – – – – 327,563 – – (1,690) – – 325,873 – – (4,840) – – 321,033 320 (27) – 320 (27) 321,033

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

2. BALANCE SHEET

The following is a summary of the balance sheet of Beifing WFC as at 31 December 2003, 31 December 2004 and 30 September 2005, which is presented on the basis set out in note 1 under Section 5 below:

Notes Non-current assets Property, plant and equipment 10 Biological assets 11 Patent in application 12 Prepaid lease payments 13 Current assets Inventories 14 Trade receivables 15 Prepayments and other receivables Amount due by former company owners 16 Bank and cash balances Current liabilities Accruals and other payables Amount due to a minority equity holder 17 Deferred revenue 18 Net current assets (liabilities) Total assets less current liabilities Non-current liabilities Deferred tax liabilities 19 NET ASSETS CAPITAL AND RESERVES Registered capital 20 Reserves 21 TOTAL EQUITY	As at 31 December 30 2003 2004 HK$’000 HK$’000 – – – – – – – – – – – – 867 87 3,297 404 5,479 9,127 – – 9,643 9,618 76 78 – – – – 76 78 9,567 9,540 9,567 9,540 – – 9,567 9,540 9,615 9,615 (48) (75) 9,567 9,540	As at September 2005 HK$’000 5,263 334,471 95,353 9,197 444,284 11,075 – – – 3,970 15,045 75 46,078 39,301 85,454 (70,409) 373,875 4,840 369,035 48,077 320,958 369,035

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

3. STATEMENT OF CHANGES IN EQUITY

The following is a summary of statement of changes in equity of Beijing WFC for the Relevant Periods, which is presented on the basis set out in note 1 under Section 5 below:

Registered capital HK$’000 Balance at 1 January 2003 9,615 Net profit for the year – Balance at 31 December 2003 and 1 January 2004 9,615 Net loss for the year – Balance at 31 December 2004 and 1 January 2005 9,615 Capital injection 38,462 Net profit for the period – Balance at 30 September 2005 48,077	Retained profits HK$’000 (368) 320 (48) (27) (75) – 321,033 320,958	Total HK$’000 9,247 320 9,567 (27) 9,540 38,462 321,033 369,035

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

4. CASH FLOW STATEMENT

The following is a summary of cash flow statement of Beijing WFC for the Relevant Periods, which is presented on the basis set out in note 1 under Section 5 below:

Operating activities Profit (loss) before taxation Adjustments for: Gain on re-measurement of fair value of pine trees Gain on extinguishment of indebtedness due to minority equity holder of the company Amortisation of patent in application Amortisation of prepaid lease payments Depreciation of property, plant and equipment Operating profit (loss) before changes in working capital (Increase) decrease in inventories (Increase) decrease in trade receivables Decrease in prepayments and other receivables (Increase) decrease in amount due by former company owners Increase (decrease) in accruals and other payables Net cash (used in) generated from operating activities Investing activities Proceeds from sale of fixed assets Payments for purchase of fixed assets Payments for purchase of biological assets Payments for interest a prepaid lease payments Net cash generated from (used in) investing activities Financing activities Contribution of paid-up registered capital Advance from minority equity holders Net cash generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year/period Cash and cash equivalents at end of year/period Analysis of cash and cash equivalents: Cash and bank balances

Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 320 (27) 325,873 – – (81,616) – – (245,947) – – 801 – – 15 4 – 129 324 (27) (745) 104 – – (287) 780 87 342 2,893 404 (36) (3,648) 9,127 71 2 (3) 518 – 8,870 – – – (518) – – – – (38,865) – – (9,212) (518) – (48,077) – – 38,462 – – 4,715 – – 43,177 – – 3,970 – – – – – 3,970 – – 3,970

The cash flow movements for year ended 31 December 2003 and 2004 are wholly attributable to discontinued operations previously undertaken by the company in these periods.

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

5. NOTES TO FINANCIAL INFORMATION

1. Basis of preparation and significant accounting policies

The Financial Information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (HKFRSs), which collectively includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (HKASs) and interpretations issued by Hong Kong Institute of Certified Public Accountants (HKICPA), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance.

The Financial Information has been prepared on the going concern basis notwithstanding that the company has significant net current liabilities at 30 September 2005, as the minority equity holder of the company has confirmed its intention of not demanding repayment until the company has the financial and liquidity capacity to proceed with settlement of these indebtedness.

The HKICPA has issued a number of new and revised HKFRSs that are effective or available for early adoption for accounting periods beginning on or after 1 January 2005. The new and revised HKFRSs have been adopted in presenting the Financial Information.

The presentation of the Financial Information in conformity with HKFRSs requires management to make judgements, estimates and assumption that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those 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 revision and future periods if the revision affects both current and future periods.

The Financial Information has been prepared under the historical cost convention except for the re-measurement of biological assets as explained in the accounting policies set out below.

A summary of the significant accounting policies adopted by the company is set out below.

(a) Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the company and when the revenue and costs, if applicable, can be measured reliably, on the following basis:

• (i) revenue from sale of forestry products is recognised when delivery is made and the risks and rewards of ownership have been passed to the customers;

• (ii) interest income is recognised on a time proportion basis on the principal outstanding and at the rate applicable.

(b) Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and accumulated impairment losses.

Construction in progress is stated at cost, which comprises all direct costs incurred in relation to the construction, less accumulated impairment loss. The cost of construction in progress will not be amortised until it is ready for use and is transferred to a specific category of fixed assets when the construction is completed.

Depreciation is provided to write off the cost or valuation of items of fixed assets, other than construction in progress, over their following estimated useful lives and after taking into account their estimated residual values, using the straight line method.

Plant and machinery	20 years
Furniture, fixtures and equipment	20 years
Motor vehicles	20 years

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are expensed in the income statement during the period in which they are incurred.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit and loss in the period in which it arises.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

(c) Biological assets

Biological assets represent the carrying value of paper mulberry saplings and pine trees.

Paper mulberry saplings in the absence of an active open market in which they are traded are stated at their initial cost of acquisition and amortised on a straight-line basis over the estimated life hood of two years under appropriate rearing and maintenance conditions. The amortised cost of paper mulberry saplings are transferred to the carrying value of growing paper mulberry trees upon commencement of plantation. Re-measurement of fair value of growing paper mulberry trees are made at the end of each reporting period and changes in the fair value are recognised in the income statement in the period in which they will arise. Upon the harvest and sale of processed paper mulberry trees as timber and other forestry products, the estimated value of the portion of paper mulberry trees harvested is transferred to cost of sales in the income statement.

Pine trees are initially recognised at their historical cost of procurement and subsequently re-measured to their fair value. Re-measurement of their fair value of pine trees is made at the end of each reporting period and changes in the fair value are recognised in the income statement in the period in which they arise. Upon the harvest and sale of processed pine trees as timber and other forestry products, the estimated value of portion of pine trees harvested is transferred to cost of sales in the income statement.

Revenue received from the sale of pre-harvest biological assets are accrued as liability of deferred revenue and are recognised as revenue in the income statement upon the transfer to the customers of the risks and rewards associated with ownership when the harvest and delivery of the forestry products has been made.

(d) Patent in application

Patent in application that is acquired by the company is stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is other than indefinite) and impairment losses. Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

Amortisation of patent in application is charged to income statement on a straight line basis over its estimated useful life unless such life is indefinite. The patent in application is amortised from the date they are available for use and its estimated useful life is 10 years.

Both the period and method of amortisation and any conclusion that the useful life of the patent in application are reviewed annually.

(e) Prepaid lease payments

Prepaid lease payments, which represent up-front payments to acquire operating leases for land use rights, are stated at cost and amortised over 50 years, being the term of the lease, on a straight line basis.

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

(f) Impairment of assets

• (i) Impairment of tangible assets and intangible assets with finite useful lives

At each balance sheet date, the company reviews the carrying amounts of its tangible and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. 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. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another accounting standard, in which case the impairment loss is treated as a revaluation decrease under that accounting standard.

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 periods. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another accounting standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that other accounting standard.

• (ii) Impairment of intangible assets with indefinite useful lives

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually by comparing their carrying amounts with their recoverable amounts, irrespective of whether there is any indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reducing to its recoverable amount. An impairment loss is recognised as an expense immediately.

When 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 periods.

(g) Inventories

Inventories of raw materials and consumables are stated at the lower of cost and net realisable value (or net recoverable amount, as appropriate) after allowance for obsolete or slow-moving items. Cost is determined on the weighted average cost basis and includes overhead incurred in bringing the inventories to its present condition and location. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to disposal. Where the inventories involved are intended to be directly consumed for operational purpose but not for re-sale, the net recoverable amount is assessed based on their value in use to the company.

(h) Taxation

Taxation represents the sum of the tax currently payable and deferred taxation.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other periods, and it further excludes income statement items that are never taxable or deductible.

Deferred taxation is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

Deferred income tax is provided in full, using the liability method, at the current tax rate on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements to the extent that a liability or asset is expected to be payable or recoverable in the foreseeable future.

The carrying amount of deferred tax asset is reviewed at each balance sheet date and reducing to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

(i) Pre-operating expenditures

Pre-operating expenditures incurred prior to commencement of plantation is charged to the income statement in the period in which they are incurred.

(j) Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.

(k) Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash at banks 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 company’s cash management are also included as a component of cash and cash equivalents.

(l) 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.

(m) Provisions and contingent liabilities

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

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

(n) Employee benefits

Salaries, wages, annual bonuses, paid annual leaves and other employment benefits are accrued for in the period 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 value.

The company participates in a defined contribution pension scheme under the laws of the PRC. Contributions to the scheme are calculated as a percentage of employees’ salaries and wages. The contributions of the company to the scheme are expensed as incurred. The company has no further obligation in connection with staff’s retirement benefits.

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ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

(o) Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are expensed in the income statement on a straight-line basis over the period of the lease.

(p) Foreign currencies

The directors consider that the functional currency of the company is Renminbi (RMB), which is the currency in the primary economic environment in which the company operates. Transactions in currencies other than Renminbi are traslated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges.

For the purpose of presenting the financial statements, the company has adopted Hong Kong dollars (HK$) as the presentation currency and all financial amounts originally denominated in a currency different from the presentation currency have been converted into Hong Kong dollars. Assets and liabilities have been translated into Hong Kong dollars at the closing rate at the balance sheet date. Income and expenses have been converted into the company’s presentation currency at the average rates prevailing over the financial period. All resulting exchange differences are recognised as a separate component of equity.

(q) Related parties

Parties are considered to be related to the company if the company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the company and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the company where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the company or of any entity that is a related party of the company.

(r) Non-current assets held for sale and discontinued operations

A non-current asset (or disposed group) is classified as held for sale if it is highly probable that its carrying amount will be recovered through a sale transaction rather than through continuing use and the asset (or disposal group) is available for sale in its present condition. A disposal group is a group of assets to be disposed of together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.

Immediately before classification as held for sale, the measurement of the non-current assets is brought up-to-date in accordance with the accounting policies before the classification. Then, on initial classification as assets held for sale and until disposal, the non-current assets (except for certain assets as explained below) or disposal groups are recognised at the lower of their carrying amount and fair value less costs to sell. The principal exceptions to this measurement policy so far as the financial statements of the company are concerned are deferred tax assets, assets arising from employee benefits, and financial assets (other than investments in associates and joint ventures). These assets, even if held for sale, would continue to be measured in accordance with the policies set out elsewhere in note 1.

Impairment losses on initial classification of non-current assets as held for sale, and on subsequent remeasurement while held for sale, are recognised in the income statement. As long as a non-current asset is classified as held for sale, or is included in a disposal group that is classified as held for sale, the noncurrent asset is not depreciated or amortised.

(s) Segment reporting

A business segment is a company of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

– 107 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

2. Segmental information

All the company’s assets and liabilities as at 31 December 2003 and 2004 (section 2 to this accountants’ report); and revenue, expenses and profit and loss for the financial years ended 31 December 2003 and 2004 (note 9) are attributable to the single business segment in the trading of grocery equipments in the PRC. These business has since been fully discontinued.

All the company’s assets and liabilities as at 30 September 2005; and revenue, expenses and profit and loss for the financial period ended 30 September 2005 are attributable to the single business segment of tree planation and management, manufacture and distribution of forestry products in the PRC.

3. Turnover and revenue

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

The turnover and revenue attributable to the company’s discontinued operations during the financial year ended 31December 2003 principally include sale of goods in the amount of HK$970,000 (note 9).

For the financial year ended 31December 2004, the company has remained dormant in operation and there were no material turnover and revenue derived by the company during this period (note 9).

For the financial period of nine months to 30 September 2005, the principal activities of the company has been changed to the business in tree planation and management, manufacture and distribution of forestry products. The company has not derived any turnover or revenue from the undertaking of its forestry business, which remained at a pre-commencement of plantation stage throughout this period.

4. Other gains

Gain on re-measurement of fair value of pine trees Gain on extinguishment of indebtedness due to minority equity holder of the company	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 81,616 – – 245,947 – – 327,563	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 81,616 – – 245,947 – – 327,563
		327,563

Gain on re-measurement of fair value of pine trees represents the excess of their appraised fair value at 30 September 2005 over the historical cost of procurement. Re-measurement is made of the fair value of these biological assets at each balance sheet date through the use of professional appraisal and any gain or loss arising from re-measurement is taken to the income statement for the period in which they arise.

5. Profit (loss) from operating activities

			Nine
	Year ended		months ended
	31 December		30 September
	2003	2004	2005
	HK$’000	HK$’000	HK$’000
Profit (loss) before taxation is arrived at after charging (crediting):
Auditors’ remuneration	–	–	–
Depreciation on property, plant and equipment	4	–	129
Amortisation of patent in application	–	–	801
Amortisation of prepaid lease payments	–	–	15
Staff costs	187	14	–

– 108 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

6. Directors’ emoluments

			Nine
	Year ended		months ended
	31	December	30 September
	2003	2004	2005
	HK$’000	HK$’000	HK$’000
Directors’ remuneration disclosed pursuant to the Listing Rules
and Section 161 of the Companies Ordinance is as follows:
Fees	–	–	–
Other emoluments	–	–	–
	–	–	–
None of the directors has waived any emoluments during the Relevant Periods.
Five highest paid employees
			Nine
	Year ended		months ended
	31	December	30 September
	2003	2004	2005
	HK$’000	HK$’000	HK$’000
The five highest paid employees during the Relevant Periods
included non-directors. The details of the their remuneration
are set out below.
Salaries, allowances and benefits in kind	74	9	–

7. Five highest paid employees

During the Relevant Periods, no emoluments were paid by the company to the five highest paid individuals (including directors and employees) as an inducement to join or upon joining the company or as compensation for loss of office.

8. Income tax expense

(a) Taxation charge in the income statement represents:

Current tax Deferred tax	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – – – – 4,840 – – 4,840	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – – – – 4,840 – – 4,840
		4,840

In accordance with the relevant applicable tax regulations of the PRC, the company is currently entitled to full exemption from enterprise income tax for the first three years and 50% reduction in enterprise income tax for the next three years, commencing from the first profitable year after offsetting all unexpired tax losses carried forward from the previous years. Local income tax is exempted during the tax concession years.

– 109 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

(b) Reconciliation between tax expense and accounting profit:

Profit (loss) before taxation – Continuing operations – Discontinued operations Taxation at the applicable income tax rate Effect of tax idemnity from former equity holders Effect of tax loss not utilised Tax effect of non-taxable items Tax effect of fair value surplus for biological assets Tax expense	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 325,873 320 (27) – 320 (27) 325,873 106 (9) 48,881 (106) – – – 9 253 – – (49,134) – – 4,840 – – 4,840

• (c) As part of the arrangement for Strong Lead’s business combination of Beijing WFC, Strong Lead and Beijing WFC have obtained tax indemnity from a former equity holder and the minority equity holder of Beijing WFC in respect of any income tax and other tax liability of the operations of Beijing WFC prior to the business combination. These equity holders warranted Strong Lead and Beijing WFC that they would idemnify and hold harmless Strong Lead and Beijing WFC for any such liability which may deemed to have arisen from the discontinued operational activities carried out by Beijing WFC prior to the business combination.

9. Discontinued operations

For the financial years ended 31 December 2003 and 2004, the company was engaged in the business in the trading of grocery equipments. These former business operations have since been fully discontinued prior to 1 January 2005. The operating results attributable to the discontinued operations for the financial years ended 31 December 2003 and 2004 are as follows:

Turnover Cost of sales Gross profit Other revenue Administrative expenses Profit (loss) before taxation Income tax expenses Net profit (loss) for the year	Year ended 31 December 2003 2004 HK$’000 HK$’000 970 – (398) – 572 – 1 4 (253) (31) 320 (27) – – 320 (27)

– 110 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

10. Property, plant and equipment

Cost At 1 January 2003 Additions Disposal At 31 December 2003 and 1 January 2004 Additions At 31 December 2004 and 1 January 2005 Additions As 30 September 2005 Aggregate depreciation At 1 January 2003 Charge for the year Disposal At 31 December 2003 and 1 January 2004 Charge for the year At 31 December 2004 and 1 January 2005 Charge for the period As 30 September 2005 Net book value At 31 December 2003 At 31 December 2004 At 30 September 2005	Plant and machinery HK$’000 3,742 518 (4,260) – – – 123 123 67 – (67) – – – 7 7 – – 116	Furniture, fixtures and equipment HK$’000 210 – (210) – – – 1,538 1,538 – 4 (4) – – – 32 32 – – 1,506	Motor vehicles HK$’000 – – – – – – 847 847 – – – – – – 90 90 – – 757	Construction in progress HK$’000 – – – – – – 2,884 2,884 – – – – – – – – – – 2,884	Total HK$’000 3,952 518 (4,470) – – – 5,392 5,392 67 4 (71) – – – 129 129 – – 5,263

As at 30 September 2005, there were no property, plant and equipment carried at net realisable value.

– 111 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

11. Biological assets

Reconciliation of carrying amounts of paper mulberry saplings Carrying amount at the beginning of the year/period Increase due to purchases Carrying amount at the end of the year/period Reconciliation of carrying amounts of pine trees Carrying amount at the beginning of the year/period Increase due to purchases Gain arising from changes in fair value Carrying amount at the end of the year/period Total	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – – – – 213,990 – – 213,990 – – – – – 38,865 – – 81,616 – – 120,481 – – 334,471	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – – – – 213,990 – – 213,990 – – – – – 38,865 – – 81,616 – – 120,481 – – 334,471
		213,990
		– 38,865 81,616
		120,481
		334,471

The paper mulberry saplings are stated at cost, less amortisation.

Valuation of the biological assets of pine trees as of 31 December 2005 by LCH, a company of chartered surveyors, qualified to provide valuation services in Hong Kong, amounted to RMB125,300,000 (or approximately HK$120,481,000) which approximates the carrying amounts of the pine trees as at 30 September 2005.

The company’s principal activities consist of the business in tree plantation and management, manufacture and distribution of forestry products such as timber and bark material. As at 30 September 2005, the company maintained two categories of biological assets of paper mulberry saplings and pine trees for these business undertakings. The procurement of these biological assets was made around August and September 2005 and accordingly during the period of nine months ended 30 September 2005, the company was not engaged in active business sales in relation to its plantation business and has not derived any revenue therefrom. For the same reason, the company has not recognised during such nine months period any gain arising from the change in fair value of biological assets.

Biological assets of paper mulberry saplings

As at 30 September 2005, the company maintained a number of approximately 100 million of consumable biological assets of paper mulberry saplings of various stages of propagation. The majority of these paper mulberry saplings is maintained in the company’s various saplings rearing facilities held under lease in the PRC and are being fostered for further growth and diversification. The company’s paper mulberry saplings are available for future field plantation for rearing the genetically modified tree specie Broussonetia Payriferalvent which is a Moraceae plant under the category of Deciduous Trees. The company’s operations in Broussonetia Payriferalvent remained at a stage of pre-commencement of plantation and there were no harvesting made or output of agricultural produce during the period of nine months ended 30 September 2005 in respect of these operations.

