China City Infrastructure Group Limited - Proxy Solicitation & Information Statement 2007

THis CiRCULAR is iMPORTANT AND REQUiREs YOUR iMMEDiATE ATTENTiON

if you are in doubt as to any aspect of this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

if you have sold or transferred all your shares of HK$0.01 each in the capital of Wah Yuen Holdings Limited (the “ Company ”), you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this document, 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 document.

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

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WAH YUEN HOLDiNGs LiMiTED 華園控股有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 2349)

VERY sUBsTANTiAL ACQUisiTiON

Financial Adviser to Wah Yuen Holdings Limited

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Optima Capital Limited

(formerly known as VXL Financial Services Limited)

A notice convening an extraordinary general meeting of the Company to be held at 2nd Floor, On Shing Industrial Building, Nos. 2-16 Wo Liu Hang Road, Fo Tan, Shatin, New Territories, Hong Kong on Friday, 12 October 2007 at 10:00 a.m. is set out on pages 179 to 180 of this circular of the Company. A form of proxy for use at the extraordinary general meeting is enclosed with this circular. Such form of proxy is also published on the website of The Stock Exchange of Hong Kong Limited at www.hkex.com.hk.

Whether or not you are able to attend the extraordinary general meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and deposit the same at the offices of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the extraordinary general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the extraordinary general meeting or any adjournment thereof should you so wish.

24 September 2007

	Page
Definitions 1
Letter from the Board
Introduction	4
The Agreement	5
Information on the CEWH Group	6
The Convertible Bonds	8
Shareholding structure of the Company	12
Reasons for the Acquisition	13
Management discussion on the CEWH Group/Seabuckthorn Group 14
Listing Rules implications 18
Financial effects of the Acquisition	18
EGM 19
Recommendation	19
General 19
Appendix I – Financial information on the Group 20
Appendix II – Accountants’ reports on the CEWH Group
and the Seabuckthorn Group 65
Appendix III – Unaudited pro forma financial information
on the Enlarged Group	135
Appendix IV – Property valuation on the Enlarged Group	143
Appendix V – General information 173
Notice of EGM	179

Definitions

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

“Acquisition”

the proposed acquisition of the Sale Shares in CEWH by the Purchaser for a total consideration of HK$200,000,000 pursuant to the Agreement

“Agreement” the sale and purchase agreement dated 29 June 2007 entered into between the Vendor, the Purchaser, China Water and the Company in relation to the Acquisition

“Announcement”

the announcement of the Company dated 12 July 2007 in relation to the Agreement

“associates”

has the meaning ascribed to it under the Listing Rules

“Board” board of Directors
“BVI” the British Virgin Islands
“CEWH”
China Environmental Water Holdings Limited, a company incorporated in Hong Kong with limited liability
“CEWH Group” CEWH and its subsidiaries, including Seabuckthorn Group
“China Water” China Water Affairs Group Limited, a company incorporated in the Cayman Islands and continued in Bermuda with limited liability, the shares of which are listed on the main board of the Stock Exchange (stock code: 855)
“China Water Group” China Water and its subsidiaries
“Company” Wah Yuen Holdings Limited, a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the main board of the Stock Exchange
“Completion” completion of the Agreement
“connected persons” has the meaning ascribed to it under the Listing Rules
“Consideration” the consideration of HK$200,000,000 payable by the Purchaser for the Acquisition and to be satisfied in the manner as described in this circular
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Definitions

“Consideration Shares” “Conversion Price”
the 133,000,000 new Shares to be allotted and issued to the Vendor to satisfy as part of the Consideration
the price at which holder(s) of the Convertible Bonds may convert the outstanding principal amount of the Convertible Bonds into Shares, initially at HK$0.15 per Conversion Share (subject to adjustments) and on and subject to the terms and conditions described in this circular
“Conversion Shares” the 1,200,333,333 new Shares which will fall to be issued upon full conversion of the initial principal amount of the Convertible Bonds of HK$180,050,000 at the initial Conversion Price of HK$0.15 per Share (subject to adjustments)
“Convertible Bonds”
the convertible bonds in the principal amount of HK$180,050,000 to be issued by the Company in favour of the Vendor at Completion to satisfy as part of the Consideration
“Directors” directors of the Company
“EGM” the extraordinary general meeting of the Company to be held for the purpose of considering and, if thought fit, approving the proposed Acquisition (including the issue of the Convertible Bonds and the allotment and issue of the Consideration Shares and the Conversion Shares which will fall to be allotted and issued upon conversion of the Convertible Bonds)
“Enlarged Group” the Group immediately after Completion
“Group” the Company and its subsidiaries
“Guaranteed Profit” has the meaning ascribed thereto in the sub-section headed “Profit Guarantee” in the section headed “The Agreement” in this circular
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Issue Price” the issue price of HK$0.15 per Consideration Share

“Latest Practicable Date” 21 September 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

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

Definitions

“Maturity Date” the tenth anniversary of the date of the issue of the Convertible Bonds
“PRC” the People’s Republic of China which, for the purpose of this circular, shall exclude Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
“Purchaser” Top Harbour Development Limited, a wholly-owned subsidiary of the Company incorporated in BVI with limited liability
“Sale Shares” 10 shares of HK$1.00 each in the share capital of CEWH beneficially owned by the Vendor, representing the entire issued share capital of CEWH
“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Seabuckthorn Company” Conseco Seabuckthorn Co., Ltd., a sino-foreign equity joint venture established under the laws of the PRC, whose equity interest is held as to 50% by CEWH
“Seabuckthorn Group” Seabuckthorn Company and its subsidiaries “Seabuckthorn JV Partners” has the meaning ascribed thereto in the paragraph headed “Information on the CEWH Group” in the section headed “The Agreement” in the letter form the Board contained in this circular
“Share(s)” ordinary share(s) of HK$0.01 each in the share capital of the Company
“Shareholders” holders of the Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited
“Takeovers Code” means the Hong Kong Codes on Takeovers and Mergers
“Vendor” China Water Group Limited, a wholly-owned subsidiary of China Water incorporated in BVI with limited liability
“HK$” Hong Kong dollars, the lawful currency of Hong Kong “%” per cent
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LETTER FROM THE BOARD

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WAH YUEN HOLDINGS LIMITED 華園控股有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 2349)

Executive Directors: Mr But Ching Pui (Honorary Chairman) Mr But Ka Wai (Chairman) Mr But Chai Tong (Vice Chairman)

Non-executive Directors:

Ms Leung Wai Ling Mr Ngai Chun Kong, Stephen

Independent non-executive Directors: Mr Cheung Yu Yan, Tommy Mr Ip Shing Tong, Francis Mr Ku Siu Fung, Stephen

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business in Hong Kong: 2nd Floor, On Shing Industrial Building Nos. 2-16 Wo Liu Hang Road Fo Tan, Shatin New Territories Hong Kong

24 September 2007

To the Shareholders

Dear Sir or Madam

VERY SUBSTANTIAL ACQUISITION

INTRODUCTION

On 12 July 2007, the Board announced that the Purchaser, a wholly-owned subsidiary of the Company, and the Vendor, a wholly-owned subsidiary of China Water, entered into the Agreement pursuant to which the Purchaser has conditionally agreed to acquire from the Vendor the Sale Shares, being 10 shares in CEWH, representing the entire issued share capital of CEWH at an aggregate consideration of HK$200,000,000.

CEWH is an investment holding company whose principal asset is the holding of 50% equity interest in Seabuckthorn Company. The Seabuckthorn Group is principally engaged in the cultivation and sale of seabuckthorn seedlings and manufacturing and sale of seabuckthorn related health products.

LETTER FROM THE BOARD

The Consideration shall be satisfied by the Purchaser as to (i) HK$19,950,000 by procuring the Company to allot and issue the Consideration Shares to the Vendor, credited as fully paid, at the Issue Price of HK$0.15 per Consideration Share; and (ii) HK$180,050,000 by procuring the Company to issue the Convertible Bonds to the Vendor on Completion.

The Acquisition constitutes a very substantial acquisition for the Company under the Listing Rules. As such, the Agreement and the transactions contemplated therein (including but not limited to the issue of the Convertible Bonds and the allotment and issue of the Consideration Shares) are subject to the approval of the Shareholders at an extraordinary general meeting of the Company. The Vendor and its associates (including China Water and its connected persons) do not own or hold any Shares as at the Latest Practicable Date. As no Shareholder has a material interest in the Acquisition which is different from other Shareholders, no Shareholder would be required to abstain from voting at the extraordinary general meeting to be convened by the Company to consider and, if thought fit, to approve the Agreement and transactions contemplated therein.

This circular provides you with, among other things, (i) further details of the Agreement and the transactions contemplated thereunder (including but not limited to the allotment and issue of the Consideration Shares and the Conversion Shares and the issue of Convertible Bonds); (ii) an accountants’ report on the CEWH Group; (iii) unaudited pro forma financial information on the Enlarged Group; (iv) valuation reports on the property interests of the Enlarged Group; (v) financial and other information of the Group; and (vi) a notice of the EGM.

THE AGREEMENT

Date 29 June 2007

Parties to the Agreement

(i) China Water Group Limited, a wholly-owned subsidiary of China Water, as vendor;
(ii) Top Harbour Development Limited, a wholly-owned subsidiary of the Company, as purchaser;
(iii) China Water Affairs Group Limited, a company whose shares are listed on the main board of the Stock Exchange (stock code: 855) as guarantor of the performance by the Vendor of its obligations under the Agreement; and
(iv) the Company as guarantor of the performance by the Purchaser of its obligations under the Agreement.

The Vendor is an investment holding company and the intermediate holding company of CEWH. The Vendor is a wholly-owned subsidiary of China Water. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendor and its associates (including China Water, its subsidiaries, and the substantial shareholders, directors and chief executive of China Water and its subsidiaries and their respective associates) are third parties independent of the Company and its connected persons. The Group has not entered into any previous transactions with the Vendor with would otherwise require aggregation pursuant to Rule 14.22 of the Listing Rules.

LETTER FROM THE BOARD

Assets to be acquired

The Sale Shares, being 10 shares in CEWH, representing the entire issued share capital of CEWH.

INFORMATION ON THE CEWH GROUP

CEWH was incorporated in Hong Kong with limited liability on 8 December 2003. CEWH is an investment holding company whose principal asset is the holding of 50% equity interest in Seabuckthorn Company, a sino-foreign equity joint venture established under the laws of the PRC in November 2005. The remaining 50% equity interest in Seabuckthorn Company is held by three parties, as to 18% by 水利部沙棘開發管理中心 (China National Administration Centre for Seabuckthorn Development), as to 22% by 北京山合林水環境規劃設計中心 (Beijing Shan He Lin Environment Planning Design Centre) and as to the balance of 10% by 江海世紀投資管理（北京）有限公司 (Jiang Hai Century Investment Management (Beijing) Co., Ltd.*) (together, the “Seabuckthorn JV Partners”), all of whom are third parties independent of the Company and its connected persons. The Vendor and China Water have confirmed that the Seabuckthorn JV Partners are unrelated to, and not connected persons of, China Water, save for their common shareholdings with CEWH in Seabuckthorn Company.

Seabuckthorn Company and its subsidiaries are principally engaged in the cultivation and sale of seabuckthorn seedlings, and processing, development, manufacturing and sale of seabuckthorn related food and health products and cosmetic products in the PRC, Hong Kong and other overseas markets. Seabuckthorns are deciduous bushes. Their habitat spreads over a wide area from northwestern Europe, through Central Asia, to the Altai Mountains to western and northern China and the northern Himalayas. They are both drought salt tolerant. They can survive temperatures as low as -40˚C and barren lands, and require full sunlight for good growth. China’s seabuckthorn resources accounts for 95% of the world’s resources. Seabuckthorns are recognised for their high nutrient content in protein, vitamins C and E, and amino acids. The leaves and young branches and berries are used as functional food for their nutrition content (such as berries juices and tea leaves) and medicinal and cosmetics products for their pharmaceutical and antioxidant qualities (such as seabuckthorn oil for skin therapy including sun, heat, chemical and radiation burns, eczema and poorly healing wounds). Seabuckthorns are also widely cultivated for agronomic and environmental protection. Seabuckthorns rapidly develop an extensive root system capable of fixing nitrogen. They have been used for soil erosion control and land reclamation projects and breeding seedlings, to cultivation of operates in vertical integration from the developing seabuckthorn, to berries processing, to manufacturing of seabuckthorn products. The Seabuckthorn Group has founded its own seabuckthorn cultivation bases in Erdos Plateau, Loess Plateau, North-eastern Plain and Qinghai-Tibet Plateau in the PRC with total area of about 200,000 hectares to guarantee the stable supply of seabuckthorn for its manufacturing activities in seabuckthorn related products. The Seabuckthorn Group has also utilized seedling bases over a total area of about 200 hectares in Beijing, Inner Mongolia Autonomous Region and Shannxi province, with annual reproduction capacity of approximately 100 million plants. It has also set up

* for indentification purpose only

LETTER FROM THE BOARD

a raw material processing centre with annual fruit processing capacity of 5,000 tons. The products manufactured by the Seabuckthorn Group are of a wide variety, from raw materials including seed oil, pulp oil, pulp powder, flavone powder, raw juices, concentrate juices, seedlings, seeds, dried berries and tea leaves, finished products including health products such as flavone soft capsules, seed oil soft capsules, pulp oil soft capsules, seed oil, pulp oil, tea in packs, and cosmetic series. The sale and distribution network covers 11 provinces in the PRC, spanning over northern, northwestern, northeastern and central part of the PRC. Seabuckthorn Company and its subsidiaries have been accounted for as subsidiaries in the accounts of CEWH since the establishment of Seabuckthorn Company in November 2005.

CEWH had not carried on any business since its incorporation and until July 2005 when it entered into an investment agreement with the other existing shareholders of Seabuckthorn Company for the establishment of Seabuckthorn Company. The following financial information is extracted from the accountants’ report of the CEWH Group contained in Appendix II for the period from 8 December 2003 (date of incorporation) to 31 March 2005 and for the year ended 31 March 2006 and 2007.

Revenue Operating profit/(loss) before taxation Income tax expense Profit/(loss) for the year/period Minority interests Profit/(loss) attributable to equity holders of CEWH during the year/period	Year ended 31 March 2007 (HK$’000) 5,609 21,888 (4,222 ) 17,666 (8,814 ) 8,852	Period from 8 December 2003 Year ended (date of incorporation) 31 March 2006 to 31 March 2005 (HK$’000) (HK$’000) 6,088 – 16,851 (10 ) (3,049 ) – 13,802 (10 ) (7,404 ) – 6,398 (10 )

As at 31 March 2007, the audited consolidated net asset value of the CEWH Group was approximately HK$48,641,000.

The Consideration

The Consideration for the Acquisition is HK$200,000,000 and shall be satisfied by the Purchaser as to (i) HK$19,950,000 by procuring the Company to allot and issue the Consideration Shares to the Vendor, credit as fully paid at the Issue Price of HK$0.15 per Consideration Share; and (ii) HK$180,050,000 by procuring the Company to issue the Convertible Bonds to the Vendor on Completion.

LETTER FROM THE BOARD

The Consideration Shares represent approximately 24.0% of the existing issued share capital of the Company, and approximately 19.4% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares.

The Consideration was arrived at after arm’s length negotiations between the parties and with reference to the profit attributable to equity holders of CEWH (after consolidating Seabuckthorn Company) as referred to above and after taking into account factors such as the potential of the business of CEWH, the possible future earnings contribution to the Group and the Guaranteed Profit set out below.

Profit guarantee

Pursuant to the Agreement, the Vendor guarantees to the Purchaser that the audited consolidated net profit after tax and extraordinary or exceptional items of the CEWH Group (before deducting minority interests) will not be less than HK$20,000,000 for the year ending 31 March 2008 (the “ Guaranteed Profit ”). If the actual audited consolidated net profit after tax and extraordinary or exceptional items of the CEWH Group (before deducting minority interests) for the year ending 31 March 2008 (the “ Actual Profit ”) is less than the Guaranteed Profit, the Vendor shall pay to the Purchaser the shortfall an a dollar to dollar basis in cash (the “ Guaranteed Profit Shortfall ”) (being the difference between the Actual Profit and the Guaranteed Profit multiplied by 50%) within seven days after the delivery of the audited consolidated financial statements prepared in accordance with the Hong Kong Financial Reporting Standards for the year ending 31 March 2008. However, in any event, Guaranteed Profit Shortfall shall not exceed HK$10,000,000, as CEWH owns only 50% equity interest of Seabuckthorn Company. In the event that the CEWH Group records an audited consoldiated loss after tax and any extraordinary or exceptional items for the financial year ending 31 August 2008, the Vendor shall pay the maximum amount of HK$10,000,000 to the Purchaser.

Waiver of loans owed by CEWH Group

As at 31 March 2006, CEWH was indebted to other members of the China Water Group in the total amount of approximately HK$19.3 million, which advances were unsecured, interest free and repayable on demand. As at the Latest Practicable Date, CEWH is indebted to other members of the China Water Group in the total amount of approximately HK$19 million.

Pursuant to the Agreement, the Vendor will procure and confirm to the Purchaser that all obligations, liabilities and debts owing or incurred by CEWH or its subsidiaries to the Vendor or its associates on the date of the Agreement or on or at any time prior to Completion, whether actual, contingent or deferred and irrespective of whether or not the same is due and payable on Completion, have been waived.

THE CONVERTIBLE BONDS

The principal terms of the Convertible Bonds to be issued by the Company are as follows:

Principal amount: HK$180,050,000, credited as fully paid at its face value as satisfaction of part of the Consideration.

Maturity Date: The tenth anniversary of the date of issue of the Convertible Bonds.

LETTER FROM THE BOARD

Unless previously converted, the principal amount of the Convertible Bonds will be repaid by the Company on the Maturity Date.

Interest:

Conversion and redemption:

3% per annum on the principal amount outstanding from time to time, payable semi-annually in arrear.

Provided that (i) any conversion of the Convertible Bonds does not trigger a mandatory offer obligation under Rule 26 of the Takeovers Code on the part of the relevant holder of the Convertible Bonds who exercises the conversion rights, whether or not such mandatory offer obligation is triggered by the fact that the number of Conversion Shares to be allotted and issued upon the exercise of the conversion rights attaching to the Convertible Bonds and, if applicable, together with any Shares already owned or agreed to be acquired by such holder of Convertible Bonds and/or parties acting concert with it, represents 30% or more (or such other percentage as stated in Rule 26 of the Takeovers Code in effect from time to time) of the then issued ordinary share capital of the Company or otherwise pursuant to other provisions of the Takeovers Code, the holder(s) of the Convertible Bonds shall have the right to convert the whole or any part (in integral multiple of HK$5,000,000 or if the aggregate outstanding principal amount is less than HK$5,000,000, the entire outstanding amount of the Convertible Bonds) of the outstanding principal amount of the Convertible Bonds into Shares at any time from the date of issue up to the Maturity Date at the Conversion Price of HK$0.15 per Conversion Share (subject to adjustments). To the extent not previously converted, the Company shall redeem the Convertible Bonds in cash at maturity.

The Conversion Price of the Convertible Bonds is subject to adjustment provisions customary for convertible securities of similar type. The adjustment events will arise as a result of certain changes in the share capital of the Company including consolidation or sub-division of shares, capitalization of profits or reserves, capital distributions in cash or specie or subsequent issue of securities in the Company at substantial discount to market value.

Conversion Shares:

On the basis of the principal amount of HK$180,050,000 and the initial Conversion Price of HK$0.15 per Conversion Share, a total of 1,200,333,333 Conversion Shares will be issued upon full conversion of the Convertible Bonds. The Conversion Shares shall upon issue rank pari passu in all respects with the then issued Shares.

LETTER FROM THE BOARD

Assuming there is no change in the issued share capital of the Company after Completion, a holder of the Convertible Bonds may exercise conversion rights attaching to Convertible Bonds up to a principal amount of approximately HK$15,470,943, such that a total of 103,139,620 Conversion Shares shall be issued at the initial Conversion Price of HK$0.15 (which together with the Consideration Shares shall amount to 236,139,620 Shares and represent 29.90% of the issued share capital of the Company) each without triggering any general offer obligation on the part of the relevant Convertible Bonds holder under the existing provisions of the Takeovers Code.

Listing: No application will be made for the listing of the Convertible Bonds on any stock exchange. Application will be made for the listing of and permission to deal in the Conversion Shares on the Stock Exchange. Voting: Holder(s) of the Convertible Bonds shall not be entitled to attend or vote at any general meetings of the Company by reason only of it being the Convertible Bonds holder. Transferability: The Convertible Bonds may be assignable or transferable subject to the prior notification to the Company. The Company undertakes to the Stock Exchange that it will notify the Stock Exchange immediately upon becoming aware of any dealings in the Convertible Bonds by any connected persons of the Company.

The 1,200,333,333 Conversion Shares to be issued upon full conversion of the Convertible Bonds represent approximately 216.8% of the existing issued share capital of the Company, approximately 174.8% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and approximately 63.6% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Conversion Shares.

The Issue Price and the Conversion Price

The Issue Price and the initial Conversion Price of the Convertible Bonds are the same at HK$0.15 per Share which represents:

(i) a discount of approximately 89.4% to the closing price of HK$1.41 per Share as quoted on the Stock Exchange on 29 June 2007, being the last trading day prior to the suspension of trading in the Shares on 3 July 2007;
(ii) a discount of approximately 89.4% to the average of the closing prices of HK$1.416 per Share as quoted on the Stock Exchange over the last five consecutive trading days up to and including 29 June 2007;
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LETTER FROM THE BOARD

(iii) a discount of approximately 88.8% to the average of the closing prices of HK$1.342 per Share as quoted on the Stock Exchange over the last 10 consecutive trading days up to and including 29 June 2007;
(iv) a discount of approximately 86.4% to the average of the closing prices of HK$1.10 per Share as quoted on the Stock Exchange over the last 30 consecutive trading days up to and including 29 June 2007;
(v) a discount of approximately 58.3% to the audited consolidated net assets of the Company of HK$0.36 per Share as at 31 December 2006; and
(vi) a discount of approximately 87.2% to the closing price of HK$1.17 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Conditions of the Agreement

The Agreement is subject to and conditional upon the fulfillment of the following conditions on or before 31 December 2007 (or such later date as shall be agreed between the Vendor and the Purchaser):

(a) the Purchaser being satisfied with the results of the due diligence review of the assets, liabilities, operations and affairs of the CEWH Group as it may reasonably consider appropriate;
(b) all necessary consents and approvals required to be obtained on the part of the Vendor and the Purchaser in respect of the Agreement and the transactions contemplated thereby having been obtained;
(c) the passing by the Shareholders at a general meeting of the Company to be convened and held of an ordinary resolution to approve the Agreement and the transactions contemplated hereunder, including but not limited to (i) the allotment and issue of the Consideration Shares to the Vendor credited as fully paid; and (ii) the issue of the Convertible Bonds to the Vendor;
(d) the obtaining of a PRC legal opinion (in form and substance satisfactory to the Purchaser) in relation to the transactions contemplated under the Agreement;
(e) the warranties contained in the Agreement remaining true and accurate in all respects;
(f) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Consideration Shares;
(g) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Conversion Shares; and
(h) if necessary, the passing by the shareholders of China Water at a general meeting of China Water to be convened and held of an ordinary resolution to approve the Agreement and the transactions contemplated thereunder.
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LETTER FROM THE BOARD

All the above conditions can be waived except item (c), (f), (g) and (h). Application will be made to the Listing Committee of the Stock Exchange for the listing and permission to deal in the Consideration Shares and the Conversion Shares which may fall to be issued upon conversion of the Convertible Bonds.

If any of the above conditions have not been fulfilled (or as the case may be, waived by the Purchaser as to (a) and (d) and the Purchaser and the Vender together as to (b) and (e)) on or before 31 December 2007, the Agreement shall cease and determine and no party shall have any obligations and liabilities towards each other save for antecedent breaches.

Completion is to take place on the second business day after fulfillment (or waiver by the Purchaser as to (a) and (d) and the Purchaser and the Vender together as to (b) and (e) as the case may be) of the conditions referred to above.

SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below is a summary of the shareholding in the Company (i) as at the Latest Practicable Date; (ii) immediately after the issue of the Consideration Shares upon Completion; (iii) after Completion and upon full conversion of the Conversion Bonds; and (iv) after Completion and upon partial conversion of the Convertible Bonds, each prepared on the basis that there would be no changes in the issued share capital of the Company after the date of the Announcement other than as stated in each scenario. However, Shareholders should take note that the analysis under scenario (iii) is shown for illustration purpose only and will not materialise, for the reason that the Vendor would otherwise hold approximately 70.66% of the enlarged issued share capital of the Company in that scenario, thus exceeding the threshold of 30% triggering a mandatory general offer obligation under the present provisions of the Takeovers Code. However, the terms and conditions of the Convertible Bonds stipulate that the conversion rights attaching to the Convertible Bonds may be converted by the holder of the Convertible Bonds thereof into Shares provided that such conversion does not trigger a mandatory offer obligation on the part of the holder of the Convertible Bonds who exercises the conversion right.

As at the Latest Practicable Date Number of Shares %	As at the Latest Practicable Date Number of Shares %	Immediately after issue of the Consideration Shares upon Completion Number of Shares %	Immediately after issue of the Consideration Shares upon Completion Number of Shares %	After Completion and upon full conversion of the Convertible Bonds Number of Shares %	After Completion and upon full conversion of the Convertible Bonds Number of Shares %	After Completion and upon partial conversion of the Convertible Bonds Number of Shares %	After Completion and upon partial conversion of the Convertible Bonds Number of Shares %
151,562,000 55,500,000	27.38 10.02	151,562,000 55,500,000	22.07 8.08	151,562,000 55,500,000	8.03 2.94	151,562,000 55,500,000	19.19 7.03
207,062,000 – 346,563,000	37.40 – 62.60	207,062,000 133,000,000 346,563,000	30.15 19.37 50.48	207,062,000 1,333,333,333 (Note 4) 346,563,000	10.97 70.66 18.37	207,062,000 236,139,620 (Note 5) 346,563,000	26.22 29.90 43.88 100.00
553,625,000	100.00	686,625,000	100.00	1,886,958,333	100.00	789,764,620

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LETTER FROM THE BOARD

Notes:

(1) Mr But Ka Wai, the Chairman and an executive Director of the Company, wholly and beneficially owns the entire issued share capital of Able Success Group Limited. Mr But Ka Wai is the younger brother of Mr But Chai Tong.
(2) Mr But Chai Tong, the Vice Chairman and an executive Director of the Company, wholly and beneficially owns the entire issued share capital of National Chain International Limited. Mr But Chai Tong is the elder brother of Mr But Ka Wai.
(3) Able Success Group Limited and National Chain International Limited are parties deemed to be acting in concert with each other under the Takeovers Code.
(4) Pursuant to the terms and conditions of the Convertible Bonds, holder(s) of the Convertible Bond may exercise all or part of the Convertible Bonds provided that the issue of the relevant Conversion Shares to it/them shall not trigger any general offer obligation on the part of the relevant Convertible Bonds holder who exercises the Convertible Bonds. For further details, see the paragraph headed “Convertible Bonds” above. Accordingly, this column is shown for illustration only and this scenario will not materialise.
(5) For illustration purpose only, a holder of the Convertible Bonds may exercise conversion rights attaching to Convertible Bonds up to a principal amount of approximately HK$15,470,943, such that a total of 103,139,620 Conversion Shares shall be issued at the initial Conversion Price of HK$0.15 (which together with the Consideration Shares shall amount to 236,139,620 Shares and represent 29.90% of each the then enlarged issued share capital of the Company) without triggering any general offer obligation on the part of the relevant Convertible Bonds holder under the existing provisions of the Takeovers Code subject to the then shareholding structure of the Company and the relevant rulings by the Executive Director of the Corporate Finance Division of the Securities and Futures Commission or any delegate of the Executive Director in accordance with the Takeovers Code.

REASONS FOR THE ACQUISITION

The Company is an investment holding company. The principal activities of the Company’s subsidiaries comprise manufacturing, distribution and marketing of snack food products and convenience frozen food products in Hong Kong and the PRC, as well as trading and investment holding.

For the last three financial years ended 31 December 2006, the Group has been experiencing intense competition in the industry, resulting in a squeeze in the profit margin of the Group and a reduction in the net profits of the Group when compared to the results 3 years ago. The Directors consider that through the Acquisition, the Group will be able to diversify its revenue and profit bases and to explore the sale and distribution network of the Seabuckthorn Group in the central and northern part of the PRC. The product variety of the Seabuckthorn Group will also broaden the product mix of the Group. In view of the increasing health awareness of the population worldwide, the Directors believe that the Acquisition will be an effective mean to expand its product range to the health food sector.

The Issue Price and the initial Conversion Price of HK$0.15 per Share is at substantial discount to the current market prices of the Shares. However, the Directors note that the price of the Shares has increased from the low range of about HK$0.10 per Share at the beginning of 2007 to its last closing price of HK$1.41 per Share on 29 June 2007. The Directors are not aware of the reasons for such surge in Share price, but consider that the surge could be speculative due to the prevailing high liquidity of the stock market. In the circumstances, the Company consider the Issue Price and the initial Conversion Price of HK$0.15 per Share is fair and reasonable taking account of the average of the closing prices of the Share for the 62 trading days in the first quarter of 2007 of HK$0.143 per Share.

13 -

LETTER FROM THE BOARD

The Issue Price and initial Conversion Price of HK$0.15 per Share represents approximately a price/earnings multiple of 4.26 times the earnings per Share of HK$0.0352 for the year ended 31 December 2006. The Consideration of HK$200,000,000 for the Sale Shares represents a price/earnings multiple of 20 times the Guaranteed Profit for the year ending 31 December 2008 attributable to equity holders of CEWH. Although the Issue Price and the initial Conversion Price are at a lower price/earnings multiple than that for the Consideration and CEWH has a short period of operating history since 2005, taking account of the market potentials of the Seabuckthorn Group, and the possible earnings contribution to the Group in future on the basis of the Guaranteed Profit, against the relatively stable earnings level of the Group, the Directors (including the independent non-executive Directors) consider the Consideration payable for the Acquisition, which has been arrived at between the parties with reference to a price/earnings multiple of 20 times the Guaranteed Profit, is fair and reasonable.

Following Completion, through the nomination by CEWH, the Company will have four representatives, out of a total of seven, on the board of directors of Seabuckthorn Company in accordance with the relevant PRC shareholders’ deed; thereby enabling the Company to have control over the Seabuckthorn Group. Completion virtually makes CEWH together with the Seabuckthorn Group the subsidiaries of the Company and their financial statements will be consolidated into the financial statements of the Group. There is no provision contained in the Agreement which gives the right for the Vendor to nominate Directors as a result of the Acquisition.

The Directors (including independent non-executive Directors) consider the terms of the Agreement to be on normal commercial terms and fair and reasonable as far as the Shareholders are concerned and that the Agreement is in the interests of the Company and its Shareholders as a whole.

MANAGEMENT DISCUSSION ON THE CEWH GROUP/SEABUCKTHORN GROUP

Set out below is a summary of the key financial data of the CEWH Group, which are extracted from the accountants’ report contained in Appendix II to this circular.

			Period ended
	Year ended 31 March 2007		31 March
	2007	2006	2005
	*HK$’000*	*HK$’000*	*HK$’000*
Revenue	5,609	6,088	–
Operating profit/(loss) before taxation	21,888	16,851	(10 )
Income tax expense	(4,222 )	(3,049 )	–
Profit/(loss) for the year/period	17,666	13,802	(10 )
Minority interests	(8,814 )	(7,404 )	–
Profit/(loss) attributable to equity
holders of CEWH	8,852	6,398	(10 )

14 -

LETTER FROM THE BOARD

Business Review

For the period/year ended 31 March 2005

CEWH has not commenced operations since its incorporation until November 2005 when it acquired 50% of the equity interest in Seabuckthorn Company. The losses for the period from 8 December 2003 (date of incorporation) to 31 March 2005 represent administrative expenses incurred by CEWH during the period.

As disclosed in the section II of appendix II to this circular which contains financial information on the Seabuckthorn Group, the Seabuckthorn Group recorded turnover of approximately HK$3.0 million from the cultivation, manufacture and sale of seabuckthorn seedlings and products and gross profit of HK$2.0 million for the year ended 31 March 2005. Other income represented mainly gain arising on initial recognition of biological assets at fair values less estimated point-of-sale costs of approximately HK$18.9 million. Other expenses amounted to approximately HK$13.9 million, which represented mainly staff costs, depreciation of property, plant and equipment and impairment of receivables. Net profit before and after tax of the Seabuckthorn Group amounted to approximately HK$4.5 million and HK$3.8 million respectively.

For the year ended 31 March 2006

During the year, CEWH acquired 50% of the equity interest in Seabuckthorn Company by injection of cash of RMB20 million (equivalent to approximately HK$19.2 million) into the registered capital of Seabuckthorn Company. The revenue for the year represented revenue generated by the Seabuckthorn Group from the cultivation, manufacture and sale of seabuckthorn seedlings and products after completion of the aforesaid acquisition.

Turnover for the year reached approximately HK$6.1 million with gross profit approximately HK$3.1 million.

During the year, the CEWH Group recorded gain arising on initial recognition of biological assets at fair value less estimated point-of-sale costs of approximately HK$20.5 million.

The administrative expenses and other operating expenses for the year amounted to approximately HK$1.8 million and HK$4.1 million respectively.

Net profit before tax for the year was approximately HK$16.9 million while net profit after tax amounted to HK$13.8 million.

As disclosed in the section II of appendix II to this circular which contains financial information on the Seabuckthorn Group, the Seabuckthorn Group recorded turnover of approximately HK$9.6 million and gross profit of HK$6.3 million for the year ended 31 March 2006, representing increase of 219% and 223% over the previous year respectively which was attributable to the expansion of capacity for manufacturing and sale of products. Other income represented mainly gain arising on initial recognition of biological assets at fair values less estimated point-of-sale costs of approximately HK$21.3 million which represents an increase

15 -

LETTER FROM THE BOARD

of 12.4% over the previous year. Other operating expenses amounted to approximately HK$10.5 million, which represented a decrease of 24.4% from the previous year, principally due to reduction in staff costs. Net profit before and after tax of the Seabuckthorn Group amounted to approximately HK$12.5 million and HK$9.3 million respectively for the year ended 31 March 2006. Despite the Seabuckthorn Group recorded profit for the full year ended 31 March 2006, losses were incurred in the first few months of the financial year before the capital injection by CEWH in November 2005. As a result, the profit from the Seabuckthorn Group consolidated into and reflected in the accounts of the CEWH Group as discussed above is higher than the full year profits of the Seabuckthorn Group.

For the year ended 31 March 2007

The results of the CEWH Group for the year ended 31 March 2007 represented the full year results of the Seabuckthorn Group for the year.

Turnover for the year was approximately HK$5.6 million with gross profit approximately HK$1.9 million, representing an decrease of approximately 8% and 37% respectively as compared to those of 2006. The drop was as a result of the CEWH Group focusing more on cultivation of seeds during the year.

During the year, the CEWH Group recorded gain arising on initial recognition of biological assets at fair value less estimated point-of sale costs of approximately HK$23.2 million, representing an increase of approximately 13.6% from that of 2006. During the year, the CEWH Group has recorded government grants of approximately HK$13,480,000, which represented unconditional monetary award from relevant authorities in the PRC in respect of the CEWH Group's significant contribution in environmental protection.

As a result of various factors discussed above, net profit after tax for the year of approximately HK$17.7 million was achieved by the CEWH Group, representing an increase of 28% over the previous year.

Financial Position

Current fund and financial resources

As at 31 March 2005, 2006 and 2007, the cash position of the CEWH Group were approximately HK$1,000, HK$41.3 million and HK$8.6 million respectively. The current ratios (calculated on the basis of current assets over current liabilities) were 9%, 117%, and 86% respectively.

