China Resources Building Materials Technology Holdings Limited - Proxy Solicitation & Information Statement 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Greenfield Chemical Holdings Limited, you should at once hand this circular and the accompanied form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of Greenfield Chemical Holdings Limited.

GREENFIELD CHEMICAL HOLDINGS LIMITED 嘉輝化工控股有限公司 **[*]**

(Incorporated in the Cayman Islands with limited liability) (Stock code: 582)

MAJOR TRANSACTION, ISSUE OF CONVERTIBLE BONDS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening the extraordinary general meeting of the Company to be held at Unit 2304, 23/F, West Tower Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong on 15 March 2011 at 10:30 a.m., is set out on pages 124 to 125 of this circular. Whether or not you propose to attend the meeting, you are advised to complete the form of proxy attached to the notice of the extraordinary general meeting in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tricor Standard Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for 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 meeting should you so wish.

25 February 2011

* For identification purposes only

		Page
DEFINITIONS..............................................................................................................................		1
LETTER FROM THE	BOARD..................................................................................................	4
APPENDIX I —	FINANCIAL INFORMATION OF THE GROUP..........................	39
APPENDIX IIA —	ACCOUNTANTS’ REPORT
	ON THE HK SUBSIDIARY ..........................................................	42
APPENDIX IIB —	ACCOUNTANTS’ REPORT
	ON THE PRC SUBSIDIARY ........................................................	62
APPENDIX III —	UNAUDITED PRO FORMA FINANCIAL INFORMATION
	OF THE ENLARGED GROUP.....................................................	105
APPENDIX IV —	MANAGEMENT DISCUSSION AND ANALYSIS........................	113
APPENDIX V —	GENERAL INFORMATION.............................................................	119
NOTICE OF EXTRAORDINARY GENERAL MEETING...................................................		124

– i –

DEFINITIONS

In this circular, unless the context requires otherwise, the expressions as stated below will have the following meanings:

“Acquisition” the acquisition of the Sale Shares pursuant to the Agreement together with all shareholders’ loans due from each of the Target Company and the HK Subsidiary to the Vendor as at Completion
“Agreement” the sale and purchase agreement dated 21 September 2010 made between the Vendor and the Company relating to the sale and purchase of the entire issued share capital of the Target Company
“Articles of Association” the articles of association of the Company
“associates” has the meaning ascribed to it in the Listing Rules
“Board” the board of Directors or a duly authorised committee thereof
“Company” or “Purchaser” Greenfield Chemical 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 Acquisition “connected persons” has the meaning ascribed to it in the Listing Rules “Consideration” HK$400,000,000
“Conversion Price” the initial conversion price of HK$2.1 per Conversion Share, subject to the usual provisions for adjustments arising from events such as share consolidation, share subdivision, capitalisation issue, capital distribution, rights issue and other equity or equity derivatives issues.
“Conversion Shares” the new Shares to be issued upon the exercise of the conversion rights attaching to the Convertible Bonds
“Convertible Bonds” the convertible bonds in the agreed form with a principal amount of HK$65,000,000, to be issued by the Company in favour of the Vendor at Completion to satisfy part of the Consideration
“Danyang” Danyang Century New Energy Resources Co. Ltd. (丹陽世紀新能源有限公司)
“Disposal” the disposal of the investment in Danyang by the HK Subsidiary at cost
“Directors” the directors of the Company and each a “Director”

– 1 –

DEFINITIONS

“EGM”	an extraordinary general meeting of the Company to be held at
	Unit 2304, 23/F, West Tower Shun Tak Centre, 168-200
	Connaught Road Central, Sheung Wan, Hong Kong, on
	15 March 2011 at 10:30 a.m.
“Enlarged Group”	the Group immediately after completion of the Acquisition
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administration of the PRC
“HK Subsidiary”	China Opto Investment Limited (中國光電投資有限公司), a
	company incorporated in Hong Kong with limited liability and
	a wholly-owned subsidiary of the Target Company
“Independent Third Party(ies)”	an independent third party, to the best of the Directors’
	knowledge, information and belief having made all reasonable
	enquiry, who is not connected with the Company and its
	connected persons (as defined under the Listing Rules)
“Last Trading Day”	21 September 2010, being the last day on which the Shares were
	traded on the Stock Exchange prior to the publication of the
	Company’s announcement dated 21 September 2010 relating
	to the Acquisition
“Latest Practicable Date”	24 February 2011, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained herein
“Listing Rules”	Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited
“Major Shareholder”	Hong Han Limited, which holds 140,000,000 Shares,
	representing approximately 51.31% of the issued share capital
	of the Company
“PRC”	The People’s Republic of China which, for the purpose of this
	circular, excludes Hong Kong, the Macau Special Administrative
	Region of the PRC and Taiwan
“PRC Subsidiary”	Jiangsu Wenrun Optoelectronic Co., Ltd (江蘇穩潤光電有限
	公司), a company with limited liability incorporated in the PRC
	on 26 March 2002
“Reorganization”	the Target Company shall become the direct holding company
	of the HK Subsidiary upon completion of the reorganization

– 2 –

DEFINITIONS

“Sale Shares”	the 100 ordinary shares of US$1.00 each of and in the issued
	share capital of the Target Company held and beneficially owned
	by the Vendor, representing the entire issued share capital of
	the Target Company
“SFO”	The Securities and Future Ordinance (Chapter 571 of the Laws
	of Hong Kong)
“Share(s)”	share(s) of nominal value of HK$0.10 each in the share capital
	of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Target Company”	Ace Winner Holdings Limited, a company incorporated in the
	British Virgin Islands with limited liability and is wholly-owned
	by the Vendor
“Target Group”	the Target Company and its subsidiaries upon completion of
	the Reorganization and the Disposal
“Vendor”	China Century Worldwide Limited, a company incorporated in
	the British Virgin Islands with limited liability and beneficially
	owned as to 95% by Mr. Ji Xiao Bo and 5% by Mr. Zhang Liang
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“US$”	US dollars, the lawful currency of the United States of America
“%”	per cent

The English translation of Chinese names is included for information purpose only and should not be regarded as their official English translation.

– 3 –

LETTER FROM THE BOARD

GREENFIELD CHEMICAL HOLDINGS LIMITED 嘉輝化工控股有限公司 **[*]**

(Incorporated in the Cayman Islands with limited liability) (Stock code: 582)

Executive Directors:

Mr. Hu Jun Ms. Zhang Ying Mr. Li Li Mr. Zhang Yang Mr. Jiang Zhiqian

Independent non-executive Directors:

Mr. Fok Ho Yin, Thomas Ms. Zheng DaYong Mr. Ng Hoi Yue

Registered office:

P. O. Box 309 Ugland House, South Church Street George Town Grand Cayman Cayman Islands British West Indies

Head office and principal place of business in Hong Kong: Unit 2304, 23/F., West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong

25 February 2011

To the Shareholders:

Dear Sir or Madam,

MAJOR TRANSACTION, ISSUE OF CONVERTIBLE BONDS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

The Board announced on 21 September 2010 that the Company entered into the Agreement with the Vendor pursuant to which the Company has conditionally agreed to acquire from the Vendor the entire issued share capital of the Target Company at a consideration of HK$400,000,000, which is to be satisfied either by cash or by issuing the Convertible Bonds to the Vendor (or its nominee) or by a combination of both, at the sole and absolute discretion of the Company.

The Company has determined that the Consideration of HK$400,000,000 shall be payable as to HK$335,000,000 in cash and as to HK$65,000,000 by issuing the Convertible Bonds at the Conversion Price upon Completion.

* For identification purposes only

– 4 –

LETTER FROM THE BOARD

The Major Shareholder has given its written approval to the Acquisition in accordance with Rule 14.44 of the Listing Rules in lieu of a general meeting to approve the Acquisition. However, as the Company will issue the Convertible Bonds to satisfy part of the Consideration, the Directors will seek a specific mandate from the Shareholders at the EGM to approve the issue of the Convertible Bonds. In addition, as the accountants’ reports of the HK Subsidiary and the PRC Subsidiary contain the First Qualified Opinion and the Second Qualified Opinion, written shareholders’ approval is therefore not accepted and a general meeting is required under Rule 14.86 of the Listing Rules.

The purpose of this circular is to provide you with, among other things, information of the Acquisition and the issue of the Convertible Bonds and to give you a notice of the EGM at which a resolution will be proposed to consider and, if thought fit, approve the Agreement and the transaction contemplated thereunder (including the issue of the Convertible Bonds).

THE AGREEMENT

Date: 21 September 2010 (after trading hours)

Parties:

China Century Worldwide Limited as the Vendor
the Company as the Purchaser

To the best of the Company’s information and belief, the Vendor and its ultimate beneficial owners are Independent Third Parties. The principal activity of the Vendor is investment holding.

Assets to be acquired

Under the Agreement, the Company has conditionally agreed to acquire from the Vendor the Sale Shares, representing the entire issued share capital of the Target Company, together with all shareholders’ loans due from each of the Target Company and the HK Subsidiary to the Vendor as at Completion.

Consideration

The total consideration of HK$400,000,000 is to be satisfied by the Company upon Completion either by cash or by issuing the Convertible Bonds to the Vendor (or its nominee) or by a combination of both, at the sole and absolute discretion of the Company and depending on the then cash position of the Group.

The Company has determined that the Consideration of HK$400,000,000 shall be satisfied as to HK$335,000,000 in cash and as to HK$65,000,000 by issuing the Convertible Bonds at the Conversion Price upon Completion.

The cash portion of the Consideration will be financed by the internal resources of the Group. As at 31 December 2010, the unaudited cash position of the Group amounted to approximately HK$450 million. Given that the Consideration is partly satisfied by issuing the Convertible Bonds, the Board will have the intention to exercise its redemption right on the Convertible Bonds in the future when it considers appropriate.

– 5 –

LETTER FROM THE BOARD

The Consideration was determined after arm’s length negotiations between the Company and the Vendor, and taking into consideration of (i) the historical financial performance of the Target Group; (ii) the latest management account of the PRC Subsidiary of which the profits of the PRC Subsidiary for the six months ended 30 June 2010 have been turnaround as compared to its historical financial performance; and (iii) the prospect of the LED industry in the PRC. Although the Second Qualified Opinion (to be defined in the section “Financial information on the PRC Subsidiary”) sets out the impact on the historical financial performance of the Target Group over the Periods (to be defined in the section “Financial information on the PRC Subsidiary”), after taking into account the fact that the financial performance of the Target Group have been improved after the removal of the Ex-Director (to be defined in the section “Financial information on the PRC Subsidiary”) (details of which has been set out in the latter section of this letter), the Directors consider it is appropriate to rely on the financial information of the Target Group for the periods after the removal of the Ex-Director to determine the Consideration.

Conditions precedent

The completion of the Agreement is subject to the following conditions precedent:

(a) the Company being satisfied with the results of the due diligence review of the assets, liabilities, operations and affairs of the Target Group including but not limited to the Reorganization and the Disposal;
(b) all necessary consents and approvals required to be obtained on the part of the Vendor and the Company in respect of the Agreement and the transactions contemplated thereby having been obtained;
(c) all necessary waiver, consent, approval, licence, authorisation, permission, order and exemption (if required) from the relevant governmental or regulatory authorities or other third parties which are necessary in connection with the Agreement and the transactions contemplated thereby;
(d) the approval by the Shareholders for the Agreement and the transactions contemplated thereby, including but not limited to the issue of the Convertible Bonds to the Vendor or its nominees, pursuant to the requirements of the Listing Rules, having been obtained;
(e) the obtaining of a PRC legal opinion (in form and substance satisfactory to the Company) in relation to the transactions contemplated under the Agreement;
(f) the warranties by the Vendor set out in the Agreement remaining true and accurate in all respects; and
(g) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Conversion Shares.

If the above conditions are not satisfied (or as the case may be, waived by the Company in respect of (a), (e) and (f) only) on or before 4:00 p.m. on 31 December 2010 (as extended to 31 March 2011 by parties to the Agreement), or such later date as the Vendor and the Company may agree, the Agreement shall cease and determine and thereafter neither party shall have any obligations and liabilities towards each other hereunder save for any antecedent breaches of the terms hereof. As at the Latest Practicable Date, the Directors currently have no intention of waiving any of the conditions precedent.

– 6 –

LETTER FROM THE BOARD

Completion

Completion of the Agreement will take place on which the conditions of the Agreement have been fulfilled or waived (as the case may be).

After the completion of the Agreement, the Target Company will become a wholly-owned subsidiary of the Company. There is no provision in the Agreement which gives the Vendor the right to nominate Directors and the Vendor has no intention to nominate Directors as a result of the Acquisition.

Principal terms of the Convertible Bonds

Principal amount

Up to the maximum principal amount of HK$400,000,000, subject to the payment method of the Consideration (at the sole and absolute discretion of the Company and depending on the then cash position of the Group).

The Company has determined that the Convertible Bonds have been fixed at the principal amount of HK$65,000,000.

Interest

3% per annum, payable annually.

Maturity

On the 3rd anniversary of the date of issue of the Convertible Bonds.

Conversion Price

The initial Conversion Price is HK$2.1 per Conversion Share. Subject to the usual provisions for adjustments arising from events such as share consolidation, share subdivision, capitalisation issue, capital distribution, rights issue and issue of shares or convertible securities at below 80% of market price.

Conversion restriction

Provided that any conversion of the Convertible Bonds (i) does not trigger a mandatory offer obligation under Rule 26 of the Takeovers Code on the part of the holder of the Convertible Bonds and parties acting in concert with it (as defined under the Takeovers Code) and (ii) does not result in the Company’s non-compliance with the minimum public shareholding requirement under Rule 8.08 or other similar provisions of the Listing Rules, each holder of the Convertible Bonds has the right to convert the whole or part of the outstanding principal amount of the Convertible Bonds (in the amount of HK$100,000 or integral multiples thereof) on any business day after the date of issuance of the Convertible Bonds up to the maturity date.

Ranking of Conversion Shares

All the Conversion Shares will rank pari passu in all respects with the Shares in issue on the date of allotment and issue of such Shares.

– 7 –

LETTER FROM THE BOARD

Transferability

The Convertible Bonds are freely transferable in denominations of the principal amount of HK$100,000 subject to prior notification to the Company. The Company will disclose to the Stock Exchange any dealings by a connected person of the Company in the Convertible Bonds from time to time immediately upon the Company becoming aware of it.

Redemption

The Company may redeem the Convertible Bonds at 100% of the principal outstanding amount at any time from the date of issue to the maturity date. The Company or its subsidiaries may at any time purchase the Convertible Bonds at 100% of the principal amount of the outstanding or at any price as agreed between the Company or its subsidiaries and the holders of the Convertible Bonds. In the event that the Company or its subsidiaries agree with the holders of the Convertible Bonds to purchase the Convertible Bonds at a price more than 100% of the principal outstanding amount, the Company will seek the Shareholders’s prior approval. Any Convertible Bonds outstanding on the maturity date shall be redeemed by the Company at 100% of the outstanding principal amount.

Listing

No application will be made for the listing of the Convertible Bonds.

Application will be made to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the Conversion Shares which may fall to be issued upon conversion of the Convertible Bonds.

The initial Conversion Price

The initial Conversion Price of the Convertible Bonds of HK$2.1 per Share represents:

(a) a discount of approximately 8.69% to the closing price of HK$2.3 per Share as quoted on the Stock Exchange on 21 September 2010, being the date of the Agreement;
(b) a discount of approximately 7.48% to the average of the closing prices of approximately HK$2.27 per Share as quoted on the Stock Exchange over the last five consecutive trading days up to and including the Last Trading Day;
(c) a premium of approximately 32.33% over the latest net asset value of HK$1.587 per Share (based on the unaudited net assets (net of minority interests) of the Group of HK$433,005,000 as at 30 June 2010 and the total number of Shares of 272,860,000 as at 31 August 2010); and
(d) a premium of approximately 12.38% over the closing price of approximately HK$1.84 per Share on 24 February 2011, being the Latest Practicable Date.

The initial Conversion Price was determined after arm’s length negotiations between the Company and the Vendor and in view of the prevailing market price and historical trading liquidities of the Shares and the latest net asset value per Share as calculated above, the Directors consider that the initial Conversion Price of the Convertible Bonds is fair and reasonable.

– 8 –

LETTER FROM THE BOARD

EFFECT ON THE SHAREHOLDING STRUCTURE

For illustrative purpose only, set out below is a summary of the shareholdings of the Company based on (i) the issued share capital and shareholding structure of the Company as at the Latest Practicable Date; (ii) assuming conversion in full of the Convertible Bonds up to the principal amount of HK$65 million at the initial Conversion Price of HK$2.1 per Share assuming that no further issue of new Shares after the Latest Practicable Date:

Shareholders Hong Han Limited_(note 1) True Focus Limited(note 2)_ The Vendor or its nominee Public Shareholders Total	As at the date of this announcement No. of Shares % 140,000,000 51.31 18,010,000 6.60 0 0.00 114,850,000 42.09 272,860,000 100.00	Immediately after issue and conversion of all Convertible Bonds in full at the initial Conversion Price No. of Shares % 140,000,000 46.08 18,010,000 5.93 30,952,380 10.19 114,850,000 37.80 303,812,380 100.00	Immediately after issue and conversion of all Convertible Bonds in full at the initial Conversion Price No. of Shares % 140,000,000 46.08 18,010,000 5.93 30,952,380 10.19 114,850,000 37.80 303,812,380 100.00
			100.00

Notes:

Hong Han Limited is wholly and beneficially owned by each of Mr. Wan Zhongbo (“ Mr. Wan ”) and Ms. Liu Jia (“ Ms. Liu ”) as to 50% respectively. Mr. Wan and Ms. Liu are therefore deemed to be interested in the Shares held by Hong Han Limited.
True Focus Limited owns 13,510,000 Shares. Pacific Orchid Investments Limited, a wholly-owned subsidiary of True Focus Limited, owns 4,500,000 Shares. True Focus Limited is therefore deemed to be interested in 18,010,000 Shares. True Focus Limited is wholly-owned by Besford International Limited. Besford International Limited is a wholly owned subsidiary of COL Capital Limited. Besford International Limited and COL Capital Limited are therefore deemed to be interested in 18,010,000 Shares.

The Acquisition will not result in a change of control of the Company.

– 9 –

LETTER FROM THE BOARD

INFORMATION ON THE TARGET GROUP

The existing simplified group structure of the Target Group as at the Latest Practicable Date:

==> picture [351 x 267] intentionally omitted <==

The simplified group structure of the Target Group immediately after the Disposal but before completion of the Agreement is as follows:

==> picture [162 x 268] intentionally omitted <==

– 10 –

LETTER FROM THE BOARD

The simplified group structure of the Target Group immediately after completion of the Agreement is as follows:

==> picture [162 x 268] intentionally omitted <==

Note:

Jiangsu Wenrun Optoelectronic Technology Co. Ltd. (江蘇穩潤光電科技有限公司) and Zhenjiang Wenrun Semi-conductor Lighting Engineering Co. Ltd. (鎮江穩潤半導體照明工程有限公司) are wholly-owned by the PRC Subsidiary as at the Latest Practicable Date.

* For identification purposes only

– 11 –

LETTER FROM THE BOARD

The Target Company

The Target Company is a company incorporated in the British Virgin Islands on 9 September 2010 and is wholly-owned by the Vendor. The Target Company has not recorded any turnover or business activities since its incorporation and has no asset other than the issued share capital of US$100. The Target Company was set up for the sole purpose of effecting the Reorganization. The Reorganization was completed on 22 September 2010 and the Target Company has become the direct holding company of the HK Subsidiary.

The HK Subsidiary

The HK Subsidiary is a company incorporated in Hong Kong on 28 June 2007 and is wholly-owned by the Target Company. The principal activity of the HK Subsidiary is investment holding. The HK Subsidiary is interested in 69.44% of the PRC Subsidiary as at the Latest Practicable Date. Upon completion of the Disposal, save as and except for the investment in the PRC Subsidiary, the HK Subsidiary will not have any other investments.

Financial information on the HK Subsidiary

Set out below is a summary of the audited financial information on the HK Subsidiary prepared in accordance with the Hong Kong Financial Reporting Standards, as extracted from Appendix IIA to this circular:

		For the
period from
		28 June
		2007
	(date of its		For the	For the
incorporation)			year ended	year ended	For the ten
to 31	December		31 December	31 December	months ended
		2007	2008	2009 31 October 2010
		RMB’000	RMB’000	RMB’000	RMB’000
Income Statement
Revenue		—	—	—	—
Net profit/(loss) before taxation		972	4,881	(72)	2,820
Net profit/(loss) after taxation		972	4,881	(72)	2,820
		As at	As at	As at
31	December		31 December	31 December	As at
		2007	2008	2009 31 October 2010
		RMB’000	RMB’000	RMB’000	RMB’000
Balance Sheet
Total assets		71,116	145,040	145,120	145,045
Total liabilities		70,134	139,177	139,329	136,434
Net assets		982	5,863	5,791	8,611

– 12 –

LETTER FROM THE BOARD

The PRC Subsidiary

The PRC Subsidiary is a company with limited liability incorporated in the PRC on 26 March 2002 with a registered capital of RMB135 million which has been fully paid. The HK Subsidiary is the owner of 69.44% equity interest in the PRC Subsidiary and the remaining equity interests of the PRC Subsidiary are owned by the Independent Third Parties.

The principal activities of the PRC Subsidiary are design, manufacturing and sale of LED encapsulation and semi-conductor lighting related products. The PRC Subsidiary owns its factory, which is located at the new technology development special economy zone in Zhenjiang City, Jiangsu Province, the PRC. The PRC Subsidiary supplies its end products based on sales orders from its customers, including both local PRC customers and foreign customers. As at 31 October 2010, the PRC Subsidiary exported its products to customers located in Korea, Singapore, India, Hong Kong, Taiwan and Iran etc, representing approximately 66% of the total revenue of the PRC Subsidiary for the ten months ended 31 October 2010.

Business models of the PRC Subsidiary

The PRC Subsidiary receives sales orders from customers through its sales and distribution channels. The PRC Subsidiary shall then place orders to purchase raw materials from its suppliers and commence production process. After the completion of the said production process, the PRC Subsidiary shall deliver the LED finished and semi-finished products (as described below) to its customers. The production structure includes the middle phase of the industry chain i.e. LED encapsulation device and end phase of LED application.

Sales and distribution

Sales orders of the PRC Subsidiary’s products are mainly from electronic device manufacturers, hence, the demand of the products is slightly affected by the sales trend of electronic products, such as mobile phones, LED monitors etc. For soliciting business, the PRC Subsidiary relies on its sales department, which will actively advertise its products and promote to potential customers directly. Once potential customers are identified, the sales department will make formal quotes or proposals to the customers, negotiate the sales price and close the deal by forming official sales order. Most of the sales are made on credit terms, ranging from 30 to 90 days and recoverability of the account receivables are closely monitored by the sales team.

Besides the sales department, customer service department will maintain existing customer relationship and serve as a channel to understand any specific requirements by the customers of the PRC Subsidiary. Furthermore, customer service department is responsible for sales backup, follow-up and acting as channel of technical enquiry.

The PRC Subsidiary has a strong team of marketing and sales staffs who possesses experiences in LED markets and regularly participate in and attend exhibitions and trade fairs in the PRC as well as overseas.

– 13 –

LETTER FROM THE BOARD

The PRC Subsidiary’s products are primarily sold in the PRC and Korea, while the remaining shall be exported to the other overseas countries. The main products of the PRC Subsidiary are LED component, display device and surface mount device, which accounted for approximately 29%, 20% and 42% of the total revenue of the PRC Subsidiary for the ten months ended 31 October 2010.

LED Components:

LED components segment includes traditional LED products, such as through-hole LED and LED piranha. The products can be packaged in tubes for use with automation insert equipment such as electronic signals and automotive lighting etc. Major customers of the products include machinery and automotive manufacturer.

Display Device:

Display device segment includes LED display products, such as numeric display, character and graphic display etc. The products can be installed on PC boards or sockets of the electronic equipments such as electronic clock, calculator and information board etc. Major customers of the products include electronic device manufacturers.

Surface Mount Device:

Surface mount device products include chip LED and top LED, which are used in backlighting of the electronic equipments, such as LED monitor, indicator of audio and video equipments and automotive dashboard etc. The products are small in size with high reliability and can be used in wide range of electronic products. Major customers of the products include automotive and electronic manufacturer.

Others:

Others include LED application products such as LED lamps, bulbs, tubes, high power lighting etc.

Pricing strategy

The price of each product of the PRC subsidiary will make reference to, among other things, the raw material costs and consumption rate, direct labour costs, overheads etc. and compared to selling price of the competitors of the PRC Subsidiary. Product pricing committee of the PRC Subsidiary will be responsible for pricing and monitoring the sales performance of the products.

Product pricing committee comprises of 10 committee members, including directors, general manager, financial controller, technical controller, sale manager, purchase manager and production manager. Meeting of the committee will be held regularly and price of the products will be determined by reference to updated market condition and production efficiency. The standard selling price will then be circulated to sales department. If the selling price has 5% deviation from the standard selling price, approval from general manager is required and the sales performance will be discussed in next committee meeting.

– 14 –

LETTER FROM THE BOARD

The main responsibility of the product pricing committee is to avoid any unusual selling price and to prevent any similar incidents caused by the Ex-Director in the future.

Top 5 customers

Top five largest customers of the PRC Subsidiary accounted for approximately 29%, 21%, 41% and 50% respectively of the PRC Subsidiary’s revenue for the years end 31 December 2007, 31 December 2008, 31 December 2009 and ten months ended 31 October 2010.

Production capacity

The PRC Subsidiary has several automatic production lines which are mainly equipped with imported encapsulation machines. The LED component segment has two production lines, with its full capacity of 40 million pieces of product per annum. The display device segment has one production line, and its full capacity is 30 million pieces of product per annum. The surface mount device segment has two production lines with the full capacity of 95 million pieces of product per annum. The others segment has one production line, with a full capacity of 100 million pieces of product per annum. The PRC Subsidiary has six production lines in total, and under the current scale of production lines, the utilization rate of production capacity is approximately 80%.

Suppliers and raw materials procurement

The principal raw materials used in the production of LED products consist of LED chips, stents, phosphorus, printed circuit boards, epoxy, plastic components, copper and aluminum materials, silica gel, resistors and condensers. The PRC Subsidiary sources the raw materials from both domestic and overseas suppliers.