The company’s biological assets of paper mulberry saplings were carried at amortised cost in view of their specialised nature and the absence of an active open market in which market comparable prices are available. Amortisation is provided on the straight-line basis over the estimated live hood of two years under appropriate rearing and maintenance conditions.

– 112 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

Biological assets of man-made standing forests of Chinese Pine Trees

As at 30 September 2005, the company maintained consumable biological assets of standing forests of Chinese pine trees of various maturities of approximately 376,000 cubic meters by volume in aggregate. The two forest fields on which the standing pine trees erected are located in the Shanxi provenance in the PRC. Approximately 124,000 cubic meters and 218,000 cubic meters by volume, respectively, of the flocks of standing pine trees, have reached the stage of full maturity and near maturity and are ready for harvest. There were no harvesting made or output of agricultural produce during the period of nine months ended 30 September 2005 in respect of the company’s forestry operations in pinewoods. The company has vested interest in contracts for the sale of portion of the pre-harvest wholesome living pine trees of approximately of HK$39,301,000 by sales value, the delivery of which has not been completed as at 30 September 2005.

The company’s biological assets of standing pine trees were carried at their fair value, which is assessed based on professional appraisal using the market based approach and after accounting for normal rate of harvest recovery, cost of harvesting, transportation and other associated cost.

12. Patent in application

Cost: At beginning of the year/period Additions At end of the year/period Accumulated amortisation: At beginning of the year/period Amortisation for the period At end of the year/period Net carrying amount:	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – – – – 96,154 – – 96,154 – – – – – 801 – – 801 – – 95,353	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – – – – 96,154 – – 96,154 – – – – – 801 – – 801 – – 95,353
		96,154
		– 801
		801
		95,353

The patent in application are amortised over 10 years on a straight line basis.

Valuation of the patent in application as of 30 September 2005 performed by LCH, a chartered surveyors qualified to provide valuation services in Hong Kong, amounted to RMB565,600,000 (or approximately HK$543,846,000) which is higher than the net carrying amount of the patent in application as at 30 September 2005.

13. Prepaid lease payments

Cost At beginning of the year/period Accumulated amortisation At beginning of the year/period Charge for the year/period At end of the year/period Net balance at end of the year/period	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 9,212 – – – – – 15 – – 15 – – 9,197	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 9,212 – – – – – 15 – – 15 – – 9,197
		15
		9,197

– 113 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

14. Inventories

Fertilizers and herbicides, at cost	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 11,075

As at 30 September 2005, there were no inventories carried at net realisable value.

All of the company’s inventories of consumable nature has been utilised and expensed subsequent to 30 September 2005.

15. Trade receivables

An analysis of trade receivables, based on the respective dates of sale of goods, is as follows:

Within 30 days Over 30 days but within 90 days Over 90 days but within 180 days Over 180 days but within 1 year Over 1 year but within 2 years	As at As at 31 December 30 September 2003 2004 2005 177 – – – – – 152 – – 538 – – – 87 – 867 87 –	As at As at 31 December 30 September 2003 2004 2005 177 – – – – – 152 – – 538 – – – 87 – 867 87 –
		–

All the trade receivables outstanding during the Relevant Periods are in respect of the company’s business undertakings in the trading of grocery equipments. These former business has since been fully discontinued.

16. Amount due by former company owners

The amount due due by former company owners is unsecured and interest-free and has no fixed terms of repayment. The directors consider that the carrying amount due due by former company owners as at 31 December 2003 and 2004 approximated their fair value as at these respective dates.

17. Amount due to a minority equity holder

The amount is unsecured and interest-free. The minority equity holder of the company has confirmed its intention of not demanding repayment until the company has the financial and liquidity capacity to proceed with settlement of the indebtedness. The directors consider that the carrying amount due to minority equity holder approximated its fair value as at 30 September 2005.

18. Deferred revenue

Deferred revenue represents proceeds received from the sale of pre-harvest of wholesome living pine trees. As at 30 September 2005, the harvest of the wholesome living trees underlying the relevant sale contracts and their subsequent processing into forestry products has not been commenced yet. Accordingly the sale proceeds received are wholly deferred until the harvest and delivery of the forestry products has been made when the amounts involved will be recognised as revenue in the income statement.

– 114 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

19. Deferred tax liabilities

The followings are the deferred tax liabilities recognised by the company and the movement thereon during the Relevant Periods:

	Fair value of	Fair value of
		biological
		assets over
		historical
	procurement
		cost
		HK$’000
Balance at 1 January 2003		–
Movement during the year		–
Balance at 31 December 2003 and 1 January 2004		–
Movement during the year		–
Balance at 31 December 2004 and 1 January 2005		–
Charge to income statement		4,840
Balance at 30 September 2005		4,840
Registered capital
	Registered and
	paid up capital
		HK$’000
At 1 January 2003		9,615
Movement during the year		–
Balance at 31 December 2003 and 1 January 2004		9,615
Movement during the year		–
Balance at 31 December 2004 and 1 January 2005		9,615
Capital injection		38,462
At 30 September 2005		48,077
Reserves
	Retained profits/
	(accumulated losses)
		HK$’000
Balance at 1 January 2003		(368)
Profit for the year		320
Balance at 31 December 2003 and 1 January 2004		(48)
Loss for the year		(27)
Balance at 31 December 2004 and 1 January 2005		(75)
Profit for the period		321,033
Balance at 30 September 2005		320,958

20. Registered capital

21. Reserves

– 115 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

22. Commitments

(a) Capital commitments outstanding not provided for in the financial statements were as follows: Contracted for Authorised but not contracted for (b) The total future minimum lease payments under non-cancellable operating leases in respect of rented property and land use rights are payable as follows: Within 1 year After 1 year but within 5 years More than 5 years	As at As at 31 December 30 September 2003 2004 2005 – – 1,923 – – – – – 1,923 – – 2,808 – – 9,851 – – 110,821 – – 123,480	As at As at 31 December 30 September 2003 2004 2005 – – 1,923 – – – – – 1,923 – – 2,808 – – 9,851 – – 110,821 – – 123,480
		1,923
		2,808 9,851 110,821
		123,480

23. Major non-cash transactions

The major non-cash transactions of the company during the Relevant Periods principally include the followings:

• (i) during the financial year ended 31 December 2003, the company disposed fixed assets to certain former company owners at a consideration of HK$4,399,000. The disposal consideration has been discharged within and included in the amount due by former company owners (note 16).

• (ii) the procurement of various business operational assets (note 24) from the minority equity holder of the company, out of which waiver has been made for portion of the consideration payable in the amount of HK$245,947,000. The remaining procurement consideration payable has been discharged within and included in the amount due to a minority equity holder (note 17).

24. Material related party transactions

In addition to the transactions and balances disclosed elsewhere in these Financial Information, the company entered into the following material related party transactions:

Transactions with former company owners: Disposal of fixed assets Transactions with the minority equity holder of the company: Acquisition of interest a prepaid lease payments Purchase of fixed assets Purchase of paper mulberry saplings Purchase of pine trees Purchase of patent in application Purchase of inventories – fertilizers and herbicides Waiver of debts	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 4,399 – – – – 9,212 – – 5,392 – – 213,990 – – 38,865 – – 96,154 – – 11,075 – – (245,947)	Nine Year ended months ended 31 December 30 September 2003 2004 2005 HK$’000 HK$’000 HK$’000 4,399 – – – – 9,212 – – 5,392 – – 213,990 – – 38,865 – – 96,154 – – 11,075 – – (245,947)
		9,212 5,392 213,990 38,865 96,154 11,075 (245,947)

– 116 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

In addition to the foregoing, as part of the arrangement for the acquisition of pine trees forests from the minority equity holder of Beijing WFC, the contractual rights to certain sale contracts of pre-harvest wholesome living trees growing on the forest fields of approximately HK$39,301,000 in aggregate by sales value have been assigned to Beijing WFC along with the transfer of forestry title of the pine tree forests.

Except for the disposal of fixed assets to former company owners, the related party transactions with the minority equity holder of the company were all executed with 菲菲森旺資源開發有限公司 (FeiFei Sen Wang Resources Development Co., Ltd.), a PRC entity that is the minority equity holder owning 30% equity interests in the company. The related party transactions with the FeiFei were completed pursuant to the overall arrangements for re-structuring the assets and equity interests in Beijing WFC in preparation for its business undertaking in tree plantation and management, manufacture and distribution of forest products. These transactions were all completed in accordance with the terms of the underlying agreements governing these transactions. The directors anticipate that these transactions will not be continued in the foreseeable future.

The disposal of fixed assets to former company owners during the financial year ended 31 December 2003 was made at a consideration determined as the net depreciated carrying value of the underlying fixed asset items.

As at 30 September 2005, the company has balance due to FeiFei Sen Wang Resources Development Co., Ltd. in the amount of approximately HK$46,078,000 which is after the effect of these related party transactions. The terms of the outstanding related party balance is set out in note 17 above.

During the Relevant Periods, the key management personnel comprised principally of directors of the Company and there were no material amounts of remuneration paid to these personnel.

There has been no provision made during the Relevant Periods for bad or doubtful debts in respect of amounts due from related parties.

25. Ultimate parent company

As at 30 September 2005, the directors regard Strong Lead, a company incorporated in the British Virgin Islands, to be the parent company. Strong Lead is a 60% owned subsidiary of Leading Power International Limited, a company incorporated in the British Virgin Islands and wholly owned by an individual, Karen Liu, a New Zealand passport holder. Neither Strong Lead nor Leading Power International Limited has produced any financial statements available for public use since incorporation.

26. Financial and operational risk management

1. Financial risk factors

The company’s activities expose it to a variety of financial risks: market risk (including fair value interest risk and price risk), credit risk, liquidity risk, cash flow interest-rate risk. The company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the company’s financial performance.

Risk management is carried out by the board of directors of the company under policies approved by its parent company. The board of directors of the company identifies, evaluates and hedges financial risks in close co-operation with the company’s operating units. The board of directors of its parent company provides principles for overall risk management, as well as policies covering specific areas, such as market risk, credit risk and liquidity risk, cash flow interest-rate risk and operation risk.

– 117 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

• (a) Market risk

• (i) Foreign exchange risk

The company has no significant exposure to foreign exchange risk at this stage of precommencement of operation. The directors of the company anticipate that future sales of forestry products will be made principally in the PRC to take advantage of the strong domestic demand from manufacturers in the paper making industry. Sales to customers and payment to suppliers will be mainly Renminbi denominated. The directors of the company are of the opinion that there is presently no significant exposure in the depreciation of the currency of Renminbi.

• (ii) Price risk

The products of the company are subject to the usual fluctuation with timber log prices. There is presently an absence of futures market for the effective price hedging. The company does not anticipate that prices of timber logs will decline significantly in the foreseeable future as the demand for timber logs kept on soaring in the past few years.

• (b) Credit risk

The company has no significant concentrations of credit risk for the time being as the company has not yet generated any sales. However, there are policies in place to ensure that its sales are made to customers assessed by management as having appropriate credit standing and the avoidance of over-concentration of credit exposure.

• (c) Liquidity risk

Prudent liquidity management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities. The directors consider that the company’s existing operations in pinewood sales will readily avail cash resources to the company. In addition, the minority equity holder of the company has assured the company of its continuance of financial support to the company until the company is in a financial position to repay its debts to the minority equity holder.

• (d) Cash flow and fair value interest rate risk

As the company has no significant interest-bearing assets, the company’s income and operating cash flows are substantially independent of changes in market interest rates.

2. Operational risk factors

The company’s business is subject to the usual agricultural risk of hazards from fire, wind and insect. Forces of nature such as temperature and rain fall may also affect havest efficiency. The directors of the company consider that adequate preventive measures are in place and relevant legislation under forestry laws in the PRC will assist in minimizing the exposure. The management of the company have additionally evaluated the feasibility to operate its forestry business in various parts of the PRC so as to minimise over-concentration of such operational risk.

– 118 –

ACCOUNTANTS’ REPORT ON BEIJING WFC

APPENDIX III

27. Critical accounting estimates and judgements

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

1. Estimated impairment of patent in application

Management assess periodically whether the patent in application has suffered any impairment due to change of technologies. The company has not identified any indications that the patent in application has or would have suffered any impairment in term of its value to the company.

2. Accounting policy and estimated useful lives of paper mulberry saplings

Management estimate the expected live hold for its biological assets of paper mulberry saplings and determine the related amortisation policy. Management concluded that the estimate would not be significantly affected in the foreseeable future under conditions of maintenace with appropriate rearing faculties.

In ascertaining the accounting policy suited for the biological assets of paper mulberry saplings, management has taken into consideration the currently absence of an active open market in which these biological assets are traded and decided that the adoption of an amortisation policy will be appropriate.

3. Useful lives of plant and machinery

Management estimate the expected useful lives for its plant and machinery and determine the related depreciation policy. Management concluded that the estimate would not be significantly affected in the foreseeable future as a result of technical innovations in relation to the forestry industry.

– 119 –

PRO FORMA FINANCIAL INFORMATION

APPENDIX IV

Accountants’ Report on Unaudited Pro Forma Financial Information on the Enlarged Group

JOHNNY CHAN & CO. LIMITED

Certified Public Accountants 509 Bank of America Tower 12 Harcourt Road, Central Hong Kong Tel : 2522 2922 Fax: 2522 2977

==> picture [66 x 104] intentionally omitted <==

18 April 2006

The Directors Good Fellow Group Limited Unit 1906, Nanyang Plaza 57 Hung To Road Kwun Tong, Hong Kong

Dear Sirs,

• Re: Good Fellow Group Limited and its subsidiaries together with Strong Lead Investments Limited and its subsidiary and the underlying ecological forestry business (collectively the “Enlarged Group”)

We report on the unaudited pro forma financial information of Good Fellow Group Limited (the “Company”) and its subsidiaries (collectively the “Group”) together with Strong Lead Investments Limited (“Strong Lead”) and its subsidiary (collectively “Strong Lead Group”) and the underlying ecological forestry business (collectively the “Ecological Forestry Business”), set out on pages 122 to 129 under the heading of pro forma consolidated balance sheet, pro forma consolidated income statement and pro forma consolidated cash flow statement (herein collectively referred to as the “Pro Forma Financial Information”) in Appendix IV of the Company’s circular (the “Circular”) dated on 18 April, 2006 in connection with the proposed acquisition of Ecological Forestry Business. The Pro Forma Financial Information has been prepared by the Directors of the Company, for illustrative purposes only, to provide information about how the proposed acquisition of Ecological Forestry Business might have affected the financial information of the Group.

Responsibilities

It is the responsibility solely of the Directors of the Company to prepare the Pro Forma Financial Information in accordance with Paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to AG7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by Paragraph 29 of Chapter 4 of the Listing Rules, on the Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 120 –

PRO FORMA FINANCIAL INFORMATION

APPENDIX IV

Basis of opinion

We conducted our work with reference to the Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Report on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the Directors of the Company. The engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Pro Forma Financial Information has been properly complied 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 29(1) of Chapter 4 of the Listing Rules.

The unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

• a) the financial position of the Enlarged Group at 30 June 2005 or any future date; or

• b) the results and cash flows of the Enlarged Group for the financial year ended 30 June 2005 or any future periods.

Opinion

• In our opinion:

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

• b) such basis is consistent with the accounting policies of the Group; and

• c) the adjustments are appropriate for the purpose of the Pro Forma Financial Information as disclosed pursuant to Paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully, Johnny Chan & Co. Limited Certified Public Accountants Hong Kong

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APPENDIX IV

Pro Forma Consolidated Balance Sheet

The following table is the pro forma consolidated balance sheet of the Enlarged Group as at 30 June 2005, which has been prepared for the purpose of illustration as if the acquisition of Ecological Forestry Business has been completed on 30 June 2005. It is based on the audited consolidated balance sheet of the Group as at 30 June 2005 as set out in Appendix I to this Circular and the audited consolidated balance sheet of Strong Lead Group as at 31 December 2005 as extracted from accountants’ report set out in Appendix II to this Circular.

In 2004, the Hong Kong Institute of Certified Public Accountants issued a number of new or revised Hong Kong Accounting Standards and Hong Kong Financial Reporting Standards which are applicable to accounting periods beginning on or after 1 January 2005 (hereinafter collectively referred to as the “new HKFRSs”). For the purpose of preparing the unaudited pro forma consolidated balance sheet of the Enlarged Group as at 30 June 2005, the financial information of the Group has been restated where appropriate using the new HKFRSs. The restatement adjustments are summarized in note 1 below.

The pro forma consolidated balance sheet is prepared to provide the unaudited pro forma financial information on the Enlarged Group as if the completion of the proposed acquisition of Ecological Forestry Business had taken place on 30 June 2005. As it has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the financial position of the Enlarged Group as at 30 June 2005 or at any future date.

Pro Forma Consolidated Balance Sheet of the Enlarged Group

NON-CURRENT ASSETS Property, plant and equipment Investment property Interests in jointly-controlled entity Goodwill Patent in application Biological assets Deferred expenditure Deferred tax asset Prepaid lease rentals CURRENT ASSETS Inventories Trade receivables Prepaid lease rentals Prepayments, deposits and other receivables Short term investment Pledged bank deposits Cash & Bank	Adjustments The Group on adoption as at of new 30/6/2005 HKFRSs (note 1) HK$’000 HK$’000 79,887 (15,990) 10,909 19,509 – – – – – – 4,620 110,305 33,021 40,719 – 125 40,465 14,140 14,760 217,382 360,487	The Group after adjustments HK$’000 63,897 10,909 19,509 – – – – – 4,620 98,935 33,021 40,719 125 40,465 14,140 14,760 217,382 360,612	Strong Lead Group As at 31/12/2005 HK$’000 5,686 – – – 530,251 307,722 – – 9,151 852,810 – – – 120 – – 3,002 3,122	Pro forma Pro forma Combined adjustments (note 2) HK$’000 HK$’000 69,583 10,909 19,509 – 64,826 530,251 307,722 – – 13,771 951,745 33,021 40,719 125 40,585 14,140 14,760 220,384 (50,000) 363,734	Pro forma Enlarged Group HK$’000 69,583 10,909 19,509 64,826 530,251 307,722 – – 13,771
					1,016,571
					33,021 40,719 125 40,585 14,140 14,760 170,384
					313,734

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APPENDIX IV

PRO FORMA FINANCIAL INFORMATION

CURRENT LIABILITIES Intererst bearing bank borrowing Trade payables Other payables and accrals Finance lease payable Deferred revenue Due to minority interests Promissory notes payable Provision for taxation NET CURRENT ASSETS/ (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Promissory notes payable Convertible notes payable Deferred taxation NET ASSETS REPRESENTED BY Issued capital Reserves Equity attributable to equity holders of the parent Minority interests TOTAL EQUITY	Adjustments The Group on adoption as at of new 30/6/2005 HKFRSs (note 1) HK$’000 HK$’000 88 2,869 8,031 120 – – – 5,156 16,264 344,223 454,528 – – 2,954 (2,263) 2,954 451,574 294,149 157,425 (8,982) 451,574 – 451,574	The Group after adjustments HK$’000 88 2,869 8,031 120 – – – 5,156 16,264 344,348 443,283 – – 691 691 442,592 294,149 148,443 442,592 – 442,592	Strong Lead Group As at 31/12/2005 HK$’000 – – 2,585 – 48,916 37,993 – – 89,494 (86,372) 766,438 – – 59,045 59,045 707,393 1 495,174 495,175 212,218 707,393	Pro forma Pro forma Combined adjustments (note 2) HK$’000 HK$’000 88 2,869 10,616 120 48,916 37,993 – 130,000 5,156 105,758 257,976 1,209,721 – 100,000 – 165,414 59,736 59,736 1,149,985 294,150 57,999 643,617 (438,587) 937,767 212,218 1,149,985	Pro forma Enlarged Group HK$’000 88 2,869 10,616 120 48,916 37,993 130,000 5,156
					235,758
					77,976 1,094,547 100,000 165,414 59,736
					325,150
					769,397
					352,149 205,030
					557,179 212,218
					769,397

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PRO FORMA FINANCIAL INFORMATION

APPENDIX IV

Notes:

1. These represent: (i) a decrease in the carrying value of the Group’s owned properties by approximately HK$15,990,000; (ii) an increase in non-current portion and current portion of prepaid lease rentals by approximately HK$4,620,000 and HK$125,000, respectively; (iii) a decrease in deferred taxation by approximately HK$2,263,000; (iv) a decrease in the Group’s revaluation reserves and retained earnings by approximately HK$8,982,000 as at 30 June 2005 as a result of the adoption of new HKFRSs.