The CEWH Group has no other loans and interest bearing borrowings as at 31 March 2005 and 2006, and had other loans of approximately HK$3.5 million as at 31 March 2007. The gearing ratio as at 31 March 2007 (calculated as a percentage of total borrowings to total assets) was 3.7%.

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LETTER FROM THE BOARD

As at 31 March 2007, the net book value and carrying amount of the property interests of the CEWH Group (which represent the property interests held by the Seabuckthorn Group) amounted to approximately HK$30.3 million (equivalent to RMB30.3 million (note 1) ) and prepaid land lease payments of HK$2.4 million (equivalent to RMB2.4 million). Such property interests have been valued by CB Richard Ellis Limited, an independent valuer, at approximately RMB38.1 million as at 30 June 2007. A reconciliation of the net book value and carrying amount of the aforesaid property interests as at 31 March 2007 as recorded in its accountants’ reports of the CEWH Group and the Seabuckthorn Group to the valuation of same property interests as at 30 June 2007 is set out as below:

Net carrying amount (being the acquisition costs) of property
interests of the CEWH Group and the Seabuckthorn Group as at
31 March 2007_(note 2)
Movement for the three months ended 30 June 2007
– Depreciation/Amortisation
Net carrying amount as at 30 June 2007 (unaudited)
Valuation surplus
Valuation as at 30 June 2007
– included in the valuation report as set out in Appendix IV
to this circular
_Notes:

RMB’000
32,730
(28 )
32,702
5,363
38,065

For the preparation of the accountants’ reports of the CEWH Group and Seabuckthorn Group, balances of the Seabuckthorn Group are translated from RMB into HK$ at the exchange rate of 1:1.
The balance comprises leasehold buildings (RMB3.3 million or HK$3.3 million), construction in progress (RMB27.0 million or HK$27.0 million) and prepaid land lease payments (RMB2.4 million or HK$2.4 million).

Foreign currency risk

The monetary assets and transactions of the CEWH Group are principally denominated in RMB, which expose the CEWH Group to foreign currency risk. However, the foreign currency risk is minimal because RMB is appreciating in recent years due to rapid growth in the PRC economy.

Capital commitments and contingent liabilities

The CEWH Group did not have any capital commitments as at 31 March 2005. The CEWH Group has capital commitments in respect of construction in progress and acquisitions of plant and machinery as at 31 March 2006 and 2007 amounting to approximately HK$9.7 million and HK$2.3 million respectively. The CEWH Group has no contingent liabilities as at 31 March 2005, 2006 and 2007.

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LETTER FROM THE BOARD

Employees and remuneration policies

As at 31 March 2005, 2006 and 2007, the Seabuckthorn Group had about 84, 100 and 152 employees, respectively. Salaries, double pay and bonuses are determined according to the performance of the employees. Total staff costs (excluding directors’ remuneration) incurred during the financial years ended 31 March 2005, 2006 and 2007 were approximately HK$3.6 million, HK$3.8 million and HK$6.3 million, respectively.

Material acquisitions and disposals of subsidiaries and associated companies

Apart from the capital injection by CEWH into Seabuckthorn Company in November 2005 as described above, there were no other material acquisitions or disposals of subsidiaries or associated companies during the period/years ended 31 March 2005, 2006 and 2007.

Charges on assets

As at 31 March 2007, certain of the CEWH Group’s plant and machineries with carrying amount of approximately HK$5.0 million were pledged to secure the other loans of the CEWH Group with outstanding balance of approximately HK$3.5 million. There were no charges on assets of the CEWH Group as at 31 March 2005 and 2006.

Future plans

As at the Latest Practicable Date, the CEWH Group did not have any plans for material investments or capital assets.

LISTING RULES IMPLICATIONS

The Acquisition constitutes a very substantial acquisition of the Company under the Listing Rules. The Agreement and the transactions contemplated therein (including but not limited to the allotment and issue of the Consideration Shares and issue of the Convertible Bonds and the Conversion Shares which will fall to be allotted and issued upon conversion of the Convertible Bonds) are therefore subject to the approval of the Shareholders at an extraordinary general meeting of the Company. The Vendor and its associates (including China Water and its connected persons) do not own or hold any Shares as at the Latest Practicable Date. As no Shareholder has a material interest in the Acquisition which is different from other Shareholders, no Shareholder would be required to abstain from voting at an extraordinary general meeting to be convened by the Company to consider and, if thought fit, to approve the Agreement and transactions contemplated therein.

FINANCIAL EFFECTS OF THE ACQUISITION

Upon Completion, CEWH will become a 100% owned subsidiary of the Company and the financial results of the CEWH Group will be consolidated with those of the Group.

Set out in Appendix III to this circular is the unaudited pro forma financial information on the Enlarged Group which illustrates the financial effect of the Acquisition on the results and cash flows of the Group assuming the completion of the Acquisition had taken place on 1 January 2006; and on the assets and liabilities of the Group assuming the completion of the Acquisition had taken place on 31 December 2006.

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LETTER FROM THE BOARD

Based on the unaudited pro forma consolidated balance sheet in Appendix III to this circular, the total assets of the Group would increase by approximately 64% from HK$407.78 million to HK$669.73 million; and its total liabilities would increase by approximately 64% from HK$213.24 million to HK$349.99 million, as a result of the Acquisition. The Directors consider that the Acquisition will contribute to the revenue and earnings base of the Enlarged Group but the quantification of such impact will depend on the future performance of CEWH.

EGM

The EGM will be held at 2nd Floor, On Shing Industrial Building, Nos. 2-16 Wo Liu Hang Road, Fo Tan, Shatin, New Territories, Hong Kong on Friday, 12 October 2007 at 10:00 a.m., the notice of which is set out on pages 179 to 180 of this circular, to consider and, if thought fit, approve the ordinary resolutions to approve the proposed Acquisition and the transactions contemplated thereunder (including but not limited to the allotment and issue of the Consideration Shares and the Coversion Shares and the issued of the Convertible Bonds).

There is a form of proxy for use at the EGM accompanying this circular. Whether or not you will be able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Hong Kong branch share registrar and transfer office of the Company, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

RECOMMENDATION

The Directors consider that the Acquisition is in the interests of the Company and the Shareholders as a whole and the terms of the Agreement are on normal commercial terms and fair and reasonable. Accordingly, the Directors recommend that Shareholders vote in favour of the ordinary resolutions to be proposed at the EGM to approve the proposed Acquisition and the transactions contemplated thereunder (including but not limited to the allotment and issue of the Consideration Shares and the Conversion Shares and the issue of the Convertible Bonds).

GENERAL

Your attention is also drawn to the financial information of the Group and the CEWH Group, the valuation report on the property interests of the Enlarged Group and the other information set out in the appendices to this circular.

For and on behalf of the Board Wah Yuen Holdings Limited But Ka Wai Chairman

19 -

FinAnciAl inFormAtion on the Group

Appendix i

1. FinAnciAl SummArY

The following table summarizes the consolidated income statement and consolidated balance sheet of the Group for the last three years ended 31 December 2006, as extracted from the 2004, 2005 and 2006 published annual reports of the Company. The auditors of the Company have given an unqualified opinion on each of the Group’s financial statements for each of the three years ended 31 December 2006.

income Statement

Turnover
Cost of sales
Gross profit
Other operating income and net gain
Selling and distribution expenses
Administrative expenses
Profit from operations
Finance costs
Profit before taxation
Income tax expense
Profit for the year
Dividends
Assets and liabilities
Total assets
Total liabilities
Shareholders’ funds

Year ended 31 december
2006
2005
2004
HK$’000
HK$’000
HK$’000
(audited)
(audited)
(restated)
202,130
207,551
210,454
(131,307)
(143,154)
(139,040)
70,823
64,397
71,414
3,675
8,951
1,472
(25,268)
(22,254)
(21,678)
(18,093)
(21,998)
(24,748)
31,137
29,096
26,460
(12,242)
(11,021)
(9,803)
18,895
18,075
16,657
(5,865)
(7,859)
(3,598)
13,030
10,216
13,059
–
–
4,000
As at 31 december
2006
2005
2004
HK$’000
HK$’000
HK$’000
(audited)
(audited)
(restated)
407,779
365,314
348,099
(213,236)
(215,775)
(216,389)
194,543
149,539
131,710

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FinAnciAl inFormAtion on the Group

Appendix i

2. Audited conSolidAted FinAnciAl StAtementS oF the Group For the YeAr ended 31 decemBer 2006

Set out below are the audited financial statements together with the relevant notes to the financial statements of the Group as extracted from the annual report of the Company for the year ended 31 December 2006.

consolidated income Statement

For the year ended 31 December 2006

Notes Turnover 7 Cost of sales Gross profit Other operating income and net gain 7 Selling and distribution expenses Administrative expenses Profit from operations 8 Finance costs 9 Profit before tax Income tax expense 11 Profit for the year attributable to the equity holders of the Company Dividends 12 Earnings per share 13 Basic Diluted	2006 HK$’000 202,130 (131,307 ) 70,823 3,675 (25,268 ) (18,093 ) 31,137 (12,242 ) 18,895 (5,865 ) 13,030 – 3.52 Cents N/A	2005 HK$’000 207,551 (143,154 ) 64,397 8,951 (22,254 ) (21,998 ) 29,096 (11,021 ) 18,075 (7,859 ) 10,216 – 5.04 Cents N/A

All of the Group’s operations are classed as continuing.

The accompanying notes form an integral part of these financial statements.

21 -

FinAnciAl inFormAtion on the Group

Appendix i

consolidated Balance Sheet

At 31 December 2006

Notes NON-CURRENT ASSETS Prepaid lease payments 14 Property, plant and equipment 15 CURRENT ASSETS Inventories 17 Trade and other receivables 18 Pledged bank deposits Bank balances and cash CURRENT LIABILITIES Trade and other payables 19 Obligations under finance leases 20 Tax payable Borrowings 21 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Obligations under finance leases 20 Borrowings 21 Deferred tax liabilities 25 NET ASSETS CAPITAL AND RESERVES Share capital 22 Reserves EqUITy ATTRIBUTABLE TO EqUITy hOLDERS OF ThE COmPANy	2006 HK$’000 2,140 111,607 113,747 57,720 178,487 21,459 36,366 294,032 28,326 5,092 3,121 138,674 175,213 118,819 232,566 5,903 32,030 90 38,023 194,543 5,350 189,193 194,543	2005 HK$’000 2,227 106,244
		108,471
		47,680 177,286 16,805 15,072
		256,843
		28,863 6,623 1,758 132,779
		170,023
		86,820
		195,291
		3,305 42,047 400
		45,752
		149,539

		2,140 147,399
		149,539

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FinAnciAl inFormAtion on the Group

Appendix i

Balance Sheet

At 31 December 2006

Notes NON-CURRENT ASSET Interests in subsidiaries 16 CURRENT ASSET Bank balances CURRENT LIABILITIES Other creditors and accruals Borrowings NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITy Borrowings 21 NET ASSETS CAPITAL AND RESERVES Share capital 22 Reserves 24	2006 HK$’000 171,137 54 889 433 1,322 (1,268 ) 169,869 31,000 138,869 5,350 133,519 138,869	2005 HK$’000 150,667 18 832 – 832 (814 ) 149,853 38,000 111,853 2,140 109,713 111,853

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FinAnciAl inFormAtion on the Group

Appendix i

consolidated Statement of changes in equity

For the year ended 31 December 2006

At 1 January 2005 Issue of shares Profit for the year Transfers Translation exchange difference At 31 December 2005 and 1 January 2006 Issue of rights shares_(note 22)_ Share issue expenses Profit for the year Transfers Translation exchange differences At 31 december 2006	Share capital HK$’000 2,000 140 – – – 2,140 3,210 – – – – 5,350	Share premium HK$’000 35,645 5,460 – – – 41,105 28,890 (1,444) – – – 68,551	Special reserve HK$’000 10,816 – – – – 10,816 – – – – – 10,816	prc statutory reserve HK$’000 21,444 – – 1,607 – 23,051 – – – 866 – 23,917	translations reserves HK$’000 (6,264) – – – 2,013 (4,251) – – – – 1,318 (2,933)	Accumulated profits HK$’000 68,069 – 10,216 (1,607) – 76,678 – – 13,030 (866) – 88,842	total HK$’000 131,710 5,600 10,216 – 2,013 149,539 32,100 (1,444) 13,030 – 1,318 194,543

The special reserve represents:

(i) the difference between the nominal value of the share capital issued by Wah yuen Foods International Limited and the nominal value of the share capital of the subsidiaries acquired in a previous group reorganisation; and
(ii) the difference between the nominal value of the share capital issued by the Company and the nominal value of the share capital of the subsidiaries acquired in a previous group reorganisation.

The People’s Republic of China (the “PRC”) statutory reserves consist of a reserve fund and an expansion fund provided in accordance with the articles of association of the PRC subsidiaries. Laws and regulations in the PRC allow foreign investment enterprises to appropriate from profit after taxation, prepared in accordance with the PRC rules and regulations, an annual amount to the reserve fund and the expansion fund according to the decision of the board or the articles of association.

The reserve fund is to be used to expand the working capital of the PRC subsidiaries. When the PRC subsidiaries suffer losses, the reserve fund may be used to make up accumulated losses under special circumstances.

The expansion fund is to be used for business expansion and, if approved, can also be used to increase the capital of the PRC subsidiaries.

The accompanying notes form an integral part of these financial statements.

24 -

FinAnciAl inFormAtion on the Group

Appendix i

consolidated cash Flow Statement

For the year ended 31 December 2006 OPERATING ACTIVITIES Profit before tax Adjustments for: Interest expenses Interest income Depreciation Amortisation of prepaid lease payments (Gain) loss on disposal on property, plant and equipment Operating cash flows before movements in working capital Increase in inventories Increase in trade and other receivables Decrease in trade and other payables Cash generated from (used in) operations Interest paid hong Kong Profits Tax paid, net PRC Enterprise Income Tax paid NET CASh GENERATED FROm (USED IN) OPERATING ACTIVITIES INVESTING ACTIVITIES (Increase) decrease in pledged bank deposits Purchase of property, plant and equipment Decrease in loan receivable Interest received Proceeds from disposal of property, plant and equipment NET CASh (USED IN) GENERATED FROm INVESTING ACTIVITIES FINANCING ACTIVITIES Borrowings raised Repayment of bank borrowings Capital element of finance leases Proceeds from issue of ordinary shares, net of expenses NET CASh GENERATED FROm (USED IN) FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASh AND CASh EqUIVALENTS Effect of foreign exchange rate change CASh AND CASh EqUIVALENTS AT 1 JANUARy CASh AND CASh EqUIVALENTS AT 31 DECEmBER ANALySIS OF CASh AND CASh EqUIVALENTS Bank balances and cash Bank overdrafts	2006 HK$’000 18,895 12,242 (1,310 ) 8,714 153 (74 ) 38,620 (10,040 ) (1,201 ) (537 ) 26,842 (12,242 ) (1,340 ) (3,472 ) 9,788 (4,654 ) (10,569 ) – 1,310 215 (13,698 ) 130,978 (146,026 ) 1,067 30,656 16,675 12,765 (2,397 ) 10,416 20,784 36,366 (15,582 ) 20,784	2005 HK$’000 18,075 11,021 (1,174 ) 8,356 164 155 36,597 (1,699 ) (35,879 ) (3,963 ) (4,944 ) (11,021 ) (3,576 ) (3,493 ) (23,034 ) 9,755 (640 ) 599 1,174 230 11,118 138,236 (138,497 ) (1,337 ) – (1,598 ) (13,514 ) (791 ) 24,721 10,416 15,072 (4,656 ) 10,416

25 -

FinAnciAl inFormAtion on the Group

Appendix i

notes to the Financial Statements

For the year ended 31 December 2006

1. GenerAl

Wah yuen holdings Limited (the “Company”) was incorporated and registered as an exempted company with limited liability in the Cayman Island under the Companies Law Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Island on 9 October 2002.

The shares of the Company were listed on The Stock Exchange of hong Kong Limited on 25 June 2003. The addresses of its registered office and principal place of business are disclosed in the section headed “Corporate information” of the Group’s Annual Report.

The financial statements are presented in hong Kong dollars, which is also the functional currency of the Company.

The Company is an investment holding company. The Company’s subsidiaries are principally engaged in the production and distribution of snack food and convenience frozen food products. Details of the subsidiaries are set out in note 33.

2. ApplicAtion oF neW And reViSed honG KonG FinAnciAl reportinG StAndArdS (“hKFrSs”)

In the current year, the Group has applied, for the first time, a number of new standards, amendments and interpretations (“new hKFRSs”) issued by the hong Kong Institute of Certified Public Accountants (“hKICPA”), which are either effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the new hKFRSs had no material effect on how the results for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

Financial guarantee contracts

In the current year, the Group has applied hong Kong Accounting Standard (“hKAS”) 39 and hKFRS 4 (Amendments) Financial Guarantee Contracts which is effective for annual periods beginning on or after 1 January 2006.

A financial guarantee contract is defined by hKAS 39 Financial Instruments: Recognition and measurement as “a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument”.

Prior to 1 January 2006, financial guarantee contracts were not accounted for in accordance with hKFRS 4 Insurance Contract and those contracts were disclosed as contingent liabilities. A provision for financial guarantee was only recognised when it was probable that an outflow of resources would be required to settle the financial guarantee obligation and the amount can be estimated reliably.

Upon the application of these amendments, a financial guarantee contract issued by the Group and not designated as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with hKAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially, recognised less, when appropriate, cumulative amortisation recognised in accordance with hKAS 18 Revenue.

26 -

FinAnciAl inFormAtion on the Group

Appendix i

The Group has not early applied the following new standard, amendment or interpretations that have been issued but are not yet effective. The directors of the Company anticipate that the application of these standard, amendment or interpretations will have no material impact on the results and the financial position of the Group.

hKAS 1 (Amendment) Capital disclosures[1] hKFRS 7 Financial instruments: Disclosures[1] hK(IFRIC) – Int 7 Applying the restatement approach under hKAS 29 Financial Reporting in hyperinflationary Economies[2] hK(IFRIC) – Int 8 Scope of hKFRS 2[3] hK(IFRIC) – Int 9 Reassessment of Embedded Derivatives[4] hK(IFRIC) – Int 10 Interim Financial Reporting and Impairment[5] hK(IFRIC) – Int 11 hKFRS 2 – Group and Treasury Share Transactions[6] hK(IFRIC) – Int 12 Service Concession Arrangements[7]

1 Effective for annual periods beginning on or after 1 January 2007

2 Effective for annual periods beginning on or after 1 march 2006
3 Effective for annual periods beginning on or after 1 may 2006 4 Effective for annual periods beginning on or after 1 June 2006 5 Effective for annual periods beginning on or after 1 November 2006
6 Effective for annual periods beginning on or after 1 march 2007
7 Effective for annual periods beginning on or after 1 January 2008

3. SiGniFicAnt AccountinG policieS

The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments which are measured at fair values, as explained in the accounting policies set out below.

The consolidated financial statements have been prepared in accordance with hKFRSs. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of hong Kong Limited (the “Listing Rules”) and by the hong Kong Companies Ordinance.

Basis of consolidation

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

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All significant intra-group transactions, balances, income and expenses are eliminated on consolidation.

Goodwill

Goodwill arising on an acquisition of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses. Capitalised goodwill arising on an acquisition of a subsidiary is presented separately in the consolidated balance sheet.

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FinAnciAl inFormAtion on the Group

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For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

investment in subsidiaries

A subsidiary is a company that is controlled by the Company, where the Company has the power to govern the financial and operating policies of such company so as to obtain benefits from its activities.

property, plant and equipment

Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

Construction in progress for production or administrative purpose are carried at cost less any identified impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is provided to write off the cost of items of property, plant and equipment other than construction in progress over their estimated useful lives and after taking into account their estimated residual value, using the straight-line method, at the following rates per annum:

Buildings	Over the relevant lease terms, or 20 years,
	whichever is the shorter
Furniture and equipment	20%
motor vehicles	20%
Plant and machinery	10%
Loose tools and moulds	20%

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated income statement in the year in which the item is derecognised.

prepaid lease payments

Prepaid lease payments represent up-front prepayments made for the land use rights as expensed in the consolidated income statement on a straight-line basis over the period of the lease.

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FinAnciAl inFormAtion on the Group

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inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method. Cost includes cost of purchases and where applicable, cost of conversion and other costs that have been incurred in bringing the inventories to their present location and condition. Net realisable value is determined on the basis of anticipated sales proceeds less estimated costs to completion and selling expenses.

Financial instruments

Financial assets and financial liabilities are recognised on the consolidated balance sheet when a Group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into one of the two categories, including financial assets at fair value through profit or loss, loans and receivables. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading and those designated at fair value through profit or loss on initial recognition. At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and other receivables) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

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FinAnciAl inFormAtion on the Group

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An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities

Financial liabilities including trade and other payables, bank borrowings and obligations under finance leases are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

For financial liabilities, they are removed from the Group’s balance sheet (i.e. when the obligation specified in the relevant contract is discharged, cancelled or expired). The difference between the carrying amount of the financial liability derecognised and the consideration received or receivable is recognised in profit or loss.

provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

equity settled share-based payment transactions

Share options granted to directors and employees of the Company

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period with a corresponding increase in equity (share options reserve).

At the time when the share options are exercised, the amount previously recognised in share options reserve will be transferred to share premium. When the share options are forfeited or are still not exercised at the expiry date, the amount previously recognised in share options reserve will be transferred to accumulated profits.

impairment losses (other than goodwill)

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets 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.

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FinAnciAl inFormAtion on the Group

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

revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

Interest income from bank deposits is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. 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 profits 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 tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the consolidated income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

retirement benefit costs

Payments to mandatory Provident Fund Scheme and state-managed retirement benefits schemes are charged as expenses as they fall due. The Group’s obligations under state-managed retirement benefits schemes are equivalent to those arising in a defined contribution retirement benefits scheme.

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FinAnciAl inFormAtion on the Group

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Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of the Group’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financial statements. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Company (i.e. hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the translation reserve.

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, short-term, highly liquid investments that are readily convertible to cash and with a maturity of three months or less from date of investment, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the consolidated balance sheet.

leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss.

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

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4. criticAl AccountinG JudGementS And KeY SourceS oF eStimAtion uncertAintY

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

(a) depreciation and amortisation

The Group depreciates the property, plant and equipment over their estimated useful lives and after taking into account of their estimated residual values, using the straight line method. The estimated useful lives reflect the directors’ estimate of the periods that the Group intends to derive future economic benefits from the use of the Group’s property, plant and equipment. The residual values reflect the directors’ estimated amount that the Group would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the assets were already of the age and in the condition expected at the end of its useful life.

(b) Allowance for bad and doubtful debts

The Group’s provision policy for bad and doubtful debts is based on the evaluation of collectability and ageing analysis of accounts and on management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each customer. If the financial conditions of customers of the Group were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance may be required.

5. FinAnciAl riSK mAnAGement

The Group’s major financial instruments include borrowings, trade and other receivables and trade and other payables. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

currency risk

Certain trade receivables of the Group are denominated in foreign currencies. The Group currently does not have a foreign currency hedging policy. however, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31 December 2006 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews regularly the recoverable amount of each individual trade debt to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the management considers that the Group’s credit risk is significantly reduced. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.

interest rate risk

The Group’s fair value interest rate risk relates to its fixed-rate borrowings. however, the management considers the risk is insignificant to the Group.

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FinAnciAl inFormAtion on the Group

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6. SeGment inFormAtion

In accordance with the Group’s internal financial reporting, the Group has determined that geographical segments are its primary reporting format.

(a) Business segments

The Group is principally engaged in the production and distribution of snack food and convenience frozen food products. No business segment analysis is presented as management considers this as one single business segment.

(b) Geographical segments

The Group’s operations and assets are located in hong Kong and elsewhere in the PRC. Geographical segment information are based on location of its assets, and the location of its assets is not significantly different from the location of its customers.

Year ended 31 December 2006

REVENUE External sales Inter-segment sales Total revenue SEGmENT RESULTS Unallocated corporate income Profit from operations Finance costs Profit before tax Income tax expense Profit for the year attributable to the equity holders of the Company	hong Kong HK$’000 108,576 – 108,576 4,970	the prc eliminations consolidated HK$’000 HK$’000 HK$’000 93,554 – 202,130 26,566 (26,566) – 120,120 (26,566) 202,130 22,492 27,462 3,675 31,137 (12,242) 18,895 (5,865) 13,030

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BAlAnce Sheet

As at 31 December 2006

ASSETS Segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities OThER INFORmATION Capital additions Depreciation Amortisation of prepaid lease payments Year ended 31 December 2005 REVENUE External sales Inter-segment sales Total revenue SEGmENT RESULTS Unallocated corporate income Profit from operations Finance costs Profit before tax Income tax expense Profit for the year attributable to the equity holders of the Company	hong Kong HK$’000 118,862 – 118,862 6,015	hong Kong the prc consolidated HK$’000 HK$’000 HK$’000 41,021 308,933 349,954 – – 57,825 407,779 9,148 22,402 31,550 – – 181,686 213,236 1,107 9,462 10,569 585 8,129 8,714 6 147 153 the prc eliminations consolidated HK$’000 HK$’000 HK$’000 88,689 – 207,551 36,656 (36,656) – 125,345 (36,656) 207,551 20,090 26,105 2,991 29,096 (11,021) 18,075 (7,859) 10,216

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BAlAnce Sheet

BAlAnce Sheet
As at 31 December 2005
	hong Kong	the prc	consolidated
	HK$’000	HK$’000	HK$’000
ASSETS
Segment assets	53,885	279,552	333,437
Unallocated corporate assets	–	–	31,877
Consolidated total assets			365,314
LIABILITIES
Segment liabilities	6,020	24,703	30,723
Unallocated corporate liabilities	–	–	185,052
Consolidated total liabilities			215,775
OThER INFORmATION
Capital additions	32	9,048	9,080
Depreciation	950	7,406	8,356
Amortisation of prepaid lease payments	6	158	164

Inter-segment sales are charged at terms agreed between the relevant parties.

7. turnoVer, other operAtinG income And net GAin

Turnover represents the amount received and receivable for goods sold, less returns and allowances.

An analysis of turnover, other operating income and net gain is as follows:

Sales of goods to outside customers Other operating income and net gain: Interest income from bank deposits Sundry income Total income	2006 HK$’000 202,130 1,310 2,365 3,675 205,805	2005 HK$’000 207,551

		1,174 7,777
		8,951
		216,502

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8. proFit From operAtionS

Profit from operations has been arrived at after charging (crediting): Staff costs, including directors’ emoluments_(note 10) Retirement benefits scheme contributions, including contributions for directors(note 26)_ Total staff costs Auditors’ remuneration Amortisation of prepaid lease payments Depreciation – owned assets – assets held under finance leases (Gain) loss on disposal of property, plant and equipment Operating lease rentals paid in respect of rented premises	2006 HK$’000 17,894 943 18,837 430 153 6,702 2,012 (74 ) 1,689	2005 HK$’000 19,069 1,446
		20,515
		380 164 7,355 1,001 155 1,882

9. FinAnce coStS

Interest expense on bank and other borrowings wholly repayable within five years Interest expense on obligations under finance leases	2006 HK$’000 11,552 690 12,242	2005 HK$’000 10,361 660
		11,021

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10. directorS’ And emploYeeS’ emolumentS

(a) directors’ emoluments

For the year ended 31 December 2006

emoluments Executive Directors mr. But Ching Pui mr. But Ka Wai mr. But Chai Tong mr. Chu Kin Wah (resigned on 30 June 2006) Non-executive Directors ms. Leung Wai Ling mr. Ngai Chun Kong, Stephen Independent non-executive Directors mr. Cheung yu yan, Tommy mr. Ip Shing Tong, Francis mr. Ku Siu Fung, Stephen Total for 2006 For the year ended 31 December 2005	Fees HK$ – – – – 50,000 50,000 100,000 50,000 50,000 300,000	other emoluments retirement Salaries benefits and other scheme benefits contributions HK$ HK$ 360,000 – 360,000 18,000 360,000 18,000 180,000 9,000 – – – – – – – – – – 1,260,000 45,000	total HK$ 360,000 378,000 378,000 189,000 50,000 50,000 100,000 50,000 50,000
			1,605,000

emoluments Executive Directors mr. But Ching Pui mr. But Ka Wai mr. But Chai Tong mr. Chu Kin Wah mr. Lai Wing Kuen (resigned on 7 June 2005) Non-executive Directors ms. Leung Wai Ling mr. Ngai Chun Kong, Stephen Independent non-executive Directors mr. Cheung yu yan, Tommy mr. Ip Shing Tong, Francis mr. Ku Siu Fung, Stephen Total for 2005	Fees HK$ – – – – – 50,000 50,000 100,000 50,000 50,000 300,000	other emoluments retirement Salaries benefits and other scheme benefits contributions HK$ HK$ 360,000 – 360,000 18,000 360,000 18,000 360,000 18,000 150,000 7,500 – – – – – – – – – – 1,590,000 61,500	total HK$ 360,000 378,000 378,000 378,000 157,500 50,000 50,000 100,000 50,000 50,000
			1,951,500

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(b) employees’ emoluments

The five highest paid individuals for the year ended 31 December 2006 included three (2005: three) executive directors of the Company. The emoluments of the remaining two (2005: two) individuals are as follows:

Salaries and other benefits Retirement benefits scheme contributions	2006 HK$’000 1,210 59 1,269	2005 HK$’000 864 45
		909

The emoluments of each of the two (2005: two) highest paid individuals were less than hK$1,000,000.

(c) During the year, no emoluments were paid by the Group to any of the directors of the Company or the five highest paid individuals of the Group (including directors and employees) as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors of the Company has waived any emoluments during the year.

11. income tAx expenSe

The charge comprises: Current tax: hong Kong Profits Tax Current year (Over) under-provision in prior years PRC Enterprise Income Tax Current year Under-provision in prior years Current tax charge for the year Deferred tax (credit) charge for the year_(note 25)_	2006 HK$’000 558 (10 ) 5,373 254 6,175 (310 ) 5,865	2005 HK$’000 1,292 3,576 2,848 140
		7,856 3
		7,859

hong Kong Profits Tax is calculated at 17.5% (2005: 17.5%) of the estimated assessable profit arising in hong Kong for the year.

In accordance with the relevant tax laws and regulations of the PRC, certain of the Group’s PRC subsidiaries are exempted from PRC Enterprise Income Tax for two years starting from the first profit making year after utilisation of the carried forward tax losses and eligible for a 50% relief of the PRC Enterprise Income Tax for the following three years.

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FinAnciAl inFormAtion on the Group

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The tax charge for the year can be reconciled to the profit before tax per the consolidated income statement as follows:

Profit before tax Tax at PRC Enterprise Income Tax rate of 27% (2005: 33%) Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Under-provision in respect of prior years Tax effect of tax losses not recognised Utilisation of losses not previously recognised Effect of different tax rates of subsidiaries operating in other jurisdictions Tax charge for the year	2006 HK$’000 18,895 5,102 1,815 (578 ) 244 3 15 (736 ) 5,865	2005 HK$’000 18,075
		5,964 2,471 (3,338) 3,716 170 6 (1,130)
		7,859

12. diVidendS

The directors do not recommend the payment of a dividend for the years ended 31 December 2005 and 2006.

13. eArninGS per ShAre

The calculation of the basic earnings per share is based on the profit attributable to the equity holders of approximately hK$13,030,000 (2005: hK$10,216,000) and on the weighted average of 370,542,466 ordinary share (2005: 202,531,506) deemed to be in issue during the year.

No diluted earnings per share has been presented for the year ended 31 December 2006 as the exercise policies of outstanding options are higher than the market price of shares.

No diluted earnings per share has been presented for the year ended 31 December 2005 as there are no dilutive potential ordinary shares in Issue.

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14. prepAid leASe pAYmentS

The Group’s prepaid lease payments represented interest in land use rights and leasehold land and their net book values are analysed as follows:

At cost As at 1 January Exchange difference As at 31 December Accumulated amortisation As at 1 January Exchange difference Amortisation for the year As at 31 December Net book values As at 31 December	2006 HK$’000 3,253 100 3,353 1,026 34 153 1,213 2,140	2005 HK$’000 3,178 75
		3,253
		843 19 164
		1,026
		2,227

Note: The land use rights and leasehold land of the Group as at 31 December 2006 are held on medium term leases and situated in the PRC and hong Kong respectively

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15. propertY, plAnt And eQuipment

COST At 1 January 2005 Exchange difference Additions Disposals At 31 December 2005 and January 2006 Exchange difference Additions Transfer in/(out) Disposals At 31 December 2006 ACCUMULATED DEPRECIATION At 1 January 2005 Exchange difference Provided for the year Eliminated on disposals At 31 December 2005 and 1 January 2006 Exchange difference Provided for the year Eliminated on disposals At 31 December 2006 net BooK VAlueS At 31 december 2006 At 31 December 2005	Buildings HK$’000 50,997 1,325 – – 52,322 1,757 – – (195) 53,884 7,261 161 1,204 – 8,626 273 1,165 (78) 9,986 43,898 43,696	Furniture and equipment HK$’000 21,690 330 2,361 (130) 24,251 435 1,108 – – 25,794 15,233 119 1,274 (69) 16,557 210 1,543 – 18,310 7,484 7,694	motor vehicles HK$’000 9,815 65 – (472) 9,408 61 – – (2,615) 6,854 8,449 59 400 (148) 8,760 61 99 (2,590) 6,330 524 648	plant and construction machinery in progress HK$’000 HK$’000 78,576 166 1,947 5 618 6,101 – – 81,141 6,272 2,892 118 9,370 91 5,088 (5,088) (329) – 98,162 1,393 27,193 – 585 – 5,473 – – – 33,251 – 1,069 – 5,902 – (329) – 39,893 – 58,269 1,393 47,890 6,272	loose tools and moulds HK$’000 189 – – – 189 – – – – 189 140 – 5 – 145 – 5 – 150 39 44	total HK$’000 161,433 3,672 9,080 (602) 173,583 5,263 10,569 – (3,139) 186,276 58,276 924 8,356 (217) 67,339 1,613 8,714 (2,997) 74,669 111,607 106,244

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The net book value of property, plant and equipment of the Group held under finance leases included above is as follows:

Motor vehicles Plant and machinery	2006 HK$’000 362 18,100 18,462	2005 HK$’000 467 23,570
		24,037

16. intereStS in SuBSidiArieS

Unlisted shares, at cost Amounts due from subsidiaries	the company 2006 2005 HK$’000 HK$’000 73,992 73,992 97,145 76,675 171,137 150,667	the company 2006 2005 HK$’000 HK$’000 73,992 73,992 97,145 76,675 171,137 150,667
		150,667

The carrying value of the unlisted shares is based on the book values of the underlying net assets of the subsidiaries attributable to the Group as at the date on which the Company became the ultimate holding company of the Group pursuant to the group reorganisation undertaken in preparation for the listing of the Company’s shares on the Stock Exchange in 2003 (the “Group Reorganisation”).

The amounts due from subsidiaries are unsecured, interest-free and have no fixed repayment terms. In the opinion of the directors, the amounts will not be repayable within one year from the balance sheet date. Accordingly, such amounts have been classified as non-current. The directors consider that the amounts due from subsidiaries approximate their fair value.

Particulars of the Company’s subsidiaries as at 31 December 2006 are set out in note 33.

17. inVentorieS

Raw materials Work in progress Finished goods	the Group 2006 2005 HK$’000 HK$’000 19,172 15,236 5,840 5,792 32,708 26,652 57,720 47,680	the Group 2006 2005 HK$’000 HK$’000 19,172 15,236 5,840 5,792 32,708 26,652 57,720 47,680
		47,680

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FinAnciAl inFormAtion on the Group

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18. trAde And other receiVABleS

The Group adopts a general policy of allowing average credit periods ranging from 90 days to 180 days to its trade customers. However, for certain customers with long-established relationship and good past repayment histories, a longer credit period may be granted up to one year.