– 15 –

LETTER FROM THE BOARD

Manufacturing process

The PRC Subsidiary is principally engaged in encapsulation of LED component. Although products are categorized into 3 major segments, the production processes are similar and summarized in the flow chart below:

==> picture [114 x 407] intentionally omitted <==

– 16 –

LETTER FROM THE BOARD

Research and development

Technical innovation is critical for maintaining competitiveness in LED lighting market. The PRC Subsidiary owns its research and development centre and a strong technical team in the production site in Jiangsu, the PRC. The research and development center of the PRC Subsidiary undertakes the development of provincial standard laboratory in four areas, namely LED enterprise technology, semi-conductor and lighting technology, LED encapsulation and public utility technology and innovative encapsulation development.

The research and development centre of the PRC Subsidiary aims to develop innovative technology in LED encapsulation sector as well as lighting device sector. It owns several sets of advanced testing facilities, including DSC epoxy tester, automatic pull-push force tester, high-accuracy microscope, thermal resistance tester, environment emulator, light distribution tester etc for the development of new production technology and enhancement of quality control.

In future, the PRC Subsidiary plans to set foot in LED application market and allocate more resources in lighting device development. The goal of the research and management team is to widen the product base, increase the quality of the product and enhance the corporate value of the PRC Subsidiary.

Top 5 suppliers

Top five largest suppliers of the PRC Subsidiary accounted for approximately 37%, 38%, 33% and 42% respectively of the PRC Subsidiary’s costs of sales for years ended 31 December 2007, 31 December 2008, 31 December 2009 and ten months ended 31 October 2010.

As compared to its competitors, the PRC Subsidiary has developed a wide range of LED products with high technology and quality standards, which gained qualifications in the PRC. In addition, the PRC Subsidiary has gained full supports from the local government, enjoying favourable tax and subsidy polices and it is one of the famous trademarks in the Jiangsu Province, the PRC.

As at the Latest Practicable Date, the PRC Subsidiary is planning to further expand its sales and distribution channels through additional marketing activities. Upon Completion, the Company shall review the existing operations of the PRC Subsidiary and discuss with the senior management of the PRC Subsidiary for the future development plan of the PRC Subsidiary such as expanding the sales and distribution channels, formulating financial budgets for research and development and any other areas etc.. After the enhancement of the scale of business of the PRC Subsidiary in the future, the Company shall consider increasing the existing production capacities of the PRC Subsidiary, no concrete expansion plan and commitment has yet to be formulated as at the Latest Practicable Date.

After Completion, the Company expects to retain the existing management team of the PRC Subsidiary.

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LETTER FROM THE BOARD

Key members of the existing management team of the PRC Subsidiary

The PRC Subsidiary is led by an experienced and dedicated management team, which brings strong industry knowledge and execution capabilities. All members of the management team have at least 5 years of experience in their respective fields. The areas of expertise include market strategic planning in LED industry, process improvement of the production, operation risk assessment, technology improvement and optimization in relation to LED products and financial planning.

The existing managing director of the PRC Subsidiary, Mr. Lan Youjin (“ Mr. Lan ”), has over 5 years of progressively responsible experience in LED business operations and management. Mr. Lan has obtained his master degrees in finance and economics from The Chinese University of Hong Kong and the Peking University respectively.

Under the leadership of the existing senior management team, the PRC Subsidiary experienced significant improvement on its financial results in 2010, thus the Company believes the existing senior management team of the PRC Subsidiary will continue to deliver sustainable growth in the future.

The Group plans to retain the existing management team of the PRC Subsidiary. Not only has the existing management team of the PRC Subsidiary performed well, the consistency of the management will help to consolidate and develop this new business of the Group. The existing management team of the PRC Subsidiary, together with the Board (including Ms. Zheng DaYong, who has over ten years of experience in operations of the manufacturing plant and implementation of quality management strategies for producing quality products) will monitor and manage the operation of the PRC Subsidiary after Completion. The Company will consider recruiting additional qualified persons to monitor and operate the PRC Subsidiary’s business in the future after Completion.

Competitive strengths of the PRC Subsidiary

Leading brand in Jiangsu Province, the PRC:

A successful brand is key to the development of the PRC Subsidiary, it enables the PRC Subsidiary to distinguish itself from its competitors in the highly fragmented and competitive LED industry. Since 2008, “Wenrun Optoelectronic” trademark has become one of the famous trademarks in Jiangsu Province, the PRC. The PRC Subsidiary believes that a strong brand name could help the PRC Subsidiary to maintain its pricing power, gain customer loyalty and expand its customer base.

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LETTER FROM THE BOARD

Product quality and environment certification:

The PRC Subsidiary has developed a complete range of LED products with high technology and quality standards. In addition, the PRC Subsidiary has established its own laboratory to perform quality assurance tests. Inspection and quality control are being carried out by its staff at each production stage, including (a) inspection of raw materials prior to acceptance for use; (b) examination of the product at each stage of production to ensure satisfactory production quality; (c) daily performance of an in-process test; and (d) conducting of a properties test on finished products to determine consistency and quality.

Future strategies of the PRC Subsidiary

The PRC Subsidiary will continue to strengthen and expand the existing sales and distribution channels and will participate in projects with higher profit margin, which enables the PRC Subsidiary to increase its scale of business in the future. Apart from the PRC and Korean markets, the PRC Subsidiary plans to explore more business opportunities from the overseas.

Financial information on the PRC Subsidiary

Set out below is a summary of the audited financial information on the PRC Subsidiary prepared in accordance with the Hong Kong Financial Reporting Standards, as extracted from Appendix IIB to this circular:

this circular:
	For the	For the	For the	For the ten
year ended		year ended	year ended	months ended
31 December		31 December	31 December	31 October
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Income Statement
Revenue	98,943	109,540	97,135	170,762
Net profit/(loss) before taxation	2,479	(5,321)	(5,664)	29,103
Net profit/(loss) after taxation	2,046	(5,562)	(5,765)	24,818
	As at	As at	As at	As at
31 December		31 December	31 December	31 October
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Balance Sheet
Total assets	213,264	228,629	223,108	264,686
Total liabilities	94,538	92,096	92,260	109,020
Net asset	118,726	136,533	130,848	155,666

The Directors would also like to draw your attention to Appendix IIA & IIB to this circular which set out the financial information of the HK Subsidiary and the PRC Subsidiary.

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LETTER FROM THE BOARD

As set out in the accountants’ reports on the HK Subsidiary (the “ First Accountants’ Report ”), the reporting accountants of the Company (the “ Reporting Accountants ”) have issued a qualified opinion (the “ First Qualified Opinion ”) on the HK Subsidiary that, the HK Subsidiary has not prepared consolidated financial information under Hong Kong Accounting Standard 27 “Consolidated and Separate Financial Statements” issued by the HKICPA, and has not disclosed information regarding the post-acquisition results of the subsidiaries attributable to the HK Subsidiary (i.e. the net aggregate amount of unconsolidated results of the subsidiaries of the HK Subsidiary since their respective dates of acquisition of these subsidiaries not deal with in the HK Subsidiary’s Financial Information) as required by paragraph 18(4) of the Tenth Schedule to the Hong Kong Companies Ordinance. The Directors are of the view that the inclusion of the financial information of Danyang into the consolidated financial statements of the HK Subsidiary may not be an appropriate illustration on the overall financial information of the Acquisition as Danyang is excluded from the Acquisition. In the event that the consolidated financial statements of the HK Subsidiary are prepared, additional time and audit works are required to perform on Danyang (which is excluded from the Acquisition), the Company considers it is not in the interests of the Company to allocate additional resources on any company which is excluded from the Acquisition.

As the Disposal is expected to complete before Completion, the Directors expect that the First Qualified Opinion will be removed from the consolidated financial statements of the Group accordingly.

As set out in the accountants’ reports on the PRC Subsidiary (the “ Second Accountants’ Report ”), the Reporting Accountants have issued a qualified opinion (the “ Second Qualified Opinion ”) on the PRC Subsidiary in relation to certain sales for the years ended 31 December 2007, 2008 and 2009 (the “ Transactions ”) (the “ Periods ”) handled by an ex-Director of the PRC Subsidiary (the “ Ex-Director ”), in which the Ex-Director performed the sales process and also the collection of sales proceeds from ultimate customers without adequate supporting documentation, including adequate documentation over cash receipt in respect of the Transactions. As a result of the alleged wrongful acts of the Ex-Director set out below, the Reporting Accountants are of the opinion that they have been unable either to obtain independent confirmation from the customers in respect of the Transactions, or to carry out alternative audit procedures to satisfy themselves as to the validity and completeness in respect of the Transactions, the related taxes and trade receivables.

The Ex-Director is currently under investigation conducted by relevant authority in the PRC (the “ Investigation ”). During the year ended 31 December 2009, the directors of the PRC Subsidiary became aware of internal control deficiencies and carried out an investigation of the Transactions handled by the Ex-Director and respective balances related to the Transactions. Based on the investigations conducted by the directors of the PRC Subsidiary, the PRC Subsidiary removed the Ex-Director as executive director and general manager on 15 May 2009 (the “ Removal ”) and an investigation and legal action has been commenced by the relevant authorities in the PRC for allegations in connection with the Ex-Director’s breach of fiduciary duties as a director and the damages arising from his misuse of the PRC Subsidiary’s resources, such as the PRC Subsidiary’s brands and information on customers (the “ Sales Information ”). The PRC Subsidiary alleged that the Ex-Director had directly or indirectly through the assistance of an independent third party, established a business in selling the products that are highly similar to the PRC Subsidiary’s products and misused the PRC Subsidiary’s Sales Information belonging to the PRC Subsidiary.

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LETTER FROM THE BOARD

The current investigation and legal actions against the Ex-Director by the relevant PRC authorities relate to the PRC Subsidiary’s complaint for damages as a result of the Ex-Director’s alleged wrongful acts prior to May 2009. As at the Latest Practicable Date, there is no evidence which would give rise to any provision for contingent liabilities by the PRC Subsidiary as a result of the alleged wrongful acts of the Ex-Director which last occurred almost two years ago. Based on the legal opinion of the Zhong Lun Law Firm, it is not probable that such investigation and legal actions will result in additional costs or further economic loss to the Target Group. Therefore, the Board considered that the information contained in this circular, including those relating to the incidents of the Ex-Director, is accurate and complete in all material respects and not misleading or deceptive.

The Board is aware of the Second Qualified Opinion and has therefore, to the best of its efforts, carried out various steps to safeguard the Group and the Shareholders’ interests to mitigate the possible risks arising from the Acquisition. According to the senior management of the PRC Subsidiary, after the Removal, a detailed internal control review has been conducted by the internal investigation committee of the PRC Subsidiary and relevant internal control system has been established and adopted since May 2009 (the “ Internal Control System ”), which allow the shareholders and the board of the PRC Subsidiary to closely monitor the business of the PRC Subsidiary. Certain areas of Internal Control System have been strengthened and set out below are the key areas as extracted from the Internal Control System:

Approval from the board of the PRC Subsidiary on daily operations.

Capital expenditures

Acquisition of any fixed assets such as land and buildings, equipments and vehicles for significant requires prior approval from the board of the PRC Subsidiary.

Investments and borrowings

Any investments, loans, liens, pledges and guarantees with any amount require prior approval from the board of the PRC Subsidiary.

Operating expenses

Any operating expenses with amount larger than RMB200,000 require notification to the board of the PRC Subsidiary; and
Any operating expenses with amount larger than RMB1,200,000 require prior approval from the board of the PRC Subsidiary.
Enhanced organization chart and duties of each department in the PRC Subsidiary were adopted in August 2009, in which the duties and responsibilities of each department in the PRC Subsidiary had been clearly specified.
Enhanced internal control manual on manufacturing was adopted in August 2010, in which the process of operating cycles (including purchase of raw materials) had been specified. According to the said policies, the PRC Subsidiary requires to obtain three quotations from different suppliers for any purchase of raw materials. The adoption of policies enhanced the awareness of operating instructions given to the staffs and provided fair reference to the purchase price of raw materials.

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LETTER FROM THE BOARD

Enhanced internal control procedures in sales are adopted. The said procedures include the followings:

Acceptance of new clients and agents

New client assessment and acceptance will be conducted by sales manager and financial controller. Such assessment will be documented on the customer credit period assessment form.

Receipt from sales

All sales proceeds must be settled by the PRC Subsidiary’s bank accounts and the account department of the PRC Subsidiary is responsible to check the bank advice with bank statements. Sales and settlement records are maintained and recorded by the account department of the PRC Subsidiary.

Price setting

Policies on price setting for products were adopted in January 2010 in which the methodology of calculating the selling price was specified. Standard price for each product calculated by the said pricing methodology will be approved and distributed by product pricing committee to the sales department. The adoption of policies provided a fair reference to the selling price of the products and enhanced the controls in sales and sale proceeds collection.

After the adoption of the Internal Control System in 2009, there has been an improvement on the financials of the PRC Subsidiary for the six months ended 30 June 2010, in particular the gross profit margin has been increased from approximately 12.63% for the year ended 31 December 2008 to approximately 29.07% for the ten months ended 31 October 2010.

To safeguard the interests of the Group and the Shareholders, the Company also performed thorough financial and legal due diligence on the PRC Subsidiary and its subsidiaries. Procedures and findings of the financial due diligence on the key areas conducted by the Company are set out as below:

1. Purchase of property, plant and equipment

Review was carried out for the ending balance of property, plant and equipment as at 31 December 2009 and material additions of plants and equipments during the ten months ended 31 October 2010, including inspection to initial purchase invoices and assessment of appropriate authorization.

2. Sales

Review was carried out for material sales transactions during the ten months ended 31 October 2010, which covered the reasonableness of the selling price and gross profit for each material transaction.

3. Purchases

Review was carried out for material purchase transactions during the ten months ended 31 October 2010, which covered the fairness of the purchase price as compared to the market.

4. Inventory

Review was carried out for the ending balance of inventory as at 31 December 2009 by comparing the unit cost of material items to the fair market price.

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LETTER FROM THE BOARD

Based on the financial due diligence conducted by the Company, it is noted that the Internal Control System has been implemented and proper approval records have been obtained in accordance with the Internal Control System and the Company is not aware of any unusual movements in the cash and stocks other than the ordinary and usual course of business of the PRC Subsidiary. The Company is also satisfied that proper books and records are kept. As to the legal due diligence on the PRC Subsidiary, the legal adviser of the Company as to the PRC laws, Zhong Lun Law Firm has issued a due diligence report and legal opinion on the PRC Subsidiary and the Acquisition respectively. The Company has reviewed both the due diligence report and legal opinion and no material finding has been reported. In addition, the Company also requested Zhong Lun Law Firm to assess the impact from the legal prospective on the Investigation and any other potential matters. According to Zhong Lun Law Firm, they are not aware of any material adverse impact arise from the Ex-Director’s case on the PRC Subsidiary as well as the Acquisition from the legal prospective.

In addition, the HK Subsidiary is allowed to control the board of the PRC Subsidiary under the articles of association of the PRC Subsidiary and after Completion, the Company shall conduct review on the existing members of the board of the PRC Subsidiary. In January 2011, the Company engaged LK Risk Services Limited (“ Internal Control Reviewer ”) to conduct a review on the Internal Control System of the PRC Subsidiary such that the Company could identify the potential risks, deficiencies and areas for possible improvement associated with the Internal Control System of the PRC Subsidiary prior to the Completion.

LK Risk Services Limited is a firm rendering internal control review services, which has been previously engaged in various internal control review projects for the following listed companies: Climax International Co. Ltd. (stock code: 439), China Primary Resources Holdings Limited (stock code: 8117) and China Packaging Group Co. Ltd. (stock code: 572).

Based on the review report issued by the Internal Control Reviewer, the Internal Control Reviewer identified the following key problems and recommendations of the Internal Control System:

Major findings from the Internal Control Reviewer:

the PRC Subsidiary has not documented its entity wide objective;
the PRC Subsidiary has not set up a formal risk management framework or practice. Therefore, there are no formal mechanisms to identify, monitor, report and follow up key risks faced by the PRC Subsidiary;
as the PRC Subsidiary is a private company, it did not have an audit committee. Though, it has a special committee to monitor the product quality so as to ensure the products are up to the ISO standards, it had not established an internal audit department to monitoring the internal control effectiveness;
as the PRC Subsidiary prepared its management account according to PRC GAAP, it recognised revenue according to the date of commercial invoice instead of the date of transferring risks and rewards. As a result, an audit adjustment had been provided by external auditor at the year ended;
though the year ended date for the PRC Subsidiary was 31 December, it would only recognize the cost of sales up to 25 December. In addition, if the PRC Subsidiary received any materials between 26 to 31 December, it would recognize it as purchase in the following month instead (i.e.: January). As a result, an audit adjustment would be required to adjust the cost of sales and inventory accordingly;

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LETTER FROM THE BOARD

as required by PRC regulations, the PRC Subsidiary shall participate in the social insurance schemes operated by the relevant local government authorities. However, the PRC Subsidiary had breached such laws and regulations and failed to make sufficient contribution;
approximately 98% of cash balances (about RMB3.2 million) included in the management account as at 31 December 2010 was cash advance for staff. As a result, a reclassification entry had been provided by external auditor at the year ended. In addition, according to the PRC Subsidiary’s policy, the staff was required to submit supporting document to account department for expenditure recognition within five days when the transaction was completed. However, approximately 98% of the cash advance as at 31 December 2010 had an aging over one month or above; and

Furthermore, the PRC Subsidiary has not placed an upper limited for the cash advance.

the PRC Subsidiary has yet set up an internal audit department for monitoring;
Major recommendations from the Internal Control Reviewer:
the entity-wide objective shall be stated in the company’s website, brochure, company handbook etc.. so as to ensure the staff could understand the objective of the company. It could prevent any inconsistent for the activity level objectives;
the PRC Subsidiary shall develop a risk management policies and procedures, which includes but not limited to (i) risk management framework, structure and scope; (ii) setting business objectives and risk assessment process; (iii) frequency of assessment and monitoring mechanisms; and (iv) develop effective internal controls and action plan to mitigate risks identified;
the PRC Subsidiary shall set up an internal audit department to assess its internal control system and report to the audit committee of the Company regularly, instead of only monitor the quality of products;
the PRC Subsidiary shall only recognise revenue when all of the conditions which stated in Hong Kong Accounting Standards 18 have been satisfied. It includes that the entity has transferred the significant risks and rewards of ownership of the goods to the buyer. The PRC Subsidiary shall prepare and recognise the GAAP difference on monthly basis so as to quantify the difference between PRC GAAP and HKFRS. In the monthly summary, it shall show the shipping terms and delivery date for each transaction. It could assist the PRC Subsidiary to identify whether the risk and rewards of the goods are transferred;
Note: Hong Kong Accounting Standard 18: one of the revenue recognition criteria is that the entity has transferred the significant risks and rewards of ownership of the goods to the buyer. However, as the PRC Subsidiary recognizes its revenue based on the date of commercial invoices instead of the date of transferring risks and rewards, its revenue recognition policy has violated Hong Kong Accounting Standard 18.

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LETTER FROM THE BOARD

the PRC Subsidiary shall amend its cut off date for inventory-in or inventory-out on 31 December instead of 25 December;

— to prevent any non-compliance in respect of various social insurance schemes, the PRC Subsidiary shall set up a clear policy and procedure to ensure the staff would be capable to calculate the amount of social insurance expense according to the relevant local government authorities. In addition, PRC Subsidiary shall set up an internal audit department to check whether the staff has complied with the regulation on semi-yearly basis. If there is any noncompliance, internal audit department shall report directly to audit committee accordingly. In order to quantify the potential penalty for breaches of social insurance scheme, the Company shall seek advices from the lawyer;

In response to the above recommendation, the Company has sought an opinion from PRC lawyer. The PRC lawyer has given opinions regarding potential penalty of the non-compliance with social insurance schemes of the PRC Subsidiary. Under normal circumstances, the enterprise may involve violations of the social insurance schemes because of a delay and/or partial payment of social insurance premiums. According to the Interim Regulations on Collection and Payment of Social Insurance Premiums (社會保險費徵繳暫行條例), if a company fails to comply with the social insurance schemes, the company will be surcharge 0.2% of the overdue premiums daily since the due date;

Based on the opinion of the PRC lawyer and the preliminary assessment by the Company, the aggregate amount of overdue social insurance premiums and the surcharge is expected not to exceed RMB2,600,000. The Company is of the view that there is no material adverse impact on the Group as a result of the non-compliance with the social insurance scheme. Pursuant to the Agreement, the Vendor shall indemnify the Purchaser against all loss and damages in connection with the non-compliance with the social insurance schemes of the PRC Subsidiary;

— the PRC Subsidiary should reclassify the cash advance to staff from cash to other receivables. In addition, the management should follow tightly the definition of cash and cash equivalents defined in HKAS 7 and ensure the cash advance to staff would be treated as other receivables. On the other hand, the PRC Subsidiary should make the reclassification adjustment itself.

In addition, account department shall check with the corresponding staff on regular basis so as to trace for the supporting document or cash refund to minimize the risk of cash misusage. If the staff could not provide the supporting document within the timeframe, the PRC Subsidiary shall report to the management and consider any further remedy actions.

Furthermore, an upper limit shall set for the cash advance, e.g. RMB50,000; and

Note: Hong Kong Accounting Standard 7: Statement of cash flows, cash and cash equivalent are cash on hand and demand deposits, short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
the PRC Subsidiary shall set up an internal audit department to review whether the control procedures have been implemented properly and continuously. Internal audit department shall report their findings to independent non-executive director of the Company directly on semiyearly basis.

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LETTER FROM THE BOARD

Regarding the Second Qualified Opinion, the Internal Control Review suggests that:

the PRC Subsidiary shall set up an internal audit department to review whether the control procedures have implemented properly and continuously. Internal audit department shall report their findings to independent non-executive director of the Company directly on semi-yearly basis;
if the selling price has 5% deviation from the standard selling price, apart from obtaining an approval from management of the PRC Subsidiary, the transaction(s) shall be reviewed by internal audit department so as to investigate whether the transaction is irregular;
if the purchase price has 5% deviation from other suppliers, apart from obtaining an approval from management of the PRC Subsidiary, the transaction(s) shall be reviewed by internal audit department so as to investigate whether the transaction is irregular; and
fiduciary duties, duties of skill and care and the penalty for non-compliance shall clearly state in the employment contract of the directors of the PRC Subsidiary.

To conclude, the Board (including the audit committee of the Company) is satisfied with the results of the review on the Internal Control System conducted by the Internal Control Reviewer and will adopt the recommendations from the Internal Control Reviewer. As advised by the Vendor, the PRC Subsidiary has started to implement the recommendations by the Internal Control Reviewer. The Company shall review their implementation as part of its due diligence exercise prior to Completion. The Company shall continue to review and strengthen the Internal Control System to comply with the Listing Rules after Completion to safeguard the interests of the Group and the Shareholders.

Overall, the Directors are of the view that the information contained in this circular provides sufficient information to enable the Shareholders to make an informed assessment of the Acquisition and the aforesaid First Qualified Opinion and the Second Qualified Opinion on the HK Subsidiary and the PRC Subsidiary would not have material adverse implications on the transactions being contemplated under the Agreement.

After the completion of the Acquisition, each member of the Target Group will become a subsidiary of the Company.

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LETTER FROM THE BOARD

Relevant laws and regulations

Laws and regulations relating to environmental protection:

The operations of the PRC Subsidiary are subject to the PRC laws and regulations relating to environmental protection and the periodic supervision and inspection of relevant PRC authorities in charge of environmental affairs. Such laws and regulations include but are not limited to the Environmental Protection Law of the PRC (中華人民共和國環境保護法), the Law of the PRC on the Prevention and Control of Atmospheric Pollution (中華人民共和國大氣污染防治法), the Law of the PRC on the Prevention and Control of Pollution From Environmental Noises (中華人民共和國噪聲污染防治法), the Law of the PRC on the Prevention and Control of Environmental Pollution by Solid Wastes (固体廢物污染環境防治法), the Administrative Regulations on Environmental Protection for Construction Projects (建設項目環境保護管理條例), the Integrated Standards for Wastewater Discharge (污水綜合排放標準), the Standards for Emission of Environmental Noises at the Boundaries of Industrial Enterprises (工業企業廠界環境噪聲排放標準), the Integrated Standards for Emission of Atmospheric Pollutants (大氣污染物綜合排放標準 ) etc.. The environmental protection laws and regulations govern a broad range of environmental matters, including atmospheric pollution, noise emission, wastewater and solid wastes discharge, etc.. Governments of provinces, autonomous regions and municipalities directly under the central government of the PRC may define their own standards for discharge of pollutants not covered under the national standards of the PRC.

According to the abovementioned environmental protection laws and regulations, a construction project shall undergo an environmental impact assessment and be approved by the relevant environmental authority before being granted with a governmental approval for construction. A company involved in producing any environmental pollutant must incorporate its methods and procedures for environmental protection into its operations and take effective measures to prevent and control waste gases, wastewater, solid wastes, noises and other forms of pollutants and hazards generated from its production, construction, operation and other activities.

If a company fails to report any environmental pollution caused by it and obtain the required approval, or fails to pass the required environmental test, the company will be warned or subject to administrative penalties. If the company then fails to restore the environment to its original state within the given period of rectification, it will be fined, and/or its business will be ordered to stop, and/or its business license will be revoked. It will also be required to compensate for any loss or damage caused by such environmental pollution.

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LETTER FROM THE BOARD

Laws and regulations relating to safety and labour:

According to the Production Safety Law of the PRC (中華人民共和國安全生產法), an entity carrying out production activities is required to have safe production conditions as required by relevant laws and regulations. A production entity that is not equipped with the required safe production conditions may not engage in any production or business activity. A production entity that has more than 300 employees must set up a department to carry out the function of production safety management or appoint full-time personnel responsible for production safety management. Also, a production entity is required to display warning signs at locations and on equipment with high potential risks and purchase work-related injury insurance in accordance with relevant laws and regulations. If a production entity fails to comply with the Production Safety Law of the PRC, it shall correct such non-compliance within the given period of correction. Failing to correct as required, the entity will be ordered to stop business for rectification, and/or even subject to fines and other penalties.