2. These represent the financial effect of the settlement of the Consideration immediately upon Completion including: (i) the creation of goodwill arising on Proposed Acquisition, in the amount of HK$64,826,000, representing the excess of consideration paid by the Group over fair value of net assets acquired; (ii) the settlement of the cash portion of the Consideration in the amount of HK$50 million; (iii) the issuance of Promissory Loan Notes due falling within a 12 month period of HK$130 million; (iv) the issuance of Promissory Loan Notes falling due after a 12 month period of HK$100 million; (v) the issuance of Convertible Notes for HK$210,400,000 payable after 4 year (partly as Convertible Notes payable of HK$165,414,000 and partly as capital reserve of HK$44,986,000) (vi) the issuance of the Consideration Shares.

Terms used in this note have the same meanings as those defined in page 1 of this Circular.

Pro Forma Consolidated Income Statement

The following table is the pro forma consolidated income statement for the year ended 30 June 2005 which has been prepared for the purpose of illustration as if the proposed acquisition of Ecological Forestry Business had been completed at the beginning of the financial year ended 30 June 2005. It is based on the audited consolidated income statement of the Group for the financial year ended 30 June 2005 as set out in Appendix I to this Circular; the audited consolidated income statement of Strong Lead Group for the period from 8 August 2005 (date of incorporation) to 31 December 2005 as extracted from accountants’ report set out in appendix II to this Circular; and the audited consolidated income statement of Beijing WFC for the nine months ended 30 September 2005 as extracted from the accountants’ report set out in appendix III of this Circular.

In 2004, the Hong Kong Institute of Certified Public Accountants issued a number of new or revised Hong Kong Accounting Standards and Hong Kong Financial Reporting Standards which are applicable to accounting periods beginning on or after 1 January 2005 (hereinafter collectively referred to as the “new HKFRSs”). For the purpose of preparing the unaudited pro forma consolidated income statement of the Enlarged Group, the financial information of the Group has been restated where appropriate using the new HKFRSs. The restatement adjustments are summarized in note 1 below.

The pro forma consolidated income statement is prepared to provide the unaudited pro forma financial information on the Enlarged Group as if the completion of the proposed acquisition of Ecological Forestry Business had taken place at the beginning of the financial year ended 30 June 2005. As it has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the results of the Enlarged Group for the year ended 30 June 2005 or any future period.

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PRO FORMA FINANCIAL INFORMATION

APPENDIX IV

Pro Forma Consolidated Income Statement of the Enlarged Group

TURNOVER Cost of sales GROSS PROFIT (GP ratio) Other Revenue Other net (losss)/ gain Selling expenses Administrative expenses Other operating expenses Finance costs Share of losses of jointly- controlled entities PROFIT/(LOSS) BEFORE TAX Taxation PROFIT/(LOSS) FOR THE YEAR Attributable to: Equity holders of the parent Minority interest	Adjustments on adoption of new The Group HKFRSs (note 1) HK$’000 HK$’000 138,262 (126,716 ) (59 ) 11,546 2,722 (3,838 ) 209 (13,035 ) (14,853 ) (32 ) (101,437 ) (152 ) (30,838 ) (149,885 ) (279 ) (141 ) (150,164 ) (150,164 ) – (150,164 )	The Group after adjustments HK$’000 138,262 (126,775 ) 11,487 2,722 (3,629 ) (13,035 ) (14,885 ) (101,437 ) (152 ) (30,838 ) (149,767 ) (420 ) (150,187 ) (150,187 ) – (150,187 )	Strong Lead Group (8 August 2005 to 31 December 2005) HK$’000 – – – 3 534,326 (971 ) (54,963 ) – – 478,395 – 478,395 495,174 (16,779 ) 478,395	Beijing WFC (9 months ended 30 September 2005) HK$’000 – – – – 327,563 – (1,690 ) – – 325,873 (4,840 ) 321,033 224,723 96,310 321,033	Pro forma Pro forma Combined adjustments (note 2) HK$’000 HK$’000 138,262 (126,775 ) 11,487 2,725 858,260 (327,563 ) (13,035 ) (15,856 ) (158,090 ) (152 ) (30,838 ) 654,501 (5,260) 4,840 649,241 569,710 79,531 649,241	Pro forma Enlarged Group HK$’000 138,262 (126,775 ) 11,487 2,725 530,697 (13,035 ) (15,856 ) (158,090 ) (152 ) (30,838 ) 326,938 (420 ) 326,518 343,804 (17,286 ) 326,518

Notes:

1. These represent: (i) an increase in the Group’s cost of sales by approximately HK$59,000; (ii) a decrease in other net loss by HK$209,000; (iii) an increase in administrative expenses by approximately HK$32,000; (iv) an increase in the Group’s deferred tax debit charge by approximately HK$141,000 for the year ended 30 June 2005 as a result of the adoption of new HKFRSs.

2. These represent the elimination of other gains of Beijing WFC in relation to restructuring its assets prior to acquisition by Strong lead, including (i) gain on extinguishments of indebtedness due to minority equity holder of Beijing WFC in the amount of HK$245,947,000; (ii) gain on re-measurement of fair value of pine trees transferred from the minority equity holder of Beijing WFC in the amount of HK$81,616,000; and (iii) related taxation effect of HK$4,840,000. These other gains of Beijing WPC are eliminated by way of pro forma adjustments as the financial effect of which have already been accounted for as other gains (the excess of fair value of net identified assets acquired over the cost of acquisition) of Strong Lead on Group consolidation level.

Terms used in this note have the same meanings as those defined in page 1 of this Circular.

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PRO FORMA FINANCIAL INFORMATION

APPENDIX IV

Pro Forma Consolidated Cash Flow Statement

The following table is the pro forma consolidated cash flow statement of the Enlarged Group for the year ended 30 June 2005 which has been prepared for the purpose of illustration as if the proposed acquisition of Ecological Forestry Business had been completed at the beginning of the year ended 30 June 2005. It is based on the audited consolidated cash flow statement of the Group for the financial year ended 30 June 2005 as set out in Appendix I of this Circular; the audited consolidated cash flow statement of Strong Lead Group for the period from 8 August 2005 (date of incorporation) to 31 December 2005 as extracted from accountants’ report set out in appendix II to this Circular; and the audited consolidated cash flow statement of Beijing WFC for the nine months ended 30 September 2005 as extracted from accountants’ report set out in appendix III of this Circular. As it has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the cash flow of the Enlarged Group for the year ended 30 June 2005 or any future period.

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APPENDIX IV

Pro Forma Consolidated Cash Flow Statement of the Enlarged Group

CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit from operating activities Adjustment for: Interest income Dividend income from listed investments Net unrealised losses on short term investments Gain on extinguishment of indebtedness due to former shareholders of a subsidiary Gain on re-measurement of fair value of pine trees Gain on extinguishment of indebtedness due to minority equity holder of the company Excess in the interest in fair value of net identifiable assets acquired over the cost of acquisition of a subsidiary Depreciation of property, plant and equipment Amortisation of patent Amortisation of goodwill Amortisation of biological assets Amortisation of prepaid lease payments Loss on disposal of fixed assets Surplus on revaluation of leasehold land and buildings, net Deficit on revaluation of investment properties, net Impairment loss on goodwill Impairment loss on long term investment Pre-operating expenditures written off Operating (loss)/profit before working capital changes Decrease in inventories Decrease in trade receivables Decrease/(Increase)in prepayments, deposits, and other receivables Decrease in trade payables Decrease in amount due by former company owners Increase in other payables and accruals	Adjustments on adoption of new The Group HKFRSs HK$’000 HK$’000 (118,895 ) (1,517 ) (67 ) 4,951 – – – – – 6,550 – 10,694 – – – (215 ) 4,053 61,942 6,667 – (25,837 ) 13,125 5,437 626 (342 ) – 122	The Group after adjustments HK$’000 (118,895 ) (1,517 ) (67 ) 4,951 – – – – 6,550 – 10,694 – – – (215 ) 4,053 61,942 6,667 – (25,837 ) 13,125 5,437 626 (342 ) – 122	Strong Lead Group (8 August 2005 to 31 December 2005) HK$’000 478,395 – – – (33,654 ) – – (500,672 ) 64 13,595 26,749 46 – – – – – 11,075 (4,402 ) – – (120 ) – – 2,509	Beijing WFC (9 months ended 30 September 2005) HK$’000 325,873 – – – – (81,616 ) (245,947 ) 129 801 15 – – – – – – (745 ) – 87 404 – 9,127 (3 )	Pro forma Pro forma Combined adjustments (note 1) HK$’000 HK$’000 685,373 (1,517 ) (67 ) 4,951 (33,654 ) (81,616 ) (245,947 ) (500,672 ) 6,743 14,396 10,694 26,749 61 – (215 ) 4,053 61,942 6,667 11,075 (30,984 ) 13,125 5,524 910 (342 ) 9,127 2,628	Pro forma Enlarged Group HK$’000 685,373 (1,517 ) (67 ) 4,951 (33,654 ) (81,616 ) (245,947 ) (500,672 ) 6,743 14,396 10,694 26,749 61 – (215 ) 4,053 61,942 6,667 11,075 (30,984 ) 13,125 5,524 910 (342 ) 9,127 2,628

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APPENDIX IV

PRO FORMA FINANCIAL INFORMATION

Cash (used in)/generated from operations Hong Kong profits tax refunded/(paid) Overseas taxes paid Net cash (outflow)/inflow from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets Acquisition of short term investments Decrease/(increase) in pledge bank deposits Interest received Dividend received from listed investments Acquistion of a subsidiary net of cash acquired Payment for purchase of biological assets Payment for interest in a prepaid lease payments Net cash inflow/(Outflow) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Issue of new shares Repayment of bank loans Other loans advanced by the Group Repayment of other loans to the Group Capital element of finance lease rental payments Interest element of finance lease rental payments Proceeds from exercise of share options Proceeds from issue of shares Expenses on issue of shares Repurchase of shares Interest paid Dividends paid Contribution of paid-up registered capital Advance from the ultimate beneficiary shareholders Advance from minority equity holders Net cash inflow from financing activities	Adjustments on adoption of new The Group HKFRSs HK$’000 HK$’000 (6,869 ) 147 (8 ) (6,730 ) (761 ) (8,270 ) 21,930 1,517 67 – – – 14,483 – (2,102 ) (6,500 ) 16,570 (195 ) (17 ) 6,672 97,800 (2,850 ) (6,132 ) (135 ) (4,919 ) – – – 98,192	The Group after adjustments HK$’000 (6,869 ) 147 (8 ) (6,730 ) (761 ) (8,270 ) 21,930 1,517 67 – – – 14,483 – (2,102 ) (6,500 ) 16,570 (195 ) (17 ) 6,672 97,800 (2,850 ) (6,132 ) (135 ) (4,919 ) – – – 98,192	Strong Lead Group (8 August 2005 to 31 December 2005) HK$’000 (2,013 ) – – (2,013 ) (487 ) – – – – (29,684 ) – – (30,171 ) 1 – – – – – – – – – – – – 33,654 1,531 35,186	Beijing WFC (9 months ended 30 September 2005) HK$’000 8,870 – – 8,870 – – – – – – (38,865 ) (9,212 ) (48,077 ) – – – – – – – – – – – – 38,462 – 4,715 43,177	Pro forma Pro forma Combined adjustments (note 1) HK$’000 HK$’000 (12 ) 147 (8 ) 127 (1,248 ) (8,270 ) 21,930 1,517 67 (29,684 ) (46,998 ) (38,865 ) (9,212 ) (63,765 ) 1 (2,102 ) (6,500 ) 16,570 (195 ) (17 ) 6,672 97,800 (2,850 ) (6,132 ) (135 ) (4,919 ) 38,462 33,654 6,246 176,555	Pro forma Enlarged Group HK$’000 (12 ) 147 (8 ) 127 (1,248 ) (8,270 ) 21,930 1,517 67 (76,682 ) (38,865 ) (9,212 ) (110,763 ) 1 (2,102 ) (6,500 ) 16,570 (195 ) (17 ) 6,672 97,800 (2,850 ) (6,132 ) (135 ) (4,919 ) 38,462 33,654 6,246 176,555

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APPENDIX IV

PRO FORMA FINANCIAL INFORMATION

NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Bank and cash balances Bank overdrafts, secured	Adjustments on adoption of new The Group HKFRSs HK$’000 HK$’000 105,945 111,349 217,294 217,382 (88 ) 217,294	The Group after adjustments HK$’000 105,945 111,349 217,294 217,382 (88 ) 217,294	Strong Lead Group (8 August 2005 to 31 December 2005) HK$’000 3,002 – 3,002 3,002 – 3,002	Beijing WFC (9 months ended 30 September 2005) HK$’000 3,970 – 3,970 3,970 – 3,970	Pro forma Pro forma Combined adjustments (note 1) HK$’000 HK$’000 112,917 111,349 224,266 224,354 (46,998 ) (88 ) 224,266	Pro forma Enlarged Group HK$’000 65,919 111,349 177,268 177,356 (88 ) 177,268

Note:

1. These represent the effect of net cash outflow immediately upon Completion, being the settlement of the cash portion of the Consideration net of cash and cash equivalent of Strong Lead Group acquired by the Company.

Terms used in this note have the same meanings as those defined in pages 1 of this Circular.

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VALUATION REPORT ON ASSETS PROPOSED TO BE ACQUIRED BY THE GROUP

APPENDIX V

==> picture [236 x 60] intentionally omitted <==

27th Floor Li Dong Building No. 9 Li Yuen Street East Central Hong Kong 18 April 2006

The Directors Good Fellow Group Limited Unit 1906, Nanyang Plaza 57 Hung To Road Kwun Tong, Kowloon Hong Kong

Dear Sirs,

In accordance with the instructions given by the management of Good Fellow Group Limited (hereinafter referred to as the “Company”) to us, we have investigated and conducted an agreed-upon procedures appraisal on the market values of certain designated technology intangible asset (or known as intellectual property) and agricultural property assets (see Note) (collectively hereinafter referred to as the “subject assets”) presented to us as those owned by 北京萬富春森林資源發展有限公司 Beijing Wan Fu Chun Forest Resources Development Company Limited (hereinafter referred to as “Beijing WFC”) in various locations of the People’s Republic of China (hereinafter referred to as the “PRC” or “China”) as at 31 December 2005 (hereinafter referred to as the “date of valuation”) for the Company’s internal management reference purpose. Our findings and conclusion in this agreed-upon procedures appraisal are documented in various appraisal reports (the “narrative reports”) and submitted to the Company at today’s date.

At the request of the management of the Company, we prepared this summary report to summarise our findings and conclusion as documented in the narrative reports for the purpose of inclusion in a circular at today’s date. Terms herein used without definition shall have the same meanings as in the narrative reports, and the assumptions and caveats adopted in the narrative reports also apply to our report.

The readers are reminded that the narrative reports which this report follows have been prepared in accordance with the guidelines set by the International Valuation Standards, Seventh Edition, 2005 (the “IVS”) published by the International Valuation Standards Committee as well as the HKIS Valuation Standards on Properties, First Edition, 2005 (“the HKIS Standards”) published by the Hong Kong Institute of Surveyors (the “HKIS”). Both standards entitle the valuer(s) to make assumptions which may on further investigation, for instance by the readers’ legal representative, prove to be inaccurate. Any exception is clearly stated below. Headings are inserted for convenient reference only and have no effect in limiting or extending the language of the paragraphs to which they refer.

Note: According to the International Valuation Guidance Note No.10 published by the International Valuation Standards Committee in the International Valuation Standards, Seventh Edition, 2005, agricultural property assets can be classified as land, structural improvement, plant and machinery (attached or not attached to the land) and biological assets (attached or not attached to the land). Biological asset is defined as a living animal or plant.

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VALUATION REPORT ON ASSETS PROPOSED TO BE ACQUIRED BY THE GROUP

APPENDIX V

INTRODUCTION

On 26 October 2005, the Company entered into a sale and purchase agreement with two parties in relation to the proposed acquisition of Strong Lead Investments Limited which held 70 pre cent. equity interest in Beijing WFC. The subject assets form part of the assets owned by Beijing WFC as at the date of valuation. Our initial instruction is to investigate and to conduct an agreed-upon procedures appraisal (the word appraisal has the same meaning as valuation in our report) on the market values of the subject assets for the Company’s internal management reference. Based on the instructions, we have carried out limited scope of inspections, made relevant enquiries and obtained such further information as we consider necessary to support our opinion of values of the subject assets as at the date of valuation.

According to the instruction given to us, the subject assets comprise of the followings:

1. The land use rights of two forest farms in Xiyang County, Jinzhong City, Shanxi Province of China;

2. The land use rights of various parcels of cultivated or uncultivated land at the Huanghe Delta’s Production and Construction Base of Jinan PLA Military Region, Dongying, Shandong Province of China;

3. The inventory of stocks of two man-made standing forests of Pinus Tabulaeformis (commonly known as Chinese Pine trees) on land in Item 1 above;

4. The inventory of stocks of Broussonetia Papyrifera (commonly known as Paper Mulberry) saplings in various stages of propagation and situated at various places of China; and

5. A pending patent in relation to the coding protein and application of a Broussonetia Papyrifera Dehydration-Responsive Element Binding transcription factor gene (BpDREB2) to regulate and enhance the tolerance of Broussonetia Papyrifera to stress conditions such as drought, low temperature and high salt in China.

The scope of valuations has been determined with reference to the asset list provided by the management of the Company. Unless otherwise stated, all assets on the list have been included in our valuation. The management of the Company has confirmed to us that it has no assets other than those specified on the list supplied to us for this particular valuation.

The term “Market Value” as used herein is defined by us as the price, expressed in terms of cash equivalents, at which an asset would change hands between a (hypothetical willing and able) buyer and a (hypothetical willing and able) seller, acting at arm’s length (in an open and unrestricted market), when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts. Under this definition, we further assumed that both the buyer and the seller contemplate the retention of the subject assets at its present location for the continuation of the current operations, and both seeking their maximum economic self-interest in arriving at an arm’s-length transaction.

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VALUATION REPORT ON ASSETS PROPOSED TO BE ACQUIRED BY THE GROUP

APPENDIX V

ECONOMIC OUTLOOK OF CHINA (see Note)

The estimated GDP (Gross Domestic Product) growth of China in 2005 was about 9.9 per cent. In fact, with strong growth of China’s economy at a compound annual growth rate of approximately 8.4 per cent. from 1995 to 2005, it is estimated by the PRC government that the long-term growth rate of China’s economy would be, on average, about 7.5 per cent. for the coming 5 years. Economists further estimated that the “2008 Olympic Games” in Beijing would benefit the PRC’s national GDP by additional one per cent.