An aged analysis of trade receivables (net of allowance for bad and doubtful debts) is as follows:

Within 90 days 91 to 180 days Over 180 days Trade receivables Deposits, prepayments and other receivables	the Group 2006 2005 HK$’000 HK$’000 70,274 101,275 35,274 15,186 51,009 32,982 156,557 149,443 21,930 27,843 178,487 177,286	the Group 2006 2005 HK$’000 HK$’000 70,274 101,275 35,274 15,186 51,009 32,982 156,557 149,443 21,930 27,843 178,487 177,286
		149,443 27,843
		177,286

The directors consider that the carrying amount of trade and other receivables approximate their fair value.

19. trAde And other pAYABleS

An aged analysis of trade payables is as follows:

Within 90 days 91 to 180 days Over 180 days Trade payables Other payables	the Group 2006 2005 HK$’000 HK$’000 8,414 12,860 4,750 1,594 5,016 4,739 18,180 19,193 10,146 9,670 28,326 28,863	the Group 2006 2005 HK$’000 HK$’000 8,414 12,860 4,750 1,594 5,016 4,739 18,180 19,193 10,146 9,670 28,326 28,863
		19,193 9,670
		28,863

The directors consider that the carrying amount of trade and other payables approximate their fair value.

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FinAnciAl inFormAtion on the Group

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20. oBliGAtionS under FinAnce leASeS

Amounts payable under finance leases: Within one year In the second to fifth year inclusive Less: Future finance charges Present value of lease obligations Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months	minimum lease payments 2006 2005 HK$ HK$ 5,770 7,072 6,283 3,438 12,053 10,510 (1,058) (582) 10,995 9,928	present value of minimum lease payments 2006 2005 HK$ HK$ 5,092 6,623 5,903 3,305 10,995 9,928 N/A N/A 10,995 9,928 (5,092) (6,623) 5,903 3,305

It is the Group’s policy to lease certain of its plant and machinery and motor vehicles under finance leases. The average lease term is 3 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets.

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FinAnciAl inFormAtion on the Group

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21. BorroWinGS

Trust receipts loans Bank overdrafts Bank loans Other loan Analysis as: Secured Unsecured The maturity profile of the above borrowings is as follows: On demand or within one year More than one year, but not exceeding two years Less: amount due within one year shown under current liabilities	the Group 2006 2005 HK$’000 HK$’000 39,616 43,752 15,582 4,656 115,506 120,168 – 6,250 170,704 174,826 123,689 125,920 47,015 48,906 170,704 174,826 138,674 132,779 32,030 42,047 170,704 174,826 (138,674 ) (132,779) 32,030 42,047	the Group 2006 2005 HK$’000 HK$’000 39,616 43,752 15,582 4,656 115,506 120,168 – 6,250 170,704 174,826 123,689 125,920 47,015 48,906 170,704 174,826 138,674 132,779 32,030 42,047 170,704 174,826 (138,674 ) (132,779) 32,030 42,047
		174,826

		125,920 48,906
		174,826

		132,779 42,047
		174,826 (132,779)
		42,047

The trust receipts loans, bank overdrafts and bank loans carry interest at the prevailing market rates.

The directors consider that the carrying amount of borrowings approximate their fair value.

The bank loans of the Company in the amount of HK$31,000,000 (2005: HK$38,000,000) are guaranteed by two wholly-owned subsidiaries on a joint and several basis.

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22. ShAre cApitAl

number of ordinary shares Ordinary share of HK$0.01 each Authorised: At 1 January 2005, 31 December 2005 And 31 December 2006 4,000,000,000 Issued and fully paid: At 1 January 2005 200,000,000 Issue of shares on 27 October 2005 14,000,000 At 31 December 2005 and 1 January 2006 214,000,000 Issue of rights shares on 7 July 2006 321,000,000 As at 31 December 2006 535,000,000	Amount HK$’000 40,000

	2,000 140
	2,140 3,210
	5,350

On 7 July 2006, the Company issued 321 million rights shares of HK$0.01 each to qualifying shareholders at the subscription price of HK$0.10 each in satisfaction of the sum of HK$32,100,000. The excess over the nominal value of the shares issued amounting to HK$28,890,000 was credited to the share premium account of the Company.

23. ShAre option Scheme

The Company’s share option scheme (the “Scheme”) was adopted pursuant to a resolution passed on 3 June 2003 for the primary purpose of providing incentives to encourage its participants to perform their best in achieving the goals of the Company and enjoy its result. The participants are any director and eligible employee of the Group; any entity in which any member of the Group holds any equity interest (the “Invested Entity”); any supplier of goods or services and customers to any member of the Group or any Invested Entity; any person or entity that provides research, development or other technological support to any member of the Group or any Invested Entity; any adviser or consultant to any area of business or business development of any member of the Group or any Invested Entity; any shareholders of any member of the Group or any Invested Entity or any holder of any securities issued by any member of the Group or any Invested Entity; and any other group or classes of participants who have contributed or may contribute by way of joint venture, business alliance or other business arrangement to the development and growth of the Group, as absolutely determined by the board.

The maximum number of securities which may be allotted and issued upon the exercise of all outstanding options granted and yet to be exercised under the Scheme and any other share option scheme adopted by the Group must not in aggregate exceed 30% of the share capital of the Company in issue from time to time. The total number of shares which may be allotted and issued upon the exercise of all options to be granted under the Scheme of the Group must not in aggregate exceed 10% of the shares in issue on 25 June 2003, being the date on which the Company’s shares were listed on the Stock Exchange. For the purpose of calculating the above, options lapsed in accordance with the Scheme shall not be counted.

The number of shares in respect of which options may be granted to any individual in any one year is not permitted to exceed 1% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders.

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The period within which the shares must be taken up under an option of the Scheme shall not be later than 10 years from the date the option is granted. There is no minimum period for which an option must be held before it can be exercised. HK$1 is payable on acceptable of the options within 21 days from the date of grant. The subscription price is the highest of (i) the closing price of the shares quoted in the Stock exchange’s daily quotations sheet for trade in one or more board lots of the shares on the date of the offer for the grant which must be a business day; (ii) the average closing price of the shares as quoted in the Stock Exchange’s daily quotations sheet for the five business days immediately preceding the date of the offer for the grant; and (iii) the nominal value of a share. The Scheme is valid for 10 years from 3 June 2003. No further options may be granted pursuant to the Scheme after 2 June 2013.

The following table discloses details of the Company’s options under the Scheme held by employees and consultant and the movement during the years ended 31 December 2006 and 2005:

			exercise
			price
		exercise	per share	Weighted
		price	adjusted	average				exercised
		per share	for the	remaining		outstanding			during	outstanding
	date	prior to	effect of	contractual	exercisable		at		the year		at
category	of grant	rights issue	rights issue	life	period	01/01/06	01/01/05	2006	2005	31/12/06	31/12/05
		(HK cents)	(HK cents)	(years)
			(note)
Employees	14 December	31.6	23.8	0.95	14.12.2004	10,000,000	10,000,000	–	–	10,000,000	10,000,000
	2004				to 13.12.2007
Consultant	14 December	31.6	23.8	0.95	14.12.2004	2,000,000	2,000,000	–	–	2,000,000	2,000,000
	2004				to 13.12.2007

There was no share options granted under the Scheme in both years.

Note: The exercise price per share brought forward from last year has been adjusted to reflect the effect of the Rights issue during the year ended 31 December 2006.

On 14 December 2004, the Company granted share options under the Scheme to certain employees of the Group and a consultant, which entitle them to subscribe for a total of 10,000,000 shares and 2,000,000 shares respectively at HK31.6 cents per share. The exercise price per share has been adjusted to HK23.8 cents per share to reflect the effect of the Rights issue during the year ended 31 December 2006. The total amount of consideration received from the participants for taking up the options granted was HK$7. No share options were granted during the years ended 31 December 2006 and 2005. No share options were exercised, cancelled and lapsed during the years ended 31 December 2006 and 2005.

24. reSerVeS

the company At 1 January 2005 Issue of shares Loss for the year At 31 December 2005 and 1 January 2006 Issue of shares_(note 22)_ Loss for the year At 31 December 2006	Share contributed Accumulated premium surplus losses HK$’000 HK$’000 HK$’000 35,645 71,463 – 5,460 – – – – (2,855) 41,105 71,463 (2,855) 27,446 – – – – (3,640) 68,551 71,463 (6,495)	total HK$’000 107,108 5,460 (2,855)
		109,713 27,446 (3,640)
		133,519

The contributed surplus represents the difference between the book values of the underlying net assets of the subsidiaries at the date on which they were acquired by the Company and the nominal amount of the Company’s shares issued under the Group Reorganisation.

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Appendix i

The Company’s reserves available for distribution to its shareholders comprise share premium, contributed surplus and accumulated profits which in aggregate amounted to approximately HK$134 million as at 31 December 2006 (2005: HK$110 million). Under the Companies Law (Revised) of the Cayman Islands, the share premium of the Company is available for paying distributions or dividends to shareholders subject to the provisions of its Memorandum and Articles of Association and provided that immediately following the payment of distributions or dividends, the Company is able to pay its debts as they fall due in the ordinary course of business. In accordance with the Company’s Articles of Association, dividends shall be payable out of the profits or other reserves, including the share premium account, of the Company.

25. deFerred tAx liABilitieS

The following are the Group’s major deferred tax liabilities/(assets) recognised and movements thereon during the current and prior reporting periods:

Accelerated tax depreciation HK$’000 At 1 January 2005 495 (Credited) charged to the income statement for the year_(note 11) (6) At 31 December 2005 and 1 January 2006 489 Credited to the income statement for the year(note 11)_ (63) At 31 December 2006 426	tax losses HK$’000 (98) 9 (89) (247) (336)	total HK$’000 397 3 400 (310) 90

As at 31 December 2006, the Group had unused tax losses of HK$8,596,000 (2005: HK$2,504,000) available for offset against future profits. A deferred tax asset has been recognised in respect of HK$1,920,000 (2006: HK$509,000) of such losses. No deferred tax has been recognised in respect of the remaining HK$6,676,000 (2005: HK$1,995,000) due to the unpredictability of future profit streams. The unrecognised tax losses may be carried forward indefinitely.

26. retirement BeneFitS Scheme

When the Mandatory Provident Fund Schemes Ordinance (“MPFO”) came into effect in Hong Kong on 1 December 2000, The Group established a mandatory provident fund scheme with voluntary contributions (the “MPF Scheme”) for its employees in Hong Kong.

Prior to the introduction of the MPF Scheme, the Group had operated a defined contribution scheme registered under the Occupational Retirement Schemes Ordinance (the “ORSO Scheme”) for its qualified employees in Hong Kong. The ORSO Scheme discontinued in 2001 and the benefits of the employees were transferred to the MPF Scheme. The assets held under the ORSO Scheme which were held separately from those of the Group were also transferred directly to the MPF Scheme. For MPF Scheme, the Group contributes 5% of relevant payroll costs to the scheme, which contribution is matched by the employee.

The amounts charged to the consolidated income statements represent contributions payable to the schemes by the Group at rates specified in the rules of the schemes less forfeiture, if any, arising from employees leaving the Group prior to completion of their qualifying service period.

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The employees employed in the PRC subsidiaries are members of the state-managed retirement benefits schemes operated by the PRC government. The PRC subsidiaries are required to contribute a certain percentage of their payroll to the retirement benefits schemes to fund the benefits. The only obligation of the Group with respect to the retirement benefits schemes is to make the required contributions under the schemes.

As at the balance sheet date, there was no significant amount of forfeited contributions available to reduce future contributions.

27. mAJor non-cASh trAnSActionS

During the year, the Group entered into finance lease arrangements in respect of the acquisition of assets with a total capital value at the inception of the leases of HK$7,786,000 (2005: HK$8,176,000).

28. pledGe oF ASSetS

As at the balance sheet date, the following assets were pledged by the Group to banks in order to secure general banking facilities granted to the Group, and their respective net book values are as follows:

Land and buildings together with relevant land use rights situated in the PRC Land and buildings situated in Hong Kong Plant and machinery Trade receivables of subsidiaries Bank deposits	2006 HK$’000 45,474 562 57,248 2,956 21,459 127,699	2005 HK$’000 45,321 602 46,655 2,982 16,805
		112,365

The Company did not have any assets pledged as at the balance sheet date.

29. operAtinG leASeS commitmentS

As at the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases in respect of rented premises, which fall due as follows:

Within one year In the second to fifth years inclusive	the Group 2006 2005 HK$’000 HK$’000 1,322 182 1,166 – 2,488 182	the Group 2006 2005 HK$’000 HK$’000 1,322 182 1,166 – 2,488 182
		182

Operating lease payments represent rentals payable by the Group for certain of its office and premises. Leases are negotiated for an average term of two years and rentals are fixed for an average of two years.

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30. cApitAl commitmentS

	the	Group
	2006	2005
	HK$’000	HK$’000
Capital expenditure contracted for but not provided in the
financial statements in respect of acquisition of property,
plant and equipment	–	4,909
Capital contribution to the registered capital of the
PRC subsidiaries_(note)_	–	1,554

Note: The capital commitment represents the outstanding registered capital to be contributed to the subsidiaries in the PRC by the Group as at 31 December 2005.

The Company did not have any significant capital commitments as at the balance sheet date.

31. continGent liABilitieS

(a) Financial guarantees issued

As at the balance sheet date, the company has issued the following guarantees:

Guarantees to banks in respect of banking facilities granted to wholly owned subsidiaries which will be renewed subject to the banking facilities’ expiry date.

As at the balance sheet date, the directors do not consider it probable that a claim will be made against the company under any of the guarantees. The maximum liability of the company at the balance sheet date under the single guarantees issued is the facility drawn down by the subsidiaries of HK$125,163,000 (2005: HK$129,285,000).

The company has not recognised any deferred income in respect of the guarantees as their fair values and its transaction price cannot be reliably measured.

32. connected And relAted pArtY trAnSActionS

During the year, the Group had the following significant transactions with related parties, some of which are also deemed to be connected persons pursuant to the Listing Rules:

		2006	2005
	Notes	HK$’000	HK$’000
Rentals paid to:
– Lucky Fair Investment Limited	(i) & (ii)	180	180
– Profit Horn Development Limited	(i) & (ii)	156	156
– Tai Tung Supermarket Limited	(i) & (ii)	228	288
– Mr. But Ching Pui	(ii)	72	72
– The But’s Family and Mr. But Chai Leung	(ii)	144	144
– Mr. But Ka Wai and Mr. But Chai Leung	(ii)	156	156
– Mr. But Ching Pui and Ms. Leung Wai Ling	(ii)	156	156

Compensation to key management personnel:

The directors of the Group considered that they are the only key management personnel of the Group and their remuneration are set out in note 10.

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Notes:

(i) Mr. But Ching Pui, Ms. Leung Wai Ling, Mr. But Ka Wai and Mr. But Chai Tong, all of whom are directors and beneficial shareholders of the Company, are collectively referred to as the “But’s Family”. The But’s Family has 100% beneficial interests in these companies.
(ii) Rental for premises were determined in accordance with the leases entered into between the Group and the related parties, on the basis of estimated market value.

33. pArticulArS oF SuBSidiArieS

Particulars of the Company’s subsidiaries as at 31 December 2006 are as follows:

			percentage of
		issued and	issued capital/
	place of	fully paid	registered
	incorporation/	share capital/	capital held by	principal
name of company	establishment	registered capital	the company	activities
			(note (i))
Wah Yuen Foods	British Virgin Islands/	Ordinary shares	100%	Investment holding
International Limited	Hong Kong	USD1,000
華園食品國際有限公司
Wah Yuen Foods (China)	British Virgin Islands/	Ordinary shares	100%	Investment holding
Limited	Hong Kong	USD1,000
華園食品（中國）有限公司
Hong Kong Wah Yuen Foods	British Virgin Islands/	Ordinary share	100%	Investment holding
Company Limited	Hong Kong	HK$1
香港華園食品廠有限公司
Wah Yuen Investment Limited	British Virgin Islands/	Ordinary shares	100%	Investment holding
華園投資有限公司	Hong Kong	USD1,000
Wealthstar Investments Limited	British Virgin Islands/	Ordinary share	100%	Investment holding
裕星投資有限公司	Hong Kong	USD1
Wah Yuen Licensing	Cook Islands/	Ordinary shares	100%	Holding of trademarks
Company Limited	Hong Kong	HK$10
華園商標有限公司
Honfine Company Limited	Hong Kong	Ordinary shares	100%	Distribution and
朗耀有限公司		HK$10		marketing of snack
		Non-voting		foods products
		deferred shares
		HK$2_note (iii)_
Wah Yuen Foods (Hong Kong)	Hong Kong	Ordinary shares	100%	Manufacturing
Company Limited		HK$1,000		distribution and
華園食品（香港）有限公司		Non-voting		marketing of snack
		deferred shares		food products and
		HK$10,000,000		convenience frozen,
				food products

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			percentage of
		issued and	issued capital/
	place of	fully paid	registered
	incorporation/	share capital/	capital held by	principal
name of company	establishment	registered capital	the company	activities
			(note (i))
Million Riches Development	Hong Kong	Ordinary shares	100%	Distribution and
Limited		HK$100		marketing of snack
裕億發展有限公司		Non-voting		foods products
		deferred shares
		HK$1,000,000
		note (iii)
Wah Yuen Foods Company	Hong Kong	Ordinary shares	100%	Investment holding
Limited		HK$20
華園食品廠有限公司
Wah Yuen (Guangzhou) Foods	PRC	Registered and	100%	Manufacturing,
Company Limited		contributed		distribution and
華園（廣州）食品有限公司		capital		marketing of snack
		USD4,500,000		food products
Rocco Foods Enterprises	PRC	Registered and	100%	Manufacturing,
Company (Guangzhou)		contributed		distribution and
Limited		capital		marketing of snack
廣州樂高食品企業有限公司		USD2,810,000		food products
note (ii)
Guangzhou Lekker Pet Foods	PRC	Registered and	100%	Manufacturing,
Company Limited		contributed		distribution and
廣州市俐加寵物食品有限公司		capital		marketing of pet
note (ii)		HK$500,000		food products
Wide Spread Foods	PRC	Registered and	100%	Trading
Company Limited		contributed
廣州宏嘉食品有限公司		capital
note (ii)		HK$500,000

Notes:

(i) All the above subsidiaries, except for Wah Yuen Foods International Limited which is directly held, are indirectly held by the Company and operate principally in their places of incorporation/establishment.
(ii) Wah Yuen (Guangzhou) Foods Company Limited, Rocco Foods Enterprises Company (Guangzhou) Limited, Guangzhou Lekker Pet Foods Company Limited, and Wide Spread Foods Company Limited are wholly foreign owned enterprises established in the PRC.
(iii) The deferred shares, which are not held by the Group, practically carry no rights to dividends or to receive notice of or to attend or vote at any of the respective companies’ general meetings or to participate in any distribution on their winding up.
(iv) None of the subsidiaries had any debt securities outstanding as at 31 December 2006 or at any time during the year.
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3. mAnAGement diScuSSion And AnAlYSiS

Set out below is the management discussion and analysis of the operating results and business review of the Group extracted from the respective annual reports of the Company for the three years ended 31 December 2004, 2005 and 2006:

(A) For the YeAr ended 31 decemBer 2004

induStrY oVerVieW

Rapid economic development and continuously improving living standards have expedited the demand for quality, diversified and value-for-money packaged food products that suit the needs of urban lifestyle. In 2004, the continued rising inflation led to the rise in raw material prices. As such, the unfavourable market conditions brought forth by increasing production costs imposed immense pressure on product pricing and affected the development of the industry.

BuSineSS reVieW

Wah Yuen is the leading food manufacturer, distributor and retailer in the Hong Kong and PRC markets, producing and offering over 200 types of top quality snack products with a unique Asian flavour under three brands, namely Wah Yuen, Rocco and 采楓, and the OEM model. The Group also produces convenience frozen food products under the brand name Wah Yuen and under the OEM model.

hong Kong market

In 2004, despite keen market competition, the Group’s business development in the Hong Kong market maintained sustainable growth, amidst Hong Kong’s favourable economic conditions, increasing numbers of Mainland tourists, as well as strengthening of our marketing and promotional efforts.

By leveraging on its extensive sales and distribution network spanning 2,300 retail outlets in Hong Kong, long-established and renowned brand identity and diversified quality products, Wah Yuen continued to be one of the most popular packaged food brands in Hong Kong.

During the year under review, sales in the Hong Kong market amounted to approximately HK$115,785,000, representing a growth of 20% and accounting for approximately 55% of the Group’s total turnover. The encouraging growth in sales was mainly attributable to the successful market launch of various new products and the development of existing and new sales channels.

In 2004, the Group further extended its comprehensive range of packaged snack food and convenience frozen food products by launching a number of innovative products, such as cookies, Chinese sausages, moon cakes with new creative designs and a series of new Chinese dim sum, all of which received positive market response. In 2004, Wah Yuen also participated in the 39th Hong Kong Brands & Products Expo and obtained a satisfactory result.

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In addition, with the view of strengthening its market presence and enhancing sales performance, Wah Yuen proactively extended our existing network while developing potential sales channels and achieved impressive progress. The Group successfully expanded its sales network for convenience frozen food products, which established an ideal platform for business growth.

the prc market

Wah Yuen’s products are mainly sold under the brand names of “Wah Yuen”, “Rocco” and “采楓” through its well-established distribution network spanning over 250 cities in 30 provinces. As at 31 December 2004, the Group’s branch offices were strategically located in Beijing, Shenyang, Changchun, Wuhan, Changsha and Nanning.

In 2004, the further opening of the PRC market upon its entry into the WTO, lower production costs and abundant work force attracted numerous new market entrants, which further intensified the already keen market competition there, thus triggering an intense price war. Together with the increasing prices for raw materials, the Group experienced different challenges during the year.

As a result of the difficult business environment, the Group’s sales in the PRC for the year ended 31 December 2004 amounted to approximately HK$94,669,000, accounting for approximately 45% of the Group’s total turnover. Sales of snacks under all three brand names recorded a decrease of approximately 8% due to severe market competition.

Despite the drop in sales of snacks, the Group’s introduction of its convenience frozen food products to the PRC market during the first half of the year maintained stable progress. The Group endeavoured to consolidate its relationship with local supermarkets and convenience stores and stepped-up its sales promotion, with the view of establishing an extensive distribution network for future growth.

By leveraging on its prominent strengths, unrivalled product quality and reputable brand awareness, Wah Yuen was accredited as one of the Top 100 Private Enterprises in Guangzhou in 2004, demonstrating the Group’s accomplishments in extending its business reach to the PRC market.

overseas market

While consolidating its business foundation and propelling product development, the Group successfully tapped into the Japanese market during the fourth quarter of 2004 and achieved substantial growth.

During the year under review, Wah Yuen introduced several types of convenience frozen food products, namely Hong Kong Style Fried Rice and Curry Fried Rice, and a series of Chinese dim sum into the Japanese market. For the period between October and December, sales of the convenience frozen food products recorded satisfactory performance and it is expected that the Japanese market will become a new business growth driver, expediting the Group’s profitability.

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FinAnciAl inFormAtion on the Group

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production Facilities

As at 31 December 2004, the Group has three production facilities in Hong Kong and the Huadu District, Guangzhou, Guangdong Province. Utilising 10 efficient production lines, the Group manufactures preserved meats, convenience frozen food products, flour, preserved fruits and nuts, seasonings and other products. During the year under review, the Group’s production facilities maintained smooth operation.

With the accreditation of the Hazard Analysis and Critical Control Point certificate (HACCP) as well as the ISO 9001 and ISO 9002 certificates, the Group is well equipped in its continual efforts to maintain excellent quality.

FinAnciAl reVieW

The Group’s turnover for the year ended 31 December 2004 amounted to HK$210,454,000, representing a slight growth of 6% as compared to HK$198,934,000 for the previous year. The Group’s gross profit and profit attributable to shareholders for the year ended 31 December 2004 reached HK$71,414,000 and HK$13,086,000 respectively.

Sales of dried meat products which accounted for 51% of total turnover were the major source of the Group’s revenue. Sales of convenience frozen food products, flour products and preserved fruits and nuts products accounted for approximately 19%, 8% and 4% respectively of the total turnover, while the remaining was attributable to other products. These figures were similar to that of the previous year.

liQuiditY And FinAnciAl reSourceS

As at 31 December 2004, the Group had total assets of HK$348,430,000 and its total current assets were HK$239,767,000. As at that date, the current and non-current liabilities of the Group totaled to HK$170,382,000 and HK$46,007,000 respectively. The Group’s bank borrowings amounted to HK$164,441,000 (2003: HK$154,386,000). Most of these bank borrowings were denominated in Hong Kong dollars and Renminbi and bearing floating interest rates. As at 31 December 2004, the gearing ratio of the Group was 37% (2003: 34%), calculated on the basis of total borrowings less cash over total assets at that date.

expoSure to FluctuAtion in ForeiGn exchAnGe

The Group’s monetary assets and liabilities are denominated in Hong Kong dollars and Renminbi which were relatively stable during the year. The Group is not exposed to any other significant exchange risk.

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cApitAl expenditure

During the year, the Group invested approximately HK$11,751,000 in fixed assets, of which 23% was used for purchasing production plant and machinery, 44% for renovation of production facilities and the remaining related to other assets.

As at 31 December 2004, the Group had capital commitments of approximately HK$6,627,000 in respect of acquisition of new machinery and renovation of a new production line.

chArGe on ASSetS

As at 31 December 2004, certain assets of the Group with aggregate carrying value of HK$145,204,000 were pledged to banks to secure banking facilities granted to the Group.

emploYeeS

As at 31 December 2004, total number of employees of the Group were approximately 72 in Hong Kong (2003: 85), and approximately 865 in the PRC (2003: 821). The Group offers a comprehensive remuneration and benefit package to its employees. In addition, share option and discretionary bonuses are also granted to eligible staff based on the performance of the individual as well as the Group.

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(B) For the YeAr ended 31 decemBer 2005

hong Kong market

Benefited from encouraging economic development and the strengthening of consumption power, the Group achieved satisfactory growth in the Hong Kong market in spite of keen market competition.

During the year under review, the Group extended its network coverage and further expanded its sales and distribution channels. With an extensive retail network of a total of 2,300 outlets, Wah Yuen fortified its unrivalled position as one of the most popular packaged food brands in Hong Kong by leveraging on its established and renowned brand equity as well as diversified products with outstanding quality.

For the year ended 31 December 2005, sales in the Hong Kong market amounted to approximately HK$118,862,000, representing an increase of 3% over that of 2004, and accounted for 57% of the Group’s total turnover. The sales performance in Hong Kong was mainly attributable to the remarkable progress in product development and effective product promotion.

In 2005, the Group attained impressive progress in new product development. While launching different series of preserved fruits and nuts, as well as new convenience frozen food products such as fried rice, fried noodles and Chinese dim sum, the Group successfully developed new sales channels and set up concessionaires in supermarkets, which also further reinforced the Group’s collaboration with key distributors and retail chains.

the prc market

For the PRC market, Wah Yuen mainly sells its products under the brand names of “Wah Yuen” “Rocco”and “采楓” through its extensive distribution network spanning across 250 cities in 30 provinces.

Amidst unfavourable market condition with increasing entrants, the Group enhanced its exertions in strengthening the sales and marketing promotion of its products. As such, the Group’s marketing and distribution expenses significantly increased. Coupled with severe market competition, the Group’s business performance in the PRC was adversely affected.

As a result, the Group’s sales in the PRC dropped by 6% and amounted to approximately HK$88,689,000, accounting for approximately 43% of the Group’s total turnover for the year ended 31 December 2005.

Despite the decrease in product sales, the Group endeavoured to consolidate its distribution channels and establish intimate relationship with local supermarkets and convenience stores, so as to pave a way for the Group to expedite future growth.

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FinAnciAl inFormAtion on the Group

Appendix i

In addition, the Group’s persistence in pursuing meticulous quality was accredited the highest level of China Quality Credit Appraise Certificate by the authoritative China Quality Credit Appraisal Centre, which further equipped the Group with unparalleled strength to excel in the PRC market.

overseas market

Since its successful development into the Japanese market in the fourth quarter of 2004, the Group has achieved astonishing progress with remarkable growth.

During the year, the Group continued to strengthen the marketing and promotion of diversified convenience frozen food products sold in the Japanese market, including fried rice and a series of Chinese dim sum.

Meanwhile, the Group established a partnership and entered into an agreement with one of the largest conglomerates listed in Japan. In 2005, the representatives of this Japanese conglomerate visited the Group’s production facilities in the PRC and accredited an “A Grade Certificate”, which demonstrated the Group’s production technology has attained the quality standard in Japan.

With the solid foundation established over the past year, Wah Yuen is confident that the Japanese market will become a future growth driver, further fortifying its core competencies and solidify market presence in the region.

production FAcilitieS

As at 31 December 2005, the Group has three production facilities in Hong Kong and the Huadu District, Guangzhou, Guangdong Province. Capitalizing on the 10 state-of-the-art and highly efficient production lines, the Group manufactures preserved meats, convenience frozen food products, flour, preserved fruits and nuts, seasonings and other products. During the year under review, the Group upgraded its existing equipment and machinery to enhance production capabilities.

In addition to the accreditation of the Hazard Analysis and Critical Control Point certificate (HACCP) as well as the ISO 9001 and ISO 9002 certificates, the Group also successfully obtained the highest level of China Quality Credit Appraise Certificate by the authoritative China Quality Credit Appraisal Centre, enabling the Group to further ameliorate product quality.

FinAnciAl reVieW

The Group’s turnover for the year ended 31 December 2005 amounted to HK$207,551,000, representing a decrease of 1% as compared to HK$210,454,000 for the previous year. The Group’s gross profit and profit attributable to the equity holders for the year ended 31 December 2005 recorded HK$64,397,000 and HK$10,216,000 respectively.

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FinAnciAl inFormAtion on the Group

Appendix i

Sales of dried meat products which accounted for 44% of total turnover were the major source of the Group’s revenue. Sales of convenience frozen food products, flour products and preserved fruits and nuts products accounted for approximately 20%, 8% and 4% respectively of the total turnover, while the remaining was attributable to other products.

liQuiditY And FinAnciAl reSourceS

As at 31 December 2005, the Group had total assets of HK$365,314,000 and its total current assets were HK$256,843,000. As at that date, the current and non-current liabilities of the Group totaled to HK$170,023,000 and HK$45,752,000 respectively. The Group’s bank borrowings amounted to HK$168,576,000 (2004: HK$164,441,000). Most of these bank borrowings were denominated in Hong Kong dollars and bearing floating interest rates. As at 31 December 2005, the gearing ratio of the Group was 42% (2004: 37%), calculated on the basis of total borrowings less cash over total assets at that date.

expoSure to FluctuAtion in ForeiGn exchAnGe

cApitAl expenditure

During the year, the Group invested approximately HK$9,080,000 in fixed assets, of which 74% was used for purchasing production machinery and the remaining related to other assets.

As at 31 December 2005, the Group had capital commitments of approximately HK$4,909,000 in respect of acquisition of new machinery and renovation of a new production line.

chArGe on ASSetS

As at 31 December 2005, certain assets of the Group with aggregate carrying value of approximately HK$112,365,000 were pledged to banks to secure banking facilities granted to the Group.

emploYeeS

As at 31 December 2005, total number of employees of the Group were approximately 71 in Hong Kong (2004: 72), and approximately 590 in the PRC (2004: 865). The Group offers a comprehensive remuneration and benefit package to its employees. In addition, share option and discretionary bonuses are also granted to eligible staff based on the performance of the individual as well as the Group.

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FinAnciAl inFormAtion on the Group

Appendix i

(c) For the YeAr ended 31 decemBer 2006

The Group’s turnover for the year ended 31 December 2006 amounted to HK$202,130,000, representing a slightly decrease of 3% as compared to HK$207,551,000 for the previous year. The Group’s gross profit and profit attributable to the equity holders for the year ended 31 December 2006 increased by 10% to HK$70,823,000 and inflated substantially by 28% to HK$13,030,000 respectively.

Sales of dried meat products which accounted for 53% of total turnover were the major source of the Group’s revenue. Sales of convenience frozen food products, flour products and preserved fruits and nuts products accounted for approximately 22%, 5% and 4% respectively of the total turnover, while the remaining was attributable to other products.

BuSineSS reVieW

Wah Yuen is the market leader of food manufacture, distribution and retail in both Hong Kong and the PRC, offering a diverse range of over 200 types of supreme quality snack products with unique Asian flavour. The Group produces and markets its quality products under three brands, namely “Wah Yuen”, “Rocco” and “采楓”, as well as the OEM model. Additionally, the Group also engages in the manufacturing and marketing of convenience frozen food products under the Wah Yuen brand and the OEM model.

hong Kong market

On the back of encouraging economic development and increased consumption power in the local market, the Group maintained satisfactory performance in Hong Kong despite keen competition, while the production and sale of Wah Yuen snack food products and convenience frozen food products remain the core business of the Company.

During the year under review, the Group successfully extended its network coverage and further expanded its sales and distribution channels. With an extensive retail network comprising a total of approximately 2,000 outlets, Wah Yuen cemented its unrivalled position as one of the leading packaged food brands most favoured by Hong Kong consumers, leveraging on its renowned brand equity and diverse range of quality products.

For the year ended 31 December 2006, sales in the Hong Kong market amounted to approximately HK$108,576,000 and accounted for 54% of the Group’s total turnover. The slightly decline of turnover was mainly due to the drop of low-margin trading business.

In 2006, the Group stepped up its new product development initiatives to cater to customers’ preferences and attained encouraging results. Stepping up efforts to enhance its product portfolio, the Group launched a number of new products this year, namely Chinese dim sum, fried rice and snack products. Additionally, the Group consolidated marketing efforts in a number of key sales channels. Wah Yuen has particularly focused on strengthening its cooperation with key supermarket chain stores and convenience stores via concessionaries and joint promotion programmes. Boosting an extensive retail network covering all major supermarkets and convenience chain stores, the Group has cemented its market position as one of the most popular packaged food brands in Hong Kong.

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FinAnciAl inFormAtion on the Group

Appendix i

the prc market

The Group markets its products in the PRC market under the brand names of “Wah Yuen”, “Rocco” and “采楓”, via its comprehensive mainland distribution network spanning 250 cities in 30 provinces.

During the year under review, the Group’s sales in the PRC slightly increased by 6% and amounted to approximately HK$93,554,000, which accounted for approximately 46% of the Group’s total turnover for the year ended 31 December 2006.

Despite unfavourable market conditions and competition from increase entrants in the market, the Group maintained its strength in the sales and marketing promotion of its products. As a result, the Group’s marketing and distribution expenses increased as it paved the way to facilitate future growth.

overseas market

The Group attained the “A Grade Certificate” this year in recognition of its production facilities, which demonstrated the Group’s longstanding commitment to hygiene standards and quality control. Significantly, Wah Yuen successfully established a strategic partnership with Sojitz Corporation (“Sojitz”; a merger between Nichimen Corporation and Nissho Iwai Corporation), a large listed conglomerate in Japan and a leading international corporation with businesses spanning the globe. Operations of Sojitz consists of five core businesses - machinery and aerospace; energy and mineral resources; chemicals and plastics; real estate development and forestry products; as well as consumer lifestyle business.

Under the aforementioned partnership, Wah Yuen will provide manufacturing services to Sojitz and its subsidiaries for a period of 15 years commencing in 2006, exporting its premium fried rice, dim sum and convenience frozen food products to Japan through the distribution and retail network of Sojitz. Wah Yuen is confident that under this long-term strategic agreement, the Japanese market will become the Group’s future growth driver, cultivating immense potential to enhance its profitability and business scope.

production Facilities

The Group currently owns and operates three production facilities in Hong Kong and the Huadu District, Guangzhou, Guangdong Province. The Company was granted the internationally recognized HACCP certificate, acknowledging the compliance of its production lines with the strictest hygiene standards throughout the entire food production process, from the procurement of raw materials, to packaging, processing and distribution.