According to the Fire Control Law of the PRC （中華人民共和國消防法）, a company undertaking a construction project is required to submit the fire design for the project to the relevant fire control authority for approval during the design stage. Upon its completion, the project must also pass the fire control acceptance check conducted by the fire control authority.

Besides, the PRC Subsidiary is also subject to labour-related laws and regulations of the PRC, including but not limited to the Labour Law of the PRC (中華人民共和國勞動法), the Labour Contract Law of the PRC (中華人民共和國勞動合同法), the Regulations on Implementation of the Labour Contract Law of the PRC (中華人民共和國勞動合同法實施條例), the Regulations on Insurance for Workrelated Injury (工傷保險條例), the Regulations on Unemployment Insurance (失業保險條例), the Provisional Measures for Maternity Insurance for Enterprise Employees (企業職工生育保險試行辦法), the Interim Regulations on Collection and Payment of Social Insurance Premiums (社會保險費征繳暫行條例), etc.. According to the Labour Law of the PRC, the Labour Contract Law of the PRC, and the Regulations on Implementation of the Labour Contract Law of the PRC, a company must enter into written labour contracts with its employees to establish labour relationship with them, and their wages may not be lower than the local minimum wage. In addition, a company must establish a system for labour safety and sanitation, abide by the national standards, and provide relevant education to its employees. Employees are also required to work under safe and sanitary conditions that meet the national rules and standards.

Laws and regulations relating to product quality:

As provided for by the Production Quality Law of the PRC (中華人民共和國產品質量法), it is prohibited to produce or sell products that do not meet the standards or requirements for safeguarding human health and ensuring human and property safety. Products shall be free from unreasonable dangers threatening human and property safety. For products which, if improperly used, may cause damage to the products per se or may endanger human or property safety, such products or their packaging shall be marked with warning marks or warning statements in Chinese.

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LETTER FROM THE BOARD

Producers are responsible and liable for the quality of the products they produce. Where a defective product causes physical injury to a person or damage to property, the victim may claim compensation against the producer or the seller of such product. Where bodily injury is caused by a defective product, the infringer is required to compensate for the medical expenses, nursing fees occurring during the treatment period, and decreased income due to absence from work, etc. incurred to the victim. Where the infringed becomes disabled, the infringer shall also pay such fees as the expenses for self-help devices, subsistence allowance and disability damages for the infringed, as well as necessary living expenses of the person(s) supported by the infringed. Where such defective product causes death of the infringed, the infringer shall also pay funeral expenses, death damages, and necessary living expenses of the person(s) supported by the infringed before his/her death. Where the defective product causes damage to the property of the infringed, the infringer shall restore the damaged property to its original state, or compensate for the depreciated value of the property. Where the infringed suffers any other heavy loss, the infringer shall also compensate for such loss.

Where anyone produces or sells products that do not comply with the relevant national or industrial standards that safeguard the health or safety of human and property, the relevant authority will order it to suspend the production or sale, confiscate the products illegally produced or sold, and impose a fine of no less than the value of the illegally produced or sold products (including both sold and unsold products, the same below) and no more than three times of the value of the products. Where there are illegal earnings, such earnings will be confiscated as well. Where the case is serious, the business license of the producer or the seller of such products will be revoked. Where a crime is constituted, the producer or the seller will be prosecuted.

Laws and regulations relating to compulsory product certification:

According to the Administrative Regulations on Compulsory Product Certification (強制性產品認證管理規定), relevant products identified by the state must be certified and labeled with a certification sign before leaving factory, or being sold or imported, or being used in other business activities. With respect to products subject to compulsory product certification, the state shall promulgate a unified product catalogue, unify compulsory requirements for technical specifications, standards and procedures for conformity assessment, and set down unified certification marks and charging standards.

Where any product included in the aforesaid catalogue leaves factory, or is sold or imported, or is used in any other business activity, in each case without being certified as required, the authority in charge will order to make correction, and impose a fine of no less than RMB50,000 and no more than RMB200,000. Where there are any illegal gains, such gains will be confiscated.

Laws and regulations relating to intellectual property rights:

The Trademark Law of the PRC (中華人民共和國商標法) seeks to improve the administration of trademarks, whereby to protect the exclusive right to use of trademarks and encourage producers and operators to secure the quality of their goods and services and maintain the reputation of their trademarks, so as to protect the interests of consumers, producers and operators.

– 29 –

LETTER FROM THE BOARD

According to the Trademark Law of the PRC, trademarks that are registered upon verification and approval by the trademark office are registered trademarks, which the trademark registrants have the exclusive right to use. A registered trademark is valid for ten years, commencing from the date of registration thereof upon approval. Registered trademarks and exclusive rights to use registered trademarks are protected by law. Any of the following acts is an infringement upon the exclusive right to use a registered trademark:

Using a trademark which is identical with or similar to a registered trademark on the same kind of commodities or similar commodities without the permission of registrant of such registered trademark;

Selling commodities that infringe upon the exclusive right to use of a registered trademark;

Forging, or manufacturing without authorization, the marks of a registered trademark of others, or selling the marks of a registered trademark forged or manufactured without authorization;

Changing a registered trademark and putting commodities bearing such changed trademark into the market without the consent of the registrant of such trademark; or

Causing other damage to the exclusive right of another person to use a registered trademark.

In the event of any above-mentioned acts which infringe upon the exclusive right to use of a registered trademark, the infringer will be subject to administrative penalties imposed by the authority in charge, be ordered to stop the infringement acts and compensate the infringed for losses incurred from such acts, and/or even be held to take criminal liability.

The Patent Law of the PRC (中華人民共和國專利法) is formulated for the purposes of protecting the lawful rights and interests of patentees, encouraging inventions, promoting the application of inventions, enhancing innovation capacity, and facilitating the advancement of science and technology and the economic and social development. According to this law, patents include inventions, utility models and designs. The duration of an invention patent right is twenty years, and that of a utility model patent right or design patent right is ten years, each commencing from the date of application.

After an invention patent right or a utility model patent right is granted, unless otherwise specified in the law, no entity or individual may exploit such patent without the licence of the patentee, or in other words, no entity or individual may, for the purposes of production and business operation, produce, use, offer to sell, sell, or import products incorporating such patent, or use the patented method or use, offer to sell, sell or import products that are acquired directly through such patented method. After a design patent right is granted, no entity or individual may exploit such patent without the licence of the patentee, or in other words, no entity or individual may, for the purposes of production and business operation, produce, offer to sell, sell or import products incorporating such patent.

Anyone who counterfeits a patent of others will, in addition to bearing civil liabilities in accordance with the law, be ordered by the patent authorities to make correction, and an announcement will be made accordingly. Illegal gains generated from such counterfeit will be confiscated, and a fine of no more than four times the illegal gains may be imposed concurrently. If there are no illegal gains, a fine of no more than RMB200,000 may be imposed. If a crime is constituted, criminal liabilities shall be pursued in accordance with the law.

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LETTER FROM THE BOARD

Risk factors

Policies and regulations in the PRC:

The business of the PRC Subsidiary is subject to extensive governmental regulations, policies and controls in the PRC. There can be no assurance that the relevant government authorities (i) will maintain the existing laws and regulations or (ii) will not impose additional or more stringent laws or regulations. Failure to comply with the relevant laws and regulations may adversely affect the Enlarged Group. In addition, the Company cannot rule out the possibility that any relevant PRC government agency would consider that PRC laws and regulations require the Company to obtain approval from it or them in connection with the Acquisition. In such an event, it cannot be ruled out that any such regulatory agency could impose penalties on the Company for not obtaining any such approval, and/ or take actions requiring the Company to block, delay, alter (such as divestment obligations) or unwind the Acquisition or take other measures that could adversely affect the Company or the Enlarged Group.

Investment in new business sector for the Group:

For the Group, the Acquisition constitutes an investment in a new business sector and the Enlarged Group may not be able to control certain risks related to the expansion into this new stream of business. Such risks include but are not limited to risks related to the operations of a LED business, risks related to the LED market and demand for LED products, risks of reliance on key management personnel who are familiar with the LED business and the manufacturing of LED products, the risk of failing to expand the LED production capacity.

Failure to manage the Target Group’s growth and expansion:

Failure to manage the Target Group’s growth and expansion could strain its management, administrative, operational, financial and other resources, which could materially and adversely affect its business and growth potential. The Target Group will continue to place significant pressures on its management, administrative, operational, financial and other resources. The Target Group’s future prospects will depend on part on the ability of its senior management to successfully manage its operations so that it is able to capitalise any growth opportunities that arise. To manage its growth, the Target Group must ensure its operational and financial systems, procedures and controls are adequate, including its accounting and other internal management systems, and further expand, train and manage its employees. As aforementioned, the Board is satisfied with the results of the review on the Internal Control System conducted by the Internal Control Reviewer and will adopt the recommendations from the Internal Control Reviewer. The Company shall further review and strengthen the Internal Control System to comply with the Listing Rules after Completion to safeguard the interests of the Group and the Shareholders.

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LETTER FROM THE BOARD

Ability to hire and retain qualified personnel:

The ability of the Target Group to hire and retain qualified personnel will be an important factor in the success of its business, and a failure to hire and retain key personnel may result in its inability to manage and implement the business plan.

Highly competitive market:

The LED industry is highly competitive in the PRC and worldwide. The LED industry is also highly fragmented in the PRC. Many of the existing and potential competitors have substantially greater financial, technical manufacturing and other resources than the PRC Subsidiary. The greater size of many of the competitors provides them with cost advantages as a result of their economy of scale and their ability to obtain volume discounts and purchase raw materials at lower prices. Many of the competitors also have better brand name recognition, more established distribution networks, larger customer bases or more in-depth knowledge of the target markets.

Disruption at production centers:

Any material disruption at the PRC Subsidiary’s production centers could reduce sales for the affected period, including the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment and the destruction of buildings, equipment and other facilities due to fire or natural disasters such as hurricanes, severe winter storms or earthquakes. The PRC Subsidiary may be required to terminate, delay or limit its production for a certain period if any of these incidents occurs, which in turn may delay its delivery of products to its customers on a timely manner, which could materially and adversely affect its business, reputation and results of operations. In addition, its production processes require significant amounts of electricity from stable electricity sources. If there is an insufficient electricity supply or a power shortage even of very limited duration, the PRC Subsidiary may need to limit or delay its production or rely on its own power generator which could adversely affect its production yield and capacity utilization rates.

Raw materials and supplies cost fluctuations:

Some of the principal raw materials used in the production of products of the PRC Subsidiary are subject to price volatility due to external market and environmental conditions. The PRC Subsidiary obtains substantially all of these materials from domestic suppliers in the PRC. The cost of raw materials accounts for a substantial proportion of the total production costs. Prices of the raw materials may be volatile and the extent of such price volatility could be substantial. Fluctuations in the costs of the principal raw materials and any inability to pass on any increases in raw material costs to the customers by increasing the suggested retail prices of the products or increasing the sale price to the exclusive regional distributors may materially and adversely affect the cost of sales and the profit margins.

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LETTER FROM THE BOARD

Change in the PRC Subsidiary’s tax treatment:

The rate of income tax assessable on companies in the PRC may vary depending on the availability of preferential tax treatment or subsidies granted to the specific industries or location. There can be no assurance that the existing tax laws, the applications of the tax laws and interpretations which are applicable to the activities conducted by the PRC Subsidiary will remain in effect and will not change. Any changes in the applicable legislation or regulations or otherwise in the jurisdictions in which the PRC Subsidiary operates, including, without limitation, any changes in the preferential tax treatment in the PRC currently enjoyed by the Group’s PRC operations, may have negative impacts on the results of the operations.

REASONS FOR THE ACQUISITION

The Group is principally engaged in manufacturing and trading of liquid coatings, powder coatings and solvents. The Acquisition allows the Group to diversify its existing business portfolio and broaden its income base. The Directors consider that the prospect of the LED industry in the PRC is promising, which is demonstrated in the industry highlights as detailed below. In addition, the Directors consider to re-allocate the existing resources of the Group (including but not limited to dispose of the assets of the Group) to the new business to be introduced to the Group through the Acquisition. The Directors will continue to seek for other investment opportunities to further strengthen the financial position of the Group in the future. Currently, the Company is actively identifying investors for disposing of its existing business such that the Company could re-allocate its resources on its new business or/and any other new business opportunities to be identified, the Company shall comply with the Listing Rules for such possible disposal in all times. As at the Latest Practicable Date, save for the Acquisition, the Company has no agreement, arrangement, understanding or negotiation about acquisition or disposal of assets.

Global industry overview

The light-emitting diode (“ LED ”) sector is one of the fast growing industries in the world recently. According to the Reuters, lighting related products account for approximately 20% of the global electricity consumption. As LED bulbs are far more efficient than the traditional electric light bulb in terms of power consumption and carbon dioxide emission levels (which consumes only 20% of the energy of a traditional light bulb and lasts for up to 25,000 hours on average), LED becomes one of the key solutions to the energy-saving issue faced by different countries.

Due to the high global demand for LEDs, the global market value of the LEDs is increasing every year, and the LEDs become more and more important in the lighting markets. According to Photonis Industry & Technology Development Association’s research, the global market value for LEDs is approximately US$6,125 million, US$6,640 million, US$7,453 million, US$7,879 million and US$8,264 million in 2005, 2006, 2007, 2008 and 2009 respectively, representing a year over year percentage (YoY) of approximately 4%, 8%, 12%, 6% and 5%. It is expected that the future global market value of the LED will keep increasing in the coming years.

– 33 –

LETTER FROM THE BOARD

Total Value of Global LED Market (US$million)

==> picture [345 x 187] intentionally omitted <==

----- Start of picture text -----

9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2005 2006 2007 2008 2009
----- End of picture text -----

Source: Photonis Industry & Technology Development Association, a leading photonics conference and seminar organizer

LED lighting advantages

LED lighting has a variety of advantages over traditional lighting. These advantages have been developed over the past decades and are the fundamental reasons as to why LED lighting is gradually replacing traditional lighting in certain application areas.

Energy efficiency. Traditional lighting sources, such as incandescent lighting, sends electric currents through a conductor whose resistance to the current produces heat. This is not efficient because over 90% of the resulting energy is dissipated as heat rather than as light. On the other hand, LEDs, which generate light due to a change of energy state, is non-thermal, therefore its energy loss is much less. LED’s ability to generate color light without a filter and LED light’s directional nature also contribute to the energy efficiency of LED lighting. In contrast to the traditional lighting fixtures, LEDs do not require filters to generate color but instead, rely only on the nature of the light emitted from the particular LEDs without any loss of energy due to filtering. LEDs emit light in a specific direction, reducing the need to trap light by the use of reflectors and diffusers. Traditional lighting sources emit light in all directions and need secondary optics to direct the light onto objects to be illuminated, which can result in a loss of 40% to 60% of the light output.
Long life LED-based light sources can last up to 10 times longer than traditional light sources. The longevity of LED lighting reduces or even eliminates the ongoing maintenance costs and periodic lamp replacement costs, particular in applications where location makes replacement difficult.

– 34 –

LETTER FROM THE BOARD

Digital control LEDs are semiconductor devices, which allows for an easy digital control on the light they emit. Interfaced with a digital controller or a computer, LED lighting applications can be developed and programmed in ways that were never feasible in the case of traditional lighting. For example, in the case of an LED screen, software enables multiple functions on different parts of the screen to be programmed simultaneously. Also with LEDs, a high-speed interface such as ethernet or digital visual interface can be used to support numerous control signals, such as high-definition video.
Faster response time. The high switching speed of LEDs enables much more control flexibility in the choice of communication protocol between a controller and the lighting fixtures. An illumination LED will achieve full brightness in 0.01 second, 10 times faster than an incandescent light bulb (0.1 second), and many times faster than a compact fluorescent lamp.
Safety and environmentally friendly. LEDs do not contain hazardous materials such as mercury which is used in the traditional lighting and have less carbon dioxide and contain no hazardous gases.
Design flexibility and space efficiency. LEDs are typically smaller than traditional lighting sources, allowing for a variety of lighting designs capitalizing on the non-obtrusiveness of the source. LEDs provide lighting designers with additional options and choices compared to traditional lighting technologies.
Reliability. Unlike traditional lighting which typically contains a fragile filament enclosed in a breakable glass enclosure, LEDs are solid-state devices encased in solid plastic lenses that are more shock-resistant and more robust in a physical structure.

Growth drivers of LED

Continuous strengthening of LED technology performance and reduction of cost:

It is expected that the LED technical performance will continue to improve rapidly and that the price of LED chips will continue to decline in the foreseeable future. The continued price-to-performance improvement is expected to further drive the growth of the LED lighting market in the future. Just as Moore’s Law predicted a doubling of the number of transistors in a silicon chip every 24 months, Haitz’s Law postulates that LEDs’ performance to price ratio will double every 18-24 months based on the fact that the performance of LED in terms of brightness or lumens per package has been increasing by about 30 times per decade (35% compound annual growth rate) while the cost of an LED ($/lumen) has decreased by about 10 times per decade.

– 35 –

LETTER FROM THE BOARD

Global energy and environmental awareness:

As a result of economic development, worldwide energy consumption has been increasing rapidly and shows no sign of slowing down. Given the potential for increasing prices for oil and natural gas to consume a greater proportion of household disposable income, it is expected that consumers will increasingly consider new ways to lower their energy consumption. Increasing environmental awareness may also lead to more stringent regulation on the emission of carbon dioxide. The wide application of LED lighting has the potential to bring significant energy savings and environmental benefits.

Increasing awareness and stricter regulation of hazardous materials will also enhance the preference of LEDs, which do not contain hazardous materials such as mercury and hazardous gas. In EU countries, ROHS legislation came into effect on 1 July 2006, which requires that mercury content in compact fluorescent lamps in Europe cannot exceed 5mg per lamp. This legislation is expected to encourage faster adoption of LED lighting in Europe.

Government support:

Governments worldwide are starting to recognize the potential value of LED technology, and several have taken steps to support industry growth. In the US, Department of Energy is accelerating the LED technology through organizing workshops and carrying out research plans. In July 2000, EU established “Rainbow project-AlInGaN for multicolor sources’’ to propel the application of LED. In the PRC, several central and local government agencies formed the National Solid-state Lighting Engineering Program* (國家半導體照明工程 ) to drive the industry growth.

Industry highlights of the LED industry in the PRC

According to iSuppli Corporation, an independent market research firm, driven by the soaring demand from new electronic applications such as LED-TV and general illumination, it is expected that the total revenues of LED market in the PRC will be increased from about US$3.4 billion in 2009 to US$7.1 billion by 2014, representing a compound annual growth rate (“ CAGR ”) of approximately 15.7%. In addition, the LED industry is regarded as one of the important business segments in the PRC, in which relevant favorable policies such as the subsidy and tax benefits have been launched by the PRC government to support the LED manufacturers.

The PRC Subsidiary is listed on the China Torch Research Program (火炬計劃) and manufactured practical patented products, therefore, is able to apply high and new technological financial subsidy. Furthermore, as advised by the Vendor, newly established provincial high and new technological enterprises can enjoy the income tax benefits of “two-year exemption, six-year half reduction of levy (兩年免征，六年減半徵收)” according to the tax policy of the PRC.

In the past, the PRC Subsidiary was granted the subsidy of special guide fund of Jiangsu Province (江蘇省專項引導資金) and subsidy of technological innovation and technology transfer (technology platform) special guide fund of Jiangsu Province (江蘇省科技創新與成果轉化（科技服務平臺）專項引導資金). The PRC Subsidiary was also gained a financing contract with small and medium enterprise Technology Innovation Fund Management Center of the Ministry of Science and Technology of the PRC* (科技部科技型中小企業技術創新基金管理中心).

* For identification purposes only

– 36 –

LETTER FROM THE BOARD

Potential competition

The LED market in the PRC is intensive. Most players are in similar size. The PRC Subsidiary is only one of the LED industry participants and faces a keen competition market. Although there is no stringent regulatory requirements to operate the LED business in the PRC, the high capital expenditure required to establish an LED plant and importation of core equipments, LED production technology requirements and the well functioned research and development team pose significant barriers to entry for new competitors. In addition, the PRC Subsidiary considers it is important to create a strong brand name to differentiate itself from its competitors.

In view of all the above favourable factors, the Directors (including the independent non-executive Directors) are of the view that the terms and conditions of the Acquisition are fair and reasonable and the Acquisition is in the interests of the Company and the Shareholders as a whole.

POSSIBLE FINANCIAL IMPACT OF THE ACQUISITION

After the completion of the Acquisition, each member of the Target Group will become a subsidiary of the Company, the financial results of the Target Group will be consolidated into the financial statements of the Group.

Effect on assets and liabilities

As extracted from the interim report of the Company (the “ Interim Report ”), the unaudited consolidated total assets and total liabilities of the Group was approximately HK$682.40 million and HK$51.74 million as at 30 June 2010. With reference to the unaudited pro-forma financial information of the Enlarged Group as contained in Appendix III to this circular, the Enlarged Group’s total assets and liabilities would be increased to approximately HK$926.41 million and HK$176.43 million respectively upon completion of the Acquisition.

Effect on earnings

In light of the future prospects of the PRC Subsidiary, the Directors are of the view that the Acquisition would likely have a positive impact on the future earnings of the Enlarged Group.

Effect on gearing and working capital

According to the unaudited pro-forma financial information of the Enlarged Group as contained in Appendix III to this circular, the Group’s gearing ratio (expressed as a percentage of total liabilities over the Group’s net assets value) was approximately 8.20% as at 30 June 2010. Upon completion of the Acquisition, the total liabilities of the Enlarged Group would be increased to approximately HK$176.43 million while the Group’s net assets value would be increased to approximately HK$749.98 million. The Enlarged Group’s gearing ratio would thus be approximately 23.52%.

As the Company intends to satisfy the Consideration partly by the issue of the Convertible Bonds, the working capital of the Enlarged Group upon completion of the Acquisition will be decreased by the cash portion of the Consideration.

– 37 –

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

As the applicable ratios of the Acquisition under Rule 14.07 of the Listing Rules exceed 25% but are less than 100%, the Acquisition constitutes a major transaction of the Company and is therefore subject to the reporting and announcement and the shareholders’ approval requirements under Chapter 14 of the Listing Rules.

The Major Shareholder has given its written approval to the Acquisition in accordance with Rule 14.44 of the Listing Rules in lieu of a general meeting to approve the Acquisition. However as the Company will to issue the Convertible Bonds to satisfy part of the Consideration, the Directors will seek a specific mandate from the Shareholders at the EGM to approve the issue of the Convertible Bonds. In addition, as the accountants’ reports of the HK Subsidiary and the PRC Subsidiary contain the First Qualified Opinion and the Second Qualified Opinion, written shareholders’ approval is not accepted and a general meeting is required under Rule 14.86 of the Listing Rules.

As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief, no Shareholder has any material interest in the Acquisition and therefore no Shareholder is required to abstain from voting on the relevant resolution(s) to be proposed at the EGM.

THE EGM

A notice convening the EGM is set out on pages 124 to 125 of this circular. A form of proxy for the EGM is enclosed with this circular. Whether or not you intend to be present at the EGM, you are advised to complete the form of proxy and return it to the Company’s branch share registrar in Hong Kong, Tricor Standard Limited, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time fixed for the EGM. The completion and delivery of a form of proxy will not preclude you from attending and voting in person at the meeting should you so wish.

RECOMMENDATION

The Directors consider that the terms of the Agreement and the issue of the Convertible Bonds are on normal commercial terms and are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend that all Shareholders should vote in favour of the relevant resolution(s) to be proposed at the EGM to approve the Agreement and the transaction contemplated thereunder (including the issue of the Convertible Bonds).

GENERAL

Your attention is drawn to the financial information of the Group and the other additional information set out in the appendices to this circular.

Yours faithfully, By order of the Board

Li Li

Executive Director

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. THREE YEAR FINANCIAL INFORMATION

Financial information of the Group for the year ended 31 December 2007, the year ended 31 December 2008, the year ended 31 December 2009 and for the six months ended 30 June 2010 are disclosed in the 2007, 2008, 2009 annual reports (from page 20-66, page 19-66, page 18-64) respectively and 2010 interim report (from page 1-18) of the Company respectively, which are published on both the Stock Exchange website (www.hkexnews.hk) and the Company’s website (www.gch.hk).

2. FINANCIAL AND TRADING PROSPECT OF THE ENLARGED GROUP

As disclosed in the interim report of the Company for the six months ended 30 June 2010, in view of the escalating awareness of more stringent environmental protection and product safety laws and regulations pertaining to the Group’s manufacturing facilities and products in the PRC as well as increase in price of crude oil, other key raw materials and labor cost, the business environment in the second half of 2010 remains to be challenging.

In response, the management of the Company has commenced a review on the existing businesses in manufacturing of paints and trading in petrochemical and related products and assets of the Group, for the purpose of formulating new business plans and strategies for the future business development of the Group. The PRC Subsidiary is considered to be the first step of diversifying the existing businesses of the Group and the PRC Subsidiary provides its products according to the specific demand of its customers, satisfying their needs for a high standard of advanced production techniques. The Group’s business strategy made for the PRC Subsidiary is to spread its business worldwide. With the new challenge and new opportunity, the Group will firmly take the responsibility of developing national LED and semiconductor lighting industries, closely focus on the technology’s improvement and industrial development, and cooperate with the relative enterprises to credit a bright future for the semi-conductor lighting business in the 21st century.

3. STATEMENT OF INDEBTEDNESS

The Group

(a) Borrowings

At the close of business on 31 December 2010, being the latest practicable date for the purpose of preparing this indebtedness statement prior to the printing of this document, the Group had a term loan with the principal amount of HK$150,000,000 due to a financial institution.

(b) Debt securities

As at the close of business on 31 December 2010, the Group had no outstanding debt securities issued or authorized or otherwise created but unissued.

– 39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Pledge of assets

At the close of business on 31 December 2010, the Group pledged its 51% equity interests in Rookwood Investments Limited (“ Rookwood ”), a non-wholly owned subsidiary of the Group and an undated deed of assignment duly executed by the Company and Rookwood, pursuant to which the Company agrees to assign the amount due from Rookwood of HK$31,476,308 in case of default, to a financial institution to secure the term loan, with the principal amount of HK$150,000,000.