DESCRIPTION OF BEIJING WFC

Beijing WFC was first incorporated in China on 17 September 2001 and registered as a SinoForeign equity joint venture on 26 September 2005. The company was 30 per cent. owned by 菲菲森旺 資源開發有限公司 FeiFei SenWang Resource Development Co., Ltd. (hereinafter referred to as “FeiFei”), a PRC domestic company, and 70 per cent. owned by Strong Lead Investments Limited (hereinafter referred to as “Strong Lead”), a company established in the British Virgin Islands.

According to a Sino-Foreign equity joint venture contract entered between FeiFei and Strong Lead dated 25 September 2005, the joint venture would last for a term of 30 years from the date of issuance of a 企業法人營業執照 Enterprise Legal Person Business License. The aforesaid Enterprise Legal Person Business License was granted out on 26 September 2005 and would expire on 25 September 2025 i.e. a term of 20 years.

Risk and profit sharing between the equity joint venture parties of the company are based on their relative equity holdings and the relevant joint venture contract entered between such parties. The transfer and transmission of the equity of the joint venture parties are subject to the joint venture contract.

We have been advised that Beijing WFC is principally engaged in tree planting, management, manufacture and distribution of forest products such as timber and wood for pulp. The company, at present, is occupying (owned or rented) various offices, nursery sites, forest farms, plantation areas, greenhouses and research and development facilities in China to operate its business. They are:

1. Two man-made standing forests in Xiyang County, Jinzhong City, Shanxi Province;

2. Various parcels of cultivated or uncultivated land situated at the Huanghe Delta’s Production and Construction Base of Jinan PLA Military Region, Dongying, Shandong Province (also known as Dongying Base);

3. The horse rearing site, Jinan PLA Military Region, Dongying, Shandong Province;

4. An office premises in Zhouji Building, Dongcheng District of Beijing;

5. Three laboratories in Beijing and one laboratory in Baotou of Nei Mongol Autonomous Region;

Note: From various official websites of gov.cn.

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VALUATION REPORT ON ASSETS PROPOSED TO BE ACQUIRED BY THE GROUP

APPENDIX V

1. Two nursery sites in Shijiazhuang and Zhuozhou of Heibei Province; and

2. Two greenhouses in the nursery site in Zhuozhou of Heibei Province and three greenhouses in the horse rearing site, Jinan PLA Military Region, Dongying, Shandong Province.

Based on the information as shown in the announcement on 20 January 2006 and published by the management of the Company, we understand that Beijing WFC, apart from management of the man-made forest farms, operates by making use of the generally modified tree species Broussonetia Papyriferalvent (not a registered name) in its plantation process that can be applied to ecological and forestry purposes. The highly resistant characteristics of the modified tree species allow the trees to grow in environments unfavourable to other plants. This ability brings economic efficiency to Beijing WFC by lower land and labour costs. The trees also facility the growth of a kind of soil microorganism that may serve to improve the quality of infertile and polluted land on which the plantation is carried out, as well as lowering the carbon dioxide level in the surrounding atmosphere.

DESCRIPTION OF EACH OF THE SUBJECT ASSETS

Based on the provided information, the subject assets are briefly described as below:

1. The land use rights of two forest farms in Xiyang County, Jinzhong City, Shanxi Province of China

The two forest farms, namely Dongfeng Forest Farm and Bixianguan Forest Farm, are situated at the western part and southeastern part of Xiyang County, respectively. We have been advised that the two forest farms are adjacent to each other.

(a) Dongfeng Forest Farm ( 山西省昔陽縣東風林場 )

The farm (land and the man-made forest standing thereon) is situated at the western part of Xiyang County with an area of approximately 40,923 Chinese Mu which covered Xizha and Zhanshang villages and included plantation tracts known as Tract Nos. 1, 2 and 3.

According to a copy of 林權證（昔林證字（2005）第 0000000002號）Forest Right Certificate (Xi Lin Zheng Zi (2005) 0000000002 Hao) or under the registration no. of C140500110024 of the State Forestry Administration of the PRC issued by 昔陽縣林業局 Xiyang County Forestry Bureau dated 26 July 2005 and provided by the Company, the legal interest of the farm was transferred to Beijing WFC for a term of 50 years from 2005 to 2055 as at 22 August 2005 at a consideration of part of RMB 50 million Yuan. The site area of the farm was approximately 40,923 Chinese Mu as recorded under the Forest Right Certificate. The major tree species was planted Chinese Pine trees for timber product usage.

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(b) Bixianguan Forest Farm ( 山西省昔陽縣國營碧霞觀林場 )

The farm (land and the man-made forest standing thereon) is situated at the southeastern part of Xiyang County with an area of approximately 6,167.5 Chinese Mu which covered five small wood tracts known as Dongnao, Nannao, Qingshayan, Sujiayan and Pushang.

According to a copy of 林權證（昔林證字（2005）第 0000000000號）Forest Right Certificate (Xi Lin Zheng Zi (2005) 0000000000 Hao) or under the registration no. of C140500110023 of the State Forestry Administration of the PRC issued by 昔陽縣林業局 Xiyang County Forestry Bureau dated 22 July 2005 and provided by the Company, the legal interest of the farm was transferred to Beijing WFC for a term of 50 years from 2005 to 2055 as at 22 August 2005 at a consideration of part of RMB 50 million Yuan. The site area of the farm was approximately 6,167.5 Chinese Mu as recorded under the Forest Right Certificate. The major tree species was planted Chinese Pine trees for timber product usage.

2. The land use rights of various parcels of cultivated or uncultivated land situated at the Huanghe Delta’s Production and Construction Base of Jinan PLA Military Region, Dongying, Shandong Province of China (also known as Dongying Base)

The land valued comprise of various parcels of land scattered at the western part of Heihou District, in between the old and new Yellow River mouth with Dong Gang Highway running across them. According to the information provided to us, the subject land covered an area of approximately 300,000 Chinese Mu.

According to the limited information provided to us, the legally interested party in the subject land is 中國人民解放軍濟南軍區黃河三角洲生產基地 The Huanghe Delta’s Production and Construction Base of Jinan PLA Military Region. We were given to understand that the subject land was subject to an operating lease in favour of Beijing WFC for a term of 50 years from 18 October 2005 to 18 October 2055 at various annual rents ranging from RMB 4 Yuan per Chinese Mu to RMB 48 Yuan per Chinese Mu (subject to final measurement).

3. The inventory of stocks of two man-made standing forests of Chinese Pine trees on land in Item 1 above

Since we are not the authorised person to conduct forestry survey in China and enormous resources are required in conducting a detailed inspection and survey, we were further instructed to conduct our valuation based on the quantities given in a forestry survey report (the “forestry report”), dated July 2005, prepared by 北京巿林業勘查設計院 (Beijing Forestry Survey and Design Institute), a forestry consultant in China.

Based on the forestry report, we understand that the stocks of Chinese Pine trees are located in two forest farms (called Dongfeng Forest Farm and Bixianguan Forest Farm) in Xiyang County, Jinzhong City, Shanxi Province. There are three plantation tracts, namely No.1, No. 2 and No.3, with 469 sub-sections in the Dongfeng Forest Farm and one plantation tract known as No. 3 with 63 sub-sections in the Bixianguan Forest Farm. We understand that the Chinese Pine trees are man-made with some trees already about 60 years old.

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Based on the forestry report, we noted that random sampling method was used in measuring the quantity and quality of the inventory with about 200 square meters (“sq. m.”) being sampled for each selected sub-section with a sampling intensity of 2.1 per cent. for sub-section area smaller than 100 Chinese Mu to 2.3 per cent. for sub-section area greater than 100 Chinese Mu. Based on the sampling, it was concluded that the planted area covers about 46,994 Chinese Mu with the Dongfeng Forest Farm at about 40,823 Chinese Mu and the Bixianguan Forest Farm at about 6,171 Chinese Mu.

Being an uneven aged stand, the trees were classified into:

		Diameter at		Percentage
	Age	Breast Height	Merchantable	(%) of
Classification	(Years)	(DBH)*	Height**	Population
Young Trees	0-20	5-12	2-3	1.22%
Mid-Age Trees	21-30	10-16	4-6	8.12%
Near Mature Trees	31-40	14-18	6-8	58.06%
Mature Trees	41-60	18 and above	8-10	32.60%

• centimeter

** meter

Based on discussions with relevant personnel of Beijing WFC, we understand that suitable trees will be cut for use as prop timber for the mine sites in the area.

4. The inventory of stocks of Paper Mulberry saplings in various stages of propagation and situated at various places of China

The stocks of Paper Mulberry saplings were cloned or genetically modified by Beijing WFC to allow them to grow in environments unfavourable to the original specie and was named by Beijing WFC as Broussonetia Papyriferalvent to distinguish the variety. The genetically modified trees are being propagated by Beijing WFC and are located in various areas.

Based on our sampling inspections and on the information provided to us, we understand that Beijing WFC is using different methods and techniques of propagation. The stocks comprised the following:

• (i) Nutrition Bag Strain – this was done by placing treated or cloned tissues of the plant in glass bottles. While in the glass bottles, roots and stems were allowed to grow out of the plant tissues. After a couple of weeks, the propagules were transplanted in nursery bags where they are allowed to further develop. Based on the inventory provided to us, the nutrition bags are classified into 1.) branch ratio of 1:26 and 2.) root ratio of 1:4.

• (ii) Leaf Buds – these refers to short steam with leaves that were already transplanted in the nursery.

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• (iii) Bareroots Strain – these refers to a number of stocks planted in a single container to produce more stocks per unit area in the nursery. When ready, they are transplanted in plastic bags to allow more growing space. Based on the inventory provided to us, the bareroots strain are classified into 1.) branch ratio of 1:7.5 and 2.) root ratio of 1:4.

We are advised that the stocks are located at:

• (i) The horse rearing site, Jinan PLA Military Region, Dongying, Shandong Province; (ii) Three laboratories in Beijing and one laboratory in Baotou of Nei Mongol Autonomous Region;

• (iii) Two nursery sites in Shijiazhuang and Zhuozhou of Heibei Province; and

• (iv) Two greenhouses in the nursery site in Zhuozhou of Heibei Province and three greenhouses in the horse rearing site, Jinan PLA Military Region, Dongying, Shandong Province.

5. A pending patent (application no. 200510082838.0) as recorded in China

From the information made available to us, the subject technology intangible asset being appraised is a pending patent in relation to the coding protein and application of a Broussonetia Papyrifera Dehydration-Responsive Element Binding transcription factor gene (BpDREB2) to regulate and enhance the tolerance of Broussonetia Papyrifera to stress conditions such as drought, low temperature and high salt. The transcription factor’s characters are as follows: 1.) Sequence table 1: SEQ ID No: 1; and 2.) The protein regulated plant’s resistance was encoded by proteins (from SEQ ID No: 1) which substituted/deleted/inserted one or several base pairs.

The pending patent was invented by four individuals and the application was filed by FeiFei on 11 July 2005 to the State Intellectual Property Office of the PRC. According to a notice to accept the application dated 11 July 2005, an application no. of 200510082838.0. was assigned to the application.

Subsequent to the endorsement made by the State Intellectual Property Office of the PRC on 16 September 2005, the pending patent was transferred from FeiFei to Beijing WFC at no cost on 28 September 2005 and Beijing WFC became the registered applicant of the pending patent.

According to a Patent Search Report issued by the State Intellectual Property Office of the PRC on 15 February 2006 to Beijing WFC, the State Intellectual Property Office of the PRC considered that there is a possibility to grant out the registration as the subject technology intangible asset satisfied the requirements of the existing intellectual rights registration regulations in China.

According to the information provided by the management of Beijing WFC, products made by the company in using the pending patent are classified into two segments, namely woods and basts; and the company will use this pending patent in planting the Paper Mulberry saplings for the use in a project in Dongying Base.

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We are given to understand that the market competitors of Beijing WFC including but are not limited to, Fujian Yongan Forestry (Group) Joint Stock Co., Ltd., Jinlin Forest Industry Co., Ltd. and Yunnan Jinggu Forestry Co., Ltd. However, we have been advised that the company’s products are different from the named competitors, and it is the intention of the management of Beijing WFC to increase its plantation areas to improve its productivity in the coming years.

To the best of our knowledge, there were, as at the date of valuation, six similar patents (DREB related) registered in China, namely TaDREB, ODREB2B (two), OsDREB, maDREB1 and an Ovina-related DREB (see Note) .

VALUATION PROCEDURES ADOPTED

In performing the valuation of each of the subject assets, we have adopted the following procedures which were agreed with the management of the Company before the engagement. They were:

• to read and based on the content of the supplied materials such as financial information and the asset list to arrive at our opinion. In the course of the valuation, we will assume the supplied data and information are correct and we will not ascertain the correctness of the information that contained in the supplied materials;

• to prepare and submit list(s) of required document and information regarding the subject assets during the course of valuation. The completeness of the valuation depends on the availability of the required information being supplied by the management of Beijing WFC via the Company;

• to hold discussions with relevant personnel and to review various accounting and financial documents in order to have a better understanding on the subject assets and the use of the subject assets in the operation of Beijing WFC as part of a going concern business;

• to conduct a limited scope physical inspection and to gather relevant information regarding the subject assets. The purpose of the inspection is not to create an error free asset schedule or to have a full scope investigation on the quantity and the quality of the subject assets; rather, it is designed to give the valuers a better understanding of the subject assets on a sampling basis. No responsibility or liability is assumed;

• to conduct appropriate research/consultation in order to obtain sufficient industry information to support our valuations. The scope of research/consultation is at the valuers’ own discretion;

• to value the subject assets using the appropriate standards of value; and,

• to document our findings and conclusion in our appraisal report.

Note: From the official website of sipo.gov.cn.

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THE BASIS OF VALUATION AND ASSUMPTIONS

The subject assets are valued on the basis of market value in continued use and as part of a going concern business of Beijing WFC. The continued use premises assumes that the subject assets will be used for the purpose for which the subject assets were conceived or are currently used. Implicit in this definition is the fact that a (hypothetical willing and able) buyer would not pay more to acquire the subject assets than he could reasonably expect to earn in the future from an investment in the subject assets as part of a going concern business.

Market value in continued use is not intended to represent the amount that might be realised from piecemeal or break-up disposition of the asset being appraised in the open market or for other alternate use.

This valuation is concerned solely with the value of the subject assets and, unless otherwise stated, our opinion of values is not related to or dependent upon the earning capacity of the business they are presently in use.

Our valuations have been made on the assumption that, as at the date of valuation,

1. the legally interested party in the subject assets sells the subject assets as part of a going concern business in the market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which would serve to increase the value of the subject assets;

2. the legally interested party in the two forest farms has free and uninterrupted rights to use or assign the interests for the whole of the unexpired terms as granted and any premiums payable have already been fully paid;

3. all required licenses, certificates, consents, or other legislative or administrative authority from any local, provincial, or national government or private entity or organisation have been or can readily be obtained or renewed for any use on which the value estimates contained in our report are based;

4. unless otherwise stated, the subject assets as part of a going concern business of Beijing WFC can be freely disposed and transferred free of all encumbrances for its existing or approved uses in the market to both local and overseas purchasers without payment of any premium to the government;

5. the prospective earnings would provide a reasonable return to the subject inventory valued plus other assets not included in this valuation but form part of the going concern business and adequate working capital; and

6. the management of Beijing WFC has adopted reasonable and necessary security measures and has considered several contingency plans against any disruption (such as fire, insects and soil erosion) to the operation of the business and the proper usage of the subject assets.

Should this not be the case, it will have adverse impact to the reported values.

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FACTORS CONSIDERED IN THE VALUATION

Unless otherwise stated, the valuation of each of the subject assets has taken account of all pertinent factors affecting the subject assets and their ability to generate future investment returns as part of a going concern business of Beijing WFC. The factors considered in the appraisal included, but were not limited to, the following:

• the nature and the characteristics of each of the subject assets;

• the present use of each of the subject assets as part of a going concern business of Beijing WFC; and

• the risks facing each of the subject assets.

In addition, the valuation of the pending patent required consideration of the following factors included, but were not limited to:

• the nature and the characteristics of the pending patent;

• the nature of business of Beijing WFC;

• the projected future combined economic benefits of the pending patent based on assumptions made by the appointed personnel from Beijing WFC;

• the continuity of the existing production and sales/distribution network to produce and distribute Beijing WFC products with the pending patent being applied;

• the capability and determination of the management of Beijing WFC to develop and implement the sales strategy;

• the capability and determination of the management of Beijing WFC to maintain the existing quality of the products being traded under the pending patent;

• the capability and determination of the management of Beijing WFC to implement the planned production scale, methods and schedule;

• the commitment of the management of Beijing WFC to protect the intellectual property rights of the pending patent against any infringement;

• the economic and industry data affecting the operation of Beijing WFC;

• the market-derived investment returns of similar business; and,

• the risks facing the operation of Beijing WFC.

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ESTABLISHMENT OF TITLES

Due to the purpose of this engagement and the market value basis of valuation, the management of the Company is requested to provide us the necessary documents to support that the legally interested party in the subject assets i.e. Beijing WFC has free and uninterrupted rights to assign, to mortgage or to let the subject assets (in this instance, an absolute title) free of all encumbrances and any premiums payable have already been paid in full. Should this not be the case or only a restricted title is available (i.e. has a right to use but further application procedures are required), no commercial (market) value will be assigned to the particular asset for it is difficult to us to estimate the actual disposal cost and to deduct it from the valuation to arrive at the market value.

We have been provided with copies of the title documents/asset schedules regarding the subject assets. However, we have not inspected the original documents to verify ownership or to verify any amendment which may not appear on the copies handed to us. Due to inherent defects in the land registration system of China, we are unable to inspect the original documents from the relevant land registration departments to verify the existing titles of Asset Nos. 1 and 2 (the “said assets”) in Pages 133 and 134, and Pages 143 and 144 of this circular or any material encumbrances that might be attached to the said assets. We are not attorney of laws by nature, thus we are unable to ascertain the titles and to report any encumbrances that may be registered against the said assets. However, we have complied with the requirements as stated in Practice Note No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and relied solely on the copy of the PRC legal opinion as provided by the Company with regard to the existing legally interested party in the said assets. We are given to understand that the PRC legal opinion was prepared by a qualified PRC legal adviser, Kang Da Law Firm. For the titles of the remaining subject assets, we relied on the audited result provided by the auditor appointed by the Company, Johnny Chan & Co. Limited, or copies of registration documents, invoices or asset schedules provided by the management of Beijing WFC via the Company. No responsibility or liability is assumed in relation to those opinions or copies of documents.

INSPECTIONS AND INVESTIGATIONS OF THE SUBJECT ASSETS IN ACCORDANCE WITH VS 4 OF THE HKIS STANDARDS

We have, where possible, conducted limited scope of inspections of the subject assets in respect of which we have been provided with such information as we have requested for the purpose of our valuations. Due to the existence of physical barrier, we were unable to conduct any due diligence on the current occupation status of the said assets, and thus relied solely on the information provided by the management of Beijing WFC. No verification from our part is assumed. Due to the agreed-upon procedures basis, we were unable to inspect those assets which were covered, unexposed, inaccessible or not being arranged for inspection. We cannot express an opinion about or advice upon the condition of the subject assets and our report should not be taken as making any implied representation or statement about the conditions of the subject assets. No structural survey, investigation, test or examination has been made to each of the subject assets, but in the course of our limited inspections we did not note any serious defects in the assets inspected. We are not, however, able to report that the subject assets are free from rot, insect, infestations or any other defects. No tests were carried out to the utilities (if any) and we are unable to identify those utilities covered, unexposed or inaccessible.

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Our valuations have been made on the assumption that no unauthorised alteration, extension or addition has been made in the subject assets, and that the inspection and the use of our report do not purport to be a conditional survey of the subject assets. If the management of the Company is proposing to purchase the subject assets and wants to satisfy them as to the condition of it, then the management of the Company should obtain a third party surveyor’s detailed inspection and report of their own before deciding whether or not to enter into an agreement for sale and purchase.