During the year, the Group has continued to upgrade its manufacturing and production facilities to enhance its capacities, while capitalizing on its 10 state-of-the-art and highly efficient production lines to deliver its renowned quality products.

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FinAnciAl inFormAtion on the Group

Appendix i

liQuiditY And FinAnciAl reSourceS

As at 31 December 2006, the Group had total assets of HK$407,779,000 and its total current assets were HK$294,032,000. As at that date, the current and non-current liabilities of the Group totaled to HK$175,213,000 and HK$38,023,000 respectively. The Group’s bank borrowings amounted to HK$170,704,000 (2005: HK$174,826,000). Most of these bank borrowings were denominated in Hong Kong dollars and bearing floating interest rates. As at 31 December 2006, the gearing ratio of the Group improved at 30% (2005: 42%), calculated on the basis of total borrowings less cash over total assets at that date.

expoSure to FluctuAtion in ForeiGn exchAnGe

As at 31 December 2006, the Group had no foreign exchange exposure and related hedge.

cApitAl expenditure

During the year, the Group invested approximately HK$10,569,000 in fixed assets, of which 89% was used for purchasing production machinery and the remaining related to other assets.

As at 31 December 2006, the Group had no capital commitments.

chArGe on ASSetS

As at 31 December 2006, certain assets of the Group with aggregate carrying value of approximately HK$127,699,000 were pledged to banks to secure banking facilities granted to the Group.

riGhtS iSSue

A resolution was passed by the shareholders of the Company at a special general meeting on 5 June 2006 to approve the allotment of 321,000,000 shares at a price of HK$0.1 per share on the basis of three rights shares for every two existing Company shares. The rights issue was completed on 7 July 2006 and net proceeds of approximately HK$30,656,000 was received.

emploYeeS And remunerAtion policieS

As at 31 December 2006, the Group’s total number of employees stood at approximately 650. Total staff costs for the year under review were approximately HK$18,837,000. Wah Yuen offers its workforce comprehensive remuneration and employees’ benefits packages. Additionally, share options and discretionary bonuses were also granted to eligible staff members based on their performance and the results of the Group.

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FinAnciAl inFormAtion on the Group

Appendix i

4. indeBtedneSS

At the close of business on 31 July 2007, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had total outstanding borrowings of approximately HK$183.6 million, comprising secured bank loans of approximately HK$147.2 million, unsecured bank overdraft of HK$18.5 million, and secured obligation under finance lease contracts of approximately HK$17.9 million.

The Enlarged Group’s borrowings were secured by the charge over certain bank deposits amounting to approximately HK$22.3 million, certain leasehold land and buildings, plant and machinery with net book value of approximately HK$105.4 million, certain trade receivables amounting to approximately HK$2.6 million, and corporate guarantees of the Enlarged Group.

Save as aforesaid or as otherwise mentioned herein and apart from intra-group liabilities and normal trade payables in the ordinary course of business, at the close of business on 31 July 2007, the Enlarged Group did not have any outstanding indebtedness, any loan capital, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges or loans or acceptance credits or hire purchase or finance lease commitments, guarantees or other contingent liabilities.

The Directors have confirmed that have been no material changes in the indebtedness and contingent liabilities of the Enlarged Group since 31 July 2007.

5. WorKinG cApitAl

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

6. mAteriAl AdVerSe chAnGe

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2006 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

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AccountAnts’ RepoRts on tHe ceWH GRoup And tHe seAbucktHoRn GRoup

Appendix ii

The following is the text of reports, prepared for the purpose of inclusion in this circular, received from the reporting accountants, Grant Thornton, Certified Public Accountants.

(1) the ceWH Group

==> picture [116 x 32] intentionally omitted <==

24 September 2007

The Board of Directors

Wah Yuen Holdings Limited

2nd Floor, On Shing Industrial Building Nos. 2-16 Wo Liu Hang Road Fo Tan, Shatin New Territories Hong Kong

Dear Sirs

We set out below our report on the financial information (the “Financial Information”) of China Environmental Water Holdings Limited (“CEWH”) and its subsidiaries (hereinafter collectively referred to as the “CEWH Group”) including the consolidated balance sheets of the CEWH Group as at 31 March 2005, 2006 and 2007, balance sheets of CEWH as at 31 March 2005, 2006 and 2007, consolidated income statements, consolidated cash flow statements and consolidated statements of changes in equity for the period from 8 December 2003 (being date of incorporation of CEWH) to 31 March 2005 and each of the two years ended 31 March 2006 and 2007 (“the Relevant Periods”) and notes thereto prepared for inclusion in the circular (the “Circular”) dated 24 September 2007 issued by Wah Yuen Holdings Limited (the “Company”) in connection with the proposed acquisition of the entire issued share capital of CEWH.

CEWH is a limited company incorporated in Hong Kong on 8 December 2003 with an authorised share capital of HK$10,000 divided into 10,000 ordinary shares of HK$1 each. The registered office of CEWH and its principal place of business are at Suite 6408, 64/F., Central Plaza, 18 Harbour Road, Wan Chai, Hong Kong. As at the date of this report, CEWH is wholly and beneficially owned by China Water Affairs Group Limited (“China Water”), a company redomiciled in Bermuda and its shares are listed on The Stock Exchange of Hong Kong Limited. The principal activity of CEWH is investment holding and its principal investment mainly represents the 50% equity interest in Conseco Seabuckthorn Co., Ltd. (“CONSECO”), details of the subsidiaries are set out in note 12 of Section II below.

The financial statements of CEWH for the period from 8 December 2003 (date of incorporation) to 31 March 2005 were prepared in accordance with accounting principles generally accepted in Hong Kong and audited by Messrs. RSM Nelson Wheeler, Certified Public Accountants, in Hong Kong.

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We have acted as auditors of CEWH for each of the two years ended 31 March 2006 and 2007. The financial statements of CEWH were prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by Hong Kong Institute of Certified Public Accountants (the “HKICPA”) except for a qualified opinion arising from the disagreement about non-preparation of consolidated financial statements as required by Hong Kong Accounting Standard 27 “Consolidated and Separate Financial Statements” issued by the HKICPA and the Hong Kong Companies Ordinances for the year ended 31 March 2006. Such qualification has been removed in this report because, for the purpose of this report, the financial information of CEWH’s subsidiaries is consolidated in the preparation of this Financial Information. No such qualification in the auditors’ report for the year ended 31 March 2007 as CEWH was exempted from the preparation of consolidated financial statements for the year ended 31 March 2007 as it is a wholly-owned subsidiary of China Water, whose financial statements are available for public use and comply with HKFRSs. Furthermore, the auditors’ report for the year ended 31 March 2007 has an explanatory paragraph covering the existence of material uncertainty of preparing the financial statements of CEWH on a going concern basis was included therein. For the purpose of this report, we have included such explanatory paragraph as set out in note 1.2 of Section II below.

The financial statements of the following subsidiaries were prepared in accordance with the relevant accounting rules and regulations applicable to enterprises in the People’s Republic of China (the “PRC”) and were audited by the following certified public accountants registered in the PRC:

name of

name of
subsidiaries	Financial period	name of auditors
CONSECO	Years ended 31 December	華辰會計師事務所
	2005 and 2006
鄂爾多斯市高原聖果	Year ended 31 December 2005	內蒙古興原會計師事務所鄂爾多斯分所
生態建設開發有限公司	Year ended 31 December 2006	鄂爾多斯市興原會計師事務所
准格爾旗高原聖果沙棘	Year ended 31 December 2005	內蒙古興原會計師事務所鄂爾多斯分所
有限公司	Year ended 31 December 2006	鄂爾多斯市興原會計師事務所
達拉特旗高原聖果沙棘	Year ended 31 December 2005	內蒙古興原會計師事務所鄂爾多斯分所
有限公司	Year ended 31 December 2006	鄂爾多斯市興原會計師事務所
陝西果聖水土保持建設	Year ended 31 December 2005	Exempt from the issuance of the PRC
有限公司		audited financial statements due to the
		voluntary requirement of enterprise
		annual inspection
	Year ended 31 December 2006	陝西榆林振北有限責任會計師事務所

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Appendix ii

For the purpose of this report, the directors of CEWH have prepared the consolidated financial statements of CEWH for the Relevant Periods (the “Underlying Financial Statements”) in accordance with HKFRSs. We have, for the purpose of this report, performed appropriate audit procedures in respect of the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information and the notes thereto as set out in Section I to III below has been prepared by the directors of CEWH based on the Underlying Financial Statements in accordance with HKFRSs and is presented on the basis set out in note 1 of Section II below. For the purpose of this report, we have examined the Financial Information and carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The directors of CEWH are responsible for preparing the Underlying Financial Statements and the Financial Information which gives a true and fair view. The directors of the Company are responsible for the contents of the Circular in which this report is included. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of the CEWH Group and CEWH as at 31 March 2005, 2006 and 2007 and of the consolidated results and cash flows of the CEWH Group for each of the Relevant Periods.

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Appendix ii

i. FinAnciAL inFoRMAtion

(a) consolidated income statements

period from
8 december
2003 (date of
incorporation)
to 31 March
2005
Notes
HK$’000
Revenue
3
–
Cost of sales
–
Gross profit
–
Other income
3
–
Selling and
distribution costs
–
Administrative expenses
10
Other operating expenses
–
operating (loss)/profit
before income tax
5
(10 )
Income tax expense
6
–
(Loss)/profit for the
period/year
(10 )
Attributable to:
Equity holders of
CEWH
(10 )
Minority interests
–
(Loss)/profit for the
period/year
(10 )
(Loss)/earnings per
share attributable to
equity holders of
ceWH during
the period/year
7
– Basic
–
– Diluted
N/A

Year ended 31 March
2006
2007
HK$’000
HK$’000
6,088
5,609
(3,008 )
(3,665 )
3,080
1,944
20,638
37,151
(1,033 )
(2,561 )
(1,782 )
(7,495 )
(4,052 )
(7,151 )
16,851
21,888
(3,049 )
(4,222 )
13,802
17,666
6,398
8,852
7,404
8,814
13,802
17,666
1,066
885
N/A
N/A

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Appendix ii

(b) consolidated balance sheets

Notes Assets And LiAbiLities non-current assets Goodwill 8 Property, plant and equipment 9 Prepaid land lease payments 10 Deposits 11 current assets Inventories 13 Biological assets 14 Prepayments and other receivables 15 Amounts due from a fellow subsidiary 16 Amounts due from a minority shareholder of subsidiary 16 Cash and cash equivalents 17 current liabilities Trade payables 18 Accrued liabilities, deposits received and other payables Amounts due to a related party 16 Amounts due to minority shareholders of subsidiaries 16 Amounts due to an immediate holding company 16 Amounts due to a shareholder 16 Amounts due to ultimate holding company 16 Amounts due to a fellow subsidiary 16 Taxes payable net current (liabilities)/assets total assets less current liabilities non-current liabilities Borrowings 19 net (liabilities)/assets eQuitY equity attributable to equity holders of ceWH Share capital 20 Reserves Minority interests total equity	2005 HK$’000 – – – – – – – – – – 1 1 – – – – 11 – – – – 11 (10) (10) – (10) – (10) (10) – (10)	31 March 2006 HK$’000 4,619 14,538 2,361 – 21,518 2,781 – 9,503 – – 41,282 53,566 38 22,424 – 1,381 13,485 5,773 – 11 2,751 45,863 7,703 29,221 – 29,221 – 6,388 6,388 22,833 29,221	2007 HK$’000 4,619 45,597 2,410 5,100 57,726 5,626 – 20,964 31 700 8,643 35,964 387 13,160 5,773 2,944 13,485 – 1 – 5,849 41,599 (5,635 ) 52,091 3,450 48,641 – 16,081 16,081 32,560 48,641

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Appendix ii

(c) balance sheets

Notes Assets And LiAbiLities non-current assets Interests in subsidiaries 12 current assets Cash and cash equivalents current liabilities Amounts due to a related party 16 Amounts due to an immediate holding company 16 Amounts due to a shareholder 16 Amounts due to ultimate holding company 16 Amounts due to a fellow subsidiary 16 net current liabilities net liabilities eQuitY Share capital 20 Accumulated losses total equity	2005 HK$’000 – 1 – 11 – – – 11 (10 ) (10 ) – (10 ) (10 )	31 March 2006 HK$’000 19,242 8 – 13,485 5,773 – 11 19,269 (19,261 ) (19 ) – (19 ) (19 )	2007 HK$’000 19,242 3 5,773 13,485 – 1 – 19,259 (19,256 ) (14 ) – (14 ) (14 )

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Appendix ii

(d) consolidated statements of changes in equity

equity attributable to equity holders of exchange (Accumulated share fluctuation loss)/Retained capital reserve profits HK$’000 HK$’000 HK$’000 Issue of new shares – – – Loss for the period – – (10 ) total recognised income and expense for the period – – (10 ) At 31 March 2005 and at 1 April 2005 – – (10 ) Profit for the year – – 6,398 total recognised income and expenses for the year – – 6,398 Arising from acquisition of subsidiaries – – – At 31 March 2006 and at 1 April 2006 – – 6,388 Currency translation difference – net income directly recognised in equity – 841 – Profit for the year – – 8,852 total recognised income and expenses for the year – 841 8,852 At 31 March 2007** – 841 15,240	equity attributable to equity holders of	equity attributable to equity holders of	ceWH total HK$’000 – (10 ) (10 ) (10 ) 6,398 6,398 – 6,388 841 8,852 9,693 16,081	Minority interests HK$’000 – – – – 7,404 7,404 15,429 22,833 913 8,814 9,727 32,560	total HK$’000 – (10 )
		exchange (Accumulated fluctuation loss)/Retained reserve profits** HK$’000 HK$’000 – – – (10 ) – (10 ) – (10 ) – 6,398 – 6,398 – – – 6,388 841 – – 8,852 841 8,852 841 15,240
					(10 )
					(10 ) 13,802
					13,802 15,429
					29,221 1,754 17,666
					19,420
					48,641

* These reserve accounts comprise the consolidated reserves in the consolidated balance sheets.

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Appendix ii

(e) consolidated cash flow statements

period from
8 december
2003 (date of
incorporation)
to 31 March
2005
HK$’000
cash flows from operating activities
Operating (loss)/profit before
income tax
(10 )
Adjustments for:
Depreciation of property,
plant and equipment
–
Amortisation of prepaid land
lease payments
–
Gain on disposal of property,
plant and equipment
–
Interest income
–
Inventories written off
–
Operating (loss)/profit before
working capital changes
(10 )
Decrease/(Increase) in inventories
–
Increase in prepayments and
other receivables
–
Increase in trade payables
–
Decrease in accrued liabilities,
deposits received and other payables
–
Increase in amounts due from a
fellow subsidiary
–
Increase in amounts due from a
minority shareholder of subsidiary
–
Increase in amounts due to minority
shareholders of subsidiaries
–
Increase in amounts due to an
immediate holding company
11
Increase in amounts
due to a shareholder
–
Increase in amounts due to ultimate
holding company
–
Increase/(Decrease) in amounts due
to a fellow subsidiary
–
Cash generated from operations
1
Income tax paid
–
Net cash generated from/(used in)
operating activities
1

Year ended 31 March
2006
2007
HK$’000
HK$’000
16,851
21,888
265
1,201
23
45
–
(120 )
(123 )
(188 )
–
900
17,016
23,726
616
(3,745 )
(833 )
(11,461 )
28
349
(6,626 )
(9,264 )
–
(31 )
–
(700 )
1,381
1,563
13,474
–
5,773
–
–
1
11
(11 )
30,840
427
(298 )
(1,124 )
30,542
(697 )

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Appendix ii

period from
8 december
2003 (date of
incorporation)
to 31 March
2005
HK$’000
cash flows from investing activities
Purchases of property,
plant and equipment
–
Proceeds from disposal of property,
plant and equipment
–
Acquisition of subsidiaries
(net of cash and cash
equivalent acquired)(note 22)
–
Deposits paid
–
Interest received
–
Net cash generated from/(used in)
investing activities
–
cash flows from financing activities
Proceeds from borrowings
–
Net cash generated from
financing activities
–
net increase/(decrease) in cash and
cash equivalents
1
cash and cash equivalents at
beginning of the period/year
–
effect of foreign exchange
rate changes
–
cash and cash equivalents at end
of the period/year
1

Year ended 31 March
2006
2007
HK$’000
HK$’000
(4,217 )
(32,636 )
–
1,077
14,833
–
–
(5,100 )
123
188
10,739
(36,471 )
–
3,450
–
3,450
41,281
(33,718 )
1
41,282
–
1,079
41,282
8,643

MAJoR non-cAsH tRAnsActions

(a) Amounts due to a shareholder of HK$5,773,000 were assigned to a related party of the Company during the year ended 31 March 2007 of which was a non-cash transaction.
(b) During the year ended 31 March 2006, there was an asset contribution amounting to HK$3,855,000 made for the purpose of capital injection to CONSECO by a minority equity holder.
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Appendix ii

ii. notes to tHe FinAnciAL inFoRMAtion

1. suMMARY oF siGniFicAnt AccountinG poLicies

1.1 statement of compliance

The Financial Information set out in this report has been prepared in accordance with HKFRSs which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the HKICPA, which have been consistently applied throughout the Relevant Periods. The Financial Information also compiles with the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

1.2 basis of preparation of Financial information

The CEWH Group has not early adopted the following HKFRSs that have been issued but are not yet effective. The directors of CEWH anticipate that the adoption of such HKFRSs will not result in material financial impact on the Financial Information for the Relevant Periods.

HKAS 1 (Amendment)	Capital Disclosures1
HKAS 23 (Revised)	Borrowing Costs2
HKFRS 7	Financial Instruments: Disclosures1
HKFRS 8	Operating Segments2
HK(IFRIC)-Interpretation 8	Scope of HKFRS 23
HK(IFRIC)-Interpretation 9	Reassessment of Embedded Derivatives4
HK(IFRIC)-Interpretation 10	Interim Financial Reporting and Impairment5
HK(IFRIC)-Interpretation 11	HKFRS 2 – Group and Treasury Share Transactions6
HK(IFRIC)-Interpretation 12	Service Concession Arrangements7
HK(IFRIC)-Interpretation 13	Customer Loyalty Programmes8
HK(IFRIC)-Interpretation 14	HKAS 19 – The Limit on a Defined Benefit Asset,
	Minimum Funding Requirements and
	their Interaction7

1 Effective for annual periods beginning on or after 1 January 2007
2 Effective for annual periods beginning on or after 1 January 2009
3 Effective for annual periods beginning on or after 1 May 2006
4 Effective for annual periods beginning on or after 1 June 2006
5 Effective for annual periods beginning on or after 1 November 2006
6 Effective for annual periods beginning on or after 1 March 2007
7 Effective for annual periods beginning on or after 1 January 2008
8 Effective for annual periods beginning on or after 1 July 2008

The significant accounting policies that have been used in the preparation of the Financial Information for the Relevant Periods are summarised below. These policies have been consistently applied to all the period/years presented unless otherwise stated.

The Financial Information for the Relevant Periods has been prepared on the historical cost basis except for biological assets which are stated at fair values less point-of-sale costs. The measurement bases are fully described in the accounting policies below.

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It should be noted that accounting estimates and assumptions are used in preparation of the Financial Information for the Relevant Periods. Although these estimates are based on management’s best knowledge and judgement of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Information for the Relevant Periods are disclosed in note 2.

As at 31 March 2007, the CEWH Group and CEWH had net current liabilities of HK$5,635,000 and HK$19,256,000 respectively and CEWH had net liabilities of HK$14,000. Notwithstanding these, the Financial Information has been prepared on a going concern basis on the assumption that the CEWH Group and CEWH will continue to operate as a going concern. The going concern basis has been adopted on the basis of an undertaking by its ultimate holding company to continue to provide financial support to the CEWH Group and CEWH.

Should the CEWH Group and CEWH be unable to continue in business as a going concern, adjustments would have to be made to reduce the value of assets to recoverable amount, to reclassify non-current assets and liabilities as current assets and liabilities and to provide for any further liabilities which might arise.

1.3 basis of consolidation

The Financial Information incorporates the financial statements of CEWH and its subsidiaries made up to 31 March each year.

1.4 subsidiaries

Subsidiaries are entities over which CEWH has the power to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether CEWH controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to CEWH. They are excluded from consolidation from the date that control ceases.

Business combinations (other than for combining entities under common control) are accounted for by applying the purchase method. This involves the revaluation at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, assets and liabilities of the subsidiary are included in the consolidated balance sheets at their fair values, which are also used as the bases for subsequent measurement in accordance with the CEWH Group’s accounting policies.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated in preparing the Financial Information. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

In CEWH’s balance sheet, subsidiaries are carried at cost less any impairment loss. The results of the subsidiaries are accounted for by CEWH on the basis of dividends received and receivable at the balance sheet date.

Minority interest represents the portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned by the CEWH Group and are not the CEWH Group’s financial liabilities.

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Appendix ii

Minority interests are presented in the consolidated balance sheets within equity, separately from the equity attributable to the equity holders of CEWH. Profit or loss attributable to the minority interests are presented separately in the consolidated income statements as an allocation of the CEWH Group’s results. Where losses applicable to the minority exceeds the minority interest in the subsidiary’s equity, the excess and further losses applicable to the minority are allocated against the minority interest to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. Otherwise, the losses are charged against the CEWH Group’s interests. If the subsidiary subsequently reports profits, such profits are allocated to the minority interest only after the minority’s share of losses previously absorbed by the CEWH Group has been recovered.

1.5 Foreign currency translation

The Financial Information is presented in Hong Kong Dollars (“HK$”), which is also the functional currency of CEWH.

In the individual 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. At balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the balance sheet date retranslation of monetary assets and liabilities are recognised in the income statements.

Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined and are reported as part of the fair value gain or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

In the Financial Information, all individual financial statements of foreign operations, originally presented in a currency different from the CEWH Group’s presentation currency, have been converted into HK$. Assets and liabilities have been translated into HK$ at the closing rates at the balance sheet date. Income and expenses have been converted into HK$ at the exchange rates ruling at the transaction dates, or at the average rates over the reporting period provided that the exchange rates do not fluctuate significantly. Any differences arising from this procedure have been dealt with separately in the exchange fluctuation reserve in equity.

1.6 Revenue

Revenue comprises the fair value for the sale of goods, net of rebates and discounts. Provided it is probable that the economic benefits will flow to the CEWH Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows:

(i) Sales of goods are recognised upon transfer of the significant risks and rewards of ownership to the customer. This is usually taken as the time when the goods are delivered and the customer has accepted the goods; and
(ii) Interest income is recognised on a time-proportion basis using effective interest method.
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Appendix ii

1.7 biological assets

Biological assets represent seedlings which are stated at fair value less estimated point-of-sale costs. The fair value of biological assets is determined based on market prices of seedlings of similar age, breed and genetic merit and with reference to the most recent market transaction prices. Gain or loss arising on initial recognition of a biological asset at fair value less estimated point-of-sale costs, or from a change in the fair value less estimated point-of-sale costs of the biological assets is included in the income statements for the period in which it arises.

1.8 Goodwill

Goodwill represents the excess of the cost of a business combination over the CEWH Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. The cost of the business combination is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the CEWH Group, plus any costs directly attributable to the business combination.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cashgenerating units and is tested annually for impairment (see note 1.11).

On subsequent disposal of a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of gain or loss on disposal.

1.9 property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at acquisition cost less accumulated depreciation and accumulated impairment losses. The cost of asset comprises its purchase price and any directly attributable cost of bringing the asset to its working condition and location for its intended use. The gain or loss arising on retirement or disposal is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statements.

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 CEWH Group and the cost of the item can be measured reliably. All other costs, such as repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their costs less their estimated residual values over their estimated useful lives, as follows:

Leasehold buildings	50 years or over the lease term, whichever is shorter
Leasehold improvements	5 years or over the lease term, whichever is shorter
Plant and machineries	6 to 15 years
Furniture, equipment and	5 years
motor vehicles

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

Construction in progress represents leasehold buildings, plant and machineries under construction and is stated at cost less any impairment losses, and is not depreciated. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

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1.10 prepaid land lease payments

Prepaid land lease payments represent up-front payments to acquire the land use rights/leasehold land. They are stated at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated on a straight line basis over the lease term except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets.

1.11 impairment of assets

Goodwill arising on acquisition of subsidiaries, property, plant and equipment, prepaid land lease prepayments, interests in subsidiaries are subject to impairment testing.

Goodwill with an indefinite useful life or those not yet available for use are tested for impairment at least annually, irrespective of whether there is any indication that they are impaired. All other assets are tested for impairment whenever there are indications that the asset’s carrying amount may not be recoverable.

An impairment loss is recognised as an expense immediately for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of time value of money and the risk specific to the asset.

For the purposes of assessing impairment, where an asset does not generate cash inflows largely independent from those from other assets, the recoverable amount is determined for the smallest group of assets that generate cash inflows independently (i.e. a cash-generating unit). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill in particular is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the CEWH Group at which the goodwill is monitored for internal management purpose.

Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit, except that the carrying value of an asset will not be reduced below its individual fair value less cost to sell, or value in use, if determinable.

An impairment loss on goodwill is not reversed in subsequent periods. In respect of other nonfinancial assets, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the asset’s recoverable amount and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

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1.12 Leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the CEWH Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the CEWH Group

Assets that are held by the CEWH Group under leases which transfer to the CEWH Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the CEWH Group are classified as operating leases.

(ii) Operating lease charges as leasee

Where the CEWH Group has the right to use assets held under operating leases, payments made under the leases are charged to the income statement on a straight line basis over the lease terms except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the income statement in the accounting period in which they are incurred.

1.13 Financial assets

The CEWH Group’s accounting policies for financial assets other than investments in subsidiaries are set out below.

Recognition and measurement

Financial assets of the CEWH Group include deposits, prepayments and other receivables. These are classified into loans and receivables. Management determines the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and where allowed and appropriate, re-evaluates this designation at every reporting date.

All financial assets are recognised when, and only when, the CEWH Group becomes a party to the contractual provisions of the instrument. When financial assets are recognised initially, they are measured at fair value plus directly attributable transaction costs.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are subsequently measured at amortised cost using the effective interest method, less any impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fee that are an integral part of the effective interest rate and transaction cost.

Derecognition of financial assets

Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred.

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Impairment of financial assets

At each balance sheet date, financial assets are reviewed to determine whether there is any objective evidence of impairment. If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognised in the income statements of the period in which the impairment occurs.

If, in subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that it does not result in a carrying amount of the financial asset exceeding what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in income statements for the period in which the reversal occurs.

1.14 inventories

Inventories are carried at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method and in the case of work in progress and finished goods, comprise direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and applicable selling expenses.

1.15 Accounting for income taxes

Income tax comprises current tax and deferred tax.

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statements.

Deferred tax is calculated using the liability method on temporary differences at the balance sheet date between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, tax losses available to be carried forward as well as other unused tax credits, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised.

Deferred tax assets and liabilities are not recognised if the temporary difference arises from initial recognition of assets and liabilities in a transaction that affects neither taxable nor accounting profit nor loss.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the CEWH Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

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Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the period the liability is settled or the asset is realised, provided they are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised in the income statements, or in equity if they relate to items that are charged or credited directly to equity.

1.16 cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand.

1.17 share capital

Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued.

1.18 employee benefits

Retirement benefits to employees are provided through a defined contribution plan.

The employees of the CEWH Group’s subsidiaries which operate in the PRC are required to participate in a central pension scheme operated by the local municipal government (the “Scheme”). These subsidiaries are required to contribute certain percentage of its payroll costs to the Scheme. The local municipal government undertakes to assume the retirement benefits obligation of all existing and future retired employees of the CEWH Group’s subsidiaries. The only obligation of the CEWH Group with respect to the scheme is to pay the ongoing required contributions under the Scheme mentioned above. The contributions are charged to the income statement as they become payable in accordance with the rules of the Scheme.

1.19 Financial liabilities

The CEWH Group’s financial liabilities include trade payables, accrued liabilities and other payables, amounts due to a director, minority shareholders of subsidiaries, an immediate holding company, a shareholder, ultimate holding company and a fellow subsidiary and borrowings.

Financial liabilities are recognised when the CEWH Group becomes a party to the contractual provisions of the instrument. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognised in the income statements.

(i) Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

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(ii) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statements over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the CEWH Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

All borrowing costs are expensed as incurred.

1.20 Related parties

A party is considered to be related to the CEWH Group if:

(i) directly, or indirectly through one or more intermediaries, the party (a) controls, is controlled by, or is under common control with, the CEWH Group; (b) has an interest in the CEWH Group that gives it significant influence over the CEWH Group; or (c) has joint control over the CEWH Group;
(ii) the party is an associate;
(iii) the party is a jointly-controlled entity;
(iv) the party is a member of the key management personnel of the CEWH Group or its parent;
(v) the party is a close member of the family of any individual referred to in (i) or (iv);
(vi) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or
(vii) the party is a post-employment benefit plan for the benefit of the employees of the CEWH Group, or of any entity that is a related party of the CEWH Group.

1.21 Government grants

Government grants are recognised at their fair value where there is a reasonable assurance that the grant will be received and the CEWH Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statements over the period necessary to match them with the costs that they are intended to compensate and are presented separately from the costs. Government grants relating to the purchase of assets are included in non-current liabilities as deferred government grants and are recognised in their income statements on a straight line basis over the expected lives of the related assets.

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2. cRiticAL AccountinG estiMAtes And JudGeMents

Estimates and judgements are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The CEWH 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 year are discussed below:

(i) depreciation and amortisation

The CEWH Group depreciates the property, plant and equipment and prepaid land lease payments in accordance with the accounting policies stated in note 1.9 and note 1.10 respectively. The estimated useful lives reflect the directors’ estimate of the periods that the CEWH Group intends to derive future economic benefits from the use of these assets.

(ii) impairment of goodwill

The CEWH Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated in note 1.11. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

(iii) Valuation of biological assets

The CEWH Group’s management determines the fair values less estimated point-of-sale costs of biological assets on initial recognition and at each balance sheet date. These estimates are based on the current market condition, the knowledge and experience of the CEWH Group’s management.

(iv) income tax

The CEWH Group is subject to income taxes in the PRC. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The CEWH Group recognises liabilities for anticipated tax based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provision in the period in which such determination is made.

Pursuant to the PRC enterprise income tax law passed by the Tenth National People’s Congress on 16 March 2007, the new enterprise income tax rates for domestic and foreign enterprises are unified at 25% and will be effective from 1 January 2008. The impact of such change of enterprise income tax rate on the CEWH Group’s Financial Information will depend on detailed pronouncements that will be subsequently issued. Since the implementation measure on the transitional policy of preferential tax rate granted according to current tax law and administrative regulations has not yet been announced, the CEWH Group cannot reasonably estimate the financial impact of the new tax law to the CEWH Group at this stage.

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3. ReVenue And otHeR ReVenue

The CEWH Group is principally engaged in investment holding and sale of sea buckthorn’s seedlings. Revenue arising from the CEWH Group’s principal activities and other income recognised during the Relevant Periods are as follows:

Revenue – turnover Sales of goods other income Interest income Exchange gain, net Gain arising on initial recognition of biological assets at fair values less estimated point-of-sale costs of biological assets Gain on disposal of property, plant and equipment Government grants and subsidies * Sundry income	period from 8 december 2003 (date of incorporation) to 31 March 2005 HK$’000 – – – – – – – –	Year ended 31 March 2006 2007 HK$’000 HK$’000 6,088 5,609 123 188 10 – 20,451 23,241 – 120 – 13,480 54 122 20,638 37,151	Year ended 31 March 2006 2007 HK$’000 HK$’000 6,088 5,609 123 188 10 – 20,451 23,241 – 120 – 13,480 54 122 20,638 37,151

			188 – 23,241 120 13,480 122
			37,151

* Government grants and subsidies mainly represented the unconditional monetary awards receivable from the relevant authorities in the PRC in respect of the CEWH Group’s contribution in environmental protection in sea buckthorn’s business.

4. seGMent inFoRMAtion

The Group is principally engaged in sea buckthorn’s related business, which is the only business segment of the Group throughout the Relevant Periods. Accordingly, no analysis by business segment is provided. No geographical segment analysis is presented as the Group’s revenue and assets attributed to sea buckthorn’s related business were located in the PRC.

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5. opeRAtinG (Loss)/pRoFit beFoRe incoMe tAx

	period from
	8 december
	2003 (date of
	incorporation)
	to 31 March	Year ended 31 March
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Operating (loss)/profit before income tax
is arrived at after charging:
Amortisation of prepaid land
lease payments	–	23	45
Auditors’ remuneration	–	–	27
Cost of inventories sold	–	2,622	2,953
Depreciation of property,
plant and equipment	–	265	1,201
Exchange loss, net	–	–	38
Operating lease rentals in respect of
land and buildings	–	1,728	1,530
Inventories written-off	–	–	900
Staff costs:
– Salaries, wages and other allowances	–	1,658	6,080
– Contribution to retirement scheme	–	67	544

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6. incoMe tAx expense

No Hong Kong profits tax has been made as the CEWH Group had no assessable profit arising in Hong Kong during the Relevant Periods. The provision for PRC income tax is based on a statutory rate of 33% of the assessable profit of subsidiaries of the CEWH Group as determined in accordance with the relevant income tax rules and regulations of the PRC.

	period from
	8 december
	2003 (date of
	incorporation)
	to 31 March	Year ended 31 March
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Current tax
– PRC enterprise income tax	–	3,049	4,222

Reconciliation between tax expense and accounting (loss)/profit at applicable tax rates:

Operating (loss)/profit before income tax Tax on operating (loss)/profit, calculated at the rates applicable to (loss)/profit in tax jurisdiction concerned Tax effect of non-deductible expenses Tax concession Tax effect of unused tax losses not recognised Tax effect of taxable temporary difference not recognised Income tax expense	period from 8 december 2003 (date of incorporation) to 31 March 2005 HK$’000 (10) (2) 2 – – – –	Year ended 31 March 2006 2007 HK$’000 HK$’000 16,851 21,888 5,562 2,538 96 285 (2,609 ) – – 1,339 – 60 3,049 4,222	Year ended 31 March 2006 2007 HK$’000 HK$’000 16,851 21,888 5,562 2,538 96 285 (2,609 ) – – 1,339 – 60 3,049 4,222

			2,538 285 – 1,339 60
			4,222

As at 31 March 2007, the CEWH Group has unused tax losses of HK$4,058,000 (31 March 2005 and 2006: Nil) available for offsetting against future taxable profits of the companies which incurred the losses. Deferred tax assets have not been recognised in respect of these losses due to the unpredictability of future profit streams.

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7. (Loss)/eARninGs peR sHARe AttRibutAbLe to eQuitY HoLdeRs oF ceWH

The calculation of basic (loss)/earnings per share is based on the (loss)/profit for the period/year attributable to equity holders of CEWH and on weighted average of 2, 6 and 10 ordinary shares in issue during the Relevant Periods.

Diluted (loss)/earnings per share for the Relevant Periods were not presented as there is no dilutive potential ordinary share.

8. GoodWiLL – tHe ceWH GRoup

The amount of goodwill capitalised as an asset in the consolidated balance sheets, arising from business combinations, is as follows:

At beginning of the period/year Gross carrying amount Accumulated impairment Net carrying amount For the period/year ended 31 March 2005, 2006 and 2007 Net carrying amount at beginning of the year Acquisition of subsidiaries_(note 22)_ Net carrying amount at end of the period/year At end of the period/year Gross carrying amount Accumulated impairment Net carrying amount	2005 HK$’000 – – – – – – – – –	31 March 2006 HK$’000 – – – – 4,619 4,619 4,619 – 4,619	2007 HK$’000 4,619 –
			4,619

			4,619 –
			4,619

			4,619 –
			4,619

The management of the CEWH Group tests goodwill annually for impairment, or more frequently if there are indicators that goodwill might be impaired.