(d) Contingent liabilities

At the close of business on 31 December 2010, the Group had no contingent liabilities.

Save as aforesaid, and apart from intra-group liabilities and normal trade payables, the Group did not have outstanding at the close of business on 31 December 2010 any debt securities issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptable credits, debentures, mortgages, charges, finance lease commitments, guarantees or other material contingent liabilities.

The Target Group

At the close of business on 31 December 2010, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Target Group had aggregate outstanding secured bank borrowings of approximately HK$50,136,000 which bear interest at fixed rate from 5.31% to 5.56% and at floating rate of Libor plus 280 basis point per annum.

As at the close of business on 31 December 2010, the Target Group had pledged certain of its property, plant and equipment, prepaid lease payments, trade receivables and bank deposits amounting to approximately HK$101,409,000, HK$6,162,000, HK$4,276,000 and HK$13,325,000, respectively to secure the general banking facilities granted to the Target Group.

A subsidiary of the Target Group was involved in legal proceedings and a legal action has been commenced by the relevant authorities in the PRC for allegations in connection with the breach of fiduciary duties of a former executive director and general manager, Mr. Guo, as a director and the damages arising from his misuse of the Target Group’s resources. Based on the legal opinions issued by the Company’s PRC lawyer, it is not probable that the outcome of the litigation will result in additional costs or further economic loss to the Target Group. No liability has been accrued by the Target Group and there is no contingent-liability in relation there to as at 31 December 2010. Further details of the litigation are set out in note 30 of Appendix IIB in this circular.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables, as at the close of business on 31 December 2010, the Target Group did not have any debt securities issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptable credits, debentures, mortgages, charges, hire purchases or finance lease commitments, guarantees or other material contingent liabilities.

4. WORKING CAPITAL

The Directors are of the opinion that, in the absence of unforeseeable circumstances, taking into account the completion of the Acquisition, the internal resources available to the Enlarged Group and the other borrowing which have been obtained by the Enlarged Group, the Enlarged Group has sufficient working capital for its present requirements, that is for at least a period of twelve months from the date of this Circular upon the Completion.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2009, being the date to which the latest audited consolidated financial statements of the Group were made up.

– 41 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

The following is a text of a report prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Zenith CPA Limited, Certified Public Accountants, Hong Kong. Terms defined herein apply to this report only.

==> picture [32 x 17] intentionally omitted <==

==> picture [31 x 18] intentionally omitted <==

ZENITH CPA LIMITED 誠豐會計師事務所有限公司

Unit 318, 3/F., Shui On Centre, 6-8 Harbour Road, Wanchai,, Hong Kong

香港灣仔港灣道6-8號瑞安中心3樓318室電話: (852) 3483 2276 傳真: (852) 3186 4205

25 February 2011

The Directors Greenfield Chemical Holdings Limited Unit 2304, 23/F., West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong

Dear Sirs,

We set out below our report on the financial information regarding China Opto Investment Limited (“China Opto”), including the statements of financial position of the China Opto as at 31 December 2007, 2008 and 2009 and 31 October 2010, the statements of comprehensive income, cash flow statements and statements of changes in equity and the notes thereto of China Opto for the period from 28 June 2007 (date of incorporation) to 31 December 2007, for the two years ended 31 December 2009 and for the ten months ended 31 October 2010 (the “Relevant Periods”) (the “Financial Information”), for inclusion in a circular issued by Greenfield Chemical Holdings Limited (the “Company”) dated 25 February 2011 (the “Circular”) in connection with the major transaction in respect of the proposed acquisition of the entire issued share capital of Ace Winner Holdings Limited (“Ace Winner” and the acquisition referred as the “Acquisition”). Ace Winner became an immediate holding company of China Opto after a group reorganisation.

China Opto was incorporated in Hong Kong with limited liability on 28 June 2007 and act as an investment holding company. The registered office and principal place of business is located at 37/F., Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Hong Kong.

The sole director of China Opto considered the ultimate holding company and immediate holding company as at the date of this report are China Century Worldwide Limited and Ace Winner Holdings Limited, both are companies incorporated the British Virgin Islands.

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APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

The particular of China Opto’s subsidiaries are as follows:

	Country and date
	of establishment for		Equity interest
Name of company	of the entity	Registered capital	attributable to China Opto		Principal activities
			Direct	Indirect
Jiangsu Wenrun	The PRC/26 March 2002/	31.12.2007: RMB110,951,000	51.63%		Design, manufacturing and
Optoelectronic Co., Ltd	Sino-foreign equity	31.12.2008: RMB134,920,000	69.44%		sale of LED and
江蘇穩潤光電有限公司	Joint venture enterprise	31.12.2009: RMB135,000,000	69.44%		semi-conductor lighting
		31.10.2010: RMB135,000,000	69.44%		related products
Danyang Century	The PRC/21 August 2008/	31.12.2008: RMB90,000,000	55.56%		Manufacturing and sale of
New Energy Resources	Sino-foreign equity	31.12.2009: RMB90,000,000	55.56%		semi-conductor
Company Limited	Joint venture enterprise	31.10.2010: RMB90,000,000	55.56%		lighting related products
丹陽世紀新能源有限公司
Jiangsu Wenrun Optoelectronic	The PRC/29 July 2003/	31.12.2007: RMB40,000,000		51.63%	Design, manufacturing and
Technology Co., Ltd*	Domestic-invested Company	31.12.2008: RMB40,000,000		69.44%	sale of LED and
江蘇穩潤光電科技有限公司		31.12.2009: RMB40,000,000		69.44%	semi-conductor lighting
		31.10.2010: RMB40,000,000		69.44%	related products
Zhenjiang Wenrun	The PRC/24 June 2006/	31.12.2007: RMB5,000,000		51.63%	Design, manufacturing and
Semi-conductor Lighting	Domestic-invested Company	31.12.2008: RMB5,000,000		69.44%	sale of LED and
Engineering Co., Ltd.*		31.12.2009: RMB5,000,000		69.44%	semi-conductor lighting
鎮江穩潤半導體照明		31.10.2010: RMB5,000,000		69.44%	related products
工程有限公司

* For identification purpose only

The statutory financial statements of China Opto for the period from 28 June 2007 to 31 December 2008 and for the year ended 31 December 2009 were prepared in accordance with Hong Kong Financial Reporting Standards (the “HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have audited the statutory financial statements for the year ended 31 December 2009 and the statutory financial statements for the period from 28 June 2007 (date of incorporation) to 31 December 2008 were audited by Cheng Woon Kam, Certified Public Accountant.

For the purpose of this report, the sole director of China Opto prepared management accounts of China Opto for the Relevant Periods in accordance with HKFRSs issued by the HKICPA (the “Underlying Financial Statements”).

We were engaged to audit on the Underlying Financial Statements in accordance with the Hong Kong Standards on Auditing issued by the HKICPA. The Financial Information of China Opto as set out in this report for inclusion in the Circular has been prepared from the Underlying Financial Statements without adjustments. We have examined the Financial Information and have carried out such additional procedures as considered necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountants” as recommended by the HKICPA.

– 43 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

Respective responsibilities of sole director and reporting accountants

The sole director of China Opto is responsible for the preparation of the Underlying Financial Statements and the Financial Information which give a true and fair view. In preparing the Financial Information, it is fundamental that appropriate accounting policies are selected and applied consistently, that the judgements and estimates made are prudent and reasonable and that the reasons for any significant departure from applicable accounting standards are stated. The directors of the Company are responsible for the contents of the Circular in which this report is included.

It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

Basis of disclaimer opinion

As explained in Notes 3 and 11 to the Financial Information, China Opto has not prepared consolidated financial information in accordance with Hong Kong Accounting Standard 27 “Consolidated and Separate Financial Statements” (“HKAS 27”) issued by the HKICPA. In addition, information regarding the post-acquisition results of the subsidiaries attributable to China Opto has not been disclosed as required by paragraph 18(4) of the Tenth Schedule to the Hong Kong Companies Ordinance. In our opinion, there is insufficient information concerning the subsidiaries in the Financial Information to give a true and fair view of the state of affairs of China Opto and its subsidiaries (collectively referred to as the “China Opto Group”) as at 31 December 2007, 2008 and 2009 and 31 October 2010 and of the China Opto Group’s results and cash flows as a whole for the Relevant Periods. It is not practicable for us to quantify the effects of the departure from these requirements on the Financial Information for the Relevant Periods.

Disclaimer of opinion

Because of the significance of the matters described in the basis for disclaimer of opinion paragraph, we do not express an opinion on the Financial Information as to whether they give a true and fair view of the state of affairs of the China Opto at 31 December 2007, 2008 and 2009 and at 31 October 2010, and of the results and cash flows of the China Opto Group for each of the Relevant Periods in accordance with HKFRSs and as to whether the Financial Information have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

– 44 –

ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

APPENDIX IIA

Review conclusion

The comparative statements of comprehensive income, statements of changes in equity and statement of cash flows for the ten months ended 31 October 2009 together with the notes thereon have been extracted from China Opto’s financial information for the same period (the “31 October 2009 Financial Information”), which was prepared by the sole director of China Opto solely for the purpose of this report as explained in Notes 3 and 11 to the Financial Information, China Opto has not prepared consolidated financial information in accordance with HKAS 27.

It is our responsibility to form an independent conclusion, based on our review, and to report our conclusion to you. For the purpose of this report, we have reviewed the 31 October 2009 Financial Information in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by Independent Auditor of the Entity” issued by the HKICPA.

Our review consists principally of making enquiries of the China Opto’s management and applying analytical procedures to the 31 October 2009 Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the 31 October 2009 Financial Information.

Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs, we were unable to reach a review conclusion as to whether material modifications should be made to the 31 October 2009 Financial Information.

– 45 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION

Statements of comprehensive income

For the period from 28.06.2007 to Notes 31.12.2007 RMB’000 Bank interest income 1 Net foreign exchange gain (loss) 1,010 Administrative expenses (39) Profit (loss) before taxation 8 972 Taxation 9 — Profit (loss) and total comprehensive income (expense) for the period/year 972	Year ended Ten months 31 December ended 31 October 2008 2009 2009 2010 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 1 — — — 4,946 (12) (108) 2,821 (66) (60) (3) (1) 4,881 (72) (111) 2,820 — — — — 4,881 (72) (111) 2,820

– 46 –

ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

APPENDIX IIA

(A) FINANCIAL INFORMATION (Continued)

Statements of financial position

Notes
NON-CURRENT ASSETS
Investments in subsidiaries
11
CURRENT ASSETS
Other receivables
Bank balances
12
Non-current assets
classified as held for sale
13
CURRENT LIABILITIES
Other payables
14
Amounts due to
holding companies
14
NET CURRENT LIABILITIES
NET ASSETS
CAPITAL AND RESERVES
Share capital
15
Reserves

As at
As at 31 December
31 October
2007
2008
2009
2010
RMB’000
RMB’000
RMB’000
RMB’000
70,951
144,912
145,000
95,000
—
—
—
45
165
128
120
—
165
128
120
45
—
—
—
50,000
165
128
120
50,045
10,500
28
165
49,161
59,634
139,149
139,164
87,273
70,134
139,177
139,329
136,434
(69,969)
(139,049)
(139,209)
(86,389)
982
5,863
5,791
8,611
10
10
10
10
972
5,853
5,781
8,601
982
5,863
5,791
8,611

– 47 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

Statements of changes in equity

Accumulated
Share capital
profits
RMB’000
RMB’000
At 28 June 2007 (date of incorporation)
10
—
Profit and total comprehensive
income for the period
—
972
At 31 December 2007
10
972
Profit and total comprehensive
income for the year
—
4,881
At 31 December 2008
10
5,853
Loss and total comprehensive
expenses for the year
—
(72)
At 31 December 2009
10
5,781
Profit and total comprehensive
income for the period
—
2,820
At 31 October 2010
10
8,601
(Unaudited)
At 1 January 2009
10
5,853
Loss and total comprehensive
expenses for the period
—
(111)
At 31 October 2009
10
5,742

Total
RMB’000
10
972
982
4,881
5,863
(72)
5,791
2,820
8,611
5,863
(111)
5,752

– 48 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

Statements of cash flows

For the period from 28.06.2007 to 31.12.2007 RMB’000 OPERATING ACTIVITIES Profit (loss) before taxation 972 Adjustments for: Interest income (1) Operating cash flows before movements in working capital 971 Increase in other receivables — Increase (decrease) in other payables — NET CASH GENERATED FROM (USED IN) OPERATING ACTIVITIES 971 INVESTING ACTIVITIES Interest received 1 Investments in subsidiaries (60,451) NET CASH USED IN INVESTING ACTIVITIES (60,450) FINANCING ACTIVITIES Issue of shares 10 Advance from (repayment to) holding companies 59,634 Advance from the director — NET CASH FROM (USED IN) FINANCING ACTIVITIES 59,644 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 165 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD/YEAR — CASH AND CASH EQUIVALENTS AT THE END OF PERIOD/YEAR, representing bank balances and cash 165	Year ended 31 December 2008 2009 RMB’000 RMB’000 4,881 (72) (1) — 4,880 (72) — — 28 57 4,908 (15) 1 — (84,461) (88) (84,460) (88) — — 79,515 15 — 80 79,515 95 (37) (8) 165 128 128 120	Ten months ended 31 October 2009 2010 RMB’000 RMB’000 (Unaudited) (111) 2,820 — — (111) 2,820 — (45) 43 (85) (68) 2,690 — — — — — — — — 68 (2,810) — — 68 (2,810) — (120) 128 120 128 —

– 49 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

China Opto was incorporated in Hong Kong on 28 June 2007. Its immediate holding company and ultimate holding company as at the date of this report are Ace Winner Holdings Limited, and China Century Worldwide Limited, both are companies incorporated in the British Virgin Islands. The registered office and principal place of business of China Opto is located at 37/F., Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Hong Kong.

The Financial Information is presented in Renminbi (“RMB”), which is also the functional currency of China Opto, whereas the Group is presented in Hong Kong Dollar. The financial statements of China Opto will be translated to Group presentation currency in the preparation of the consolidated financial statements of the Group after Completion.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

For the purpose of preparing and presenting the Financial Information for the Relevant Periods, China Opto has consistently applied HKFRSs, Hong Kong Accounting Standards (“HKAS(s)”) amendments and interpretations (“INT(s)”) issued by the HKICPA that are effective for annual accounting periods beginning on 1 January 2010.

As at the date of this report, the HKICPA issued a number of new or revised HKASs, HKFRSs, amendments and INTs (herein collectively referred to as “New HKFRSs”), which are effective for the accounting periods beginning on or after 1 January 2007. For the purposes of preparing and presenting the Financial Information of the Relevant Periods, China Opto has adopted all of these New HKFRSs throughout the Relevant Periods.

China Opto has not early adopted the following standards, amendments and INTs that have been issued but are not yet effective as at the date of this report.

HKFRSs (Amendments) Improvements to HKFRSs 2010[1] HKFRS 1 (Amendments) Limited exemption from comparative HKFRS 7 disclosures for first-time adopters[3] HKFRS 1 (Amendments) Severe hyperinflation and removal of fixed dates for first-time adopters[4] HKFRS 7 (Amendments) Disclosure — transfer of financial assets[4] HKFRS 9 Financial instruments[6] HKAS 12 (Amendments) Deferred tax: recovery of underlying assets[5] HKAS 24 (Revised 2009) Related party disclosures[2] HK(IFRIC)-INT 14 (Amendments) Prepayments of a minimum funding requirement[2] HK(IFRIC)-INT 19 Extinguishing financial liabilities with equity instruments[3]

1 Effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate. 2 Effective for annual periods beginning on or after 1 January 2011. 3 Effective for annual periods beginning on or after 1 July 2010. 4 Effective for annual periods beginning on or after 1 July 2011. 5 Effective for annual periods beginning on or after 1 January 2012.
6 Effective for annual periods beginning on or after 1 January 2013.

– 50 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”) (Continued)

HKFRS9 “Financial instruments” introduces new requirements for the classification and measurement of financial assets and will be effective from 1 January 2013, with earlier application permitted. The standard requires all recognised financial assets that are within the scope of HKAS 39 “Financial instruments: Recognition and measurement” to be measured at either amortised cost or fair value. Specifically, debt investments that (i) are held within a business model whose objective is to collect the contractual cash flows and (ii) have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost. All other debt investments and equity investments are measured at fair value. The application of HKFRS 9 might affect the classification and measurement of the China Opto’s financial assets.

The sole director of China Opto anticipates that the application of other new and revised standards, amendments or interpretations will have no material impact on the Financial Information.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared in accordance with the HKFRSs issued by the HKICPA except that consolidated financial information has not been prepared in accordance with HKAS 27 “Consolidated and Separate Financial Statements” issued by the HKICPA. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance except that the information regarding the post-acquisition results of the subsidiaries attributable to China Opto has not been disclosed as required by paragraph 18(4) of the Tenth Schedule to the Hong Kong Companies Ordinance. These policies have been consistently applied to all the Relevant Periods presented. All accounting policies are materially consistent with the accounting policies adopted by the Group, unless otherwise stated.

The Financial Information have been prepared on the historical cost basis as explained in the accounting policies set out below.

Revenue recognition

Interest income from a financial asset is accrued on a timely basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Investments in subsidiaries

Investments in subsidiaries are included in the statements of financial position at cost less any identified impairment loss. The results of the subsidiaries are accounted for on the basis of dividend received or receivable during the period/year.

– 51 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income tax

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 period/year. Taxable profit differs from profit as reported in the statements of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items of income or expense that are never taxable and deductible. China Opto’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable 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 the initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at the end of the reporting period 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 assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the sole director of China Opto expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is recognised in profit or loss.

Impairment

At the end of the reporting period, China Opto reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of an asset is estimated in order to determine the extent of the impairment loss, if any. 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.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, 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.

– 52 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial instruments

Financial assets and financial liabilities are recognised on the statements of financial position 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 are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

China Opto’s financial assets are classified into loans and receivables.

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 the end of reporting period subsequent to initial recognition, loans and receivables (including other receivables and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the Relevant Periods. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Income is recognised on effective interest basis for the debt instruments.

Impairment loss on financial assets

Financial assets are assessed for indicators of impairment at the end of reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For all of China Opto’s financial assets, objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it is becoming probable that the borrower will enter bankruptcy or financial re-organisation.

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 asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

The carrying amount of the loans and receivables is reduced by the impairment loss directly. If, in a subsequent period, the amount of impairment loss decrease and the recognised, the previously recognised impairment loss is reversed through profit or loss to the extent 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.

– 53 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial instruments (Continued)

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.

An equity instrument is any contract that evidences a residual interest in the assets of China Opto after deducting all of its liabilities. China Opto’s financial liabilities are generally classified as other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Other financial liabilities

Other financial liabilities including other payables and amounts due to holding companies are subsequently measured at amortised cost, using the effective interest method.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the Relevant Periods. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Interest expense is recognised on an effective interest basis.

Equity instruments

Equity instruments issued by the China Opto 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 China Opto 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 receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

For financial liabilities are derecognised 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.

– 54 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.

Non-current assets classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less costs to sell.

Foreign currencies

In preparing the Financial Information of China Opto, transactions in currencies other than its functional currency (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 the end of reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period/year in which they arise.

4. CAPITAL RISK MANAGEMENT

China Opto’s policy is to maintains strong capital base to ensure that China Opto will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debts and equity balance. China Opto’s overall strategy remains unchanged throughout the Relevant Periods.

The capital structure of China Opto consists of net debts, which include amounts due to holding companies and sole director, bank balances and equity attributable to owners of China Opto, comprising capital and reserves.

The sole director of China Opto reviews the capital structure on an annual basis. As part of this review, the sole director considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the sole director, China Opto will balance its overall capital structure through the payment of dividends, capital injection as well as the issue of new debts or the redemption of existing debts.

5. FINANCIAL INSTRUMENTS

Categories of financial instruments

Financial assets — Loans and receivables (including bank balances and cash) Financial liabilities — Other financial liabilities, at amortised costs	2007 RMB’000 165 70,134	As at 31 December 2008 2009 RMB’000 RMB’000 128 120 139,177 139,329	As at 31 October 2010 RMB’000 45

			136,434

– 55 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

5. FINANCIAL INSTRUMENTS (Continued)

Financial risk management objectives and policies

China Opto’s major financial instruments include other receivables, amounts due to holding companies, other payables as well as bank balances and cash. 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 sole director manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

Interest rate risk

China Opto’s cash flow interest rate risk primarily relates to variable-rate bank balances. In the opinion of its sole director, the exposure is insignificant.

Foreign currency risk

As at the end of the reporting period, the carrying amounts of China Opto’s foreign currency denominated monetary assets and liabilities are as follows:

Assets Hong Kong dollar (“HK$”) United States dollar Liabilities HK$	2007 RMB’000 1 164 59,634	As at 31 December 2008 2009 RMB’000 RMB’000 1 2 127 118 139,177 139,329	As at 31 October 2010 RMB’000 45 —

			136,434

China Opto currently does not have foreign currency hedging policy. However, the sole director will monitor foreign exchange exposure and will consider hedging significant foreign currency exposure should the needs arises.

– 56 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

5. FINANCIAL INSTRUMENTS (Continued)

Market risk (Continued)

Foreign currency risk (Continued)

Sensitivity analysis

The following table details China Opto’s sensitivity to a 5% increase and decrease in RMB against HK$. 5% sensitivity rate used represents the sole director’s assessment of the reasonable possible change in foreign exchange rates.

A positive number below indicates an increase in post-tax profit (or decrease in post-tax loss) where RMB strengthen 5% against HK$ for the Relevant Periods. For a 5% weakening of RMB against HK$, there would be an equal and opposite impact on the post-tax profit (or post-tax loss).

	For the
	period from	Year	ended	Ten months ended
	28.06.2007 to	31 December		31	October
	31.12.2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Profit or loss	2,982	6,959	6,966	6,964	6,819

Credit risk

China Opto’s credit risk is primarily attributable to bank balances. The credit risk on liquid funds is limited because China Opto’s bank balances are deposited with a bank of high credit ratings.

Liquidity risk

As at 31 December 2007, 2008 and 2009 and 31 October 2010, China Opto had net current liabilities of RMB69,969,000, RMB139,049,000, RMB139,209,000 and RMB86,389,000 respectively. If the Acquisition is successfully completed, the Company has agreed to provide adequate funds to enable China Opto to meet in full its financial obligations as they fall due for foreseeable future.

China Opto’s financial liabilities are either repayable within 12 months or on demand at the end of each reporting period.

Fair value

The fair value of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using the relevant prevailing market rates.

The sole director considers that carrying values of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their corresponding fair values.

– 57 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

6. SEGMENT INFORMATION

No segmental analysis was presented as China Opto is principally engaged in investment holding.

7. DIRECTORS’ REMUNERATION AND EMPLOYEES’ EMOLUMENTS

During the Relevant Periods, no remuneration was paid by China Opto to the sole director or any employee as an inducement to join or upon joining or as compensation for loss of office. The sole director and any of the employee did not waive any remuneration during the Relevant Periods.

8. PROFIT (LOSS) BEFORE TAXATION

	For the
	period from	Year	ended	Ten months ended
	28.06.2007 to	31 December		31	October
	31.12.2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Profit (loss) before taxation
has been arrived
at after charging:
Director’s remuneration	—	—	—	—	—
Auditor’s remuneration	—	23	57	—	—

The sole director considers he is the only key management personnel of China Opto. There was no remuneration paid or payable to the sole director during the Relevant Period.

9. TAXATION

No provision for Hong Kong Profits Tax has been made in the financial statements as China Opto had no assessable profit derived in Hong Kong during the Relevant Periods.

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced corporate profit tax rate from 17.5% to 16.5% with effect from the year of assessment 2008/2009.

– 58 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

9. TAXATION (Continued)

The taxation for the Relevant Periods can be reconciled to the loss before taxation per the statements of comprehensive income as follows:

For the period from 28.06.2007 to 31.12.2007 RMB’000 Profit (loss) before taxation 972 Taxation at Hong Kong Profits Tax rate of 17.5%, 16.5%, 16.5%, 16.5% and 16.5% 170 Tax effect of income not taxable (177) Tax effect of expenses not deductible 7 Taxation —	Year ended Ten months ended 31 December 31 October 2008 2009 2009 2010 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 4,881 (72) (111) 2,820 805 (12) (18) 465 (816) — — (465) 11 12 18 — — — — —

There was no significant unprovided deferred taxation during the Relevant Periods and at 31 December 2007, 2008 and 2009 and 31 October 2010.

10. EARNING (LOSS) PER SHARE

No earning (loss) per share information is presented as its inclusion, for the purpose of this report, is not considered meaningful.

11. INVESTMENTS IN SUBSIDIARIES

				As at
		As at 31 December		31 October
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Unlisted investments, at cost	70,951	144,912	145,000	95,000

The consolidated financial information has not been prepared in accordance with HKAS 27 and information regarding the post-acquisition results of the subsidiaries attributable to China Opto has not been disclosed as required by paragraph 18(4) of the Tenth Schedule to the Hong Kong Companies Ordinance. The sole director of China Opto considers that the inclusion of the financial information of Danyang may not be an appropriate illustration on the financial information of the Acquisition as Danyang is excluded from the Acquisition, therefore consolidated financial information of China Opto has not been prepared.

– 59 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued) NOTES TO THE FINANCIAL INFORMATION (Continued)

12. BANK BALANCES

Bank balances have original maturity of three months or less and carry interest at prevailing market rates.

13. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE

On 14 July 2010, China Opto and Ray Succeed Limited (“Ray Succeed”) entered into a sale and purchase agreement (“Disposal Agreement”). Pursuant to the Disposal Agreement, China Opto agreed to dispose of its entire 55.56% equity interests in Danyang to Ray Succeed at a consideration of HK$56,919,729 (equivalent to RMB50,000,000), being the investment cost of the 55.56% equity interests in Danyang as at 14 July 2010. Accordingly, the investment in Danyang has been presented as non-current assets classified as held for sale as at 31 October 2010. The completion of the disposal is subject to the approval from the relevant PRC authorities and will be completed before the completion of the Acquisition.

14. CURRENT FINANCIAL LIABILITIES

Amounts due to holding companies were interest-free, unsecured, and repayable on demand.