We need to state that the purpose of our inspections was not to create an error free asset schedule or to have a full scope investigation on the quantity and the quality of the subject assets; rather, it was designed to give us a better understanding of the subject assets on a sampling basis. No responsibility or liability is assumed.

We have not carried out on-site measurements to verify the correctness of the dimensions, specifications and areas of the subject assets, but have assumed that the figures shown on the documents and handed to us are correct. All dimensions, measurements and areas are approximations.

Our engagement and the agreed procedures to value did not include an independent land survey to verify the legal boundaries of the land related subject assets. We need to state that we are not in the land survey profession, therefore, we are not in the position to verify or ascertain the correctness of the legal boundaries of such assets that appeared on the documents handed to us. No responsibility from our part is assumed. The management of the Company or interested party in the said assets should conduct its own due diligence work.

We are not aware of the content of any environmental audit or other environmental investigation or soil survey which may have been carried out on the land related subject assets and which may draw attention to any contamination or the possibility of any such contamination. In undertaking our work, we have been instructed to assume that no contaminative or potentially contaminative uses have ever been carried out in such assets. We have not carried out any investigation into past or present uses, either of such assets or of any neighbouring land, to establish whether there is any contamination or potential for contamination to such assets from these uses or sites, and have therefore assumed that none exists. However, should it be established subsequently that contamination, seepage or pollution exists at such assets or on any neighbouring land, or that the premises have been or are being put to a contaminative use, this might reduce the values now reported.

All documents disclosed (if any) are for reference only and no responsibility is assumed for any legal matters concerning the legal title and the rights (if any) to the subject assets. We have not verified the original documents furnished to us, any responsibility for our misinterpretation of the documents, therefore, cannot be accepted.

APPROACH TO VALUE

In the process of valuing each of the subject assets, we have considered the three generally accepted approaches to value, namely the Market Approach, the Income Approach and the Cost Approach.

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The Market Approach considers prices recently paid for similar assets, with adjustments made to the indicated market prices to reflect condition and utility of the appraised assets relative to the market comparative.

The Income Approach is the present worth of the future economic benefits of ownership. This approach is generally applied to assets where there is an established and identifiable economic benefits market such as rental income or royalty income or to an aggregation of assets in an entire business enterprise including working capital and tangible and intangible assets.

The Cost Approach considers the cost to reproduce or replace in new condition the assets appraised in accordance with current market prices for similar assets including costs of transportation, installation, commissioning and consultants’ fees. Adjustment is then made for accrued depreciation from physical deterioration, condition, utility, age, functional and economic/external obsolescence.

More than one approach is normally considered in order to value a particular asset or group of assets. Elements of one approach can be used in another approach. However, the relative strength, applicability, and significance of the approaches and their resulting values must be analysed and reconciled to a single estimate of value should more than one approach are used.

ASSETS VALUED (see Note)

The scope of our valuations included the following:

1. Intangible Assets

Intangible assets are assets without physical existence which, although not always reported on a company’s balance sheet, may make a significant contribution to the value of an enterprise. Examples of intangible assets including, but are not limited to trademarks, tradenames, assembled work force, easements and rights, patents, proprietary computer software, customer-related intangibles and technical know-hows.

(i) Land Use Rights

The land in China is owned by the State and transferability of land is subject to restrictions. The ownership of the land is combined with two statutory rights, namely right to possess and right to use.

Basically, the right to possess the land is either held by the State or collective entity. If the right to possess is held by the State, a third party needs to pay a land premium to the State in order to get the right to use for a specific term subject to a particular usage. If the right to possess is held by a collective entity, the State may resume the land. After a full payment of a land premium, the right to use will then be transferred from the State to a third party. This is the first tier market.

Note: Data and information regarding the forestry industry in China came from website of lknet.ac.cn and official website of forestry.gov.cn.

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Once the land use rights granted by the State to a third party; the third party, subject to the completion of the conditions for land grant, has the right to transfer, assign or sub-let the land use rights to other parties for the residual of the existing land use term. This is the second tier market.

(a) Shanxi Province

The two forest farms of which the subject land use rights valued are called Dongfeng Forest Farm and Bixianguan Forest Farm. The right to possess the land belongs to the State and the right to use the land together with the man-made standing forests were transferred to Beijing WFC in mid-2005. At the time of our limited external inspections, we noticed that various village or secondary roads were connected to the peripheries of the subject farms and there were various aged Chinese Pine trees planted over there. However, due to physical barrier on site and the agreed-upon procedures, no detailed inspections had been made. Thus, no responsibility or liability is assumed.

According to the copies of documents provided, Beijing WFC has the right to use the land for the residual term granted. We have further received a copy of legal opinion prepared by a qualified PRC legal advisor, Kang Da Law Firm, and we noted that Beijing WFC has an absolute tile on the land use rights of the subject land and is able to assign together with the man-made forest above as a unique asset.

We have adopted the comparable sales method of the Market Approach (also called sales comparison approach) in this valuation. The comparable sales method considers the sales, listings or offering of similar or substitute properties and related market data and establishes a value of a property that a reasonable investor would have to pay for a similar property of comparable utility and with an absolute title.

By using this approach, the land should be assumed to have the benefit of approved usage for the replacement of the existing improvement i.e. man-made forest and it is always necessary when valuing the land, to have regard to the manner in which the land is developed by the existing improvement and site works, and the extent to which these realise the full potential value of the land.

(b) Shandong Province

The land valued comprise of various parcels of land scattered at the western part of Heihou District, in between the old and new Yellow River mouth with Dong Gang Highway running across them. According to the information made available to us, there was a parcel of land with an area of 10,000 Chinese Mu used for cotton cultivation with the remainings were either uncultivated or with wild grasses grew on it.

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Our inspections revealed that access roads only be able to reach certain parts of the peripheries of the subject land; and most part of the subject land, due to physical barrier on site, were unable to reach. Thus, no detailed inspections had been conducted and no responsibility or liability is assumed.

We have received a copy of legal opinion prepared by a qualified PRC legal advisor, Kang Da Law Firm, and we noted that Beijing WFC did not have any absolute title on the land use rights of the subject land, and the land valued is subject to an operating lease.

Given that our subject is Beijing WFC and not the ultimate owner of the subject land – the PLA of China, and that the occupation arrangement is an operating lease in nature, we have assigned no commercial (market) value to the land use rights of the subject land.

(ii) Pending Patent

In the process of valuing the pending patent, we have considered the classical appraisal approaches to value, namely the Cost Approach, the Market Approach and the Income Approach. While some intellectual properties are readily appraised by all three approaches, certain approaches provide more reliable results than others for particular type of intellectual property. With regard to the pending patent, the Income Approach is often considered to include the more widely accepted methods and procedures for achieving reliable value.

In choosing the Income Approach as the most appropriate approach, we have used the royalty income stream analysis – the Relief from Royalty Method, one of the Yield Capitalisation Method (also known as the Discounted Cash Flow Method), to identify the indication value of the pending patent by discounting the future economic benefits of the pending patent throughout its economic life to its present value. The underlying theory of this method is – the owner of an intellectual property licenses the intellectual property for use to product manufacturer and receives a royalty return based on the manufacturers’ applicable revenues (gross or net) in an arm’s-length transaction. By calculating and discounting the estimated royalty stream of the intellectual property under this theory, which the owner is relieved from paying since the intellectual property is self-owned, over a period of time with an appropriate yield capitalisation rate i.e. discount rate, an indication value of the intellectual property will arrive. The use of this analysis reflects investment criteria and requires the valuers to make empirical and subjective assumptions. This method is also referred to as a method under the Market Approach for both the royalty rate and the discount rate are market-derived.

By using this method, the pending patent is valued by reference to the estimated amount of royalty income it can generate if it was licensed as at the date of valuation, in an arm’s length transaction, to a third party. We have considered various alternatives in determination of the royalty rate for the pending patent. To arrive at an appropriate royalty rate, the best evidence is to inquire whether Beijing WFC, as owner of the pending patent, has granted any similar license to other companies to use the pending patent. However, as advised, no such licensing agreement is in existence for the use of the pending patent. Thus, we looked for industry standards to determine the appropriate royalty rate.

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The term “industry standards” is referred to the existence of a database of previous deals in a sufficient number and specificity that licensors and licensees can, by reference to such data, agree upon a royalty rate. A sample of guideline, arm’s-length royalty or license agreements which reflect similar risk and return investment characteristics that made them comparable to the pending patent were selected and analysed (see Note) . The risk and return investment characteristics including, but were not limited to industry conditions, the ability to generate an expected level of economic earnings for the owner subject to the age of the pending patent, the degree of consumer recognition, geographical coverage of the pending patent, remaining number of years of legal protection of the pending patent (or being a registered patent), and the life cycle of the pending patent. Based on an assessment of the risk and return investment factors of the pending patent as compared to the guideline transactions, a royalty rate is estimated for the pending patent in our computation. Having considered the quantity and quality of available data and with reference to the general and inherent characteristics of the subject asset, we have adopted a royalty rate of 3.5 per cent. based on net sales (after adjustment on commission rebates and discount) in our computation.

The benchmark royalty rate is then multiplied by the revenues expected by the management of Beijing WFC to be generated by the pending patent. The product is an estimate of the royalty income that could be generated hypothetically by licensing the pending patent in the expected life of the pending patent (or being a registered patent). Next, the estimated royalty income is discounting, as an annuity over the expected life of the pending patent, at an appropriate discount rate.

For the purpose of this appraisal, we were furnished with projections of future revenues and expenses in using the pending patent as part of a going concern business, and other documents germane to the appraisal. We have made inquiries of the management of Beijing WFC as to the process used in preparing the projections, the management of Beijing WFC confirmed to us that they have had due regard to published research data, current industry conditions and relevant experience, and they attested that the supplied data are accurate and reasonable. We have considered the expected revenues to be generated by the pending patent in the projected 5 years up to September 2010.

Discount rate equals cost of capital. The cost of capital represents investors’ expectations and for any given investment is a combination of three basic factors, namely the risk-free rate, the expected inflation and a premium for risk. There are many ways to estimate the discount rate such as the Build-up Model, the Capital Asset Pricing Model and the Arbitrage Pricing Model for equity investment and the Weighted Average of Cost of Capital Model for normal project investment. The use of the appropriate model in each analyse depends on numerous factors, in particular the future capital structure of the investment. There is no universal model that applies to all cases. In this engagement, we have considered the Weighted Average Cost of Capital (“WACC”) Model.

Note: From an external data provider in the United States of America.

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The WACC Model is an average representing the expected return on all of a company’s capital. Each source of capital, such as stocks, bonds, and other debt, is assigned a required rate of return, and then these required rates of return are weighted in proportion to the share each source of capital contributes to the company’s capital structure. The resulting rate is what the firm would use as a minimum for evaluating a capital project or investment ( extracted from investorwords.com for readers’ easy understanding ).

We used the adjusted WACC (see Note) for discounting the pending patent’s estimated economic benefit because the subject project and Beijing WFC have the same systematic risk and the same debt capacity (the project currently forms part of the going concern business of Beijing WFC).

For the estimation of long term growth rate, we have taken the growth of similar companies, the forestry industry, the economy in China and the global economy as a whole. We have adopted a long term growth rate of 6 per cent. in our computation.

Having considered the quantity and quality of available data, and the analysed method in providing a valid indication of discount rate, we have, therefore, assigned an adjusted discount rate of 14.7 per cent. in our computation. The projected revenues from the royalty income stream are then discounted at this discount rate. The result of summation of the yield capitalisation is the value of the pending patent.

2. Current Assets

Relevant categories under Current Assets comprise inventory of standing trees and stocks of propagated saplings.

The subject inventory was valued based on the following:

• (i) Man-made standing forests of Chinese Pine Trees

In valuing the Chinese Pine trees we have taken the following into consideration:

• Current market price per cubic meter (“cu. m.”) of prop timber in the locality;

• Average diameter and length of prop timber being sold in the locality;

• The DBH and the merchantable height of the stock of Chinese Pine trees;

• Parameters used in classifying young, mid-aged, near mature and mature tress;

• The quantity of timber available for cutting based on the adjusted inventory provided to us; and

• Cutting cost, transportation cost, forestry fund, and other associated costs necessary to process the standing trees to prop timber.

Note: Source data from damodaran.com with adjustments made on the country risk and differences in industry characteristics.

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APPENDIX V

We understand that local coal mines generally use prop timber starting with 4 centimeters (cm) diameter and about 1.2 meter (m) long. However, mid-age to mature tree classes with about 10 to 12 cm diameter x 2 m long are the type that are in high demand.

Since the entire tree classes in the inventory are within the sizes of the prop timber market, we have valued the entire inventory by using the Market Approach. In using the Market Approach, we have used the current processed prop timber price in the area of RMB 700 Yuan per cu. m. as the base price less the cost of cutting, transportation, forestry fund and other associated costs to arrive at the value of the inventory.

Based on the information provided to us, the total timber volume adjusted from the July 2005 forestry report to the date of valuation was about 381,680 cu. m.

The recovery rate of uneven aged stand for Chinese Pine trees in the locality generally falls between 70 to 75 per cent. of the total available wood. Other costs considered are: 13 per cent. for the cost of cutting, thinning, reforestation cost and transport from the forest to the main road and 20 per cent. forestry fund for prop timber for mines.

(ii) Stocks of Paper Mulberry Saplings

The stocks of Paper Mulberry saplings were valued by using the Cost Approach since these stocks has been genetically modified according to the requirement of Beijing WFC and can be considered as specialised assets without any market comparable.

In arriving at our valuation, we were provided the total audited amount of the inventory based on the method and type of propagation and we have taken this as the value of the stocks of Paper Mulberry saplings.

MATTERS THAT MIGHT AFFECT THE VALUES REPORTED

No allowance has been made in our valuations for any charges, mortgages, outstanding premium or amounts owing on the subject assets. Also, no allowance has been made in our valuations for any expenses or depreciation or taxation, which may be incurred in effecting a sale of the subject assets. Unless otherwise stated, it is assumed that the subject assets are free from all encumbrances, restrictions, and outgoings of an onerous nature which could affect its values.

We are unable to identify any adverse news against the subject assets which may affect the reported values in our report as at the Latest Practicable Date of this circular. Thus, we are not in the position to report and comment on its impact (if any) to the subject assets. However, should it be established subsequently that such news did exist at the date of valuation, we reserve the right to adjust the values reported herein.

SOURCES OF INFORMATION AND ITS VERIFICATION IN ACCORDANCE WITH VS 5 OF THE HKIS STANDARDS

For the purpose of valuing the pending patent, we were furnished with various financial documents and projections of revenues and expenses, and other documents related to the particular usage of the

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subject asset as part of a going concern business of Beijing WFC. The projection of the future revenues as part of a going concern business of Beijing WFC was prepared by the directors of Beijing WFC and they are responsible for the assumptions upon which the projections are based. Having discussed with the management of Beijing WFC, we understood that the assumptions adopted by them reflect their judgment on the ability of the subject asset as part of a going concern business of Beijing WFC to derive economic income within the legally allowed operation term. The projections are based on their view of the most likely result to be arrived at on a going concern basis. These data have been utilised without further verification. We have had no reason to doubt the truth and accuracy of the information that we have been furnished. No responsibility is assumed for the accuracy of the provided information.

For the purpose of this appraisal, we were furnished with various copies of documents related to this appraisal and these copies 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, we are not in the position to advise and comment on the legality and effectiveness of the documents provided by the management of Beijing WFC via the Company. No responsibility is assumed.

In the course of valuation, we have fully accepted advice given to us on such matters as planning approvals or statutory notices, titles, easements, locations, specifications, quantity, technology, tenure, occupation, lettings, rental, site and floor areas and all other relevant matters.

Our procedures to value did not include undertaking a feasibility study of the proposed expansion or production scale of the forest farms or plantation area. Accordingly we do not express an opinion as to the merit or demerit of any future expansion (if any).

Unless otherwise stated, we have not carried out a valuation on a redevelopment basis on the land related subject assets and the study of possible alternative development options and the related economics do not come within the scope of our report.

We are not contracted to conduct a due diligence to review the existing biotechnology development in the forestry industry in China and, the existing forestry industry and related resources granting out policies in China. In the course of valuation, we have solely depended on the advice given by the management of Beijing WFC. We are unable to accept any responsibility for the reliability of the advice.

Also, we are not contracted to conduct a due diligence to review the existing intellectual property registration and protection policies adopted in China. In the course of valuation, we have solely depended on the advice given by the management of Beijing WFC. We are unable to accept any responsibility for the reliability of the advice.

Our engagement did not include an independent forestry survey to verify the information provided. We need to state that we are not in the forestry survey profession, therefore, we are not in the position to verify or ascertain the correctness with regard to the information provided. No responsibility is assumed.

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APPENDIX V

When we adopted the work products from other professions, external data providers and/or the management of Beijing WFC in our valuations, the assumptions and caveats adopted by them in arriving at their opinions also applies in our valuations. The procedures we have taken do not require us to examine all the evidences, like an auditor, in reaching at our opinion. As we have not performed an audit, we are not expressing an audit opinion in our valuations. Thus, no warranty is made nor liability assumed for the accuracy of any data, advice, opinions, or estimates identified as being furnished by others which have been used in formulating our report.

Unless otherwise stated, the base currency of our report is Renminbi (“RMB”) Yuan.

We have had no reason to doubt the truth and accuracy of the information provided to us by the management of Beijing WFC via the Company or its appointed personnel. Our analysis and appraisal are based upon full disclosure between us and the management of the Company of material and latent facts that may affect the appraisal. We consider that we have been provided with sufficient information to reach an informed view, and have had no reason to suspect that any material information has been withheld.

LIMITING CONDITIONS OF THIS SUMMARY REPORT

This report is provided strictly for the sole use of and valid to the Company. Neither the whole nor any part of this report or any reference made hereto may be included in any published documents, circular or statement, or published in any way, without our written approval of the form and context in which it may appear. Nonetheless, we consent to the publication of this report in a circular to the Company’s shareholders’ reference.

We understand that the use of our work product (regardless of form of presentation) would form part of the Company’s business due diligence to the subject assets and we have not been engaged to make specific sale or purchase recommendations. We further understand that the use of our work product will not supplant other due diligence which a rational investor should conduct in reaching business decisions regarding the subject assets.

Our opinion of values in this report is valid only for the stated purpose and only for the date of valuation. We or our personnel shall not be required to give testimony or attendance in court or to any government agency by reason of this report, and we accept no responsibility whatsoever to any other person.

No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or change of government policy or financial condition or other conditions, which occur subsequent to the date hereof.

Our maximum liability relating to services rendered under this engagement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.

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The Company is required to indemnify and hold us and our personnel harmless from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our report except to the extent that any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.

OPINION OF VALUES

Based on the investigation, analysis, stated assumptions, limitations, reasoning and data outlined as above, and on the appraisal methods employed, it is our opinion that as of the date of valuation the market value of each of the subject assets (before taking into consideration any transaction costs), as part of a going concern business of Beijing WFC, was reasonably stated by the amounts of:

Details of the Subject Assets	Indicated Market Value (RMB)	Indicated Market Value (RMB)
Land Use Rights		29,700,000
Pending Patent		565,600,000
Man-made Standing Forests of Chinese Pine Trees		125,300,000
Stocks of Paper Mulberry Saplings		222,550,000
	Total:	RMB 943,150,000

Due to the table format of this summary of value, the indicated market values of the subject assets not presented in word.

STATEMENTS

Each of the concluded values is based on generally accepted appraisal procedures and practices that rely extensively on assumptions and considerations, not all of which can be easily quantified or ascertained exactly. While we have exercised our professional judgement in arriving at the appraisal, the readers are urged to consider carefully the nature of such assumptions which are disclosed in our report and should exercise caution in interpreting our report.