The recoverable amount of the cash-generating units as detailed in note 22 were determined based on fair value less costs to sell of the cash-generating units. The fair value is based on going concern premise and conducted on a fair value basis which could be bought or sold in an arm’s length transaction between willing parties. The valuation method is based on a “Market Approach – Guideline Company Method and Income Approach”. This approach uses guideline companies with sufficient and reliable financial information which are comparable to the subject asset, i.e. sea buckthorn related business. The CEWH Group uses an independent external valuer, CB Richard Eillis Limited, to estimate the fair value less costs to sell of its cash-generating units.

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9. pRopeRtY, pLAnt And eQuipMent – tHe ceWH GRoup

At 31 March 2005 Cost Accumulated depreciation Net book amount Year ended 31 March 2006 Opening net book amount Acquisition of subsidiaries (note 22) Additions Transfers Depreciation Closing net book amount At 31 March 2006 Cost Accumulated depreciation Net book amount Year ended 31 March 2007 Opening net book amount Additions Disposals Transfers Depreciation Exchange realignment Closing net book amount At 31 March 2007 Cost Accumulated depreciation Net book amount	Leasehold Leasehold buildings improvements HK$’000 HK$’000 – – – – – – – – 1,052 1,030 1,608 – 1,062 – (38 ) (2 ) 3,684 1,028 3,722 1,030 (38 ) (2 ) 3,684 1,028 3,684 1,028 216 – (950 ) – 344 – (137 ) (61 ) 147 41 3,304 1,008 3,463 1,071 (159 ) (63 ) 3,304 1,008	Furniture, plant and equipment and machineries motor vehicles HK$’000 HK$’000 – – – – – – – – 930 1,256 1,865 555 – – (111 ) (114 ) 2,684 1,697 2,795 1,811 (111 ) (114 ) 2,684 1,697 2,684 1,697 1,730 1,955 (4 ) (3 ) 7,038 – (624 ) (379 ) 107 68 10,931 3,338 11,660 3,828 (729 ) (490 ) 10,931 3,338	construction in progress HK$’000 – – – – 2,463 4,044 (1,062 ) – 5,445 5,445 – 5,445 5,445 28,735 – (7,382 ) – 218 27,016 27,016 – 27,016	total HK$’000 – –
				–
				– 6,731 8,072 – (265 )
				14,538
				14,803 (265 )
				14,538
				14,538 32,636 (957 ) – (1,201 ) 581
				45,597
				47,038 (1,441 )
				45,597

As at 31 March 2007, the CEWH Group’s certain plant and machineries at the carrying amount of HK$4,978,000 were pledged to secure the borrowings of the CEWH Group (note 19).

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10. pRepAid LAnd LeAse pAYMents – tHe ceWH GRoup

At beginning of the period/year Gross carrying amount Accumulated amortisation Carrying amount For the period/year ended 31 March 2005, 2006 and 2007 Opening carrying amount Acquisition of subsidiaries_(note 22)_ Amortisation Exchange realignment Net book amount At end of the period/year Gross carrying amount Accumulated amortisation Carrying amount	2005 HK$’000 – – – – – – – – – – –	31 March 2006 HK$’000 – – – – 2,384 (23 ) – 2,361 2,384 (23 ) 2,361	2007 HK$’000 2,384 (23 )
			2,361

			2,361 – (45 ) 94
			2,410

			2,478 (68 )
			2,410

The CEWH Group’s prepaid land lease payments represent the up-font payment to acquire long term leasehold interest in the rights to use the land situated in the PRC, which are held under medium term leases.

11. deposits – tHe ceWH GRoup

		31 March
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Deposit for acquisition of equity instruments	–	–	5,100

As at 31 March 2007, the amount represents the deposit paid by the CEWH Group for the establishment of an equity joint venture in Shaanxi, the PRC, which will be principally engaged in the manufacture of sea buckthorn’s products.

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12. inteRests in subsidiARies – ceWH

		31 March
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Unlisted shares, at cost	–	19,242	19,242

Particulars of the subsidiaries at 31 March 2006 and 2007 are as follows:

			percentage of
	place of		equity interest
	incorporation/	particulars capital	attributable
name	operation	of registered	to ceWH	principal activities
Held directly:
CONSECO_* (i)_	The PRC	Registered capital of	50%	Cultivation, manufacture and
		Reminbi (“RMB”)		sale of sea buckthorn’s
		30,500,000		seedlings and products
Held indirectly:
鄂爾多斯市高原聖果生態	The PRC	Registered capital of	50%	Cultivation, manufacture and
建設開發有限公司 ^ (i)		RMB20,000,000		sale of sea buckthorn’s
				seedlings
准格爾旗高原聖果沙棘	The PRC	Registered capital of	45%	Cultivation, manufacture and
有限公司 ^ (i)		RMB500,000		sale of sea buckthorn’s
				seedlings
達拉特旗高原聖果沙棘	The PRC	Registered capital of	45%	Cultivation and sale of sea
有限公司_^ (i)_		RMB500,000		buckthorn’s seedlings
陝西果聖水土保持建設	The PRC	Registered capital of	45%	Cultivation and sale of sea
有限公司 ^ (i)		RMB5,000,000		buckthorn’s seedlings

* registered as a sino-foreign joint venture under the PRC law.

^ registered as limited liability companies under the PRC law.

(i) accounted for as subsidiaries of CEWH because the directors are of the opinion that CEWH has the power to cast the majority of votes at meetings of the board of directors in respect of financial and operating policies of these entities.

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13. inVentoRies – tHe ceWH GRoup

Raw materials Work in progress Finished goods	2005 HK$’000 – – – –	31 March 2006 HK$’000 1,307 – 1,474 2,781	2007 HK$’000 1,497 76 4,053
			5,626

14. bioLoGicAL Assets – tHe ceWH GRoup

(a) A reconciliation of the carrying amounts of biological assets is as follows:

Carrying amount at beginning of the period/year Gains arising on initial recognition of biological assets at fair value less estimated point-of-sale costs Decrease due to sales Carrying amount at end of the period/year	2005 HK$’000 – – – –	31 March 2006 HK$’000 – 20,451 (20,451 ) –	2007 HK$’000 – 23,241 (23,241 )
			–

The CEWH Group’s biological assets during the period/years ended 31 March 2005, 2006 and 2007 represented seedling of sea buckthorn which are primarily cultivated and held for sale.

(b) Financial risk management strategies relating to biological assets

The CEWH Group is exposed to financial risks arising from changes in prices of biological assets which are determined by constantly changing market forces of supply and demand and other factors. The other factors include governmental and environmental regulations, weather conditions and diseases relating to the biological assets. The CEWH Group has little or no control over these conditions and factors.

The CEWH Group has not entered into derivatives or other contracts to manage the risk of fluctuation in the prices of biological assets. The CEWH Group reviews its exposure for the prices of biological assets in considering the need for active financial risk management.

The CEWH Group is subject to the risks associating with its ability to maintain the health of biological assets. Health problems of biological assets could adversely impact the production and customer satisfaction. The CEWH Group monitors the health status of its biological assets on a regular basis and has procedures in place to reduce the potential exposure to diseases. Although policies and procedures have been put into place, there is no guarantee that the CEWH Group will not be affected by these disease epidemics.

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15. pRepAYMents And otHeR ReceiVAbLes – tHe ceWH GRoup

The directors of CEWH consider that the fair values of other receivables are not materially different from their carrying amounts because these amounts have short maturity periods on their inception.

16. AMounts due FoRM/(to) A FeLLoW subsidiARY And MinoRitY sHAReHoLdeR(s) oF subsidiARY(ies), AMounts due to A ReLAted pARtY, An iMMediAte HoLdinG coMpAnY, A sHAReHoLdeR And uLtiMAte HoLdinG coMpAnY – tHe ceWH GRoup And ceWH

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

As at 31 March 2007, the amounts due to a related party represent amounts due to Mr. Duan Chuan Liang, a director of China Water.

17. cAsH And cAsH eQuiVALents – tHe ceWH GRoup

As at 31 March 2006 and 2007, the CEWH Group had cash and bank balances denominated in RMB amounted to approximately HK$41,274,000 and HK$8,640,000 respectively, which were deposited with the banks in the PRC and held in hand. RMB is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the CEWH Group is permitted to exchange RMB for foreign currencies through banks that are authorised to conduct foreign exchange business.

18. tRAde pAYAbLes – tHe ceWH GRoup

The credit terms of trade payables vary according to the terms agreed with different suppliers. The ageing analysis of the CEWH Group’s trade payables as at the respective balance sheet dates is as follows:

Current to 90 days 91 – 180 days Over 180 days	2005 HK$’000 – – – –	31 March 2006 HK$’000 28 8 2 38	2007 HK$’000 132 20 235
			387

Trade payables are all denominated in RMB.

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19. boRRoWinGs – tHe ceWH GRoup

			31 March
	2005		2006	2007
	HK$’000		HK$’000	HK$’000
Non-current portion under non-current liabilities
– Other loans, secured	–		–	3,450

Borrowings were repayable as follows:
In the second year	–		–	600
In the third to fifth year	–		–	2,850
	–		–	3,450

Other loans are denominated in RMB and their	carrying values	approximate to their fair value.
Other loans were secured by pledge of certain plant and machineries (note 9) of the CEWH Group.
sHARe cApitAL – tHe ceWH GRoup And ceWH
		Number of shares		HK$
Authorised:
10,000 ordinary shares of HK$1 each at 31 March
2005, 2006 and 2007			10,000	10,000

Issued and fully paid:
Issue of 2 ordinary shares of HK$1 each and at
31 March 2005			2	2

2 ordinary shares of HK$1 each at 1 April 2005			2	2
Issue of 8 ordinary shares of HK$1 each			8	8
10 Ordinary shares of HK$1 each at
31 March 2006 and 2007			10	10

20. sHARe cApitAL – tHe ceWH GRoup And ceWH

CEWH was incorporated in Hong Kong on 8 December 2003 with an authorised share capital of HK$10,000 dividend into 10,000 ordinary shares of HK$1 each. 2 subscriber shares of HK$1 each were allotted and issued in cash on 9 December 2003.

On 7 July 2005, 8 ordinary shares of HK$1 each in the capital of CEWH were issued, allotted and credited as fully paid at par for cash.

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21. diRectoRs’ ReMuneRAtion And FiVe HiGHest pAid indiViduALs

No director received any fees or other emoluments during the Relevant Periods. There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Periods.

All the five individuals with the highest emoluments during the Relevant Periods were employees of the CEWH Group. The emoluments of the five individuals were as follows:

Salaries, wages and other allowances Contribution to retirement scheme	period from 8 december 2003 (date of incorporation) to 31 March 2005 HK$’000 – – –	Year ended 31 March 2006 2007 HK$’000 HK$’000 298 974 – 125 298 1,099	Year ended 31 March 2006 2007 HK$’000 HK$’000 298 974 – 125 298 1,099
			1,099

The emolument of each of the individual during the Relevant Periods was within HK$1,000,000.

During the Relevant Periods, no emoluments were paid by the CEWH Group to the directors and five highest individuals as an inducement to join or upon joining the CEWH Group or as compensation for loss of office and no directors of CEWH waived or agreed to waive any remunerations.

22. business coMbinAtions

On 9 November 2005, CEWH acquired 50% equity interest in CONSECO by injection of cash of RMB20,000,000 (approximately HK$19,242,000) into the enlarged registered capital of CONSECO. CONSECO is principally engaged in cultivation, manufacture and sale of sea buckthorn’s seedlings and products.

Details of the net assets acquired and goodwill are as follows:

Capital injection by cash Net assets attributable to the CEWH Group acquired Goodwill_(note 8)_	HK$’000 19,242 (14,623 )
	4,619

The goodwill is attributable to the high profitability of the acquired business and the significant synergies are expected to arise after the CEWH Group’s acquisition of CONSECO.

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The consolidated assets and liabilities of CONSECO arising from the acquisition are as follows:

Property, plant and equipment_(note 9) Prepaid land lease payments(note 10)_ Bank and cash balances Inventories Prepayments and other receivables Trade payables Accrued liabilities and other payables Minority interests Net assets before capital injections Capital injection by CEWH Capital injection by other minority equity holders Net assets Minority interests (50%) Net assets attributable to the CEWH Group acquired	Fair value HK$’000 6,731 2,384 11,007 3,397 8,670 (10 ) (29,050 ) (806 ) 2,323 19,242 7,681 29,246 (14,623 ) 14,623	carrying amount HK$’000 6,731 2,384 11,007 3,397 8,670 (10 ) (29,050 ) (806 )

An analysis of the net inflow of cash and cash equivalents in respect of the acquisition of CONSECO is as follows:

31 Cash consideration Bank and cash balances acquired Cash inflow from capital injection made by the CEWH and other minority shareholders of the subsidiaries Net inflow	Year ended december 2006 HK$’000 (19,242 ) 11,007 23,068 14,833

Since the acquisition, CONSECO contributed revenue of approximately HK$6,088,000 to the CEWH Group and net profit attributable to the equity holders of CEWH of approximately HK$6,407,000 for the period from 9 November 2005 to 31 March 2006.

Had the combination taken place at 1 April 2005, the revenue of the CEWH Group for the year ended 31 March 2006 would have been HK$9,222,000 and net profit attributable to the equity holders of CEWH for the year ended 31 March 2006 would have been HK$4,527,000. These pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and result of operations of the CEWH Group that actually would have been achieved had the acquisition been completed on 1 April 2005, nor are they intended to be a projection of future results.

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23. opeRAtinG LeAse coMMitMents – tHe ceWH GRoup And ceWH

At the respective balance sheet dates, the total future minimum lease payments under non-cancellable operating leases in respect of land and buildings are payable by the CEWH Group as follows:

Within one year In the second to fifth years After five years Total	2005 HK$’000 – – – –	31 March 2006 HK$’000 910 1,886 5,769 8,565	2007 HK$’000 560 1,820 4,820
			7,200

The CEWH Group leases certain of its leasehold land, office premises and properties under operating lease arrangements for terms ranging from 1 to 20 years. Certain leases contain an option to renew the lease and renegotiated the terms at the expiry dates or at dates mutually agreed between the CEWH Group and the landlords. None of the leases include contingent rentals.

CEWH did not have any operating lease commitments as at 31 March 2005, 2006 and 2007.

24. cApitAL coMMitMents – tHe ceWH GRoup And ceWH

At the respective balance sheet dates, the CEWH Group had the following outstanding commitments:

Contracted, but not provided for – Construction in progress – Plant and machinery Total	2005 HK$’000 – – –	31 March 2006 HK$’000 8,292 1,374 9,666	2007 HK$’000 1,276 1,015
			2,291

CEWH did not have any capital commitments as at 31 March 2005, 2006 and 2007.

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25. ReLAted pARtY tRAnsActions – tHe ceWH GRoup

In addition to the transactions and balances disclosed elsewhere in the Financial Information, the CEWH Group had the following material related party transactions:

		period from
		8 december
		2003 (date of
		incorporation)
		to 31 March	Year ended 31 March
		2005	2006	2007
	Notes	HK$’000	HK$’000	HK$’000
Sale to a minority shareholder
of subsidiaries	(i)	–	20,451	23,241
Receipt-in-advance from a
minority shareholder
of subsidiaries	(ii)	–	11,306	13,569

Notes:

(i) The sales represented sale of biological assets to 水利部沙棘開發管理中心, a minority shareholder of a subsidiary. The sales were based on mutually agreed terms.
(ii) An aggregate amount of receipt-in-advance as at the balance sheet dates was received from 水利部沙棘開發管理中心. This amount was made for the sales of biological assets based on mutually agreed terms and was included under “accrued liabilities, deposits received and other payables”.
(iii) The directors are of the opinion that the key management personnel were solely the directors of CEWH. No fees or other emoluments have been paid to the directors of CEWH during the Relevant Periods.

26. Risk MAnAGeMent obJectiVes And poLicies

The CEWH Group does not have written risk management policies and guidelines. However, the directors of CEWH meet periodically to analyse and formulate measures to manage the CEWH Group’s exposure to market risk (i.e. foreign currency risk and interest rate risk) and credit risk. Generally, the CEWH Group employs a conservative strategy regarding its risk management. As the CEWH Group’s exposure to market risk and credit risk are kept at a minimum level, the CEWH Group has not used any derivatives or other instruments for hedging purposes. The CEWH Group does not hold or issue derivative financial instruments for trading purposes.

As at the respective balance sheet dates, the CEWH Group’s financial instruments mainly consisted of other receivables, amounts due from/(to) a fellow subsidiary, bank and cash balances, trade payables, accrued liabilities, other payables, amounts due to a director, minority equity holders of subsidiaries, an immediate holding company, a shareholder and ultimate holding company and borrowings.

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(a) Foreign currency risk

The CEWH Group is exposed to foreign currency risk arising from various currency exposures, primarily related to RMB against HK$. The CEWH Group does not hedge its foreign currency risks, as management of the CEWH Group does not expect any significant movements in the exchange rate between RMB and HK$. The CEWH Group’s exposure to foreign currency risk resulting form changes in foreign currency exchanges rate is minimal.

(b) interest rate risk

The CEWH Group’s interest rate risk mainly arises from the CEWH Group’s borrowings. The interest rate risk is minimal to the CEWH Group as borrowings are usually at fixed interest rates.

(c) credit risk

The carrying amounts of other receivables and amounts due from a fellow subsidiary represent the CEWH Group’s maximum exposure to credit risk in relation to its financial assets.

None of the CEWH Group’s financial assets are secured by collateral or other credit enhancements.

The CEWH Group has no other significant concentration of credit risk. No other financial assets carry a significant exposure to credit risk.

iii. subseQuent FinAnciAL stAteMents

No audited financial statements of the CEWH Group, CEWH or any of its subsidiaries have been prepared in respect of any period subsequent to 31 March 2007.

Yours faithfully,

Grant thornton

Certified Public Accountants 13th Floor, Gloucester Tower The Landmark 15 Queen’s Road Central

Hong Kong

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(2) the seabuckthorn Group

==> picture [116 x 31] intentionally omitted <==

24 September 2007

The Board of Directors

Wah Yuen Holdings Limited 2nd Floor, On Shing Industrial Building Nos. 2-16 Wo Liu Hang Road Fo Tan, Shatin New Territories Hong Kong

Dear Sirs

We set out below our report on the financial information (the “Financial Information”) of Conseco Seabuckthorn Co., Ltd. (“CONSECO”) and its subsidiaries (hereinafter collectively referred to as the “CONSECO Group”) including the consolidated balance sheets of the CONSECO Group as at 31 March 2005, 2006 and 2007, balance sheets of CONSECO as at 31 March 2005, 2006 and 2007, consolidated income statements, consolidated cash flow statements and consolidated statements of changes in equity for the three years ended 31 March 2005, 2006 and 2007 (“the Relevant Periods”) and notes thereto prepared for inclusion in the circular (the “Circular”) dated 24 September 2007 issued by Wah Yuen Holdings Limited (the “Company”) in connection with the proposed acquisition of the entire issued share capital of China Environmental Water Holdings Limited (“CEWH”).

CONSECO is a domestic enterprise established in the People’s Republic of China (the “PRC”) with a registered capital of Reminbi (“RMB”) 2,500,000. On 29 November 2005, CONSECO was reconstituted into a sino-foreign enterprise with limited liability established in the PRC and its registered capital was increased from RMB2,500,000 to RMB30,500,000 by way of capital injection amounting to RMB24,000,000 and assets injection amounting to RMB4,000,000, pursuant to an investment agreement dated 15 July 2005. The registered office of CONSECO and its principal place of business are at 北京市海淀區复興路甲1號東2區14幢 601及607室, the PRC. As at the date of this report, CONSECO is beneficially owned as to 50% by CEWH, 22% by北京江河沙棘公司, 10% by 江海世紀投資管理(北京)有限公司and 18% by 水利部沙棘開發管理中心. CONSECO is accounted for as a subsidiary of CEWH because the directors of CEWH are of the opinion that CEWH has the power to cast the majority of votes at meetings of the board of directors in respect of financial and operating policies of CONSECO. The principal activity of CONSECO is cultivation, manufacture and sale of sea buckthorn’s seedlings and products and its principal investments mainly represents 100% equity interest in鄂爾多斯市高原聖果生態建設開發有限公司, 90% equity interest in准格爾旗高原聖果沙棘有限公司, 90% equity interest in達拉特旗高原聖果沙棘有限公司 and 90% equity interest in陝西果聖水土保持建設有限公司, details of the subsidiaries are set out in note 10 of Section II below.

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The financial statements of CONSECO and its subsidiaries were prepared in accordance with the relevant accounting rules and regulations applicable to enterprises in the PRC and were audited by the following certified public accountants registered in the PRC:

name of companies	Financial period	name of auditors
CONSECO	Years ended 31 December 2004,	華辰會計師事務所
	2005 and 2006
鄂爾多斯市高原聖果生態建設	Years ended 31 December 2004	內蒙古興原會計師事務所
開發有限公司	and 2005	鄂爾多斯分所
	Year ended 31 December 2006	鄂爾多斯市興原會計師事務所
准格爾旗高原聖果沙棘有限公司	Years ended 31 December 2004	內蒙古興原會計師事務所
	and 2005	鄂爾多斯分所
	Year ended 31 December 2006	鄂爾多斯市興原會計師事務所
達拉特旗高原聖果沙棘有限公司	Years ended 31 December 2004	內蒙古興原會計師事務所
	and 2005	鄂爾多斯分所
	Year ended 31 December 2006	鄂爾多斯市興原會計師事務所
陝西果聖水土保持建設有限公司	Year ended 31 December 2004	陝西榆林振北有限責任會計師事務所
	Year ended 31 December 2005	Exempt from the issuance of the
		PRC audited financial statements
		due to the voluntary requirement
		of enterprise annual inspection
	Year ended 31 December 2006	陝西榆林振北有限責任會計師事務所

For the purpose of this report, the directors of CONSECO have prepared the consolidated financial statements of CONSECO for the Relevant Periods (the “Underlying Financial Statements”) in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have, for the purpose of this report, performed appropriate audit procedures in respect of the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information and the notes thereto as set out in Section I to III below has been prepared by the directors of CONSECO based on the Underlying Financial Statements in accordance with HKFRSs and is presented on the basis set out in note 1 of Section II below. For the purpose of this report, we have examined the Financial Information and carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

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The directors of CONSECO are responsible for preparing the Underlying Financial Statements and the Financial Information which gives a true and fair view. The directors of the Company are responsible for the contents of the Circular in which this report is included. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of the CONSECO Group and CONSECO as at 31 March 2005, 2006 and 2007 and of the consolidated results and cash flows of the CONSECO Group for each of the Relevant Periods.

i. FinAnciAL inFoRMAtion

(a) consolidated income statements

Notes Revenue 3 Cost of sales Gross profit Other income 3 Selling and distribution costs Administrative expenses Other operating expenses operating profit before income tax 5 Income tax expense 6 profit for the year Attributable to: Equity holders of CONSECO Minority interests profit for the year dividends 7	Year ended 31 March 2005 2006 2007 RMB’000 RMB’000 RMB’000 3,004 9,582 5,609 (1,054 ) (3,276 ) (3,665 ) 1,950 6,306 1,944 19,383 21,733 37,140 (811 ) (2,059 ) (2,561 ) (2,193 ) (3,022 ) (7,489 ) (13,879 ) (10,494 ) (7,151 ) 4,450 12,464 21,883 (606 ) (3,171 ) (4,222 ) 3,844 9,293 17,661 3,635 8,258 17,694 209 1,035 (33 ) 3,844 9,293 17,661 600 – –

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(b) consolidated balance sheets

Notes Assets And LiAbiLities non-current assets Property, plant and equipment 8 Prepaid land lease payments 9 Deposits 11 current assets Inventories 12 Biological assets 13 Prepayments and other receivables 14 Amounts due from a fellow subsidiary 15 Amounts due from a shareholder 15 Cash and cash equivalents 16 current liabilities Trade payables 17 Accrued liabilities, deposits received and other payables Amounts due to shareholders 15 Taxes payable net current assets total assets less current liabilities non-current liabilities Borrowings 18 net assets eQuitY equity attributable to equity holders of conseco Paid in capital 19 Reserves Minority interests total equity	2005 RMB’000 4,512 – – 4,512 4,070 – 11,435 – – 9,792 25,297 2 18,246 3,618 19 21,885 3,412 7,924 – 7,924 2,500 4,184 6,684 1,240 7,924	31 March 2006 RMB’000 15,119 2,455 – 17,574 2,892 – 9,886 – – 42,924 55,702 40 23,322 1,436 2,861 27,659 28,043 45,617 – 45,617 30,500 13,239 43,739 1,878 45,617	2007 RMB’000 45,597 2,410 5,100
			53,107
			5,626 – 20,964 31 700 8,640
			35,961
			387 13,160 2,944 5,849
			22,340
			13,621
			66,728
			3,450
			63,278

			30,500 30,933
			61,433 1,845
			63,278

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Appendix ii

(c) balance sheets

Notes Assets And LiAbiLities non-current assets Property, plant and equipment 8 Interests in subsidiaries 10 Deposits 11 current assets Inventories 12 Biological assets 13 Prepayments and other receivables 14 Amount due from a fellow subsidiary 15 Cash and cash equivalents 16 current liabilities Trade payables 17 Accrued liabilities, deposits received and other payables Amounts due to shareholders 15 Amounts due to subsidiaries 15 Taxes payable net current (liabilities)/assets net assets eQuitY Paid in capital 19 Reserves 20 total equity	2005 RMB’000 337 4,900 – 5,237 2,699 – 1,844 – 3,255 7,798 – 2,236 1,768 5,929 19 9,952 (2,154 ) 3,083 2,500 583 3,083	31 March 2006 RMB’000 6,705 25,350 – 32,055 2,498 – 1,656 – 10,234 14,388 38 2,231 2,136 8,771 1,132 14,308 80 32,135 30,500 1,635 32,135	2007 RMB’000 8,760 25,350 5,100 39,210 2,771 – 1,731 31 5,332 9,865 19 1,309 2,944 14,807 1,082 20,161 (10,296 ) 28,914 30,500 (1,586 ) 28,914

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(d) consolidated statements of changes in equity

equity attributable to equity holders of conseco statutory other paid in reserves reserves Retained capital (note 20) (note 20) profits total RMB’000* RMB’000 RMB’000 RMB’000 RMB’000 2,500 605 – 544 3,649 – – – 3,635 3,635 – – – 3,635 3,635 – – – (600 ) (600 ) – 111 – (111 ) – 2,500 716 – 3,468 6,684 – – – 8,258 8,258 – – – 8,258 8,258 28,000 – – – 28,000 – – 597 – 597 – – 200 – 200 30,500 716 797 11,726 43,739 – – – 17,694 17,694 – – – 17,694 17,694 30,500 716 797 29,420 61,433	equity attributable to equity holders of conseco statutory other paid in reserves reserves Retained capital (note 20) (note 20) profits total RMB’000* RMB’000 RMB’000 RMB’000 RMB’000 2,500 605 – 544 3,649 – – – 3,635 3,635 – – – 3,635 3,635 – – – (600 ) (600 ) – 111 – (111 ) – 2,500 716 – 3,468 6,684 – – – 8,258 8,258 – – – 8,258 8,258 28,000 – – – 28,000 – – 597 – 597 – – 200 – 200 30,500 716 797 11,726 43,739 – – – 17,694 17,694 – – – 17,694 17,694 30,500 716 797 29,420 61,433	equity attributable to equity holders of conseco statutory other paid in reserves reserves Retained capital (note 20) (note 20) profits total RMB’000* RMB’000 RMB’000 RMB’000 RMB’000 2,500 605 – 544 3,649 – – – 3,635 3,635 – – – 3,635 3,635 – – – (600 ) (600 ) – 111 – (111 ) – 2,500 716 – 3,468 6,684 – – – 8,258 8,258 – – – 8,258 8,258 28,000 – – – 28,000 – – 597 – 597 – – 200 – 200 30,500 716 797 11,726 43,739 – – – 17,694 17,694 – – – 17,694 17,694 30,500 716 797 29,420 61,433	equity attributable to equity holders of conseco statutory other paid in reserves reserves Retained capital (note 20) (note 20) profits total RMB’000* RMB’000 RMB’000 RMB’000 RMB’000 2,500 605 – 544 3,649 – – – 3,635 3,635 – – – 3,635 3,635 – – – (600 ) (600 ) – 111 – (111 ) – 2,500 716 – 3,468 6,684 – – – 8,258 8,258 – – – 8,258 8,258 28,000 – – – 28,000 – – 597 – 597 – – 200 – 200 30,500 716 797 11,726 43,739 – – – 17,694 17,694 – – – 17,694 17,694 30,500 716 797 29,420 61,433
paid in capital RMB’000 2,500 – – – – 2,500 – – 28,000 – – 30,500 – – 30,500	statutory reserves* (note 20) RMB’000 605 – – – 111 716 – – – – – 716 – – 716	other reserves* (note 20) RMB’000 – – – – – – – – – 597 200 797 – – 797	Retained profits* RMB’000 544 3,635 3,635 (600 ) (111 ) 3,468 8,258 8,258 – – – 11,726 17,694 17,694 29,420

These reserve accounts comprise the consolidated reserves in the consolidated balance sheets.
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(e) consolidated cash flow statements

		Year ended 31 March
	2005	2006	2007
	RMB’000	RMB’000	RMB’000
cash flows from operating activities
Operating profit before income tax	4,450	12,464	21,883
Adjustments for:
Depreciation of property,
plant and equipment	265	484	1,201
Amortisation of prepaid
land lease payments	–	23	45
Loss/(Gain) on disposal of
property, plant and equipment	–	200	(120 )
Interest income	(155 )	(102 )	(188 )
Inventories written off	275	209	900
Impairment loss on other receivables	288	912	–
Operating profit before working
capital changes	5,123	14,190	23,721
(Increase)/Decrease in inventories	(1,582 )	969	(3,634 )
(Increase)/Decrease in prepayments
and other receivables	(455 )	637	(11,078 )
Increase in amounts due
from a fellow subsidiary	–	–	(31 )
Increase in amounts due
from a shareholder	–	–	(700 )
(Decrease)/Increase in trade payables	(86 )	38	347
(Decrease)/Increase in accrued liabilities,
deposits received and other payables	(8,738 )	5,076	(10,162 )
(Decrease)/Increase in amounts
due to shareholders	(5,528 )	(1,782 )	1,508
Cash (used in)/generated
from operations	(11,266 )	19,128	(29 )
Income tax paid	(594 )	(329 )	(1,234 )
Net cash (used in)/generated from
operating activities	(11,860 )	18,799	(1,263 )

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cash flows from investing activities
Purchases of property,
plant and equipment
Proceeds from disposal of
property, plant and equipment
Purchase of land use right
Deposits paid
Interest received
Net cash used in investing activities
cash flows from financing activities
Dividend paid
Capital contribution by equity
holders of CONSECO
Proceeds from borrowings
Net cash (used in)/generated
from financing activities
net (decrease)/increase in cash
and cash equivalents
cash and cash equivalents
at beginning of the year
cash and cash equivalents
at end of the year

Year ended 31 March
2005
2006
2007
RMB’000
RMB’000
RMB’000
(1,623 )
(7,291 )
(32,636 )
–
–
1,077
–
(2,478 )
–
–
–
(5,100 )
155
102
188
(1,468 )
(9,667 )
(36,471 )
(600 )
–
–
–
24,000
–
–
–
3,450
(600 )
24,000
3,450
(13,928 )
33,132
(34,284 )
23,720
9,792
42,924
9,792
42,924
8,640

MAJoR non-cAsH tRAnsActions

(a) During the year ended 31 March 2006, there was a capital contribution by setting off the amounts due to shareholders amounting to RMB400,000 made for the purpose of capital injection to the CONSECO Group.
(b) During the year ended 31 March 2006, there was an asset contribution amounting to RMB4,000,000 made for the purpose of capital injection to CONSECO Group.
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ii. notes to tHe FinAnciAL inFoRMAtion

1. suMMARY oF siGniFicAnt AccountinG poLicies

1.1 statement of compliance

1.2 basis of preparation of Financial information

The CONSECO Group has not early adopted the following HKFRSs that have been issued but are not yet effective. The directors of CONSECO anticipate that the adoption of such HKFRSs will not result in material financial impact on the Financial Information for the Relevant Periods.

HKAS 1 (Amendment)	Capital Disclosures1
HKAS 23 (Revised)	Borrowing Costs2
HKFRS 7	Financial Instruments: Disclosures1
HKFRS 8	Operating Segments2
HK(IFRIC)-Interpretation 8	Scope of HKFRS 23
HK(IFRIC)-Interpretation 9	Reassessment of Embedded Derivatives4
HK(IFRIC)-Interpretation 10	Interim Financial Reporting
	and Impairment5
HK(IFRIC)-Interpretation 11	HKFRS 2 – Group and
	Treasury Share Transactions6
HK(IFRIC)-Interpretation 12	Service Concession Arrangements7
HK(IFRIC)-Interpretation 13	Customer Loyalty Programmes8
HK(IFRIC)-Interpretation 14	HKAS 19 – The Limit on a Defined Benefit Asset,
	Minimum Funding Requirements their Interaction7

1 Effective for annual periods beginning on or after 1 January 2007
2 Effective for annual periods beginning on or after 1 January 2009
3 Effective for annual periods beginning on or after 1 May 2006
4 Effective for annual periods beginning on or after 1 June 2006
5 Effective for annual periods beginning on or after 1 November 2006
6 Effective for annual periods beginning on or after 1 March 2007
7 Effective for annual periods beginning on or after 1 January 2008
8 Effective for annual periods beginning on or after 1 July 2008

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At 31 March 2007, CONSECO had net current liabilities of RMB10,296,000. Notwithstanding this, the Financial Information has been prepared on a going concern basis on the assumption that CONSECO will continue to operate as a going concern. The going concern basis has been adopted on the basis of an undertaking by its ultimate holding company to continue to provide financial support to CONSECO.

Should CONSECO be unable to continue in business as a going concern, adjustments would have to be made to reduce the value of assets to recoverable amount, to reclassify non-current assets and liabilities as current assets and liabilities and to provide for any further liabilities which might arise.

1.3 basis of consolidation

The Financial Information incorporates the financial statements of CONSECO and its subsidiaries made up to 31 March each year.

1.4 subsidiaries

Subsidiaries are entities over which CONSECO has the power to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether CONSECO controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to CONSECO. They are excluded from consolidation from the date that control ceases.

In CONSECO’s balance sheet, subsidiaries are carried at cost less any impairment loss. The results of the subsidiaries are accounted for by CONSECO on the basis of dividends received and receivable at the balance sheet date.

Minority interest represents the portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned by the CONSECO Group and are not the CONSECO Group’s financial liabilities.

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Minority interests are presented in the consolidated balance sheets within equity, separately from the equity attributable to the equity holders of CONSECO. Profit or loss attributable to the minority interests are presented separately in the consolidated income statements as an allocation of the CONSECO Group’s results. Where losses applicable to the minority exceeds the minority interest in the subsidiary’s equity, the excess and further losses applicable to the minority are allocated against the minority interest to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. Otherwise, the losses are charged against the CONSECO Group’s interests. If the subsidiary subsequently reports profits, such profits are allocated to the minority interest only after the minority’s share of losses previously absorbed by the CONSECO Group has been recovered.

1.5 Foreign currency translation

The Financial Information is presented in RMB, which is also the functional currency of CONSECO.

1.6 Revenue

Revenue comprises the fair value for the sale of goods, net of rebates and discounts. Provided it is probable that the economic benefits will flow to the CONSECO Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows:

(i) Sales of goods are recognised upon transfer of the significant risks and rewards of ownership to the customer. This is usually taken as the time when the goods are delivered and the customer has accepted the goods; and
(ii) Interest income is recognised on a time-proportion basis using effective interest method.