As at 31 December 2007, included in other payables, RMB10,500,000 represented the unsettled consideration payable for the purchase of 25% equity interests of its subsidiary, Jiangsu Wenrun Optoelectronic Co., Ltd. from an independent third party. This amount was fully settled during the year ended 31 December 2008.

15. SHARE CAPITAL

Authorised, issued and fully paid 10,000 ordinary shares of HK$1 each Equivalent to RMB’000	2007 RMB’000 HK$10,000 10	As at 31 December 2008 2009 RMB’000 RMB’000 HK$10,000 HK$10,000 10 10	As at 31 October 2010 RMB’000 HK$10,000

			10

China Opto was incorporated with an authorized share capital of HK$10,000 dividend into 10,000 ordinary shares at HK$1 each. On 28 June 2007 (date of incorporation), China Opto issued 10,000 ordinary shares of HK$1 each at par.

16. MAJOR NON-CASH TRANSACTION

During the period from 28 June 2007 to 31 December 2007, China Opto had entered into an agreement with an independent third party to purchase 25% equity interest of its subsidiary, Jiangsu Wenrun Optoelectronic Co., Ltd. at a consideration of RMB15,000,000. As at 31 December 2007, RMB4,500,000 was settled and the remaining RMB10,500,000 was included in other payables.

– 60 –

APPENDIX IIA ACCOUNTANTS’ REPORT ON THE HK SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

17. CAPITAL COMMITMENTS

As the end of the reporting period, China Opto had the following capital commitments:

				As at
		As at 31 December		31 October
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Capital contribution to
a subsidiary contributed
for but not provided in
the Financial Information	24,049	88	—	—

18. RELATED PARTY TRANSACTIONS

The details of balances with related companies are set out in the statements of financial position and Note 14.

(B) SUBSEQUENT EVENTS

On 14 July 2010, China Opto and Ray Succeed entered into Disposal Agreement. Pursuant to the Disposal Agreement, China Opto agreed to dispose of its entire 55.56% equity interests in Danyang to Ray Succeed at a consideration of HK$56,919,729 (equivalent to RMB50,000,000). Details of such disposal are disclosed in note 13.

(C) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of China Opto have been prepared in respect of any period subsequent to 31 October 2010.

Yours faithfully,

Zenith CPA Limited

Certified Public Accountants

Cheng Po Yuen

Practising Certificate Number: P04887 Hong Kong

– 61 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

==> picture [32 x 17] intentionally omitted <==

==> picture [31 x 18] intentionally omitted <==

ZENITH CPA LIMITED 誠豐會計師事務所有限公司

Unit 318, 3/F., Shui On Centre, 6-8 Harbour Road, Wanchai,, Hong Kong

香港灣仔港灣道6-8號瑞安中心3樓318室電話: (852) 3483 2276 傳真: (852) 3186 4205

25 February 2011

The Directors Greenfield Chemical Holdings Limited Unit 2304, 23/F., West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Jiangsu Wenrun Optoelectronic Co., Ltd. 江蘇穩潤光電有限公司 (“Jiangsu Wenrun”) and its subsidiaries (collectively, the “Wenrun Group”), including the consolidated statements of financial position of the Wenrun Group as at 31 December 2007, 2008 and 2009 and 31 October 2010, the consolidated statements of comprehensive income, consolidated statements of cash flows and consolidated statements of changes in equity and the notes thereto of the Wenrun Group for each of the years ended 31 December 2007, 2008 and 2009 and ten months ended 31 October 2010 (the “Relevant Periods”) (the “Financial Information”), for inclusion in a circular issued by Greenfield Chemical Holdings Limited (the “Company”) dated 25 February 2011 (the “Circular”) in connection with the major transaction in respect of the proposed acquisition of the entire issued share capital of Ace Winner Holdings Limited (“Ace Winner” and the acquisition referred as the “Acquisition”). Ace Winner became a holding company of China Opto Investment Limited (“China Opto”), an immediate holding company of Jiangsu Wenrun, after a group reorganisation.

Jiangsu Wenrun was established in the People’s Republic of China (the “PRC”) with limited liability on 26 March 2002.

The directors of Jiangsu Wenrun considered the ultimate holding company and the immediate holding company as at the date of this report are China Century Worldwide Limited and China Opto, which are companies incorporated in British Virgin Islands and Hong Kong.

As at the date of this report, the Wenrun Group is principally engaged in the design, manufacturing and sale of LED and semi-conductor lighting related products.

– 62 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

The particular of Jiangsu Wenrun’s subsidiaries are as follows:

			Proportion of effective
	Country and date of		equity interest held
	establishment for of		directly by Juangsu
Name of company	the entity	Registered capital	Wenrun	Principal activities
Jiangsu Wenrun	The PRC/29 July 2003/	31.12.2007: RMB40,000,000	100%	Design, manufacturing and
Optoelectronic	Domestic-invested company	31.12.2008: RMB40,000,000	100%	sale of LED and
Technology Co., Ltd*		31.12.2009: RMB40,000,000	100%	semi-conductor lighting
(“Wenrun Technology”)		31.10.2010: RMB40,000,000	100%	related products
江蘇穩潤光電科技
有限公司
Zhenjiang Wenrun	The PRC/24 June 2006/	31.12.2007: RMB5,000,000	100%	Design, manufacturing and
Semi-conductor Lighting	Domestic-invested company	31.12.2008: RMB5,000,000	100%	sale of LED and
Engineering Co., Ltd.*		31.12.2009: RMB5,000,000	100%	semi-conductor lighting
(“Zhenjiang Wenrun”)		31.10.2010: RMB5,000,000	100%	related products
鎮江穩潤半導體照明工程
有限公司

* For identification purpose only

All the companies comprising the Wenrun Group have adopted 31 December as their financial year end date.

The statutory financial statements of the entities comprising the Wenrun Group during the Relevent Periods were prepared in accordance with the relevant accounting rules and financial regulations applicable to enterprises established in the PRC (“PRC GAAP”) and were audited by the following certified public accountants, registered in the PRC:

Name of entity	Financial period	Auditors
Jiangsu Wenrun	For each of the three years	鎮江安信會計師事務所有限公司
	ended 31 December 2009	Zhenjiang An Xin Certified Public
		Accountants Co., Ltd.
Wenrun Technology	For each of the three years	鎮江安信會計師事務所有限公司
	ended 31 December 2009	Zhenjiang An Xin Certified Public
		Accountants Co., Ltd.
Zhenjiang Wenrun	For each of the three years	鎮江安信會計師事務所有限公司
	ended 31 December 2009	Zhenjiang An Xin Certified Public
		Accountants Co., Ltd.

– 63 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

For the purpose of this report, the directors of Jiangsu Wenrun had prepared the consolidated financial statements of the Wenrun Group for the Relevant Periods in accordance with the Hong Kong Financial Reporting Standards (the “HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”).

We were engaged to audit on the Underlying Financial Statements in accordance with the Hong Kong Standards on Auditing issued by the HKICPA. The Financial Information of the Wenrun Group as set out in this report for inclusion in the Circular has been prepared from the Underlying Financial Statements without adjustments. We have examined the Financial Information and have carried out such additional procedures as considered necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountants” as recommended by the HKICPA.

Respective responsibilities of directors and reporting accountants

The directors of Jiangsu Wenrun are responsible for the preparation of the Underlying Financial Statements and the Financial Information which give a true and fair view. In preparing the Financial Information, it is fundamental that appropriate accounting policies are selected and applied consistently, that the judgements and estimates made are prudent and reasonable and that the reasons for any significant departure from applicable accounting standards are stated. The directors of the Company are responsible for the contents of the Circular in which this report is included.

It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

Basis of qualified opinion

Included in the consolidated statements of comprehensive income for the years ended 31 December 2007, 2008 and 2009, turnover of approximately RMB13,235,000, RMB18,682,000 and RMB2,230,000 (the “Transactions”) were recorded in the respective years. At 31 December 2007 and 2008, the trade receivables of approximately RMB3,365,000 and RMB6,406,000 respectively were in related to the Transactions. The trade receivables in related to the Transactions as at 31 December 2009 have nil carrying value after accumulated impairment of approximately RMB1,808,000. The sales processes of the Transactions were mainly handled by a former executive director, who performed the sales process and also collection of sales proceeds from ultimate customers without adequate supporting documentation, including adequate documentation over cash receipt in respect of the Transactions. Accordingly, we have been unable either to obtain independent confirmation from the customers in respect of the Transactions, or to carry out alternative audit procedures to satisfy ourselves as to the validity and completeness in respect of the Transactions, the related taxes and trade receivables. Any adjustments found to be necessary in relation to the Transactions would have a consequential effect on the Wenrun Group’s results and cash flows for the respective years and net assets at 31 December 2007, 2008 and 2009.

– 64 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

Qualified opinion arising from limitation of audit scope

In our opinion, except for the possible effects of matters described in the basis for qualified opinion paragraph, the Financial Information, for the purpose of this report, give a true and fair view of the state of affairs of the Wenrun Group as at 31 December 2007, 2008 and 2009 and at 31 October 2010, and of the results and cash flows of the Wenrun Group for each of the Relevant Periods.

Review conclusion

The comparative consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statement of cash flows for the ten months ended 31 October 2009 together with the notes thereon have been extracted from the Wenrun Group’s financial information for the same period (the “31 October 2009 Financial Information”), which was prepared by the directors of Jiangsu Wenrun solely for the purpose of this report. It is our responsibility to form an independent conclusion, based on our review, and to report our conclusion to you. For the purpose of this report, we have reviewed the 31 October 2009 Financial Information in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by Independent Auditor of the Entity” issued by the HKICPA.

Our review consists principally of making enquiries of the Wenrun Group’s management and applying analytical procedures to the 31 October 2009 Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the 31 October 2009 Financial Information.

Based on our review, with the exception of any modifications to the matters described in the basis for qualified of opinion paragraphs, nothing has come to our attention that cause us to believe that the 31 October 2009 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

– 65 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION

Consolidated statements of comprehensive income

Notes
Revenue
7
Cost of sales
Gross profit
Other income,
gains and losses
9
Selling and
distribution expenses
Administrative expenses
Research and
development expenses
Finance costs
10
Profit (loss) before taxation
11
Income tax expense
12
Profit (loss) and
total comprehensive income
(expense) attributable to
owners of Jiangsu Wenrun
for the year/period

Ten months ended
Year ended 31 December
31 October
2007
2008
2009
2009
2010
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
98,943
109,540
97,135
72,314
170,762
(80,394)
(95,706)
(77,772)
(60,111)
(121,114)
18,549
13,834
19,363
12,203
49,648
8,816
1,879
115
(2,739)
(523)
(6,611)
(5,941)
(3,892)
(3,053)
(2,523)
(12,856)
(11,718)
(12,927)
(10,032)
(10,060)
(1,305)
(1,205)
(6,248)
(5,237)
(5,724)
(4,114)
(2,170)
(2,075)
(1,713)
(1,715)
2,479
(5,321)
(5,664)
(10,571)
29,103
(433)
(241)
(101)
—
(4,285)
2,046
(5,562)
(5,765)
(10,571)
24,818

– 66 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

Consolidated statements of financial position

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Prepaid lease payments 15 Available-for-sale investment 16 Deposits paid for acquisition of property, plant and equipment CURRENT ASSETS Prepaid lease payments 15 Inventories 17 Trade and other receivables 18 Amount due from holding company 19 Amount due from a minority shareholder of a subsidiary 19 Pledged bank deposits 20 Bank balances and cash 20 CURRENT LIABILITIES Trade and other payables 21 Bank borrowings due within one year — secured 22 Tax payables NET CURRENT ASSETS (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES	As 2007 RMB’000 96,929 5,381 520 5,279 108,109 115 28,149 36,203 2,750 500 1,920 35,518 105,155 49,534 23,000 4 72,538 32,617 140,726	at 31 December 2008 2009 RMB’000 RMB’000 132,702 125,485 5,266 5,151 520 520 — — 138,488 131,156 115 115 31,062 34,080 36,123 37,580 6,100 6,600 — — — 4,539 16,741 9,038 90,141 91,952 44,837 54,166 40,000 38,000 259 94 85,096 92,260 5,045 (308) 143,533 130,848	As at 31 October 2010 RMB’000 120,706 5,057 — 5,988
			131,751
			115 50,640 64,432 — — 9,310 8,438
			132,935
			64,746 42,014 2,260
			109,020
			23,915
			155,666

– 67 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

Consolidated statements of financial position (Continued)

Notes NON-CURRENT LIABILITIES Bank borrowings due after one year — secured 22 NET ASSETS CAPITAL AND RESERVES Registered capital 23 Reserves Equity attributable to owners of Jiangsu Wenrun Non-controlling interests TOTAL EQUITY	As 2007 RMB’000 22,000 118,726 110,951 7,175 118,126 600 118,726	at 31 December 2008 2009 RMB’000 RMB’000 7,000 — 136,533 130,848 134,920 135,000 1,613 (4,152) 136,533 130,848 — — 136,533 130,848	As at 31 October 2010 RMB’000 —
			155,666

			135,000 20,666
			155,666 —
			155,666

– 68 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

Consolidated statements of changes in equity

Attributable to owners	of Jiangsu Wenrun Accumulated Non-controlling profits (losses) Total interests RMB’000 RMB’000 RMB’000 17,075 60,129 — 2,046 2,046 — (12,614) — — — 55,951 — — — 600 6,507 118,126 600 (5,562) (5,562) — — 23,969 — — — (600) 945 136,533 — (5,765) (5,765) — — 80 — (4,820) 130,848 — 24,818 24,818 — 19,998 155,666 — 945 136,533 — (10,571) (10,571) — (9,626) 125,962 —	Total RMB’000 60,129 2,046 — 55,951 600
Statutory reserve RMB’000 3,054 — (2,386) — — 668 — — — 668 — — 668 — 668 668 — 668	Accumulated profits (losses) RMB’000 17,075 2,046 (12,614) — — 6,507 (5,562) — — 945 (5,765) — (4,820) 24,818 19,998 945 (10,571) (9,626)
		118,726 (5,562) 23,969 (600)
		136,533 (5,765) 80
		130,848 24,818
		155,666

		136,533 (10,571)
		125,962

Note: As stipulated by the relevant laws and regulations in the PRC, Jiangsu Wenrun and its subsidiaries shall set aside 10% of its net profit to the statutory reserve before the distribution of the net profit each year/period until the balance reaches 50% of its paid-in capital. The statutory reserve can only be used upon approval by the board of directors of the relevant PRC subsidiaries to offset accumulated losses or increase capital. Jiangsu Wenrun did not make any transfer to the statutory reserve during the three years ended 31 December 2009. On 19 November 2010, the board of directors of Jiangsu Wenrun approved a resolution to transfer RMB1,052,000 from accumulated profits to statutory reserve, which representing 10% of the aggregate profits for the three years ended 31 December 2009 (as determined in accordance with the relevant accounting principles and financial regulations applicable to companies established in the PRC). No transfer was made by both Wenrun Technology and Zhenjiang Wenrun as net loss were incurred for the Relevant Periods.

– 69 –

ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

APPENDIX IIB

(A) FINANCIAL INFORMATION (Continued)

Consolidated statements of cash flows

OPERATING ACTIVITIES Profit (loss) before taxation Adjustments for: Depreciation of property, plant and equipment Release of prepaid lease payments Allowance for bad and doubtful debts Impairment loss of amount due from holding company Impairment of inventories Finance costs Interest income Dividend income from available-for-sale investment (Gain) loss on disposal of property, plant and equipment Operating cash flows before movements in working capital Increase in inventories (Increase) decrease in trade and other receivables Increase (decrease) in trade and other payables Cash from (used in) operations Income tax (paid) refunded Interest paid NET CASH GENERATED FROM (USED IN) OPERATING ACTIVITIES	Year 2007 RMB’000 2,479 5,979 115 1,294 — — 4,114 (184) (27) (3,438) 10,332 (11,111) (644) 24,583 23,160 (995) (4,114) 18,051	ended 31 December 2008 2009 RMB’000 RMB’000 (5,321) (5,664) 9,528 8,787 115 115 920 3,010 — 1,870 — 7,019 2,170 2,075 (154) (101) (30) (35) — 65 7,228 17,141 (2,913) (10,037) (840) (4,467) (4,697) 9,329 (1,222) 11,966 14 (266) (2,170) (2,075) (3,378) 9,625	Ten months ended 31 October 2009 2010 RMB’000 RMB’000 (Unaudited) (10,571) 29,103 7,324 7,293 94 94 3,009 891 865 1,456 6,811 — 1,713 1,715 (80) (170) (35) (36) 65 — 9,195 40,346 (7,384) (16,560) 356 (25,543) 2,717 10,580 4,884 8,823 (259) (2,119) (1,713) (1,715) 2,912 4,989	Ten months ended 31 October 2009 2010 RMB’000 RMB’000 (Unaudited) (10,571) 29,103 7,324 7,293 94 94 3,009 891 865 1,456 6,811 — 1,713 1,715 (80) (170) (35) (36) 65 — 9,195 40,346 (7,384) (16,560) 356 (25,543) 2,717 10,580 4,884 8,823 (259) (2,119) (1,713) (1,715) 2,912 4,989
				40,346 (16,560) (25,543) 10,580
				8,823 (2,119) (1,715)
				4,989

– 70 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

Consolidated statements of cash flows (Continued)

INVESTING ACTIVITIES Interest received Dividend received from available-for-sale investment Proceeds from disposal of property, plant and equipment Purchase of property, plant and equipment Deposits paid for acquisition of property, plant and equipment (Increase) decrease in pledged bank deposits (Advance to) repayment from holding company (Advance to) repayment from minority shareholder of a subsidiary Proceed from disposal of available-for-sale investments Acquisition of additional equity interests of a subsidiary Net cash from acquisition of a subsidiary_(note 27)_ NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Capital injection New bank borrowings raised Repayment of bank borrowings Repayment of amounts due to shareholders NET CASH FROM (USED IN) FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR/PERIOD CASH AND CASH EQUIVALENTS AT THE END OF YEAR/PERIOD, representing bank balances and cash	Year 2007 RMB’000 184 27 7,119 (42,084) (5,279) (1,920) (2,750) (500) — — 32 (45,171) 55,951 45,000 (41,500) (12,714) 46,737 19,617 15,901 35,518	ended 31 December 2008 2009 RMB’000 RMB’000 154 101 30 35 — 111 (40,022) (1,746) — — 1,920 (4,539) (3,350) (2,370) 500 — — — (600) — — — (41,368) (8,408) 23,969 80 47,000 38,000 (45,000) (47,000) — — 25,969 (8,920) (18,777) (7,703) 35,518 16,741 16,741 9,038	Ten months ended 31 October 2009 2010 RMB’000 RMB’000 (Unaudited) 80 170 35 36 111 — (1,746) (2,514) (295) (5,988) (3,144) (4,771) (865) 2,944 — — — 520 — — — — (5,824) (9,603) — — 26,000 48,744 (35,000) (44,730) — — (9,000) 4,014 (11,912) (600) 16,741 9,038 4,829 8,438	Ten months ended 31 October 2009 2010 RMB’000 RMB’000 (Unaudited) 80 170 35 36 111 — (1,746) (2,514) (295) (5,988) (3,144) (4,771) (865) 2,944 — — — 520 — — — — (5,824) (9,603) — — 26,000 48,744 (35,000) (44,730) — — (9,000) 4,014 (11,912) (600) 16,741 9,038 4,829 8,438
				(9,603)
				— 48,744 (44,730) —
				4,014
				(600) 9,038
				8,438

– 71 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued) NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

Jiangsu Wenrun was established in the People’s Republic of China (the “PRC”) on 26 March 2002. Jiangsu Wenrun and its subsidiaries (“Wenrun Group”) is principally engaged in design, manufacturing and sale of LED and semi-conductor lighting related products. The registered office and principal place of business is located at No. 88, Wei Yi Road Dianmao Development Zone, Zhenjiang Jiangsu, the PRC.

From 1 January 2007 to 27 August 2007, Jiangsu Wenrun’s immediate holding company is 江蘇恆順醋業有限公司 Jiangsu Hengshun Vinegar Industry Co., Ltd (“Jiangsu Hengshun”), a company established in the PRC and owned 62.5% equity interests of Jiangsu Wenrun. On 28 August 2007, China Opto Investment Limited (“China Opto”), a company incorporated in Hong Kong, Jiangsu Hengshun and other minority shareholders of Jiangsu Wenrun entered into a series of agreements, pursuant to which, China Opto obtained 69.44% equity interests of Jiangsu Wenrun through acquisition of equity interests from other minority shareholders and additional capital contributions. Thereafter, China Opto became the immediate holding company of Jiangsu Wenrun.

The Financial Information is presented in Renminbi (“RMB”), which is the same as the functional currency of Wenrun Group, whereas the Group is presented in Hong Kong Dollar. The financial statements of Wenrun Group will be translated to Group presentation currency in the preparation of the consolidated financial statements of the Group after Completion.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

For the purpose of preparing and presenting the Financial information for the Relevant Periods, the Wenrun Group has consistently applied HKFRSs, Hong Kong Accounting Standards (“HKAS(s)”) amendments and interpretations (“INT(s)”) issued by the HKICPA that are effective for annual accounting periods beginning on 1 January 2010.

As at the date of this report, the HKICPA issued a number of new or revised HKASs, HKFRSs, INTs (herein collectively referred to as “New HKFRSs’’), which are effective for the accounting periods beginning on or after 1 January 2007. For the purposes of preparing and presenting the Financial Information of the Relevant Periods, the Wenrun Group has adopted all of these New HKFRSs throughout the Relevant Periods.

The Wenrun Group has not early adopted the following standards, amendments and INTs that have been issued but are not yet effective as at the date of this report.

HKFRSs (Amendments)	Improvements to HKFRSs 20101
HKFRS 1 (Amendments)	Limited exemption from comparative HKFRS 7 disclosures
	for first-time adopters3
HKFRS 1 (Amendments)	Severe hyperinflation and removal of fixed dates
	for first-time adopters4
HKFRS 7 (Amendments)	Disclosure — transfer of financial assets4
HKFRS 9	Financial instruments6
HKAS 12 (Amendments)	Deferred tax: recovery of underlying assets5
HKAS 24 (Revised 2009)	Related party disclosures2
HK(IFRIC)-INT 14 (Amendments)	Prepayments of a minimum funding requirement2
HK(IFRIC)-INT 19	Extinguishing financial liabilities with equity instruments3

1 Effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate. 2 Effective for annual periods beginning on or after 1 January 2011.
2 Effective for annual periods beginning on or after 1 January 2011. 3 Effective for annual periods beginning on or after 1 July 2010.
3 Effective for annual periods beginning on or after 1 July 2010. 4 Effective for annual periods beginning on or after 1 July 2011. 5 Effective for annual periods beginning on or after 1 January 2012.
6 Effective for annual periods beginning on or after 1 January 2013.

– 72 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”) (Continued)

HKFRS 9 “Financial instruments” introduces new requirements for the classification and measurement of financial assets and will be effective from 1 January 2013, with earlier application permitted. The standard requires all recognised financial assets that are within the scope of HKAS 39 “Financial instruments: Recognition and measurement” to be measured at either amortised cost or fair value. Specifically, debt investments that (i) are held within a business model whose objective is to collect the contractual cash flows and (ii) have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost. All other debt investments and equity investments are measured at fair value. The application of HKFRS 9 might affect the classification and measurement of the Wenrun Group’s financial assets.

The directors of Jiangsu Wenrun anticipate that the application of other new and revised standards, amendments or interpretations will have no material impact on the Financial Information.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared in accordance with the HKFRSs issued by the HKICPA. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance. These policies have been consistently applied to all the Relevant Periods presented. All accounting policies are materially consistent with the accounting policies adopted by the Group, unless otherwise stated.

The Financial Information 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.

Basis of consolidation

The Financial Information incorporates the financial statements of Jiangsu Wenrun and entities controlled by Jiangsu Wenrun (its subsidiaries). Control is achieved where Jiangsu Wenrun has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year/period are included in the consolidated statements of comprehensive income 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 Wenrun Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Wenrun Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Wenrun Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

– 73 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis of consolidation (Continued)

For business combination that involves more than one exchange transaction through successive share purchases, each exchange transaction is treated separately, using the cost of the transaction and fair value information at the date of each exchange transaction, to determine the amount of any goodwill associated with that transaction. The acquiree’s net assets are stated at fair values relating to previously held interests of the Wenrun Group is a revaluation and is credited to other reserve.

Acquisition of additional interests in subsidiaries is recorded at the book value of the net assets attributable to the interests. The excess of the carrying amounts of net assets attributable to the interests over the cost of acquisition is recognised as discount on acquisition.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business, net of discounts and sales related taxes.

Revenue from sales of goods is recognised when the goods are delivered and title has been passed.

Dividend income is recognised when the shareholders’ right to receive payment has been established.

Sundry income is recognised when received.

Property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods or services, or for administrative purposes other than construction in progress are stated at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.

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 of their estimated residual value, using the straight-line method.

Construction in progress includes property, plant and equipment in the course of construction for production or for its own use purposes. Construction in progress is carried at cost less any recognised impairment loss. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

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 statements of comprehensive income in the year/period in which the item is derecognised.

– 74 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Prepaid lease payments

Payment for obtaining land use rights is accounted for as prepaid lease payments and is charged to the consolidated statements of comprehensive income on a straight-line basis over the lease terms.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

Retirement benefit costs

Payments to defined contribution retirement benefit plans are charged as an expenses when employees have rendered service entitling them to the contributions.

Income tax

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/period. Taxable profit differs from profit as reported in the consolidated statements of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items of income or expense that are never taxable and deductible. The Wenrun Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Wenrun Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity respectively.

– 75 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Research and development expenditure

Expenditure on research and development activities is recognised as an expense in the year/period in which it is incurred.

Impairment

At the end of the reporting period, the Wenrun Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of an asset is estimated in order to determine the extent of the impairment loss, if any. 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.

Financial instruments

Financial assets and financial liabilities are recognised on the consolidated statements of financial position 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 are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

The Wenrun Group’s financial assets are classified into loans and receivables and available-for-sale financial assets. 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 market place. The accounting policies adopted in respect of each category of financial assets are set out below.

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 the end of reporting period subsequent to initial recognition, loans and receivables (including trade and other receivables, amount due from holding company and minority shareholder of a subsidiary, pledged bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

– 76 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial instruments (Continued)

Financial assets (Continued)

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments.

Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are carried at cost less any identified impairment loss at each end of reporting period subsequent to initial recognition (see accounting policy on impairment loss on financial assets below).

Effective interest method

Income is recognised on effective interest basis for the debt instruments.

Impairment loss on financial assets

For all of the Wenrun Group’s financial assets, objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it is becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Wenrun Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, and observable changes in national or local economic conditions that correlate with default on receivables.

For loans and receivables 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 asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

– 77 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial instruments (Continued)

Financial assets (Continued)

Impairment loss on financial assets (Continued)

For available-for-sale equity investments which are carried at cost less any identified impairment loss, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For loans and receivables, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent 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

An equity instrument is any contract that evidences a residual interest in the assets of the Wenrun Group after deducting all of its liabilities. The Wenrun Group’s financial liabilities are generally classified as other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Other financial liabilities

Other financial liabilities including trade and other payables and bank borrowings are subsequently measured at amortised cost, using the effective interest method.

Effective interest method

Equity instruments

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

– 78 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial instruments (Continued)

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Wenrun 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 receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

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 the end of reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that 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 retranslation of monetary items, are recognised in profit or loss in the year/period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the year/ period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the Relevant Periods.

Government grants

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Wenrun Group recognises as expenses the related costs for which the grants are intended to compensate. Government grants related to depreciable assets are recognised as a deferred income in the statements of financial position and transferred to profit or loss over the useful lives of the related assets. Other government grants are recognised as revenue over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Wenrun Group with no future related costs are recognised in profit or loss in the period in which they become receivable.

Borrowing costs

All other borrowing costs are recognised in profit or loss in the year/period in which they are incurred.

– 79 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued) NOTES TO THE FINANCIAL INFORMATION (Continued)

4. CAPITAL RISK MANAGEMENT

The Wenrun Group’s policy is to maintain s strong capital base to ensure that the group entities will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debts and equity balance. The Wenrun Group’s overall strategy remains unchanged throughout the Relevant Periods.

The capital structure of the Wenrun Group consists of net debts, which include bank borrowings, bank balances and equity attributable to owners of Jiangsu Wenrun, comprising capital and reserves.

The directors of Jiangsu Wenrun review the capital structure on an annual basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Wenrun Group will balance its overall capital structure through the payment of dividends, capital injection as well as the issue of new debts or the redemption of existing debts.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

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

Allowance for trade and other receivables

The provision policy for impairment of trade and other receivables of the Wenrun Group is based on the ongoing evaluation of the collectability, and ageing analyses of the outstanding receivables and management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including creditworthiness and the past collection history of each customer. If the financial conditions of the customers of the Wenrun Group were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Estimated impairment of inventories

The management of the Wenrun Group reviews the inventories listing on a product-by-product basis at the end of the reporting period. The management estimates the net realisable value for such items based primarily on the latest invoice prices and current market conditions. The Wenrun Group provided the allowance for inventories of approximately RMB7,019,000 for the year ended 31 December 2009 (years ended 31 December 2007 and 2008 and ten months ended 31 October 2010: Nil).

6. FINANCIAL INSTRUMENTS

Categories of financial instruments

Financial assets — Available-for-sale investment — Loans and receivables (including cash and cash equivalents) Financial liabilities — Other financial liabilities, at amortised costs	2007 RMB’000 520 76,891 77,411 94,534	As at 31 December 2008 2009 RMB’000 RMB’000 520 520 58,964 57,757 59,484 58,277 91,837 92,166	As at 31 October 2010 RMB’000 — 82,180
			82,180

			106,760

– 80 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

6. FINANCIAL INSTRUMENTS (Continued)

Financial risk management objectives and policies

The Wenrun Group’s major financial instruments include available-for-sale investment, trade and other receivables, bills receivable, amounts due from holding company and a minority shareholder of a subsidiary, pledged bank deposits, trade and other payables and bank borrowings, as well as bank balances and cash. 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 directors manage and monitor these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

Interest rate risk

The Wenrun Group is exposed to fair value interest rate risk in relation to its fixed-rate bank borrowings. The Wenrun Group is also exposed to cash flow interest rate risk primarily relates to variable-rate pledged bank deposits, bank balances and bank borrowings.

The Wenrun Group currently has not used any interest rate swaps in order to mitigate its exposure associated with fluctuations relating to interest cash flows. However, the management monitors interest rate exposure and will consider necessary actions when significant interest rate exposure is anticipated.

The Wenrun Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of The People’s Bank of China’s benchmark interest rate arising from the Wenrun Group’s variable rate bank borrowings.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments relating to variable-rate bank balances and bank borrowings as at 31 December 2007, 2008 and 2009 and 31 October 2010. The analysis is prepared assuming the amount of assets outstanding at the end of the reporting period was outstanding for the whole year/period. A 20 basis points increase or decrease is used for each of the years ended 31 December 2007, 2008 and 2009 and ten months ended 31 October 2010 when reporting interest rate risk internally to the directors and represents the directors’ assessment of the reasonably possible change in interest rates.

If interest rates had been 20 basis points higher and all other variables were held constant, the Wenrun Group’s profit for each of the years ended 31 December 2007 would decrease by approximately RMB126,000 and for the ten months period ended 31 October 2010 would decrease by approximately RMB15,000 and the Wenrun Group’s loss for the years ended 31 December 2008 and 2009 would decrease by approximately RMB114,000 and RMB38,000 respectively.

If interest rates had been 20 basis points lower and all other variables were held constant, there would be an equal and opposite impact on profit (loss) for the respective year/period.

– 81 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

6. FINANCIAL INSTRUMENTS (Continued)

Market risk (Continued)

Currency risk

Certain bank balances, trade and other receivables, trade and other payables, bank borrowings are denominated in currencies other than the functional currency of the Wenrun Group. The Wenrun Group currently does not have a foreign currency hedging policy. However, the directors monitor foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

The carrying amounts of the Wenrun Group’s foreign currency denominated monetary assets and monetary liabilities at end of the reporting period are as follows:

HK$ United States dollar	Assets As at As at 31 December 31 October 2007 2008 2009 2010 RMB’000 RMB’000 RMB’000 RMB’000 — 27 1,803 2,062 11,515 12,164 15,028 33,113	Liabilities
		As at As at 31 December 31 October 2007 2008 2009 2010 RMB’000 RMB’000 RMB’000 RMB’000 — — — — 6,258 7,577 5,055 9,251

Sensitivity analysis

The Wenrun Group is mainly exposed to the risk of fluctuations in the United States dollar. The following table illustrates the sensitivity to profit or loss where relevant functional currencies strengthen 2% against respective foreign currencies. 2% is the sensitivity rate that represents the directors’ assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation to relevant functional currencies at year end for a 2% change in foreign currency rates. For a 2% weakening of relevant functional currencies against respective foreign currency, there would be an equal and opposite impact on profit (loss) for the respective year/period.

HK$ United States dollar	Decrease in profit or increase in loss Ten months ended Year ended 31 December 31 October 2007 2008 2009 2010 RMB’000 RMB’000 RMB’000 RMB’000 — (1) (36) (41) (105) (92) (199) (477)

– 82 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

6. FINANCIAL INSTRUMENTS (Continued)

Credit risk

The Wenrun Group’s credit risk is primarily attributable to trade and other receivables, amount due from holding company and minority shareholder of a subsidiary, pledged bank deposits and bank balances.

The Wenrun Group’s maximum exposure to credit risk which will cause a financial loss in the event of the counterparties failure to perform their obligations as at the end of the reporting period in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the statements of financial position.

In order to minimise credit risk, management reviews the recoverable amount of each individual debt regularly to ensure that adequate impairment losses are recognised for irrecoverable debts. In this regard, management considers that the Wenrun Group’s credit risk is significant reduced.

The Wenrun Group has concentration of credit risk, as at 31 December 2007, 2008 and 2009 and 31 October 2010, about 40%, 36%, 39% and 55% of the Wenrun Group’s trade receivables are due from five major customers. In addition, the Wenrun Group also has concentration of credit risk in respect to its amount due from holding company. The management closely monitors the subsequent settlement of the counterparties. In this regard, the directors of the Wenrun Group consider that the credit risk is significantly reduced.

The credit risk on liquid funds is limited because the Wenrun Group’s bank balances are deposited with banks of high credit ratings in the PRC.

Liquidity risk

In the management of the liquidity risk, the Wenrun Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Wenrun Group’s operations and mitigate the effects of fluctuations in cash flows.

The following table details the Wenrun Group’s remaining contractual maturities for its non-derivative financial liabilities. It has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Wenrun Group can be required to pay. The table includes both interest and principal cash flows.

– 83 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

6. FINANCIAL INSTRUMENTS (Continued)

Liquidity risk (Continued)

Weighted average interest rate As at 31 December 2007 Non-derivative financial liabilities Trade and other payables N/A Bank borrowings 5.88 Weighted average interest rate As at 31 December 2008 Non-derivative financial liabilities Trade and other payables N/A Bank borrowings 5.85 Weighted average interest rate As at 31 December 2009 Non-derivative financial liabilities Trade and other payables N/A Bank borrowings 5.14 Weighted average interest rate As at 31 October 2010 Non-derivative financial liabilities Trade and other payables N/A Bank borrowings 4.96	On demand or less than Between Between 3 months 3 to 6 months 7 to 12 months RMB’000 RMB’000 RMB’000 49,534 — — — 12,416 11,588 49,534 12,416 11,588 On demand or less than Between Between 3 months 3 to 6 months 7 to 12 months RMB’000 RMB’000 RMB’000 44,837 — — 11,055 — 30,546 55,892 — 30,546 On demand or less than Between Between 3 months 3 to 6 months 7 to 12 months RMB’000 RMB’000 RMB’000 54,166 — — 20,164 6,050 12,581 74,330 6,050 12,581 On demand or less than Between Between 3 months 3 to 6 months 7 to 12 months RMB’000 RMB’000 RMB’000 64,746 — — 43,730 — — 108,476 — —	Total Between Undiscounted 1 to 3 years cash flows RMB’000 RMB’000 — 49,534 23,732 47,736 23,732 97,270 Total Between Undiscounted 1 to 3 years cash flows RMB’000 RMB’000 — 44,837 7,580 49,181 7,580 94,018 Total Between Undiscounted 1 to 3 years cash flows RMB’000 RMB’000 — 54,166 — 38,795 — 92,961 Total Between Undiscounted 1 to 3 years cash flows RMB’000 RMB’000 — 64,746 — 43,730 — 108,476	Total Carrying amount RMB’000 49,534 45,000
			94,534

			Total Carrying amount RMB’000 44,837 47,000
			91,837

			Total Carrying amount RMB’000 54,166 38,000
			92,166

			Total Carrying amount RMB’000 64,746 42,014
			106,760

The amounts included above for variable interest rate instruments for non-derivative financial liabilities is subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period.

– 84 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

6. FINANCIAL INSTRUMENTS (Continued)

Fair value

The directors consider that carrying values of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their corresponding fair values.

7. REVENUE AND SEGMENT INFORMATION

Segment revenue and results

The Wenrun Group is principally engaged in design, manufacturing and sale of LED and semi-conductor lighting products. The Wenrun Group’s chief operating decision maker has been identified as the directors of Jiangsu Wenrun, who reviews the revenue analysis by major products of the Wenrun Group when making decision about allocating resources and assessing performance of the Wenrun Group.

The Wenrun Group’s major products include:

i)	LED Components;
ii)	Display Devices;
iii)	Surface Mount Device; and
iv)	Others

The following is an analysis of the Wenrun Group’s revenue and results by reportable segments:

For the year ended 31 December 2007

LED Component RMB’000 Revenue — external sales 53,965 Revenue — segment results 10,770 Unallocated corporate income Unallocated corporate expenses Finance costs Profit before taxation	Display Device RMB’000 31,345 287	Surface Mount Device RMB’000 13,633 (4,358)	Others Consolidated RMB’000 RMB’000 — 98,943 — 6,699 6,928 (7,034) (4,114) 2,479

– 85 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

7. REVENUE AND SEGMENT INFORMATION (Continued)

Segment revenue and results (Continued)

For the year ended 31 December 2008

LED Component RMB’000 Revenue — external sales 40,596 Revenue — segment results 1,340 Unallocated corporate income Unallocated corporate expenses Finance costs Loss before taxation	Display Device RMB’000 22,322 (737)	Surface Mount Device RMB’000 33,315 375	Others Consolidated RMB’000 RMB’000 13,307 109,540 1,373 2,351 4,406 (9,908) (2,170) (5,321)

For the year ended 31 December 2009

LED Component RMB’000 Revenue — external sales 30,017 Revenue — segment results (972) Unallocated corporate income Unallocated corporate expenses Finance costs Loss before taxation	Display Device RMB’000 23,815 2,233	Surface Mount Device RMB’000 33,020 3,757	Others Consolidated RMB’000 RMB’000 10,283 97,135 4,208 9,226 5,127 (17,942) (2,075) (5,664)

– 86 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

7. REVENUE AND SEGMENT INFORMATION (Continued)

Segment revenue and results (Continued)

For the ten months ended 31 October 2009 (Unaudited)

LED Component RMB’000 Revenue — external sales 23,267 Revenue — segment results (2,210) Unallocated corporate income Unallocated corporate expenses Finance costs Loss before taxation	Display Device RMB’000 18,739 985	Surface Mount Device RMB’000 23,197 2,089	Others Consolidated RMB’000 RMB’000 7,111 72,314 3,539 4,403 1,244 (14,505) (1,713) (10,571)

For the ten months ended 31 October 2010

LED Component RMB’000 Revenue — external sales 49,802 Revenue — segment results 10,950 Unallocated corporate income Unallocated corporate expenses Finance costs Profit before taxation	Display Device RMB’000 34,589 6,349	Surface Mount Device RMB’000 70,975 22,210	Others Consolidated RMB’000 RMB’000 15,396 170,762 3,243 42,752 2,133 (14,067) (1,715) 29,103

– 87 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

7. REVENUE AND SEGMENT INFORMATION (Continued)

Segment assets

The following is an analysis of the Wenrun Group’s assets by reportable segments:

As at 31 December 2007

			Surface
	LED	Display	Mount
	Component	Device	Device	Others	Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
ASSETS
Segment assets — inventories	9,324	6,432	10,177	2,216	28,149
Other assets					185,115
					213,264

As at 31 December 2008

			Surface
	LED	Display	Mount
	Component	Device	Device	Others Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
ASSETS
Segment assets — inventories	10,293	7,289	11,613	1,867	31,062
Other assets					197,567
					228,629

As at 31 December 2009
			Surface
	LED	Display	Mount
	Component	Device	Device	Others Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
ASSETS
Segment assets — inventories	8,311	8,382	14,684	2,703	34,080
Other assets					189,028
					223,108

– 88 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

7. REVENUE AND SEGMENT INFORMATION (Continued)

Segment assets (Continued)

As at 31 October 2010

			Surface
	LED	Display	Mount
	Component	Device	Device	Others	Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
ASSETS
Segment assets — inventories	12,945	9,209	22,656	5,830	50,640
Other assets					214,046
					264,686

Notes:

(i) Segment results represent the profit or loss earned by each segment without allocation of other income, gains and losses, centralised administrative expense, research and development expenses and finance costs. This is the measure reported to the directors of Jiangsu Wenrun for the purpose of resource allocation and performance assessments.
(ii) Other than inventories, all assets are not allocated to reportable segments. A customer could purchase inventories from different reportable segments, hence trade receivables cannot be allocated to respective segments on a reasonable basis. All liabilities are not allocated to operating segments, as the Wenrun Group’s trade payables represented payables to common suppliers of the operating segments, which cannot be allocated to respective segments on a reasonable basis.

Major customers

Revenue from customers of the corresponding years/periods contributing over 10% of the total revenue of the Wenrun Group are as follows:

				Ten months ended	Ten months ended
	Year	ended 31 December		31	October
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Customer A	11,140	11,991	11,329	8,458	27,234
Customer B	8,407	6,303	6,248	4,979	23,260

Geographical disclosures

The Wenrun Group operates in the PRC. All of the non-current assets of the Wenrun Group are located in the PRC.

– 89 –

APPENDIX IIB

ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

					Total	RMB’000		—	—	—	—	—	—	—	—	—
	2010	Retirement	benefits	Salaries and scheme	allowance contribution	RMB’000 RMB’000		— —	— —	— —	— —	— —	— —	— —	— —	— —
Ten months ended 31 October					Total Fee	RMB’000 RMB’000	(unaudited)	44 —	— —	— —	— —	— —	— —	— —	— —	44 —
Year ended 31 December	2007 2008 2009 2009	Retirement Retirement Retirement Retirement	benefits benefits benefits benefits	Salaries and scheme Salaries and scheme Salaries and scheme Salaries and scheme	Fee allowance contribution Total Fee allowance contribution Total Fee allowance contribution Total Fee allowance contribution	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	(unaudited) (unaudited) (unaudited)	Guo Yuguo_(note i)_ — 73 2 75 — 97 3 100 — 43 1 44 — 43 1	Ye Youwei_(note ii)_ — — — — — — — — — — — — — — —	Gao Gunter_(note iii)_ — — — — — — — — — — — — — — —	Wang Mingfa_(note iv)_ — — — — — — — — — — — — — — —	Liu Jing_(note v)_ — — — — — — — — — — — — — — —	Lan Youjin_(note v)_ — — — — — — — — — — — — — — —	Fang Ping_(note vi)_ — — — — — — — — — — — — — — —	You Zhenlong_(note vii)_ — — — — — — — — — — — — — — —	— 73 2 75 — 97 3 100 — 43 1 44 — 43 1	Notes:	(i) Appointed as director on 26 March 2002 and removed as director on 15 May 2009. Details are set out in Note 30.	(ii) Appointed as director on 30 April 2002.	(iii) Appointed as director on 27 September 2007 and resigned as director on 1 January 2009.	(iv) Appointed as director on 21 September 2005 and resigned as director on 27 September 2007.	(v) Appointed as director on 27 September 2007.	(vi) Appointed as director on 1 January 2009.	(vii) Appointed as director on 15 May 2009.

– 90 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

8. DIRECTORS’ REMUNERATION AND EMPLOYEES’ EMOLUMENTS

Employees’ emoluments

The emoluments of the five highest paid individuals for the Relevant Periods, which were individually less than HK$1,000,000, were as follows:

Salaries and other benefits Performance related bonus Contributions to retirement benefit scheme	Ten months ended Year ended 31 December 31 October 2007 2008 2009 2009 2010 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 296 389 368 277 456 — 649 — — — 10 12 3 3 3 306 1,050 371 280 459	Ten months ended Year ended 31 December 31 October 2007 2008 2009 2009 2010 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 296 389 368 277 456 — 649 — — — 10 12 3 3 3 306 1,050 371 280 459
		459

No emoluments have been paid or payable by the Wenrun Group to the five highest paid individuals as an inducement to join or upon joining the Wenrun Group, or as compensation for loss of office in any of the three years ended 31 December 2007, 2008 and 2009 and ten months ended 31 October 2009 and 2010.

9. OTHER INCOME, GAINS AND LOSSES

				Ten months ended	Ten months ended
	Year ended 31 December			31 October
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Other income
Government subsidies_(Note)_	6,543	3,992	4,786	979	1,562
Bank interest income	184	154	101	80	170
Dividend income from
available-for-sale investment	27	30	35	35	36
Others	174	230	205	150	365
	6,928	4,406	5,127	1,244	2,133
Other gains and losses
Allowance for bad and
doubtful debts	(1,294)	(920)	(3,010)	(3,009)	(891)
Impairment loss of amount due from
holding company	—	—	(1,870)	(865)	(1,456)
Gain (loss) on disposal of property,
plant and equipment	3,438	—	(65)	(65)	—
Net foreign exchange losses	(256)	(1,607)	(67)	(44)	(309)
	1,888	(2,527)	(5,012)	(3,983)	(2,656)
	8,816	1,879	115	(2,739)	(523)

Note: The amounts mainly represent subsidies received from the Zhenjiang Municipal Government for subsidising the Wenrun Group’s expenditure in technological research and market development.

– 91 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

10. FINANCE COSTS

						Ten months ended	Ten months ended	Ten months ended
		Year ended 31 December				31	October
		2007	2008	2009		2009		2010
		RMB’000	RMB’000	RMB’000		RMB’000		RMB’000
					(Unaudited)
	Interest on bank borrowings wholly
	repayable within five years	4,114	2,170	2,075		1,713		1,715

11.	PROFIT (LOSS) BEFORE TAXATION
						Ten months ended
		Year ended 31 December				31	October
		2007	2008	2009		2009		2010
		RMB’000	RMB’000	RMB’000		RMB’000		RMB’000
					(Unaudited)
	Profit (loss) before taxation
	has been arrived
	at after charging:
	Staff costs:
	Directors’ remuneration	75	100	44		44		—
	Other staff cost	12,334	15,661	14,126		10,026		12,983
	Contributions to retirement
	benefits scheme
	(excluding directors)	1,879	2,791	3,196		2,628		2,514
		14,288	18,552	17,366		12,748		15,497
	Auditors’ remuneration	45	85	83		40		45
	Cost of inventories recognised
	as an expense	80,394	95,706	77,772		60,111		121,114
	Impairment of inventories	—	—	7,019		6,811		—
	Depreciation of property,
	plant and equipment	5,979	9,528	8,787		7,324		7,293
	Operating lease rentals paid	—	500	957		800		795
	Release of prepaid lease payments	115	115	115		94		94

– 92 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

12. INCOME TAX EXPENSE

On 16 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the “EIT Law”) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation Regulation of EIT Law (the “Implementation Regulation”). EIT Law and Implementation Regulations changed the Enterprise Income Tax rate from 33% to 25% for Wenrun Technology and Zhenjiang Wenrun from 33% to 25% from 1 January 2008.

Pursuant to relevant laws and regulations in the PRC, Jiangsu Wenrun was entitled to adopt a tax rate of 25% and was exempted from PRC income tax for the two years starting from their first profit-making year, followed by a 50% tax relief for the following three years, as Jiangsu Wenrun is registered as a sino-foreign investment joint venture. For the years ended 31 December 2007 and 2008, Jiangsu Wenrun enjoyed the 50% tax relief. On 21 October 2008, Jiangsu Wenrun was approved as Hi-New Technology Enterprise by the relevant government authority and is entitled to adopt a tax rate of 15% for the three years ending 31 December 2011. The applicable tax rate of Jiangsu Wenrun for the year ended 31 December 2009 and the ten months ended 31 October 2010 is 15%.

The tax charge provided has been made after taking into the tax incentives as stated above.

				Ten months ended	Ten months ended	Ten months ended
	Year ended 31 December			31	October
	2007	2008	2009	2009		2010
	RMB’000	RMB’000	RMB’000	RMB’000		RMB’000
				(Unaudited)
Profit (loss) before taxation	2,479	(5,321)	(5,664)	(10,571)		29,103

Taxation at domestic
income tax rate of
(25%, 25%, 15%, 15% and
15% respectively)	619	(1,330)	(850)	(1,586)		4,365
Tax effect of income not taxable
for tax purpose	(356)	—	(940)	(234)		(222)
Tax effect of expense not deductible
for tax purpose	170	1,571	1,891	1,820		142
Income tax expense	433	241	101	—		4,285

13. EARNINGS (LOSS) PER SHARE

No earnings (loss) per share information is presented as its inclusion, for the purpose of this report, is not considered meaningful.

– 93 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

14. PROPERTY, PLANT AND EQUIPMENT

COST As at 1 January 2007 Additions Disposals Transfer As at 31 December 2007 Additions As at 31 December 2008 Additions Disposals As at 31 December 2009 Additions As at 31 October 2010 ACCUMULATED DEPRECIATION As at 1 January 2007 Charge for the year Eliminated on disposals As at 31 December 2007 Charge for the year As at 31 December 2008 Charge for the year Eliminated on disposals As at 31 December 2009 Charge for the period As at 31 October 2010 CARRYING VALUES As at 31 December 2007 As at31 December 2008 As at 31 December 2009 As at 31 October 2010	Machinery and Buildings equipment RMB’000 RMB’000 4,630 32,811 341 13,969 (4,630) — 61,296 — 61,637 46,780 864 40,917 62,501 87,697 766 908 — (80) 63,267 88,525 59 2,339 63,326 90,864 701 8,701 2,187 3,557 (1,098) — 1,790 12,258 2,859 5,817 4,649 18,075 1,851 6,011 — — 6,500 24,086 1,542 5,039 8,042 29,125 59,847 34,522 57,852 69,622 56,767 64,439 55,284 61,739	Motor Other Construction vehicles equipment in progress RMB’000 RMB’000 RMB’000 1,414 705 34,832 735 575 26,464 (197) — — — — (61,296) 1,952 1,280 — 1,498 2,022 — 3,450 3,302 — — 72 — (180) — — 3,270 3,374 — — 116 — 3,270 3,490 — 344 141 — 136 99 — (48) — — 432 240 — 296 556 — 728 796 — 305 620 — (84) — — 949 1,416 — 243 469 — 1,192 1,885 — 1,520 1,040 — 2,722 2,506 — 2,321 1,958 — 2,078 1,605 —	Total RMB’000 74,392 42,084 (4,827) — 111,649 45,301 156,950 1,746 (260) 158,436 2,514 160,950 9,887 5,979 (1,146) 14,720 9,528 24,248 8,787 (84) 32,951 7,293 40,244 96,929 132,702 125,485 120,706

– 94 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

14. PROPERTY, PLANT AND EQUIPMENT (Continued)

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

Buildings 5 years to 40 years Machinery and equipment 5 years to 12 years Motor vehicles 10 years Office equipment 4 years to 12 years

As at 31 December 2007, 2008, 2009 and 31 October 2010, the Wenrun Group’s buildings and certain machinery and equipment were pledged to secure general banking facilities. Details are set out in Note 26.

The buildings of the Wenrun Group are situated on the leasehold land in the PRC under medium-term leases.

15. PREPAID LEASE PAYMENTS

Leasehold land in the PRC under medium-term leases Analysed for reporting purpose: Current assets Non-current assets	2007 RMB’000 5,496 115 5,381 5,496	As at 31 December 2008 2009 RMB’000 RMB’000 5,381 5,266 115 115 5,266 5,151 5,381 5,266	As at 31 October 2010 RMB’000 5,172

			115 5,057
			5,172

Prepaid lease payments of the Wenrun Group are amortised over the term of the lease of 50 years.