Our valuations are prepared in line with the guidelines as contained in the IVS as well as the HKIS Standards, and have been made in conformity with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation. Also, we have followed the requirements as contained in Chapter 5 and Practice Note No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The valuations have been undertaken by valuers, acting as external valuers, qualified for the purpose of the valuations.

We retain a copy of our report together with the data from which it was prepared, and these data and documents will, according to the Laws of Hong Kong, keep for a period of 6 years from the date of our report and to be destroyed thereafter. We considered these records confidential, and we do not permit

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access to them by anyone, with the exception for law enforcement authorities or court order, without the Company’s authorisation and prior arrangement made with us. Moreover, we will add the Company’s information into our client list for our future reference.

We hereby certify that the fee for this service is not contingent upon our conclusion of values and we have no present nor prospective interest in the subject assets, Beijing WFC, the Company or the values reported.

Yours faithfully,

For and on behalf of

LCH (Asia-Pacific) Surveyors Limited

Ho Chin Choi, Joseph BSc PG Dip RPS(GP) Managing Director

Contributing Valuers:

Rolando Arcaya BSME ASA

Elsa Ng Hung Mui BSc MSc RPS(GP)

Martin A. Talento BSc MSc Licensed Forester Terry Fung Chi Hang BSc

Notes:

1. Mr. Joseph Ho Chin Choi has been conducting asset valuations and advisory work in Hong Kong, Macau, Taiwan, mainland China, Japan, South East Asia, Finland, Canada and the United States of America for various purposes since 1988. He obtained the Examination Certificate of the Uniform Standards of Professional Appraisal Practice issued by the American Society of Appraisers in 1996. He has extensive experience in the valuation of various types of intangible assets and power plants, toll road, health products and foodstuffs, financial services, luxurious consumer goods, pharmaceutical and biotechnology, electronic consumer products manufactory, telecommunication, media and information technology related businesses for the listed companies in Hong Kong, Canada and the United States of America. At present, he is a valuer on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers published by the HKIS.

2. Mr. Rolando R. Arcaya is an Accredited Senior Member (ASA) of the American Society of Appraisers in the discipline of machinery and equipment valuation. He specialises in the valuation of machinery and equipment in power projects, light and heavy industrial manufacturing plants, consumer products manufacturing, forest products manufacturing and special assets like stock and inventories. Rolly has over 20 years of valuation experience of which over 18 years were spent in Hong Kong. Over the length of his valuation experience, he has valued and managed the valuation of a number of forest product related industries like veneer and plywood plants, paper manufacturing plants, and logging concessions located in the Philippines. He has also valued a number of paper and wood processing plants in China for various purposes including accounting and financing purposes.

3. Ms Elsa Ng Hung Mui has been conducting valuation of real estate properties in Hong Kong since 1994 and has more than 7 years of experience in valuing properties in mainland China. She obtained a Master Degree of Science in Finance and involved in various financial assets valuations in the past years. At present, she is a valuer in the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers published by the HKIS.

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VALUATION REPORT ON ASSETS PROPOSED TO BE ACQUIRED BY THE GROUP

1. Mr. Martin A. Talento is a Licensed Forester in the Philippines. He obtained his Bachelor of Science in Forestry (Major in Social Forestry and Forest Governance) from University of the Philippines, Masters in Environment and Natural Resources from University of the Philippines Open University, Management major in Upland Management (Senator Francis Pangilinan scholarship grantee -continuing) from University of the Philippines Open University and undergraduate units in Forest Products Engineering in the University of the Philippines. He has more than 4 years experience in forest industry study and have worked in various companies as a forestry specialist in the preparation of forest management plans, survey, blocking and inventory of annual cutting area, Environmental Impact Assessment (EIA) studies, and issuance of Resource Use Permit for timber harvesting in two selected Community Forestry projects in the Philippines. He has expertise in forest based enterprise development, forest resources inventory, environmental management and forest land-use planning, biodiversity conservation, environmental impact assessment for timber and non-timber products, agroforestry, and biological monitoring. He has facilitated trainings in the use of GPS for forest surveys, training on the formulation of community management frameworks for local cooperatives, training in forest survey and mensuration and training in setting up of biological and threat monitoring systems.

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VALUATION OF PENDING PATENT ESTIMATE

APPENDIX VI

In its appraisal of the value of the pending patent as part of a going concern business of Beijing WFC, LCH (Asia-Pacific) Surveyors Limited has adopted the projection of the future revenue (the “Projection”) prepared by the directors of Beijing WFC. The valuation of the pending patent is set out in Appendix V of this circular.

A. BASES

The directors of Beijing WFC have prepared the projection of the future revenue based on their judgment on the ability of the subject pending patent as part of a going concern business of Beijing WFC to derive economic income within the legally allowed operation term. The Projection is based on their view of the most likely result to be arrived at on a going concern basis. The Projection has been prepared on a basis consistent in all material respects with the assumptions and bases adopted by Beijing WFC as set out in our Accountants' Report on Beijing WFC dated 18 April 2006, the text of which is set out in Appendix III to the Circular.

B. ASSUMPTIONS

According to the factors considered in the valuation of the pending patent set out on page 139 in Appendix V of this circular, the revenue projection has been prepared based on the following principal assumptions:

• The continuity of the existing production and sales/distribution network to produce and distribute Beijing WFC products with the pending patent being applied:

• The capability and determination of the management of Beijing WFC to develop and implement the sales strategy;

• The capability and determination of the management of Beijing WFC to maintain the existing quality of the products being traded under the pending patent;

• The capability and determination of the management of Beijing WFC to implement the planned production scale, methods and schedule; and

• The commitment of the management of Beijing WFC to protect the intellectual property rights of the pending patent against any infringement.

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C. LETTERS

The following are texts of letters, prepared for inclusion in this circular, by the reporting accountants, Johnny Chan & Co., Limited, Certified Public Accountants, and the financial advisor, Kingston Corporate Finance Limited, in connection with the valuation of pending patent estimate based on the discounted cash flow.

(i) Letter from reporting accountants

JOHNNY CHAN & CO. LIMITED

Certified Public Accountants

509 Bank of America Tower 12 Harcourt Road, Central Hong Kong Tel : 2522 2922 Fax: 2522 2977

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18 April 2006

The Board of Directors Good Fellow Group Limited Kingston Corporate Finance Limited

Dear Sirs,

We have reviewed the assumptions and calculations upon which the projection of the future revenue (the “Projection”) as part of a going concern business of Beijing WFC are based in arriving at the valuation of pending patent estimate as adopted by LCH (Asia-Pacific) Surveyors Limited in their valuation as set out in Appendix V to this circular.

The Projection, for which the directors of Beijing WFC and the directors of the Company are responsible, has been (i) prepared by the directors of Beijing WFC based on their judgment on the ability of the subject pending patent as part of a going concern business of Beijing WFC to derive economic income within the legally allowed operation term; and (ii) properly reviewed by the directors of the Company after due and careful enquiry . The Projection is based on their view of the most likely result to be arrived at on a going concern basis.

However, in as much as the future revenue projections and assumptions on which they are based relate to the future, we express no opinion on how closely the future revenue eventually achieved will correspond with the future revenue projections.

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APPENDIX VI

In our opinion, so far as the assumptions and calculations are concerned, the Projection has been properly complied on the bases and assumptions adopted by the directors of Beijing WFC as set out in Appendix VI to this circular and has been properly reviewed by the directors of the Company after due and careful enquiry and is presented on a basis consistent in all material respects with the bases and assumptions adopted by Beijing WFC as set out in our Accountants’ Report on Beijing WFC dated 18 April 2006, the text of which is set out in Appendix III to the Circular.

Yours faithfully, Johnny Chan & Co. Limited Certified Public Accountants

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APPENDIX VI

(ii) Letter from financial adviser

Suite 2801, 28th Floor One International Finance Centre 1 Harbour View Street Central, Hong Kong

18 April 2006

The Directors Good Fellow Group Limited

Dear Sirs,

We refer to the valuation of pending patent estimate of Beijing WFC based on the discounted cash flow (the “Valuation of Pending Patent Estimate”) as set out in this circular issued by the Company dated 18 April 2006.

The Valuation of Pending Patent Estimate, for which the directors of Beijing WFC and the directors of the Company are responsible, has been (i) prepared by the directors of Beijing WFC based on the assumptions upon which the projection of the future revenues as part of a going-concern business of Beijing WFC are based; and (ii) properly reviewed by the directors of the Company after due and careful enquiry.

We have discussed with you the bases and assumptions made by the directors of Beijing WFC as set out in Appendix VI to this circular upon which the Valuation of Pending Patent Estimate has been made. We have also considered the letter dated 18 April 2006 addressed to yourselves and ourselves from Johnny Chan & Co. Limited (“Johnny Chan”) regarding the assumptions and calculations upon which the Valuation of Pending Patent Estimate has been made.

On the basis of the information comprising the Valuation of Pending Patent Estimate and on the basis of the assumptions and calculations adopted by the directors of Beijing WFC after properly reviewed by the directors of the Company and Johnny Chan, we are of the opinion that the Valuation of Pending Patent Estimate, for which the directors of Beijing WFC and the directors of the Company are responsible, has been made after due and careful enquiry.

Yours faithfully, For and on behalf of

Kingston Corporate Finance Limited Elton Cheung

Director

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

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The readers are reminded that the report which follows has been prepared in accordance with the guidelines set by the HKIS Valuation Standards on Properties, First Edition, 2005 (“HKIS Standards”) published by the Hong Kong Institute of Surveyors (the “HKIS”) and entitles the valuer to make assumptions which may on further investigation, for instance by the readers’ legal representative, prove to be inaccurate. Any exception is clearly stated below. Headings are inserted for convenient reference only and have no effect in limiting or extending the language of the paragraphs to which they refer.

27th Floor Li Dong Building No. 9 Li Yuen Street East Central Hong Kong

18 April 2006

The Directors Good Fellow Group Limited Unit 1906, Nanyang Plaza 57 Hung To Road Kwun Tong, Kowloon Hong Kong

Dear Sirs,

In accordance with the instructions given by the management of Good Fellow Group Limited (hereinafter referred to as the “Company”) to us to value the properties held and occupied by the Company and its subsidiaries (hereinafter together with the Company referred to as the “Group”) in Hong Kong, Macau and in the People’s Republic of China (hereinafter referred to as the “PRC” or “China”), we confirm that we have made relevant enquiries and obtained such further information as we consider necessary to support our opinion of values of the properties as at 28 February 2006 (hereinafter referred to as the “date of valuation”) for the purpose of incorporation in this circular and for the Company’s shareholders’ reference.

This summary report (including this letter, the attached summary of values and valuation certificate) forms part of our detailed valuation report of the properties as at today’s date. We understand that the use of our work product (regardless of form of presentation) would form part of the Company’s business due diligence to the properties and we have not been engaged to make specific sale or purchase recommendations. We further understand that the use of our work product will not supplant other due diligence which a rational investor should conduct in reaching business decisions regarding the properties.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Basis of Valuation and Assumptions

According to the International Valuation Standards (hereinafter referred to as “IVS”), Seventh Edition, 2005 published by the International Valuation Standards Committee, which the HKIS Standards also follows, there are two valuation bases, namely market value basis and valuation basis other than market value. In this engagement, we are instructed to have our opinions of values of the properties on the market value basis.

The term “Market Value” is defined as “the estimated amount for which a property 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”.

Except Group V properties, our valuations have been made on the assumption, that

1. the legally interested party in the properties sells the properties in the market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which would serve to increase the values of the properties;

2. the legally interested party in the properties has free and uninterrupted rights to use or assign the property interests for the whole of the unexpired terms as granted and any premiums payable have already been fully paid; and

3. the properties can be freely disposed and transferred free of all encumbrances at the date of valuation for its existing or alternative uses in the market to both local and overseas purchasers without payment of any premium to the government.

Should this not be the case, it will have adverse impact to the values as reported.

Based on the purpose of this engagement and the market value basis of valuation, the management of the Company was requested to provide us the necessary documents to support the titles and that the Group is the legally interested party in the properties i.e. the Group has free and uninterrupted rights to assign, to mortgage or to let the property interests (in this instance, an absolute title) for the whole of the unexpired terms as granted and any premiums payable have already been paid in full. Should this not be the case or only a restricted title was available (i.e. has a right to use but further application procedures are required) as at the date of valuation, no commercial value (or market value) will be assigned to the particular property for it is difficult for us to estimate the actual disposal costs and to deduct these costs from the valuation to arrive at the market value.

There are three generally accepted approaches to value in arriving at the market value of a property on an absolute title basis, namely the Market Approach, the Cost Approach and the Income Approach. In valuing the properties in Groups I and III, we have adopted the comparable sales method of the Market Approach (also called sales comparison approach) on the assumption that the properties are sold with the

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benefit of vacant possession as at the date of valuation. The comparable sales method considers the sales, listings or offering of similar or substitute properties and related market data and establishes a value of a property that a reasonable investor would have to pay for a similar property of comparable utility and with an absolute title.

In valuing the property in Group II, we have adopted the investment method of the Income Approach (or sometimes referred to as a method of the Market Approach for the reversionary interests and the rate of return are market-derived) by taking into account the current rent receivable from the existing tenancy agreements and the reversionary potential of the property interest. Our opinion of value of the property in this group was subject to the existing tenancy agreement(s), and otherwise with the benefit of vacant possession.

Having considered the general and inherent characteristics of properties in Group IV, we have adopted the depreciated replacement cost approach which is an application of the Cost Approach in valuing specialised properties like properties in Group IV. The use of this approach requires an estimate of the market value of the land use rights for its existing use, and an estimate of the new replacement cost of the buildings and other site works from which deductions are then made to allow for age, condition, and functional obsolescence taken into account of the site formation cost and those public utilities connection charges to the properties. The land use rights of these properties have been determined from market-based evidences by analysing similar sales or offerings of comparable properties.

The valuations of these properties are on the assumption that the properties are subject to the test of adequate potential profitability of the business having due regard to the values of the total assets employed and the nature of the operation.

By using this approach, the land should be assumed to have the benefit of planning permission for the replacement of the existing buildings and it is always necessary when valuing the land, to have regard to the manner in which the land is developed by the existing buildings and site works, and the extent to which these realise the full potential value of the land. When considering a notional replacement site, it should normally be regarded as having the same physical and location characteristics as the actual site, other than characteristics of the actual site which are not relevant, or are of no value, to the existing use. In considering the buildings, the gross replacement cost of the buildings should take into consideration everything which is necessary to complete the construction from a new green field site to provide buildings as they are, at the date of valuation, fit for and capable of being occupied and used for the current use. These costs to be estimated are not to erect buildings in the future but have the buildings available for occupation at the date of valuation, the work having commenced at the appropriate time.

We need to state that our opinion of values of properties in Group IV are not necessarily intended to represent the amount that might be realised from disposition of land use rights or various buildings of each of the properties on piece meal basis in the open market.

In valuing the properties in Groups V, no commercial values have been assigned to the properties due mainly to the short-term nature of the tenancy agreements or prohibition against assignment or subletting or lack of substantial profit rents.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Matters that Might Affect the Values Reported

No allowance has been made in our valuations for any charges, mortgages, outstanding premium or amounts owing on the properties. Unless otherwise stated, it is assumed that the properties are free from all encumbrances, restrictions, and outgoings of an onerous nature which could affect their values.

We are unable to identify any adverse news against the properties which may affect the reported values in our work product as at the Latest Practicable Date of this circular. Thus, we are not in the position to report and comment on its impact (if any) to the properties. However, should it be established subsequently that such news did exist at the date of valuation, we reserve the right to adjust the values reported herein.

Establishment of Titles

Due to the purpose of this engagement, the management of the Company is requested to provide us the necessary title documents to support that the legally interested party in the properties was the Group as at the date of valuation, and we have been provided with copies of the title documents regarding the properties. We have conducted title searches of the properties in Groups I, II and III in the Land Registry of Hong Kong and Conservatória do Registo Predial物業登記局 of Macau, respectively. However, we have not examined the original documents to verify the ownership and encumbrances or to ascertain the existence of any lease amendments, which may not appear on the copies handed to us. All documents disclosed (if any) are for reference only and no responsibility is assumed for any legal matters concerning the legal title and the rights (if any) to the properties valued. Any responsibility for our misinterpretation of the documents cannot be accepted. However, the inherent defects in the land registration system of China forbidden us to inspect the original documents from the relevant land registration departments to verify the existing titles of the properties or any material encumbrances that might be attached to the properties. We are not attorney of laws by nature, thus we are unable to ascertain the titles and to report any encumbrances that may be registered against the properties. No responsibility or liability is assumed.

Inspections and Investigations of the Properties in Accordance with VS 4 of the HKIS Standards

As part of the agreed-upon procedures, we have conducted a limited scope of inspection and made reference to our previous inspection records of the properties in respect of which we have been provided with such information as we have requested for the purpose of our valuations. We have not inspected those parts of the properties which were covered, unexposed or inaccessible and such parts have been assumed to be in reasonable condition. We cannot express an opinion about or advice upon the condition of the properties and our work product should not be taken as making any implied representation or statement about the condition of the properties. No structural survey, investigation or examination has been made, but in the course of our inspections, we did not note any serious defects in the properties inspected. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out to the utilities (if any) and we are unable to identify those utilities covered, unexposed or inaccessible.

Our valuations have been made on the assumption that no unauthorised alteration, extension or addition has been made in the properties, and that the inspection and the use of this work product do not purport to be a building survey of the properties. If the management of the Company wants to satisfy

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them as to the condition of the properties, then the management of the Company should obtain a third party surveyor’s detailed inspection and report of their own.

We have not carried out on-site measurements to verify the correctness of the areas of the properties, but have assumed that the areas shown on the documents and handed to us are correct. All dimensions, measurements and areas are approximations.

Our engagement and the agreed procedures to value the properties did not include an independent land survey to verify the legal boundaries of the properties in Group IV. We need to state that we are not in the land survey profession, therefore, we are not in the position to verify or ascertain the correctness of the legal boundaries of such properties that appeared on the documents handed to us. No responsibility from our part is assumed. The management of the Company or interested party in such properties should conduct their own due diligence work.

We are not aware of the content of any environmental audit or other environmental investigation or soil survey which may have been carried out on the properties in Group IV and which may draw attention to any contamination or the possibility of any such contamination. In undertaking our work, we have been instructed to assume that no contaminative or potentially contaminative uses have ever been carried out in the properties. We have not carried out any investigation into past or present uses, either of the properties or of any neighbouring land, to establish whether there is any contamination or potential for contamination to the properties from these uses or sites, and have therefore assumed that none exists. However, should it be established subsequently that contamination, seepage or pollution exists at the properties or on any neighbouring land, or that the premises have been or are being put to a contaminative use, this might reduce the values now reported.

Sources of Information and Its Verification in Accordance with VS 5 of the HKIS Standards

We have relied solely on the information provided by the management of the Company or its appointed personnel without further verification and have fully accepted advice given to us on such matters as planning approvals or statutory notices, locations, titles, easements, tenure, occupation, lettings, rental, site and floor areas and all other relevant matters.

The scope of valuations has been determined by reference to the property list provided by the management of the Company. All properties on the list have been included in our valuations. The management of the Company has confirmed to us that it has no property interests other than those specified on the list supplied to us.

Unless otherwise stated, we have not carried out any valuation on a redevelopment basis and the study of possible alternative development options and the related economics do not come within the scope of our work product.