1.7 biological assets

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1.8 property, plant and equipment

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 CONSECO Group and the cost of the item can be measured reliably. All other costs, such as repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their costs less their estimated residual values over their estimated useful lives, as follows:

Leasehold buildings	50 years or over the lease term,
	whichever is shorter
Leasehold improvements	5 years or over the lease term,
	whichever is shorter
Plant and machineries	6 to 15 years
Furniture, equipment and motor vehicles	5 years

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

1.9 prepaid land lease payments

1.10 impairment of assets

Property, plant and equipment, prepaid land lease prepayments, interests in subsidiaries are subject to impairment testing.

All assets are tested for impairment whenever there are indications that the asset’s carrying amount may not be recoverable.

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Impairment losses recognised for cash-generating units are charged pro rata to the assets in the cash generating unit, except that the carrying value of an asset will not be reduced below its individual fair value less cost to sell, or value in use, if determinable.

An impairment loss on non-financial assets is reversed if there has been a favourable change in the estimates used to determine the asset’s recoverable amount and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

1.11 Leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the CONSECO Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the CONSECO Group

Assets that are held by the CONSECO Group under leases which transfer to the CONSECO Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the CONSECO Group are classified as operating leases.

(ii) Operating lease charges as leasee

Where the CONSECO Group has the right to use assets held under operating leases, payments made under the leases are charged to the income statement on a straight line basis over the lease terms except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the income statement in the accounting period in which they are incurred.

1.12 Financial assets

The CONSECO Group’s accounting policies for financial assets other than investments in subsidiaries are set out below.

Recognition and measurement

Financial assets of the CONSECO Group include deposits, prepayments and other receivables. These are classified into loans and receivables. Management determines the classification of its financial asset at initial recognition depending on the purpose for which the financial assets were acquired and where allowed and appropriate, re-evaluates this designation at every reporting date.

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All financial assets are recognised when, and only when, the CONSECO Group becomes a party to the contractual provisions of the instrument. When financial assets are recognised initially, they are measured at fair value plus directly attributable transaction costs.

Derecognition of financial assets

Impairment of financial assets

1.13 inventories

1.14 Accounting for income taxes

Income tax comprises current tax and deferred tax.

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Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the CONSECO Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

Changes in deferred tax assets or liabilities are recognised in the income statements, or in equity if they relate to items that are charged or credited directly to equity.

1.15 cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand.

1.16 paid in capital

Paid in capital paid is classified as equity.

1.17 employee benefits

Retirement benefits to employees are provided through a defined contribution plan.

The employees of the CONSECO Group’s subsidiaries which operate in the PRC are required to participate in a central pension scheme operated by the local municipal government (the “Scheme”). These subsidiaries are required to contribute certain percentage of its payroll costs to the Scheme. The local municipal government undertakes to assume the retirement benefits obligation of all existing and future retired employees of the CEWH Group’s subsidiaries. The only obligation of the CEWH Group with respect to the scheme is to pay the ongoing required contributions under the Scheme mentioned above. The contributions are charged to the income statement as they become payable in accordance with the rules of the Scheme.

1.18 Financial liabilities

The CONSECO Group’s financial liabilities include trade payables, accrued liabilities and other payables, amounts due to shareholders and borrowings.

Financial liabilities are recognised when the CONSECO Group becomes a party to the contractual provisions of the instrument. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

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(i) Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(ii) Borrowings

Borrowings are classified as current liabilities unless the CONSECO Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

All borrowing costs are expensed as incurred.

1.19 Related parties

A party is considered to be related to the CONSECO Group if:

(i) directly, or indirectly through one or more intermediaries, the party (a) controls, is controlled by, or is under common control with, the CONSECO Group; (b) has an interest in the CONSECO Group that gives it significant influence over the CONSECO Group; or (c) has joint control over the CONSECO Group;
(ii) the party is an associate;
(iii) the party is a jointly-controlled entity;
(iv) the party is a member of the key management personnel of the CONSECO Group or its parent;
(v) the party is a close member of the family of any individual referred to in (i) or (iv);
(vi) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or
(vii) the party is a post-employment benefit plan for the benefit of the employees of the CONSECO Group, or of any entity that is a related party of the CONSECO Group.
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1.20 Government grants

Government grants are recognised at their fair value where there is a reasonable assurance that the grant will be received and the CONSECO Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statements over the period necessary to match them with the costs that they are intended to compensate and are presented separately from the costs. Government grants relating to the purchase of assets are included in non-current liabilities as deferred government grants and are recognised in their income statements on a straight line basis over the expected lives of the related assets.

2. cRiticAL AccountinG estiMAtes And JudGeMents

The CONSECO 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 year are discussed below:

(i) depreciation and amortisation

The CONSECO Group depreciates the property, plant and equipment and prepaid land lease payments in accordance with the accounting policies stated in note 1.8 and note 1.9 respectively. The estimated useful lives reflect the directors’ estimate of the periods that the CONSECO Group intends to derive future economic benefits from the use of these assets.

(ii) Valuation of biological assets

The CONSECO Group’s management determines the fair values less estimated point-of-sale costs of biological assets on initial recognition and at each balance sheet date. These estimates are based on the current market condition, the knowledge and experience of the CONSECO Group’s management.

(iii) income tax

The CONSECO Group is subject to income taxes in the PRC. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The CONSECO Group recognises liabilities for anticipated tax based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provision in the period in which such determination is made.

Pursuant to the PRC enterprise income tax law passed by the Tenth National People’s Congress on 16 March 2007, the new enterprise income tax rates for domestic and foreign enterprises are unified at 25% and will be effective from 1 January 2008. The impact of such change of enterprise income tax rate on the CONSECO Group’s Financial Information will depend on detailed pronouncements that will be subsequently issued. Since the implementation measure on the transitional policy of preferential tax rate granted according to current tax law and administrative regulations has not yet been announced, the CONSECO Group cannot reasonably estimate the financial impact of the new tax law to the CONSECO Group at this stage.

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3. ReVenue And otHeR ReVenue

The CONSECO Group is principally engaged in investment holding and sale of sea buckthorn’s seedlings. Revenue arising from the CONSECO Group’s principal activities and other income recognised during the Relevant Periods are as follows:

Revenue – turnover Sales of goods other income Interest income Exchange gain, net Gain arising on initial recognition of biological assets at fair values less estimated point-of-sale costs of biological assets Gain on disposal of property, plant and equipment Government grants and subsidies* Sundry income	2005 RMB’000 3,004 155 – 18,926 – – 302 19,383	Year ended 31 March 2006 2007 RMB’000 RMB’000 9,582 5,609 102 188 10 – 21,278 23,241 – 120 – 13,480 343 111 21,733 37,140	Year ended 31 March 2006 2007 RMB’000 RMB’000 9,582 5,609 102 188 10 – 21,278 23,241 – 120 – 13,480 343 111 21,733 37,140

			188 – 23,241 120 13,480 111
			37,140

Government grants and subsidies mainly represented unconditional monetary awards receivable from relevant authorities in the PRC in respect of the CONSECO Group’s contribution in environmental protection in sea buckthorn’s business.
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4. seGMent inFoRMAtion

5. opeRAtinG pRoFit beFoRe incoMe tAx

		Year ended 31 March
	2005	2006	2007
	RMB’000	RMB’000	RMB’000
Operating profit before income
tax is arrived at after charging:
Amortisation of prepaid land
lease payments	–	23	45
Auditors’ remuneration	19	60	27
Cost of inventories sold	779	2,874	2,953
Depreciation of property,
plant and equipment	265	484	1,201
Exchange loss, net	-	10	38
Operating lease rentals in
respect of land and buildings	1,023	1,797	1,530
Impairment loss on other receivables	288	912	–
Inventories written-off	275	209	900
Loss on disposal of property,
plant and equipment	–	200	–
Staff costs:
– Salaries, wages and
other allowances	3,527	4,027	6,080
– Contribution to
retirement scheme	206	247	544

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6. incoMe tAx expense

The provision for PRC income tax during the Relevant Periods is based on a statutory rate of 33% of the assessable profit of subsidiaries of the CONSECO Group as determined in accordance with the relevant income tax rules and regulations of the PRC.

		Year ended 31 March
	2005	2006	2007
	RMB’000	RMB’000	RMB’000
Current tax
– PRC enterprise income tax	606	3,171	4,222

Reconciliation between tax expense and accounting profit at applicable tax rates:

Operating profit before income tax Tax on operating profit, calculated at the rates applicable in the PRC Tax effect of non-deductible expenses Tax concession Tax effect of unused tax losses not recognised Tax effect of taxable temporary difference not recognised Income tax expense	2005 RMB’000 4,450 1,469 402 (1,307 ) 42 – 606	Year ended 31 March 2006 2007 RMB’000 RMB’000 12,464 21,883 4,113 2,538 323 285 (2,019 ) – – 1,339 754 60 3,171 4,222	Year ended 31 March 2006 2007 RMB’000 RMB’000 12,464 21,883 4,113 2,538 323 285 (2,019 ) – – 1,339 754 60 3,171 4,222

			2,538 285 – 1,339 60
			4,222

As at 31 March 2007, the CONSECO Group has unused tax losses of RMB4,058,000 (31 March 2005 and 2006: Nil) available for offsetting against future taxable profits of the companies which incurred the losses. Deferred tax assets have not been recognised in respect of these losses due to the unpredictability of future profit streams.

7. diVidends

Dividends disclosed during the Relevant Periods represented dividends declared, approved and payable by CONSECO to its equity holders. The rates of dividend are not presented as such information is not meaningful.

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8. pRopeRtY, pLAnt And eQuipMent

the conseco Group

At 1 April 2004 Cost Accumulated depreciation Net book amount Year ended 31 March 2005 Open net book amount Additions Transfers Depreciation Closing net book amount At 31 March 2005 Cost Accumulated depreciation Net book amount Year ended 31 March 2006 Open net book amount Additions Transfers Disposals Depreciation Closing net book amount At 31 March 2006 Cost Accumulated depreciation Net book amount	Leasehold Leasehold plant and buildings improvements machineries RMB’000 RMB’000 RMB’000 285 880 252 (35 ) (117 ) (16 ) 250 763 236 250 763 236 74 – 679 – 330 – (- ) (49 ) (198 ) 324 1,044 717 359 1,210 931 (35 ) (166 ) (214 ) 324 1,044 717 324 1,044 717 1,680 – 2,108 1,875 66 107 – – – (48 ) (41 ) (141 ) 3,831 1,069 2,791 3,914 1,276 3,146 (83 ) (207 ) (355 ) 3,831 1,069 2,791	Furniture, equipment and motor construction vehicles in progress RMB’000 RMB’000 1,244 1,002 (341 ) – 903 1,002 903 1,002 502 368 – (330 ) (18 ) – 1,387 1,040 1,746 1,040 (359 ) – 1,387 1,040 1,387 1,040 736 6,767 96 (2,144 ) (200 ) – (254 ) – 1,765 5,663 2,374 5,663 (609 ) – 1,765 5,663	total RMB’000 3,663 (509 ) 3,154 3,154 1,623 – (265 ) 4,512 5,286 (774 ) 4,512 4,512 11,291 – (200 ) (484 ) 15,119 16,373 (1,254 ) 15,119

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Year ended 31 March 2007 Opening net book amount Additions Transfers Disposals Depreciation Closing net book amount At 31 March 2007 Cost Accumulated depreciation Net book amount	Leasehold Leasehold plant and buildings improvements machineries RMB’000 RMB’000 RMB’000 3,831 1,069 2,791 216 – 1,730 344 – 7,038 (950 ) – (4 ) (137 ) (61 ) (624 ) 3,304 1,008 10,931 3,498 1,276 11,856 (194 ) (268 ) (925 ) 3,304 1,008 10,931	Furniture, equipment and motor construction vehicles in progress RMB’000 RMB’000 1,765 5,663 1,955 28,735 – (7,382 ) (3 ) – (379 ) – 3,338 27,016 4,156 27,016 (818 ) – 3,338 27,016	total RMB’000 15,119 32,636 – (957 ) (1,201 ) 45,597 47,802 (2,205 ) 45,597

As at 31 March 2007, the CONSECO Group’s certain plant and machineries at the carrying amount of RMB4,978,000 were pledged to secure the borrowings of the CONSECO Group (note 18).

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conseco

At 1 April 2004 Cost Accumulated depreciation Net book amount Year ended 31 March 2005 Open net book amount Additions Transfers Depreciation Closing net book amount At 31 March 2005 Cost Accumulated depreciation Net book amount Year ended 31 March 2006 Open net book amount Additions Transfers Depreciation Closing net book amount At 31 March 2006 Cost Accumulated depreciation Net book amount	Leasehold buildings RMB’000 – – – – – – – – – – – – 1,680 1,104 (14 ) 2,770 2,784 (14 ) 2,770	plant and machineries RMB’000 23 (12 ) 11 11 117 – (5 ) 123 140 (17 ) 123 123 2,072 – (54 ) 2,141 2,212 (71 ) 2,141	Furniture, equipment and motor vehicles RMB’000 59 (18 ) 41 41 187 – (14 ) 214 246 (32 ) 214 214 562 – (52 ) 724 808 (84 ) 724	construction in progress RMB’000 – – – – – – – – – – – – 2,174 (1,104 ) – 1,070 1,070 – 1,070	total RMB’000 82 (30 ) 52 52 304 – (19 ) 337 386 (49 ) 337 337 6,488 – (120 ) 6,705 6,874 (169 ) 6,705

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Year ended 31 March 2007 Opening net book amount Additions Transfers Disposals Depreciation Closing net book amount At 31 March 2007 Cost Accumulated depreciation Net book amount	Leasehold buildings RMB’000 2,770 215 344 (950 ) (73 ) 2,306 2,375 (69 ) 2,306	plant and machineries RMB’000 2,141 19 2,528 (4 ) (245 ) 4,439 4,727 (288 ) 4,439	Furniture, equipment and motor vehicles RMB’000 724 792 – (3 ) (114 ) 1,399 1,559 (160 ) 1,399	construction in progress RMB’000 1,070 2,418 (2,872 ) – – 616 616 – 616	total RMB’000 6,705 3,444 – (957 ) (432 ) 8,760 9,277 (517 ) 8,760

9. pRepAid LAnd LeAse pAYMents – tHe conseco GRoup

At beginning of the year Gross carrying amount Accumulated amortisation Carrying amount For the year ended 31 March 2005, 2006 and 2007 Opening carrying amount Additions Amortisation Net book amount At end of the year Gross carrying amount Accumulated amortisation Carrying amount	2005 RMB’000 – – – – – – – – – –	31 March 2006 RMB’000 – – – – 2,478 (23 ) 2,455 2,478 (23 ) 2,455	2007 RMB’000 2,478 (23 ) 2,455 2,455 – (45 ) 2,410 2,478 (68 ) 2,410

The CONSECO Group’s prepaid land lease payments represent the up-font payment to acquire long term leasehold interest in the rights to use the land situated in the PRC, which are held under medium term leases.

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10. inteRests in subsidiARies – conseco

		31 March
	2005	2006	2007
	RMB’000	RMB’000	RMB’000
Unlisted shares, at cost	4,900	25,350	25,350

Particulars of the subsidiaries at each of the balance sheet date are as follows:

			percentage of	percentage of
			equity	interest
	place of	particulars of	attributable to
	incorporation/	registered	conseco
name	operation	capital	directly	indirectly		principal activities
鄂爾多斯市高原聖果生	The PRC	Registered capital of	2005: 70%		–	Cultivation, manufacture
態建設開發有限公司^		RMB20,000,000	2006: 100%		–	and sale of sea
			2007: 100%		–	buckthorn’s seedlings
准格爾旗高原聖果沙棘	The PRC	Registered capital of	2005: 80%		–	Cultivation, manufacture
有限責任公司^		RMB500,000	2006: 90%		–	and sale of sea
			2007: 90%		–	buckthorn’s seedlings
達拉特旗高原聖果	The PRC	Registered capital of	2005: 30%	2005:	49%	Cultivation and sale of
沙棘有限公司^		RMB500,000	2006: 90%		–	sea buckthorn’s
			2007: 90%		–	seedlings
陝西果聖水土保持	The PRC	Registered capital of	2005: 80%	2005:	14%	Cultivation and sale of
建設有限公司^		RMB5,000,000	2006: 90%		–	sea buckthorn’s seedlings
			2007: 90%		–

^ registered as limited liability companies under the PRC law.

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11. deposits – tHe conseco GRoup And conseco

		31 March
	2005	2006	2007
	RMB’000	RMB’000	RMB’000
Deposits for acquisition of
equity instruments	–	–	5,100

As at 31 March 2007, the amount represents the deposit paid by CONSECO for the establishment of an equity joint venture in Shaanxi, the PRC, which will be principally engaged in the manufacture of sea buckthorn’s products.

12. inVentoRies

the conseco Group

Raw materials Work in progress Finished goods conseco Raw materials Finished goods	2005 RMB’000 2,622 532 916 4,070 2005 RMB’000 1,824 875 2,699	31 March 2006 RMB’000 1,359 – 1,533 2,892 31 March 2006 RMB’000 965 1,533 2,498	2007 RMB’000 1,497 76 4,053
			5,626

			2007 RMB’000 1,361 1,410
			2,771

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13. bioLoGicAL Assets

(a) A reconciliation of the carrying amounts of biological assets is as follows:

the conseco Group

Carrying amount at beginning of the year Gains arising on initial recognition of biological assets at fair value less estimated point-of-sale costs Decrease due to sales Carrying amount at end of the year conseco Carrying amount at beginning of the year Gains arising on initial recognition of biological assets at fair value less estimated point-of-sale costs Decrease due to sales Carrying amount at end of the year	2005 RMB’000 – 18,926 (18,926 ) – 2005 RMB’000 – 3,958 (3,958 ) –	31 March 2006 RMB’000 – 21,269 (21,269 ) – 31 March 2006 RMB’000 – 4,394 (4,394 ) –	2007 RMB’000 – 23,241 (23,241 ) – 2007 RMB’000 – 2,303 (2,303 ) –

Biological assets during the years ended 31 March 2005, 2006 and 2007 represented seedling of sea buckthorn which are primarily cultivated and held for sale.

(b) Financial risk management strategies relating to biological assets

The CONSECO Group and CONSECO are exposed to financial risks arising from changes in prices of biological assets which are determined by constantly changing market forces of supply and demand and other factors. The other factors include governmental and environmental regulations, weather conditions and diseases relating to the biological assets. The CONSECO Group and CONSECO have little or no control over these conditions and factors.

The CONSECO Group and CONSECO have not entered into derivatives or other contracts to manage the risk of fluctuation in the prices of biological assets. The CONSECO Group and CONSECO review their exposure for the prices of biological assets in considering the need for active financial risk management.

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The CONSECO Group and CONSECO are subject to the risks associating with their ability to maintain the health of biological assets. Health problems of biological assets could adversely impact the production and customer satisfaction. The CONSECO Group and CONSECO monitor the health status of their biological assets on a regular basis and have procedures in place to reduce the potential exposure to diseases. Although policies and procedures have been put into place, there is no guarantee that the CONSECO Group and CONSECO will not be affected by these disease epidemics.

14. pRepAYMents And otHeR ReceiVAbLes – tHe conseco GRoup And conseco

The directors of CONSECO consider that the fair values of other receivables are not materially different from their carrying amounts because these amounts have short maturity periods on their inception.

15. AMounts due FoRM A FeLLoW subsidiARY, AMounts due FRoM/(to) sHAReHoLdeR(s) And AMounts due to subsidiARies – tHe conseco GRoup And conseco

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

16. cAsH And cAsH eQuiVALents – tHe conseco GRoup And conseco

As at 31 March 2005, 2006 and 2007, the cash and cash equivalents of CONSECO Group and CONSECO are cash and bank balances denominated in RMB, which were deposited with the banks in the PRC and held in hand. RMB is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the CONSECO Group and CONSECO are permitted to exchange RMB for foreign currencies through banks that are authorised to conduct foreign exchange business.

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17. tRAde pAYAbLes

The credit terms of trade payables vary according to the terms agreed with different suppliers. The ageing analysis of the CONSECO Group’s and CONSECO’s trade payables as at the respective balance sheet dates is as follows:

the conseco Group

Current to 90 days 91 – 180 days Over 180 days conseco Current to 90 days 91 – 180 days Over 180 days	2005 RMB’000 – – 2 2 2005 RMB’000 – – – –	31 March 2006 RMB’000 29 – 11 40 31 March 2006 RMB’000 29 – 9 38	2007 RMB’000 131 20 236
			387

			2007 RMB’000 – 5 14
			19

Trade payables are all denominated in RMB.

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18. boRRoWinGs – tHe conseco GRoup

Non-current portion under non-current liabilities – Other loans, secured Borrowings were repayable as follows: In the second year In the third to fifth year	2005 RMB’000 – – – –	31 March 2006 RMB’000 – – – –	2007 RMB’000 3,450

			600 2,850
			3,450

Other loans are denominated in RMB and their carrying values approximate to their fair values.

Other loans were secured by pledge of certain plant and machineries (note 8) of the CONSECO

Group.

19. pAid in cApitAL – tHe conseco GRoup And conseco

CONSECO was established in the PRC on 5 May 1998 with an initial registered capital of RMB1,000,000.

On 3 March 2003, its registered capital increased from RMB1,000,000 to RMB2,500,000 by way of capitalising distributable earnings and capital reserves amounting to RMB1,500,000.

On 29 November 2005, CONSECO was reconstituted into a sino-foreign enterprise with limited liabilities established in the PRC and its registered capital was increased from RMB2,500,000 to RMB30,500,000 by way of cash contribution amounting to RMB24,000,000 and assets injection amounting to RMB4,000,000 pursuant to an investment agreement dated 15 July 2005.

As at 31 March 2005, 2006 and 2007, the paid in capital of CONSECO were RMB2,500,000, RMB30,500,000 and RMB30,500,000 respectively.

20. ReseRVes

the conseco Group

The amounts of the CONSECO Group’s reserves and the movements therein during the Relevant Periods are presented in the consolidated statement of changes in equity set out in note (d) of Section I.

According to the relevant PRC laws, the CONSECO Group is required to transfer at least 10% of its net profit after tax, as determined under the PRC accounting regulation, to the statutory reserve untill the reserve balance reaches 50% of its paid in capital. The transfer of this reserve must be made before the distribution of dividend to its equity owners. The statutory reserve is non-distributable other than upon the liquidation of the CONSECO Group.

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Other reserve represents the difference between the fair value the carrying amount of the net assets attributable to the additional interest in subsidiaries being acquired from minority equity holders.

conseco

At 1 April 2004 Profit for the year Dividend declared and paid Transfers At 31 March 2005 and 1 April 2005 Profit for the year At 31 March 2006 and 1 April 2006 Loss for the year At 31 March 2007	statutory reserves* RMB’000 210 – – 111 321 – 321 – 321	Retained profits/ (Accumulated losses) RMB’000 705 268 (600 ) (111 ) 262 1,052 1,314 (3,221 ) (1,907 )	total RMB’000 915 268 (600 ) – 583 1,052 1,635 (3,221 ) (1,586 )

According to the relevant PRC Laws, CONSECO is required to transfer at least 10% of its net profit after tax, as determined under the PRC accounting regulation, to a statutory reserve until the reserve balance reaches 50% of its paid in capital. The transfer of this reserve must be made before the distribution of dividend to the entity’s equity owners. The statutory reserve is nondistributable other than upon the liquidation of CONSECO.
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21. diRectoRs’ ReMuneRAtion And FiVe HiGHest pAid indiViduALs

(a) directors’ remuneration

Details of directors’ remuneration of the CONSECO Group for each of the Relevant Periods are as follows:

For the year ended 31 March 2005 閆培華邰源臨李永海溫中平盧健盧順光徐雙民楊松 For the year ended 31 March 2006 閆培華邰源臨李永海溫中平盧健盧順光徐雙民楊松段傳良^ 胡穎^ 王卉^ 林貴^ For the year ended 31 March 2007 閆培華邰源臨李永海段傳良^ 胡穎^ 王卉^ 林貴^	salaries, allowances and other benefits RMB’000 – – – 62 60 – – – 122 – – 169 124 143 – – – – – – – 436 – – 257 – – – – 257	Retirement scheme contribution RMB’000 – – – – – – – – – – – – – – – – – – – – – – – – 28 – – – – 28	total RMB’000 – – – 62 60 – – –
			122

			– – 169 124 143 – – – – – – –
			436

			– – 285 – – – –
			285

^ Appointed during the year ended 31 March 2006
Resigned during the year ended 31 March 2006
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(b) Five highest paid individuals

The five highest paid individuals in the CONSECO Group during the Relevant Periods included two directors for the year ended 31 March 2005, three directors for the year ended 31 March 2006 and one director for the year ended 31 March 2007, details of whose emoluments have been disclosed in note (a) above. The emoluments paid to the remaining non-director, highest paid individuals during the Relevant Periods are as follows:

	Year	ended 31 March
	2005	2006	2007
	RMB’000	RMB’000	RMB’000
Salaries, allowances and other benefits	172	280	717
Contribution to retirement scheme	34	–	97
	206	280	814

The emolument of each of the individual during the Relevant Periods was within HK$1,000,000.

During the Relevant Periods, no emoluments were paid by the CONSECO Group to the directors and five highest individuals as an inducement to join or upon joining the CONSECO Group or as compensation for loss of office and no directors of CONSECO waived or agreed to waive any remuneration.

22. opeRAtinG LeAse coMMitMents

At the respective balance sheet dates, the total future minimum lease payments under non-cancellable operating leases in respect of land and buildings are payable by the CONSECO Group and CONSECO as follows:

the conseco Group

Within one year In the second to fifth years After five years Total	2005 RMB’000 1,103 1,429 3,680 6,212	31 March 2006 RMB’000 947 1,962 6,000 8,909	2007 RMB’000 560 1,820 4,820
			7,200

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conseco

Within one year In the second to fifth years After five years Total	2005 RMB’000 1,103 1,429 3,680 6,212	31 March 2006 RMB’000 700 962 3,450 5,112	2007 RMB’000 272 920 3,220
			4,412

The CONSECO Group and CONSECO lease certain leasehold land, office premises and properties under operating lease arrangements for terms ranging from 1 to 20 years. Certain leases contain an option to renew the lease and renegotiated the terms at the expiry dates or at dates mutually agreed between the CONSECO Group/CONSECO and the landlords. None of the leases include contingent rentals.

23. cApitAL coMMitMents – tHe conseco GRoup And conseco

At the respective balance sheet dates, the CONSECO Group and CONSECO had the following outstanding commitments:

the conseco Group

Contracted, but not provided for – Construction in progress – Plant and machinery Total	2005 RMB’000 – – –	31 March 2006 RMB’000 8,624 1,429 10,053	2007 RMB’000 1,276 1,015
			2,291

CONSECO did not have any capital commitments as at 31 March 2005, 2006 and 2007.

conseco

		31 March
	2005	2006	2007
	RMB’000	RMB’000	RMB’000
Contracted, but not provided for
– Plant and machinery	–	1,429	48

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24. ReLAted pARtY tRAnsActions – tHe conseco GRoup

In addition to the transactions and balances disclosed elsewhere in the Financial Information, the CONSECO Group had the following material related party transactions:

		Year	ended 31 March
		2005	2006	2007
	Notes	RMB’000	RMB’000	RMB’000
Sale to a minority shareholder
of subsidiaries	(i)	18,926	21,287	23,241
Receipt-in-advance from
a minority shareholder
of subsidiaries	(ii)	5,540	11,758	13,569

Notes:

(i) The sales represented sale of biological assets to 水利部沙棘開發管理中心, a shareholder of CONSECO. The sales were based on mutually agreed terms.
(ii) An aggregate amount of receipt-in-advance as at the balance sheet dates was received from 水利部沙棘開發管理中心. This amount was made for the sales of biological assets based on mutually agreed terms and was included under “accrued liabilities, deposits received and other payables”.
(iii) The directors are of the opinion that the key management personnel were solely the directors of CONSECO, details of whose remuneration during the Relevant Periods are set out in note 21(a).

25. Risk MAnAGeMent obJectiVes And poLicies

The CONSECO Group does not have written risk management policies and guidelines. However, the directors of CONSECO meet periodically to analyse and formulate measures to manage the CONSECO Group’s exposure to market risk (i.e. interest rate risk) and credit risk. Generally, the CONSECO Group employs a conservative strategy regarding its risk management. As the CONSECO Group’s exposure to market risk and credit risk are kept at a minimum level, the CONSECO Group has not used any derivatives or other instruments for hedging purposes. The CONSECO Group does not hold or issue derivative financial instruments for trading purposes.

As at the respective balance sheet dates, the CONSECO Group’s financial instruments mainly consisted of other receivables, amounts due from a fellow subsidiary, bank and cash balances, trade payables, accrued liabilities, other payables, amounts due from/(to) a shareholder(s) and borrowings.

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(a) interest rate risk

The CONSECO Group’s interest rate risk mainly arises from the CONSECO Group’s borrowings. The interest rate risk is minimal to the CONSECO Group as borrowings are usually at fixed interest rates.

(b) credit risk

The carrying amounts of other receivables, amounts due from a fellow subsidiary and a shareholder represent the CONSECO Group’s maximum exposure to credit risk in relation to its financial assets.

None of the CONSECO Group’s financial assets are secured by collateral or other credit enhancements.

The CONSECO Group has no other significant concentration of credit risk. No other financial assets carry a significant exposure to credit risk.

iii. subseQuent FinAnciAL stAteMents

No audited financial statements of the CONSECO Group, CONSECO or any of its subsidiaries have been prepared in respect of any period subsequent to 31 March 2007.

Yours faithfully,

Grant thornton

Certified Public Accountants 13th Floor, Gloucester Tower The Landmark 15 Queen’s Road Central

Hong Kong

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Appendix iii UnAUdited pro FormA FinAnciAl inFormAtion on the enlArged groUp

The following are the unaudited pro forma financial information on the Enlarged Group and the text of a comfort letter thereon received from HLM&Co., Certified Public Accountants, prepared for the purpose of inclusion in this circular:

1. introdUction

The following is the unaudited pro forma financial information of the Enlarged Group prepared in accordance with the Rules 4.29 of the Listing Rules for the purpose of illustrating the effect of the proposed acquisition of the CEWH Group on the financial position of the Group as if the Acquisition had been completed on 31 December 2006 and the results and cash flows of the Group as if the Acquisition had been completed on 1 January 2006. As it is prepared for illustrative purpose only, and because of its nature, it may not give a true picture of the financial position, results and cash flows of the Enlarged Group following completion of the Acquisition.

The unaudited pro forma consolidated balance sheet of the Enlarged Group is prepared based on the audited consolidated balance sheet of the Group as at 31 December 2006 extracted from the published annual report of the Group as of 31 December 2006 as set out in Appendix I to this circular and the audited consolidated balance sheet of the CEWH Group as at 31 March 2007 extracted from the accountant’s report on the CEWH Group as set out in Appendix II to this circular as if the Acquisition had been completed on 31 December 2006.

The unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash flow statement of the Enlarged Group for the year ended 31 December 2006 extracted from the published annual report of the Group as of 31 December 2006 as set out in Appendix I to this circular and the audited consolidated income statement and cash flow statement of the CEWH Group for the year ended 31 March 2007 extracted from the accountants’ report on the CEWH Group as set out in Appendix II to this circular as if the Acquisition has been completed on 1 January 2006.

The unaudited pro forma financial information of the Enlarged Group is based upon the published audited financial information of the Group and the audited financial information of the CEWH Group after giving effect to the pro forma adjustments described in the notes below. These pro forma adjustments of the Acquisition are (i) directly attributable to the transactions concerned and not relating to future events or decisions; and (ii) factually supportable.

The unaudited pro forma financial information of the Enlarged Group should be read in conjunction with the published annual report of the Group and the accountants’ report on the CEWH Group and other financial information included elsewhere in the circular.

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2. UnAUdited pro FormA BAlAnce Sheet oF the enlArged groUp

ASSetS And liABilitieS non-current assets Prepaid lease payments Property, plant and equipment Deposits for acquisitions of property, plant and equipment Goodwill current assets Inventories Trade and other receivables Amounts due from China Water Group Amount due from a minority shareholder of a subsidiary Pledged bank deposits Bank balances and cash current liabilities Trade and other payables Amounts due to China Water Group Amounts due to minority shareholders of subsidiaries Obligations under a finance lease Tax payable Borrowings net current assets/(liabilities) total assets less current liabilities non-current liabilities Obligations under a finance lease Borrowings Convertible loan note Deferred tax liabilities net assets eQUitY equity attributable to equity holders of the company Share capital Reserves Minority interests total equity	the group as at 31 december 2006 HK$’000 2,140 111,607 – – 113,747 57,720 178,487 – – 21,459 36,366 294,032 28,326 – – 5,092 3,121 138,674 175,213 118,819 232,566 5,903 32,030 – 90 38,023 194,543 5,350 189,193 194,543 – 194,543	the ceWh group as at 31 march 2007 HK$’000 2,410 45,597 5,100 4,619 57,726 5,626 20,964 31 700 – 8,643 35,964 13,547 19,259 2,944 – 5,849 – 41,599 (5,635 ) 52,091 – 3,450 – – 3,450 48,641 – 16,081 16,081 32,560 48,641	pro forma Sub-total adjustments HK$’000 HK$’000 Notes 4,550 157,204 5,100 4,619 168,260 (c) 171,473 63,346 199,451 31 (h) 31 (31 ) (h) 700 21,459 45,009 329,996 41,873 3,600 (c) 19,259 (19,259 ) (d) 2,944 5,092 8,970 138,674 216,812 113,184 284,657 5,903 35,480 – 107,360 (e) 90 41,473 243,184 5,350 1,330 (a) 205,274 18,620 (a) 19,259 (d) (16,081 ) (b),(c) (19,259 ) (c) 72,690 (e) 210,624 32,560 243,184	pro forma enlarged group HK$’000 4,550 157,204 5,100 172,879
				339,733 63,346 199,482 – 700 21,459 45,009
				329,996 45,473 – 2,944 5,092 8,970 138,674
				201,153
				128,843
				468,576
				5,903 35,480 107,360 90
				148,833
				319,743

				6,680 280,503
				287,183 32,560
				319,743

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Appendix iii

3. UnAUdited pro FormA income StAtement oF the enlArged groUp

Turnover Costs of sales Gross profit Other operating income and net gain Selling and distribution expenses Administrative expenses and other operating expenses Profit from operations Finance costs Profit before tax Income tax expense Profit for the year Attributable to: Equity holders of the Company Minority interests	the group for the year ended 31 december 2006 HK$’000 202,130 (131,307 ) 70,823 3,675 (25,268 ) (18,093 ) 31,137 (12,242 ) 18,895 (5,865 ) 13,030 13,030 – 13,030	the ceWh group for the year ended 31 march 2007 HK$’000 5,609 (3,665 ) 1,944 37,151 (2,561 ) (14,646 ) 21,888 – 21,888 (4,222 ) 17,666 8,852 8,814 17,666	pro forma Sub-total adjustments HK$’000 HK$’000 Notes 207,739 (134,972 ) 72,767 40,826 (27,829 ) (32,739 ) 53,025 (12,242 ) (9,562 ) (f) 40,783 (10,087 ) 30,696 21,882 (9,562 ) (f) 8,814 30,696	pro forma enlarged group HK$’000 207,739 (134,972 ) 72,767 40,826 (27,829 ) (32,739) 53,025 (21,804 ) 31,221 (10,087) 21,134 12,320 8,814 21,134

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Appendix iii

4. UnAUdited pro FormA cASh FloW StAtement oF the enlArged groUp

the group as at 31 december 2006 HK$’000 cash flows from operating activities Profit before tax 18,895 Adjustments for: Interest expenses 12,242 Interest income (1,310 ) Depreciation 8,714 Amortisation of prepaid lease payments 153 Inventories written off – Gain on disposal on property, plant and equipment (74) Operating cash flows before movements in working capital 38,620 Increase in inventories (10,040 ) Increase in trade and other receivables (1,201 ) Decrease in trade and other payables (537 ) Increase in amounts due from a minority shareholder of a subsidiary – Decrease in amounts due to China Water Group – Increase in amounts due to minority shareholders of subsidiaries – Cash generated from operations 26,842 Interest paid (12,242 ) Hong Kong Profits Tax paid, net (1,340 ) PRC Enterprise Income Tax paid (3,472) Net cash generated from/(used in) operating activities 9,788 cash flows from investing activities (Increase) decrease in pledged bank deposits (4,654 ) Purchase of property, plant and equipment (10,569 ) Deposits paid for acquisition of property, plant and equipment – Acquisition of subsidiaries – Interest received 1,310 Proceeds from disposal of property, plant and equipment 215 Net cash used in investing activities (13,698) cash flows from financing activities Borrowings raised 130,978 (Repayment) of proceeds from bank borrowings (146,026 ) Capital element of finance leases 1,067 Proceeds from issue of ordinary shares, net of expenses 30,656 Net cash generated from financing activities 16,675 Net increase/(decrease) in cash and cash equivalents 12,765 Effect of foreign exchange rate change (2,397 ) cash and cash equivalents at beginning of year 10,416 cash and cash equivalents at end of year 20,784 AnAlYSiS oF cASh And cASh eQUiVAlentS Bank balances and cash 36,366 Bank overdrafts (15,582) 20,784	the ceWh group as at 31 march 2007 HK$’000 21,888 – (188 ) 1,201 45 900 (120) 23,726 (3,745 ) (11,461 ) (8,946 ) (700 ) (10 ) 1,563 427 – – (1,124) (697) – (32,636 ) (5,100 ) 188 1,077 (36,471) – 3,450 – – 3,450 (33,718 ) 1,079 41,282 8,643 8,643 – 8,643	pro forma Sub-total adjustments HK$’000 HK$’000 Notes 40,783 (9,562 ) (f) 12,242 9,562 (f) (1,498 ) 9,915 198 900 (194) 62,346 (13,785 ) (12,662 ) (9,483 ) (700 ) (10 ) 1,563 27,269 (12,242 ) (5,402 ) (f) (1,340 ) (4,596) 9,091 (4,654 ) (43,205 ) (5,100 ) – 41,282 (g) 1,498 1,292 (50,169) 130,978 (142,576 ) 1,067 30,656 20,125 (20,953 ) (1,318 ) 51,698 (41,282 ) (g) 29,427 45,009 (5,402 ) (f) (15,582) 29,427	pro forma enlarged group HK$’000 31,221 21,804 (1,498 ) 9,915 198 900 (194)
			62,346 (13,785 ) (12,662 ) (9,483 ) (700 ) (10 ) 1,563
			27,269 (17,644 ) (1,340 ) (4,596)
			3,689
			(4,654 ) (43,205 ) (5,100 ) 41,282 1,498 1,292
			(8,887)
			130,978 (142,576 ) 1,067 30,656
			20,125
			14,927 (1,318 ) 10,416
			24,025

			39,607 (15,582)
			24,025

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Appendix iii UnAUdited pro FormA FinAnciAl inFormAtion on the enlArged groUp

5. noteS to the UnAUdited pro FormA FinAnciAl inFormAiton oF the enlArged groUp

(a) The adjustments for the acquisition of the interest in 100% of the issued share capital of CEWH, the consideration of HK$200,000,000 is to be satisfied in full by way of (i) the issue of 133,000,000 new shares at a price of HK$0.15 each; and (ii) issue of the Convertible Bonds as to the remaining of HK$180,050,000.