Wenrun Group pledged its prepaid lease payments to secure general banking facilities granted to the Wenrun Group. Details are set out in Note 26.

– 95 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

16. AVAILABLE-FOR-SALE INVESTMENT

				As at
		As at 31 December		31 October
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Unlisted equity securities, at cost	520	520	520	—

The above unlisted investment represents investment in less than 1% equity interests of unlisted equity securities issued by a private PRC rural credit cooperation union. There was no quoted market price in an active market and hence was stated at cost less impairment at end of the reporting period because the range of reasonable fair value estimates was so significant that the directors of Jiangsu Wenrun are in the opinion that the fair value could not be reliably measured.

During the ten months ended 31 October 2010, this rural credit cooperation union repurchased the equity interests from the Wenrun Group at its original investment cost.

17. INVENTORIES

Raw material Work in progress Finished goods	2007 RMB’000 9,218 1,851 17,080 28,149	As at 31 December 2008 2009 RMB’000 RMB’000 6,366 10,549 2,441 2,628 22,255 20,903 31,062 34,080	As at 31 October 2010 RMB’000 16,316 1,451 32,873
			50,640

18. TRADE AND OTHER RECEIVABLES

Trade receivables Less: Allowance for bad and doubtful debts Bills receivable, aged within 90 days Other receivables_(Note)_	2007 RMB’000 32,456 (1,294) 31,162 508 4,533 36,203	As at 31 December 2008 2009 RMB’000 RMB’000 33,620 37,520 (2,214) (5,224) 31,406 32,296 848 896 3,869 4,388 36,123 37,580	As at 31 October 2010 RMB’000 59,319 (6,115)
			53,204 1,075 10,153
			64,432

Note: Other receivables comprise receivables from third parties and deposits paid to suppliers. The amounts are unsecured, interest free and recoverable within one year. All balances are neither past due nor impaired as at 31 December 2007, 2008 and 2009 and 31 October 2010.

– 96 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

18. TRADE AND OTHER RECEIVABLES (Continued)

The Wenrun Group has a policy of allowing its trade customers credit periods of 30 to 90 days.

The following is an aged analysis of trade receivables based on the invoice date, net of allowance for doubtful debts:

0 to 60 days 61 to 180 days 181 to 365 days	2007 RMB’000 22,603 7,755 804 31,162	As at 31 December 2008 2009 RMB’000 RMB’000 16,751 25,537 11,677 5,932 2,978 827 31,406 32,296	As at 31 October 2010 RMB’000 33,598 19,572 34
			53,204

Before accepting any new customer, the Wenrun Group will assess the potential customer’s credit quality and defines credit limits by customer. Limits attributed to customers are reviewed annually.

In determining the recoverability of the trade receivables, the Wenrun Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. Except for the concentration risk on few customers as disclosed in Note 6, the concentration of credit risk is limited due to the remaining customers consisting of a large number of customers. The directors also believe that there is no further credit provision required in excess of the allowance for doubtful debts.

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the trade receivables of approximately RMB30,358,000, RMB28,428,000, RMB31,469,000 and RMB53,170,000 respectively were neither past due nor impaired.

As at 31 December 2007, 2008 and 2009 and 31 October 2010, trade receivables of approximately RMB804,000, RMB2,978,000, RMB827,000 and RMB34,000 respectively were past due but not provided for as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Wenrun Group does not hold any collateral over these balances.

The following is an aged analysis of trade receivables which are past due but not impaired:

							As at
					As at 31 December		31 October
				2007	2008	2009	2010
				RMB’000	RMB’000	RMB’000	RMB’000
0	to	180	days	804	2,978	827	34

– 97 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

18. TRADE AND OTHER RECEIVABLES (Continued)

Movement in the allowance for bad and doubtful debts

Balance at beginning of the year/period Impairment losses recognised Balance at end of the year/period	2007 RMB’000 — 1,294 1,294	As at 31 December 2008 2009 RMB’000 RMB’000 1,294 2,214 920 3,010 2,214 5,224	As at 31 October 2010 RMB’000 5,224 891
			6,115

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the Wenrun Group’s trade receivables were pledged to secure general banking facilities. Details are set out in Note 26.

19. AMOUNTS DUE FROM HOLDING COMPANY AND A MINORITY SHAREHOLDER OF A SUBSIDIARY

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

20. PLEDGED BANK DEPOSITS AND BANK BALANCES AND CASH

The pledged bank deposits represent the Wenrun Group’s deposits pledged to a bank to secure short-term bills payable facilities granted to the Wenrun Group and bears interest at prevailing market rates.

Bank balances and cash comprise cash and bank balances held by the Wenrun Group with original maturity of three months or less and bearing interest at prevailing market rates.

21. TRADE AND OTHER PAYABLES

Trade payables Bills payables, aged within 90 days Other payables Payables for purchase of property, plant and equipment	2007 RMB’000 19,832 3,356 4,589 21,757 49,534	As at 31 December 2008 2009 RMB’000 RMB’000 29,436 35,167 — 9,078 8,301 7,205 7,100 2,716 44,837 54,166	As at 31 October 2010 RMB’000 39,410 16,477 7,727 1,132
			64,746

– 98 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

21. TRADE AND OTHER PAYABLES (Continued)

The average credit period on purchases of goods is 90 days. The following is an aged analysis of trade payables based on the invoice date:

0 to 60 days 61 to 180 days 181 to 365 days Over one year	As at 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 13,283 12,781 25,349 1,835 11,915 5,844 2,090 2,441 978 2,624 2,299 2,996 19,832 29,436 35,167	As at 31 October 2010 RMB’000 29,163 8,926 109 1,212
		39,410

22. BANK BORROWINGS, SECURED

Carrying amounts payable: Within one year In more than one years but not more than five years Total bank borrowings Less: Amounts due within one year shown under current liabilities	As at 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 23,000 40,000 38,000 22,000 7,000 — 45,000 47,000 38,000 (23,000) (40,000) (38,000) 22,000 7,000 —	As at 31 October 2010 RMB’000 42,014 —
		42,014 (42,014)
		—

As at 31 December 2007, 2008 and 2009 and 31 October 2010, bank borrowings of RMB34,000,000, 23,000,000, 38,000,000 and RMB38,000,000 are fixed-rate borrowings carry effective interest rate of 5.36% to 7.29%, 5.30% to 6.85%, 5.04% to 5.18% and 4.86% to 5.31% respectively. The remaining bank borrowings as at 31 December 2007, 2008 and 31 October 2010 of RMB11,000,000, RMB24,000,000 and RMB4,014,000 are variable-rate borrowings carry average interest at 7.97%, 5.81% and 3.09% respectively.

– 99 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

23. REGISTERED CAPITAL

At beginning of the year/period Capital injection by capitalisation of statutory reserve and accumulated profit_(Note (a)) Capital injection(Note (b))_ At end of the year/period	As at 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 40,000 110,951 134,920 15,000 — — 55,951 23,969 80 110,951 134,920 135,000	As at 31 October 2010 RMB’000 135,000 — —
		135,000

Notes:

(a) On 10 September 2007, the board of directors of Jiangsu Wenrun approved a resolution to capitalise RMB15,000,000 from its statutory reserve and accumulated profits.
(b) On 12 October 2007, 19 October 2007, 3 October 2008 and 22 December 2009, China Opto made its capital injection of RMB16,001,000, RMB39,950,000, RMB23,969,000 and RMB80,000 to Jiangsu Wenrun respectively.

24. CAPITAL COMMITMENTS

At the end of the reporting period, the Wenrun Group had the following capital commitments:

				As at
	As at 31 December			31 October
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Capital expenditure commitments
in respect of the acquisition
of property, plant and equipment
contracted for but not provided
in the Financial Information	480	200	—	10,204

25. RETIREMENT BENEFITS SCHEMES

The PRC employees of the Wenrun Group are members of a state-managed retirement benefit scheme operated by the local government. The Wenrun Group is required to contribute a certain percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Wenrun Group with respect to the retirement benefit scheme is to make the specified contributions.

During each of the years ended 31 December 2007, 2008 and 2009 and ten months ended 31 October 2010, the Wenrun Group made total contributions to the retirement benefit schemes approximately of RMB1,881,000, RMB2,794,000, RMB3,197,000 and RMB2,514,000 respectively.

– 100 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

26. PLEDGED ASSETS

The Wenrun Group pledged its buildings, certain machinery and equipment and prepaid lease payments to secure the general banking facilities and bills payable. The carrying values of the pledged assets are as follows:

Buildings Machinery and equipment Prepaid lease payments Trade receivables Bank deposits	As at 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 32,459 30,113 29,328 — — 62,337 5,496 5,381 5,266 — — — 1,920 — 4,539 39,875 35,494 101,470	As at 31 October 2010 RMB’000 28,392 57,491 5,171 3,575 9,310
		103,939

27. DEEMED ACQUISITION OF A SUBSIDIARY

During the year ended 31 December 2007, Jiangsu Wenrun made additional capital injection of RMB800,000 into Zhenjiang Wenrun. Accordingly, equity interest of Zhenjiang Wenrun owned by Jiangsu Wenrun increased from 50% to 70%. Thereafter, Zhenjiang Wenrun became a non-wholly owned subsidiary of the Wenrun Group. This transaction has been accounted for using purchase method.

The net assets acquired in the transaction are as follows:

The net assets acquired in the transaction are as follows:
	Carrying amount
	and fair value at the date
	of capital injection
	RMB’000
Net assets acquired
Trade and other receivables	1,533
Bank balances and cash	832
Trade and other payables	(365)
	2,000
Less: Interests previously acquired	(600)
Non-controlling interests	(600)
Total capital injection	800
Net cash inflow arising on acquisition
Net cash for capital injection	(800)
Bank balances and cash acquired	832
	32

– 101 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

27. DEEMED ACQUISITION OF A SUBSIDIARY (Continued)

Zhenjiang Wenrun had no significant contribution to the Wenrun Group’s revenue and profit between the date of capital injection and 31 December 2007.

If the capital injection had been completed on 1 January 2007, total revenue and profit for the Wenrun Group for the year ended 31 December 2007 would have been RMB99,429,000 and RMB2,047,000 respectively. The pro forma information is for illustrative purpose only and is not necessarily and indication of revenue and results of operations of the Wenrun Group that actually would have been achieved if the capital injection been completed on 1 January 2007, nor is it intended to be a projection of future results.

28. RELATED PARTY TRANSACTIONS

In addition to the amounts due from holding company and a minority shareholder of a subsidiary disclosed in Note 19, the Wenrun Group had the following related party transactions:

				Ten months ended	Ten months ended
	Year	ended 31 December		31	October
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Revenue from sales
of finished goods
to a related company_(Note)_	—	2,650	983	983	—

Note: The related company is wholly owned by the brother of Mr. Guo Yuguo (“Mr. Guo”), a former director of the Jiangsu Wenrun.

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the trade receivables of approximately Nil, RMB1,129,000, RMB741,000 and RMB741,000 respectively with the related company has been included in the trade receivables balance in Note 18. Such balances had been fully impaired in respective years/ period.

Compensation of key management personnel

The remuneration of directors and other members of key management during the years ended 31 December 2007, 2008 and 2009 and ten months ended 31 October 2009 and 2010 were as follows:

Short-term benefits Post-employment benefits	Ten months ended Year ended 31 December 31 October 2007 2008 2009 2009 2010 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 333 469 504 414 506 10 12 7 6 3 343 481 511 420 509	Ten months ended Year ended 31 December 31 October 2007 2008 2009 2009 2010 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 333 469 504 414 506 10 12 7 6 3 343 481 511 420 509
		509

– 102 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(A) FINANCIAL INFORMATION (Continued)

NOTES TO THE FINANCIAL INFORMATION (Continued)

29. MAJOR NON-CASH TRANSACTIONS

During the year ended 31 December 2008, the Wenrun Group utilised approximately RMB5,279,000 of deposits paid for the acquisition of property, plant and equipment.

30. LITIGATION

During the year ended 31 December 2009, the directors of Jiangsu Wenrun became aware of internal control deficiencies and carried out an investigation of certain sales transactions handled by a former executive director and general manager, Mr. Guo (the “Transactions”) and balances related to the Transactions. Based on the investigations conducted by the directors, Jiangsu Wenrun removed Mr. Guo as executive director and general manager on 15 May 2009 and an investigation and legal action has been commenced by the relevant authorities in the PRC for allegations in connection with Mr. Guo’s breach of fiduciary duties as a director and the damages arising from his misuse of Wenrun Group’s resources, such as Jiangsu Wenrun’s brands and information on customers (“Sales Information”). The Jiangsu Wenrun alleged that Mr. Guo have directly or indirectly through the assistance of an independent third party, established a business in selling the products that are highly similar to Wenrun Group’s products and misused Wenrun Group’s Sales Information belonging to Wenrun Group.

Based on the legal opinions issued by the Zhong Lun Law Firm, it is not probable that the outcome of the litigation will result in additional costs or further economic loss to Wenrun Group, accordingly, no liability has been accrued by the Wenrun Group for the Relevant Periods and there is no contingent liability in relation thereto as at 31 October 2010.

31. CONTINGENT LIABILITIES

Under the Interim Regulations on Collection and Payment of Social Insurance Premiums (“Interim Regulations”) (社會保險費徵繳暫行條例) implemented from 22 January 1999 and the Interim Measures Concerning the Administration of the Registration of Social Insurance (社會保險登記管理暫行辦法) adopted since 19 March 1999, employers in the PRC should register social insurance with the local social insurance authorities, and make contributions to the basic pension insurance fund, basic medical insurance fund and unemployment insurance fund for their employees.

Pursuant to the Interim Regulation, the relevant authorities (i.e. the labour security administration authorities or the tax authorities) in respect of the social insurance fund have authority to demand payment from Wenrun Group for any outstanding social insurance premiums. The PRC lawyer has advised that a possible penalty or fine may be demanded on the outstanding social insurance premiums on time as demanded by the relevant authorities in future.

The amount of outstanding social insurance premiums which was not demanded by the relevant authorities for the years ended 31 December 2007, 2008 and 2009 and the ten months ended 31 October 2010 was RMB625,000, RMB970,000, RMB380,000 and RMB534,000 respectively. The Directors of Wenrun Group confirm that up to the date of this report, the Wenrun Group has not received any such demand from the relevant authorities and the Wenrun Group will pay the outstanding social insurance premiums on time upon receipt of any demand from the relevant authorities in future. Based on the opinion of the PRC lawyer and the preliminary assessment of the amount of overdue social insurance premiums, the Directors are of the view that there is no material adverse impact on the Wenrun Group as a result of the non-compliance with the social insurance scheme. Pursuant to the Agreement, the Vendor shall indemnify the Purchaser against all loss and damages in connection with the non-compliance with the social insurance schemes of the PRC Subsidiary.

– 103 –

APPENDIX IIB ACCOUNTANTS’ REPORT ON THE PRC SUBSIDIARY

(B) SUBSEQUENT EVENTS

Wenrun Group did not have any significant event occurred subsequent to the Relevant Period.

(C) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Wenrun Group have been prepared in respect of any period subsequent to 31 October 2010.

Yours faithfully,

Zenith CPA Limited

Certified Public Accountants Cheng Po Yuen

Practising Certificate Number: P04887 Hong Kong

– 104 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(A) ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

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TO THE DIRECTORS OF GREENFIELD CHEMICAL HOLDINGS LIMITED

We report on the unaudited pro forma financial information (“Unaudited Pro Forma Financial Information”) of Greenfield Chemical Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition (the “Acquisition”) of the entire issued share capital of Ace Winner Holdings Limited (hereinafter together with its subsidiaries and the Group upon completion of the Acquisition referred to as the “Enlarged Group”) might have affected the financial information of the Group presented in the circular dated 25 February 2011 (the “Circular”) for inclusion in Appendix III to the Circular. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in Section B of this appendix.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 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.

Basis of opinion

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

– 105 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purpose only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of the financial position of the Enlarged Group as at 30 June 2010 or any future date.

Opinion

(a) the 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 Group; and
(c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

25 February 2011

– 106 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(B) BASIS OF PREPARATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The Unaudited Pro Forma Financial Information of the Enlarged Group is prepared to illustrate the effect of the acquisition of the entire issued share capital of Ace Winner Holdings Limited (“Ace Winner”) from China Century Worldwide Limited (the “Vendor”). The aggregate consideration for the Acquisition is HK$400,000,000, which shall be paid by the Company to the Vendor and shall be satisfied by cash of HK$335,000,000 and issuing convertible bonds with principal amount of HK$65,000,000 to the Vendor.

The Unaudited Pro Forma Financial Information is prepared based on the unaudited condensed consolidated statement of financial position of the Group as at 30 June 2010 as extracted from the interim report of the Company issued on 27 August 2010, the statement of financial position of China Opto Investment Limited (“China Opto”) as at 31 October 2010 and the consolidated statement of financial position of Jiangsu Wenrun Optoelectronic Co., Ltd. and its subsidiaries (“Jiangsu Wenrun Group”) as at 31 October 2010 as extracted from the accountants’ reports set out in Appendices IIA and IIB to this circular, respectively, after making pro forma adjustments relating to the Acquisition, as if the Acquisition had been completed on 30 June 2010. The reporting accountants and the auditor of the underlying financial statements of China Opto and Jiangsu Wenrun Group is Zenith CPA Limited. Disclaimer opinion and qualified opinion were expressed by Zenith CPA Limited in respect of the accountants’ reports and auditors’ reports of China Opto and Jiangsu Wenrun Group, respectively. Details of basis of disclaimer and qualified audit opinions are set out in Appendices IIA and IIB.

In preparing the Unaudited Pro Forma Financial Information, the financial position of Ace Winner is not included, as Ace Winner is incorporated on 9 September 2010 and in the opinion of the directors of the Company, the exclusion will have no significant impact to the Enlarged Group.

The Unaudited Pro Forma Financial Information is based on the aforesaid historical data after giving effect to the pro forma adjustments that are (i) directly attributable to the transactions and (ii) factually supportable. A narrative description of the pro forma adjustments is summarised in the accompanying notes.

The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company for illustrative purpose only and is based on a number of assumptions, estimates, uncertainties and currently available information. Accordingly, and because of its nature, the Unaudited Pro Forma Financial Information does not purport to predict what the financial position of the Enlarged Group will be on completion of the Acquisition.

– 107 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(C) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Non-current assets Investments in subsidiaries Property, plant and equipment Prepaid lease payments Interests in associates Goodwill Available-for-sale investments Loan receivable Deposits paid for acquisition of property, plant and equipment Deferred tax assets Current assets Prepaid lease payments Inventories Trade and other receivables Tax recoverable Pledged bank deposits Bank balances and cash (overdrafts) Non-current assets classified as held for sale	Unaudited condensed consolidated statement of financial position of the Group as at 30 June 2010 HK$’000 (Note 1) — 71,014 34,133 136,392 — 10 159,055 — 163 400,767 808 25,283 91,026 84 — 164,431 281,632 — 281,632	Consolidated statement of financial position of Jiangsu Wenrun Group as at 31 October 2010 extracted from Appendix IIB RMB’000 (Note 2) — 120,706 5,057 — — — — 5,988 — 131,751 115 50,640 64,432 — 9,310 8,438 132,935 — 132,935	Consolidated statement of financial position of Jiangsu Wenrun Group as at 31 October 2010 translated into Hong Kong dollars HK$’000 (Note 2) — 138,583 5,806 — — — — 6,875 — 151,264 132 58,140 73,975 — 10,689 9,688 152,624 — 152,624	Statement of financial position of China Opto as at 31 October 2010 extracted from Appendix IIA RMB’000 (Note 2) 95,000 — — — — — — — — 95,000 — — 45 — — — 45 50,000 50,045	Statement of financial position of China Opto as at 31 October 2010 translated into Hong Kong Pro forma Pro forma dollars adjustment adjustment HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 4) 109,070 (109,070) — — — — 275,076 — — — — 109,070 — — 51 — — — (335,000) 51 57,405 (57,405) 57,456	Unaudited pro forma consolidated statement of financial position of the Enlarged Group as at 30 June 2010 HK$’000 — 209,597 39,939 136,392 275,076 10 159,055 6,875 163
						827,107
						940 83,423 165,052 84 10,689 (160,881)
						99,307
						—
						99,307

– 108 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(C) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

Current liabilities Trade and other payables Amounts due to holding companies of China Opto Bank borrowings due within one year-secured Tax payables Net current assets (liabilities) Total assets less current liabilities Capital and reserves Share capital Reserves Equity attributable to owners of the Company Non-controlling interests Total equity Non-current liabilities Derivative financial instruments Convertible bonds liability	Unaudited condensed consolidated statement of financial position of the Group as at 30 June 2010 HK$’000 (Note 1) 44,885 — — 6,859 51,744 229,888 630,655 27,286 405,719 433,005 197,650 630,655 — — 630,655	Consolidated statement of financial position of Jiangsu Wenrun Group as at 31 October 2010 extracted from Appendix IIB RMB’000 (Note 2) 64,746 — 42,014 2,260 109,020 23,915 155,666 135,000 20,666 155,666 — 155,666 — — 155,666	Consolidated statement of financial position of Jiangsu Wenrun Group as at 31 October 2010 translated into Hong Kong dollars HK$’000 (Note 2) 74,335 — 48,237 2,595 125,167 27,457 178,721 154,994 23,727 178,721 — 178,721 — — 178,721	Statement of financial position of China Opto as at 31 October 2010 extracted from Appendix IIA RMB’000 (Note 2) 49,161 87,273 — — 136,434 (86,389) 8,611 10 8,601 8,611 — 8,611 — — 8,611	Statement of financial position of China Opto as at 31 October 2010 translated into Hong Kong Pro forma Pro forma dollars adjustment adjustment HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 4) 56,442 (56,919) 100,199 (100,199) — — 156,641 (99,185) 9,885 12 (155,006) 9,873 (486) (33,114) 9,885 — 54,617 9,885 — 16,392 — 48,316 9,885	Unaudited pro forma consolidated statement of financial position of the Enlarged Group as at 30 June 2010 HK$’000 118,743 — 48,237 9,454
						176,434
						(77,127)
						749,980

						27,286 405,719
						433,005 252,267
						685,272 16,392 48,316
						749,980

– 109 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(C) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

Notes:

The financial information of the Group is extracted from the published interim report of the Company for the six months ended 30 June 2010 issued on 27 August 2010.
The statement of financial position of China Opto and consolidated statement of financial position of Jiangsu Wenrun Group are extracted from the accountants’ reports thereon as set out in Appendices IIA and IIB to the Circular, respectively and are translated from their presentation currency, Renminbi, to Hong Kong dollars at the rate of RMB0.871 to HK$1, which is the prevailing exchange rate as at 30 June 2010. The accountants’ reports of China Opto and Jiangsu Wenrun were prepared by Zenith CPA Limited.
The completion of the Acquisition is conditional upon the disposal of China Opto’s entire investment in 55.56% equity interest in Danyang at cost of approximately HK$56,919,000. The consideration will be settled through current account of China Opto with its former holding company, which is included in trade and other payables. Loss of HK$486,000 will be resulted from this disposal.
Goodwill of approximately HK$275,076,000 is assumed to arise from the Acquisition, which is provisionally estimated based on the excess of the aggregate of the consideration of HK$399,708,000 comprising of the fair value of the convertible bonds amounting to HK$64,708,000 and cash consideration of HK$335,000,000 and non-controlling interests of 30.56% equity interests in Jiangsu Wenrun of HK$54,617,000, over the assumed fair values of identifiable assets and liabilities acquired from the Acquisition of HK$179,249,000.

The bank balances and cash of the Unaudited Pro Forma Financial Information is a negative cash balance of HK$160,881,000. The cash consideration will be financed by the internal resources and the other borrowing which have been obtained by the Group subsequent to 30 June 2010. In the opinion of the directors, as at the date of report, the Group has sufficient cash balance to settle the shortfall.

Non-controlling interests in Jiangsu Wenrun is measured at the non-controlling interests’ proportionate share of the recognised amounts of Jiangsu Wenrun Group’s identifiable net assets.

The convertible bonds are denominated in Hong Kong dollars with principal amount of HK$65,000,000, bear interest at 3% per annum and will be matured on the date falling on the 3rd anniversary of the issue of the convertible bonds. The convertible bonds can be converted into 30,952,380 shares of the Company at conversion price of HK$2.1 per share. The Company may redeem the convertible bonds at 100% of the principal outstanding amount at any time from the date of issue to the maturity date.

In accordance with HKAS 39 “Financial Instruments: Recognition and Measurement”, the convertible bonds to be issued by the Company are assumed to contain two components, namely (i) liability component; and (ii) embedded derivatives representing the conversion option and early redemption option. The Company has engaged Roma Appraisals Limited, an independent valuer to perform valuation of the convertible bonds as if HK$65,000,000 principal amount of the convertible bonds were issued on 30 June 2010. The liability component is recognised at fair value of HK$48,316,000 which is estimated using an effective interest rate of 14% per annum. The embedded derivatives component is recognised at HK$16,392,000 which is determined by application of Black-Scholes Option Pricing Model. The fair value of the convertible bonds will be re-estimated at the date of the Acquisition. For the purpose of the preparation of the Unaudited Pro Forma Financial Information, as the fair value of the convertible bonds as a whole on the date of its issuance may not approximate the early redemption price of HK$65,000,000, it is assumed that the conversion option and the early redemption option are embedded derivatives which need to be separately accounted for.

– 110 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(C) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

Notes: (Continued)

(Continued)

The major assumptions applied by Roma Appraisal Limited for the valuation of the convertible bonds are as follow:

Risk free rate: 1.069%

Spot price: HK$1.88 per share

Exercise price: HK$2.1 per share

Expected volatility: 74.273%

Effective interest rate: 14%

The fair values of the identifiable assets and liabilities to be acquired from the Acquisition is assumed to be HK$179,249,000, which is estimated as follows:

(a) Carrying amount of net assets of China Opto as at 31 October 2010, of HK$9,885,000 reduced by HK$486,000, being loss arising from the disposal of 55.56% equity interests in Danyang;
(b) Elimination of investment cost in 69.44% equity interests in Jiangsu Wenrun of HK$109,070,000;
(c) An assignment deed was entered into between the Company, China Opto, and the Vendor on 21 September 2010. Pursuant to this assignment deed, if the Acquisition is completed, the amounts due to holding companies of China Opto, amounting to HK$100,199,000 will be assigned to the Company; and
(d) Carrying amount of net assets of Jiangsu Wenrun Group of HK$178,721,000.