Information furnished by others, upon which all or portions of our work product are based, is believed to be reliable but has not been verified in all cases. Our procedures to value or work do not constitute an audit, review, or compilation of the information provided. Thus, no warranty is made nor liability assumed for the accuracy of any data, advice, opinions, or estimates identified as being furnished by others which have been used in formulating our work product.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Unless otherwise stated, all monetary amounts are in Hong Kong dollars. In valuing the property in Group III and properties in Group IV, the adopted exchange rates were the prevailing rates as at the date of valuation, being HK$1.00 to Macau Pataca (MOP) 1.03 and HK$1.00 per Renminbi (RMB)1.04, respectively and no significant fluctuation in exchange rates has been found between that date and the date of our report.

We have had no reason to doubt the truth and accuracy of the information provided to us by the management of the Company or its appointed personnel. Our analysis and valuations are based upon full disclosure between us and the Company of material and latent facts that may affect the valuations. We consider that we have been provided with sufficient information to reach an informed view, and have had no reason to suspect that any material information has been withheld.

Limiting Conditions of This Summary Report

Our opinion of values of the properties in this summary report is valid only for the stated purpose and only for the date of valuation, and for the sole use of the named Company. We or our personnel shall not be required to give testimony or attendance in court or to any government agency by reason of this summary report, and the valuer accepts no responsibility whatsoever to any other person.

No responsibility is taken for changes in market conditions and local government policy and no obligation is assumed to revise the attached valuation certificate to reflect events or conditions, which occur or make known to us subsequent to the date hereof.

Neither the whole nor any part of this summary report or any reference made hereto may be included in any published documents, circular or statement, or published in any way, without our written approval of the form and context in which it may appear. Nonetheless, we consent to the publication of this summary report in a circular to the Company’s shareholders.

Our maximum liability relating to services rendered under this engagement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.

The Company is required to indemnify and hold us and our personnel harmless from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our report except to the extent that any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Statements

The attached valuation certificate is prepared in line with the requirements contained in Chapter 5 and Practice Note No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited as well as the guidelines contained in the HKIS Standards. The valuations have been undertaken by valuers, acting as external valuers, qualified for the purpose of the valuations.

We retain a copy of this summary report and the detailed valuation report together with the data from which it was prepared, and these data and documents will, according to the Laws of Hong Kong, keep for a period of 6 years from the date of this report and to be destroyed thereafter. We considered these records confidential, and we do not permit access to them by anyone, with the exception for law enforcement authorities or court order, without the Company’s authorisation and prior arrangement made with us. Moreover, we will add the Company’s information into our client list for our future reference.

We hereby certify that the fee for this service is not contingent upon our conclusion of values and we have no present nor prospective interest in the properties, the Company, the Group or the values reported.

Our valuations are summarised below and the valuation certificate is attached.

Yours faithfully, For and on behalf of

LCH (Asia-Pacific) Surveyors Limited

Joseph Ho Chin Choi

B.Sc. PG Dip RPS (GP) Managing Director

Elsa Ng Hung Mui B.Sc. M.Sc. RPS (GP) Associate Director

Contributing valuers:

Anna Chan Wai Ling Dip Sur Terry Fung Chi Hang BSc

Notes:

1. Mr. Joseph Ho Chin Choi has been conducting assets valuation (including real estate properties) and advisory work in Hong Kong, Macau, Taiwan, mainland China, Japan, South East Asia, Finland, Canada and the United States of America for various purposes since 1988. He has more than 17 years of experience in valuing real estate properties in mainland China.

2. Ms. Elsa Ng Hung Mui is a Registered Professional Surveyor who has been conducting valuation of real estate properties in Hong Kong since 1994 and has more than 7 years of experience in valuing properties in mainland China.

3. Both Mr. Joseph Ho Chin Choi and Ms. Elsa Ng Hung Mui are valuers on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers published by the HKIS.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

SUMMARY OF VALUES

Group I – Properties owned and occupied by the Group in Hong Kong and valued on the basis of market value by market evidence

Amounts of valuation in Interest existing state as at attributable to No. Property 28 February 2006 the Group HK$ 1. Unit 06 on 19th Floor 9,200,000 100% Nanyang Plaza No. 57 Hung To Road Kwun Tong Kowloon Hong Kong 2. Unit 08 on 7th Floor 6,260,000 100% Nanyang Plaza No. 57 Hung To Road Kwun Tong Kowloon Hong Kong Sub-total: HK$15,460,000	Amounts of valuation in existing state attributable to the Group as at 28 February 2006 HK$ 9,200,000 6,260,000
	HK$15,460,000

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Group II – Property held by the Group for investment in Hong Kong and valued on the basis of market value

Amounts of valuation in Amounts of existing state valuation in Interest attributable to existing state as at attributable to the Group as at No. Property 28 February 2006 the Group 28 February 2006 HK$ HK$ 3. Workshop No. 8 and Storeroom A 2,290,000 100% 2,290,000 on 5th Floor Hewlett Centre No. 54 (formerly known as Nos. 52-54) Hoi Yuen Road Kwun Tong Kowloon Hong Kong Sub-total: HK$2,290,000 HK$2,290,000

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Group III – Property owned and occupied by the Group in Macau and valued on the basis of market value by market evidence

Amounts of valuation in Interest existing state as at attributable to No. Property 28 February 2006 the Group HK$ 4. 11oAndar “N” and 660,000 100% Car Parking Space No. 59 on Level B3 Centro Financeiro (also known as Macau Finance Centre) No202-A Rua De Pequim SÉ, Macau Sub-total: HK$660,000	Amounts of valuation in existing state attributable to the Group as at 28 February 2006 HK$ 660,000
	HK$660,000

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Group IV – Properties held and occupied by the Group in the PRC and valued on the basis of market value by DRC approach

Amounts of valuation in Interest existing state as at attributable to No. Property 28 February 2006 the Group HK$ 5. A Factory Complex erected on 19,930,000 100% a parcel of land located at Chengbian Village Jiaowei Town Xianyou County Putian City Fujian Province The PRC 6. A Factory Complex erected on 34,670,000 100% two adjoining parcels of land (adjacent to Property 5 as mentioned above) located at Chengbian Village Jiaowei Town Xianyou County Putian City Fujian Province The PRC Sub-total: HK$54,600,000

Amounts of valuation in existing state attributable to the Group as at 28 February 2006 HK$ 19,930,000 34,670,000

HK$54,600,000

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Group V – Properties rented by the Group in the PRC

Property 7. Shop Nos. 9 – 10 on Level 1 Block No. K-28 Hau Shan Village Shi Quan Road Ling Xiu Town Shishi City Fujian Province The PRC 8. The whole of the Levels 3, 4 and 6 Block No. 2 Mao Xia Nan Ta Qian Village Nos. 9 – 13 Shi Quan Road Ling Xiu Town Shishi City Fujian Province The PRC 9. The whole of the Level 5 Block No. 2 Mao Xia Nan Ta Qian Village Nos. 9 – 13 Shi Quan Road Ling Xiu Town Shishi City Fujian Province The PRC

	Amount of
	valuations in
	existing state attributable
	to the Group as at
	28 February 2006
	HK$
	No commercial value
	No commercial value
	No commercial value
Sub-total	Nil
Grand Total	HK$73,010,000

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

VALUATION CERTIFICATE

Group I – Properties owned and occupied by the Group in Hong Kong and valued on the basis of market value by market evidence

Property

Description and tenure

Particulars of occupancy

Amount of valuations in existing state attributable to the Group as at 28 February 2006 HK$

1. Unit 06 The property comprises a on 19th Floor workshop unit on the 19th Floor Nanyang Plaza of a 31-storey (including car No. 57 parking, loading and unloading Hung To Road facilities) industrial/office Kwun Tong building which was completed in Kowloon 1996. Hong Kong

The property has a gross floor area of approximately 3,364 sq.ft. (312.52 sq.m.) and a saleable area of approximately 2,470 sq.ft. (229.47 sq.m.).

• 38/6,624th shares of and in Kun Tong Inland Lot No. 46

The property is 9,200,000 currently occupied by (100% interest) the Group for ancillary office purpose.

Under relevant government leases ordinances, the lease term of the Government Lease had already been extended to 30 June 2047 at a Government Rent of 3 per cent. of the rateable value for the time being of the property.

Note:

The registered owner of the property is Good Country Investment Limited, a wholly-owned subsidiary of the Company, vide Assignment dated 10 December 1998 and registered at the Land Registry by Memorial No. 7647551 on 5 January 1999.

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VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

APPENDIX VII

Property

Description and tenure

Amount of valuations in existing state attributable to Particulars of the Group as at occupancy 28 February 2006 HK$

1. Unit 08 The property comprises a on 7th Floor workshop unit on the 7th Floor Nanyang Plaza of a 31-storey (including car No. 57 parking, loading and unloading Hung To Road facilities) industrial/office Kwun Tong building which was completed in Kowloon 1996. Hong Kong

The property is currently occupied by the Group for workshop and ancillary office purposes.

6,260,000 (100% interest)

• The property has a gross floor

• 22/6,624th shares area of approximately 2,742 of and in Kun sq.ft. (254.74 sq.m.) and a Tong Inland saleable area of approximately Lot No. 46 1,950 sq. ft. (181.16 sq. m.).

Under relevant government leases ordinances, the lease term of the Government Lease had already been extended to 30 June 2047 at a Government Rent of 3 per cent. of the rateable value for the time being of the property.

Note:

The registered owner of the property is Good Country Investment Limited , a wholly-owned subsidiary of the Company, vide Assignment dated 30 September 2000 and registered at the Land Registry by Memorial No. 8224410 on 28 October 2000.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Group II – Property held by the Group for investment in Hong Kong and valued on the basis of market value

Property

Description and tenure

Amount of valuations in existing state attributable to Particulars of the Group as at occupancy 28 February 2006 HK$

1. Workshop No. 8 The property comprises a and Storeroom A workshop unit and a storeroom on 5th Floor on the 5th Floor of a 16-storey Hewlett Centre industrial building (including a No. 54 (formerly car parking at basement level). known as The building was completed in Nos. 52-54) 1989. Hoi Yuen Road Kwun Tong The property has a total gross Kowloon floor area of approximately Hong Kong 1,804 sq.ft. (172.40 sq.m.) and a saleable area of approximately

24/6,898th shares 1,317 sq.ft. (122.35 sq.m.). The of and in storeroom has an area of Kun Tong Inland approximately 56 sq. ft. (5.20 sq. Lot No. 56 m.).

The property is under a 2,290,000 tenancy agreement for (100% interest) a term of 2 years commencing from 23 April 2004 to 22 April 2006 at a monthly rental of HK$10,000 exclusive of management fees and utility charges.

The tenant has the right to terminate the agreement by serving one-month advance written notice after a term of one year.

Under relevant government leases ordinances, the lease term of the Government Lease had already been extended to 30 June 2047 at a Government Rent of 3 per cent. of the rateable value for the time being of the property.

Notes:

1. The registered owner of the property is Cannon Ape Company Limited, a wholly-owned subsidiary of the Company, vide Assignment dated 16 March 1990 and registered at the Land Registry by Memorial No. 4372493 on 30 March 1990.

2. The tenant is Cheong Wing Enterprise Co. （昌榮企業（香港）有限公司）.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Group III – Property owned and occupied by the Group in Macau and valued on the basis of market value by market evidence

Property

Description and tenure

Amount of valuations in existing state attributable to Particulars of the Group as at occupancy 28 February 2006 HK$

1. 11[o] Andar “N” The property comprises an office and unit on the 11th Floor of a 21Car Parking Space storey office building (including No. 59 a 3-level car parking basement) on Level B3 which was completed in 1996. Centro Financeiro (also known as According to the information Macau Finance available to us, the property has Centre) an area of approximately 62.3 N[o] 202-A Rua De sq.m. Pequim SÉ, Macau

The property is 660,000 currently occupied by (100% interest) the Group for office purpose.

Notes:

1. According to two registration certificates nos. 46793G and 46127G dated 7 May 2002 and 17 May 2002,respectively issued by Conservatória do Registo Predial of Macau, Good Fellow Comercial Offshore De (Macau) Limitada （金 威（澳門）離岸商業服務有限公司）, a wholly-owned subsidiary of the Company, was the registered owner of the property.

2. According to the certificate no. 46127G, there was no designated numbering for the car parking space.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Group IV – Properties held and occupied by the Group in the PRC and valued on the basis of market value by DRC approach

Property

Description and tenure

Amount of valuations in existing state attributable to Particulars of the Group as at occupancy 28 February 2006 HK$

1. A Factory The property comprises ten Complex erected various buildings and structures on a parcel of erected on a parcel of land land located at having a site area of Chengbian Village approximately 9,128.40. The Jiaowei Town buildings and structures ranged Xianyou County from single to 5-storey having a Putian City total gross floor area of Fujian Province approximately 11,725.03 sq.m. The PRC and were completed between 1993, 1994, 1996 and 2001. (see Note 4 below)

The property is 19,930,000 currently occupied by (100% interest) the Group for production, storage, office, sales office and dormitory purposes.

We noticed that there was a single storey office structure without building ownership certificate erected on the land. As per information provided by the relevant personnel on site, the gross floor area of the structure was approximately 200 sq.m. and was used as a sales office.

The property is subject to a right to use the land for a term of 45 years commencing from 31 August 1998 to 31 August 2043 for industrial usage.

Notes:

1. The right to possess the land is held by the State and the right to use the land has been granted by the State to Good Fellow Garment (Fujian) Co., Ltd. （金威服裝（福建）有限公司）, a wholly-owned subsidiary of the Company, through the following ways:

According to a Contract for the Grant of State-owned Land Use Rights dated 8 June 1998 and issued by Fujian Province Xianyou County Land Administration Bureau （福建省仙游縣土地管理局）, the land use rights for a parcel of land having a site area of approximately 9,128.4 sq.m., in which 793.2 sq.m. is used for public road was granted to Good Fellow Garment (Fujian) Co., Ltd. for a term of 50 years commencing from 8 June 1993 for industrial usage.

According to a confirmation letter issued by Fujian Province Xianyou County Land Administration Bureau（福建省 仙游縣土地管理局） dated 5 October 1998, Good Fellow Garment (Fujian) Co., Ltd. has paid 30%, which is RMB287,564.40, of the land premium of the land having a site area of approximately 8,335.2 sq.m. and the remaining 70% of the land premium has been exempted.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

1. According to a State-owned land Use Rights Certificate known as Pu Guo Yong (1998) Zi Di Y9800408 Hao issued by The People’s Government of Putian City and dated 25 August 1998, Good Fellow Garment (Fujian) Co., Ltd. has the right to use the land having a site area of 9,128.4 sq.m., in which 793.2 sq.m. is used for public road, for a term of 45 years commencing from 31 August 1998 to 31 August 2043 for industrial usage.

2. According to three various Building Ownership Certificates known as Xian Zheng Fang Quan Zheng GY Zi Di 2002257 Hao dated 14 October 2002, Xian Zheng Fang Quan Zheng GY Zi Di 990063 Hao dated 9 September 1999 and Xian Zheng Fang Quan Zheng GY Zi Di 2002232 Hao dated 24 September 2002, and all issued by the People’s Government of Xianyou County, the legally interested party in the various major buildings and structures of the property was Good Fellow Garment (Fujian) Co., Ltd.

3. The area breakdowns of the major buildings and structures covered by the Building Ownership Certificates as mentioned in Note 4 above are listed as follows:

	Building	Gross Floor Area (sq.m.)
(i)	A single storey guard house	22.31
(ii)	A single storey electrical switch room	46.58
(iii)	A 3-storey warehouse	3,130.20
(iv)	A 2-storey carport/warehouse	120.54
(v)	A 5-storey dormitory (composite building)	1,791.29
(vi)	A single storey boiler room	87.50
(vii)	A single storey lavatory/bathroom	64.96
(viii)	A single storey bicycle shed (carport)	84.80
(ix)	A 5-storey composite building (New)	4,561.75
(x)	A 5-storey dormitory (New)	1,805.10
Total		11,715.03

1. Pursuant to a valid Enterprise Legal Person Business Licence dated 6 August 1998, Good Fellow Garment (Fujian) Co., Ltd. （金威服裝（福建）有限公司）is a wholly foreign owned enterprise for an operational period commencing from 13 September 1991 to 13 September 2061.

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VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

APPENDIX VII

Property

Description and tenure

Amount of valuations in existing state attributable to Particulars of the Group as at occupancy 28 February 2006 HK$

1. A Factory Complex erected on two adjoining parcels of land (adjacent to Property 5 as mentioned above) located at Chengbian Village Jiaowei Town Xianyou County Putian City Fujian Province The PRC

2. The property comprises five major buildings and structures erected on two adjoining parcels of land having a total site area of approximately 17,016 sq. m.

The five various major buildings and structures are of single to 3- storey in height having a total gross floor area of approximately 8,979.74 sq. m. They were completed between 1999 and 2003. (see Notes 2, 3 and 5 below)

The property is 34,670,000 currently occupied by (100% interest) the Group for (see Note 6 below) production purpose.

We noted that there was a 5- storey office building and will have a gross floor area of approximately 4,300 sq.m. upon completion was under construction as at the date of valuation. As advised by the relevant personnel on site, the building was expected to be completed by the end of April 2006. (see Note 4 below)

The property is subject to a right to use the land for a term of 50 years till 10 May 2053 for industrial usage. (see Note 1 below)

Notes:

1. The right to possess the land is held by the State and the right to use the land has been granted by the State to Good Fellow Garment (Fujian) Co., Ltd. （金威服裝（福建）有限公司）, a wholly-owned subsidiary of the Company, through the following ways:

2. (i) According to a Contract for the Grant of State-owned Land Use Rights dated 8 February 1999 and issued by Fujian Province Xianyou County Land Administration Bureau (福建省仙游縣土地管理局 ), the land use rights for a parcel of land having a site area of approximately 8,864.73 sq.m. was granted to Good Fellow Garment (Fujian) Co., Ltd. for a term of 50 years commencing from 8 June 1993 for industrial usage.

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VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

APPENDIX VII

• (ii) According to a Contract for the Grant of State-owned Land Use Rights dated 2 March 1999 and issue by Fujian Province Xianyou County Land Administration Bureau （福建省仙游縣土地管理局）, the land use rights of a parcel of land having a site area of approximately 10,791 sq.m. was granted to Good Fellow Garment (Fujian) Co., Ltd. for a term of 50 years.

According to a State-owned Land Use Rights Certificate known as Xian Guo Yong (2003) Zi Di 078037 Hao issued by The People’s Government of Xianyou County and dated 10 May 2003, the legally interested party in the land having a site area of 17,016 sq.m. was Good Fellow Garment (Fujian) Co., Ltd. for a term till 10 May 2053 for industrial usage.

According to the confirmation of the management of the Company, this certificate covers the two parcels of adjoining land mentioned under the Contracts for the Grant of State-owned Land Use Rights as mentioned in Note 1 (i) and (ii).

1. According to a Building Ownership Certificate known as Xian Zheng Fang Quan Zheng GY Zi Di 2003070 Hao dated 15 July 2003 and issued by the People’s Government of Xianyou County（仙游縣人民政府）, the legally interested party in two 3-storey workshop having a total gross floor area of 5,798.74 sq.m. was Good Fellow Garment (Fujian) Co., Ltd.

2. Pursuant to a Planning Permit for Using Construction Usage Land dated 19 June 2003, Good Fellow Garment (Fujian) Co., Ltd. was permitted to develop a 3-storey workshop (workshop no. 3) having a total gross floor area of approximately 3,053 sq. m. According to the information provided by the management of the Company, the workshop was completed in 2003.

3. Pursuant to a Planning Permit for Using Construction Usage Land and a Permit for Commencement of Construction Works dated 21 July 2005 and 22 July 2005, respectively, Good Fellow Garment (Fujian) Co., Ltd.（金威服裝（福 建）有限公司） was permitted to develop a 5-storey office building. Upon completion, the building will have a gross floor area of approximately 4,300 sq.m. The building was expected to be completed by the end of April 2006.