The issue of new shares will increase the Company’s share capital by approximately HK$1,330,000 and share premium by approximately HK$18,620,000.

(b) The adjustments reflected the elimination of pre acquisition retained profits and other reserves of CEWH Group amounting to an aggregate of approximately HK$16,081,000 and also its share capital amounting to HK$10.
(c) The adjustments represent the effect of the Acquisition on the consolidated balance sheet of the Group as if the Acquisition had been taken place on 31 December 2006. The recognition of goodwill of approximately HK$168,260,000 arising from the Acquisition which has been determined as the difference between the consideration of HK$200,000,000, including the professional fees and other transaction costs of approximately HK$3,600,000 directly attributable to the Acquisition and the Group’s interest in CEWH Group’s net assets acquired at book values of approximately HK$35,340,000, taking into account the waiver of shareholder’s loan due to China Water Group referred to in note (d) below.

The final amount of goodwill will be determined based on the final consideration paid by the Group and the Group’s interest in the fair value of the identifiable assets and liabilities of CEWH on the date of completion in accordance with Hong Kong Financial Reporting Standard 3 “Business Combinations” issued by Hong Kong Institute of Certified Public Accountants. The Group will apply the purchase method to account for the Acquisition in the consolidated financial statements of the Group.

(d) Pursuant to the Agreement, the Vendor will waive its shareholder’s loan in the amount of HK$19,259,000 due by CEWH immediately before Completion.
(e) The adjustments represent the liability and equity components of the Convertible Notes issued for the Acquisition as if it was issued on 31 December 2006. The estimated fair value of the liability component of the Convertible Bonds is HK$107,360,002 determined using the discounted cash flow method and the estimated fair value of the equity component is HK$72,689,998.
139 -

UnAUdited pro FormA FinAnciAl inFormAtion on the enlArged groUp

Appendix iii

(f) The adjustments represent the imputed interest expenses for the year ended 31 December 2006 on the Convertible Bonds as part of consideration for the Acquisition, assuming effective interest rate of 8.91% per annum, as if they were issued on 1 January 2006. The effective interest rate was considered by reference to market risk free rate and the credit spread corresponding to the financial conditions of the Company. This unaudited pro forma adjustment will have continuing income statement effect to the Enlarged Group, and the actual amount will vary according to the timing of the whole or any part of the Convertible Bonds are being converted and redeemed and the applicable effective interest rates.
(g) The adjustments represent the inclusion of the cash flow statement of CEWH Group extracted from the accountants’ report of CEWH Group for the year ended 31 March 2007 as set out in Appendix II to this circular which has been prepared in accordance with the Group’s accounting policies.
(h) Re-classification of the accounts under the Enlarged Group.
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UnAUdited pro FormA FinAnciAl inFormAtion on the enlArged groUp

Appendix iii

==> picture [126 x 56] intentionally omitted <==

==> picture [171 x 61] intentionally omitted <==

24 September 2007

The Directors

Wah Yuen holdings limited

2/F, On Shing Industrial Building Nos.2-16 Wo Liu Hang Road Fo Tan, Shatin New Territories, Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of the Enlarged Group set out in Appendix III to the circular of Wah Yuen Holdings Limited (the “Company”, together with its subsidiaries are referred to as the “Listed Group”) dated 24 September 2007 which has been prepared by the directors of the Company solely for illustrative purposes to provide information about how the proposed acquisition of the 100% equity interest in China Environmental Water Holdings Limited and its subsidiaries (the “Target Company”), might have affected the audited consolidated income statement and audited consolidated cash flow statement of the Listed Group for the year ended 31 December 2006 and the audited consolidated balance sheet of the Listed Group as at 31 December 2006. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in the section headed “Introduction to the unaudited pro forma financial information” and “Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group” of this Appendix.

responsibilities

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with Paragraph 4.29 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

It is our responsibility to form an opinion, as required by Paragraph 4.29 of the Listing Rules, on the Unaudited 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 Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

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UnAUdited pro FormA FinAnciAl inFormAtion on the enlArged groUp

Appendix iii

Basis of opinion

We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Report on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company.

Our work did not constitute an audit or review made in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Listed Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) 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, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

the results and cash flows of the Enlarged Group for the year ended 31 December 2006 or any future periods; or
the financial position of the Enlarged Group as at 31 December 2006 or any future date.

opinion

In our opinion:

(a) the accompanying Unaudited 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 Listed Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

hlm & co.

Certified Public Accountants

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property VAluAtion on the enlArged group

Appendix iV

(i) the group

The following is the text of a property valuation report, prepared for the purpose of inclusion in this circular, received from DTZ Debenham Tie Leung Limited, in connection with its valuation as at 30 June 2007 of the property interests of the Group:

==> picture [65 x 59] intentionally omitted <==

10th Floor Jardine House 1 Connaught Place Central Hong Kong

24 September 2007

The Directors

Wah yuen holdings limited

2nd Floor, On Shing Industrial Building

Nos. 2-16 Wo Liu Hang Road

Fo Tan

Shatin

New Territories Hong Kong

Dear Sirs,

In accordance with your instructions for us to value the property interests held by Wah Yuen Holdings Limited (the “Company”) or its subsidiaries (hereinafter together referred to as the “Group”) in Hong Kong and the People’s Republic of China (the “PRC”) as listed in the attached summary of valuations, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the values of such property interests as at 30 June 2007 (the “date of valuation”).

Our valuation of each property interest represents its market value which in accordance with The HKIS Valuation Standards on Properties (First Edition 2005) of The Hong Kong Institute of Surveyors 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.”

Our valuation of each property interest excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangement, special considerations or concessions granted by anyone associated with the sale, or any element of special value.

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property VAluAtion on the enlArged group

Appendix iV

In valuing the property interests in Hong Kong the Government Leases of which expired before 30 June 1997, we have taken into account the provisions contained in Annex III of the Joint Declaration of the Government of the United Kingdom and the Government of the People’s Republic of China on the Question of Hong Kong as well as in the New Territories Leases (Extension) Ordinance under which such leases have been extended without premium until 30 June 2047 and that Government rents of three per cent. of the rateable value are charged per annum from the date of extension.

In the course of our valuation of the property interests in the PRC, we have assumed that transferable land use rights in respect of the property interests for respective specific terms at nominal annual land use fee have been granted and that any premium payable has already been fully paid. We have assumed that the grantees or the users of the property interests have free and uninterrupted rights to use or to assign the property interests for the whole of the respective unexpired terms as granted. We have relied on the advice given by the Group and the Company’s legal adviser on the PRC law, Winners Solicitors and Attorneys, regarding the title to each of the property interests and interests of the Group in the properties.

In forming our opinion of values of the property interests in Group I, which are owned by the Group in Hong Kong, we have valued each of such property interests in its existing state and use on a market value basis assuming sale with immediate vacant possession and by making reference to comparable sales evidence.

In valuing the property interests in Group II, which are held by the Group in the PRC, we have adopted the Depreciated Replacement Costs (“DRC”) Approach. The DRC Approach is a method in which a property is valued by summing the market value of the land in its existing use with an estimate of the new replacement cost of the buildings and structures from which deductions are made to allow for their ages, conditions and functional obsolescence. In arriving at our opinion of the market value of the land, we have valued them by comparison approach by making reference to the comparable land sale evidences in the relevant locality.

The property interests in Groups III and IV which are leased or licensed to the Group in Hong Kong and the PRC respectively have no commercial value due to the prohibitions against assignment of the properties or otherwise due to the lack of substantial profit rents.

In valuing the properties, we have complied with the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and The HKIS Valuation Standards on Properties (First Edition 2005) published by The Hong Kong Institute of Surveyors.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the property interests nor any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

144 -

Appendix iV

property VAluAtion on the enlArged group

In respect of the property interests owned by the Group in Hong Kong, we have not been provided with copies of the title documents relating to the property interests but have caused searches to be made at the Land Registry. We have been provided with copies of extracts of documents in relation to the title to the property interests in the PRC as well as copies of tenancy agreements relating to the properties leased to the Group in Hong Kong and the PRC. However, we have not searched the original documents to ascertain ownership or to verify any amendments which may not appear on the copies handed to us. In the course of our valuation, we have relied to a very considerable extent on the information given to us by the Group and the Company’s legal advisers on the PRC law, Winners Solicitors and Attorneys. We have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, identification of properties, completion dates of buildings, particulars of occupancy, site and floor areas, site and floor plans, tenancy particulars and all other relevant matters.

Dimensions, measurements and areas included in the attached valuation certificates are based on information provided to us and are therefore only approximations. We have not been able to carry out on-site measurements to verify the site and floor areas of the properties and we have assumed that the areas shown on the copies of the documents handed to us are correct. We have had no reason to doubt the truth and accuracy of the information provided to us by the Group which is material to the valuations. We were also advised by the Group that no material facts have been omitted from the information supplied. No on-site measurement has been taken.

We have inspected the exterior and, where possible, the interior of the properties. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report whether the properties are free from rot, infestation or any other structural defects. No tests were carried out to any of the services. Unless otherwise stated, we have not been able to carry out on-site measurements to verify the floor areas of the properties and we have assumed that the areas shown on the copies of documents handed to us are correct.

Unless otherwise stated, all money amounts stated in our valuations are in Hong Kong dollars. The exchange rate adopted in our valuation is HK$1=RMB0.97 which was the approximate exchange rate prevailing as at the date of valuation.

We enclose herewith a summary of valuations and our valuation certificates.

Yours faithfully,

For and on behalf of

dtZ debenham tie leung limited K.B. Wong Registered Professional Surveyor (General Practice Division) China Real Estate Appraiser M.R.I.C.S., M.H.K.I.S. Director

Note: Mr. K. B. Wong is a registered professional surveyor who has 23 years of experience in the valuation of properties in Hong Kong and over 15 years experience in the valuation of the properties in the PRC.

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property VAluAtion on the enlArged group

Appendix iV

SuMMAry oF VAluAtionS

		Capital value in
		existing state
		as at
	property	30 June 2007
		HK$
group	i – property interests held by the group for owner occupation in hong Kong
1.	Workshop C on 2nd Floor and	6,200,000
	Flat Roof C, Workshop D on 2nd Floor and Car Park 7,
	On Shing Industrial Building,
	Nos. 2-16 Wo Liu Hang Road,
	Fo Tan, Shatin, New Territories,
	Hong Kong
2.	Car Park Space No. 333 and 333A	450,000
	on 1st Level, Nos. 1-11, 15-17
	Mount Sterling Mall, Nos. 10-16 Lai
	Wan Road, Mei Foo Sun Chuen
	Stage VII, Lai Chi Kok, Kowloon,
	Hong Kong
	Sub-total:	6,650,000
group	ii – property interests held by the group for owner occupation in the prC
3.	Wah Yuen Industrial Complex situated	48,600,000
	at No. 178 Jianshe North Road,
	Huadu District, Guangzhou City,
	Guangdong Province
4.	Rocco Industrial Complex situated at	12,600,000
	No. 178 Jianshe North Road,
	Huadu District, Guangzou City,
	Guangdong Province
	Sub-total:	61,200,000

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property VAluAtion on the enlArged group

Appendix iV

		Capital value in
		existing state
		as at
	property	30 June 2007
		HK$
group	iii – property interests leased to the group in hong Kong
5.	Workshop A on 2nd Floor and Flat	No commercial
	Roof A, Workshop B on 2nd Floor,	value
	On Shing Industrial Building,
	Nos. 2-16 Wo Liu Hang Road,
	Fo Tan, Shatin, New Territories,
	Hong Kong
6.	Workshop A on 11th Floor, On Shing	No commercial
	Industrial Building,	value
	Nos. 2-16 Wo Liu Hang Road,
	Fo Tan, Shatin, New Territories,
	Hong Kong
7.	Workshop B on 11th Floor,	No commercial
	On Shing Industrial Building,	value
	Nos. 2-16 Wo Liu Hang Road,
	Fo Tan, Shatin, New Territories,
	Hong Kong
8.	Workshop A on 12th Floor and Roof A,	No commercial
	On Shing Industrial Building,	value
	Nos. 2-16 Wo Liu Hang Road,
	Fo Tan, Shatin, New Territories,
	Hong Kong
9.	Workshop B on 12th Floor and Roof B,	No commercial
	On Shing Industrial Building,	value
	Nos. 2-16 Wo Liu Hang Road,
	Fo Tan, Shatin, New Territories,
	Hong Kong
10.	Workshop C on 12th Floor and Roof C and Car Park 19,	No commercial
	On Shing Industrial Building,	value
	Nos. 2-16 Wo Liu Hang Road,
	Fo Tan, Shatin, New Territories,
	Hong Kong
11.	Container Car Park (Car Park 2),	No commercial
	On Shing Industrial Building,	value
	Nos. 2-16 Wo Liu Hang Road,
	Fo Tan, Shatin, New Territories,
	Hong Kong

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property VAluAtion on the enlArged group

Appendix iV

			Capital value in
			existing state
			as at
	property		30 June 2007
			HK$
12.	Car Parks 8 and 10, On Shing Industrial Building,		No commercial
	Nos. 2-16 Wo Liu Hang Road, Fo Tan, Shatin,		value
	New Territories, Hong Kong
13.	Car Park 18, On Shing Industrial Building,		No commercial
	Nos. 2-16 Wo Liu Hang Road, Fo Tan, Shatin,		value
	New Territories, Hong Kong
			No commercial
		Sub-total:	value
group	iV – property interests leased to the group in the prC
14.	Room No. 301 on the 3rd Level, Unit 1 of Block No. 2,		No commercial
	Zhengxin Garden, Xinyang Beiyi Road, Nanning City,		value
	Guangxi Zhuang Autonomous Region
15.	Unit No. 1219 on the 12th Level, No. 21 Nanjing North Street,		No commercial
	Heping District, Shenyang City, Liaoning Province		value
16.	A warehouse on 4th Level, Block No. 10, No. 29 Huaxi Road,		No commercial
	Nanning City, Guangxi Zhuang Autonomous Region		value
			No commercial
		Sub-total:	value
		grand-total:	67,850,000

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property VAluAtion on the enlArged group

Appendix iV

VAluAtion CertiFiCAte

group i – property interests held by the group for owner occupation in hong Kong

property

description and tenure

Capital value in particulars of existing state as at occupancy 30 June 2007

Workshop C on 2nd Floor and Flat Roof C, Workshop D on 2nd Floor and Car Park 7, On Shing Industrial Building, Nos. 2-16 Wo Liu Hang Road, Fo Tan, Shatin, New Territories, Hong Kong

73/1913th shares of and in Sha Tin Town Lot No. 7

The property comprises two industrial units on the 2nd floor and the corresponding flat roof and a car parking space on the ground floor of a 13-storey industrial building completed in 1978.

The industrial units have a total gross floor area of approximately 761.80 sq.m. (8,200 sq.ft.). The flat roof area is approximately 30.01 sq.m. (323 sq.ft.).

The property is held from the Government for a term of 99 years less the last 3 days commencing from 1 July 1898 which has been statutorily extended until 30 June 2047. The current Government rent payable for the property is an amount equal to 3% of the rateable value for the time being of the property per annum.

The property is currently leased to Wah Yuen Foods (Hong Kong) Company Limited, a wholly owned subsidiary of the Company, for a term of 3 years from 1 January 2006 to 31 December 2008 at a monthly rent of HK$27,000, exclusive of rates and management fees.

The property is currently occupied for workshop, warehouse and parking purposes.

HK$6,200,000

Notes:

(1) The registered owner of the property is Million Riches Development Limited, a wholly owned subsidiary of the Company.
(2) The property is subject to a legal charge for all money in favour of Industrial and Commercial Bank of China (Asia) Limited.
(3) The property is currently zoned for “Industrial” purpose under Sha Tin Outline Zoning Plan S/ST/23 dated 5 June 2007.
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property VAluAtion on the enlArged group

Appendix iV

property

description and tenure

Capital value in particulars of existing state as at occupancy 30 June 2007

Car Park Space No. 333 and 333A on 1st Level, Nos. 1-11, 15-17 Mount Sterling Mall, Nos. 10-16 Lai Wan Road, Mei Foo Sun Chuen Stage VII, Lai Chi Kok, Kowloon, Hong Kong

The property comprises two The property HK$450,000 car parking spaces on the 1st is currently floor of a 6-storey podium occupied by (including lower ground floor the Group to upper podium floor) upon for parking which various residential purpose. towers are erected. The podium was completed in 1976.

1/12728th share of and in New Kowloon Inland Lot No. 5086

Notes:

(1) The registered owner of the property is Wah Yuen Foods (Hong Kong) Company Limited, a wholly owned subsidiary of the Company.
(2) The property is subject to a mortgage for all moneys in favour of DBS Bank (Hong Kong) Limited.
(3) The property is currently zoned for “Residential (Group A)” purpose under Lai Chi Kok Outline Zoning Plan S/K16/14 dated 12 April 2005.
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property VAluAtion on the enlArged group

Appendix iV

group ii – property interests held by the group for owner occupation in the prC

property

description and tenure

Capital value in particulars of existing state as at occupancy 30 June 2007

Wah Yuen Industrial Complex situated at No. 178 Jianshe North Road, Huadu District, Guangzhou City, Guangdong Province

The property comprises an industrial complex erected upon a plot of land having a site area of approximately 18,863 sq.m. (203,041 sq.ft.).

The industrial complex of the property comprises 5 blocks of single to 5-storey industrial building, a block of 6-storey dormitory, a block of 4-storey office and other ancillary structures. The industrial complex was completed between 1997 and 1999.

The property is currently occupied by the Group for workshops, warehouses, ancillary office and other ancillary uses.

HK$48,600,000

The property has a total gross floor area of approximately 29,744.87 sq.m. (320,174 sq.ft.) (exclusive of areas of those ancillary structures – see Note 3).

The land use rights of the property have been granted for a term from 7 November 1992 to 6 November 2042 for industrial use.

Notes:

(1) According to Certificate for the Use of State-owned Land No. (92) 11013711 issued by Hua County Land Administration Bureau on 7 November 1992, the land use rights of the property comprising a site area of 18,863 sq.m. have been granted to Wah Yuen (Guangzhou) Foods Company Limited, a wholly owned subsidiary of the Company, for a term from 7 November 1992 to 6 November 2042 for industrial use.
(2) According to 7 Real Estate Title Certificates all issued by Guangzhou Huadu District Land and Real Estate Administration Bureau, the realty title to the property comprising a total gross floor area of 29,744.87 sq.m. is vested in Wah Yuen (Guangzhou) Foods Company Limited. Details of the said certificates are, inter alia, cited as follows:
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property VAluAtion on the enlArged group

Appendix iV

Certificate no.	date of issue	Building	no. of Storey	gross	Floor Area
					(sq.m.)
2696592	15-02-2001	Generator Room	1		538.11
2696593	15-02-2001	Dormitory	6		5,436.32
2696594	15-02-2001	Workshop	5		4,244.42
2696595	15-02-2001	Boiler Room	3		1,071.96
2696596	15-02-2001	Cold Storage Warehouse	2		1,195.00
2696597	15-02-2001	Workshop	4		14,912.57
C0180104	07-06-2001	Office	4		2,346.49
				Total:	29,744.87

(3) We note that some ancillary structures erected on the site are not granted with the Building Ownership Certificate. We have not assigned values to the said ancillary structures in our valuation.
(4) According to the Business Licence No. 447511 dated 25 January 2002, Wah Yuen (Guangzhou) Foods Company Limited was established with a registered capital of US$4,500,000 and has an operation period from 1 December 1995 to 1 December 2009.
(5) The opinion of the Company’s legal adviser on PRC law states, inter alia, that:
(i) According to Certificate for the Use of State-owned Land No. (92) 11013711 issued by Hua County Land Administration Bureau on 7 November 1992, the land use rights of the property comprising a site area of 18,863 sq.m. have been granted to Wah Yuen (Guangzhou) Foods Company Limited, a wholly owned subsidiary of the Company, for a term from 7 November 1992 to 6 November 2042 for industrial use.
(ii) According to 7 Real Estate Title Certificates all issued by Guangzhou Huadu District Land and Real Estate Administration Bureau, the realty title to the property comprising a total gross floor area of 29,744.87 sq.m. is vested in Wah Yuen (Guangzhou) Foods Company Limited. Details of the said certificates are, inter alia, cited as Note (2) above.
(iii) According to the Real Estate Title Certificates, the buildings of the property are subject to a mortgage in favour of Business Development Bank Ltd. (德富泰銀行有限公司) to an extent of US$6.67 million due to expire on 30 January 2008. Any transfer of the property should follow the relevant requirements and regulations of the PRC law within the valid period of the mortgage.
(iv) Wah Yuen (Guangzhou) Foods Company Limited is in possession of a proper legal title to the property and is entitled to use, transfer and lease the property with the residual term of its land use rights at no extra land premium or other onerous payment payable to the government.
(v) All land premium have been settled in full.
(6) As advised by the Group and the Company’s PRC legal adviser, the Group is not required to pay any Ground/Government Rent.
(7) The status of the title and grant of major approvals and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:

Certificate for the Use of State-owned Land Yes Real Estate Title Certificate Yes Business Licence Yes

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Appendix iV

property

description and tenure

Capital value in particulars of existing state as at occupancy 30 June 2007

Rocco Industrial Complex situated at No. 178 Jianshe North Road, Huadu District, Guangzou City, Guangdong Province

The property comprises an industrial complex erected on a plot of land having a site area of approximately 9,615.86 sq.m. (103,505 sq.ft.).

The industrial complex of the property comprises a block of 2-storey workshop, a block of 2-storey ancillary building, a block of 4-storey dormitory, a block of 4.5-storey dormitory and other ancillary structures. The industrial use complex was completed in 1989.

The property is currently occupied by the Group for workshops, ancillary office and other ancillary uses.

HK$12,600,000

The property has a total gross floor area of approximately 10,499.29 sq.m. (113,014 sq.ft.) (exclusive of areas of those ancillary structures – see Note 3).

The land use rights of the property have been granted for a term from 4 April 2003 to 3 April 2053 for industrial use.

Notes:

(1) According to Certificate for the Use of State-owned Land No. (96) 11026051 issued by The People’s Government of Huadu on 11 June 1996, the land use rights of the property comprising a site area of 9,615.86 sq.m. have been granted to Rocco Food Enterprise Company (Guangzhou) Limited, a wholly owned subsidiary of the Company, for a term from 4 April 2003 to 3 April 2053 for industrial use.
(2) According to 4 Building Ownership Certificates all issued by Guangzhou Huadu Municipality Land Real Estate Administration Bureau, the building ownership to the property comprising a total gross floor area of 10,499.29 sq.m. is vested in Rocco Foods Enterprise Company (Guangzhou) Limited. Details of the said certificates are, inter alia, cited as follows:
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property VAluAtion on the enlArged group

Appendix iV

Certificate no. Building no. of Storey gross 4061078 Dormitory 4.5 4061820 Workshop 2 4061152 Ancillary 2 4061160 Dormitory 4 Total:	Floor Area (sq.m.) 878.00 7,236.34 500.64 1,884.31
	10,449.29

(3) We note that some ancillary structures erected on the site are not granted with the Building Ownership Certificate. We have not assigned values to the said ancillary structures in our valuation.
(4) According to Business Licence No. 447673 dated 15 January 2002, Rooco Food Enterprise Company (Guangzhou) Limited was established with a registered capital of US$2,810,000 and has an operation period from 24 March 1989 to 24 March 2019.
(5) The opinion of the Company’s legal adviser on PRC states, inter alia, that:
(i) According to Certificate for the Use of State-owned Land No. (96) 11026051 issued by The People’s Government of Huadu on 11 June 1996, the land use rights of the property comprising a site area of 9,615.86 sq.m. have been granted to Rocco Food Enterprise Company (Guangzhou) Limited, a wholly owned subsidiary of the Company, for a term from 4 April 2003 to 3 April 2053 for industrial use.
(ii) According to 4 Building Ownership Certificates all issued by Guangzhou Huadu Municipality Land Real Estate Administration Bureau, the building ownership of the property comprising a total gross floor area of 10,499.29 sq.m. is vested in Rocco Foods Enterprise Company (Guangzhou) Limited. Details of the said certificates are, inter alia, cited as Note (2) above.
(iii) Rocco Foods Enterprise Company (Guangzhou) Limited is in possession of a proper legal title to the property and is entitled to use, transfer and lease the property with the residual term of its land use rights at no extra land premium or other onerous payment payable to the government.
(iv) The property is not subject to any mortgage or security.
(v) All land premium have been settled in full.
(6) As advised by the Group and the Company’s PRC legal adviser, the Group is not required to pay any Ground/Government Rent.
(7) The status of the title and grant of major approvals and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:

Certificate for the Use of State-owned Land	Yes
Building Ownership Certificate	Yes
Business Licence	Yes

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Appendix iV

group iii – property interests leased to the group in hong Kong

			Capital value in
			existing state as at
	property	description and tenancy particulars	30 June 2007
5.	Workshop A on 2nd	The property comprises two industrial units on	No commercial value
	Floor and Flat Roof	the 2nd floor and the corresponding flat roof of a
	A, Workshop B on	13-storey industrial building completed in 1978.
	2nd Floor, On Shing
	Industrial Building,	The property has a total gross floor area of
	Nos. 2-16 Wo Liu	approximately 761.80 sq.m. (8,200 sq.ft.) and is
	Hang Road,	currently occupied by the Group as warehouse
	Fo Tan, Shatin,	and ancillary office. The flat roof area is
	New Territories,	approximately 30.01 sq.m. (323 sq.ft.).
	Hong Kong
		The property is currently leased by Tai Tung
		Supermarket Limited (which is ultimately
		controlled by the directors of the Company) to
		Wah Yuen Foods (Hong Kong) Company Limited,
		a wholly owned subsidiary of the Company, for a
		term of 3 years commencing on 1 January 2006
		and expiring on 31 December 2008 at a monthly
		rent of HK$24,000, exclusive of rates and
		management fees.
		The current Government rent payable for the
		property is an amount equal to 3% of the rateable
		value for the time being of the property per
		annum.
6.	Workshop A on 11th	The property comprises an industrial unit on	No commercial value
	Floor, On Shing	the 11th floor of a 13-storey industrial building
	Industrial Building,	completed in 1978.
	Nos. 2-16 Wo Liu
	Hang Road,	The property has a gross floor area of
	Fo Tan, Shatin,	approximately 362.32 sq.m. (3,900 sq.ft.)
	New Territories,	and is currently occupied by the Group as a
	Hong Kong	warehouse.
		The property is currently leased by an
		independent third party to Wah Yuen Foods
		(Hong Kong) Company Limited, a wholly
		owned subsidiary of the Company, for a term
		of 1 year commencing on 1 February 2007
		and expiring on 31 January 2008 at a monthly
		rent of HK$14,000, inclusive of rates and
		management fees.
		The current Government rent payable for the
		property is an amount equal to 3% of the rateable
		value for the time being of the property per
		annum.

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Appendix iV

description and tenancy particulars

property

Workshop B on 11th The property comprises an industrial unit on Floor, On Shing the 11th floor of a 13-storey industrial building Industrial Building, completed in 1978. Nos. 2-16 Wo Liu Hang Road, The property has a gross floor area of Fo Tan, Shatin, approximately 399.48 sq.m. (4,300 sq.ft.) and is New Territories, currently occupied by the Group as a warehouse. Hong Kong

Capital value in existing state as at 30 June 2007

No commercial value

The property is currently leased by Profit Horn Development Limited (which is ultimately controlled by the directors of the Company) to Wah Yuen Foods (Hong Kong) Company Limited, a wholly owned subsidiary of the Company, for a term of 3 years commencing on 1 January 2006 and expiring on 31 December 2008 at a monthly rent of HK$13,000, exclusive of rates and management fees.

The current Government rent payable for the property is an amount equal to 3% of the rateable value for the time being of the property per annum.

Workshop A on 12th The property comprises an industrial unit on the Floor and Roof A, 12th floor and the corresponding roof of a 13On Shing Industrial storey industrial building completed in 1978. Building, Nos. 2-16 Wo Liu Hang Road, The property has a gross floor area of Fo Tan, Shatin, approximately 362.32 sq.m. (3,900 sq.ft.) New Territories, (excluding the roof area) and is currently Hong Kong occupied by the Group as a workshop.

No commercial value

The property is currently leased by But Ching Pui, But Ka Wai, But Chai Tong, Leung Wai Ling (who are directors of the Company) and But Chai Leung to Wah Yuen Foods (Hong Kong) Company Limited, a wholly owned subsidiary of the Company, for a term of 3 years commencing on 1 January 2006 and expiring on 31 December 2008 at a monthly rent of HK$12,000, exclusive of rates and management fees.

The current Government rent payable for the property is an amount equal to 3% of the rateable value for the time being of the property per annum.

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Appendix iV

property

Workshop B on 12th Floor and Roof B, On Shing Industrial Building, Nos. 2-16 Wo Liu Hang Road, Fo Tan, Shatin, New Territories, Hong Kong

description and tenancy particulars

The property comprises an industrial unit on the 12th floor and the corresponding roof of a 13storey industrial building completed in 1978.

The property has a gross floor area of approximately 399.48 sq.m. (4,300 sq.ft.) (excluding the roof area) and is currently occupied by the Group as a workshop.

Capital value in existing state as at 30 June 2007

No commercial value

The property is currently leased by But Ching Pui and Leung Wai Ling (who are directors of the Company) to Wah Yuen Foods (Hong Kong) Company Limited, a wholly owned subsidiary of the Company, for a term of 3 years commencing on 1 January 2006 and expiring on 31 December 2008 at a monthly rent of HK$13,000, exclusive of rates and management fees.

The current Government rent payable for the property is an amount equal to 3% of the rateable value for the time being of the property per annum.

Workshop C on 12th The property comprises an industrial unit on Floor and Roof C the 12th floor, the corresponding roof and a car and Car Park 19, parking space on the ground floor of a 13-storey On Shing Industrial industrial building completed in 1978. Building, Nos. 2-16 Wo Liu Hang Road, The property has a gross floor area of Fo Tan, Shatin, approximately 362.32 sq.m. (3,900 sq.ft.) New Territories, (excluding the roof and car park areas) and is Hong Kong currently occupied by the Group as a warehouse and car parking space.

The property comprises an industrial unit on the 12th floor, the corresponding roof and a car parking space on the ground floor of a 13-storey industrial building completed in 1978.

No commercial value

The property is currently leased by Lucky Fair Investment Limited (which is ultimately controlled by the directors of the Company) to Wah Yuen Foods (Hong Kong) Company Limited, a wholly owned subsidiary of the Company, for a term of 3 years commencing on 1 January 2006 and expiring on 31 December 2008 at a monthly rent of HK$15,000, exclusive of rates and management fees.

The current Government rent payable for the property is an amount equal to 3% of the rateable value for the time being of the property per annum.

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Appendix iV

			Capital value in
			existing state as at
	property	description and tenancy particulars	30 June 2007
11.	Container Car Park	The property comprises a container car parking	No commercial value
	(Car Park 2), On	space on the ground floor of a 13-storey
	Shing Industrial	industrial building completed in 1978.
	Building, Nos. 2-16
	Wo Liu Hang Road,	The property is currently leased by an
	Fo Tan, Shatin,	independent third party to Wah Yuen Foods
	New Territories,	(Hong Kong) Company Limited, a wholly owned
	Hong Kong	subsidiary of the Company, for a term of 1 year
		commencing on 1 April 2007 and expiring on
		31 March 2008 at a monthly rent of HK$5,200,
		inclusive of rates but exclusive of management
		fees.
		The current Government rent payable for the
		property is an amount equal to 3% of the rateable
		value for the time being of the property per
		annum.
12.	Car Parks 8 and 10,	The property comprises two car parking spaces	No commercial value
	On Shing Industrial	on the ground floor of a 13-storey industrial
	Building, Nos. 2-16	building completed in 1978.
	Wo Liu Hang Road,
	Fo Tan, Shatin,	The property is currently leased by But Ching
	New Territories,	Pui (directors of the Company) to Wah Yuen
	Hong Kong	Foods (Hong Kong) Company Limited, a wholly
		owned subsidiary of the Company, for a term
		of 3 years commencing on 1 January 2006 and
		expiring on 31 December 2008 at a monthly rent
		of HK$6,000, exclusive of rates and management
		fees.
		The current Government rent payable for the
		property is an amount equal to 3% of the rateable
		value for the time being of the property per
		annum.
13.	Car Park 18, On Shing	The property comprises a car parking space	No commercial value
	Industrial Building,	on the ground floor of a 13-storey industrial
	Nos. 2-16	building completed in 1978.
	Wo Liu Hang Road,
	Fo Tan, Shatin,	The property is currently leased by an
	New Territories,	independent third party to Wah Yuen Foods
	Hong Kong	(Hong Kong) Company Limited, a wholly owned
		subsidiary of the Company, on a monthly basis at
		a monthly fee of HK$3,500.
		The current Government rent payable for the
		property is an amount equal to 3% of the rateable
		value for the time being of the property per
		annum.