– 111 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(C) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

Notes: (Continued)

(Continued)

For the purpose of preparing the Unaudited Pro Forma Financial Information, the fair value of the identifiable assets and liabilities of China Opto and Jiangsu Wenrun Group as at the date of the Acquisition are assumed to be the same as their carrying amounts as at 31 October 2010. Accordingly, the amount of goodwill is subject to change upon the completion of (i) the identification of other assets and liabilities of China Opto and Jiangsu Wenrun Group, such as intangible assets, if any; (ii) the valuation of the fair values of the identifiable assets and liabilities of China Opto and Jiangsu Wenrun Group; and (iii) the valuation of the fair value of convertible bonds, as at the date of the Acquisition.

The directors of the Company have assessed whether the goodwill may be impaired as at 30 June 2010 on a pro forma basis, in accordance with Hong Kong Accounting Standard 36 “Impairment of Assets”. According to the result of the assessment, there is no impairment indication identified as the recoverable amount of the cash generating unit which contain the goodwill, estimated based on value in use, using discounted cash flow method is higher than the carrying amount as at 30 June 2010. As a result, there is no impairment in respect of the goodwill with an assumed carrying value of HK$275,076,000.

– 112 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Set out below is the management discussion and analysis on the Target Group:

MANAGEMENT DISCUSSION AND ANALYSIS ON THE HK SUBSIDIARY

Business Review

The HK Subsidiary is a company incorporated in Hong Kong on 28 June 2007. The principal activity of the HK Subsidiary is investment holding. The HK Subsidiary is interested in 69.44% of the PRC Subsidiary as at the Latest Practicable Date.

Financial Results

Given that the consolidated financial statements have not been prepared for the HK Subsidiary, it did not record any turnover for the period from 28 June 2007 to 31 December 2007, for the two years ended 31 December 2008 and 2009 and for the ten months ended 31 October 2010.

For the period from 28 June 2007 to 31 December 2007, for the two years ended 31 December 2008 and 2009 and for the ten months ended 31 October 2010, the HK Subsidiary recorded profit/(loss) before taxation of approximately RMB972,000, RMB4,881,000, RMB(72,000) and RMB2,820,000, while the profit/(loss) after taxation of approximately RMB972,000, RMB4,881,000, RMB(72,000) and RMB2,820,000.

Capital Structure, Liquidity, Financial Resources and Gearing Ratio

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the HK Subsidiary had other payables of approximately RMB10,500,000, RMB28,000, RMB165,000 and RMB49,161,000 respectively, while total liabilities were approximately RMB70,134,000, RMB139,177,000, RMB139,329,000 and RMB136,434,000 respectively.

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the HK Subsidiary’s gearing ratio, expressed as a percentage of total liabilities over total equity, was approximately 7,141.96%, 2,373.82%, 2,405.96% and 1,584.42% respectively.

Capital Commitments

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the HK Subsidiary had capital commitments of approximately RMB24,049,000, RMB88,000, nil and nil respectively.

Contingent Liabilities

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the HK Subsidiary had no significant contingent liabilities.

Charges of Assets

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the HK Subsidiary had no charge of assets.

– 113 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Treasury Policy

For the period from 28 June 2007 to 31 December 2007, for the two years ended 31 December 2008 and 2009 and for the ten months ended 31 October 2010, the HK Subsidiary had no formal treasury policy.

Currency and Interest Rate Structure

The HK Subsidiary was set up for investment holdings in the PRC with most of the transactions denominated and settled in RMB. For the period from 28 June 2007 to 31 December 2007, for the two years ended 31 December 2008 and 2009 and for the ten months ended 31 October 2010, the HK Subsidiary was exposed to currency risk primarily through assets and borrows that were denominated in US dollar and Hong Kong Dollars. The HK Subsidiary did not enter any financial agreement to hedge against the foreign currency risk. The HK Subsidiary will suffer from the risks of fluctuation of RMB/US Dollar or RMB/Hong Kong Dollars exchange rates.

The Hong Kong Subsidiary had limited exposure to interest rate fluctuation as most of its financial assets and liabilities did not bear any interest.

Segment Information

No segment information is presented as the HK Subsidiary was set up for investment holding and did not generate any turnover.

Material Acquisition and Disposal of Subsidiaries

In 2007, the HK Subsidiary made its capital injection of RMB70,951,000 into the PRC Subsidiary. In 2008, the HK Subsidiary made its capital injection of RMB23,969,000 into the PRC Subsidiary and increased its shareholding in the PRC Subsidiary from 51.63% to 69.44%. Besides, the HK Subsidiary made its capital injection of RMB49,992,000 into Danyang. In 2009, the HK Subsidiary further injected RMB80,000 into the PRC Subsidiary, and remained the 69.44% shareholding in the PRC Subsidiary, and further injected RMB8,000 into Danyang. Save as disclosed above and the Disposal, the HK Subsidiary did not have any significant investments, material acquisitions and disposals for the period from 28 June 2007 to 31 December 2007, for the two years ended 31 December 2008 and 2009 and for the ten months ended 31 October 2010.

Employees and Remuneration Policies

As at 31 December 2007, 2008 and 2009 and 31 October 2010, there were 3 full-time permanent employees in the HK Subsidiary. Remuneration was determined by reference to market terms and the qualifications and experience of the staff concerned.

– 114 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS ON THE PRC SUBSIDIARY

Set out below is the management discussion and analysis on the PRC Subsidiary.

Business Review

The PRC Subsidiary is a company with limited liability incorporated in the PRC on 26 March 2002 with a registered capital of RMB135 million which has been fully paid. The principal activities of the PRC Subsidiary are design, manufacturing and sale of LED encapsulation and semi-conductor lighting related products. The PRC Subsidiary owns its factory, which is located at the new technology development special economy zone in Zhenjiang City, Jiangsu Province, the PRC.

Financial Results

Since LED industry is one of the fast growing industries which is supported by governments worldwide (as detailed in the section under “Reasons for the Acquisition” in the Board Letter from page 33 to 36) as well as the business sector, turnovers of the PRC Subsidiary appeared steady for the period from 2007 to 2009. Although the global financial crisis in the late 2008 hit the global economy badly, turnovers of the PRC Subsidiary were barely affected. Yet, with the expansionary monetary policies introduced by worldwide governments in the second half of 2009 (i.e. the quantitative easing carried out by the US Government as well as other countries in the world), the demand of electronic equipments and devices increased rapidly. Benefited from the booming demand in Korean and overseas market, turnovers in 2010 are expected to double as compared to 2009.

For the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010, the PRC Subsidiary recorded turnover of approximately RMB98,943,000, RMB109,540,000, RMB97,135,000 and RMB170,762,000 respectively and cost of sales of approximately RMB80,394,000, RMB95,706,000, RMB77,772,000 and RMB121,114,000 respectively. Accordingly, the PRC Subsidiary recorded gross profit of approximately RMB18,549,000, RMB13,834,000, RMB19,363,000 and RMB49,648,000 for the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010 respectively. Thus the gross profit margin was approximately 18.75%, 12.63%, 19.93% and 29.07% for the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010 respectively.

For the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010, the PRC Subsidiary recorded profit/(loss) before taxation of approximately RMB2,479,000, RMB(5,321,000), RMB(5,664,000) and RMB29,103,000, while the profit/(loss) after taxation amounted to approximately RMB2,046,000, RMB(5,562,000), RMB(5,765,000) and RMB24,818,000 respectively.

Due to the incident caused by the Ex-Director, the historical financial performance of the PRC Subsidiary for the Periods, including gross profits as well as net profits, has been adversely affected. However, after the establishment of the Internal Control System and the removal of the Ex-Director since May 2009, the financial performance of the PRC Subsidiary for the ten months ended 31 October 2010 has been improved.

– 115 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Capital Structure, Liquidity, Financial Resources and Gearing Ratio

In 2008 and 2009, the PRC Subsidiary’s registered capital increased from RMB110,951,000 to RMB134,920,000 and from RMB134,920,000 to RMB135,000,000 as a result of capital injections. Save as disclosed above, there was no increase in the registered capital of the PRC Subsidiary for the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010.

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the PRC Subsidiary had trade and other payables of approximately RMB49,534,000, RMB44,837,000, RMB54,166,000 and RMB64,746,000 respectively and total bank borrowings of approximately RMB45,000,000, RMB47,000,000, RMB38,000,000 and RMB42,014,000 respectively, while total liabilities were approximately RMB94,538,000, RMB92,096,000, RMB92,260,000 and RMB109,020,000 respectively. The increase in total liabilities is mainly caused by the increase in trade payables in respond to the increase in sales demand.

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the PRC Subsidiary had bank balances and cash on hand of approximately RMB35,518,000, RMB16,741,000, RMB9,038,000 and RMB8,438,000 respectively and pledged bank deposits of approximately RMB1,920,000, nil, RMB4,539,000 and RMB9,310,000 respectively. The declining bank balances is due to increasing investment in production facilities and working capital (i.e. inventory), in response to increasing in market demand.

The PRC Subsidiary’s principal sources of working capital during the three years ended 31 December 2007, 2008, 2009 and the ten months ended 31 October 2010 were steady and collections from customers, financing to suppliers, funds from shareholders and bank financing. As at 31 December 2007, 2008 and 2009 and 31 October 2010, the PRC Subsidiary’s current ratio, expressed as a ratio of total current assets over total current liabilities, was approximately 1.45, 1.06, 1.00 and 1.22 respectively. Due to accumulated impairment on account receivables of approximately RMB1,808,000 in connection with the sales handled by the Ex-Director as explained above and accumulated impairment on inventories of approximately RMB7,019,000 in relation to general obsolete items, the historical current ratio decreased from 2007 to 2009. However, the said ratio recovered as at 31 October 2010 because of the removal of the Ex-Director and the effort by the new management to turnaround the loss making position of the PRC Subsidiary for the ten months ended 31 October 2010.

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the PRC Subsidiary’s gearing ratio, expressed as a percentage of total liabilities over total equity, was approximately 79.63%, 67.45%, 70.51% and 70.04% respectively.

Capital Commitments

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the PRC Subsidiary had capital commitments of approximately RMB480,000, RMB200,000, nil and RMB10,204,000 respectively, in respect of the purchase of production equipments and expansion of current production lines.

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Contingent Liabilities

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the PRC Subsidiary had no significant contingent liabilities.

Charge of Assets

Save for the buildings, certain machinery and equipments and prepaid lease payments in the amount of approximately RMB39,875,000, RMB35,494,000, RMB101,470,000 and RMB103,939,000 pledged with banks to secure the general banking facilities and bills payables as at 31 December 2007, 2008 and 2009 and 31 October 2010 respectively, the PRC Subsidiary did not pledge any of its assets. The significant increase in pledged assets in 2009 and 2010 was mainly due to a new general banking facility granted to the PRC Subsidiary in supporting the growth of the business.

Treasury Policy

For the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010, the PRC Subsidiary had no formal treasury policy.

Currency and Interest Rate Structure

The PRC Subsidiary mainly operates in the PRC with most of the transactions, including borrowing, denominated and settled in RMB. For the years ended 31 December 2007, 2008 and 2009 and the ten months ended 31 October 2010, the PRC Subsidiary was exposed to currency risk primarily through sales, purchases, and cash and bank deposits that were denominated in US Dollar and HKD. The PRC Subsidiary did not enter any financial agreement to hedge against the foreign currency risk. The PRC Subsidiary will suffer from the risks of fluctuation of RMB/the United States Dollar or RMB/ Hong Kong Dollar exchange rates, which may have an adverse effect on the current/future position of the Target Group.

The PRC Subsidiary had limited exposure to interest rate fluctuation as most of its borrowings were mainly conducted in RMB and the interest rates of RMB were relatively stable for the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010.

Segment Information

For the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010, the PRC Subsidiary’s major products included (1) LED Components, (2) Display Devices, (3) Surface Mount Devices and (4) Other LED Products.

LED Components include traditional LED products, such as through-hole LED and LED piranha. The products are widely used for illumination and decoration purposes because of its high flux output and low power consumption. For the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010, this segment’s turnover were RMB53,965,000, RMB40,596,000, RMB30,017,000 and RMB49,802,000 respectively. Because of relatively lower technical requirements and keener competition in the market, lower profit margin is observed. The decreasing sale volume in LED Components segment represents change of focus of the PRC Subsidiary to other segments with highly profit margin.

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APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS

Display Devices include LED display products, such as numeric display, character and graphic display. The products are widely used in the game units, small electronics and traffic signs for display purposes. For the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010, this segment’s turnover were RMB31,345,000, RMB22,322,000, RMB23,815,000 and RMB34,589,000 respectively. Since the demand of Display Devices products were gradually replaced by more innovative products such as Surface Mount Devices, decreasing turnover from this segment is observed.

Surface Mount Device includes chip LED and top LED, which are used in backlighting of the electronic equipments. Surface Mount Devices had smaller size and lower power consumption and therefore were ideal lighting sources for miniature applications. Because of growing market demand in electronic devices such as mobile phones, turnover contributed by Surface Mount Device segment increased throughout the Relevant Periods. For the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010, this segment’s turnover was RMB13,633,000, RMB33,315,000, RMB33,020,000 and RMB70,975,000 respectively.

Others include LED application products such as LED lamps, bulbs, tubes, high power lighting, in which the sales were not significant throughout the Relevant Periods. For the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010, this segment’s turnover was nil, RMB13,307,000, RMB10,283,000 and RMB15,396,000 respectively.

Material Acquisitions and Disposals of Subsidiaries

For the three years ended 31 December 2007, 2008, 2009 and for the ten months ended 31 October 2010, there was no material acquisition or disposal of subsidiary or affiliated companies by the PRC Subsidiary.

Employees and Remuneration Policies

As at 31 December 2007, 2008 and 2009 and 31 October 2010, the number of full-time permanent employees of the PRC Subsidiary was approximately 750, 750, 600 and 700 respectively and the staff cost was approximately RMB14,288,000, RMB18,552,000, RMB17,366,000 and RMB15,497,000 respectively. The remuneration, bonus, promotion and salary increments of employees were assessed according to the individual’s performance, as well as professional and working experience, and in accordance with prevailing industry practices.

Material Investment Plans

The PRC Subsidiary does not have any future plans for material investment or capital assets.

The Outlook

As disclosed in the “Letter from the Board” of this circular, the PRC Subsidiary will continue to strengthen and expand the existing sales and distribution channels and will participate projects with higher profit margin, which enables the PRC Subsidiary to increase its scale of business in the future. Apart from the PRC and Korean markets, the PRC Subsidiary plans to explore more business opportunities from the overseas.

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GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. SHARE CAPITAL OF THE COMPANY

As at the Latest Practicable Date, the authorised and issued share capital of the Company were as follows:

Authorised: 1,000,000,000 ordinary shares of HK$0.10 each Issued and to be issued, fully paid or credited as fully paid: 272,860,000 Shares in issue as at the Latest Practicable Date 30,952,380 Maximum number of Conversion Shares to be issued under the Convertible Bonds 303,812,380 Total	HK$ 100,000,000

	HK$ 27,286,000 3,095,238 HK$ 30,381,238

All Shares currently in issue or to be issued will rank pari passu in all respects with each others, including, in particular, as to dividends, voting rights and return of capital. The shares and the Conversion Shares in issue and to be issued are or will be listed on the Stock Exchange.

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GENERAL INFORMATION

APPENDIX V

3. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, none of the Directors, the chief executive of the Company nor their associates, had any other interests or short positions in the Shares, underlying Shares and debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director or the chief executive of the Company is taken or deemed to have under such provisions of the SFO); or which (b) were required to be entered into the register maintained by the Company, pursuant to Section 352 of the SFO; or which (c) were required to be notified to the Company and the Stock Exchange, pursuant to the Model Code for Securities Transaction by Directors of Listed Companies contained in the Listing Rules.

4. LITIGATION

As at the Latest Practicable Date, 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.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered or proposed to enter into any service agreements with any member of the Enlarged Group, excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective associates had any interest in a business which competes or may compete with the businesses of the Enlarged Group (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them was a controlling shareholder of the Company).

7. OTHER INTERESTS OF THE DIRECTORS

As at the Latest Practicable Date:

(a) none of the Directors had any interest, either direct or indirect, in any assets which have, since 31 December 2009 (being the date to which the latest published audited accounts of the Group were made up), been acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group; and
(b) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Enlarged Group which is subsisting as at the date of this circular and is significant in relation to the business of the Enlarged Group.

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GENERAL INFORMATION

APPENDIX V

8. MATERIAL CONTRACTS

The following contracts (being contracts not entered into in the ordinary and usual course of business of the Enlarged Group) have been entered into by the members of the Enlarged Group after the date of two years immediately preceding the date of this circular, and up to the Latest Practicable Date, and are or may be material:

(a) the deed of termination dated 27 November 2008 made between Smart Million Limited (“ Purchaser ”), the Company, New Hoong Investment Limited, New Mine Investment Limited and Will High International Limited (“ Vendors ”) and Mr. Lin Xu Ming, Winfame Investments Limited, New Gold International Limited (“ New Gold ”) and Hulunbeier Dong Ming Mining Co. Ltd. in relation to the termination of the agreement and the supplemental agreement and the restructuring and consolidation of the debts comprising (i) the refundable deposit in the amount of HK$100 million paid by the Purchaser to the Vendors under the agreement; (ii) the loan in the amount of HK$30 million lent by the Purchaser to Winfame and (iii) the loan in the amount of HK$25 million lent by a third party to New Gold, in the principal amount of HK$155 million together with respective accrued interest owed by the Vendors, Winfame and New Gold respectively to the Purchaser and a third party.
(b) the agreement dated 18 February 2010 made between Zengcheng City Fuheyuan Farm Limited and Guangzhou Springfield Chemical Company Limited in relation to the purchase of a property at Pingzhong Road, Dajing, Sanjing Village, Zhongxin Town, Zengcheng, Guangzhou City, Guangdong Province, the PRC at an aggregate consideration of RMB18,000,000;
(c) the agreement dated 22 September 2010 entered into between the Company, Mezzo International Limited and Mr. Lee Seng Hui regarding the disposal of 51% interests in Rookwood Investments Limited and the related shareholders’ loans at a consideration of HK$150 million, and the deed of termination dated 21 December 2010; and
(d) the loan agreement dated 23 December 2010 made between SHK Finance Limited and the Company relating to a term loan of HK$150 million to the Company; and
(e) the Agreement, of which the total consideration amounted to HK$400 million.

9. EXPERTS AND CONSENTS

The followings are the names and the qualifications of the professional advisers who have given opinions or advice which are contained or referred to in this document:

Name Qualification Deloitte Touche Tohmatsu Certified Public Accountants Zenith CPA Limited Certified Public Accountants Zhong Lun Law Firm the legal adviser as to the PRC laws LK Risk Services Limited Internal Control Reviewer (Note)

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GENERAL INFORMATION

APPENDIX V

Note:

LK Risk Services Limited is a firm rendering internal control review services, which has been previously engaged in various internal control review projects for a number of listed companies. Its engagement team has the qualifications of Hong Kong Institute of Certified Public Accountants (HKICPA) and Chinese Institute of Certified Public Accountants (CICPA).

As at the Latest Practicable Date, each of Deloitte Touche Tohmatsu, Zenith CPA Limited, Zhong Lun Law Firm and LK Risk Services Limited had no beneficial interest in the share capital of any member of the Enlarged Group nor did they 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 or have any interest, either directly or indirectly, in any assets which have been, since 31 December 2009, being the date to which the latest published audited consolidated accounts of the Group were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

Each of Deloitte Touche Tohmatsu, Zenith CPA Limited, LK Risk Services Limited and Zhong Lun Law Firm has given and has not withdrawn its written letter of consent to the issue of this circular with the inclusion herein of references to its name in the form and context in which they respectively appear.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours (i.e. from 9:30 a.m. to 6:00 p.m. on Monday to Friday at the principal place of business of the Company in Hong Kong at Unit 2304, 23/F., West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong from 25 February 2011, the date of this circular up to and including 15 March 2011, being the date of the EGM:

the memorandum and articles of association of the Company;
the interim report of the Company for the six months ended 30 June 2010;
the annual report of the Company for the year ended 31 December 2007;
the annual report of the Company for the year ended 31 December 2008;
the annual report of the Company for the year ended 31 December 2009;
The accountants’ report on the HK Subsidiary, the text of which is set out in Appendix IIA to this circular;
The accountants’ report on the PRC Subsidiary, the text of which is set out in Appendix IIB to this circular;
the pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
the letters of consent of Deloitte Touche Tohmatsu, Zenith CPA Limited, LK Risk Services Limited and Zhong Lun Law Firm;

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GENERAL INFORMATION

APPENDIX V

copy of the material contracts referred to in the paragraph headed “Material contracts” in this appendix; and
the circular dated 10 March 2010 relating to a connected transaction for the purchase of a property in the PRC.

11. GENERAL

(a) The secretary of the Company is Mr. Lee Sze Wai who is a member of the Hong Kong Institute of Certified Public Accountants.
(b) The Hong Kong branch share registrar and transfer office of the Company in Hong Kong is Tricor Standard Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(c) The registered office of the Company is located at P. O. Box 309, Ugland House, South Church Street, George Town Grand Cayman, KY1-1104, Cayman Islands.
(d) The principal place of business of the Company in Hong Kong is at Unit 2304, 23/F, West Tower Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong.

– 123 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

GREENFIELD CHEMICAL HOLDINGS LIMITED 嘉輝化工控股有限公司 **[*]**

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 582)

NOTICE IS HEREBY GIVEN THAT an Extraordinary General Meeting of Greenfield Chemical Holdings Limited (the “ Company ”) will be held at Unit 2304, 23/F, West Tower Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong on 15 March 2011 at 10:30 a.m. to consider and, if thought fit, to pass with or without amendments, the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT

(a) the conditional sale and purchase agreement (the “ Agreement ”) as defined in the circular dated 25 February 2011 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 thereby be and are hereby approved, confirmed and ratified;
(b) the issue of the Convertible Bonds (as defined in the Circular) in accordance with the terms of the Agreement (as defined in the Circular) be and are hereby approved;
(c) the issue and allotment by the Company of new shares in the capital of the Company from time to time upon exercise of the conversion rights under the Convertible Bonds (as defined in the Circular) be and are hereby approved;
(d) any one director of the Company be and is hereby authorised to do all such acts and things as he in his sole and absolute discretion deems necessary, desirable or expedient to implement, give effect to and/or complete the issue of the Convertible Bonds, the issue and allotment of new shares in the capital of the Company from time to time upon exercise of the conversion rights under the Convertible Bonds, and, where required, any amendment of the terms of the Convertible Bonds as required by, or for the purposes of obtaining the approval of, relevant authorities or to comply with all applicable laws, rules and regulations.”

By order of the Board Li Li Executive Director

Hong Kong, 25 February 2011

For identification purpose only

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Registered Office: P. O. Box 309, Ugland House, South Church Street, George Town, Grand Cayman, KY1-1104, Cayman Islands

Principal Place of Business: Unit 2304, 23/F, West Tower Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong

Notes:

A shareholder entitled to attend and vote at the meeting is entitled to appoint a person or if he is the holder of two or more shares, more than one person as his proxy or proxies to attend and vote instead of him. A proxy need not be a shareholder of the Company.
To be valid, a form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a certified copy of such power of attorney or authority, must be deposited at the Company’s Hong Kong branch share registrar, Tricor Standard Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting, and in default thereof the form of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiry of 12 months from the date of its execution.
Delivery of an instrument appointing a proxy shall not preclude a shareholder from attending and voting in person at the meeting, and in such event the instrument appointing a proxy shall be deemed to be revoked.

– 125 –

AI assistant

China Resources Building Materials Technology Holdings Limited — Proxy Solicitation & Information Statement 2011

49843_rns_2011-02-25_7f52131d-5ccc-492d-83ce-dd2e3897030b.pdf

GREENFIELD CHEMICAL HOLDINGS LIMITED 嘉輝化工控股有限公司 [*]

MAJOR TRANSACTION, ISSUE OF CONVERTIBLE BONDS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

TABLE OF CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

GREENFIELD CHEMICAL HOLDINGS LIMITED 嘉輝化工控股有限公司 [*]

MAJOR TRANSACTION, ISSUE OF CONVERTIBLE BONDS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

THE AGREEMENT

Assets to be acquired

Consideration

LETTER FROM THE BOARD

Conditions precedent

Completion

Principal terms of the Convertible Bonds

Principal amount

Interest

Maturity

Conversion Price

Conversion restriction

Ranking of Conversion Shares

Transferability

Redemption

Listing

The initial Conversion Price

LETTER FROM THE BOARD

EFFECT ON THE SHAREHOLDING STRUCTURE

INFORMATION ON THE TARGET GROUP

LETTER FROM THE BOARD

The Target Company

The HK Subsidiary

Financial information on the HK Subsidiary

The PRC Subsidiary

Business models of the PRC Subsidiary

LED Components:

Display Device:

Surface Mount Device:

Others:

Pricing strategy

LETTER FROM THE BOARD

Top 5 customers

Production capacity

Suppliers and raw materials procurement

LETTER FROM THE BOARD

Research and development

Top 5 suppliers

LETTER FROM THE BOARD

Future strategies of the PRC Subsidiary

Financial information on the PRC Subsidiary

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Capital expenditures

Investments and borrowings

Operating expenses

Acceptance of new clients and agents

Receipt from sales

1. Purchase of property, plant and equipment

2. Sales

3. Purchases

4. Inventory

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Policies and regulations in the PRC:

LETTER FROM THE BOARD

Disruption at production centers:

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

Global industry overview

LETTER FROM THE BOARD

China Resources Building Materials Technology Holdings Limited Proxy Solicitation & Information Statement 2011

GREENFIELD CHEMICAL HOLDINGS LIMITED 嘉輝化工控股有限公司 **[*]**

GREENFIELD CHEMICAL HOLDINGS LIMITED 嘉輝化工控股有限公司 **[*]**