4. According to the information provided by the management of the Company, the breakdowns of each major buildings and structures of the property are as follows:

	Building	Gross Floor Area
		(sq.m.)
(i)	A 3-storey workshop No. 1	2.899.37
(ii)	A 3-storey workshop No. 2	2,899.37
(iii)	A 3-storey workshop No. 3	3,053.00
(iv)	A single storey boiler room	96.00
(v)	A single storey electrical and transformer room	32.00
	Construction in Progress Item
(vi)	A 5-storey office building	4,300

1. According to the information provided by the Company, the cost of the construction in progress item was approximately RMB8,602,000 as at the date of valuation. In our valuation, the construction in progress item was reported at cost spent as at the date of valuation

2. Pursuant to a valid Enterprise Legal Person Business Licence dated 6 August 1998, Good Fellow Garment (Fujian) Co., Ltd.（金威服裝（福建）有限公司）is a wholly foreign owned enterprise for an operational period commencing from 13 September 1991 to 13 September 2061.

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VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

APPENDIX VII

Group V – Properties rented by the Group in the PRC

Property

Description and occupancy

Amount of valuations in existing state attributable to the Group as at 28 February 2006 HK$

1. Shop Nos. 9-10 The property comprises two adjoining commercial units on Level 1 located at Level 1 of a 5-storey composite building which Block No. K-28 was completed in about mid 1990’s. Hau Shan Village Shi Quan Road The gross floor area of the property is approximately 75 sq. Ling Xiu Town m. Shishi City Fujian Province The property is leased to the Group till 30 April 2006 at an The PRC annual rental of RMB18,000 for commercial purpose.

No commercial value

At the time of inspection and confirmed by the Company, as at the date of valuation, the property was occupied by the Group for commercial purpose.

Notes:

1. The lessor of the property is 蔡紹順 (no English translation is available).

2. The lessee of the property is Fujian Good Fellow Fashion Co., Ltd. (福建金威世家服飾有限公司 ), a whollyowned subsidiary of the Company.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Property

Description and occupancy

Amount of valuations in existing state attributable to the Group as at 28 February 2006 HK$

1. The whole of the The property comprises the whole of the Levels 3, 4 and 6 of Levels 3, 4 and 6 a 7-storey composite building which was completed in mid Block No. 2 1990’s. Mao Xia Nan Ta Qian Village The total gross floor area of the property is approximately Nos. 9 – 13 750 sq. m. Shi Quan Road Ling Xiu Town The property is leased to the Group for a term of 3 years Shishi City commencing from 2 February 2004 to 2 February 2007 at an Fujian Province annual rental of RMB58,800 for the first year and at market The PRC rental for the 2nd and 3rd year.

No commercial value

At the time of inspection and confirmed by the Company, as at the date of valuation, the property was occupied by the Group for office, showroom, workshop, quarter and canteen purposes.

Notes:

1. The lessor of the property is 福興針車貿易有限公司 (no English translation is available).

2. The lessee of the property is Good Fellow Garment (Fujian) Co., Ltd., (金威服裝（福建）有限公司 ), a whollyowned subsidiary of the Company.

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APPENDIX VII VALUATION REPORT ON PROPERTY INTERESTS OF THE GROUP

Property

Description and occupancy

Amount of valuations in existing state attributable to the Group as at 28 February 2006 HK$

1. The whole of the The property comprises the whole of the Level 5 of a 7- Level 5 storey composite building which was completed in mid Block No. 2 1990’s. Mao Xia Nan Ta Qian Village The gross floor area of the property is approximately 250 Nos. 9 – 13 sq. m. Shi Quan Road Ling Xiu Town The property is leased to the Group for a term of 3 years Shishi City commencing from 13 May 2004 to 13 May 2007 at an annual Fujian Province rental of RMB21,600 for the first year and at market rental The PRC for the 2nd and 3rd year.

No commercial value

At the time of inspection and confirmed by the Company, as at the date of valuation, the property was occupied by the Group for staff quarters purpose.

Notes:

1. The lessor of the property is 王方毅 (no English translation is available).

2. The lessee of the property is Fujian Good Fellow Fashion Co., Ltd. (福建金威世家服飾有限公司 ), a whollyowned subsidiary of the Company.

– 179 –

GENERAL INFORMATION OF THE COMPANY

APPENDIX VIII

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

The authorized and issued share capital of the Company as at the Latest Practicable Date were as follows:

Authorised		HK$
5,000,000,000	shares of HK$0.01 each	500,000,000
Issue and fully	paid or credited as full paid:
2,938,607,600	shares of HK$0.10 each	293,860,760
Consideration Shares to be issued pursuant to the Acquisition Agreement
580,000,000	shares of HK$0.10 each	58,000,000
Conversion Shares to be issued pursuant to exercise of the Convertible Notes in full
1,753,333,333	shares of HK$0.10 each	175,333,333
5,271,940,933		527,194,093

All of the shares in issue rank pari in all aspects, including all rights as to dividend, voting and interest in capital, among themselves and with all other Shares in issue on the date of issue.

The Consideration shares and the Conversion Shares shall rank pari passu with all the Shares in issue in all aspects, including all rights as to dividend, voting and interest in capital, among themselves and with all other Shares in issue on the date of issue.

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GENERAL INFORMATION OF THE COMPANY

APPENDIX VIII

3. DISCLOSURE OF INTERESTS

(a) Interests of Directors and chief executive of the Company

As at the Latest Practicable Date, the interests and short positions of the Directors or chief executive of the Company in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which is required to be (i) 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 the Directors or chief executive of the Company was taken or deemed to have under such provisions of the SFO); or (ii) entered in the register kept by the Company pursuant to section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies were as follows:

s follows:
							Total
							Interests
							(including
					Total	Interests	underlying
					Interests as	in	shares (as
					% of the	underlying	% of
					issued	shares	issued
	Personal	Family	Corporate	Total	share	(share	share
	Interest	Interests	Interests	Interests	capital	options)	capital	Notes
Mr. Ng Leung Ho	63,036,000	–	960,000,000	1,023,036,000	34.81%	27,200,000	35.74%	1, 2
Ms. Lee Ming Hin	–	–	–	–	0%	20,000,000	0.68%	3
Mr. Wang Weining	–	–	–	–	0%	20,000,000	0.68%	3
Mr. Hu Xiaoming	–	–	–	–	0%	20,000,000	0.68%	3
Mr. Ng Leung Tung	–	–	–	–	0%	20,000,000	0.68%	3

Notes:

1. The corporate interests attributed to Mr. Ng Leung Ho of 960,000,000 shares are held by Golden Prince Group Limited, a company incorporated in the British Virgin Islands. The entire issued share capital of Golden Prince Group Limited is directly wholly owned by Mr. Ng Leung Ho.

2. The interests in underlying shares attributed to Mr. Ng Leung Ho includes:

3. i) share options to subscribe for 7,200,000 new shares in the Company, exercisable at a price of HK$0.10 per share. These share options were granted pursuant to a previously existed option scheme adopted by the Company, which has been terminated on 23 November 2001. These share options remain outstanding and are exercisable during the period from 1 May 1999 to 24 October 2008; and

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GENERAL INFORMATION OF THE COMPANY

APPENDIX VIII

• ii) share options to subscribe for 20,000,000 new shares in the Company, exercisable at a price of HK$0.24 per share and granted pursuant to the Company’s existing share option scheme, as adopted by the Company’s shareholders in the Company’s annual general meeting held on 23 November 2001.

• The interests in underlying shares attributed to these directors represent share options to subscribe for new shares in the Company, exercisable at a price of HK$0.24 per share and granted pursuant to the Company’s existing share option scheme, as adopted by the Company’s shareholders in the Company’s annual general meeting held on 23 November 2001.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company has an interest or short position in any shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which is required to be (i) 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 the Directors or chief executive of the Company was taken or deemed to have under such provisions of the SFO); or (ii) entered in the register kept by the Company pursuant to section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.

(b) Directors’ interests in assets and contracts

As at the Latest Practicable Date, none of the Directors has any direct or indirect interest in any assets which have been acquired or disposed of by or leased to the Company or are proposed to be acquired or disposed of by or leased to the Company since 30 June 2005, being the date to which the latest published audited accounts of the Company were made up.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by the Company subsisting at the Latest Practicable Date and which is significant in relation to the business of the Company.

(c) Directors’ and management shareholders’ interests in competing business

As at the Latest Practicable Date, none of the Directors or the controlling shareholders of the Company and their respective associates has any interest in a business, apart from the business of the Company, which competes or may compete with the business of the Company or has any other conflict of interest with the Company which would be required to be disclosed under Rule 8.10 of the Listing Rules.

(d) Substantial shareholders’ and other shareholders’ interests

As at the Latest Practicable Date, save as disclosed below, so far as is known to the Directors or chief executive of the Company, no other person has an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or were required to be notified to the Company and the Stock Exchange pursuant to section 324 of the SFO, or, who is, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company.

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GENERAL INFORMATION OF THE COMPANY

APPENDIX VIII

				Approximate Percentage
		Number of		of Total Issued Share
Name of Shareholder	Class of Shares	Shares Held		Capital of the Company
Ng Leung Ho	Ordinary	1,050,236,000	(Note 1)	35.74%
Golden Prince Group Limited	Ordinary	960,000,000	(Note 2)	32.67%

Notes:

1. Mr. Ng Leung Ho is beneficially interested in an aggregate of 1,023,036,000 shares comprising (i) corporate interest in 960,000,000 ordinary shares held through Golden Prince Group Limited which wholly owned by Mr. Ng Leung Ho; and (ii) personal interest in 63,036,000 ordinary shares. Mr. Ng Leung Ho is also deemed to be interested in 27,200,000 underlying ordinary shares upon full exercise of options to subscribe for ordinary shares in the Company.

2. As at the Latest Practicable Date, Golden Prince Group Limited is interested in 960,000,000 ordinary shares in the Company, representating approximately 32.67% of the total issued share capital of the Company. Mr. Ng Leung Ho held 100% of the issued share capital of Golden Prince Group Limited. Accordingly, Mr. Ng Leung Ho is deemed, by virtue of the SFO, to be interested in all the shares of the Company in which Golden Prince Group Limited is interested.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, save as disclosed below, none of the Directors entered or proposed to enter into any service contract with the Company which is not determinable by the Company within one year without payment of compensation other than statutory compensation.

Each of Mr. Ng Leung Ho and Ms. Lee Ming Hin, being executive Directors, and Mr. Lo Cheung Kin, Mr. Zou Zi Ping and Mr. Zhu Jian Hong, being independent non-executive Directors, has entered into a service contract with the Company for a term of three years commencing on 25 October 2004.

Each of Mr. Wang Weining and Mr. Hu Xiaoming, being executive Directors, has entered into a service contract with the Company for a term of three years commencing on 19 July 2004.

Mr. Ng Leung Tung, being non-executive Director, has entered into a service contract with the Company for a term of three years commencing on 3 January 2005.

5. MATERIAL CONTRACTS

Save as disclosed below, the Company has not entered into any material contracts (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of this circular which are or may be material:

• i. the Acquisition Agreement dated 18 March 2004 made between Holt Hire Holdings Limited, a wholly-owned subsidiary of the Company, as purchaser and Rise Star Investments Limited as vendor on 18 March 2004 for the purchase of 100% equity interest in Charming World Investments Limited for a cash consideration of HK$98 million;

• ii. the Subscription Agreement dated 13 January 2005 between Prince Golden Group Limited and the Company for subscription of 498,000,000 shares of the Company at a subscription of HK$0.20 per share;

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GENERAL INFORMATION OF THE COMPANY

APPENDIX VIII

• iii. the Acquisition Agreement; and

• iv. the Acquistion Supplemental Agreement.

6. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged in any litigation or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

7. EXPERTS AND CONSENTS

The followings are the qualifications of the experts who have given opinions, letters or advice contained or referred to in this circular:

Name	Qualification
Johnny Chan & Co. Limited	Certified Public Accountants
RSM Nelson Wheeler	Certified Public Accountants
LCH (Asia-Pacific) Surveyors Limited	Qualified valuer
北京市康達律師事務所	PRC Lawyer

The above experts have given and have not withdrawn their respective written consents to the issue of this circular with the inclusion of their opinion or letters, as the case may be, and references to their name, opinion or letters in the form and context in which they appear.

As at the Latest Practicable Date, the above experts are not beneficially interested in any shareholding in the Company nor have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in the Company, nor did they have any interest, either direct or indirect, in any assets of the Company which have been, since 30 June 2005 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of or leased to, or are proposed to be acquired or disposed of or leased to, the Company

8. MATERIAL CHANGES IN THE FINANCIAL OR TRADING POSITION

As at the Latest Practicable Date, so far as is known to the Directors, the Directors are not aware of any circumstances or events that may give rise to a material adverse change in the financial and trading position or prospect of the Company since 30 June 2005, being the date to which the latest published audited accounts of the Company were made up.

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GENERAL INFORMATION OF THE COMPANY

APPENDIX VIII

9. PROCEDURES TO DEMAND FOR A POLL AT GENERAL MEETING

At any general meeting of the Company, resolutions put to the vote of the meeting 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:

• (i) by the chairman of the meeting; or

• (ii) by at least three Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or

• (iii) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised 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

• (iv) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised 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.

On a show of hands every Shareholder who is present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative), or by proxy shall (save as provided otherwise in this Bye-law) have one vote, and on a poll every Shareholder present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy, shall have one vote for every share of which he is the holder which is fully paid or credited as fully paid (but so that no amount paid or credited as paid on a share in advance of calls or installments shall be treated for the purposes of this Bye-law as paid on the Share). On a poll, a Shareholder entitled to more than one vote need not, if he votes, use all his votes or cast all his votes in the same way.

10. MISCELLANEOUS

• (a) So far as is known to the Directors, as at the Latest Practicable Date, there was (i) no voting trust or other agreement or arrangement or understanding entered into by or binding upon any Shareholders; and (ii) no obligation or entitlement of any Shareholders, whereby he/ she/it has or may have temporarily or permanently passed control over the exercise of the voting rights in respect of his/her/its Shares to a third party, either generally or on a caseby-case basis.

• (b) So far as is known to the Directors, as at the Latest Practicable Date, there was no discrepancy between any Shareholder’s beneficial shareholding interest in the Company as disclosed in this circular and the number of Shares in respect of which it will control or will be entitled to exercise control over the voting rights at the SGM.

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GENERAL INFORMATION OF THE COMPANY

APPENDIX VIII

• (c) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

• (d) The head office and principal place of business of the Company in Hong Kong is Unit 1906, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong.

• (e) The company secretary of the Company in Hong Kong is Mr. Lam J. Fung Edward who is an Associate Member of the Hong Kong Institute of Certificate Public Accountants.

• (f) The qualified accountant of the Company is Mr. Lam J. Fung Edward who is an Associate Member of the Hong Kong Institute of Certificate Public Accountants.

• (g) The Company’s Hong Kong branch share registrar is Tengis Limited of 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (h) The English text of this circular shall prevail over the Chinese text in the case of any inconsistency.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the head office of the Company at Unit 1906, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong from the date of this circular up to and including the date of the SGM:

• (a) the memorandum of association and bye-laws of the Company;

• (b) the material contracts referred to in the section headed “Material Contracts” in this appendix;

• (c) the written consents referred to under the section headed “Experts and Consents” in this appendix;

• (d) the service contracts referred to under the section headed “Service Contracts” in this appendix;

• (e) the annual reports of the Company for years and 30th June 2004 and 30th June 2005 respectively;

• (f) the accountants’ report from Johnny Chan & Co. Limited on unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix IV to this circular; and

• (g) the summary valuation reports on the assets proposed to be acquired by the Group, the pending patent and property interests of the Group from LCH (Asia-Pacific) Surveyors Limited, the text of which is set in Appendix V and VII, respectively to this circular;

• (h) the letter from Johnny Chan & Co., Limited on the valuation of pending patent estimate, the text of which is set out in Appendix VI to this circular.

• (i) the letter from Kingston Corporate Finance Limited on the valuation of pending patent estimate, the text of which is set out in Appendix VI to this circular.

• (j) the Acquisition Agreement;

• (k) the Acquisition Supplemental Agreement; and

• (l) the PRC legal opinions issued by 北京市康達律師事務所 .

– 186 –

NOTICE OF SGM

GOOD FELLOW GROUP LIMITED 金威集團控股有限公司[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 910)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (“SGM’’) of Good Fellow Group Limited (“Company’’) will be held on 8 May 2006 at 11:00 a.m. at Unit 708, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong for the purpose of considering and, if thought fit, passing, with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT the authorized share capital of the Company be and is hereby increased from HK$500,000,000 divided into 5,000,000,000 shares of HK$0.10 each (“Shares”) to HK$650,000,000 divided into 6,500,000,000 Shares by the creation of an additional 1,500,000,000 Shares ranking pari passu in all respects with the existing issued and unissued Shares.”

2. “ THAT subject to the passing of Ordinary Resolution numbered 1 set out in the Notice of Special General Meeting dated 18 April 2006”

3. (a) (i) the Acquisition Agreement dated 26 October 2005 and the Acquisition Supplemental Agreement dated 20 January 2006 (collectively the “Agreements”) entered into among the the Company, Leading Power International Limited, Total Victory Investments Limited, Karen Liu and Lee Chi Kong, copies of which have been produced to this meeting marked “A” and “B” respectively and initialled by the chairman of this meeting for the purpose of identification, and the transactions contemplated thereunder be and are hereby approved;

   • (ii) the allotment and issue of 580,000,000 new shares of HK$0.10 each of the Company (“Shares”) pursuant to the Agreements be and are hereby approved;

   • (iii) the creation and issue of the Convertible Notes (as defined in the circular dated 18 April 2006 dispatched to shareholders of the Company, copies of which marked “C” have been initialled by the chairman of this meeting for the purpose of identification) pursuant to the Agreements; and the allotment and issue to the holders of the Convertible Notes, upon exercise of the conversion

* For identification purposes only

– 187 –

NOTICE OF SGM

rights attaching to the Convertible Notes, of shares in the capital of the Company in accordance with the terms and conditions of the Convertible Notes, be and are hereby approved; and

• (b) the directors of the Company be and are hereby authorized to (i) do all such acts, matters and things as they may in their absolute discretion consider necessary, expedient or desirable to give effect to and implement the Agreements and the transactions contemplated thereunder in accordance with the terms and conditions of the Agreements and to waive compliance from or make and agree such variations to any of the terms and conditions of the Agreements as they may in their discretion consider to be necessary or desirable and in the interest of the Company; (ii) allot and issue 580,000,000 new Shares pursuant thereto and (iii) issue the Convertible Notes and/or shares in the capital of the Company upon conversion of the Convertible Notes in accordance with the terms and conditions of the Convertible Notes.”

By Order of the Board Ng Leung Ho Chairman

Hong Kong, 18 April 2006

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NOTICE OF SGM

Head office and principal place of business in Hong Kong Unit 1906,

Nanyang Plaza, 57 Hung To Road,

Kwun Tong, Kowloon, Hong Kong

Notes:

1. A member entitled to attend and vote at the above meeting may appoint one or, if he is the holder of two or more shares, more than one proxy to attend and vote on his behalf and such proxy need not be a member of the Company. A form of proxy for use at the meeting is enclosed with a circular of the Company dated 18 April 2006.

2. In order to be valid, the form of proxy, together with any power of attorney or authority, if any, under which it is signed or a certified copy of that power of attorney or authority, must be deposited at the Company’s branch registrars in Hong Kong, Tengis Limited of 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

3. Completion and return of the form of proxy will not preclude a shareholder of the Company from attending and voting in person at the meeting convened or any adjournment thereof and in such event, the authority of the proxy shall be deemed to be revoked.

4. In the case of joint holders of a share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she was solely entitled thereto but if more than one of such joint holders are present at the 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. For this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

– 189 –