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Appendix iV

group iV – property interests leased to the group in the prC

			Capital value in
			existing state as at
	property	description and tenancy particulars	30 June 2007
14.	Room No. 301 on the	The property comprises a unit on the 3rd level of	No commercial value
	3rd Level, Unit 1 of	a 6-storey building completed in 1985.
	Block No. 2, Zhengxin
	Garden, Xinyang	The property has a total gross floor area of
	Beiyi Road, Nanning	approximately 73.22 sq.m. (788 sq.ft.) and is
	City, Guangxi Zhuang	currently occupied by the Group as an office.
	Autonomous Region
		The property is currently leased by an
		independent third party to Nanning Branch
		Company of Rocco Foods Enterprise Company
		(Guangzhou) Limited, a wholly owned
		subsidiary of the Company, for a term of 1 year
		commencing on 1 January 2007 and expiring on
		31 December 2007 at a monthly rent of RMB600,
		exclusive of management fees and utilities
		charges.
		The opinion of the Company’s legal adviser on
		PRC law states, inter alia, that:
		(i) The title of the property is held by the
		lessor. The lease has not been duly
		registered in the relevant government
		authorities but the lease is valid and
		enforceable.
		(ii) The lease terms and conditions are in
		compliance with the PRC law.
15.	Unit No. 1219 on the	The property comprises an office unit on the 12th	No commercial value
	12th Level, No. 21	level of a 15-storey plus basement office building
	Nanjing North Street,	completed in 1993.
	Heping District,
	Shenyang City,	The property has a total gross floor area of
	Liaoning Province	approximately 29.4 sq.m. (316 sq.ft.) and is
		currently occupied by the Group as an office.
		The property is currently leased by an
		independent third party to Shenyang Branch
		Company of Rocco Food Enterprise Company
		(Guangzhou) Limited, a wholly owned
		subsidiary of the Company, for a term of 1 year
		commencing on 11 June 2007 and expiring on
		10 June 2008 at an annual rent of RMB13,000,
		inclusive of management fees but exclusive of
		utilities charges.

The opinion of the Company’s legal adviser on PRC law states, inter alia, that:

(i) The title of the property is held by the lessor. The lease has not been duly registered in the relevant government authorities but the lease is valid and enforceable.
(ii) The lease terms and conditions are in compliance with the PRC law.
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Appendix iV

property

A warehouse on 4th Level, Block No. 10, No. 29 Huaxi Road, Nanning City, Guangxi Zhuang Autonomous Region

description and tenancy particulars

The property comprises a warehouse on the 4th level of 6-storey industrial building completed in 1994.

The property has a total gross floor area of approximately 52 sq.m. (560 sq.ft.) and is currently occupied by the Group as a warehouse.

Capital value in existing state as at 30 June 2007

No commercial value

The property is currently leased by an independent third party to Nanning Branch Company of Rocco Foods Enterprise Company (Guangzhou) Limited, a wholly owned subsidiary of the Company, for a term of 1 year commencing on 1 January 2007 and expiring on 31 December 2007 at a quarterly rent of RMB1,872.

The opinion of the Company’s legal adviser on PRC law states, inter alia, that:

(i) The title of the property is held by the lessor. The lease has not been duly registered in the relevant government authorities but the lease is valid and enforceable.
(ii) The lease terms and conditions are in compliance with the PRC law.
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Appendix iV

(ii) the CeWh group

The following is the text of a property valuations report, prepared for the purpose of inclusion in this circular, received from CB Richard Ellis, in connection with its valuation as at 30 June 2007 of the property interests of the CEWH Group:

==> picture [80 x 45] intentionally omitted <==

34/F Central Plaza 18 Harbour Road Wanchai Hong Kong

24 September 2007

The Directors

Wah yuen holdings limited

2nd Floor, On Shing Industrial Building Nos. 2-16 Wo Liu Hang Road

Fo Tan

Shatin New Territories Hong Kong

Dear Sirs,

In accordance with your (Wah Yuen Holdings Limited or the “Instructing Party”) instructions for us to value the property interests held by China Environmental Water Holdings Limited (the “Company”) or its subsidiaries (hereinafter together referred to as the “Group”) in the People’s Republic of China (the “PRC”) as listed in the attached summary of valuations, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the values of such property interests as at 30 June 2007 (the “date of valuation”).

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Appendix iV

We have assumed that transferable land use rights in respect of the property interests for respective specific terms at nominal annual land use fee have been granted and that any premium payable has already been fully paid. We have assumed that the grantees or the users of the property interests have free and uninterrupted rights to use or to assign the property interests for the whole of the respective unexpired terms as granted. We have relied on the advice given by the Instructing Party’s legal adviser on the PRC law, DeHeng Law Offices (德恒律師事務所), regarding the title to each of the property interests and interests of the Group in the properties.

In valuing the property interest held by the Group in the PRC, we have adopted the Depreciated Replacement Costs (“DRC”) Approach. The DRC Approach is a method in which a property is valued by summing the market value of the land in its existing use with an estimate of the new replacement cost of the buildings and structures from which deductions are made to allow for their ages, conditions and functional obsolescence. In the valuation of the land portion, reference has been made to the standard land prices and the sales evidence as available to us in the locality.

The property interests which are leased or licensed to the Group in the PRC have no commercial value due to the prohibitions against assignment of the properties or otherwise due to the lack of substantial profit rents.

We have been provided with copies of extracts of documents in relation to the title to the property interests in the PRC as well as copies of tenancy agreements relating to the properties leased to the Group in the PRC.

However, we have not searched the original documents to ascertain ownership or to verify any amendments which may not appear on the copies handed to us. In the course of our valuation, we have relied to a very considerable extent on the information given to us by the Instructing Party’s legal advisers on the PRC law, DeHeng Law Offices (德恒律師事務所). We have accepted advice given to us on such matters as planning approvals or statutory notices, tenure, identification of properties, completion dates of buildings, particulars of occupancy, site and floor areas, site and floor plans, tenancy particulars and all other relevant matters.

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Appendix iV

property VAluAtion on the enlArged group

We enclose herewith a summary of valuations and our valuation certificates.

Yours faithfully, For and on behalf of CB richard ellis limited Kam hung yu BSc (Hons) FHKIS FRICS RPS(GP) FHIREA Senior Managing Director Valuation & Advisory Services

Note: Mr. Yu is the Senior Vice President of the Hong Kong Institute of Surveyors. He is a Registered Professional Surveyor (General Practice), a fellow of Royal Institution of Chartered Surveyors, a fellow of the Hong Kong Institute of Surveyors and a fellow of the Hong Kong Institute of Real Estate Administration. He has over 25 years’ valuation experience in Hong Kong, the PRC and Asia Pacific Region.

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Appendix iV

SuMMAry oF VAluAtionS

				Capital Value
				attributable
		Capital Value in	interest	to the group
		existing state as	attributable	as at
	property interests	at 30 June 2007	to the group	30 June 2007
		(RMB)		(RMB)
group	i – property interests held by the group	for occupation
1.	Various properties in Old Town Area of	38,065,000	50%	19,032,500
	Tongchuan Town, Dongsheng District,
	Ordos City, Inner Mongolia Province,
	The PRC
			Group I sub-total:	19,032,500
group	ii – property interests rented by the group
2.	No. 12, Fuhai Road, Huangchun Town,	No commercial	50%	No commercial
	Daxing County, Beijing, The PRC	value		value
3.	A parcel of land in Yiyang District,	No commercial	45%	No commercial
	Yilin City, Shaanxi Province, The PRC	value		value
4.	A parcel of land in South Huofang	No commercial	50%	No commercial
	Village, Shulinzhao Village, Delateqi,	value		value
	Inner Mongolia, The PRC
5.	Various buildings in Shatuodu	No commercial	50%	No commercial
	Development Zone, Inner Mongolia,	value		value
	The PRC
6.	Unit Nos. 812 & 813, Level 8, No. 3,	No commercial	30%	No commercial
	South Yuyuantan Road, Haidian District,	value		value
	Beijing, The PRC
7.	Unit Nos. 601 & 607, Level 6, Block 14,	No commercial	50%	No commercial
	Area 2, No. 1A Fuxing Road, Haidian	value		value
	District, Beijing, The PRC
			Group II sub-total:	No commercial
				value
			grAnd totAl:	19,032,500

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Appendix iV

VAluAtion CertiFiCAte

group i – property interests held by the group for occupation

property

description and tenure

Capital value in details of existing state as occupancy at 30 June 2007 (RMB)

Various buildings in Old Town Area of Tongchuan Town, Dongsheng District, Ordos City, Inner Mongolia Province, The PRC

The property comprises 6 buildings with total gross floor area of 13,265.40 sq.m..

The property is erected on a site with total site area of 133,333.08 sq.m..

The property is 38,065,000 occupied by the Group as factory, (50% interest office and for attributable to the other uses. Group: 19,032,500)

Most of the buildings were completed in about September 2006.

The details of the development are stated as below:

Component	Area
	(sq.m.)
Factory (1 block)	9,333.60
Office (1 block)	3,018.00
Ancillary Buildings	913.80
(4 blocks)

The land use rights of the property is held for a term expiring on 8 September 2055 for industrial use.

Notes:

Pursuant to the State-owned Land Use Certificate No. Dong Guo Yong (2005) Zi Di Grant 2005-125 (東國用(2005)字第出讓2005-125號) dated 9 September 2005, the land use rights of the property with an area of approximately 133,333.08 sq.m. has been granted to Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd. (顎爾多斯市高原聖果生態建設開發有限公司) for a term expiring on 8 September 2055 for industrial use.
Pursuant to the attachment of Rural Construction Land Use Planning Permit No. 2005-14, the construction on the subject land is in compliance of the planning requirements.
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Appendix iV

Pursuant to the attachment of Rural Construction Works Planning Permit No. Dong Gui Zi 2005-25 (東規字 2005-25), the construction works are in compliance of the construction requirements.
Pursuant to construction Works Commencement Permit No. 152701200510030101, the construction works of the property are in compliance of the requirements on works commencement.
We have been provided with a legal opinion on the property prepared by the Instructing Party’s PRC legal advisers, which contains, inter alia, the following information:

Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd. (顎爾多斯市高原聖果生態建設開發有限公司) has obtained the land use rights of the subject land. According to Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd., the land use rights is not subject to mortgage The construction works has obtained relevant approvals. Upon certified completion, Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd. can apply for Realty Title Certificate without problem in legal aspect.

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Appendix iV

VAluAtion CertiFiCAte

group ii – property interests rented by the group

				Capital value in
			details of	existing state as
	property	description and tenure	occupancy	at 30 June 2007
				(RMB)
2.	No. 12, Fuhai Road,	The property comprises various	The property	No commercial
	Huangchun Town,	buildings with total gross floor	is currently	value
	Daxing County,	area of approximately 8,258.20	occupied by the
	Beijing,	sq.m..	Group as factory
	The PRC		and office.
		It is erected on a site with an area
		of approximately 14,593.41 sq.m..
		The land use rights of the property
		are allocated for Shaji product
		development use.

Notes:

Pursuant to a Tenancy Agreement entered into between Beijing Shan He Lin Environment Planning Design Centre (北京山合林水環境規劃設計中心) and Conseco Seabuckthorn Co., Ltd. (高原聖果沙棘制品有限公司), the property is leased to Conseco Seabuckthorn Co., Ltd. for a term of 30 years commencing from 1 January 2006 at an annual rental of RMB200,000 subject to review every two years.
Pursuant to the State-owned Land Use Certificate No. Da Xing Xian Guo Yong (Ji) Zhi 68 (大興縣國用(籍)字第 66號), the land use rights of the subject site with an area of approximately 14,593.41 sq.m. has been allocated to Beijing Jianghe Shaji Company (北京江河沙棘公司) commencing from 1994 for Shaji product development uses. The terms of which is unavailable.
Pursuant to the Building Ownership Certificate No. Jing Fang Quan Zheng Guo Zi Di 00001887 (京房權證興國字第00001887號) dated 20 August 2001, the building ownership rights of the property with gross floor areas of 8,258.2 sq.m. belongs to Beijing Jianghe Shaji Company (北京江河沙棘公司).
Pursuant to the attachment of the Building Ownership Certificates No. Jing Fang Quan Zheng Guo Zi Di 00001887 (京房權證興國字第00001887號), the building ownership rights of the property with gross floor areas of 2,426.91 sq.m. has been transferred to Conseco Seabuckthorn Co., Ltd. (高原聖果沙棘制品有限公司).
We have been provided with a legal opinion on the property prepared by the Instructing Party’s PRC legal advisers, which contains, inter alia, the following information:

According to verbal enquiry to the Beijing Land Management Bureau Daxing Branch, the subject land is allocated to Beijing Shan He Lin Environment Planning Design Centre (北京山合林水環境規劃設計中心). Conseco Seabuckthorn Co., Ltd. (高原聖果沙棘制品有限公司) has not yet provided the legal advisor with the relevant approval for the lease of the property. If such approval has obtained, Conseco Seabuckthorn Co., Ltd has the use rights of the property.

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Appendix iV

VAluAtion CertiFiCAte

Capital value in details of existing state as property description and tenure occupancy at 30 June 2007 (RMB) 3. A parcel of land in The property comprises a The property is No commercial Yiyang District, parcel of land with site area of currently occupied value Yilin City, approximately 133,334 sq.m.. by the Group for Shaanxi Province, plantation of Shaji The PRC As advised, the land use term and other plants. is held for 30 years. It has not obtained Land Use Certificate.

Notes:

Pursuant to “Explanation Regarding Shaanxi Guosheng Shuitu Maintenance Construction Co. Ltd. Shaji Plantation, Plant Reproduction” (關於陝西果聖水土保持建設有限公司沙棘種植、苗木繁育的有關說明) dated 2 December 2003, the property is unconditionally leased to Shaanxi Guosheng Shuitu Maintenance Construction Co. Ltd. (陝西果聖水土保持建設有限公司) for a term of 30 years.
We have been provided with a legal opinion on the property prepared by the Instructing Party’s PRC legal advisers, which contains, inter alia, the following information:

Shaanxi Guosheng Shuitu Maintenance Construction Co. Ltd. (陝西果聖水土保持建設有限公司) has legally obtained the land use rights by lease. The terms of which is unavailable.

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Appendix iV

VAluAtion CertiFiCAte

				Capital value in
			details of	existing state as
	property	description and tenure	occupancy	at 30 June 2007
				(RMB)
4.	A parcel of land in	The property comprises a	The property is	No commercial
	South Huofang Village,	parcel of land with site area of	currently occupied	value
	Shulinzhao Village,	approximately 1,333,340 sq.m..	by the Group for
	Delateqi,		reproduction of
	Inner Mongolia,	As advised, the land use term	plants.
	The PRC	is held for 15 years from 28
		November 2005 to 27 November	The annual rental
		2020. It has not obtained Land Use	is RMB200,000.
		Certificate.

Notes:

Pursuant to a Tenancy Agreement entered into between Shuitu Maintenance Plant Development Management Centre of Waters Department (Shaji Development Management Centre of Waters Department) (水利部水土保持植物開發管理中心(水利部沙棘開發管理中心)) and Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd. (顎爾多斯市高原聖果生態建設開發有限公司), the property is leased to Ordos Gaoyuan Shengguo Ecological Construction Development Co. Ltd. for a term of 15 years from 28 November 2005 to 27 November 2020. The annual rental is RMB200,000.
We have been provided with a legal opinion on the property prepared by the Instructing Party’s PRC legal advisers, which contains, inter alia, the following information:

Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd. (顎爾多斯市高原聖果生態建設開發有限公司) leased the property from Shuitu Maintenance Plant Development Management Centre of Waters Department (Shaji Development Management Centre of Waters Department) (水利部水土保持植物開發管理中心(水利部沙棘開發管理中心)). If Shuitu Maintenance Plant Development Management Centre of Waters Department (Shaji Development Management Centre of Waters Department) obtains the use rights of the land, Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd. has the use rights of the property. The terms of which is unavailable.

169 -

property VAluAtion on the enlArged group

Appendix iV

VAluAtion CertiFiCAte

				Capital value in
			details of	existing state as
	property	description and tenure	occupancy	at 30 June 2007
				(RMB)
5.	Various buildings in	The property comprises 8 buildings	The property	No commercial
	Shatuodu Development	with total gross floor area of 2,655	is currently	value
	Zone, Inner Mongolia,	sq.m. erected on a parcel of land	occupied by the
	The PRC	with site area of approximately	Group as factory
		20,000.1 sq.m..	and office.
		Most of the buildings were	The annual rental
		completed in about March 2005.	is RMB50,000.
		The property has not obtained
		Reality Title Certificate.

Notes:

Pursuant to a Tenancy Agreement entered into between Shuitu Maintenance Plant Development Management Centre of Waters Department (Shaji Development Management Centre of Waters Department) (水利部水土保持植物開發管理中心(水利部沙棘開發管理中心)) and Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd. (顎爾多斯市高原聖果生態建設開發有限公司), the property is leased to Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd. for a term of 30 years from 1 September 2005 to 31 August 2035. The annual rental is RMB50,000.
We have been provided with a legal opinion on the property prepared by the Instructing Party’s PRC legal advisers, which contains, inter alia, the following information:

Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd. (顎爾多斯市高原聖果生態建設開發有限公司) leased the property from Shuitu Maintenance Plant Development Management Centre of Waters Department (Shaji Development Management Centre of Waters Department) (水利部水土保持植物開發管理中心(水利部沙棘開發管理中心)). After Shuitu Maintenance Plant Development Management Centre of Waters Department (Shaji Development Management Centre of Waters Department) has obtained the Reality Title Certificate, Ordos Conseco Seabuckthorn Ecological Construction Development Co. Ltd. has the use rights of the property. The terms of which is unavailable.

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property VAluAtion on the enlArged group

Appendix iV

VAluAtion CertiFiCAte

Capital value in details of existing state as property description and tenure occupancy at 30 June 2007 (RMB) 6. Unit Nos. 812 & 813, The property comprises 2 office The property No commercial Level 8, No. 3, South units with total gross floor area of is currently value Yuyuantan Road, 246.3 sq.m.. occupied by the Haidian District, Group as office. Beijing, As advised, the property has not The PRC obtained Reality Title Certificate. The annual rental is RMB305,000. The lease term is from 4 January 2007 to 3 January 2009.

Notes:

Pursuant to a Tenancy Agreement entered into between Beijing Dajiang Shiji Exhibition Co. Ltd (北京大江世紀展覽有限公司) and Conseco Seabuckthorn (Beijing) Marketing Co., Ltd. (高原聖果(北京)沙棘營銷有限公司), the property is leased to Conseco Seabuckthorn (Beijing) Marketing Co., Ltd. for a term from 4 January 2007 to 3 January 2009. The annual rental is RMB305,000.
We have been provided with a legal opinion on the property prepared by the Instructing Party’s PRC legal advisers, which contains, inter alia, the following information:

Conseco Seabuckthorn (Beijing) Marketing Co., Ltd. (高原聖果(北京)沙棘營銷有限公司) lease the property from Beijing Dajiang Shiji Exhibition Co. Ltd (北京大江世紀展覽有限公司). After Beijing Dajiang Shiji Exhibition Co. Ltd has obtained the Reality Title Certificate, Conseco Seabuckthorn (Beijing) Marketing Co., Ltd. has the use rights of the property. The terms of which is unavailable.

171 -

property VAluAtion on the enlArged group

Appendix iV

VAluAtion CertiFiCAte

				Capital value in
			details of	existing state as
	property	description and tenure	occupancy	at 30 June 2007
				(RMB)
7.	Unit Nos. 601 & 607,	The property comprises 2 office	The property	No commercial
	Level 6, Block 14,	units with total gross floor area of	is currently	value
	Area 2,	60 sq.m..	occupied by the
	No. 1A Fuxing Road,		Group as office.
	Haidian District,
	Beijing,		The annual rental
	The PRC		is RMB30,000.
			The lease term is
			from 1 January
			2006 to 31
			December 2035.

Notes:

Pursuant to a Tenancy Agreement entered into between Shuitu Maintenance Plant Development Management Centre of Waters Department (Shaji Development Management Centre of Waters Department) (水利部水土保持植物開發管理中心(水利部沙棘開發管理中心)) and Conseco Seabuckthorn Co., Ltd. (高原聖果沙棘制品有限公司), the property is leased to Conseco Seabuckthorn Co., Ltd. for a term of 30 years from 1 January 2006 to 31 December 2035. The annual rental is RMB30,000.
We have been provided with a legal opinion on the property prepared by the Instructing Party’s PRC legal advisers, which contains, inter alia, the following information:

Conseco Seabuckthorn Co., Ltd. (高原聖果沙棘制品有限公司) has the legal rights to use and occupy the property by lease. The terms of which is unavailable.

172 -

GenerAl informAtion

Appendix V

reSponSiBilitY StAtement

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable inquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in this circular misleading.

1. SHAre CApitAl

(a) The authorised and issued and fully paid up share capital of the Company at present is as follows:–

		nominal amount
number		HK$
Authorised:
4,000,000,000	Shares	40,000,000

Issued and fully	paid:	HK$
553,625,000	Shares	5,536,250

(b)	The authorised and issued and fully paid up share capital of the Company upon issue of the Consideration Shares and the Conversion Shares will be as follows: Authorised: HK$ 4,000,000,000 Shares 40,000,000 Issued and fully paid: HK$ 553,625,000 Shares 5,536,250 133,000,000 Consideration Shares to be allotted and issued 1,330,000 1,200,333,333 Conversion Shares to be allotted and issued 12,003,333.33 pursuant to the Convertible Bond (subject to adjustment) 1,886,958,333 Shares 18,869,583.33	The authorised and issued and fully paid up share capital of the Company upon issue of the Consideration Shares and the Conversion Shares will be as follows: Authorised: HK$ 4,000,000,000 Shares 40,000,000 Issued and fully paid: HK$ 553,625,000 Shares 5,536,250 133,000,000 Consideration Shares to be allotted and issued 1,330,000 1,200,333,333 Conversion Shares to be allotted and issued 12,003,333.33 pursuant to the Convertible Bond (subject to adjustment) 1,886,958,333 Shares 18,869,583.33

		HK$ 5,536,250 1,330,000 12,003,333.33
		18,869,583.33

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GenerAl informAtion

Appendix V

2. diSCloSUre of intereStS

A. direCtorS’ intereStS And SHort poSitionS in tHe SeCUritieS of tHe CompAnY And itS ASSoCiAted CorporAtionS

As at the Latest Practicable Date, the interests of the directors and their associates in the shares and underlying shares and debenture of the Company and its associated corporation as recorded in the register maintained by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”), were as follows:

long positions

		number of	percentage of the
		issued ordinary	issued share capital
name of director	Capacity	shares held	of the Company
But Ka Wai	Held by controlled
	corporation_(note 1)_	151,562,000	27.38%
But Chai Tong	Held by controlled
	corporation_(note 2)_	55,500,000	10.02%
		207,062,000	37.40%

Notes:

(1) These Shares were held by Able Success Group Limited (“Able Success”) which is wholly-owned by Mr. But Ka Wai.
(2) These Shares were held by National Chain International Limited (“National Chain”) which is wholly-owned by Mr. But Chai Tong.

Other than as disclosed above, none of the Directors nor their associates had any interests or short positions in any Shares, underlying shares or debentures of the Company or any of its associated corporations as at the Latest Practicable Date.

B. intereStS of SUBStAntiAl SHAreHolderS

As at the Latest Practicable Date, the register of substantial shareholders maintained by the Company pursuant to Section 336 of the SFO shows that the following Shareholders had notified the Company of relevant interests in the issued share capital of the Company.

174 -

GenerAl informAtion

Appendix V

			percentage
			of the issued
	Capacity		share capital
	family	Corporate	of the
	interests	interests	Company
Substantial Shareholders:
Able Success_(note 1)_	–	151,562,000	27.38%
National Chain_(note 2)_	–	55,500,000	10.02%
Ms. Chan Yuk Ha_(note 3)_	151,562,000	–	27.38%
Ms. Chang Tei Wah, Teresa_(note 4)_	55,500,000	–	10.02%

All interest stated above represent long positions.

Note:

(1) Mr. But Ka Wai is deemed to be interested in these Shares through his wholly-owned interest in the issued share capital of Able Success.
(2) Mr. But Chai Tong is deemed to be interested in these Shares through his wholly-owned interest in the issued share capital of National Chain.
(3) Ms. Chan Yuk Ha, the spouse of Mr. But Ka Wai, is deemed to be interested in 151,562,000 Shares.
(4) Ms. Chang Tei Wah, Teresa, the spouse of Mr. But Chai Tong, is deemed to be interested in 55,500,000 Shares.

Saved as disclosed above, as at the Latest Practicable Date, the Company had not been notified by any persons (other than Directors or chief executives of the Company) who had interests or short positions in the shares or 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 which were recorded in the register required to be kept by the Company under Section 336 of the SFO.

C. otHerS

As at the Latest Practicable Date, none of the Directors and their respective associates had any direct or indirect interest in a business which competes or may compete with the business of the Enlarged Group.

There is no contract or arrangement entered into by any member of the Group subsisting at the date of this circular in which any Director is materially interested and which is significant to the business of the Group.

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GenerAl informAtion

Appendix V

3. proCedUreS BY WHiCH A poll mAY Be demAnded

Pursuant to article 72 of the articles of association of the Company, at any general meeting a resolution 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. A poll may be demanded by:

(i) the chairman of the meeting; or
(ii) 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) a Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) of by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or
(iv) a 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 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 one-tenth of the total sum paid up on all the Shares conferring that right.

Pursuant to article 73A of the articles of association of the Company, notwithstanding any other provisions in the articles of association of the Company, if the aggregate proxies held by (i) the chairman of a particular meeting, and/or (ii) the Directors, account for five (5) per cent or more of the total voting rights at that meeting, and if on a show of hands in respect of any resolution, the meeting votes in the opposite manner to that instructed in those proxies, the chairman of the meeting and/or any Director holding proxies as aforesaid shall demand a poll.

4. expertS And ConSent

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

name	Qualification
HLM & Co. (“HLM”)	certified public accountants
Grant Thornton	certified public accountants
DTZ Debenham Tie Leung (“DTZ”)	independent professional valuer
CB Richard Ellis (“CBRE”)	independent professional valuer

176 -

GenerAl informAtion

Appendix V

Each of HLM, Grant Thornton, DTZ and CBRE has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its reports and/or letters as set out in this circular and references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, none of HLM, Grant Thornton, DTZ and CBRE was beneficially interested in the share capital of any member of the Enlarged Group, nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group, nor did it have any direct or indirect interest in any assets which were, sine 31 December 2006 (being the date to which the latest published audited consolidated financial statements of the Group were made up), acquired or disposed of by or leased to, or proposed to be acquired or disposed of by or leased to, any member of the Enlarged Group.

5. litiGAtion And ClAimS

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

6. SerViCe ContrACtS

As at the Latest Practicable Date, none of the Directors had entered into any service contract with any member of the Enlarged Group (excluding contracts expiring or determinable by the employer with in one year without payment of compensation other than statutory compensation).

7. mAteriAl ContrACtS

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

(a) the subscription agreement dated 18 October 2005 and entered into between the Company as issuer and Pak Lok Equipment Co., Ltd. as the subscriber in relation to the subscription of 14 million Shares at the subscription price of HK$0.40 per Share;
(b) the underwriting agreement dated 4 April 2006 and entered into among the Company, TIS Securities (HK) Limited, Mr. But Ka Wai and Mr. But Chai Tong in relation to the rights issue of 321,000,000 Shares in the proportion of three rights Shares for every two Shares held on the record date; and
(d) the Agreement.

8 CorporAte informAtion

(i) The registered office of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Isalnds.
177 -

GenerAl informAtion

Appendix V

(ii) The principal share registrar and transfer office of the Company is Bank of Bermuda (Cayman) Limited, P.O. Box 513 GT, Strathvale House, North Church Street, George Town, Grand Cayman, Cayman Islands.
(iii) The Hong Kong branch share registrar and transfer office of the Company is Tricor Tengis Limited at 26th floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(iv) The secretary and qualified accountant of the Company is Mr. Chong Ching Hei. Mr. Chong is an associate member of the Hong Kong Institute of Certified Public Accountants.
(v) The English text of this circular and the accompanying form of proxy shall prevail over their respective chinese texts in case of inconsistency.

9. doCUmentS AVAilABle for inSpeCtion

Copies of the following documents are available for inspection at the head office and principal place of business of the Company 2nd Floor, On Shing Industrial Building, Nos. 2-16 Wo Liu Hang Road, Fo Tan, Shatin, New Territories, Hong Kong during normal business hours on any weekdays other than public holidays up to and including Friday, 12 October 2007:

(i) the memorandum and articles of association of the Company;
(ii) the annual reports of the Company for the two years ended 31 December 2005 and 2006;
(iii) the accountants’ report on the CEWH Group, the text of which is set out in Appendix II to this circular;
(iv) the unaudited pro forma financial information on the Enlarged Group letter from HLM on the text of which is set out in Appendix III to this circular;
(v) the property valuation reports for the Group and the CEWH Group, the texts of which are set out in Appendix IV to this circular;
(vi) the written consents as referred to in the paragraph headed “Experts and consents” in this appendix;
(vii) the material contracts as referred to in the paragraph headed “Material contracts” in this appendix; and
(viii) a copy of each of the circulars of the Company issued pursuant to the requirements set out in Chapters 14 and/or 14A of the Listing Rules since 31 December 2006 (being the date to which the latest published audited consolidated financial statements of the Group were made up).
178 -

Notice of eGM

==> picture [40 x 72] intentionally omitted <==

WAH YUeN HoLDiNGS LiMiteD 華園控股有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 2349)

Notice of eXtRAoRDiNARY GeNeRAL MeetiNG

Notice iS HeReBY GiVeN that the extraordinary general meeting (“ eGM ”) of Wah Yuen Holdings Limited (the “ company ”) will be held at 2nd Floor, On Shing Industrial Building, Nos. 2-16 Wo Liu Hang Road, Fo Tan, Shatin, New Territories, Hong Kong on Friday, 12 October 2007 at 10:00 a.m. to consider and, if thought fit, pass the following resolutions with or without amendments, as ordinary resolutions:

oRDiNARY ReSoLUtioNS

“ tHAt
(i) the sale and purchase agreement (the “ Agreement ”) as defined in the circular dated 24 September 2007 despatched to the shareholders of the Company (the “ circular ”), a copy of which has been produced to this meeting marked “A” and signed by the chairman hereof for the purpose of identification, and all the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(ii) any one or more of the directors (the “ Directors ”) of the Company be and is/are hereby authorised to do all such acts and things and execute all such documents which he/she/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Agreement including but not limited to the allotment and issue of 133,000,000 ordinary shares of HK$0.01 each in the share capital of the Company (the “ consideration Shares ”) and the transactions contemplated thereunder;
(iii) the issue of the convertible bonds (the “ convertible Bonds ”) in the principal amount of HK$180,050,000 to be issued by the Company in accordance with the terms and conditions of the Agreement and the transactions contemplated therein be and are hereby approved; and
179 -

Notice of eGM

(iv) any one or more Directors be and is/are hereby authorised to do all such acts and things and execute all such documents which he/she/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the issue of Convertible Bonds including but not limited to the allotment and issue of 1,200,333,333 ordinary shares of HK$0.01 each in share capital of the Company (the “ conversion Shares ”) of which may fall to be issued upon the exercise of the conversion rights attached to the Convertible Bonds.”
“ tHAt subject to the ordinary resolution no 1 above being duly passed, the unconditional specific mandate granted to the Directors to exercise the powers of the Company to allot, issue and deal with the Consideration Shares be and is hereby approved”.
“ tHAt subject to the ordinary resolution no 1 above being duly passed, the unconditional specific mandate granted to the Directors to exercise the powers of the Company to allot, issue and deal with the Conversion Shares be and is hereby approved”.

Yours faithfully For and on behalf of the board of Directors of Wah Yuen Holdings Limited But Ka Wai Chairman

Hong Kong, 24 September 2007

Registered office: Head office and principal place of Cricket Square business in Hong Kong: Hutchins Drive 2nd Floor P.O. Box 2681 On Shing Industrial Building Grand Cayman Nos. 2-16 Wo Liu Hang Road KY1-1111 Fo Tan, Shatin Cayman Islands New Territories Hong Kong

Notes:

A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxy to attend and, subject to the provisions of the articles of association of the Company, vote in his stead. A proxy need not be a member of the Company.
In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the offices of the Company’s branch registrars and transfer office in Hong Kong, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time for holding the meeting or adjourned meeting.
180 -

AI assistant

China City Infrastructure Group Limited — Proxy Solicitation & Information Statement 2007

50541_rns_2007-09-23_fde9b13e-aff9-44c0-a054-e0d1801073c8.pdf

WAH YUEN HOLDiNGs LiMiTED 華園控股有限公司

VERY sUBsTANTiAL ACQUisiTiON

Financial Adviser to Wah Yuen Holdings Limited

Optima Capital Limited

CONTENTS

Definitions

Definitions

Definitions

WAH YUEN HOLDINGS LIMITED 華園控股有限公司

VERY SUBSTANTIAL ACQUISITION

INTRODUCTION

LETTER FROM THE BOARD

THE AGREEMENT

Parties to the Agreement

LETTER FROM THE BOARD

Assets to be acquired

INFORMATION ON THE CEWH GROUP

The Consideration

LETTER FROM THE BOARD

Profit guarantee

Waiver of loans owed by CEWH Group

THE CONVERTIBLE BONDS

LETTER FROM THE BOARD

The Issue Price and the Conversion Price

Conditions of the Agreement

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

LETTER FROM THE BOARD

MANAGEMENT DISCUSSION ON THE CEWH GROUP/SEABUCKTHORN GROUP

Business Review

LETTER FROM THE BOARD

Financial Position

LETTER FROM THE BOARD

Foreign currency risk

Capital commitments and contingent liabilities

LETTER FROM THE BOARD

Employees and remuneration policies

Charges on assets

LISTING RULES IMPLICATIONS

FINANCIAL EFFECTS OF THE ACQUISITION

LETTER FROM THE BOARD

EGM

RECOMMENDATION

GENERAL

1. FinAnciAl SummArY

income Statement

2. Audited conSolidAted FinAnciAl StAtementS oF the Group For the YeAr ended 31 decemBer 2006

consolidated income Statement

consolidated Balance Sheet

Balance Sheet

consolidated Statement of changes in equity

consolidated cash Flow Statement

notes to the Financial Statements

1. GenerAl

2. ApplicAtion oF neW And reViSed honG KonG FinAnciAl reportinG StAndArdS (“hKFrSs”)

Financial guarantee contracts

3. SiGniFicAnt AccountinG policieS

Basis of consolidation

Goodwill

investment in subsidiaries

property, plant and equipment

prepaid lease payments

inventories

Financial instruments

Financial assets

Financial assets at fair value through profit or loss

Loans and receivables

Financial liabilities and equity

provisions

equity settled share-based payment transactions

impairment losses (other than goodwill)

revenue recognition

taxation

retirement benefit costs

Foreign currencies

China City Infrastructure Group Limited Proxy Solicitation & Information Statement 2007